Reporting Results Flashcards
Reasons for large deficits to happen within short time
Fall in asset value
Fall in interest rates
Change in valuation basis
Change in valuation methodology
Random variation to small funds
Dramatic change in profile
Fund may be closed
Sponsor have decreased contribution significantly
Surplus distributed
Large unexpected expenses
An error
Change in fund structure
Mismatching investment strategy
Define historic book value
price originally paid for the asset and is often used for fixed assets in published accounts
Define written book value
written up or down book value is the book value adjusted periodically for movements in value
Define market value
the market value of an asset varies constantly and can only be known with certainty at the data a transaction in the assets takes place.
Define fair value
the amount for which an asset can be exchanged or a liability that can be settled between knowledgable, willing parties at an arm’s length
List six reports that accompany an insurer’s financial statements
Chairperson and CEO’s statements
Investment report
Strategic report
Risk report
Remuneration report
Corporate governance report
four main accounting principles used by general insurance company
Going concern - continue in operational existence for the foreseeable future
Accruals basis - revenue and costs are recognised as they are earned or incurred, not as money is received or paid
Consistency - consistency of accounting treatment of like items within each accounting period from one period to the next
Prudence and realisation - profits not anticipated, and provision made for all known liabilities
Separate valuation of assets and liabilities - determine separately the amount of individual asset and liability
How to calculate claims ratio
Net claims incurred / net premiums earned
How to calculate expense and commission ratio
expense and commission / net premiums earned
How to calculate operating ratio
(net claims incurred + expense + commission) / net premiums earned
How to calcualte insurance profit margin
insurance result / net premiums earned
How to calculate return on equity capital
total profit / (average of shareholders funds between this year and last year)
give the consequences of understating the provision in the current period
overstatement of profit in the current period
if released as dividends, future deterioration in the solvency position willnot be absorbed
introduce significant volatility in the company’s results
solvency position will look better than it really is
might result in available capital being used to make riskier investments
shareholders may lose confidence in company
bad reputation
