Question

How the contents of an annual insurance company financial statements can demonstrate business performance to external stakeholders (for example lenders and investors). Include FIVE different financial ratios which would be of relevance to these stakeholders.

Answer 1

1)The following are the major contents of the Income Statement of an Insurance company which will provide the operating profit/loss results to the external stake holders.The net of the below will result in Surplus or deficit

Premiums earned – net

Income from Investments

Commission

Operating Expenses related to Insurance Business

Provisions for diminuition in value of investments

Benefits paid/Interim Bonuses Paid

Change in the valuation of liability against life policies in force

2) In the Balance Sheet, they need to disclose the Source and application of funds just like any other companies.

3) In addition, they provide the contingent liabilities and the schedules for all the above for better understanding and analysis to their stake holders.

4)The stakeholders can use all the Financial Ratios for the insurance companies just like others.

5) They also disclose the Review of asset quality and performance of investment in terms of portfolios, i.e., separately in terms of real estate, loans, investments, etc

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