Under SAP, how is a bond valued on an insurer's balance sheet?

Under SAP, how is a bond valued on an insurer's balance sheet?

• A. At the bond's amortized cost.
• B. At the bond's fair value.
• C. At the bond's par value.
• D. At the bond's market value.

Answer: (A)

Bonds held by an insurer with the intention and ability to hold to maturity are carried on the balance sheet at amortized cost. This means the purchase price is adjusted over time by amortizing any premium or discount using the effective interest method, so the carrying amount moves toward par by maturity. The interest income recognized reflects the yield on the investment, not just the coupon rate, and market value changes don’t affect the carrying amount for these held-to-maturity securities unless there’s impairment. Par value is the amount due at maturity, but the asset’s reported value today is the amortized cost, not the par. Market or fair value is used for other categories (like available-for-sale) under SAP, not for bonds held to maturity.

Bonds held by an insurer with the intention and ability to hold to maturity are carried on the balance sheet at amortized cost. This means the purchase price is adjusted over time by amortizing any premium or discount using the effective interest method, so the carrying amount moves toward par by maturity. The interest income recognized reflects the yield on the investment, not just the coupon rate, and market value changes don’t affect the carrying amount for these held-to-maturity securities unless there’s impairment. Par value is the amount due at maturity, but the asset’s reported value today is the amortized cost, not the par. Market or fair value is used for other categories (like available-for-sale) under SAP, not for bonds held to maturity.