Accounts of insurance cos project

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ARYA COLLEGE LUDHIANA

Accounts of Insurance

CompaniesProject Report

Aditya Sood

BCOM II (3741)

Submitted to:

Ms. Charanjit Kaur

Lecturer in Commerce



IntroductionInsurance is a form of contract or agreement under which one party agrees in return of a consideration

to pay an agreed amount of money to another party to make good for a loss, damage, injury to

something of value in which the insured has a pecuniary interest as a result of some uncertain event.

Insurance is a form of risk management in which the insured transfers the cost of potential loss

to another entity in exchange for monetary compensation known as the premium.

Insurance allows individuals, businesses and other entities to protect themselves against

significant potential losses and financial hardship at a reasonably affordable rate. We say

"significant" because if the potential loss is small, then it doesn't make sense to pay a premium

to protect against the loss. After all, you would not pay a monthly premium to protect against a

$50 loss because this would not be considered a financial hardship for most.

Insurance is appropriate when you want to protect against a significant monetary loss. Take life

insurance as an example. If you are the primary breadwinner in your home, the loss of income

that your family would experience as a result of our premature death is considered a significant

loss and hardship that you should protect them against. It would be very difficult for your family

to replace your income, so the monthly premiums ensure that if you die, your income will be

replaced by the insured amount. The same principle applies to many other forms of insurance.

If the potential loss will have a detrimental effect on the person or entity, insurance makes

sense.

Everyone that wants to protect themselves or someone else against financial hardship should

consider insurance. This may include:

y Protecting family after one's death from loss of income

y Ensuring debt repayment after death

y Covering contingent liabilities

y Protecting against the death of a key employee or person in your business

y Buying out a partner or co-shareholder after his or her death

y Protecting your business from business interruption and loss of incomey Protecting yourself against unforeseeable health expenses

y Protecting your home against theft, fire, flood and other hazards

y Protecting yourself against lawsuits

y Protecting yourself in the event of disability

y Protecting your car against theft or losses incurred because of accidents

y And many more



Types of Insurance

From accounting point of view, insurance may be divided into two types, i.e.,

1. Life Insurance Life insurance business is carried on by Life Insurance Corporation of

India since 1956 when life insurance business was nationalized. Under this type of

insurance the corporation guarantees to pay a certain sum of money to the policyholder

on reaching a certain age or on his death, whichever is earlier. Life insurance has an

element both of protection and investment.

2. General Insurance It includes all other types of insurance except life insurance as fire

insurance, marine insurance, accident insurance, burglary, fidelity, third party, workmen

compensation, consequential loss, etc. Under this type of Insurance the insurer

undertakes to indemnify the loss suffered by the insured on happening of a certain

event in consideration of a fixed premium.

The General Insurance business was also taken over by the central government with

effect from 13th

May, 1971. Recently the insurance business has been opened to the

private sector. The government has allowed registration of private insurance firms

under the Companies Act, 1956. Thus, private insurance firms are now-a-days allowed

to engage themselves in life insurance and general insurance business.



Accounts of Life insurance

business

Final accounts of the insurance concerns are prepared according to the provisions of the

Insurance Act, 1938. For maintaining accounts, two types of books are kept by such concerns.

1. Statutory Books The following books are to be maintained by all insurance offices:

(i) Register of Policies This register will contain the particulars in respect of each

policy issued by the insurer such as the name and address of the policy holder, the

date when the policy was effected and record of the assignment of the policy(if any).

(ii) Register of Claims It contains the particulars of each claim such as the date of

claim, the name and address of claimants, the date on which the claim was

discharged, date and ground for rejection, in case the claim is rejected.

(iii) Register of Licensed Insurance Agents It contains the particulars of various

insurance agents, their names, addresses, particulars of business done and

commission due to them.

2. Subsidiary Books For proper maintenance of accounts important subsidiary books aremaintained according to the convenience of the concern. These are register of proposals

and proposal advance cash book, first years premium cash book, renewal premium cash

book, agency and branch cash book, petty cash book, claims cash book, general cash book

containing the summary of all previous books, bank cash book, commission register, lapsed

and cancelled policies book, journal, agency ledger, policy loan ledger, general loan ledger,

investment ledger, etc.



Insurance Regulatory and

Development Authority

In order to regulate the insurance business, the government set up in 1996, the Insurance

Regulatory Authority (IRA). Now, this authority is known as the Insurance Regulatory and

Development Authority. In 2002, the authority came with regulations for the preparation of

financial statements of insurance companies. According to the Insurance (Amendment) Act,

2002, the first, second and third schedules prescribed for Balance Sheet, Profit and Loss

Account and Revenue Account respectively as given in Insurance Act, 1938 have been omitted.

Now Revenue Account, Profit and Loss Account and Balance Sheet are to be prepared as per

the formats prescribed by the Insurance Regulatory and Development Authority(IRDA).

A brief description of important regulations prescribed by IRDA is given below:

Preparation of Financial Statements, Management Report and Auditors Report

1. An insurer carrying on life insurance business, after the commencement of theseRegulations, shall comply with the requirements of Form A.

2. An insurer carrying on general insurance business, after the commencement of these

Regulations, shall comply with the requirements of Form B.

3. The report of the auditors on the financial statements of every insurer and reinsurer

shall be in conformity with the requirements of Form C, or as near thereto as the

circumstances permit.



Preparation of Financial

StatementsForm A RA

Name of the Insurer:

Registration No. and Date of Registration with the IRDA:

REVENUE ACCOUNT FOR THE YEAR ENDED .Policyholders Account (Technical Account)

No. Particulars Schedule Current

Year

(Rs. 000)

Previous

Year

(Rs. 000)

Premiums earned net(a) Premium

(b) Reinsurance ceded

(c) Reinsurance accepted

Income from Investments

(a) Interest, Dividends & Rent Gross

(b) Profit on sale/redemption of

investments

(c) (Loss on sale/redemption of

investments)

(d) Transfer/Gain on revaluation/change

in fair value*Other income (to be specified)

Total (A)

Commission

Operating Expenses related to Insurance

Business

Provision for doubtful debts

Bad debts written off

Provision for Tax

Provisions (Other than taxation)

(a) For diminution in the value of

investments (net)

(b) Others (to be specified)

Total (B)

Benefits Paid (Net)

Interim Bonuses Paid

Change in valuation of liability in respect of

life policies

(a) Gross**

(b) Amount ceded in Reinsurance

1

2

3

4



(c) Amount accepted in Reinsurance

Total (C)

Surplus(Deficit) (D) = (A) (B) (C)

Appropriations

Transfer to Shareholders Account

Transfer to Other Reserves (to be specified)

Balance being Funds for Future

Appropriations

Total (D)

Notes:

* represents the deemed realized gain as per norms specified by the authority

** represents Mathematical Reserves after allocation of bonus

The total surplus shall be disclosed separately witht the following details:

(a) Interim Bonuses paid

(b) Allocation of Bonus to policyholders

(c) Surplus shown in the Revenue Account

(d) Total Surplus [(a) + (b) + (c)]



FORM A PLName of the Insurer:

Registration No. and Date of Registration with the IRDA:PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED

.Shareholders Account (Non-technical Account)


Year

(Rs. 000)

Previous

Year

(Rs. 000)

Amounts transferred from/to the

Policyholders Account (Technical Account)

Income from investments

(a) Interest, Dividends & Rent Gross(b) Profit on sale/redemption of

investments

(c) (Loss on sale/redemption of

investments)

Other Income(to be specified)

Total (A)

Expense other than those directly related to

the insurance business

Bad debts written off

Provisions (Other than taxation)

(a)

For diminution in the value of investments (Net)

(b) Provision for doubtful debts

(c) Others (to be specified)

Total (B)

Profit (Loss) before tax

Provision for Taxation

Profit (Loss) after tax

Appropriations

(a) Balance at the beginning of the year

(b) Interim dividends paid during the

year

(c) Proposed final dividend(d) Dividend distribution tax

(e) Transfer to reserves/other accounts

(to be specified)

Profit carried..to the Balance

Sheet



Notes to Form A-RA and A-PL:

(a) Premium income received from business concluded in and outside India shall be

separately disclosed

(b) Reinsurance premiums whether on business ceded or accepted are to be brought into

account gross (i.e., before deducting commissions) under the head reinsurance

premiums

(c) Claims incurred shall comprise claims paid, specific claims settlement costs wherever

applicable and change in the outstanding provisions for claims at the year-end

(d) Items of expenses and income in excess of one percent of the total premiums (less

reinsurance) or Rs. 5,00,000 whichever is higher, shall be shown as a separate line item.

(e) Fees and expenses connected with claims shall be included in claims

(f) Under the sub-head Others shall be included items like foreign exchange gains or

losses and other items

(g) Interest, dividends and rentals receivable in connection with an investment should be

stated at gross amount, the amount of income tax deducted at source being includedunder advance taxes paid and taxes deducted at source

(h) Income from rent shall include only the realized rent. It shall not include any notional

rent



FORM A BSName of the Insurer:

Registration No. and Date of Registration with the IRDA:

BALANCE SHEET AS AT .


Year

(Rs. 000)

Previous

Year

(Rs. 000)

Sources of Funds

Shareholders Funds:

Share Capital

Reserves and Surplus

Credit/Debit Fair Value Change Account

Sub-TotalBorrowings

P olicyholders Funds:

Credit/Debit Fair Value Change Account

Policy Liabilities

Insurance Reserves

Provision for Linked Liabilities

Sub-Total

Funds for Future Appropriations

Total

Application of Funds

InvestmentsShareholders

Policyholders

Assets held to cover Linked Liabiiities

Loans

Fixed Assets

Current Assets

Cash and Bank Balances

Advances and Other Assets

Sub-Total (A)

Current Liabilities

Provisions

Sub-Total (B)

Net Current Assets (C) = (A B)

Miscellaneous Expenditure (to the extent not

written off or adjusted)

Debit Balance in Profit and Loss Account

(Shareholders Account)

Total

5

6

7

8

8A

8B

9

10

11

12

13

14



CONTINGENT LIABILITIESNo. Particulars Current Year

(Rs. 000)

Previous Year

(Rs. 000)

1

2

3

4

5

6

7

Partly paid-up investments

Claims, other than against policies, not acknowledged

as debts by the company

Underwriting commitments outstanding (in respect of

shares and securities)

Guarantees given by or on behalf of the company

Statutory demands/liabilities in dispute, not providedfor

Reinsurance obligations to the extent not provided

for in accounts

Others (to be specified)

TOTAL



Acknowledgement

I owe a great many thanks to a great many people who helped and supported me during the

writing of this project.

My deepest thanks to Lecturer, Ms. Charanjit Kaur the guide of the project for guiding and

correcting various documents of mine with attention and care.

I express my thanks to theP

rincipal, AryaC

ollege,Ludhiana for extending his support.

I would also thank my institution and my friends without whom this project would have been a

distant reality. I also extend my heartfelt thanks to my family and well wishers.



Bibliography

Book : Corporate Accounting

By: S.P. Jain and K.L. Narang

Published by Kalyani Publishers



Contents

y Introduction

y Types of Insurance

y Accounts of Life Insurance Business

y Insurance Regulatory and Development Authority

y Preparation of Financial Statements

y Financial Statements of LIC Housing Finance Limited (Profit and Loss Account, Balance

Sheet)

y Bibliography

Documents

Accounts of insurance cos project