Financial Accounting for Insurance Companies in India

FINANCIAL ACCOUNTING-IV

Illustration 1:

X insurance company cedes reinsurance business to Y insurance company and Z insurance company cedes
reinsurance business to X insurance company.

Pass necessary entries pertaining to reinsurance business ceded to and by X insurance company.

Illustration 2:

A General Insurance Company provides you the following information:

Fire Business Marine Business
Particulars
(Rs.) (Rs.)
Premiums for 2016-17 (Cr) 12,00,000 25,00,000

Re-insurance premiums for 2016-17 (Dr) 2,00,000 5,00,000

Balance of Account on 1/4/2016

Reserve for unexpired risks 3,00,000 15,00,000

Additional Reserve 50,000 1,00,000

Calculate the amount of ‘Reserve for unexpired risk’ and ‘additional reserve’ for the year 2016-17 if the
additional reserve for unexpired risks is to be maintained at 10% of the net premium.

Illustration 3:

Indian Insurance Co. Ltd. furnishes you with the following information:

On 31/12/2016 it had reserve for unexpired risk to the tune of Rs. 40 crore. It comprised of Rs. 15 crore in
respect of marine insurance business, Rs. 20crore in respect of fire insurance business and Rs. 5 crore in
respect of miscellaneous insurance business.

It is the practice of the company to create reserves at 100% of net premium income in respect of marine
insurance policies and at 50% of net premium income in respect of fire & miscellaneous income policies .

During 2017, the following business was conducted:

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FINANCIAL ACCOUNTING-IV

Rs. in Crores)

Particulars Marine Fire Misc. (Rs.)

(Rs.) (Rs.)

Premium collected from:

• Insured in respect of policies issued 18 43 12

• Other insurance companies in respect of risks 7 5 4

undertaken

Premium paid/payable to other insurance companies on 6.7 4.3 7

business ceded
You are required to:

• Pass journal entries relating to “Unexpired risks reserve”

• Show in columnar form “Unexpired risks reserve” a/c for 2017.

Illustration 4:

From the following, you are required to calculate the amount of claim to be shown in the revenue account for
the year ending 31st Dec, 2011.

Claim intimated in Claim admitted in the Claim paid in the

Rs.
the year year year
2010 2010 2011 15,000

2011 2011 2012 10,000

2009 2010 2010 5,000

2009 2010 2011 12,000

2011 2012 2012 8,000

2011 2011 2011 1,02,000

Claim on account of reinsurance was Rs. 25,000.

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Illustrations 5:

From the following figures appearing in the books of Fire insurance division of a General Insurance Company,
show the amount as it would appear in the Revenue Account for the year ended 31st March 2013.

Particulars Direct Business Re-Insurance (Rs.)

(Rs.)
Claim paid during the year 46,70,000 7,00,000

st
7,63,000 87,000
Claim Payable - 1 April 2012
st
8,12,000 53,000
- 31 March 2013

Claims received - 2,30,000

st
- 65,000
Claims receivable- 1 April 2012
st
- 1,13,000
- 31 March 2013

Expenses of management 2,30,000 -

(includes Rs. 35,000 Surveyor’s fee and Rs. 45,000 Legal expenses for settlement of
claims)

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FINANCIAL ACCOUNTING-IV

Illustration 6:

From the following information of XYZ Marine Insurance Co. Ltd. for the year ending 31/3/2014 calculate Net
premium earned & Net claims incurred.

Particulars Direct Business (Rs.) Re-Insurance (Rs.)

Premium received 92,00,000 7,86,000

Premium receivable as on 1/4/2013 4,59,000 37,000

Premium receivable as on 31/3/2014 3,94,000 33,000

Premium paid - 6,36,000

Premium payable as on 1/4/2013 - 28,000

Premium payable as on 31/3/2014 - 20,000

Claims paid 73,00,000 5,80,000

Claims payable as on 1/4/2013 94,000 16,000

Claims payable as on 31/3/2014 1,01,000 12,000

Claims received - 2,10,000

Claims receivable as on 1/4/2013 - 42,000

Claims receivable as on 31/3/2014 - 39,000

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Illustration 7:

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Illustration 8:

Illustration 9: