Question

Q2. Structures of insurance companies’ financial statements (income statement, balance sheet, cash flow statements) vary than structures the non- insurance organization due to the unique features of the insurance companies. Give a sample of the structures for any selected Saudi insurance company’ financial statements and explain the rational for classifying balance sheet accounts. Write no less than 300 words (2marks)

note: post solution not photo

Answer 1

Sample structure of a Saudi based Insurance Company

1) Income Statement

INTERIM STATEMENT OF INCOME — (Unaudited) FOR THE THREE MONTH PERIOD ENDED 31 MARCH
		31 March	31 March
	Notes	2019	2018
		(Unaudited)	(Unaudited)
		SR’000	SR’000
REVENUES
Gross premiums written		XXXX	XXXX
Reinsurance premiums ceded
-      Local		XXX	XXX
Foreign		XXX	XXX
Excess of loss expenses
Local		XXX	XXX
Foreign		XXX	XXX
Net premiums written		XX	XX
Changes in unearned premiums, net		XX	XX
Net premiums earned		XX	XX
Reinsurance commissions		XX	XX
Other underwriting income		XX	XX
TOTAL REVENUES		XXX	XXX
UNDERWRITING COSTS AND EXPENSES
Gross claims paid		XXX	XXX
Reinsurers’ share of claims paid		XXX	XXX
Net claims paid		XXX	XXX
Changes in outstanding claims, net		XXX	XXX
CAa nges in claims incurred but not reported, net		XXX	XXX
Net claims incurred		XXX	XXX
Premium deficiency reserve		XXX	XXX
Policy acquisition costs		XXX	XXX
Other underwriting expenses		XXX	XXX
TOTAL UNDERWRITING  COSTS AND EXPENSES
NET UNDERWRITING INCOME		XXX	XXX

2) Balance Sheet

INTERIM STATEMENT OF FINANCIAL POSITION OF XYZ COMPANY - SAUDI AT 31 MARCH 2019
	Notes	31 March 2019	31 December 2018
		(Unaudited)	(Audited)
		SR’000	SR’000
ASSETS
Cash and cash equivalents	4	xxx	xxx
Short term deposits		xxx	xxx
Premiums and reinsurers’ receivable - net	5	xxx	xxx
Reinsurers’ share of unearned premiums	7	xxx	xxx
Reinsurers’ share of outstanding claims	7	xxx	xxx
Reinsurers’ share of claims Incurred but not reported	7	xxx	xxx
Deferred policy acquisition costs		xxx	xxx
Investments	6	xxx	xxx
Prepaid expenses and other assets		xxx	xxx
Property and equipment		xxx	xxx
Statutory deposit		xxx	xxx
Accrued income on statutory deposit		xxx	xxx
TOTAL ASSETS		XXXXX	XXXX
LIABILITIES
Policyholders claims payable		XXX	XXX
Accrued and other liabilities		XXX	XXX
Reinsurers' balances payable		XXX	XXX
Unearned premiums	7	XXX	XXX
Unearned reinsurance commission		XXX	XXX
Outstanding claims	7	XXX	XXX
Claims incurred but not reported	7	XXX	XXX
Premium deficiency reserve		XXX	XXX
Other technical reserves		XXX	XXX
End-of-service indemnities		XXX	XXX
Su rp Ius distribution payabie		XXX	XXX
Zakat	12	XXX	XXX
Accrued commission income payabie to SAMA		XXX	XXX
TOTAL LIABILITIES		XXXXX	XXXXX
SHAREHOLDERS’  EQUITY
Share capital	13	XXXX	XXXX
Statutory reserve		XXXX	XXXX
Retained earnings		XXXX	XXXX
TOTAL EQUITY		XXXX	XXXX
TOTAL LIABILITIES  AND SHAREHOLDERS’  EQUITY		XXXXX	XXXX
COMMITMENTS AND CONTINGENCIES	8

3) Cash Flow Statement

INTERIM STATEMENT OF CASHFLOWS — (Unaudited)
FOR THE THREE MONTH PERIOD ENDED 31 MARCH 2019
		31 March	31 March
		2019	2018
		(Unaudited)	(Unaudited)
		SR’000	SR’000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period		XXXX	XXXX
Adjustments  for non-cash items.-
Depreciation of property and equipment		XXX	XXX
Amortization of intangible assets		XXX	XXX
Allowance for doubtful debts		XXX	XXX
Unrealized gain on investments		XXX	XXX
Provision for end-of-service indem nities, net		XXX	XXX
Changes in operating assets and liabilities.' Premiums and reinsurers’ receivable
Reinsurers’ share of unearned premiums		XXX	XXX
Reinsurers’ share of outstanding claims		XXX	XXX
Reinsurers’ share of claims Incurred but not reported		XXX	XXX
Deferred policy acquisition costs		XXX	XXX
Prepaid expenses and other assets		XXX	XXX
Accrued income on statutory deposit		XXX	XXX
Policyholders and accounts payables		XXX	XXX
Accrued and other liabilities		XXX	XXX
Reinsurers' balances payable		XXX	XXX
Unearned premiums		XXX	XXX
Unearned reinsurance commission		XXX	XXX
Outstanding claims		XXX	XXX
Claims incurred but not reported		XXX	XXX
Premium deficiency reserve		XXX	XXX
Accrued commission income payabIe to SAMA		XXX	XXX
Net cash flows from operating activities		XXXX	XXXX
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments	6	XXX	XXX
Purchase of property and equipment		XXX	XXX
Net cash flows from / (used in) investing activities		XXX	XXX
Net change in cash and cash equivalents		XXX	XXX
Cash and cash equivalents, beginning of the period		XXX	XXX
Cash and cash equivalents, end of the period		XXXX	XXXX

Rational for classifying balance sheet accounts

1)  Distinguish the risks inherent in the main products offered by life, non-life (P&C) and reinsurance companies and recognize how these are reflected in the financial statements

2) Calculate and apply some basic ratios to quantify an insurance company’s financial strength, performance and risk profile​

3)  Recognize the impact of differing accounting standards, reserving policies and changes in external variables (such as interest rates and asset prices) on the financial statements