Financial Aspects of Non-Life Insurance
What this domain tests
How non-life insurers recognize premium, hold reserves, measure solvency, present financial statements, invest assets and apply taxes.
Core rules
- Reserves. Unearned premium reserve (UPR) is the unexpired portion of written premium; loss reserves include reported and incurred-but-not-reported (IBNR) claims. Reserves are liabilities, not profit.
- Solvency. Admitted assets minus liabilities must meet required solvency margins; regulators monitor capital, reserve adequacy and risk concentration.
- Financial statements. Premium is earned over the policy period; acquisition costs are deferred or expensed under applicable rules; claims and expenses are matched to the period.
- Investments. Assets backing reserves must be admissible, diversified and within regulatory limits; liquidity matters for claim payments.
- Taxation. Premiums attract premium tax and documentary stamp tax; claims and operating expenses are generally deductible; reinsurance and tax treaties may change treatment.
Worked example
A 12-month fire policy is written on 1 July for PHP 120,000. At 31 December, six months are unexpired, so the UPR is PHP 60,000 and only PHP 60,000 is earned in the year. If a large claim is reported but not yet paid, the insurer records a loss reserve; if the claim is unreported, an IBNR reserve is also needed. Paying a dividend or commission does not reduce the reserve obligation.
Traps
Do not treat written premium as earned premium; do not omit IBNR; do not count non-admitted assets for solvency; and do not assume tax is due only when cash is received. Reserve strengthening reduces reported profit and must be explained.