Which accounting principles are mandated by an insurer’s domiciliary state?

The correct choice is Statutory Accounting Principles (SAP), which are specifically designated for insurance companies and are mandated by the regulators in the insurer's domiciliary state. SAP is designed to ensure that insurers maintain adequate reserves and surplus to meet policyholder obligations and to provide a conservative view of an insurer’s financial position. This is particularly crucial in the insurance industry, where the ability to meet future claims is foundational to maintaining consumer trust and regulatory compliance.

Unlike Generally Accepted Accounting Principles (GAAP), which may allow for a more liberal representation of financial performance, Statutory Accounting Principles prioritize solvency and liquidity, directly linking to the regulatory objectives of ensuring that an insurer remains financially stable and capable of fulfilling its contractual obligations to policyholders. The framework set forth by SAP includes specific rules that differ from GAAP, emphasizing the importance of a conservative accounting approach that reflects the unique risks associated with the insurance business.

While fair value accounting principles focus on measuring assets and liabilities at their current market value, they are not specifically mandated for insurers as SAP is. Similarly, management accounting principles relate to internal business processes rather than regulatory requirements. Therefore, Statutory Accounting Principles stand out as the correct answer, fully aligned with the regulatory framework governing insurance accounting.