GIM2210 - Accounting framework: example of funded accounting
The accounts of a company using funded accounting will also show a technical and a non- technical account. They will not include a UPP, and the treatment of provisions will differ. A simple example might be:
Marine Insurance Co Ltd – Accounts to 31/12/00
| Technical Account |
£m |
£m |
£m |
| Earned premiums net of reinsurance |
|
|
|
| Gross premiums | 53 |
|
|
| Outward reinsurance premiums | (26) |
| 27 |
|
|
|
|
|
| Claims incurred, net of reinsurance |
|
|
|
| Claims paid gross | (42) |
|
|
| Reinsurers’ share |
22 | (20) |
|
|
|
|
|
|
| Change in the provision for claims |
|
|
|
| Gross amount | 11 |
|
|
| Reinsurers’ share | (10) | 1 |
|
| Total claims incurred, net of reinsurance |
|
| (19) |
|
|
|
|
|
| Net operating expenses |
|
| (5) |
|
|
|
|
|
| Balance on technical account |
|
| 3 |
The non-technical account will also look the same as that of a
company accounting on an annual basis.
However, the figures in the technical account comprise income
and expenditure notified in the year to 31/12/00 and includes items
for each of the 3 years to 31/12/00 which can be broken down as
follows:
|
|
Total | 1998 (and earlier) | 1999 | 2000 |
|
|
£m | £m | £m | £m |
| Income |
|
|
|
|
| Fund @ 1.1.00 | 17 | 12 | 5 |
|
| Reinsurance Recoveries | 22 | 15 | 5 | 2 |
| Premiums | 53 | (2) | 5 | 50 |
| Expenses |
|
|
|
|
| Reinsurance Premiums | (26) | (1) | (1) | (24) |
| Claims | (42) | (15) | (8) | (19) |
| Expenses | (5) | (1) | (1) | (3) |
| Fund @ 31.12.00 | (16) | (5) a | (4) b | (7) d |
| Underwriting Result | 3 | 3 | 1 c | (1) e |
In the above example, the fund at 31/12/00 would comprise:
- outstanding claims provision for 31/12/98 and prior years (a)
- a cumulative figure to date for the year ended 31/12/99 of premiums less claims and expenses and provision for any anticipated loss (b), after a reversal of last year’s provision (c);
- premiums received, less claims paid and expenses for the year ended 31/12/00 (d), and a provision for the anticipated loss for the year (e).
The underwriting result disclosed in the accounts is not a meaningful figure for tax purposes. For the current year it includes a reversal of an anticipated loss for the year ended 31/12/99 (c) and an anticipated loss for the year ended 31/12/00 (e).
