Insurance Accounting, Finance and Risk Management
This domain tests the numbers: how premium, claims and reserves move through a revenue account, what makes an insurer solvent, and how risk is managed. Expect a short computation.
The revenue account
Written premium adjusted for the unearned premium movement gives earned premium. Claims paid plus outstanding claims plus IBNR gives incurred claims, and the technical account shows the underwriting result before investment income. Commissions and acquisition costs sit in expenses, with deferred acquisition cost amortised in step with the premium.
Reserves and solvency
- Unearned premium reserve: the 1/365 daily pro rata method is accurate; the 25% method is a rough quarterly approximation.
- Outstanding claims and IBNR: notified but unsettled claims, plus incurred but not reported claims.
- Admissible assets exclude intangibles and doubtful debts; the solvency margin compares admissible assets with liabilities and is tested against net premium income under the Act.
- Risk-based capital ties required capital to the risk actually written rather than to premium volume alone.
- IFRS 17 replaced IFRS 4 for Nigerian insurers, introducing the contractual service margin and a risk adjustment, so profit emerges as cover is provided.
Risk management
Underwriting discipline, reinsurance (treaty and facultative), catastrophe accumulation control, liquidity and asset-liability matching, plus operational and conduct risk.
Worked example
A policy incepts 1 May with ₦1,200,000 annual premium; accounts close 31 December. Under 1/365, 120 days remain unexpired, so UPR = ₦1,200,000 × 120/365 ≈ ₦394,521 and earned premium is ₦805,479. Under the 25% method, UPR = ₦300,000 and earned premium ₦900,000 - roughly ₦95,000 of profit pulled forward.
Traps
Treating cash received as earned premium. Omitting IBNR. Netting reinsurance recoveries against gross claims when the format requires gross.