SOFA-CFE · Question #22
Material amounts must be capitalized and depreciated, and the un-depreciated amount must be reported as a non-admitted asset.
The correct answer is A. True. Option A is correct because under Statutory Accounting Principles (SAP), which govern insurance company financial reporting, material fixed assets (equipment, furniture, etc.) must be capitalized and systematically depreciated rather than expensed immediately. The remaining net…
Question
Material amounts must be capitalized and depreciated, and the un-depreciated amount must be reported as a non-admitted asset.
Options
- ATrue
- BFalse
How the community answered
(22 responses)- A77% (17)
- B23% (5)
Explanation
Option A is correct because under Statutory Accounting Principles (SAP), which govern insurance company financial reporting, material fixed assets (equipment, furniture, etc.) must be capitalized and systematically depreciated rather than expensed immediately. The remaining net book value (original cost minus accumulated depreciation) is classified as a non-admitted asset, meaning it cannot count toward an insurer's admitted surplus for solvency purposes - regulators exclude it because fixed assets cannot be quickly liquidated to pay policyholder claims.
Option B is incorrect because it contradicts a foundational SAP rule; ignoring or misapplying this treatment would overstate an insurer's admitted assets and misrepresent its solvency position to regulators.
Memory tip: Think "SNAP" - under SAP, fixed assets get Subject to depreciation, and their Net book value is Always Non-admitted. The logic is simple: regulators only want assets that can quickly become cash to count toward surplus, and a desk or server can't pay a claim.
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