FINAL ACCOUNTS OF GENERAL INSURANCE COMPANIES
All the insurances other than the life insurance is covered under General Insurance. It includes fire insurance, marine insurance, cargo insurance, mobile insurance etc. The General insurance Corporation of India is the apex general insurance institution of India. The Final Accounts of General Insurance Companies include Revenue Account, Profit and Loss Account, and Balance Sheet.
FEATURES OF GENERAL INSURANCE
- General Insurance contract are generally made for one year or 12 months.
- Insurance contracts can be made at any time during the financial year.
- Premiums in respect of general insurance are paid in the advance.
- Unexpired amount of premium is carried forward in the next year as ‘Reserve for Unexpired Risks’.
PRINCIPLES OF GENERAL INSURANCE
The following are the various principles of General Insurance:
PRINCIPLES OF UTMOST GOOD FAITH
This is a very basic and primary principle of insurance contracts because the insurance company has to provide a certain level of security to the insured person’s life. This principles states that:
- Both parties involved in an insurance contract—the insured (policy holder) and the insurer (the company)—should act in good faith towards each other.
- The insurer and the insured must provide clear and concise information regarding the terms and conditions of the contract
If the insurance company provides the falsified or misrepresented information, then they are liable in situations where this misrepresentation or falsification has caused the loss to the insured.
PRINCIPLES OF INSURABLE INTEREST
Insurable interest means that the insured must have some interest in the subject matter of the insurance contract. The subject matter of the contract must provide some financial gain to the policyholder and would lead to a financial loss if damaged, destroyed, stolen, or lost. This principles states that:
- The insured must have an insurable interest in the subject matter of the insurance contract.
- The owner of the subject is said to have an insurable interest until he or she is no longer the owner.
PRINCIPLE OF INDEMNITY
Indemnity is a guarantee to restore the insured to the position he or she was in before the uncertain incident that caused a loss for the insured. The insurance company i.e. the insurer compensates the insured or policyholder against the loss arises from the uncertain event.
The insurance company promises to compensate the policyholder for the amount of the loss up to the amount agreed upon in the contract.
The amount of compensation is in direct proportion with the incurred loss. The insurance company will pay up to the amount of the incurred loss or the insured amount agreed on in the contract, whichever is less. For example, if the car is insured for Rs. 10,000 but damages are only Rs. 3,000. The insured will get Rs. 3,000 only and not the full amount.
PRINCIPLE OF CONTRIBUTION
Principle of contribution is an extension of principle of indemnity. Contribution allows for the insured to claim indemnity to the extent of actual loss from all the insurance contracts involved in his or her claim.
It allows proportional responsibility for all insurance coverage on the same subject matter
PRINCIPLE OF SUBROGATION
The principle of subrogation states that after the insured has been compensated for the incurred loss on a piece of property that was insured, the rights of ownership of this property go to the insurer.
This principle is applicable only when the damaged property has any value after the event causing the damage. The insurer can benefits out of the subrogation rights only to the extent of the amount he has paid to the insured as compensation.
PRINCIPLE OF PROXIMATE CAUSE
This principle is also known as ‘causa proxima.’ As per this principle, the loss of insured property can be caused by more than one incident even in succession to each other. The property may be insured against some but not all causes of loss. When a property is not insured against all causes, the nearest cause is to be found out. If the proximate cause is one in which the property is insured against, then the insurer must pay compensation. If it is not a cause the property is insured against, then the insurer doesn’t have to pay.
PRINCIPLE OF LOSS MINIMIZATION
This principle states that in an uncertain event, it is the insured’s responsibility to take all precautions to minimize the loss on the insured property.
Insurance contracts shouldn’t be about getting free stuff every time something bad happens. Therefore, a little responsibility lies with the insured to take all measures possible to minimize the loss on the property.
FINAL ACCOUNTS OF GENERAL INSURANCE COMPANIES
REVENUE ACCOUNT
FORM B – RA
Name of the Insurer:
Registration No. and Date of Registration with the IRDA
REVENUE ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 20…….
| PARTICULARS | SCHEDULE NO. | CURRENT YEAR | PREVIOUS YEAR |
| Premium earned net Profit/ Loss on sale/ redemption of investments Other Incomes (to be specified) Interests, Dividends and Rent (Gross) TOTAL (A) | 1 | ||
| Claims incurred (Net) Commission Operating expenses related to insurance business TOTAL (B) | 2 3 4 | ||
| Operating Profit/ (Loss) from Fire/ Marine/ Miscellaneous Business (C)= (A)-(B) | |||
| APPROPRIATIONS Transfer to shareholder’s account Transfer to Catastrophe Reserve Transfer to other reserve (to be specified) TOTAL (C) |
PROFIT AND LOSS ACCOUNT
FORM B-PL
Name of the Insurer:
Registration No. and date of registration with IRDA
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 20…..
| PARTICULARS | SCHEDULE NO. | CURRENT YEAR | PREVIOUS YEAR |
| Operating Profit/ (Loss) Fire Insurance Marine Insurance Miscellaneous Insurance Income from investments Interest, dividends and rent- gross Profit on sale/ redemption of investments Less: (Loss on/ redemption of investments) Other Incomes (to be specified) TOTAL (A) | |||
| Provision (other than taxation) -For dimunition in the value of investments (net) -Provision for doubtful debts -Others (to be specified) Other expenses Expenses other than those directly related to the Insurance business Bad debts written off Other (to be specified) TOTAL (B) | |||
| Profit/ (Loss) before tax Provisions for taxation Profit/ (Loss) After tax | |||
| APPROPRIATIONS Interim dividends paid during the year Proposed final dividend Dividend distribution tax Transfer to reserves/ other accounts (to be specified) Balance of profit/ loss brought forward from last year Balance carried over to the balance sheet |
GUIDELINES REGARDING PREPARATION OF REVENUE ACCOUNT AND PROFIT AND LOSS ACCOUNT
- Premium income received from business concluded in and outside India shall be separately disclosed.
- Reinsurance premiums whether on business ceded or accepted are to be brought into account at gross value.
- Claims incurred must include:
- Claims paid
- Specific claims settlement costs
- Fees and incomes connected with claims shall be included in the claims.
- Income from rent shall include only the realized rent. It shall not record any notional rent.
BALANCE SHEET OF GENERAL INSURANCE COMPANIES
FORM B- BS
Name of the Insurer:
Registration No. and date of registration with IRDA
BALANCE SHEET AS AT 31ST MARCH, 20…..
| PARTICULARS | SCHEDULE | Current Year | Previous Year |
| SOURCES OF FUNDS Share Capital Reserve and Surplus Fair value change account Borrowings TOTAL | 5 6 7 | ||
| APPLICATION OF FUNDS Investments Loans Fixed assets Current assets: Cash and Bank Balance Advances and other assets Sub-total (A) Current liabilities Provisions Sub-total (B) Net Current Assets (C)= (A)-(B) Miscellaneous Expenditure (to the extent not written off or adjusted) Debit Balance In Profit and Loss Account (Shareholders’ Account) TOTAL | 8 9 10 11 12 13 14 15 |
GUIDELINES FOR PREPARATION OF BALANCE SHEET
- Investments in subsidiary/ holding companies/ joint ventures and associates shall be separately disclosed, at cost.
- Investments made out of catastrophe reserves should be shown separately.
- Aggregate amount of company’s investments other than listed equity securities and derivative instruments and also the market value thereof shall be disclosed.
- Debt securities will be considered as ‘held to maturity’ securities and will be measured at historical cost subject to amortization.
- Investments made within twelve months will be classified as ‘Short term Investments’.
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