INSURANCE COMPANY FINAL ACCOUNTS

Life Insurance
Illustration 1 The Life Fund of Life Assurance Company was Rs. 86,48,000 as on 31 st March,2004. The interim bonus paid during the intervaluation period was Rs. 1,48,000. The periodical actuarial valuation determined the net liability at Rs. 74,25,000. Surplus brought forward from the previous valuation was Rs. 8,50,000. The Directors of the company proposed to carry forward Rs. 9,31,000 and to divide the balance between the shareholders and the policyholders in ratio of 1:19. Show: (i) Valuation Balance Sheet (ii) Net Profit for Intervaluation period (iii) Distribution of Surplus.

Solution:

Valuation Balance Sheet

Particulars Net Liability as per actuary certificate Rs. Particulars Rs. 86,48,000

74,25,000 Life Fund

Surplus (bal.fig)

12,23,000

86,48,000

86,48,000

Net Profit for Intervaluation Period

Particulars Surplus as above (+) Interim Bonus Total Surplus (-) Surplus b/f from previous valuation Net Profit for Intervaluation Period Rs. 12,23,000 1,48,000 13,71,000 8,50,000 5,21,000

Distribution of Surplus
Total Surplus (-) Surplus c/f to next valuation Distributable Surplus 13,71,000 9,31,000 4,40,000

95% Policyholders

4,18,000

5% shareholders 22,000

(-) Interim Bonus Paid 1,48,000 Now Payable

2,70,000

Illustration 2 The following balances are extracted from the books of AB Life Insurance Corporation: Life Insurance Fund (as on 31.3.2004) Net Liabilities as per Valuation Interim Bonus Paid You are required to show: (a) The Valuation Balance Sheet as on 31.3.2004 (b) The distribution statement. Rs. 1,600 lakhs Rs. 1,200 lakhs Rs. 150 lakhs

Solution:

Valuation Balance Sheet

Particulars Net Liability as per actuary certificate Surplus Rs. 1,200 Particulars Life Fund Rs. 1,600

400 1,600 1,600

Net Profit for Intervaluation Period

Particulars Surplus as above (+) Interim Bonus Total Surplus (-) Surplus b/f from previous valuation Net Profit for Intervaluation Period Rs. 400 150 550 550

Distribution of Surplus
Total Surplus (-) Surplus c/f to next valuation Distributable Surplus 550 550

95% Policyholders

522.5

5% shareholders 27.5

(-) Interim Bonus Paid 150 Now Payable

372.5

Illustration 3 The Life Insurance fund of Bharat Life Insurance Co. Ltd. was Rs.43 lakhs on 31st March 2006. Its actual valuation on 31st March 2006 was disclosed a net liability of Rs. 34 lakhs. An interim bonus of Rs. 4 lakhs was paid to the policy holders during the year. It is now proposed to carry forward Rs. 150 lakhs and to divide the balance between the policy holders and the shareholders. You are required to prepare: (a) Valuation Balance Sheet (b) The net profit for the year and (c) The distribution of profit.

Solution:

Valuation Balance Sheet

Particulars Rs.(in lakhs) 34 Particulars Rs.(in lakhs) 43

Net Liability as per actuary certificate Surplus

Life Fund

9 43 43

Net Profit for Intervaluation Period

Particulars Surplus as above (+) Interim Bonus Total Surplus (-) Surplus b/f from previous valuation Net Profit for Intervaluation Period Rs.(in lakhs) 9 4 13 13

Distribution of Surplus

Total Surplus (-) Surplus c/f to next valuation Distributable Surplus

13.0(in lakhs) 1.5(in lakhs) 11.5(in lakhs)

95% Policyholders (-) Interim Bonus Paid Now Payable

10,92,500 4,00,000

5% shareholders

57,500

6,92,500

Marine Insurance
Illustration 1 From the following figures taken from Bharat Insurance Company Ltd. Prepare Revenue A/c Marine Department for the year ended 31st March,2006

Rs. Reserve for unexpected risk as on 1st April 2005 Premium on Direct business Claim outstanding as on 1st April 2005 Claim paid during the year Commission paid Premium on re-insurance accepted Premium on re-insurance ceded Commission on re-insurance ceded Claims outstanding on 31st March 2006 Re-insurance claim recovered Commission on Re-insurance accepted Operating expenses 10,20,000 15,80,000 2,80,000 8,70,000 5,20,000 7,30,000 3,20,000 16,000 1,40,000 4,30,000 36,500 4,80,000

Solution: FORM B RA Revenue Account of Marine Business for the year ended 31st March,2006 Particulars Schedule No. 31-3-2006 (C.Y.) 1 10,20,000 31-3-2005 (P.Y.)

Premiums Earned Profit/Loss on Sale of Investment Other Incomes Interest, Dividend & Rent Received (Gross) (A)

10,20,000

Claims Incurred Commission Operating Expenses Relating to Insurance Business (B)

2 3 4

3,00,000 5,40,500 4,80,000

13,20,500

OPERATING LOSS (A B)

3,00,500

Schedule 1: Premiums Earned Particulars Premium on Direct Business (+) Premium on Re-insurance Accepted (-) Premium on Re-insurance Ceded Net Premiums +/- Changes in Reserve for unexpired risk Rs. 15,80,000 7,30,000 3,20,000 19,90,000 (9,70,000) 10,20,000 Rs.

Working Note: 2 Changes in Reserve for Unexpired Risk Particulars Opening Fund Normal Additional 10,20,000 10,20,000 Rs. Rs

Closing Fund Normal Additional 19,90,000 19,90,000 (9,70,000)

Schedule 2: Claims Incurred Particulars Claims Paid on DB (+) Claims Paid on RA (-) Claims Recd on RC Net Claims 8,70,000 (4,30,000) 4,40,000 Rs. Rs.

(+) Closing Outstanding (-) Opening Outstanding (+) Expenses Relating to settlement of claims

1,40,000 2,80,000 -

3,00,000

Schedule 3: Commission Particulars Commission on DB (+) Commission on RA (-) Commission on RC Rs. 5,20,000 36,500 (16,000) Rs.

5,40,500

Schedule 4: Operating Expenses Relating to Insurance Business

Particulars Operating Expenses

Rs.

Rs. 4,80,000

Illustration 2: The following balances relate to the Sea Blessed Insurance Co. Ltd. 31.3.2003 Premiums Commission on Direct Business Commission on Re-insurance Accepted Commission on Re-insurance ceded Claims under Policies (paid during the year) Depreciation on Furniture, car etc. Profit on sale of Motor Car Loss on Sale of old furniture Interest on Income Tax Refund Audit Fees Salaries to staff Printing, Postage and Stationery Legal Expenses Miscellaneous Expenses Bad Debts Recoveries in respect of claim under re-insurance Re-insurance Premium 5,00,000 22,500 17,500 4,000 86,250 12,750 6,000 Nil 14,000 10,000 1,25,000 46,500 5,000 15,500 750 10,000 50,000 31.3.2004 6,00,000 30,000 25,000 24,000 1,62,250 15,750 Nil 2,000 7,000 10,000 1,35,000 57,500 4,000 22,500 22,200 20,000 1,00,000

Additional Information: Total amounts of estimated liability in respect of outstanding claims as at 31.3.2002; 31.3.2003; 313.2004 were Rs. 34,250, Rs. 44,750 and Rs.55,550 respectively. Reserve for unexpired risks as at 31.3.2202 was Rs.3,20,000 and the Additional Reserve was 32,000. Reserve for unexpired was to be provided for at 100% and Additional Reserve at 10% of net Premium income for the year ending 31.3.2003

and 31.3.2004. Prepare Marine Revenue Accounts of Sea Blessed Insurance Co. Ltd. for the year ending 31.3.2003 and 31.3.2004 in the prescribed form.

Solution: FORM B RA Revenue Account of Sea Blessed Insurance Co. Ltd. For the year ended 31-3-2004

Particulars

Schedule No. 31-3-2004 (C.Y) 1 4,45,000 -

31-3-2003 (P.Y) 3,07,000 -

Premiums Earned Profit/Loss on Sale of Investment Other Incomes Interest, Dividend & Rent Received (Gross) (A)

4,45,000

3,07,000

Claims Incurred Commission Operating Expenses Relating to Insurance Business (B)

2 3 4

1,53,050 31,000 2,66,950

86,750 36,000 2,15,500

4,51,000

3,38,250

OPERATING LOSS (A - B)

(6,000)

(31,250)

Schedule 1: Premiums Earned Particulars Premium on Direct Business (+) Premium on Re-insurance Accepted (-) Premium on Re-insurance Ceded Net Premiums +/- Changes in Reserve for unexpired risk 6,00,000 (1,00,000) 5,00,000 (55,000) 4,45,000 5,00,000 (50,000) 4,50,000 (1,43,000) 3,07,000 31.3.2004 31.3.2003

Working Note: 2 Changes in Reserve for Unexpired Risk Particulars Opening Fund Normal Additional 4,50,000 45,000 4,95,000 Closing Fund Normal Additional 5,00,000 50,000 5,50,000 (55,000) 4,50,000 45,000 4,95,000 (1,43,000) 3,20,000 32,000 3,52,000 Rs. Rs.

Schedule 2: Claims Incurred Particulars Claims Paid on DB (+) Claims Paid on RA (-) Claims Recd on RC Net Claims 1,62,250 (20,000) 1,42,250 86,250 (10,000) 76,250 31.3.2004 31.3.2003

(+) Closing Outstanding (-) Opening Outstanding (+) Expenses Relating to settlement of claims

55,550 (44,750) -

44,750 (34,250) -

1,53,050

86,750

Schedule 3: Commission Particulars Commission on DB (+) Commission on RA (-) Commission on RC 31.3.2004 30,000 25,000 24,000 31,000 31.3.2003 22,500 17,500 4,000 36,000

Schedule 4 : Operating Expenses Relating to Insurance Business

Particulars Salaries to staff Printing, Postage & Stationery Audit Fees Legal Expenses Miscellaneous Expenses Bad Debts Depreciation on furniture, car etc.

31.3.2004 1,35,000 57,500 10,000 4,000 22,500 22,200 15,750 2,66,950

31.3.2003 1,25,000 46,500 10,000 5,000 15,500 750 12,750 2,15,500

Following items have been ignored as it appears in Profit and Loss A/c 1) Profit on Sale of Motor Car 2) Loss on Sale of old furniture 3) Interest on Income Tax Refund.