Financial Statements

of Life Insurance

Le Huu Phong

Balance SheetBalance SheetProfit & LossProfit & Loss

…………

KnowKnowpotential potential impactsimpacts

MeetMeet businessbusiness

environmentenvironment

Basic understanding needs

FinancialStatements

Company’s financial position

Makebest

decisions

Vietnam Life Insurance

How do appraise

their financial

condition?

2 insurers’ key financial goals

Solvency Profitabilityowns more

than it owes

earns more

than it spends

2 keysuccess

Solvency & Profitability

What does the company…?

earn

ownowe

spend

retain

5 key business questions

Cash flowstatement

Owners’ Equity statement

IncomeIncomestatementstatement

BalanceBalancesheetssheets

To answer the question…

Financial statements

Key financial statements

For basic understanding, 2 keysfinancial statements of the Balancesheet and Income Statement under(VAS – Vietnam Accounting Standard)will be introduced.

Balance SheetABC Life Insurance Company

Balance Sheet as of December 31, 2011

Assets 1,095A. Current Assets 219

I. ……II. ……

B. Non-Current Assets 876I. ……II. ……

Liabilities and Owners’ Equity 1,095A. Liabilities 191

I. ……II. ……

B. Owners’ Equity 904I. ……II. ……

Balance Sheet

Balance sheet is a financial statement that shows an insurer’s financial condition as of a specific date.

The main purpose is to measure the owners’ wealth from what a company owes (liabilities) and what it owns (assets).

Balance Sheet - Assets

AssetsA. Current Assets 219

I. Cash equivalents 129II. Short-term investments 20III. Account receivables 55IV. Other short-term assets 15

B. Non-current Assets 876I. Fixed assets 33II. Long-term investments 813III. Other long-term assets 30

Total Assets 1,095

Account classification

ASSETASSET

Cash equivalents Cash on hand and Cash in bank

Investment assets Bonds, Stocks, Time deposits…

Physical assets Buildings, office equipments…

Receivables Interests, business deposits…

Regulatory deposit Legal deposit

Balance Sheet - Assets

AssetsA. Current Assets 219

I. Cash equivalents 129

II. Short-term investments 20III. Account receivables 55IV. Other short-term assets 15

B. Non-current Assets 876I. Fixed assets 33

II. Long-term investments 813

III. Other long-term assets 30

Total Assets 1,095

From 3 monthsand less

Over 3 and less

12 monthsOver

12 monthsLong-termLong-term

Short and Long….

Short-termShort-term

Cash equivalents

Balance Sheet – L & OE

Liabilities & Owners’ Equity

Liabilities 191Current liabilities 20Non-current liabilities 1Technical Reserves 170

Owners’ Equity 904Legal capital 900Retain earnings 4

Total Liabilities & Owners’ Equity 1,095

Account classification

LIABILITIESLIABILITIES

Unpaid policy payables Surrender values, Claims…

Statutory obligations Compulsory insurances, all

kind of taxes…

Vendor payables

Accruals

Deferred tax liabilities

Technical reserves

Account classification

OWNERS’ OWNERS’ EQUITYEQUITY

Paid-in capital Money that an insurer has

invested

Retaining earnings The cumulative amount of a

company’s earning over time

Balance SheetABC Life Insurance Company

Balance Sheet as of December 31, 2011

Assets 1,095A. Current Assets 219

I. ……II. ……

B. Non-Current Assets 876I. ……II. ……

Liabilities and Owners’ Equity 1,095A. Liabilities 191

I. ……II. ……

B. Owners’ Equity 904I. ……II. ……

Basic accounting equation

The basic accounting equationpresents the relationship amongthe three key accountclassifications on the balancesheet: assets, liabilities andowners’ equity.

Assets = Liabilities + Owners’ Equity

Income StatementABC Life Insurance Company

Income Statement For the year end December 31, 2011

Insurance relatedGross premiums 186Expenses (125)

Financial activitiesInvestment income 152 Investment expense (22)

Other activitiesOther income 10Other expenses (3)

Income before tax 198Income tax expense (25%) 50

Net Income 148

Income Statement

Income statement is a financial statement that reports an insurer’s revenues and expenses during a specific period.

The main purpose is to indicates whether the insurer experienced net income (profit) or a net loss during the period.

Income StatementABC Life Insurance Company

Income Statement For the year end December 31, 2011

Insurance relatedGross premiums 186Expenses (125)

Financial activitiesInvestment income 152 Investment expense (22)

Other activitiesOther income 10Other expenses (3)

Income before tax 198Income tax expense (25%) 50

Net Income 148

Income Statement – Part 1

Insurance related (Operating)Revenues

Gross premiums written

Expenses - Increasing in reserves- Contractual benefit pay-outs- Direct expenses- Sale related expenses- Administration expenses

Net operating income

minus

Revenues

Expenses

Commission

Medical examination

Investigation

Direct Direct expensesexpenses

Expense in details

Agent bonuses

Policy related costs

Customer cares

Brandings

Business development

SaleSaleexpensesexpenses

Expense in details

For agency force

Staff salary & related

Office running costs

Consultant

IT related

Business development

ManagementManagementexpensesexpenses

Expense in details

For staff

Income Statement – Part 2

Financial activitiesRevenues

- Interests of Bond, Time deposits…

- Gain on exchange rate

Expenses - Broker & Custodian fee

- Loss on exchange rate

Net financial activities income

minus

Revenues

Expenses

Income Statement – Part 3

Other activitiesRevenues - Service provided - Gain on sell fixed assets - Others

Expenses - Asset liquidation- Others

Net other activities income

minus

Revenues

Expenses

Internal Users

Users of Financial Statement

External Users

- Management to make decisions.

- Employeeto understand the financial position of company.

- Group policy-owners.

- Beneficiaries.

- Investors

- Tax authorities

- Competitors…

SolvencySolvency ProfitabilityProfitability

Summary

owns more than it owesowns more

than it owesearns more

than it spendsearns more

than it spends

Key to a insurers’ success

Summary

Assets L&OE

4,0502,7501,300

4,050 4,050

What does insurer own?

What does insurer owe?

What has insurer retained?

Balance Sheet

Financial Statement

Liabilities

Owners' Equity

Summary

Revenue 1,500

Expense 1,000

Net income 500

Revenue 1,500

Expense 1,000

Net income 500

What has the Insurer earned?

What has theinsurer spent?

Income Statement

Financial Statement

Summary

Revenue 1,500

Expense 1,000

Net income 500

Revenue 1,500

Expense 1,000

Net income 500

Assets L&OE

4,050 2,750

1,300

4,050 4,050Retained earnings Net income

L&OE