Basic Principles of Insurance Finance

Investment Income (Income) Intt-Shareholders Fund (Income) Intt-PolicyholdersFund (Income) Underwriting Profits (Income) Earned premium (Income) Net Commission (Income) Intt-Policyholders Fund (Income) Net Incurred Claims (Expenses) Expenses of Management (Expenses) Net Premium (Income) GWP (Income) Ceded Premium (Expenses) UPT on Net Premium (Expenses) UPT on GWP (Expenses) UPT on Ceded Premium (Income) Direct I/Claims (Expenses) Direct claims paid (Expenses) Direct Claims O/s (Expenses0 R/I Recovery-Incurred Claims (Income) R/I Claims Paid RecV (Income) R/I Claims o/s Recv (Income) Profit before Tax

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 an insurance premium estimate based on your answers and other factors.

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 Net UPT: UPT-Direct, less UPT Ceded Premium

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, less UPT Ceded Premium

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 claims intimated pending settlement

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 costsfrom Reinsurers under proportional and non-proportional arrangement R/I Recovery- Claims outstanding: Recovery of direct claims outstanding and claim settlement cost from reinsurers under proportional and non-proportional arrangement.

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