Insurance
Underwriter Actuary Claims adjuster
• Assess risk of • assess the likelihood of • Evaluates insurance
applications for events, set reserves for claims
insurance coverage future claims • Investigates
• Pricing: sets premiums • help design insurance circumstances of claims
based on assessed risk products to ensure the • Make
company remains recommendations for
financially stable claims payouts
Pre-need vs. Insurance
• Pre-need plans • Insurance contract
• contracts, agreements, deeds or • agreement whereby one
plans for the benefit of undertakes for a consideration to
planholders which provide for the indemnify another against loss,
performance of future service/s, damage or liability arising from
payment of monetary an unknown or contingent event
considerations or delivery of (R.A. 10607)
other benefits at the time of • regulated and supervised by the
actual need or agreed maturity IC
date in exchange for cash or
installment amounts with or
without interest or insurance
coverage and includes life,
pension, education, interment
and other plans, instruments,
contracts or deeds (R.A. 9829)
• regulated and supervised by the
IC
Excerpts from SPLPI notes to the financial
statements
Product Classification
• The provisions of PFRS 4 provides that insurance contracts are
defined as those contracts under which the Company (the insurer)
accepts significant insurance risks from another party (the
planholders) by agreeing to compensate the planholders if a specified
uncertain future event (the insured event) adversely affects the
planholder. As a general guideline, the Company defines significant
insurance risk by comparing benefits paid with benefits payable if the
insured event did not occur.
Excerpts from SPLPI notes to the financial
statements
Product Classification
• Once a contract has been classified as an insurance contract, it remains an
insurance contract for the remainder of its lifetime, even if the insurance
risk reduces significantly during this period, unless all rights and obligations
are extinguished or expired.
• As provided under PFRS 4, this product classification exercise is solely for
accounting purposes and does not make the Company an insurance
company for statutory and regulatory purposes. The Company as a pre-
need company is under the regulation of the Insurance Commission.
Peculiar Accounts for
Insurance Companies
1.
Premiums owed by policyholders to the insurer are recorded as:
• A. Premiums Ceded Payable
B. Premiums Receivable
C. Reinsurance Recoverable
D. Deferred Reinsurance Premiums
2.
The liability representing the unearned portion of gross written
premiums is called:
A. Deferred Acquisition Cost
B. Claims Payable
C. Reserve for Unearned Premiums
D. Premiums Ceded Payable
3.
Premiums ceded but not yet earned by the reinsurer are recorded by
the ceding company as:
A. Reinsurance Recoverable
B. Deferred Reinsurance Premiums
C. Reserve for Unearned Premiums
D. Premium Earned
4.
Which account is credited when a reinsurer grants a ceding
commission to the insurer?
A. Commission Income
B. Premium Revenue
C. Deferred Acquisition Cost
D. Reinsurance Recoverable
5.
The account debited by the insurer when a claim is incurred but
unpaid is:
• A. Reinsurance Recoverable
B. Claims Expense
C. Acquisition Expense
D. Commission Expense
6.
Which account increases when the insurer expects reimbursement for
a portion of a claim ceded to a reinsurer?
• A. Deferred Acquisition Cost
B. Reinsurance Recoverable on Claims
C. Premiums Receivable
D. Commission Income
7.
Which account increases when the insurer expects reimbursement for
a portion of a claim ceded to a reinsurer?
• A. Deferred Acquisition Cost
B. Reinsurance Recoverable on Claims
C. Premiums Receivable
D. Commission Income
8.
Which of the following is an asset recording the insurer’s unamortized
commissions?
A. Reserve for Unearned Premiums
B. Deferred Acquisition Cost
C. Claims Payable
D. Reinsurance Recoverable
Peculiar accounts
Expired Unexpired
Premiums Reserve for unearned premiums
Commissions expense Deferred acquisition cost
Premiums ceded Deferred reinsurance premiums
Commission income Deferred reinsurance commissions
Journal entries
Direct premiums recognition and unearned premium reserve
Upon initial billing of premiums
Premiums receivable xxx
Premiums written/premiums revenue xxx
To recognize the unearned (unexpired) portion of premiums
Premiums written/premiums revenue xxx
Reserve for unearned premiums (liability) xxx
Journal entries
Reinsurance ceded
To record premiums ceded
Premiums ceded (expense) xxx
Due to reinsurer (liability) xxx
To recognize the unexpired portion of premiums ceded to the reinsurer
(reinsurance premiums paid that have not yet been earned by the reinsurer)
Deferred reinsurance premiums (asset) xxx
Premiums ceded xxx
Journal entries
Claims
Recognition of claims and losses
Claims and losses expense xxx
Claims and losses payable xxx
To recognize the amount recoverable from the reinsurer for claims paid or accrued
Reinsurance recoverable (asset) xxx
Claims and losses expense xxx
Journal entries
Commissions – Direct Business
Initial recognition of commission expense
Commission expense xxx
Commissions payable xxx
To defer a portion of commission and other acquisition costs that relate to
future periods (unexpired)
Deferred acquisition costs (asset) xxx
Commissions expense xxx
Journal entries
Reinsurance commissions
To record commission income from reinsurer
Due to reinsurer (liability) xxx
Commission income xxx
To defer the portion of commission income received from the reinsurer that
relates to future periods
Commission income xxx
Deferred reinsurance commissions (liability) xxx
Peculiar accounts
Assets
• Premiums receivables – unpaid premiums from policyholders
• Reinsurance recoverable on paid losses – share of reinsurance
companies for claims paid to the insured
• Due from ceding companies – premiums receivable for assumed
business from other insurance/reinsurance companies
• Funds held by ceding companies - a percentage of the premiums, as
required by the IC.
Peculiar accounts
Assets
• Reinsurance receivable on unpaid losses – claims incurred (still open)
but have not yet been paid/settled.
• Reinsurance share on IBNR losses
• Deferred reinsurance premiums – unexpired premiums ceded
Peculiar accounts
Liabilities
• Provision for claims reported (claims payable)
• Provision for IBNR losses
• Provision for unearned premiums (reserve for unearned premiums)
• Due to reinsurers
• Funds held for reinsurers
Peculiar accounts
Revenue and Expenses
Net insurance earned
• Gross premiums earned
• Reinsurer’s share of gross premiums earned
Net insurance benefits and claims
• Insurance contract benefits and claims
• Reinsurer’s share of gross insurance contract benefits and claims
Legal Policy Reserves
• Life:
• Every life insurance company, doing business in the Philippines, shall
annually make a valuation of all policies, additions thereto, unpaid
dividends, and all other obligations outstanding on the thirty-first day of
December.
• Such standard of valuations shall be according to a standard table of
mortality with interest to be determined by the Insurance Commissioner.
• The aggregate net value so ascertained of the shall be deemed its reserve
liability.
• Nonlife:
• Every insurance company, other than life, shall maintain a reserve for
unearned premiums on its policies in force, which shall be charged as a
liability in any determination of its financial condition. Such reserve shall
be calculated based on the twenty-fourth (24th) method.
24th method
• This method assumes that contracts that start in a given month will
be spread evenly throughout that month.
• Method of allocating premiums based on the assumption that the
expiry date of liabilities under the insurance contract is the middle of
the month.
• For example, an insurance contract with P120,000 premium for 1 year
entered into in December 2023. How much is unearned premium at
December 31, 2023?
IFRS 17
• On December 15, 2021, the FRSC amended the mandatory
effective date of PFRS 17 from January 1, 2023 to January 1,
2025. This is consistent with Circular Letter No. 2020-62 issued
by the Insurance Commission which deferred the
implementation of PFRS 17 by two (2) years after its effective
date as decided by the IASB.
• PFRS 17 is effective for reporting periods beginning on or after
January 1, 2025, with comparative figures required.
General Measurement Model
General Measurement Model
Premium Allocation Approach
(A simplified model for measuring LRC)