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ACCOUNTING IN INSURANCE COMPANIES Buğra KUNTER Büşra ALTUNTAŞ Eda TÜRKİŞ Meltem ÖZYURT Şeyda GÖKKAYA What is insurance ? • Insurance, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. History of Insurance • Insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practised by Babylonian traders as long ago as the 2nd millennium BC History of Insurance • The earliest authenticated insurance contract (i.e. That which displays the characteristics of insurance in the sense of a transfer of risk of loss due to a fortuitous uncertain event in lieu of payment of consideration / premium), is a marine insurance contract on a ship “The Santa Clara” dated 1347 in Genoa. The policy is in the Italian language and appears in the form a maritime loan to avoid the canon (church) prohibition against usury. History of Insurance in Turkey • The history of insurance in Turkey dates back to 1870’s. In those years, insurance transactions and services were mainly carried out by foreign insurance companies. In 1900, insurance companies operating in Turkey decided to come together under the umbrella of a “professional organization” and established the “Insurers Syndicate of Turkey”, which had 81 members, all of them being foreign companies. History of Insurance in Turkey • 1924 – The Club of Insurers – ( then took name Central office of Insurers) • 1952 -The Association of the Insurance Companies of Turkey ( established by somem members of Central Office) • 1952 – At the same date Central Office of Insurers took the name “Office of Insurers of Turkey History of Insurance in Turkey • In 1954, both organizations merged under the name “Association of the Insurance and Reinsurance Companies of Turkey”. In 1975, the Association adopted the name that it uses today; “The Association of the Insurance and Reinsurance Companies of Turkey”. History of Insurance in Turkey • Within the context of the Insurance Supervision Law, No:5684 which came into force in 2007, the Association is a legal entity established for the development of the insurance profession, empowerment of solidarity among insurance companies and elimination of unfair competition among members Insurance in Turkey • In Turkey we can classify types of insurance in 12 categories , 11 of them non – life and the other is life.The Association of the Insurance and Reinsurance Companies of Turkey has established the following committees to facilitate the preparation and revision of all legislation, tariffs, working guides and general clauses relating to insurance; Insurance in Turkey • • • • • • • • • • • • Marine Insurance Casualty Insurance Non-life Claims Engineering Insrance Health Insurance Liability Insurance Agriculture Insurance Financial and Accounting Education and Publicity Law and Legal Protection Fire Insurance Life Insurance Basic Terms of Insurance Insurance Policy: It is the document or wording, which states the full details of the insurance contract between the policyholder and insurer. Premium : The amount paid by the policyholder to the insurer for insurance. Commission : The payment by an insurance company to an agent or broker or intermediary for the work involved in arranging insurance and providing on-going service to the client. Reinsurance: Reinsurance is insurance purchased by insurers from other insurers to limit the total loss an insurer would experience in case of a disaster. Coinsurance : When more than one insurer covers a risk, each insurer decides which part of the risk that will underwrite and on what terms. They do not have to follow any other co-insurer.Each co-insurer seperately insures their part of the risk and each is a seperate contract. TFRS 4 • Communiqué Concerning Insurance Accounting Plan and Explanations No:1 which was issued by the Undersecretariat of Treasury defines the purpose of TFRS 4 as below. • The purpose of this regulation is to allow for the preparation of uniform financial statements in the insurance sector; to monitor the obligation fulfillment and financial powers of companies; to ensure uniformity in the accounting records and reporting of insurance and reinsurance companies along with those of pension companies and to transform the financial states and development of both the insurance sector and the insurance and reinsurance companies together with pension companies to a state where they can be monitored and evaluated in the best manner possible through establishing an infrastructure that will ensure sound and comparable information generation and flow. Insurance Accounting Plan CLASS CODE ACCOUNT CLASSES 1 CURRENT ASSETS 2 NON-CURRENT ASSETS 3 SHORT TERM OBLIGATIONS 4 LONG TERM OBLIGATIONS 5 EQUITY CAPITAL 6 REVENUE STATEMENT ACCOUNTS 7 NON-LIFE BRANCHES TECHNICAL REVENUE STATEMENT 8 - 9 REGULATING ACCOUNTS Income Statement of Insurance Companies • Consists of two basic parts, which are the Technical Section and the Nontechnical Section. • The Technical Section includes Non-life Insurance’s Technical Revenue and Expense and Life Insurance’s Technical Revenue and Expense. • The Nontechnical Section includes the investing revenue & expense, revenue & expense from other operations, extraordinary revenue & expenses and Profit or Loss For the Period. Accounting of Provisions • • • • • • • • • • • Today the risk that financial institutions and finance sector faces is more devastating than the risk that any other sector faces. It influences the whole economy, that is why the finance sector is highly regulated. The easiness and the efficiency of applicability and the measurability of its effects are the main reasons for the usage of provisions as a financial constraint. The provisions below are insurance specific provisions. 35 INSURANCE TECHNICAL PROVISIONS 350 PROVISIONS FOR NON-ACQUIRED PREMIUMS – NET 351 PROVISIONS FOR CONTINUING RISKS - NET 352 MATHEMATICAL PROVISION FOR LIFE INSURANCE - NET 353 PROVISION FOR OUTSTANDING LOSS AND COMPENSATIONS - NET 354 PROVISION FOR BONUSES AND DISCOUNTS - NET 355 PROVISION ALLOCATED FOR POLICIES BELONGING TO INVESTMENT RISK LIFE INSURANCE POLICY HOLDERS NET 359 OTHER TECHNICAL PROVISIONS - NET 350 PROVISIONS FOR NONACQUIRED PREMIUMS • Consists of the premiums which belongs to the next period, but written in the current period. • Written Premium Income: The sum of the policy premiums of which start and renewal dates belongs to the current year. • NON-ACQUIRED PREMIUMS = Number of Days in the next period X Policy Premium Total Days of the Policy • Provisions for each policy has to be calculated separately. 351 PROVISIONS FOR CONTINUING RISKS • This provision is used when the provision for non-acquired premiums is not enough for the risk carried. It may occur when it is realized that the risk valuation is undervalued or there is an icrease of risk after the valuation or the insurance company still has some risks after the expiration of the policy. 352 MATHEMATICAL PROVISION FOR LIFE INSURANCE • Companies operating in Life Insurance uses this provision. It is calculated as; • Actuary Mathematical Provisions = ( NPV of Future Compensations – NPV of Premiums to be paid) 353 PROVISION FOR OUTSTANDING LOSS AND COMPENSATIONS • Used for non-life insurance policies. May be in 2 ways ; • Accrued in the current period but the insurance company didn’t pay any compensation for various reasons. • IBNR ( incurred but not reported) . The stats of last 5 years is used by the company for the calculation. 355 PROVISION ALLOCATED FOR POLICIES BELONGING TO INVESTMENT RISK LIFE INSURANCE POLICY HOLDERS • Consists of the technical provisions which are created to fulfill the obligations against the policyholders, whose life insurance policies values and returns are determined by the risk they take. ACCOUNTING OF LIFE INSURANCE ACTIVITIES I. Premium Generation Life insurance companies use two different methods in accounting of premium generation: Collection basis: In this method, the life insurance companies enter the amounts that they collected into the income accounts. The Premium income which is not collected is not taken into consideration and is not effected aa an entry. Accrual Basis: When the settlement day regarding life policy installment comes, premium debt is entered as an income account even if it is not collected on that day. The amounts will deducted from the debt of insuree as long as the matured premium loans are paid. Accounting of Premium Collections according to Collection Basis: Example • An insuree which is client of a life insurance company bought a 12 monthlife insurance policy with 150 TL monthly payment on Februray 17. The insuree paid two installments of the policy on the same day. Other installments will be paid by credit card. • Collection of cash payment: -----------------------------------------------02.17------------------------------------------------100.01. Cash 150 6. Income Statement Accounts 62. LIFE TECHNICAL INCOME 620. Written Premiums 620.01. Life Technical Income- Gross Written Premiums 150 ---------------------------------------------------/----------------------------------------------------- • Collection of installments (The entry is not made if the insuree doesn’t effect any payment): ----------------------------------------------/--------------------------------------------102.01.1. Bank-Demand-TL 300 620.01. Life Technical Income- Gross Written Premiums 300 ----------------------------------------------/--------------------------------------------- • Similar entry will be made for other installments. Accounting of Premium Collections according to Accrual Basis • Using same data as in previous example: -------------------------------------------------------02.17-----------------------------------------------------120.01.ssss.01. Receivab. from Insuıees-Insuree- Generation-Life Branch 1,800 620.01. Life Technical Income-Gross Written Premiums 1,800 -------------------------------------------------------03.17------------------------------------------------------102.01.1. Banks-Demand-TL 150 120.01.ssss.01. Receivab. from Insuıees-Insuree- Generation-Life Branch 150 ----------------------------------------------------------/----------------------------------------------------------- First entry: Accrue of the premium (150TL*12 months=1,800 TL) Second entry: Premium collection. • Other future installments’ entry will be similar to the second entry. II. Cancellation of Premium • An insurance policy is a legally binding contract between an insurance company and the person who buys the policy, commonly called the polcyholder who also is often the person insured. • In exchange for payment of a specified sum of money, called the "premium," the insurance company agrees to pay for certain types of loss or damage as specified by the contract. When a loss occurs which meets all of the requirements described by the terms of an insurance policy, the loss is said to be "covered" by that policy. • In case of cancellation of the premium, policy premium is refunded to the insuree based on the days to mature. • The policy of life insurance, which will be cancelled, is included first in the category of policies which will be cancelled. In the case that the premium debt is not paid at its maturity, after six months from the date of maturity, the actuarial mathematical allowances, that are accumalated as of the date of cancellation, are not refund and are included in the company income. • When the life insurance policy is cancelled,it is accounted as reversal entry of the premium generation entry. Accounting of the life insurance premium refund Example • Life Insurance Company decided to cancel the policy of one of its insurees who didn’t complete the payment of the three-year premium payment based on the legal process. Provision of actuarial mathematics of the insuree is 2500 TL while the bonus provision is 13,000 TL as of the date of cancellation. Accounting records concerning the example are given below: • Inclusion of Life Policy in the cancelled policies: -----------------------------------------------/----------------------------------------------620.01. Life Technical Income-Gross Written Premiums 13,000 633.011. Life Mathematical Provision 2,500 620.01.01. Life Technical Income- Gross Written Premiums-Cancel 633.011.01. Life Mathematical Provision- Cancel 13,000 2,500 ------------------------------------------------/---------------------------------------------- • Cancellation entry of life policy that will be made after 6 month of maturity date. -----------------------------------------------/----------------------------------------------620.01.01. Life Technical Income- Gross Written Premiums- Cancel 13,000 633.011.01. Life Mathematical Provision-Cancel 2,500 620.01.Life Technical Income- Gross Written Premiums-Cancel 13,000 625.01. Other Technical Income 2,500 ----------------------------------------------------/---------------------------------------------------- Surrender • Surrender is the cancellation of the policy and the collection of amounts of accumulations of life insuree who paid premiums for at least three years. Therefore, the surrender payments are technical exspenses like compensation payment. Example • Life Insurance Company, paid 50,000 TL as surrender price on request one of its insurees who paid premium for three years. --------------------------------/-----------------------630.01. Life Technical Expense-Gross Compensation Paid 102.01.1. Banks- Demand- TL ----------------------------------/------------------------------- 50,000 50,000 III. Damage Accounting According to the insurance contract which signed between insured and insurance company; insured under the policy specified in the premium payment to enter the payment obligation and the insurance company the risk that happens, commitment to pay insured person loss and damage. Hence, damage is the reason of the existence of such contract. 353- Provision for outstanding loss and compensations Insurance and reinsurance companies have to make provision for outstanding loss and compensations over accrued and identified damage and compensation costs or estimated values. Outstanding loss can be; • a. incurred and reported • b. incurred but not reported • c. reported but not incurred Accounting of provision for outstanding loss and compensations Provisions for outstanding loss and compensations have been accounted keep in mind the basis of each file and the reinsurance distribution of relevant files. As with other provisions transactions, accounting records are performed by using expense accounts. IV. Insurance Provisions Specific provisions in the insurance sector are as follows: a. Provisions premium receivables: Insurance companies have to make provisions all irrecoverable premium receivables within two months. Premium receivables provisions are accepted as a non-deductible expense in terms of tax law. So insurance companies have to add these provisions in tax base. These provisions were removed according to new regulation. These provisions were not implemented in life-insurance. Because when premium receivables are not collected within two months, bills have been cancelled. b. Insurance technical provisions - Provisions for non-acquired premiums (350 account) - Provisions for continuing risks (351 account) c. Mathematical Provisions for life insurance (352 account) d. Provisions for bonuses and discounts (354 account) e. Provisions allocated for policies belonging to investment risk life insurance policy holders (355 account) f. Other technical provisions (359 account) All of provisions (except for mathematical provisions for life insurance) have been implemented both life insurance and other than life insurance. 352. Mathematical Provisions for life insurance Mathematical Provisions for life insurance is difference between taken premiums for undertaken risks by insurance companies and their cash values obligations of the beneficiaries. Mathematical provisions have been made by insurance companies operating in the life insurance. According to Insurance legislation, mathematical provisions can be taken into account as an expense in determination of earnings. Actuarial mathematical provision is calculated by finding the differences between cash value of the insurer's future obligations and the present value of future premiums to be paid by policy holders. If actuarial mathematical provision is calculated as the negative, this value is considered zero. Life insurances have been implemented after tariffs prepared by the insurance companies operating in the life, approved by the Treasury. According to the properties of tariffs, actuarial mathematical provisions’ formulas are subject to change. Actuarial mathematical provisions are calculated with the main two methods are calculated. a) Prospective method: have been found by subtracting the present value of future premiums to be paid by policy holders from cash value of the insurer's future obligations. b) Retropective method: provision is calculated in view of the final value of the liabilities that fulfilled. This method is backward calculation method. Accounting of mathematical provisions Because of mathematical provisions are long-term commitments, these provisions are shown in tetrad accounts. However, mathematical provisions which will end within a year or expected to be paid, are shown in a short-term liabilities account. Example: ----------------------------31/12/2008----------------------------------------------------------(Income Statements Accounts) Technical Expenses From Life Insurance 633.01.1. Mathematical Provisions for life insurance 633.01.1.1. Actuarial mathematical provisions 633.01.1.2. Share of profit provisions (Balance Sheet Accounts) (Insurance technical provisions ) 452.01. Mathematical Provisions for life insurance ---------------------------------/------------------------------------------------------------------- ---------------------------------/------------------------------------------------------------------(Balance Sheet Accounts) (Insurance technical provisions ) 452.01. Mathematical Provisions for life insurance (Income Statements Accounts) Technical Expenses From Life Insurance 633.01.1. Mathematical Provisions for life insurance 633.01.1.1. Actuarial mathematical provisions 633.01.1.2. Share of profit provisions ------------------------------------------------------------------------------------------------------ ACCOUNTING OF NON-LIFE INSURANCE ACTIVITIES I. Premium Production & Reinsurance Activities Compulsory Traffic Insurance (Compulsary Motorways Financial Liability Insurance) Insurance fee; •Premium •Traffic Guarantee Insurance: 2% of net premium (The relevant amount is paid into the fund account of Traffic Services until the end of the following month) •Traffic Services Development Fund: 5% of net premium. It is paid to account of Ministry of Internal Affairs at the latest 20th of following month when is cashed in by insurance company. •The total amount of insurance contract is paid for in advance and in cash as soon as the contract is made, in return the delivery of the policy •BITT The Accounts will be used • 100 CASH / 102 BANKS • 120 DUE FROM INSURANCE ACTIVITIES – 120.03 Due from intermediaries • – • 320.07 Debts to reinsurance companies 701.02.5 ACTIVITY EXPENSES – • 120.07 Due from reinsurance companies 320 DEBTS FROM INSURANCE ACTIVITIES – • 120.03.1 Due from agents 701.02.5.7 Reinsurance commissions (+) 715 COMPULSORY TRAFFIC (COMPULSORY MOTORWAYS FINANCIAL LIABILITY) – 715.01 Technical Revenue from Compulsory Traffic • • – 715.01.1.1 Gross Recorded Premiums 715.01.1.2 Premiums transfrred to reinsurer (-) 715.02 Technical Expenses from Compulsory Traffic • 715.02.5 Activity Expenses (-) – • 715.02.5.1 Production Commission Expenses (-) 360 TAXES AND FUNDS TO BE PAID BITT Guarantee Fund Tr.Serv.Dev.Fund Example REM by insurance agents is arranged a traffic insurance policy on behalf of Emre Korkmaz on 9th March 2007. The net premium of the policy is TL 60. The agent commission: 10% The reinsurance commission: 30% The retention of B insurance company: 4% ANSWER Net Premium 60 Banking and Insurance Transactions Tax (%5) Guarantee Fund (60x0,02) Tr.Serv.Dev.Fund (60x0,05) Gross Premium 3 1,2 3 67,2 insured’s liability Commission ( 60x 0,10) 6 The amount will be transfferred to the insurance company by agent: 54 Amount taken in advance: 67,2 Commission (6) BITT (3) Guarantee (1,2) Tr.Serv.Dev.Fund (3) 54 Reinsurance • By which an insurance company can protect itself with other insurance companies against the risk of losses. Insurance company insure itself in reinsurer in order to allocate the risk taken in hand. • Insurance Company hold a part of premium taken and transfer the rest to reinsurer. • Reinsurer pays commission to insurance company in consideration of participation in the relevant expenses. The commission is computed net premium which transferred to reinsurer. Calculation of premium that will transfer to reinsurer: Because of the retention of B Company is 4% 60 x 0,96= 57,6 Calculation of reinsurer commission: 57,6 x 0,30= 17,28 Journal Entry 9/3/2007 120 DUE FROM INSURANCE ACTIVITIES 67,2 120.03 Due from Intermediaries 120.03.1 Due from Agents / REM 715 COMPULSORY TRAFFIC ( COMPULSORY MOTORWAYS FINANCIAL LIABILITY) 715.01 Technical Revenue from Compulsory Traffic 715.01.1 Recorded Premiums 360 TAXES AND FUNDS TO BE PAID BITT 3 Guarantee Fund 1,2 Tr.Serv.De.F. 3 9/3/2007 715 COMPULSORY TRAFFIC ( COMPULSORY 6 MOTORWAYS FINANCIAL LIABILITY) 715.01 Technical Expenses from Compulsory Traffic 701.02.5.1 Produc. Com.Exp.(-) 120 DUE FROM INSURANCE ACTIVITIES 120.03 Due from Int. 120.03.1 Due from Agents / REM 60 7,2 6 12/3/2007 102 BANKS 54 120 DUE FROM INSURANCE ACTIVITIES 120.03 Due from Intermedaries 120.03.1 Due from Agents 360 15/4/2007 TAXES AND FUNDS TO BE PAID 3 BITT 120 DUE FROM INSUANCE ACTIVITIES 120.03 Due from Intermedaries 120.03.1 Due from Agents 54 3 20/4 /2007 360 TAXES AND FUNDS TO BE PAID 3 Tr.Ser.Dev.Fund 120 DUE FROM INSURANCE ACTIVITIES 120.03 Due from intermediaries 120.03.1 Due from Agents 31/4 /2007 360 TAXES AND FUNDS TO BE PAID 1,2 Guarantee Fund 120 DUE FROM INSURANCE ACTIVITIES 120.03 Due from Intermediaries 120.03.1 Due from Agents 3 1,2 715 COMPULSORY TRAFFIC ( COMPULSORY MOTORWAYS FINANCIAL LIABILITY) 715.01 Technical Revenues from Compulsory Traffıc 715.01.1.2 Premiums transferred to reinsurer (-) 57,6 320 DEBTS FROM INSURANCE ACTIVITIES 320.07 Debts to reinsurer 120 DUE FROM INSURANCE ACTIVITIES 120.07 Due from reinsurer 715.02.5 OPERATING EXPENSES 715.02.5.7 Reinsurance Commissions 57,6 17,28 17,28 II. Cancellation of Premium • Avoidance of premium for non-life insurance: the amount of pertaining to the rest insurance period is deducted from the relevant technical revenue account. That amount is paid back to insured. • Also, the amount of BITT to pertaining to the rest period is paid back to insured. • Insurance Company will deduct relevant tax amount that is paid back from amount of BITT to pertaining to month when avoidance is made in. Example • By demand of insured, Insurance agent enounces to avoid a hull policy that is arranged by itself with net premium amount of 750YTL. The maturity of the policy is 180 days after date, and all policy amount has been paid in cash. • Agency commission %10 • Reinsurance share %80 • Reinsurance commission %30 Answer • • • • Amount to be accounted as remand: Net premium: 750 x 180 /365 = 369,86 Tax: 750 x0,05=37,50 x180/365= 18,49 Commission: 750 x0,10=75x180/365= 36,99 • Reinsurance shares to be remanded: • Premium: 750x0,80= 600x180/365=295,89 • Commission: 600x0,30= 180x180/365= 88,77 Journal Entry 717 LAND MOTOR VEHICLES HULL INSURANCE 369,86 717.01 Technical Revenue from Hull 717.01.1.1 Gross Recorded Premiums 360 TAXES TO BE PAID 18,49 BITT 120 DUE FROM INSURANCE ACTIVITIES 120.03 Due from Intermediaries 120.03.1 Due from Agents 120 DUE FROM INSURANCE ACTIVITIES 120.03 Due from Intermediaries 120.03.1 Due from Agents 388,35 36,99 717 LAND MOTOR VEH. HULL INS. 717.01 Technical Expenses from Hull 717.02.5.1 Prod. Com.Exp.(-) 36,99 1/5/200 120 DUE FROM INSURANCE ACTIVITIES 120.07 Due from Reinsurers 295,89 717 LAND MOTOR VEHICLES HULL INSURANCE 717.01 Technical Revenues from Land Motor Vehıcles Hull 717.01.1.2 Premiums Transferred to Reinsurer 717.02.5 OPERATING EXPENSES 717.02.5.7 Reinsurance Commissions 295,89 88,77 320 DEBTS FROM INSURANCE ACTIVITIES 320.07 Debts to Reinsurers 88,77 III. Damages • Insurance firms are in charge of paying for damages. • Damages are booked as “Activity Expenses”. • The expert determines the damage and its compensation is paid by insurance firm. • The expert may be; - An employee of insurance firm or - Self employed person (if it is a natural person, 20% of expert’s fee is deducted.) Damage Payment • 717 LAND MOTOR VEHICLES HULL INSURANCE • 717.02 Land Motor Vehicles Hull Insurance Technical Expense • 717.02.1.1 Gross Damages Paid • 717.02.1.2 Reinsurer Share of Damages Paid (-) Example • Ayşe Yılmaz is a customer of West Insurance, had an accident and her car had damaged. • Insurance firm hired a self-employed expert and he determined the damage as 2100 TL. • Expert’s fee is 150 TL. • The claim result is paid by EFT. • Reinsurance rate is 80% on insurance policy. Solution: -----------------------------------------------------/--------------------------------------------------------717 LAND MOTOR VEHICLES HULL INSURANCE 2.250 717.02 Land Motor Vehicles Hull Insurance Technical Expense 717.02.1.1 Gross Damages Paid 102 BANKS 2.100 100 CASH 120 360 TAXES AND FUNDS TO BE PAID 30 --------------------------------------------------/-----------------------------------------------------------120 DUE FROM INSURANCE ACTIVITIES 1.680 120.07 Due From Insurance Firms 701 FIRE INSURANCE 1.680 701.02 Technical Expenses From Fire Insurance 701.02.1.2 Compensations Paid (Net of the Reinsurer Share) -------------------------------------------------/------------------------------------------------------------- IV. Provisions Technical Provisions 1- PROVISIONS FOR NON-ACQUIRED PREMIUMS 2- PROVISIONS FOR CONTINUING RISKS 3- PROVISION FOR OUTSTANDING LOSS AND COMPENSATIONS PROVISIONS FOR NON-ACQUIRED PREMIUMS • 701.01 TECHNICAL REVENUE FROM FIRE INSURANCE • 701.01.2.2.1 NON-ACQUIRED PREMIUMS PROVISION (NET OF THE REINSURER SHARE ) (+) • 701.01.2.2.2 VARIANCE IN CONTINUING RISKS PROVISION (NET OF THE REINSURER SHARE AND TRANSFERRED PORTION) (+/-) • 350 PROVISIONS FOR NON-ACQUIRED PREMIUMS • 350.02 PROVISIONS FOR NON-ACQUIRED PREMIUMS REINSURER SHARE EXAMPLE • Trust Insurance Firm has fire policies which are calculated 5.000.000 TL for next term in 31.12.2008. • 60% of it is passed to the reinsurers. Solution: ------------------------------------------31.12.2008---------------------------------------------701.01 Technical Revenue From Fire Insurance 5.000.000 701.01.2.1.1 Non-Acquired Premiums Provision 350 NON-ACQUIRED PREMIUMS 5.000.000 PROVISION 350.01 Non-Acquired Premiums Provision ------------------------------------------31.12.2008---------------------------------------------350 NON-ACQUIRED PREMIUMS PROVISION 3.000.000 350.01 Non-Acquired Premiums Provision Reinsurer Share (-) 701.01 Technical Revenue From 3.000.000 Fire Insurance 701.01.2.2.1 Non-Acquired Premiums Provision Reinsurer Share (-) ------------------------------------------------/------------------------------------------------------ At the beginning of next year: ------------------------------------------31.12.2008---------------------------------------------701.01 Technical Revenue From Fire Insurance 3.000.000 701.01.2.2.2 Deferred Non-Acquired Premiums Provision Reinsurer Share 350 NON-ACQUIRED PREMIUMS 3.000.000 PROVISION 350.01 Non-Acquired Premiums Provision Reinsurer Share (-) ------------------------------------------31.12.2008---------------------------------------------350 NON-ACQUIRED PREMIUMS PROVISION 5.000.000 350.01 Non-Acquired Premiums Provision 701.01 Technical Revenue From 5.000.000 Fire Insurance 701.01.2.2.1 Deferred Non-Acquired Premiums Provision ------------------------------------------------/------------------------------------------------------ PROVISIONS FOR OUTSTANDING LOSSES • • • • • • • • 765 MACHINE BREAKAGE 765.02 TECHNICAL REVENUE OF MACHINE BREAKAGE 765.02.2.1.1 PROVISIONS FOR OUTSTANDING LOSSES (+) 765.02.2.1.2 DEFERRED PROVISIONS FOR OUTSTANDING LOSSES 765.02.2.2.1 PROVISIONS FOR OUTSTANDING LOSSES REINSURER SHARE 765.02.2.2.2 DEFERRED PROVISIONS FOR OUTSTANDING LOSSES REINSURER SHARE 353.01 PROVISION FOR OUTSTANDING LOSS AND COMPENSATIONS 353.02 PROVISION FOR OUTSTANDING LOSS AND COMPENSATIONS REINSURER SHARE EXAMPLE: • Trust Insurance Firm’s outstanding loss is 750.000 TL for 31.12.2008. • Reinsurer share is 70% Solution: ----------------------------------------31.12.2008---------------------------------------------765.02 Technical Revenue of Machine Breakage 750.000 765.02.2.1.1 Provisions for Machine Breakage 353 PROVISIONS FOR OUTSTANDING 750.000 LOSSES 353.01Provisions For Outstanding Losses --------------------------------------31.12.2008-----------------------------------------------353 PROVISIONS FOR OUTSTANDING LOSSES 525.000 353.02 Provisions For Outstanding Losses Reinsurer Share 765.02 Technical Revenue of Machine Breakage 525.000 765.02.2.2.1 Provisions for Machine Breakage Reinsurer Share At the beginning of next year: ----------------------------------------01.01.2009--------------------------------------------353 PROVISIONS FOR OUTSTANDING LOSSES 750.000 353.02 Provisions For Outstanding Losses 765.02 Technical Revenue of Machine Breakage 750.000 765.02.2.1.1 Deferred Provisions for Machine Breakage --------------------------------------01.01.2009----------------------------------------------765.02 Technical Revenue of Machine Breakage 525.000 765.02.2.2.1 Provisions for Machine Breakage Reinsurer Share 353 PROVISIONS FOR OUTSTANDING 525.000 LOSSES 353.01Provisions For Outstanding Losses Reinsurer Share --------------------------------------------/------------------------------------------------------- Financial Statements in Insurance Companies Asset Items of Balance Sheet BALANCE SHEET Current PeriodPrevious Period Structure of Balance Sheet ASSETS I. Current Assets A. Cash and Cash Equivalents B. Financial Assets and Financial Investments The Risk of Which Belongs to the Insured C. Due From Principal Activities D. Due From Related Parties E. Other Receivables F. Expenses and Revenue Accruals for Future Months G. Other Current Assets II. Non-Current Assets A. Due From Principal Activities B. Due From Related Parties C. Other Receivables D. Financial Assets E. Tangible Assets F. Intangible Assets G. Expenses and Revenue Accruals for Future Months H. Other Non-Current Assets FootNote (31/12/XXX2) (31/12/XXX1) Financial Statements in Insurance Companies Basic Items related to liability and equity I. Short Term Obligations A. Financial Debts B. Debts From Principal Activities C. Due to Related Parties Structure of Balance Sheet D. Other Debts E. Insurance Tachnical Provisions F. Taxes and Other Sim ilar Obligatons To Be Paid and Provisions Allocated For Them G. Provisions Related to Other Risks H. Revenues and Expense Accruals For Future Months I. Other Short Term Obligations II. Long Term Obligations A. Financial Debts B. Debts From Principal Activities C. Due to Related Parties D. Other Debts E. Insurance Tachnical Provisions F. Other Obligatons and Provisions Allocated For Them G. Provisions Related to Other Risks H. Revenues and Expense Accruals For Future Years I. Other Long Term Obligations III. Equity Capital A. Paid in Capital B. Capital Reserves C. Profit Reserves D. Profits of Previous Years E: Losses of Previous Years (-) F. Term Net Profit Financial Statements of in Insurance Companies INCOME STATEMENT BASIC ITEMS OF INCOME STATEMENT Current PeriodPrevious Period Note I. TECHNICAL DIVISION A. Non-Life Technical Income B. Non-Life Technical Expense (-) C. Non-Life Technical Profit (A-B) D. Life Technical Income E. Life Technical Expense (-) F. Life Technical Profit (D-E) G. Individual Retirement Technical Income H. Individual Retirement Technical Expense (-) I. Individual Retirement Technical Profit (G-H) J. Total Technical Profit (C+F+I) II. NON TECHNICAL DIVISION K. Investment Income L. Investment Expenses (-) M. Other Income and Expenses (+/-) N. Net Profit / (Loss) (31/12/XXX2) (31/12/XXX1)