01.05. Fundamentals of Insurer Financial Statements

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COC2
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205772
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01.05. Fundamentals of Insurer Financial Statements
Updated:
2013-03-07 21:06:51
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Fundamentals Insurer Financial Statements
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Fundamentals of Insurer Financial Statements
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  1. Insurer's Balance Sheet
    • single currency
    • Asset - Liabilities = Net Worth
    • shows sources and uses of funds
    • in insurance, net worth = surplus as regards to policyholders
  2. 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
  3. 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)
  4. 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
  5. 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
  6. Cash Flow Statement
    • less important due to nature of insurance
    • insr receives revenue before meeting contract obligation
  7. 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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