Accounts of insurance companies

Accounts of insurance companies

2. INTRODUCTION
Regulation Of Insurance Business In India
Insurance Act-1938
IRDA Act-1999
Insurance Amendment Act-2002
IRDA has prescribed in specified formats for preparation
of financial statements of insurance business in part V of
‘schedule A’ of IRDA regulations 2002.
Insurance Act,1938 &IRDA Act,1999 provide legal
framework of insurance accounting in India.
Financial statements also to be in conformity with the
accounting standards issued by the Institute of Charted
Accountants of India(ICAI).

3. ACCOUNTS OF INSURANCE
COMPANIES
Accounting point of view: Business of
Insurance
1.Life Insurance Business
2.General Insurance Business
Incomes
Major income-Premium
Other Sources –i. interest
ii. Dividends on
investments
iii. Rent earned from
properties let out etc.

4. Expenses
1.Settlements of claim
2.Annuities
3.Bonus payment
4.Commission paid to agent
5.Office & managerial expenses
6.Income tax & Other taxes
Profit or loss = All incomes –Revenue expenses

5. BOOKS FOR MAINTENANCE OF
ACCOUNTS
1.Statutory Book:-Consist of 3 registers
Register of policies:-Name & address of
policy holder, date of policy etc
Register of claims:-Date of claim, name &
address of claimant etc
Register of licensed insurance:-Name of
Insurance agent, address, no. of
license, commission due etc
2.Subsidiary Book:-Register of proposal, premium
register, general cash book, commission
register, cash receipt register etc

6. FINAL ACCOUNTS OF LIFE
INSURANCE COMPANIES
1.REVENUE ACCOUNT
Sets out all income & expenses relating to the insurance
business.
income includes
a)Premium after adjusting reinsurance ceded & reinsurance
accepted
b)Income from investments
Expenses includes
a)Commission
b)Operating expenses
c)Benefits paid
d)Bonus paid
e)Change in valuation of liability against life policies in force

7. 2. PROFIT AND LOSS ACCOUNT
All income and expenses relating to shareholders
account.
income comprises of:-
a)Depreciation relating to assets held by
shareholder’s fund, investment expenses, directors
fund.
b)Transfer of funds to policy holder’s fund.
c)Preliminary expenses written off.
3. Balance sheet
includes:-a)share holders fund
b) policy holders fund
c) investments related to policy holder’s fund
and assets held to cover linked liabilities.

8. 4.Receipts and payments Account
Cash flow statements of insurance company needs to
be worked out as directed method as per IRDA
requirements.
Major items are:-
a)Operating activities:-Receipts and payments
from policy holders, payment to reinsurers
agent, employee expenses & investment income.
b)Investing activities:-Purchase and sales of
investment, purchase of fixed assets
c)Financing activities:-Issue of share capital or
raising of funds from other sources.

9. Segmental Reporting:-
Have to prepare segment wise revenue account
and balance sheet of the business. The company has
to report segment results separately for :-
Participating
Non participating
Pension
Annuity business
unit linked business

10. FINAL ACCOUNTS OF GENERAL INSURANCE
COMPANIES
a)Revenue account
A separate revenue account is prepared for each type of
business. Eg: fire, marine etc.
It records: incomes & expenses of particular business, profit/loss
is transferred to profit & loss account.
b)Profit & loss account
It records incomes & expenses of general nature and it show how
profit has been appropriated in addition to profit/loss of
different business. Its balance is shown in balance sheet.
c) Balance sheet
It records various assets and liabilities of General insurance
companies.

11. CONCLUSION
Business of insurance having much importance in
India nowadays. Insurance Regulatory Authority
regulates the insurance business in India.
Accounts of insurance companies are divided into
two heads such as final accounts of life insurance
and final accounts of general insurance. Both the
business accounts contain revenue account, profit &
loss accounts and balance sheet in common. In
addition to this, life insurance contains receipts and
payments account and segmental reporting.
it must be observed that difference in revenue
account reveals profit or loss of business.