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TOPIC 7: GENERAL INSURANCE BUSINESS - Coggle Diagram
TOPIC 7: GENERAL INSURANCE BUSINESS
Introduction
Main function
:
Reduce the risk
by spreading / diversifying the risk to a large number of individuals / organizations
Main parties:
Insured
= the individual/organization, which
had agreed
to
contribute
an amount & been
relieved from the risks.
Insurer
= an organization, which
manages the money
& undertakes the risks.
classes of insurance business
General insurance:
other than life insurance
marine
aviation & transit insurance (MAT)
fire
theft insurance
motor
miscellaneous insurance
Takaful (syariah laws)
Life insurance
: involved life insurance policies
Activities
1. Underwriting
Acc. for claims
Arising when the
events occur and settled
during the same financial year = expenses - insurer
Liability for outstanding claims
- claims that did not settled at the end of the financial year
Should be recognized in respect of
Direct insurance
Inward reinsurance
claim classification
The reported claims
Losses incurred, reported
BUT NOT AGREED
Losses incurred, reported
BUT SETTELEMENT AMOUNT UNCERTAIN
Losses incurred, reported,
agreed BUT NOT PAID
Incurred but not reported
(IBNR)
claims
Situation
: reserves are
created for losses
that are assumed to
have incurred
during the accounting period
but not yet reported to the insurer
Claims incurred but enough reserved (IBNER claims)
Situation:
when information about
reported claims
become available & reveals that the
ultimate costs of settling claims has been UNDER-ESTIMATED
Account involved to make upward adjustment:
claims expenses
liability for outstanding claims
Estimates amount related to the
claims incurred but subject to settlement
(including IBNER)
Estimates amounts related to the
claims incurred but not reported,
adjusted to the most recent available information
Unpaid claims amount (related)
Estimated costs that the i
nsurer expect
s to incur during settling those claims
Methods (determine of loss reserving)
2) Average value method
3) Formula method
1) Case-basis method
Acc. acquisition costs
(costs of acquiring & renewing insurance policies)
Give rise to income, >1 financial reporting period
Accounts:
Deferred acquisition costs
(current assets) - not exceed 20 % of UPR
Recoverable acquisition costs
Refundable ceding income
expenses
Other acquisitions costs
ceding income that represents recovery of management & other expenses)
Steps in determining (deferred)
(B) 50% of (A) = expensed
(C) another 50% of (A) = deferred
(A) the recoverable acq. costs that have not been obtained
(D) UPR minus Outstanding claims (if UPR>O) - deferred (
NOTE:
IF UPR>O, no deferred acquisition costs)
Lastly: C vs D (whichever is lower)
Steps in determining (expenses)
Acq. costs incurred - (Ending - Beginning balance of acq. costs)
Accounting for premium
Co-insurance
Meaning:
Direct insurance agreement where 2 or more insurers jointly underwrite the risk.
Recognisation & treatment of
Premium, Claims liabilities & Acq. costs
must use the
same method for single insurers.
Re-insurance
Meaning:
agreement whereby the reinsurer (B), agrees to accept a risk from a ceding insurer (A).
A (insurer) pay premium tp B (Reinsurer), B agree to accept the risk either cede part or the whole risk from A.
Former
The agreement is and outward reinsurance
Latter
the agreement is an inward insurance
2. Investment
b) in quoted equities
(share in subsidiaries & associates - listed /not listed)
c) in un-quoted equities
a) In properties
d) in other financial assets
(debt securities, loans & advances, money market placements
sources of revenue
Rent (accrual basis)
Dividend (
when the shareholder's
right to received payment is established)
Interest
(recognized on a
time proportion basis
- takes into account the effective yield on the investment)
important aspects covered
initial recognition
measurement
subsequent re-measurement
Revenue
accrual basis