Insurance Company Accounts-General Insurance and Life.docx

Insurance is a contract between the insurer and the insured, whereby the insurer undertakes to compensate the insured against specified losses or damages, in consideration of a premium.
Insurance companies are governed by the following:
• Insurance Act, 1938
• Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999
• Companies Act, 2013
• IRDA (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002

1. UNIT V – INSURANCE COMPANY ACCOUNTS
1. Introduction
Insurance is a contract between the insurer and the insured, whereby the
insurer undertakes to compensate the insured against specified losses or
damages, in consideration of a premium.
Insurance companies are governed by the following:
Insurance Act, 1938
Insurance Regulatory and Development Authority of India (IRDAI)
Act, 1999
Companies Act, 2013
IRDA (Preparation of Financial Statements and Auditor’s Report
of Insurance Companies) Regulations, 2002
2. Types of Insurance
Insurance can be broadly classified into:
Type Description Examples
1. Life
Insurance
Covers life risk – provides sum
assured on death or maturity.
Endowment, Whole Life,
Term Life Policies
2. General
Insurance
Covers property, liability, or
other non-life risks.
Fire, Marine, Motor, Health,
and Miscellaneous
3. Final Accounts of Insurance Companies
Insurance companies must prepare their financial statements in the
following format (as per IRDA Regulations, 2002):
A. Revenue Account (Policyholders’ Account)

2. B. Profit and Loss Account (Shareholders’ Account)
C. Balance Sheet
PART I: LIFE INSURANCE COMPANY ACCOUNTS
1. Meaning
A Life Insurance Company deals with insurance contracts where the
insurer agrees to pay a certain amount either on the death of the insured or
on the expiry of a fixed period.
Life insurance involves long-term contracts, and accounting is done on an
accrual basis.
2. Final Accounts of Life Insurance Companies
A life insurance company prepares the following accounts:
1.Revenue Account (Form A – RA)
2.Profit and Loss Account (Form A – PL)
3.Balance Sheet (Form A – BS)
(A) REVENUE ACCOUNT (Form A – RA)
The Revenue Account (also called the Policyholders’ Account) shows the
result of the life insurance business.
Format:
Particulars Schedule No.
1. Premium Earned (Net) 1
2. Income from Investments 2

3. Particulars Schedule No.
3. Other Income 3
Total (A)
4. Commission 4
5. Operating Expenses related to Insurance Business 5
6. Benefits Paid (Net) 6
7. Change in Valuation of Liability in respect of Life Policies7
Total (B)
Surplus/(Deficit) = (A - B)
Explanation of Schedules:
Schedule 1 – Premium Earned (Net)
First-year premium
Renewal premium
Single premium
Reinsurance premium (adjusted)
Schedule 2 – Income from Investments
Interest, dividend, rent, profit on sale of investments.
Schedule 5 – Operating Expenses
Management expenses, salaries, printing, postage, and other office
expenses.
Schedule 6 – Benefits Paid
Claims by death, maturity, surrenders, annuities, and bonus paid.

4. Schedule 7 – Change in Valuation of Liability
Represents increase or decrease in actuarial liability of life policies.
(B) BALANCE SHEET (Form A – BS)
Format:
Liabilities
Schedule
No.
Assets
Schedule
No.
Share Capital 5 Investments 8
Reserves and Surplus 6 Loans 9
Policyholders’ Fund 7 Fixed Assets 10
Provision for Taxation8
Cash and Bank
Balances
11
Outstanding Expenses,
etc.
9
Advances and Other
Assets
12
Miscellaneous
Expenditure
13
Important Adjustments:
1.Outstanding Premiums are added to premium income.
2.Claims Outstanding are shown as liability.
3.Interest Accrued but not Received is treated as asset.
4.Reinsurance Recoveries are deducted from claims.
(C) VALUATION BALANCE SHEET

5. Life insurance companies prepare an Actuarial Valuation Balance
Sheet every year to determine:
oThe value of liabilities towards policyholders, and
oThe surplus available for distribution.
Surplus = Life Fund at the end of year – Net Liability as per Actuarial
Valuation.
Example (Simplified)
Revenue Account of XYZ Life Insurance Co. Ltd.
for the year ended 31st March, 2025
Particulars ₹
Premium received 12,00,000
Interest and dividend3,00,000
Total Income (A) 15,00,000
Claims paid 6,00,000
Commission 1,50,000
Expenses 2,50,000
Increase in Life Fund3,00,000
Total (B) 13,00,000
Surplus (A - B) 2,00,000
PART II: GENERAL INSURANCE COMPANY ACCOUNTS
1. Introduction

6. A General Insurance Company deals with insurance other than life, such
as:
Fire Insurance
Marine Insurance
Motor, Health, and Miscellaneous Insurance.
These are short-term contracts (usually one year).
2. Types of General Insurance
Type Meaning
Fire Insurance Covers loss or damage to property due to fire.
Marine Insurance
Covers loss of goods, ships, or cargo during
transit.
Miscellaneous
Insurance
Covers health, motor, burglary, etc.
3. Final Accounts of General Insurance Companies
The accounts include:
1.Revenue Account (for each class of business)
2.Profit and Loss Account
3.Balance Sheet
(A) REVENUE ACCOUNT (Fire, Marine, etc.)
Format:

7. Particulars Schedule No.
Premium Earned (Net) 1
Income from Investments 2
Other Income 3
Total (A)
Claims Incurred (Net) 4
Commission 5
Operating Expenses 6
Total (B)
Operating Profit/(Loss) = (A - B)
Explanation of Schedules:
Schedule 1 – Premium Earned (Net)
Premium received on direct business
Add: Reinsurance accepted
Less: Reinsurance ceded and unexpired risk reserve
Schedule 4 – Claims Incurred (Net)
Claims paid during the year
Add: Outstanding claims at the end
Less: Outstanding claims at the beginning
Less: Reinsurance recoveries
Schedule 6 – Operating Expenses
Employee cost, rent, printing, postage, etc.

8. Example (Simplified): Fire Insurance Revenue Account
Fire Insurance Revenue Account of ABC Insurance Co. Ltd.
for the year ended 31st March, 2025
Particulars ₹
Premium received 8,00,000
Less: Reserve for unexpired risk (1/2 of premium)4,00,000
Net Premium 4,00,000
Claims paid 2,50,000
Commission 50,000
Management Expenses 1,00,000
Operating Profit 0 (Nil)
4. Schedules for General Insurance Companies
1.Schedule 1 – Premium Earned (Net)
2.Schedule 2 – Claims Incurred (Net)
3.Schedule 3 – Commission
4.Schedule 4 – Operating Expenses
5.Schedule 5 – Share Capital
6.Schedule 6 – Reserves and Surplus
7.Schedule 7 – Investments
8.Schedule 8 – Fixed Assets
5. Unexpired Risk Reserve

9. Represents the portion of premium relating to risks still unexpired at
the year-end.
IRDA Rule:
oFire and Marine: 50% of premium
oMiscellaneous: 40% of premium
6. Marine Insurance Revenue Account
The Marine Revenue Account is similar to the Fire Revenue Account but
includes:
Ocean Marine and Inland Marine business.
Provision for unexpired risk (usually 50% of net premium).
7. Key Differences between Life and General Insurance Accounts
Basis Life Insurance General Insurance
Contract PeriodLong-term One year
Fund Created Life Fund Unexpired Risk Reserve
Claim Certainty
Certain
(death/maturity)
Uncertain (contingent)
Main Statement Revenue Account
Separate Revenue Account for
each class
Actuarial
Valuation
Required Not required