In order to be able to pay cash compensation, a financial company is obliged to form insurance reserves. This amount, which is accumulated in the accounts of the organization, is directed to insurance payments and invested to increase the reserve.
The concept of insurance reserves
The insurance company at the expense of customer contributions assumes the obligation to pay insurance compensation in the event of an accident, natural disaster, traffic accident. Insurance reserves - this is the size of the obligations assumed, for which contracts have been concluded that are actually valid at the end of the reporting period (month, quarter, year).
Insurance reserves are part of the ownership of a financial company. For example, Service Reserve LLC, an insurance company operating in the Russian financial market since 1992, has been able to increase its reserves to 1,176.7 billion rubles over the past year.
The use of accumulated insurance reserves is possible only for strictly defined purposes by law. After the contract has expired, and there were no declared payments under it, the amount of contributions received after tax payments becomes the capital of the insurer.
Service Reserve insurance company in Yaroslavl invests a portion of unused cash contributions to make its financial activities profitable.
Description of insurance reserves
The size and occupancy of insurance reserves depend on:
- types of activities of the insurance organization;
- the level of development of reinsurance operations;
- the composition of the insurance portfolio;
- economic indicators affecting the ability of customers to purchase insurance products and reducing the size of the company's obligations.
The division of insurance reserves depends on the possibility of an insured event, the level of obligations, methods for determining insurance rates.
Insurance reserves are reserves of preventive measures for personal life insurance, reserves of losses and unearned premiums.
Life insurance reserves
Life insurance contracts are funded. Money transfers under such insurance agreements have been in the accounts of the insurance company for a long time. This makes it possible to channel funds into investment programs, providing themselves and their clients with additional income. Service Reserve insurance company does not conclude life insurance contracts, therefore, the annual report does not contain information on the availability of a reserve for this type of activity.
Life insurance financial reserves are allocated for payment in the following cases:
- expiration of the contract;
- the occurrence of an event specified in the agreement (wedding, adulthood, pension);
- deterioration in health;
- prescribing disability;
- death of the insurance object.
The procedure for the formation of life insurance reserves
To date, there are no identical standards approved for all insurance companies to create life insurance reserves. Therefore, each financial organization that sells products for this insurance group has a developed procedure for the formation of such reserves. Such provisions should be checked and approved by supervisors of non-banking companies.
The basis for calculating the volume of the reserve for life insurance is considered to be the amount of insurance payments received minus the costs of doing business. In the formulas used for calculations, the following are taken into account:
- rate of return;
- insurance premiums paid;
- cash bonuses received minus regulatory costs;
- reserves at the beginning of the reporting period.
Provision for preventive measures
In order to take measures to prevent accidents, reduce material losses during the destruction or damage to property in Yaroslavl, Service Reserve (insurance company), in accordance with applicable law, like all other non-banking companies, forms a reserve of preventive measures. Each insurance organization independently determines the rate of deductions to such a reserve and the procedure for its use. Its size is affected by balances at the beginning of the period, actual use for the reporting period, and the amount of receipts for the same time period.
Use of a preventative reserve
These funds can be used to:
- participation in the repair and restoration of fire stations;
- purchase of special vehicles designed to combat fire;
- creation of technical inspection stations in conjunction with a car inspection;
- the acquisition of special equipment, vehicles necessary to reduce accidents on the road;
- participation in preventive measures aimed at reducing the number of accidents, the level of injuries.
Unearned premium reserve
In addition to the reserve for life insurance, there are also technical insurance reserves. In Yaroslavl, financial companies create such reserves in order to be able to guarantee the payment of insurance compensation upon the occurrence of an insurance event on a certain date (end of month, quarter, year).
A reserve of unearned premiums is created in order to ensure the fulfillment of obligations assumed under insurance agreements that are valid in the reporting period. This reserve represents: the basic insurance payment, which is accrued under existing contracts, is related to the term of the policy and is outside the reporting period.
Provision for claimed but outstanding claims
Financial reserves are amounts that guarantee customers the receipt of cash compensation from an insurance company. In Yaroslavl, reserves of declared but not settled losses, as in other cities, are created on the basis of applications received from policyholders. The created reserve is the losses that the client has already incurred in the reporting or previous time period, but the insurance company has not yet paid them. The reserve of declared but not settled losses is used to fulfill obligations that are not fulfilled, partially fulfilled and appeared as a result of insurance events, which the company’s client reported in the reporting period.
An insurance company makes such a reserve in Nizhny Novgorod in cases where it is impossible to complete the payment of documents, calculate the amount of insurance compensation, or refuse to charge monetary compensation in the same period when a statement was received about the event. For example, if an accident occurred at the end of the first quarter, then the insurance company creates a reserve to reserve the amount of compensation that can be paid in the second quarter. A reserve is created for each individual application for payment.
Provision for incurred but not claimed losses
The reserve of incurred but not declared losses allows insurance companies of Yaroslavl to accumulate funds for the reporting period to cover possible payments in the following time periods. This stock is calculated based on statistics for a certain number of years.This information is collected on insurance events, their loss ratio, settlement terms.
Determining the level of benefits is the basis for calculating insurance reserves. This is the ratio of unpaid loss to received insurance payments for each type or group of insurance. The need to create an insurance reserve in Nizhny Novgorod is due to the fact that between the fact of the incident and the time of payment of the cash bonus, the time passes that the financial company uses to form a payment act.
Additional insurance reserves
These are funds that are created to guarantee the payment of insurance compensation in the event of catastrophic events of a natural or man-made nature. The catastrophe reserve is formed under property insurance contracts. The objects of liability under such insurance agreements may be massively damaged as a result of a natural disaster or accident caused by human activities. In order to be able to respond to the concluded agreements and make full reimbursement, insurance companies create a catastrophe reserve.
Companies also create technical reserves for fluctuations in loss ratio. Such funds are formed to compensate for changes in loss ratio over a long period of time for each insurance segment and types. The need to create a reserve for fluctuation in loss ratio arises if the level of payments for a certain type of activity significantly exceeds the level of loss ratio, which is laid down in the insurance payment rate.
Placement of formed insurance reserves
For further investment, insurance reserves can be placed:
- in stocks, bonds, bills, other securities;
- in banks on deposits;
- the currency of other states;
- precious metals and stones;
- immovable objects (rental, resale);
- participation in profitable enterprises;
- current bank accounts.
Invested cash reserves, due to the inability to predict the likelihood of an insured event, are exempt from taxation in accordance with applicable law.
Insurance reserves are funds of a financial company, the size of which enables clients of a non-banking organization to feel confident that upon the occurrence of a contractual event they will receive monetary compensation. Moreover, it is not only the supervisory authority over the work of insurance organizations that controls the correctness of the formation of reserves, their use and allocation, but also fiscal organizations.