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COC2
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Insurer's Balance Sheet
- single currency
- Asset - Liabilities = Net Worthshows sources and uses of funds
- in insurance, net worth = surplus as regards to policyholders
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Balance Sheet Assets
- business: buildings, equipment, inventory
- insurance: financial instruments (bonds, stocks)
- largest class = bonds
- (+) pay fairly predictable, periodic, secure income
- (+) provides cash flow for payments of future losses
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Insurance-specific Assets
- premium balances: premium due from agents / policyholders
- reinsurance recoverables: amount for L&LAE owed to an insurer under reinsurance agreements covering paid losses
- deferred acquisition costs (DAC): the recognition of the cost of acquiring new customers over the duration of an insurance contract (it's a deferred expense payment)
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Insurance-specific Liabilities
- claim liabilities (reserves): amt the insr estimates and sets aside to pay an existing claim that has not been settled = case reserve + IBNR (future dvpt on known claims + reopened + IBNR + claims in transit)
- policy liabilities: for in-force policies for future events
- unpaid adjusting expense: cost of defending / settling for claims that already occured
- insurance expense: liability for expenses incurred but unpaid in conjunction w the ins policy
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Income Statement
- revenue - expense = net income
- portrays financial results over a time period
- also shows gains or losses from non-operating activities
- Net Income from Operations = P - L&LAE - UW expense
- EP = WP - ΔUP liabilities
- Incurred = Paid + ΔClaim Liabilities
- UW Income = EP - Inc L&LAE - UW expense
- Net Inc = Net UW Income + investment + net capital gain
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Cash Flow Statement
- less important due to nature of insurance
- insr receives revenue before meeting contract obligation
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Notes and Disclosures
- description of accounting policies
- forward-looking info (eg: exposure to cat)
- effect of discounting unpaid loss and LAE
- provision for adverse deviation
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