General Insurance Accounts Preparation
General Insurance Accounts Preparation
This domain tests whether you can build and read a general insurer's financial statements: Revenue Account, Profit and Loss Account, Balance Sheet and supporting schedules. The exam focuses on premium earned, claims incurred, reserves, reinsurance and solvency, not on bookkeeping mechanics.
Core rules
- A general insurer prepares financial statements under the Insurance Act, 1938 and the IRDAI (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002, with segmental Revenue Accounts for classes such as fire, marine, motor, health and miscellaneous.
- Gross premium written less reinsurance ceded gives net premium. Net premium earned is net premium adjusted for the change in unexpired risk reserve (URR): net premium − closing URR + opening URR.
- Claims incurred = claims paid + closing outstanding claims − opening outstanding claims + change in IBNR/IBNER. Do not use claims paid as incurred.
- Underwriting result = net premium earned − claims incurred − acquisition costs − operating expenses. Investment income and other income are then shown in the P&L.
- Balance-sheet liabilities include outstanding claims, URR, IBNR/IBNER, payables and provisions; assets include investments, reinsurance recoverables and receivables.
Worked example
Gross premium 1,000; reinsurance ceded 200; opening URR 150; closing URR 220. Net premium = 800; net premium earned = 800 − (220 − 150) = 730. Claims paid 300; opening outstanding 80; closing 100; IBNR rises by 20. Claims incurred = 300 + 100 − 80 + 20 = 340. Acquisition costs 100 and management expenses 80 give underwriting result 730 − 340 − 180 = 210. Add investment income 50 to get profit before tax 260, before tax and other adjustments.
Traps
Mixing gross and net premium; omitting the URR movement; treating claims paid as claims incurred; double-counting reinsurance recoveries; ignoring IBNR; and confusing solvency with accounting profit.