Accounting For Insurance Finance Agreements

Company A signs a professional civil liability contract (duration of 3 years) at the end of financial year 0. The premium is 240 units. Insurance Company B sells the same product, but at a lower mark-up of 210 currency units. Both companies expect debt payments of 60 currency units per contract year. According to the risk margin calculation methods set out in the respective accounting standards, the two entities calculate a risk adjustment of 30 currency units. Uncertainty about the level of contract outflows decreases in proportion to the level of expected cash outflows. Fn. 54 Thus, the risk margin and the residual margin are released in proportion to the time. The last major category of investment is reinsurance.

These are sums due by the company`s reinsurers. (Reinsurers are insurance companies insuring other insurance companies and thus sharing the risk of loss.) Sums due by reinsurance undertakings shall be classified according to their delay and, if so, the number of days. Deposits considered non-recoverable are recorded as liabilities on the balance sheet as a surplus penalty, which reduces the surplus. U.S. public insurance companies, like companies in any other type of activity, report to the SEC using GAAP. However, they report to the insurance supervisory authorities and pay taxes with SAP. Accounting standards and practices outside the United States differ from both GAAP and SAP. The insurance coverage granted under the credit card agreement can only be created on the basis of laws or regulations. As a first step, an insurer evaluates the insurance contract based on the anticipated present value of future cash outflows, adjusted for risks, net of future cash inflows resulting from the insurer`s performance of the insurance contract. If this amount is negative, it is necessary to add a residual margin that eliminates any gain during the creation.

In this case, the value of the liability is zero at the beginning. Footnote 21 If the amount is positive, the insurance must immediately recognize the amount as a loss. Footnote 22 Babbel, D.F. and Merrill, C. (2005) “Real and illusory value creation by insurance companies,” The Journal of Risk and Insurance 72: 1-21. Devalle, A., Onali, E. and Magarini, R. .

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