Basic Principles of Insurance
Finance
Profit before Tax
Investment Income Underwriting Profits
(Income) (Income)
Earned premium Net PremiumUPT on Net Premium
Intt-Shareholders Fund (Income) (Income) (Expenses)
(Income)
GWP UPT on GWP
Intt-PolicyholdersFundNet Commission
(Income) (Income) (Expenses)
(Income) Ceded Premium
UPT on Ceded Premium
Intt-Policyholders Fund (Expenses) (Income)
(Income)
Net Incurred ClaimsDirect I/Claims
R/I Recovery-Incurred Claims
(Expenses) (Expenses) (Income)
Direct claims paid
R/I Claims Paid RecV
Expenses of Management (Expenses) (Income)
Direct Claims O/s
R/I Claims o/s Recv
(Expenses)
(Expenses0 (Income)
Insurance Premium
An insurance premium is the actual
amount of money charged by
insurance companies for active
coverage.
An insurance premium for the same
service can vary widely among
insurance providers.
Insurance agents or brokers will take
your basic information and calculate
Gross written Premium
Premium charged by the company
from the client, net of discount, if any,
but does not include
Service Tax
Share of premium due to the other
company, in the case of Coinsurance
Ceded Premium
Premium payable to reinsurer for the
risk undertaken by them under
Proportional reinsurance arrangement
Non-proportional reinsurance
arrangement to further protect the
net retentions of the company under
- Excess of Loss Cover
- Catastrophe Cover
Net Premium
Premium due on the risk retained by
the company computed as under:
Gross Written Premium, less
Ceded Premium
Unearned Premium Transfer
UPT-Direct Premium: Proportionate GWP
for unexpired period of Policy
UPT-Ceded Premium: Proportionate
Ceded Premium for unexpired period of
Policy
Calculation method:
1/365 method for all class except in marine
2 months from the commencement of risk
in the case of marine
Premium Deficiency: If expected net
claim costs and related expenses exceeds
the related UPT-premium deficiency is also
recognized
Earned Premium
Earned -Direct Premium:
Proportionate GWP for expired period
of Policy calculated as
GWP-Unearned Direct Premium
Earned-Ceded Premium:
Proportionate Ceded Premium for
expired period of Policy calculated as
Ceded Premium, less Unearned Ceded
Premium
Net Earned Premium: UPT-Direct,
Commission
Net Commission: Direct Commission, less
Commission on Ceded premium where
Direct Commission: Commission outgo to
Agents for procurement of Direct Premium
Commission of Ceded Premium:
Commission income on ceded premium
under proportional reinsurance
arrangement including Profit Commission
Direct Incurred Claims
Direct Incurred Claims: Direct
Claims Paid, plus Direct outstanding
Claims where
Direct Claims Paid:Claims under the
policies paid to Claimants and claims
settlement costs
Direct claims outstanding:
Estimated liability of claims payable
to claimants and settlement cost for
R/I Recovery- Incurred
Claims
R/I Recovery- Incurred Claims: R/I
Recovery- Claims Paid, plus R/I Recovery-
outstanding claims where
R/I Recovery Claims Paid:Recovery of
Direct claims paid to Claimants and claims
settlement costs from Reinsurers under
proportional and non-proportional
arrangement
R/I Recovery- Claims outstanding:
Recovery of direct claims outstanding and
claim settlement cost from reinsurers under
Net Incurred Claims
Net Incurred Claims: Direct
incurred claims, less R/I Recovery-
Direct Claims including provisions for:
Claims incurred but not Reported
Claims incurred but not enough
Reported
Expenses of management
Expenses incurred in respect of
Insurance Business accounted for on
accrual basis excluding expenses
incurred to earn investment income.
Investment Income
Investment Income: Income accrued
from investment of Investable surplus
which mainly comprises of the
followings:
Shareholders Funds
Policyholders Funds
Shareholders Fund
Shareholders Fund mainly
comprises the followings:
Share capital
Reserves and Surplus
Increase/ Decrease in Fixed Assets
Increase/ Decrease in Current Assets
Increase/ Decrease in Current Liabilities other
than policyholders Liabilities
Policyholders Fund
Policyholders Fund mainly
comprises the followings:
Unearned Premium/ Unexpired Risk Reserve
Reserve including premium Deficiency
Outstanding Claim Liabilities including
provision for IBNR and IBNER
Advance Premium
