Liabilities are financial obligations or debts owned by a company to other entity, usually the policy holder in the case of an insurance company. There are two major type of liabilities found on an insurer’s financial statement: -
· Loss Reserve
· Unearned Premium Reserve
Loss Reserve is a financial obligation owned by the insurer to estimate final settlement amount on all claims that have occurred but have not yet been settled.
Unearned Premium Reserve It is a major liability found on the financial statement of the P & C insurers. It is liability because it represents the insurance premiums prepaid by insured for services that the insurers have not yet rendered. For example, if insurance company decides to wind up its operations midway, the unearned premium on the policies needs to be refunded.
Policyholder Surplus of an insurance company is equal to its total admitted assets minus its total liabilities. In other words, policyholder surplus measures the difference between what the company owns and what it owes.
How Is the Financial Performance of Insurers Measured
