As part of my global benchmarking initiative, I learned from a participant that the National Association of Insurance Commissioners (NAIC) requires insurance companies to use something called “statutory accounting,” while GAAP accounting is the most common among non-insurance companies. One insurance company’s disclosure statement puts it this way: “These summary financial statements are derived from the company’s audited consolidated financial statements, which are prepared on the statutory basis of accounting. Insurance regulators require that financial statements be prepared on a statutory basis of accounting that differs materially from financial statements prepared in accordance with generally accepted accounting principles (GAAP).”
To the extent revenue reported for insurance companies “differs materially” in its presentation from revenue as reported by other companies, it makes cross-industry benchmarking that much more difficult. Even within the insurance industry, legal departments may vary on which accounting method they use for their revenue, which is a hitherto unknown source of variation on a key metric.