ARYA COLLEGE LUDHIANA

Accounts of Insurance
Companies
Project Report
Aditya Sood

Submitted to:

Ms. Charanjit Kaur

Lecturer in Commerce
 Introduction
Insurance is a form of contract or agreement under which one party agrees in return of a consideration
to pay an agreed amount of money to another party to make good for a loss, damage, injury to
something of value in which the insured has a pecuniary interest as a result of some uncertain event.
Insurance is a form of risk management in which the insured transfers the cost of potential loss
to another entity in exchange for monetary compensation known as the premium.

Insurance allows individuals, businesses and other entities to protect themselves against
significant potential losses and financial hardship at a reasonably affordable rate. We say
"significant" because if the potential loss is small, then it doesn't make sense to pay a premium
to protect against the loss. After all, you would not pay a monthly premium to protect against a
$50 loss because this would not be considered a financial hardship for most.

Insurance is appropriate when you want to protect against a significant monetary loss. Take life
insurance as an example. If you are the primary breadwinner in your home, the loss of income
that your family would experience as a result of our premature death is considered a significant
loss and hardship that you should protect them against. It would be very difficult for your family
to replace your income, so the monthly premiums ensure that if you die, your income will be
replaced by the insured amount. The same principle applies to many other forms of insurance.
If the potential loss will have a detrimental effect on the person or entity, insurance makes
sense.

Everyone that wants to protect themselves or someone else against financial hardship should
consider insurance. This may include: 

 Protecting family after one's death from loss of income

 Ensuring debt repayment after death
 Covering contingent liabilities
 Protecting against the death of a key employee or person in your business
 Buying out a partner or co-shareholder after his or her death
 Protecting your business from business interruption and loss of income
 Protecting yourself against unforeseeable health expenses
 Protecting your home against theft, fire, flood and other hazards
 Protecting yourself against lawsuits
 Protecting yourself in the event of disability
 Protecting your car against theft or losses incurred because of accidents
 And many more……
 Types of Insurance

From accounting point of view, insurance may be divided into two types, i.e.,

1. Life Insurance – Life insurance business is carried on by Life Insurance Corporation of

India since 1956 when life insurance business was nationalized. Under this type of
insurance the corporation guarantees to pay a certain sum of money to the policyholder
on reaching a certain age or on his death, whichever is earlier. Life insurance has an
element both of protection and investment.
2. General Insurance – It includes all other types of insurance except life insurance as fire
insurance, marine insurance, accident insurance, burglary, fidelity, third party, workmen
compensation, consequential loss, etc. Under this type of Insurance the insurer
undertakes to indemnify the loss suffered by the insured on happening of a certain
event in consideration of a fixed premium.

The General Insurance business was also taken over by the central government with
effect from 13th May, 1971. Recently the insurance business has been opened to the
private sector. The government has allowed registration of private insurance firms
under the Companies Act, 1956. Thus, private insurance firms are now-a-days allowed
to engage themselves in life insurance and general insurance business.
 Accounts of Life insurance
business

Final accounts of the insurance concerns are prepared according to the provisions of the
Insurance Act, 1938. For maintaining accounts, two types of books are kept by such concerns.

1. Statutory Books – The following books are to be maintained by all insurance offices:
(i) Register of Policies – This register will contain the particulars in respect of each
policy issued by the insurer such as the name and address of the policy holder, the
date when the policy was effected and record of the assignment of the policy(if any).
(ii) Register of Claims – It contains the particulars of each claim such as the date of
claim, the name and address of claimants, the date on which the claim was
discharged, date and ground for rejection, in case the claim is rejected.
(iii) Register of Licensed Insurance Agents – It contains the particulars of various
insurance agents, their names, addresses, particulars of business done and
commission due to them.

2. Subsidiary Books – For proper maintenance of accounts important subsidiary books are
maintained according to the convenience of the concern. These are register of proposals
and proposal advance cash book, first year’s premium cash book, renewal premium cash
book, agency and branch cash book, petty cash book, claims cash book, general cash book
containing the summary of all previous books, bank cash book, commission register, lapsed
and cancelled policies book, journal, agency ledger, policy loan ledger, general loan ledger,
investment ledger, etc.
 Insurance Regulatory and
Development Authority

In order to regulate the insurance business, the government set up in 1996, the Insurance
Regulatory Authority (IRA). Now, this authority is known as the Insurance Regulatory and
Development Authority. In 2002, the authority came with regulations for the preparation of
financial statements of insurance companies. According to the Insurance (Amendment) Act,
2002, the first, second and third schedules prescribed for Balance Sheet, Profit and Loss
Account and Revenue Account respectively as given in Insurance Act, 1938 have been omitted.
Now Revenue Account, Profit and Loss Account and Balance Sheet are to be prepared as per
the formats prescribed by the Insurance Regulatory and Development Authority(IRDA).

A brief description of important regulations prescribed by IRDA is given below:

Preparation of Financial Statements, Management Report and Auditor’s Report

1. An insurer carrying on life insurance business, after the commencement of these

Regulations, shall comply with the requirements of Form A.
2. An insurer carrying on general insurance business, after the commencement of these
Regulations, shall comply with the requirements of Form B.
3. The report of the auditors on the financial statements of every insurer and reinsurer
shall be in conformity with the requirements of Form C, or as near thereto as the
circumstances permit.
 Preparation of Financial
Statements
Form A – RA
Name of the Insurer:
Registration No. and Date of Registration with the IRDA:
REVENUE ACCOUNT FOR THE YEAR ENDED …………………………….
Policyholders’ Account (Technical Account)
No. Particulars Schedul Current Previous
e Year Year
(Rs. ‘000) (Rs. ‘000)
Premiums earned – net
(a) Premium 1
(b) Reinsurance ceded
(c) Reinsurance accepted
Income from Investments
(a) Interest, Dividends & Rent – Gross
(b) Profit on sale/redemption of
investments
(c) (Loss on sale/redemption of
investments)
(d) Transfer/Gain on revaluation/change
in fair value*
Other income (to be specified)
Total (A)
Commission 2
Operating Expenses related to Insurance
Business 3
Provision for doubtful debts
Bad debts written off
Provision for Tax
Provisions (Other than taxation)
(a) For diminution in the value of
investments (net)
(b) Others (to be specified)
Total (B) 4
Benefits Paid (Net)
Interim Bonuses Paid
Change in valuation of liability in respect of
life policies
(a) Gross**
 (b) Amount ceded in Reinsurance
(c) Amount accepted in Reinsurance
Total (C)
Surplus(Deficit) (D) = (A) – (B) – (C)
Appropriations
Transfer to Shareholders’ Account
Transfer to Other Reserves (to be specified)
Balance being Funds for Future
Appropriations
Total (D)

Notes:

* represents the deemed realized gain as per norms specified by the authority

** represents Mathematical Reserves after allocation of bonus

The total surplus shall be disclosed separately witht the following details:

(a) Interim Bonuses paid

(b) Allocation of Bonus to policyholders
(c) Surplus shown in the Revenue Account
(d) Total Surplus [(a) + (b) + (c)]
 FORM A – PL
Name of the Insurer:
Registration No. and Date of Registration with the IRDA:
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
…………………………….
Shareholders’ Account (Non-technical Account)
No. Particulars Schedul Current Previous
e Year Year
(Rs. ‘000) (Rs. ‘000)
Amounts transferred from/to the
Policyholders Account (Technical Account)
Income from investments
(a) Interest, Dividends & Rent – Gross
(b) Profit on sale/redemption of
investments
(c) (Loss on sale/redemption of
investments)
Other Income(to be specified)
Total (A)
Expense other than those directly related to
the insurance business
Bad debts written off
Provisions (Other than taxation)
(a) For diminution in the value of
investments (Net)
(b) Provision for doubtful debts
(c) Others (to be specified)
Total (B)
Profit (Loss) before tax
Provision for Taxation
Profit (Loss) after tax
Appropriations
(a) Balance at the beginning of the year
(b) Interim dividends paid during the
year
(c) Proposed final dividend
(d) Dividend distribution tax
(e) Transfer to reserves/other accounts
(to be specified)
Profit carried…………………..to the Balance
Sheet
Notes to Form A-RA and A-PL:
(a) Premium income received from business concluded in and outside India shall be
separately disclosed
(b) Reinsurance premiums whether on business ceded or accepted are to be brought into
account gross (i.e., before deducting commissions) under the head reinsurance
premiums
(c) Claims incurred shall comprise claims paid, specific claims settlement costs wherever
applicable and change in the outstanding provisions for claims at the year-end
(d) Items of expenses and income in excess of one percent of the total premiums (less
reinsurance) or Rs. 5,00,000 whichever is higher, shall be shown as a separate line item.
(e) Fees and expenses connected with claims shall be included in claims
(f) Under the sub-head “Others” shall be included items like foreign exchange gains or
losses and other items
(g) Interest, dividends and rentals receivable in connection with an investment should be
stated at gross amount, the amount of income tax deducted at source being included
under “advance taxes paid and taxes deducted at source”
(h) Income from rent shall include only the realized rent. It shall not include any notional
rent
 FORM A – BS
Name of the Insurer:
Registration No. and Date of Registration with the IRDA:
BALANCE SHEET AS AT …………………………….

No. Particulars Schedul Current Previous

e Year Year
(Rs. ‘000) (Rs. ‘000)
Sources of Funds
Shareholders’ Funds:
Share Capital 5
Reserves and Surplus 6
Credit/Debit Fair Value Change Account
Sub-Total
Borrowings 7
Policyholders’ Funds:
Credit/Debit Fair Value Change Account
Policy Liabilities
Insurance Reserves
Provision for Linked Liabilities
Sub-Total
Funds for Future Appropriations
Total
Application of Funds
Investments
Shareholders’ 8
Policyholders’ 8A
Assets held to cover Linked Liabiiities 8B
Loans 9
Fixed Assets 10
Current Assets
Cash and Bank Balances 11
Advances and Other Assets 12
Sub-Total (A)
Current Liabilities 13
Provisions 14
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
CONTINGENT LIABILITIES
No. Particulars Current Year Previous Year
(Rs. ‘000) (Rs. ‘000)
1 Partly paid-up investments
2 Claims, other than against policies, not acknowledged
as debts by the company
3 Underwriting commitments outstanding (in respect of
shares and securities)
4 Guarantees given by or on behalf of the company
5 Statutory demands/liabilities in dispute, not provided
for
6 Reinsurance obligations to the extent not provided
for in accounts
7 Others (to be specified)
TOTAL
 Acknowledgement

I owe a great many thanks to a great many people who helped and supported me during the
writing of this project.

My deepest thanks to Lecturer, Ms. Charanjit Kaur the guide of the project for guiding and
correcting various documents of mine with attention and care.

I express my thanks to the Principal, Arya College, Ludhiana for extending his support.

I would also thank my institution and my friends without whom this project would have been a
distant reality. I also extend my heartfelt thanks to my family and well wishers.
 Bibliography
Book : Corporate Accounting

By: S.P. Jain and K.L. Narang

Published by Kalyani Publishers

 Contents

 Introduction
 Types of Insurance
 Accounts of Life Insurance Business
 Insurance Regulatory and Development Authority
 Preparation of Financial Statements
 Financial Statements of LIC Housing Finance Limited (Profit and Loss Account, Balance
Sheet)
 Bibliography