Looking at the US regulatory environment, each insurer is regulated by their state regulator, with the state of domicile of the company determining its lead regulator.

However, regulations are not set by each state's regulator.

The National Association of Insurance Commissioners, the NAIC, is a body formed of state insurance commissioners, which is responsible for establishing standards and best practices, and also coordinates regulatory oversight.

The NAIC is also responsible for establishing the statutory accounting principles, SAP, which is used for calculating an insurer's statutory financial statements, which are used as the basis for the capital adequacy requirement for US insurers, the risk-based capital, or RBC, ratio. An essential part of the key regulatory ratio used for US insurers, the risk-based capital ratio, is the company's level of available capital, referred to under the NAIC rules as total adjusted capital.

This is equivalent to own funds under Solvency II.

This is based on shareholders' equity from the financial statements, but with a number of adjustments.

The idea behind total adjusted capital is that it represents the amount of cash that a company could access by selling its assets to be able to meet any current or future insurance policy liabilities.

To calculate total adjusted capital, the first step is to calculate the policyholder's surplus within the statutory financial statements.

The rules for calculating the statutory accounts are set by the NAIC, and result in the statutory accounts being more conservative and liquidation-focused rather than the going concern approach of US GAAP financial statements.

In other words, they have a policyholder rather than a shareholder perspective.

The statutory accounts have a reduced value for less liquid assets that could less easily be used in meeting policy claims, and the elimination of other assets referred to as non-admitted assets.

Some examples of non-admitted assets include office furniture, premium balances more than 90 days past due, and deferred tax assets or DTAs.

Also within the statutory accounts, policy acquisition costs are fully expensed as they are incurred, meaning there are no deferred acquisition cost or DAC assets.

And many fixed income investments are carried at amortized cost rather than their full fair value in the statutory accounts, irrespective of how they are accounted for within the GAAP accounts.

The final significant difference between the GAAP accounts and the statutory accounts is in the assumptions for calculating policy reserves.

In the statutory accounts, they are more conservative and based on formulas than the approach used to calculate reserves on a GAAP basis.

Finally, insurers in the US are required to disclose the statutory policyholder's surplus in their GAAP financial statements, but they do not need to provide a reconciliation between the two balances.