Question

Research and find a balance sheet and profit and loss statement for an insurance company. Explain what makes these statements different from companies in other industries.

Answer 1

Answer.

The insurance industry is divided into two major segments: property/casualty, also known as general insurance or nonlife, particularly outside the United States, and life/health. Broadly speaking, property/casualty policies cover homes, autos and businesses; life/health insurers sell life, long-term care and disability insurance, annuities and health insurance. U.S. insurers submit financial statements to state regulators using statutory accounting principles, but there are significant differences between the accounting practices of property/casualty and life insurers due to the nature of their products. These include:

• Contract duration: Property/casualty insurance policies are usually short-term contracts, six-months to a year. Their final cost will usually be known within a year or so after the policy term begins, except for some types of liability contracts. They are known as short-duration contracts. By contrast, life, disability and long-term care insurance and annuity contracts are typically long-duration contracts — in force for decades.
• Variability of Claims Outcomes Per Year: The range of potential outcomes with property/casualty insurance contracts can vary widely, depending on whether claims are made under the policy, and if so, how much each claim ultimately settles for. The cost of investigating a claim can also vary. In some years, natural disasters such as hurricanes and man-made disasters such as terrorist attacks can produce huge numbers of claims. By contrast, claims against life insurance and annuity contracts are typically amounts stated in the contracts and are therefore more predictable. There are few instances of catastrophic losses in the life insurance industry comparable to those in the property/casualty insurance industry.

2019 INCOME STATEMENT

STATEMENT OF INCOME

Statement Of Income	2019	2018
Premiums earned	64,283,300	62,621,037
Loss and Loss Adjustment	30,527,438	32,318,069
Underwriting expense	23,280,431	21,981,634
Net underwriting gain (loss)	10,475,431	8,321,334
Net investment Income	4,641,486	3,992,949
Net realized capital gains (losses) less tax	1,949,119	1,352,315
Net investment gain (loss)	6,590,605	5,345,264
Other Income	1,450,062	1,170,908
Net Income Before Federal Income Tax	18,516,098	14,837,506
Less: Federal Income Tax	2,942,182	3,078,789
Net Income	15,573,916	11,758,717
Combined Ratio	83.4%	86.4%
Direct and Assumed Written Premium	70,975,052	69,078,021

2019 BALANCE SHEET

STATEMENT OF ASSETS & LIABILITIES

Assets	2019	2018
Cash and Short-term Investments	9,080,139	6,447,561
Bonds	161,346,336	150,632,523
Stocks	26,408,825	20,895,823
Real Estate	1,393,703	1,395,769
Premiums in the course of Collection	9,918,231	9,688,604
Interest Due and Accrued	1,360,350	1,312,076
All other assets	20,401,539	19,838,376
Total Admitted Assets	229,909,123	210,210,732
Liabilities
Unearned Premium	36,549,411	35,915,005
Reserve for Losses	21,286,066	22,240,463
Reserve for Loss Adjustment Expense	4,286,619	4,449,069
All other Liabilities	11,894,425	10,818,262
Total Liabilities	74,016,521	73,422,799
Surplus Accounts
Special Contingent Surplus	900,000	900,000
Unassigned Surplus	154,992,602	135,887,933
Policyholders Surplus	155,892,602	136,787,933
Total Liability and Surplus	229,909,123	210,210,732

From the above we can see that there are many points of differences in an Insurance Company Accounts and normal company accounts,although the structure is the same,
ie P& L represents Gains and expenses of an year and Balance Sheet gives the final value of assets and liablities at year end.
eg. Policy holder Surplus is used in Insurance Companies Financia Statements.