FINAL ACCOUNTS OF GENERAL INSURANCE COMPANIES

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:

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’.
Also study: Also study: Also study: Also study: 
Meaning of companyTypes of companiesOne person companyPublic VS Private Company
Sweat Equity SharesStock vs SharesReserve Capital Vs Reserve CapitalDifferent types of preference shares
Equity vs Preference sharesSlip System of PostingRedemption of preference sharesBuy Back of shares
DebenturesIssue of debenturesRedemption of DebenturesSources of redemption of debentures
Balance Sheet as per Companies Act 2013Divisible ProfitsAmalgamationPurchase consideration
Alteration of share capitalInternal ReconstructionProvision of banking regulation act 1949Asset classification of banking company
Non-performing assetsAdvances in banking companyLife Insurance AccountingValuation balance sheet
Financial statements of life insurance companiesFinal accounts of general insurance companies

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