ACA notes part 2of5
Insurance Company Accounts (Schedule Format)
Types of Insurance
Life Insurance: This type of insurance provides financial protection to the policyholder's family or beneficiaries in case of the policyholder's death. Life insurance policies can be either term policies (which provide coverage for a specific period of time) or permanent policies (which provide coverage for the policyholder's entire life).
Fire Insurance: This type of insurance provides coverage against losses or damage caused by fire. Fire insurance policies typically cover damage to property and structures caused by fire, as well as damage caused by smoke and water used to extinguish the fire.
Marine Insurance: This type of insurance provides coverage for losses or damage to ships, cargo, and other marine-related activities. Marine insurance can include coverage for cargo, hull, freight, and liability.
- Miscellaneous Insurance: This type of insurance includes a variety of other types of coverage, such as health insurance, travel insurance, liability insurance, and more. These policies are often tailored to meet the specific needs of the policyholder and can provide coverage for a wide range of risks
Accounts of Insurance Companies
- Premium Income Account: This account is used to record the premiums received from policyholders. The premium income account is a crucial part of an insurance company's financials as it represents the primary source of revenue.
- Reserve Fund Account: Insurance companies are required to maintain a reserve fund to cover future claims and losses. This account is used to set aside funds for this purpose and ensure that the company has sufficient financial resources to meet its obligations to policyholders.
- Investment Income Account: Insurance companies often invest their premium income and other funds in a variety of assets, such as stocks, bonds, and real estate. The investment income account is used to record the earnings and losses generated from these investments.
- Claims Payable Account: This account is used to record the estimated and actual costs of claims and losses that the insurance company is responsible for paying. It represents a liability on the company's balance sheet and is a critical factor in assessing the company's financial health.
- Operating Expense Account: This account is used to record the various expenses associated with running an insurance company, such as salaries, rent, and marketing costs. By tracking these expenses, insurance companies can monitor their operational efficiency and profitability.
Final accounts of life assurance Companies
- Income Statement: This statement shows the company's revenues and expenses during the fiscal year. It includes items such as premium income, investment income, and claims expenses. The income statement helps to assess the profitability of the company.
- Balance Sheet: This statement shows the company's assets, liabilities, and equity at the end of the fiscal year. Assets typically include investments, loans, and property, while liabilities include claims payable and other debts. Equity represents the value of the company's ownership stake held by its shareholders.
- Cash Flow Statement: This statement shows the sources and uses of cash during the fiscal year. It includes items such as cash inflows from premium income and investment earnings, as well as cash outflows from claims payments and other expenses.
- Statement of Changes in Equity: This statement shows the changes in the company's equity during the fiscal year. It includes items such as net income, dividends paid to shareholders, and changes in the value of investments.
Ascertainment of Profit
- Premium income: This represents the revenue generated by the company from the premiums paid by policyholders.
- Investment income: This represents the income generated by the company's investments, such as interest earned on bonds, dividends from stocks, and rental income from real estate.
- Claims expenses: These represent the costs associated with paying out claims to policyholders, including death benefits, annuities, and other policy payouts.
- Operating expenses: These represent the costs associated with running the company's day-to-day operations, such as salaries, rent, marketing, and other expenses.
Valuation Balance Sheet
- Assets: The assets section of a valuation balance sheet includes the company's investments, including stocks, bonds, real estate, and other financial instruments. The valuation of these assets is based on their current market value, rather than their historical cost.
- Liabilities: The liabilities section of a valuation balance sheet includes the company's outstanding claims, policyholder reserves, and other liabilities. The valuation of these liabilities is based on the current cost of settling them, rather than the amount reported in the company's traditional balance sheet.
- Equity: The equity section of a valuation balance sheet includes the company's shareholders' equity, which represents the net value of the company's assets after deducting its liabilities. The valuation of equity is also based on the current market value of the company's assets and liabilities.
Final accounts of Fire, Marine and miscellaneous Insurance Companies
The final accounts of fire, marine, and miscellaneous insurance companies are similar to those of life insurance companies, but with some differences in the types of accounts and financial statements.
Income Statement: This statement shows the company's revenues and expenses during the fiscal year, including premium income, investment income, and claims expenses. For fire and miscellaneous insurance companies, this statement may also include underwriting income, which is the difference between premiums earned and claims paid. For marine insurance companies, the income statement may include items such as marine premiums earned and reinsurance recoveries.
Balance Sheet: This statement shows the company's assets, liabilities, and equity at the end of the fiscal year. Assets typically include investments, loans, and property, while liabilities include claims payable and other debts. Equity represents the value of the company's ownership stake held by its shareholders.
Cash Flow Statement: This statement shows the sources and uses of cash during the fiscal year, including cash inflows from premium income and investment earnings, as well as cash outflows from claims payments and other expenses.
Statement of Changes in Equity: This statement shows the changes in the company's equity during the fiscal year, including net income, dividends paid to shareholders, and changes in the value of investments.
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