Moscow State University
Department of Risk Management and Insurance
Thesis on the topic:
Financial stability of the insurance company
Completed by: master's student
EFIOR, 2 g/o Akhmetzyanov I.R.,
Moscow – 2010
financial stability insurance company
1.1.2 The influence of the amount of own funds on the financial stability of the insurance company
1.2.1 Insurance reserves as an assessment of unfulfilled obligations
1.2.1 Types of reserves and methodology for their formation
1.2.2 Adequacy of insurance reserves
1.3 Investment policy of insurance companies.
1.3.1 Principles of organizing investment activities of insurance companies
1.3.2 Features of investment policy when carrying out various types of insurance
1.3.4 Optimization of the placement of insurance reserves
1.4 The role of reinsurance in ensuring the financial stability of an insurance company
Chapter 2. System of indicators for assessing the financial stability of an insurance company
5.1 Liquidity indicators
5.2 Indicators of dependence on reinsurers
5.3 Investment performance indicators
5.4 Indicators of financial performance of the insurance company
Chapter 3. Financial recovery of the insurer in the event of a decrease in solvency
Conclusion
List of sources and literature
Annex 1.
Introduction
Modern Russian society cannot be imagined without a widely developed insurance system, since the insurance institution is one of the most important forms of joint protection of society from adverse events that may occur in the life and activities of its citizens. From this point of view, society is extremely interested in the financial reliability of insurance companies, failure to fulfill their obligations can lead to dire economic and social consequences for the entire society. All this gives the task of ensuring financial stability a macroeconomic aspect.
Although the problem of financial stability is currently relevant for the entire Russian market as a whole, the peculiarities of the circulation of funds of an insurance company, which is based on the category of risk, require a special approach to guarantees of financial stability, and to the methodology and criteria for its assessment.
The problem of the financial stability of an insurance company arose in connection with the transition to market relations and the formation of a civilized insurance market in Russia, therefore it has not received sufficient attention in the domestic literature. In most cases, it was considered from the point of view of individual factors contributing to the successful functioning of an insurance company in the market. At the same time, experts did not have a consensus on the issues being studied. In such conditions, insurance companies often resolved these issues at an empirical level, which could not but have a negative impact on the financial position of these companies.
Thus, based on the needs of practice, the analysis of problems of financial stability of the insurer (hereinafter referred to as FUS), to which this work is devoted, seems extremely relevant.
However, solving these problems requires consideration of a wide range of issues in the economics of the insurance business, which cannot be done within the framework of one work. In this regard, the purpose of this work is defined by the author as considering those factors of ensuring financial stability, from the point of view of their interdependence and complementarity, which are enshrined in Article 25 of the Law of the Russian Federation “On the organization of insurance business in the Russian Federation”. It stipulates that “the basis for the financial stability of insurers is the presence of their paid-up authorized capital and insurance reserves, as well as a reinsurance system.” In addition to these factors that provide FUS, the work includes a subchapter devoted to studying the role of another factor - the placement of the insurer's assets.
The scope of the work includes analysis of issues related to the formation of insurance reserves; determining the degree of adequacy of the insurance company's equity capital; studying the basic principles of the insurer's investment activities; establishing the role of reinsurance in providing FUS; consideration of a system of indicators that allows assessing the financial condition of the insurance company and, finally, determining one of the options for the financial recovery of the insurance company in the event of a decrease in solvency.
Thus, the purpose and objectives of this work determine its structure.
It consists of three chapters, the first studying the factors that have a decisive influence on the financial stability of the insurer, respectively: equity capital, insurance reserves, investment policy and reinsurance. The second chapter is devoted to indicators for assessing the financial condition of an insurance company, and expenses - the process of financial recovery of an insurance company in the event of a decrease in solvency.
Before moving on to considering the factors of financial stability of the insurer, it would be advisable to define the concepts of financial stability, solvency and liquidity.
Solvency is understood as, firstly, the ability of a business entity to fulfill its financial obligations to other market entities, and, secondly, it is sometimes used as a synonym for liquidity. However, liquidity can be more accurately defined as the ability of an enterprise to pay off urgent obligations. Solvency is the company’s ability to pay both claims that have already been made and those obligations that have not yet come due.
Concerning financial stability, then it can be defined as the ability of the insurer to fulfill its obligations under insurance contracts when exposed to unfavorable factors or changes in economic conditions.
Although the current Federal Law of the Russian Federation “On Insolvency (Bankruptcy)” defines solvency as the ability to pay obligations and an enterprise, in accordance with this, is declared insolvent if it does not pay its obligations within 3 months, it seems more true that solvency must be ensured taking into account all the features of the insurance business at any time.
When indicators of both liquidity and solvency are studied, it is assumed that the enterprise is in some stable environment and that all other parameters are also known and stable. However, the insurance company makes commitments for the future based on past experience. And here no most accurate, well-founded prediction can be 100% correct. Moreover, the insurer undertakes obligations, the fulfillment of which must occur either after a sufficiently large period of time, or the duration and amount of which are unknown and which are determined using the theory of probability.
In other words, if any other enterprise knows when and how much it needs to pay its business partners, or in what amount and within what time frame it must repay the loan and pay interest on it, then the insurance company knows the timing and extent of its obligations to policyholders very well. high degree of tolerance.
Because of this, what is important in insurance activities is not just the company’s ability to pay its obligations, but the ability to fulfill them in the event of any unfavorable change in the situation, in the worst case scenario for the insurer.
Solvency is a particular manifestation of financial stability, since it reflects its ability to pay obligations under “normal” conditions. From this point of view, it is important to emphasize the difference in the assessment of factors influencing the real financial condition of the insurance company and solvency as a qualitative characteristic of this condition. For example, an increase in the volume of insurance premiums from the point of view of solvency is just an increase in insurance liabilities, but for the real financial stability of the insurer, this also means an increase in resources for investment activities, a potential source of profit, portfolio growth, and therefore the possibility of distributing damage, etc.
The significance of the problem of ensuring solvency is confirmed by the fact that the limits of its fluctuation are fixed at the state level both in the EU countries and in Russia. For the purposes of analysis, it is important to consider the EU concept of the solvency of insurance organizations, as defined in the First Directive (dated 07.24.73 with subsequent additions and amendments).
According to this directive, every insurance company must have:
1. Technical reserves corresponding to the obligations assumed under the contracts.
2. Solvency reserve as an additional financial guarantee. The reserve must be free of any obligations.
3. A guarantee fund consisting of property free from obligations in the amount of up to 1/3 of the solvency reserve. This fund is created to ensure that the solvency reserve does not fall in the process of activity below a threshold that poses a danger to the financial stability of the insurance company.
The failure of an insurance company to fulfill its obligations to policyholders undermines the very idea of insurance as a way to protect against financial losses. In this regard, ensuring the solvency of the insurance company should be considered as the main goal of regulation. It was this circumstance that predetermined the need to consider issues related to financial stability and solvency.
Financial stability of the insurance organization– such a property and financial condition in which the size and structure of own and equivalent funds, liquid assets, which are a consequence of the degree of perfection of the organization of insurance, the development of its new types, as well as the mass scale of effective insurance operations and savings regimes, are ensured at any time a certain level of solvency.
The financial stability of an insurance company is ensured by the size of the paid-up authorized capital of the insurance company; the size of insurance reserves; optimal portfolio for placement of insurance reserves; reinsurance system; the validity of insurance rates and other factors.
The amount of insurance reserves must fully cover the amount of upcoming payments under existing contracts. The amount of upcoming payments is determined based on a thorough analysis of the insurer’s operations and labor-intensive mathematical calculations. The more accurately these calculations are carried out, the more correctly the amount of insurance reserves will correspond to future payments for insured events.
An insurance organization, meeting the general requirements for an economic entity in market conditions, has significant specificity in the formation of both obligations and resources intended to cover them. This specificity is objectively determined, firstly, by the very nature of the insurance relationship, which is based on the category of risk. Secondly, the participation of an insurance organization in several types of activities (insurance, financial, investment), each of which leads to the formation of both resources and obligations of a special kind (for example, obligations to shareholders are inadequate in content, volume, etc. obligations to policyholders). It follows that the specificity of the concept of solvency of an insurance organization is manifested precisely in the peculiarities of the formation of obligations and resources for their fulfillment, as well as in the need for additional financial guarantees for the fulfillment of obligations as a response to the risky nature of the activity.
The specificity of the concept of solvency of an insurance organization is manifested in the peculiarities of the formation of obligations and resources for their fulfillment, as well as in the need for additional financial guarantees for the fulfillment of obligations as a response to the risky nature of the activity.
Solvency characterizes the ability of an insurance organization to fulfill all obligations as of a specific reporting date. It depends on the sufficiency of the formed insurance reserves, which are bound by the obligations of upcoming insurance compensation payments under existing insurance contracts. Long-term practice of insurance activities has developed its own mechanism for ensuring guarantees of the insurer's solvency - the presence of sufficient free, i.e. non-obligated funds. These funds are formed from two sources: paid authorized capital and profit. To ensure solvency, the amount of available funds of the company must correspond to the amount of accepted obligations under insurance contracts.
Under liquidity of the insurance organization refers to its ability to satisfy claims made by policyholders as they arise.
Analysis liquidity should answer the question of whether the insurance organization is able to fulfill the requirements for its obligations in the shortest possible time. If solvency characterizes the ability to meet obligations in principle, then liquidity is the ability to pay immediately. This ability is determined by a number of factors: the availability of free cash at the insurance company, the ratio between assets and liabilities, types of assets, as well as the time during which it is possible to convert these assets into cash to pay compensation.
For financial stability assessments insurance company has a whole system of indicators and published ratings of insurance companies. There have long been specialized rating agencies abroad that regularly publish ratings of insurance companies and analytical reviews of their activities. World-famous rating agencies in the USA are Standard & Poor’s, Moody’s Investors, Fitch Investors, Duff & Phelps, which many policyholders and investors turn to to obtain qualified information about the activities of the insurer or reinsurer.
For example, Standard & Poor’s (S&P) assigns the following ratings based on financial stability indicators:
| AAA | highest (highest degree of reliability); |
| AA+, AA, AA- | high (excellent degree of reliability); |
| A+, A, A- | good (good degree of reliability); |
| ВВВ+, ВВВ, ВВВ- | sufficient (sufficient degree of reliability, but financial capabilities are more vulnerable); |
| BB+, BB, BB- | less sufficient (financial capabilities may be insufficient to fulfill obligations under long-term policies); |
| B+, B, B- | insufficient (the financial position of the insurer is very unstable); |
| SSS+, SSS, SSS- | vulnerable (the financial position of the insurer is very vulnerable); |
| SS, S | insurers receiving this rating are very likely to be unable to fulfill their obligations to the policyholder; |
| D | liquidation (insurers that received this rating are in the process of liquidation). |
To assign a rating to a company, a large number of financial indicators are analyzed. The managerial experience of management, marketing strategy, company policy for selling policies, company policy for accepting risks and reinsurance, organizational and management structure, including analysis of parent and subsidiary companies, company investment policy and much more are also studied. To assign the appropriate rating, more than 20 different indicators are calculated.
Some of the indicators characterizing the overall performance of an insurance company are the following:
Ø ratio of net premium to own funds:
Ø the ratio of the difference in net premium collection for the current and previous years to the net premium for the previous year. This ratio should be between -33% and +33%:
Ø the ratio of the product of the unearned premium given to reinsurance and the ratio of the reinsurance commission for the transferred business to the total premium given to reinsurance, to own funds. This ratio should be less than 25%.
Other indicators characterizing the level of solvency are also calculated.
Law “On the organization of insurance business in the Russian Federation” Chapter III. SECURITY
The financial stability of insurance operations is understood as the constant balancing or excess of income over expenses in the insurance fund, formed from insurance contributions (premiums) paid by policyholders.
The basis for the financial stability of insurers is the presence of their paid-up authorized capital, insurance reserves, and a reinsurance system.
The problem of ensuring financial stability is considered in two ways: as determining the degree of probability of a shortage of funds in any year and as the ratio of income to expenses for the past tariff period.
1) To determine the degree of probability of a shortage of funds, the coefficient of Professor F.V. Konyshin is used (K) =
Where T - average tariff rate for the insurance portfolio;
P - number of insured objects.
The lower the coefficient TO, the higher the financial stability of the insurer.
Example 2. Assessing the shortage of funds using Professor Konshin’s coefficient
Initial data:
a) insurance company A has an insurance portfolio consisting of 550 concluded contracts (n = 550), for insurance company B - out of 450 (n = 450);
1
Solution. We determine Professor Konshin’s coefficient:
1) for insurance company A
KA = 
= 0,050;
for insurance company B
KB = 
= 0,053.
Conclusion: financial stability in terms of deficit of funds of insurance company A is higher than that of insurance company B (KA< КБ).
2) To assess financial stability as the ratio of income to expenses for the tariff period, use the financial stability coefficient of the Ksf insurance fund
Ksf = 
;
Where D- the amount of income for the tariff period;
3F - the amount of funds in reserve funds at the end of the tariff period;
R- the amount of expenses for the tariff period.
The higher the value of the insurance fund stability coefficient, the higher the financial stability of insurance operations.
Example 3.
1. Insurance company A has income of 200 million rubles. The amount of reserve funds at the end of the tariff period is 50 million rubles. The amount of expenses is 120 million rubles, the costs of conducting the case are 5 million rubles.
2. Insurance company B has income of 250 million rubles. The balance of funds in reserve funds is 90 million rubles. The amount of expenses is 280 million rubles, the costs of conducting the case are 10 million rubles.
Solution. We determine the financial stability coefficient of the insurance fund:
Conclusion: insurance company A is financially more stable than insurance company B.
Solvency of the insurer and determination of the standard ratio of assets and insurance liabilities assumed by it
The main sign of the financial stability of insurers is their solvency.
Solvency - This is the ability of the insurer to timely fulfill monetary obligations stipulated by law or contract to policyholders.
Solvency guarantees:
1) compliance with regulatory relationships between assets and accepted insurance liabilities;
2) reinsurance of the risks of fulfilling relevant obligations that exceed the possibility of their fulfillment by the insurer at the expense of its own funds and insurance reserves;
3) placement of insurance reserves by insurers on the terms of diversification, repayment, profitability and liquidity;
4) availability of own capital.
In accordance with the order of the Ministry of Finance of the Russian Federation dated November 2, 2001 No. 90N “On approval of the regulation on the procedure for calculating by insurers the standard ratio of assets and accepted insurance liabilities,” insurers are required to comply with the standard ratio of assets and assumed liabilities, i.e. the actual amount of free assets insurance organization (actual solvency margin) should not be less than the regulatory margin. Insurers are required to calculate the solvency margin quarterly. The actual solvency margin is calculated as the sum of the authorized (share), additional and reserve capital, retained earnings of previous years and the reporting year, reduced by the amount:
Uncovered losses of the reporting year and previous years;
Debts of shareholders (participants) for contributions to the authorized (share) capital;
Own shares purchased from shareholders;
Intangible assets;
Receivables that have expired.
The standard size of the solvency margin of a life insurance insurer is equal to the product of 5% of the life insurance reserve and the adjustment factor.
The adjustment factor is defined as the ratio of the life insurance reserve minus the share of reinsurers in the life insurance reserve to the value of the specified reserve.
If the correction factor is less than 0.85, for calculation it is taken equal to 0.85.
The standard size of the solvency margin for insurance other than life insurance is equal to the largest of the following two indicators, multiplied by the adjustment factor.
The first indicator is 16 % of the amount of insurance premiums (contributions) accrued under insurance contracts, co-insurance and contracts accepted for reinsurance, for the billing period, reduced by the amount:
Insurance premiums (contributions) returned to policyholders (reinsurers) in connection with the termination (change of conditions) of insurance contracts, co-insurance and contracts accepted for reinsurance for the billing period;
Deductions from insurance premiums (contributions) under insurance contracts, coinsurance to the reserve of preventive measures for the billing period;
Other deductions from insurance premiums (contributions) under insurance contracts, coinsurance in cases provided for by current legislation, for the billing period.
The calculation period for calculating this indicator is the year (12 months) preceding the reporting date.
The second indicator is 23% from one third of the amount:
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance, minus the amounts of proceeds associated with the implementation of the right of claim transferred to the insurer, which the insured has against the person responsible for losses compensated as a result of insurance, for the estimated period;
Changes in the reserve of declared but unresolved losses, and the reserve of occurred but undeclared losses under insurance contracts, co-insurance and contracts accepted for reinsurance, for the billing period.
The calculation period for calculating this indicator is 3 years (36 months) preceding the reporting date.
The correction factor is defined as the ratio of the sum:
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance, minus the accrued share of reinsurers in insurance payments for the billing period;
Changes in the reserve of declared but unresolved losses under insurance contracts, co-insurance and contracts accepted for reinsurance, minus changes in the share of reinsurers in the specified reserves for the billing period to the amount (not excluding the share of reinsurers):
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance for the billing period;
Changes in the reserve of declared but unresolved losses, and the reserve of occurred but undeclared losses under insurance contracts, co-insurance and contracts accepted for reinsurance for the billing period.
The calculation period is the year (12 months) preceding the reporting date.
If the correction factor is less than 0.5, then for calculation purposes it is taken equal to 0.5, if more than 1, it is taken equal to 1.
The standard size of the solvency margin of an insurer providing life insurance and non-life insurance is determined by adding the standard size of the solvency margin for life insurance and non-life insurance.
If at the end of the reporting year the actual size of the insurer's solvency margin exceeds the normative one by less than 30%, the insurer submits for approval to the Ministry of Finance of the Russian Federation as part of the annual financial statements a plan for improving the financial position.
Example 4. Calculate the ratio between the actual and standard amounts of the solvency margin for insurance company K.
To calculate the actual solvency margin, we use data from the insurer’s balance sheet as of the last reporting date (million rubles):
Authorized capital………………………………………………………………30
Reserve capital................................................ ................................2.5
Uncovered losses of the reporting year and previous years....................0.5
Company shares purchased from shareholders..................................1.5
Intangible assets................................................ ...........................0.3
Receivables that have expired 0.7
Solution.
1. Determine the actual solvency margin:
30 + 2 + 2.5 – 0.5 – 1.5 –0.3 –0.7 = 31.5 million rubles.
To calculate the standard solvency margin for life insurance, we use the following balance sheet data (million rubles):
The amount of the life insurance reserve as of the calculation date 206 The share of reinsurers in the life insurance reserve 23
2. Calculate the correction factor: 
= 0,888
3. We determine the standard size of the solvency margin for life insurance:
0.05 206 0.888 = 9.146 million rubles.
Let's calculate the standard size of the solvency margin for insurance other than life insurance.
When calculating the first indicator, we use the following balance sheet data (million rubles):
Amount of insurance premiums for insurance other than life insurance.................................... 110
Refund of insurance premiums due to termination (change of conditions)
contracts for the year preceding the settlement date. ........................................................ ............5
Deductions from insurance premiums to the reserve | preventive measures
for the year preceding the calculation date. ........................................................ ............................... 4
Other deductions from insurance premiums for the year preceding the date of calculation……1
4. We determine the first indicator for calculating the solvency margin:
0.16 (110 – 5 –4 –1) = 16 million rubles.
To calculate the second indicator, we use the following balance sheet data (million rubles):
Insurance payments for the three years preceding the date of calculation, by type
insurance other than life insurance…………………………………………..252
Receipts related to the exercise of the insurer's right to subrogation for three years,
preceding the reporting date................................................................... ........................................................ ..50
Reserve for declared but unresolved losses:
At the beginning of the three-year billing period……………………………………….20
As of the settlement date................................................... ........................................................ ......................32
At the beginning of the three-year billing period................................................... ..........................14
As of the settlement date................................................... ........................................................ .......................13
5. We determine the second indicator for calculating the solvency margin:
252 – 50 – 20 + 32 – 14 + 13
0.23 --------------- = 16.33 million rubles.
Let's calculate the correction factor based on the following data (million rubles):
Insurance payments for types of insurance other than life insurance,
for the year preceding the date of calculation………………………60
Reserve for declared but unresolved losses:
At the beginning of the accounting year................................................... ..........26
As of the settlement date………………………………………….....30
Reserve for occurred but unreported losses:
At the beginning of the accounting year…………………........................15
At the end of the billing period………………......................13
Subtotal:
60 – 26 + 30 – 15 + 13 = 62 million rubles. -
Share of reinsurers in insurance payments…………………………..25 Share of reinsurers in the reserve of declared but unresolved losses:
at the beginning of the billing period…………………………….7
At the end of the billing period…………………………….13
Share of reinsurers in the reserve of occurred but unreported losses:
At the beginning of the billing period……………………………4
At the end of the billing period……………………………3 Subtotal:
25 – 7 +13 – 4 + 3 = 30.0 million rubles.
6. The correction factor is: 
= 0,516
Let us make the final calculation of the regulatory solvency margin for insurance other than life insurance:
a) the indicator accepted for calculating the solvency margin (the largest of the values obtained when calculating the first and second indicators) - 16 million rubles;
b) correction factor - 0.516.
7. The standard solvency margin for insurance other than life insurance will be
16 0.516 = 8.256 million rubles.
Based on the obtained indicators, we will calculate the overall regulatory solvency margin:
8. The total regulatory solvency margin is equal to 9.146 + 8.256 = 17.402 million rubles.
9. The deviation of the actual solvency margin from the normative one will be
31.5 – 17.402 = 14.098 million rubles.
10. Determine the percentage of excess of the actual solvency margin:
100
= 81,02%
Conclusion: the insurer maintains the relationship between the actual and standard solvency margin, which indicates its financial stability.
Problems to solve independently
Task 1. Determine the financial result for the insurance organization from providing insurance other than life insurance.
Initial data from the financial results report for the year (thousand rubles):
Insurance premiums…………………………………......4913
Increase in the reserve of unearned bonuses………….....821
Paid damages…………………………………………...1023
Reducing loss reserves……………………………..45
Contributions to the preventive measures reserve…..96
Contributions to fire safety funds…………..…38
Costs of conducting insurance operations………………1377
Task 2. Determine the result from insurance operations other than life insurance, as well as the profitability of insurance operations and the payout ratio according to the financial results report for the reporting year of the insurance organization (thousand rubles):
Insurance premiums - total………………….....139,992
Of these transferred to reinsurers…………………..……….105135
Increase in the unearned premium reserve:
Total…………………………………………………………….40583
Increasing the share of reinsurers in the reserve…………………..25333
Accrued losses - total……………………………………...10362
Share of reinsurers…………………………………………...7286
Contributions to the reserve for preventive measures…………...3710
Contributions to fire safety funds…………..………..….949
Expenses for conducting insurance operations………………………….2561
Task 3.
Authorized capital………………………………................................24
Extra capital................................................ ...............................2
Uncovered losses of the reporting year and previous years....................0.9
Company shares purchased from shareholders..................................1.7
Intangible assets................................................ ...................2.4
Receivables that have expired 0.8
Task 4. Determine the result from life insurance operations, as well as the level of payments according to the financial results report for the reporting year of the insurance organization (thousand rubles)
Insurance premiums…………………………...………......1,848,658
Investment income……………………………………………………71,842
including:
Interest receivable……………………………..…71,842
Paid damages………………………………………….1 538571
Increase in life insurance reserve………………509,588
Expenses for conducting insurance operations……………………3470
Task 5. Swipe assessment of the shortage of funds using the coefficient of Professor F.V. Konshina
Initial data:
a) insurance company A has an insurance portfolio of 500 concluded contracts, insurance company B has 400;
b) insurance company A has an average tariff rate of 3.5 rubles. from 100 rub. insurance amount, for insurance company B - 4.0 rubles. from 100 rub. insurance amount. 1
Task 6. Determine the degree of probability of a shortage of funds using the coefficient of Professor F.V. Konshin, and draw your own conclusions.
Initial data:
a) insurance company A has an insurance portfolio of 850 concluded contracts, insurance company B has 650;
b) insurance company A has an average tariff rate of 3 rubles. from 100 rub. insurance amount, for insurance company B - 3.5 rubles. from 100 rub. insurance amount. 1
Initial data(million rubles):
Task 8. Assess the financial stability of insurance companies based on the stability of the insurance fund using the following data:
1. Insurance company A has income of 110.5 million rubles. The amount of reserve funds at the end of the tariff period is 85.0 million rubles. The amount of expenses is 86.4 million rubles, the costs of conducting the case are 15 million rubles.
2. Insurance company B has income of 18.7 million rubles. The balance in reserve funds is 16 million rubles. The amount of expenses is 11.4 million rubles, the costs of conducting the case are 1372 thousand rubles.
Task 9. Assess the financial stability of insurance companies based on the stability of the insurance fund using the following data:
1. Insurance company A has income of 112 million rubles. The amount of reserve funds at the end of the tariff period is 85.0 million rubles. The amount of expenses is 84 million rubles, the costs of conducting the case are 13 million rubles.
2. Insurance company B has income of 28 million rubles. The balance of funds in reserve funds is 26 million rubles. The amount of expenses is 9.5 million rubles, the costs of conducting the case are 1155 thousand rubles.
Problem 10. Calculate the ratio between the actual and standard amounts of the solvency margin for insurance company C.
To calculate the actual solvency margin, use data from the insurer’s balance sheet as of the last reporting date (RUB million):
Authorized capital………………………………................................22
Extra capital................................................ ...............................2
Reserve capital................................................ ................................3
Uncovered losses of the reporting year and previous years...................1,2
Company shares purchased from shareholders....................................1.5
Intangible assets................................................ ...................1.4
Receivables that have expired 0.6
Problem 11.
1. Loss from life insurance operations…………………………127,659
2. Profit from non-life insurance operations....136,723
Investment income……………………………………………………1,092
Administrative expenses…………………………………………………………......8,971
Other income………………………………………………………………………………...16
Income tax……………………………………………………………..288
Extraordinary expenses………………………………………………………..88
Define:
3) net profit.
Problem 12. The following data is available from the financial performance report of the insurance organization for the reporting year (thousand rubles):
1. Loss from life insurance operations…………………………157,666
2. Profit from non-life insurance operations....126,777
3. Other income and expenses not included in sections 1.2:
Investment income……………………………………………………1,022
Administrative expenses……………………………………………………………....…6,991
Other income………………………………………………………………………………...26
Income tax……………………………………………………………..385
Extraordinary expenses………………………………………………………….6
Define:
1) profit before tax;
2) profit from ordinary activities;
3) net profit.
The concept of financial stability and the factors of its components
Financial stability is a broad concept, one of the factors of which is solvency. In addition to solvency, which is one of the determining factors of financial condition, the quality of the latter is influenced by many other factors.
The financial stability of the insurer is determined, firstly, by its solvency reserve, i.e. the amount of own funds, and secondly, the degree of protection from catastrophic accidents, i.e. quality of the insurance portfolio.
The level of inflation has a significant impact on the financial stability of insurance organizations. Inflationary processes undermine the incentives for economic growth and increasing production efficiency based on scientific and technological progress.
Firstly, there is an impact on the compliance of insurance reserves with the obligations assumed by the insurer.
Second, the impact of inflation varies depending on the duration of the insurer's obligations.
Thirdly, inflation has a huge impact on the allocation of insurance reserves. In general, in this area of activity, inflation poses the same problems for the insurer as for any other financial companies.
Fourthly, inflation affects the investment income of an insurance organization as the basis for indexing obligations.
Finally, fifthly, inflation affects the composition of the insurer's reserves. One of the most common methods of combating the outflow of policyholders during inflation is their participation in the insurer's profits.
Paid authorized capital; reasonable insurance rates; compliance with the regulatory relationship between acts and obligations of the insurer; insurance reserves and their placement are components of the financial stability of the insurer
In the new version of the Law “On the Organization of Insurance Business in the Russian Federation,” Article 25 stipulates that “insurers must have fully paid-up authorized capital, the amount of which must not be lower than the established minimum amount of authorized capital.” For insurance companies engaged in personal insurance (except for accumulative types of insurance) and property insurance, the minimum amount of authorized capital must be at least 30 million rubles. Insurance organizations engaged in personal insurance, including accumulative types of insurance, as well as property insurance, must have a minimum authorized capital of 60 million rubles.
It is traditionally believed that equity is the indicator that provides a general description of the financial stability and size of the company and serves as the main source of acquisition of non-current assets. Long-term financing is crucial for the development of a company. Depending on the chosen strategy, one or another part of equity capital can be considered as a source of covering current assets necessary for the company to carry out its statutory activities. In the theory of financial analysis, this part is called own (net) working capital.
In accordance with current legislation, insurers are required to comply with the regulatory relationships between assets and insurance liabilities assumed by them. The methodology for calculating these ratios and their standard amounts are established by the federal executive body for supervision of insurance activities. In furtherance of this requirement of the Russian Federation Law “On the Organization of Insurance Business in the Russian Federation”, by order of the Ministry of Finance of the Russian Federation dated November 2, 2001 No. 90n, the “Regulation on the procedure for calculating by insurers the standard ratio of assets and insurance liabilities assumed by them” was approved.
The instructions approved by the order of Rosstrakhnadzor stipulate that in order to ensure solvency, the amount of free assets of the insurer, calculated as the difference between the total amount of assets and the amount of its liabilities, must correspond to the standard amount, i.e. must be observed:
where A is the actual size of the insurer’s assets;
O - the actual volume of the insurer's obligations;
N - normative (i.e.
Minimum allowable size of the excess of the insurer's assets over its liabilities.
At the same time, the normative ratio between the assets of the insurer and the insurance liabilities assumed by it (the normative size of the solvency margin) is understood as the value within which the insurer, based on the specifics of the concluded contracts and the volume of accepted insurance liabilities, must have its own capital, free from any future obligations, for with the exception of the rights of claim of the founders, reduced by the amount of intangible assets and receivables whose repayment terms have expired.
In accordance with the Rules for the formation of insurance reserves for insurance other than life insurance, approved by order of the Ministry of Finance of the Russian Federation dated June 11, 2002 No. 51n with the latest amendments dated June 23, 2003. In accordance with these Rules, insurance reserves for risky types of insurance include:
Unearned premium reserve;
Loss reserves: reserve for reported but unresolved losses and reserve for occurred but unreported losses;
Stabilization reserve;
Reserve for equalization of losses for compulsory civil liability insurance of vehicle owners;
Reserve for compensation of expenses for insurance payments for compulsory civil liability insurance of vehicle owners in subsequent years;
Other insurance reserves (catastrophe reserve, loss fluctuation reserve).
Reinsurance as a financial operation that allows you to achieve financial stability
Reinsurance makes it possible to provide for all these contingencies, and therefore the need for reinsurance can be formulated as follows:
Compensation for damage based on a single risk;
Compensation for damages for one very large risk;
Compensation for damage associated with the occurrence of one catastrophic event.
Major damage can occur due to:
Addition of losses for one insured event;
Higher than average number of insurance claims;
More losses in one year, contrary to the current trend.
Reinsurance has a decisive influence on ensuring the financial stability of the insurer. Firstly, in each individual type of insurance there inevitably is a large number of very large or especially large risks that one insurance company cannot take entirely upon itself. With regard to particularly large risks, it can either limit their acceptance, taking into account its financial capabilities and go through co-insurance with other insurance companies operating in the same market, or even in different markets, or accept a large share of the risk with the expectation of transferring it part of another insurance company or reinsurance company. Which exact path the insurance company will take depends on the type of insurance chosen, but most importantly, this will allow the insurance company to better protect itself in the event of particularly large risks, reducing the level of liability compared to the obligations assumed. In other words, the “large risks” in its portfolio are reduced to a level that allows the insurance company to safely accept them.
Secondly, with the help of reinsurance, it is possible to smooth out fluctuations in the performance of an insurance company over a number of years, since the same principle of risk distribution applies in reinsurance as in insurance. An insurance company's performance in a single year may be adversely affected by either significant losses from a large number of claims resulting from a single claim or very poor performance across its entire insurance portfolio during the year. Reinsurance smooths out such fluctuations, thereby achieving stability in the performance of the insurance company over a number of years, and this is extremely important for ensuring the financial stability of the insurer.
As the provision of funds to support the organization’s own activities for a certain period of time, while also ensuring the servicing of loans and borrowings and production of products.
As for insurance organizations, financial stability of the insurer this is its ability to fulfill its obligations under signed insurance contracts, regardless of changes in economic conditions.
That is, the basis that ensures a sufficient level of financial stability is the size of the authorized capital of the insurance organization and accumulated insurance reserves, as well as the reinsurance system.
It should be noted that if the insurer provides several types of insurance, then reserves for each type are formed separately.
In the Law of the Russian Federation of November 27, 1992 No. 4015-1 “On the organization of the insurance business in the Russian Federation,” a separate chapter is devoted to issues of financial stability; the reason for such attention of the legislator to this issue is, undoubtedly, that financial stability of the insurance organization is a matter of its survival, since in today's unstable market conditions, bankruptcy can act as a likely result of the economic and financial activities of the insurer.
Like any other object of study, the financial stability of an insurance organization is influenced by internal and external factors.
External factors include:
Internal factors affecting the financial stability of the insurer include:
TO the most important factors of financial stability We include: pricing policy, insurance portfolio balance, cost management policy, reinsurance, accurate assessment of insurance liabilities (reserves), liquidity management, investment policy, equity capital adequacy.
Under pricing policy refers to the principles and methods used to calculate (construct) insurance rates, and subsequent control over the use of these rates and setting prices for insurance services, as well as control over the adequacy of rates and contributions (premiums).
Requirement balance of the insurance portfolio is determined by the need for its (portfolio) compliance with the conditions of applicability of the law of large numbers.
Cost management is defined as establishing their planned level and monitoring compliance with the cost budget, as well as optimizing the business processes of an insurance organization in order to reduce cost elements.
Factors such as reinsurance, assessment of insurance liabilities(reserves) and liquidity management, in our opinion, do not need any comments.
Talking about sufficiency insurer's capital, we understand it in a broad sense, putting into this concept:
This leads to a broad understanding investment policy insurer, which includes: placement of insurance reserves, placement of risk capital, in the development of the company.
Among the first indicators characterizing the financial stability of an insurance organization, it is necessary to mention: Compliance of the size of the authorized capital with the regulatory value (Article 25 of the Law of the Russian Federation of November 27, 1992 No. 4015-1). Placement of insurance reserves in accordance with the standards established by the Order of the Ministry of Finance of the Russian Federation dated July 2, 2012. No. 100n.
Equity ratio or ownership ratio:
K = (Ks*100)/(O+Ks)
where, Ks is the equity capital of the insurance organization; O - the total amount of the insurer's liabilities.
This indicator determines the share, as a percentage, of equity in the total capital in the balance sheet currency. A high level of the indicator characterizes the financial independence and stability of the insurer, and guarantees the fulfillment of its obligations to policyholders and other creditors. The normal value of the equity ratio is considered to be 60-70%.
Gearing ratio:
K = (Z*100)/(Z+Ks)
where, Z is borrowed capital.
The ratio expresses the share, as a percentage, of borrowed (raised) funds in the total amount of capital used on the balance sheet and is the inverse indicator of the ownership ratio. The normal ratio is 30-40%.
In order to determine the influence of the degree of shortage of the insurer's funds on the degree of financial stability, the coefficient developed by F.V. is used. Konshin for a homogeneous portfolio and for an arbitrary portfolio divided into homogeneous subportfolios:
Where T is the average tariff rate for the insurance portfolio; n is the number of insured objects.
As can be seen from the formula, this indicator is directly dependent on the size of the tariff rate and the size of the insurance portfolio (the number of insured objects) and does not depend on the insured amounts. The lower the coefficient, the higher the financial stability of the insurance organization.
The disadvantages of the proposed coefficient include the fact that the most accurate results are when the insurance portfolio consists of objects with approximately equal risks in value (i.e., without disasters, earthquakes, loss of spaceships, aircraft, etc.).
Since the insurer’s financial stability depends quite strongly on the volume of reinsurance, it can be used to assess financial stability insurance fund financial stability coefficient:
Where ΣD is the amount of income for the tariff period; ΣЗФ - the amount of funds in reserve funds; ΣР - the amount of expenses for the tariff period.
The higher the stability coefficient of the insurance fund, the higher the financial stability of insurance operations.
An important factor characterizing the financial stability of an insurance organization is insurance operations, which is expressed by the ratio of balance sheet (gross) profit to the revenue side:
However, due to the non-productive nature of the activities of insurance organizations, income is not created in them, and profit is generated through the redistribution of funds of policyholders, i.e. necessary and surplus product created in other production areas. Therefore, it would be more correct to define the profitability of insurance operations as an indicator of the level of profitability (D), namely, as the ratio of the total amount of profit for a certain period to the total amount of payments for the same period:
Where ΣBP is the amount of balance sheet profit for the year; ΣСВ - the total amount of insurance premiums for the year.
In addition to those discussed above, the following are distinguished: coefficients of financial stability of an insurance organization:
The level of insurance reserves is one of the most important coefficients of financial stability; it shows the share of insurance reserves in the capital of an insurance organization:
ISR = insurance reserves / total assets
The greater the numerical value of the coefficient and its growth in dynamics, the higher the financial stability of the insurer in terms of providing insurance protection. The coefficient values are considered sufficient at the level of 0.7 or more.
The ratio of equity capital to liabilities shows how much the equity capital of an insurance organization exceeds the amount of borrowed capital:
Ksk = equity / liabilities
It is fundamentally important to have a numerical value of this coefficient greater than 1.0. The higher the value of the indicator, the higher the degree of solvency of the insurer in terms of repaying its obligations not related to the insurance protection of clients.
The ratio of the amount of insurance premiums and insurance reserves shows the dependence of the growth or decrease in the size of the insurance fund directly on insurance activity (the amount of insurance premiums), this indicator is calculated as:
Kspsr = insurance premiums for all types of insurance / insurance reserves
An increase in the numerical value of the coefficient with an increase in the volume of insurance reserves reflects a tendency to increase the confidence of policyholders in the insurer. It is of undoubted interest for analysis to compare changes in the values of growth rates and the increase in the coefficient as a whole with changes in the values of the numerator and denominator.
The ratio of working and non-working capital shows the change in the capital structure of the insurer in the context of its two main groups. The values of this indicator depend on the period of activity of insurance organizations in the insurance market and on the economic situation in the country and in the region. In general, as the economic situation improves for steadily developing insurance organizations, the numerical value of the coefficient should decrease:
CSR = working capital / non-working capital
Significant fluctuations in the value of the ratio require a more detailed study of the financial situation that caused these changes.
The level of invested capital shows the share of the insurance organization's assets allocated to long-term and short-term investments. By fluctuations in the dynamics of the numerical values of the coefficient, one can judge changes in the investment policy of the analyzed insurance organization:
Kik = (long-term + short-term financial investments) / total assets
Depending on the long-term economic strategy of the insurer, aimed at increasing financial stability and increasing the liquidity of assets, the ratio values may increase or decrease, but it must be taken into account that with the expansion of insurance activities, the ratio values always increase.
The level of permanent capital reflects the share of all long-term capital in the assets of the insurance organization:
Kpk = (equity + insurance reserves + long-term liabilities) / total assets
The given ratio shows the financial capabilities and reliability of the insurance organization in the long term. The coefficient values are considered sufficient at the level of 90%.
This model proposes a regrouping of balance sheet items to highlight homogeneous, in terms of repayment terms, amounts of borrowed funds.
Thus, the ratio of the cost of material working capital and the values of own and borrowed sources of their formation determines the stability of the financial condition of the insurer. The provision of reserves and costs with sources of formation is the essence of financial stability, while solvency acts only as its external manifestation. At the same time, the degree of provision of supplies and costs with sources is the reason for one or another degree of solvency, which acts as a consequence of security.
The most general indicator is the surplus or shortage of sources of funds for the formation of reserves and costs, obtained in the form of the difference in the value of sources of funds and the value of reserves and costs. This refers to the provision of certain types of sources (own, credit and other borrowed), since the sufficiency of the sum of all possible types of sources (including short-term accounts payable and other liabilities) is guaranteed by the identity of the totals of the asset and liability of the balance sheet.
To assess the financial stability of an insurance company, there is a whole system of indicators and published ratings of insurance companies.
There have long been specialized rating agencies abroad that regularly publish ratings of insurance companies and analytical reviews of their activities. World-famous rating agencies are Standard & Poor’s, Moody’s Investors, Fitch Investors, Duff & Phelps, which many policyholders and investors turn to to obtain qualified information about the activities of the insurer or reinsurer.
To assign a rating to a company, a large number of data are analyzed. The managerial experience of management, marketing strategy, company policy for selling policies, company policy for accepting risks and reinsurance, organizational and management structure, including analysis of parent and subsidiary companies, company investment policy and much more are also studied.
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