Accounts of Life Insurance Companies

Accounts of Life Insurance Companies

Insurance is a contract between two parties wherein one party agrees to indemnify the other on happening of a certain event. In simple words insurance is a contract where one party (Insurer) gives guarantee to the other (Insured) to compensate the loss suffered from a specified future uncertain event.

Basic Principles of Insurance

1.      Indemnity: This principle makes sure that the insured is not able to make profit out of the loss suffered by him. This principle is not applicable in case of Life Insurance Contracts.

2.      Insurable Interest: A person can Insure any asset or Life only if he has an insurable interest in the subject matter. A person is said to have an insurable interest in any subject matter if the existence or nonexistence of such subject would result in loss to the person.

3.      Utmost Good Faith: Any insurance company would process an insurance application after the total assessment of the risk involved in the insurance of the subject matter. However here the insurance company needs all the relevant information of the asset/life to be insured for which the company is dependent on the details provided by the insured. It is expected that the insured would provide all the correct information and not hide any relevant information.

Types of Insurance

1.      Life Insurance

2.      General Insurance.

Life insurance means any insurance on the life of a person, i.e. the policy amount is payable on the death of the person or maturity of the policy whichever is earlier.

Any policy other than Life Insurance Policy is a General Insurance Policy. Eg.- Medical Insurance, Motor Insurance, Fire Insurance, etc. In case of General Insurance Policy the policy amount is payable only on the happening of the event only.

Some Important Terms

1.      Reinsurance: If an insurance company has taken a very large policy and the risk involved is high is such a case the insurance company would like to off load a part of its risk by insuring a part of its business with another insurance company. For Eg. if an Insurance company A has issued total policies worth Rs. 100 Crores and is expecting the claims to arise, then, in such a case it would reinsure a part of this amount with another Insurance company say ‘B’.

2.       Double Insurance: If an Insured takes an Insurance policy for the same subject matter from 2 or more different companies, than such an Insurance is known as Double Insurance. In case of Double Insurance the insured will get back only the amount of actual loss either from any one insurer or combined from all insurers in certain proportion. This is not applicable in case of Life Insurance.

3.      Annuities: Life insurance companies agree to pay an agreed amount either annually or monthly till the death of the policy holder or upto a certain number of agreed years. Suc policies are called annuity policies. Annuities paid is an expenditure and added with claims.

4.      Premium: This is the main income to an insurance company and it is shown as income in the revenue account. This is shown under the head ‘Premium Earned Net’.

Financial Statements

IRDA has issued the guidelines in prepartation of the financial statements of the insurance companies. The Schedule A prescribes the preparation of the Financial Statements of the Life Insurance Companies and Schedule B prescribes the preparation of the Financial Statements of the General Insurance Companies.

In the financial statements of the Life Insurance Companies the Profit and Loss Account is divided into 2 parts –

Revenue Account and Profit & Loss Account.

Form A - RA
Revenue Account for the Year ended 31st March, ……….
Particulars	Schedule	CY '000	PY '000
Premiums Earned Net	1
a) Premium
b) Reinsurance ceded
c) Reinsurance Accepcted
Income from Investments
a) Interest, Dividend & Rent – Gross
b) Profit on Sale/redemption of Investments
c) Loss on Sale/redemption of Investments
d) Transfer/Gain on Revaluation/change in Fair Value*
Other Income
Total (A)
Commission	2
Operating expenses related to insurance business	3
Provision of Doubtful Debts
Bad Debts written off
Provision for Tax
Provisions (Other than Tax)
a) For diminution in value of investments (Net)
b) Others
Total (B)
Benefits Paid – Net	4
Interim Bonuses paid
Chanbe in valuatin of Liability in respect of Life Policies
a) Gross**
b)Amount ceded in Reinsurance
c) Amount accepcted in Reinsurance
Total (C)
Surplus/Deficit (D) = (A) +(B) + ( C)
Apportions
Transfer to shareholders account
Transfer to other Reserves
Balance being funds for future appropriations
Total (D)

* Represents the deemed realized gain as per norms specified by the Authority

** Represents athematical reserves after allocation of bonus.

Form A – PL
Profit and Loss Account for the Year ended 31st March, ……….
Shareholders Account (Non-Technical Account)
Particulars	Schedule	CY '000	PY '000
Amounts transferred from/to policyholder's A/c
(Technical Account)
Income from Investments
a) Interest, Dividend & Rent – Gross
b) Profit on Sale/redemption of Investments
c) Loss on Sale/redemption of Investments
d) Other Income
Total (A)
Expenses other than those directly related to the insurance business
Bad Debts written off
Provisions (Other than Tax)
a) For diminution in value of investments (Net)
b) Others
Total (B)
Profit / Loss before Tax
Provision for Tax
Profit / Loss After Tax
Apportions
a) Balance at the beginning of the year
b) Interim Dividends paid during the year
c) Proposed Final Dividend
d) Dividend Distribution Tax
e) Transfer to Reserves/other accounts
Profit Carried to Balance Sheet

Schedules forming part of Financial Statements

Schedule 1 – Premium
No.	Particulars	CY '000	PY '000
1	First Year Premiums
2	Renewal Premiums
3	Single Premiums

Schedule 2 - Commission Expenses
No.	Particulars	CY '000	PY '000
1	Commission Paid
2	Direct - First Year Premiums
	- Renewal Premiums
	- Single Premiums
	Add: Commission on Reinsurance Accepted
3	Less: Commission of Reinsurance Ceded

Schedule 3 - Operating Expenses Related to Insurance Business
No.	Particulars	CY '000	PY '000
1	Employee Expenses
2	Travel, Conveyance and Vehicle Expenses
3	Rent, Rates and Taxes
4	Repairs
5	Printing and Stationery
6	Communication Expenses
7	Legal & Professional Charges
8	Medical Fees
9	Auditors Fees
10	Advertising and Publicity
11	Interest and Bank Charges
12	Deprecation
13	Others

Schedule 4 - Benefits Paid - Net
No.	Particulars	CY '000	PY '000
1	Insurance Claims
	a) Death
	b) Maturity
	c) Annuities
	d) Other Benefits
	i) Surrenders
	ii) Bonus in Cash
	iii) Bonus in Reduction of Premium
2	Amount ceded in Reinsurance
3	Amount accepted in Reinsurance

Format of Balance Sheet Form A -BS
Balance Sheet as on 31st March ……
Particulars	Schedule	CY '000	PY '000
Sources of Funds
Shareholder's Fund
Share Capital	5
Reserves and Surplus	6
Credit/Debit Fair Value Change A/c
Sub Total
Borrowings	7
Policyholder's Fund
Credit/Debit Fair Value Change A/c
Policy Liabilities
Insurance Reserves
Provision for Linked Liabilities
Sub Total
Funds for Future Appropriations
Total
Application of Funds
Investments
Shareholders	8
Policyholders	8A
Assets held to cover Linked Liabilities	8B
Loans	9
Fixed Assets	10
Current Assets
Cash and Bank Balances	11
Advances and other Assets	12
Sub Total  (A)
Current Liabilities	13
Provisions	14
Sub Total  (B)
Net Current Assets  C = (A-B)
Miscellaneous Expenditure (Not Written Off)
Debit Balance in P & L A/c
Total

Schedule 5 - Share Capital
Particulars	CY '000	PY '000
Authorized Share Capital
Issued Share Capital
Subscribed Share Capital
Called Up Share Capita	XXX
Less: Calls in Arrears	(XXX)
Less: Preliminary Expenses	(XXX)

Schedule 6 - Reserves and Surplus
Particulars	CY '000	PY '000
Capital Reserve
Capital Redemption Reserve
Securities Premium
Revaluation Reserve
General Reserve
Catastrophe Reserve
Other Reserve - Balance in Life Fund

Schedule 7 - Borrowings
Particulars	CY '000	PY '000
Debentures
Banks and Financial Institutions

Schedule 8 - Investments - Shareholders
Particulars	CY '000	PY '000
Long Term Investments
Short Term Investments

Schedule 8A - Investments - Policyholders
Particulars	CY '000	PY '000
Long Term Investments
Short Term Investments

Schedule 8B - Investments – Assets Held to Cover Linked Liabilities
Particulars	CY '000	PY '000
Long Term Investments
Short Term Investments

Schedule 9 - Loans
Particulars	CY '000	PY '000
Security wise Classification - Secured & Unsecured
Borrower wise classification - Govt., Banks, Against Policies
Performance wise classification - Standard & Non-Standard
Maturity wise Classification - Short Term & Long Term

Schedule 10 - Fixed Assets
Particulars	CY '000	PY '000
Goodwill
Leasehold & Freehold Property
Buildings
Furniture and Fittings
Information Technology

Note: All the details regarding the Cost, Additions and Deprecation of the Assets is to be shown in this schedule.

Schedule 11 - Cash & Bank Balance
Particulars	CY '000	PY '000
Cash in Hand
Balance at Bank
Money at call and Short Notice

Schedule 12 - Advances & Other Assets
Particulars	CY '000	PY '000
Advances
Reserve Deposit with Ceding Companies
Prepaid Expenses
Advance tax pad and tax deducted at source
(Net of provision for Taxation)
Total A
Other Assets
Income Accrued on Investments
Outstanding Premium
Agents Balances
Due from other Insurers
Deposits with RBI
Others - Sundry Debtors
Total B
Total A+B

Schedule 13 - Current Liabilities
Particulars	CY '000	PY '000
Balance due to other Insurers
Deposits held on reinsurance Ceded
Premium received in advance
Sundry Creditors
Claims Outstanding
Annuities Due

Schedule 14 - Provisions
Particulars	CY '000	PY '000
Provision for Taxation
Proposed Dividends

Schedule 15 - Miscellaneous Expenditure
Particulars	CY '000	PY '000
Discount allowed on Shares & Debentures
(To the extent not written off)