Fundamentals of Insurance Financial Statements

Fitch Learning

How long?

  • 2 days
  • online

What are the topics?

Fitch Learning


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Who should attend

This course is designed for analysts, regulators and insurance personnel who have limited or no experience in the interpretation and analysis of insurance company financial statements.

About the course

The overall goal of this two-day workshop is for participants to understand the key components of an insurance company's financial statements to appreciate how these might vary according to the accounting standard used, and to learn to use a few key ratios to analyse financial strength. The course is designed to provide a basic technical background to the insurance industry as a precursor to attending our Insurance Company Analysis workshop.

Key Learning Outcomes:

  • Distinguish the risks inherent in the main products offered by life, non-life (P&C) and reinsurance companies and recognise how these are reflected in the financial statements
  • Understand the key components of an insurance company's income statement, balance sheet and cash-flow statement
  • Recognise the impact of differing accounting standards, reserving policies and changes in external variables (such as interest rates and asset prices) on the financial statements
  • Calculate and apply some basic ratios to quantify an insurance company's financial strength, performance and risk profile.

Insurance Market Overview

Section aims: this section focuses on the characteristics of the main various lines of insurance business, and their inherent risks.

Types of insurance company

  • Life, non-life and reinsurance
  • Types of insurance co: mutual vs. proprietary, multi-line vs. monoline, underwriters vs. brokers, captive insurers and Lloyd's entities.

Key activities and products

  • Non-life products: short tail and long tail lines; degrees of riskiness
  • Life and investment products: whole life, annuity, endowment, term insurance and health products
  • Investment bases for life products: fixed (stable value), unit-linked (variable), with profits, interest-sensitive
  • Reinsurance products: proportional vs. non-proportional, finite risk, excess of loss and catastrophe covers
  • Exercises: life and non-life insurance product risks.

Statement Logic

Section aims: this section explains the key financial items in insurance company financial statements and how the business model is reflected in the balance sheet.

  • Relating the business to the balance sheet and income statement
  • Key items of the balance sheet and income statement for life and non-life insurers
  • Premium accounting: gross vs. net, written vs. earned
  • Claim / loss accounting (non-life): claims incurred vs. paid, claims incurred but not reported (IBNR)
  • Claim / benefit accounting (life): benefits and surrenders, annual and final bonuses
  • Technical reserves: loss reserves, unearned premiums, mathematical provisions
  • Investment reserves - capital or liability? Fund for Future Appropriations, RfB, Unallocated Divisible Surplus, Discretionary Participation Features (DPF)
  • Intangible and other assets: deferred acquisition costs, value of business acquired
  • Impact of reinsurance on assets, liabilities, premiums and claims
  • Calendar year, accident year and underwriting year reporting for non-life; loss development triangles
  • Cash-flow statement: operating cash flow; divergence from earnings
  • Exercise: claims accounting and non-life accounting from scratch (a simplified worked example); non-life reserve development

Accounting and Disclosures

Section aims: this section explains the key areas of divergence between insurance accounting standards: international differences; the differences between the approaches for shareholder accounts and for statutory supervision; embedded value reporting for life insurance; and accounting for Lloyd's syndicates.

  • Key differences between statutory accounts and regulatory reporting including fundamental overview of SII and IFRS 17 (phases I and II) and other GAAP approaches
  • Investment accounting: mark to market vs. cost accounting; treatment of unrealized gains and losses; impaired assets
  • Overview of European Embedded Value (EEV) and Market-Consistent Embedded Value (MCEV) reporting and analysis
  • Lloyd’s entities: 3-year accounting for syndicates vs. annual accounting
  • Sources of information and quality of disclosure; potential for distortion
  • Exercise: investment accounting under IFRS

Ratio Analysis

Section aims: this section provides an introduction to the basic analysis of insurance companies using some key ratios from the financial statements.

  • Key performance indicators for life, non-life and reinsurance companies, with benchmarks
  • Investment risks: market and credit risk
  • Underwriting risk: claims/loss ratio, expense and combined ratio and other basic indicators of underwriting performance, reserve adequacy and reinsurance risk
  • Measures of overall profitability for life and non-life insurers
  • Measuring life new business growth and new business profitability
  • Capital adequacy: types of capital and ratios used to measure financial leverage (gearing) and solvency
  • Illustration case study: basic ratio analysis for a major composite insurer

Fundamentals of Insurance Financial Statements at Fitch Learning

From  GBP 1 795$2,536
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