Which characteristic defines Statutory Accounting?

Statutory Accounting is primarily focused on ensuring that insurance companies maintain adequate liquidity and solvency to meet their policyholder obligations. This characteristic is crucial because insurance companies must be able to pay claims and fulfill their financial commitments over time. Unlike other accounting methods that might prioritize profit maximization or valuation based on market conditions, Statutory Accounting emphasizes a conservative approach to asset valuation and liability recognition. This approach is designed to protect the interests of policyholders and ensure regulatory compliance, thereby maintaining the financial health of the company in a way that supports its long-term stability.

In contrast to this focus on solvency and liquidity, other options introduce concepts that are not aligned with the fundamental purpose of Statutory Accounting. For example, profit maximization is more typical in corporate financial statements rather than statutory basis reports, which prioritize the protection of consumer interests. Flexibility in accounting methods does not align with the rigid requirements of statutory standards, which are designed to promote consistency and comparability across the industry. Lastly, Statutory Accounting typically does not conform to international standards, as it often follows unique regulatory frameworks specific to each jurisdiction, focusing instead on local regulatory requirements.