Loss Or Insurance Liabilities Accounting

With the development of China's insurance industry, the accounting problem of insurance industry has become increasingly prominent.

The performance of an insurance company is to collect insurance premiums from the insured according to the policy (the insurance contract). The insurance company has the insurance liability stipulated in the insurance company's contract. Before the insurance company pays compensation or payment to the insurer, it actually constitutes a liability of the insurance company.

This paper analyzes the characteristics of insurance liabilities and affirms the nature of the liability loss of insurance liabilities.

On this basis, this paper considers the recognition, measurement and disclosure of insurance liabilities based on the principle of accounting for loss or loss.

The insurance liabilities mentioned in this article only refer to the reserve for insurance liabilities.

In our country's accounting standards for business enterprises, contingencies are defined as "a state of affairs formed in the past, and the results must be confirmed by the occurrence or occurrence of uncertain events in the future".

Contingencies may be classified as or with losses or gains according to their nature.

Contingent loss is the result of past pactions or events, and the result is that liabilities may occur or assets may be reduced.

Loss or loss here does not refer to contingent liabilities.

In fact, the definition of contingent liability in the accounting standards of enterprises or contingencies contains two situations: one is the potential obligation formed by past pactions or events, and its existence is confirmed by the occurrence or non occurrence of uncertain events in the future.

The other is: the current obligations arising from pactions or events in the past are not likely to result in the outflow of economic benefits or the amount of the obligation is not measurable.

It can be seen from the definition that contingent liabilities include two situations: one is potential obligation, the other is current obligation.

In order to facilitate discussion, the former is called "contingent liability" and the latter is called "estimated liability".

Therefore, there are two parts of the contingent liability: the contingent liability and the estimated liability.

The insurance company's performance is to collect insurance premiums from the insured according to the policy (insurance contract) and bear the corresponding insurance liability within the validity period of the contract.

For a general merchandise enterprise, selling goods to collect money means the end of a paction. After the establishment and entry into force of the insurance contract, the insurance company has the insurance liability stipulated in the insurance contract. It has the obligation to provide compensation or payment to the insurance beneficiary under the condition of the insured's Insurance accident or survival to the prescribed age. Before it is paid or paid to the insurer, the content actually constitutes a liability of the insurance company.

Therefore, the insurance company should establish a reserve fund.

The liabilities of insurance companies have the following characteristics: (1) uncertainty.

The operation of insurance companies is uncertain.

On the one hand, in the property insurance business, the liability of the insurance company is mainly related to the extent of the loss caused by the insurance incident. Because of the inability to predict the magnitude of the accident and the possible loss, it is uncertain.

In life insurance business, because of the nature of liabilities, the amount of money is more uncertain.

On the other hand, the risks of insurance operation include not only normal risks, but also abnormal risks. They can not be fully controlled by insurance companies.

So this has also increased the uncertainty of insurance companies.

(two) future.

The insurance liability of an insurance company for insurance compensation or payment is only accounted for only after the completion of the business.

When the insurance company is responsible for determining the cost of the contract, it is predictive of the determination of the insurance liabilities.

(three) estimation.

Due to the uncertainty of future losses and the existence of some predictive factors, all estimates are based on people's assumptions.

On the basis of hypothesis, we choose the specific method to make the calculation, so the amount of liabilities generated is also an estimate.

From the point of view of insurance companies, the premium is usually charged before the insured has an insurance accident or surviving to the prescribed age, and compensation or payment is thereafter.

Therefore, the liability of the insurance company is due to the insurance premium in the past.

At the same time, because the insurance liabilities are uncertain, futuristic and estimable, the insurance companies should decide how much they should pay according to the actual situation of the insurance accident.

Two, about the accounting treatment of insurance liabilities. Since the liability of insurance companies is a loss, then the accounting treatment should be followed or the characteristics of loss accounting should be followed or recognized, measured and disclosed according to the particularity of the insurance industry itself.

The criteria for confirmation or disclosure of loss or loss are stipulated in the following table. (1) confirm that the criteria for confirmation are: what are the criteria for the confirmation of the loss?

In accordance with the accounting standards for enterprises - contingencies, it is recognized that three conditions must be satisfied: 1. The obligation is a current obligation rather than a potential obligation.

2. The performance of this obligation is likely to cause economic benefits to flow out of the enterprise.

Here, "probably" means that the probability of occurrence is more than 50%, but it has not reached the basic definite procedure.

3. The amount of the obligation can be measured reliably.

The "reliable measurement" here means that the amount of current obligations arising from contingencies can be reasonably estimated.

Judging from the above criteria, the confirmation is only for projected liabilities.

Any loss that can not meet both three conditions at the same time must not be recognized in the accounting statement.

That is to say, contingent liabilities can not be confirmed.

As an insurance industry, is there any damage to its liabilities?

As a special industry, has its own characteristics of the industry, whether its confirmation standards must be completely in accordance with the accounting conditions for enterprises?

The author will start from the analysis of the liability of the insurance company and find the answers to these two questions.

1, the insurance company has made an insurance claim for the insured. However, the insurance company and the claimant have not yet reached an agreement on whether the claim is covered by the insurance coverage or the insurance indemnity, so that the insurance company should bear the responsibility.

In another case, an insurance accident has occurred, but the insured has not yet made an insurance claim.

In view of such liabilities, insurance accounting usually refers to "outstanding claims reserve".

This is the insurance company's current obligations, how much compensation it can not be determined, that is, can not be measured, that is, outstanding claims reserve is "estimated liabilities" category.

2 different types of insurance companies bear different responsibilities due to the nature of their business and the contract period. Accordingly, different types of liability reserve are set up accordingly.

Accounting for a period of less than one year (including one year) of a non life insurance company, due to the inconsistency between the insurance contract and the accounting period, at the end of the accounting period, it is necessary to establish an "unmaturing liability reserve" at the end of the accounting period for the purpose of undertaking the intertemporal liability. (2) all kinds of non life insurance companies with a profit and loss account period of over one year (excluding one year), when the business is not up to the year of settlement and profit and loss, the company bears the responsibility of intertemporal liability. At the end of the accounting period, a "long-term liability reserve" should be established. (3) the companies that run the life insurance business and long-term health insurance company shall calculate the extracted reserves according to actuarial results after the entry into force of the policy. (1) profit and loss

This is the "life insurance reserve" and "long-term health insurance liability reserve".

The above types of reserve requirements are the potential obligations of insurance companies, rather than the current obligations, which belong to the category of contingent liabilities.

In accordance with the "accounting standards for enterprises - Contingencies" should not be recognized and measured, but the use of this criterion in the insurance industry, the author believes that should not be completely copied, because the most important business principle of insurance companies is to ensure solvency, to ensure that future compensation or payment has sufficient funding sources.

Therefore, the principle of "conservatism" is emphasized in the insurance accounting principles.

In view of "undue liability reserve", "long term liability reserve", "life insurance liability reserve" and "long-term health insurance liability reserve", the author believes that it should be recognized and measured, which can be called "recognised and measured contingent liabilities", which is a challenge to the accounting principles of contingent pactions in general enterprises.

In the practice of insurance, there are always unforeseen factors in some insurance business. The possibility of these factors is very small, but once it occurs, the pure premium that the insurance company will set under this kind of insurance may not be enough to guarantee the payment or payment of.

This involves the issue of "special reserve fund" on the basis of the reserve on the basis of pure premium.

Because this liability reserve is less likely to happen, it should not be recognized and measured.

Now the insurance accounting system stipulates that "total reserves" should be included in the post tax profits. It can also be seen that it has not been recognized as a liability.

4, China's insurance companies should also deposit the "insurance protection fund" according to the provisions of the insurance law. This fund can be used to liquidate the company's debts when the company is liquidated, that is to say, the owner has a specific claim for the fund, so the author thinks it should belong to the owner's equity.

And the insurance protection fund is not the amount to be prepared for future reparations or payments, so it is not satisfied or the premise of loss recognition is due to past pactions or events.

The insurance protection fund is not a category of loss or loss, so its accounting treatment is not discussed.

(two) metrology is based on the accounting standards of enterprises - contingencies. The measurement problem is only applicable to projected liabilities.

However, as mentioned earlier, there are "recognised and measured contingent liabilities" in the insurance companies.

Therefore, the outstanding claims reserve, undue liability reserve, long term liability reserve, life insurance liability reserve and long-term health insurance liability reserve should also be measured.

It is worth noting that according to the criteria, general measurement methods can not solve the measurement of these reserve requirements.

The complexity of the calculation of the reserve requirement of insurance companies needs the cooperation of actuarial techniques.

How to establish a model to determine specific measurement is a problem of actuarial research. There is not much discussion here. The general principle should be to estimate the estimated liabilities from the perspective of improving the relevance and reliability of accounting information.

(three) to disclose the disclosure of the 1 liabilities of the company. The eighth provision of the accounting standards for business enterprises, contingencies, stipulates that the liabilities (estimated liabilities) determined by contingencies should be reflected in separate items in the balance sheet and be disclosed accordingly in the notes to the accounting statements.

This means that the outstanding claims in the insurance company should be reflected separately in the balance sheet, and the corresponding amount should be disclosed in the notes to the accounting statements.

Due to the provision for outstanding claims, it will involve specific methods. The author believes that the reasons for outstanding claims should be disclosed, and the disclosure of the amount can be reflected by disclosing the method and proportion of outstanding claims reserve.

The disclosure of 2 liabilities or liabilities is based on the accounting standards of enterprises or contingencies. Contingent liabilities are not reflected in the accounting statements because they do not meet the requirements of liabilities.

However, as discussed above, the conditions for confirming the unexpired liability reserve, long-term liability reserve, life insurance reserve and long-term health insurance reserve should be reflected in the accounting statements.

"Accounting standards for enterprises - Contingencies" also stipulates that the contingent liabilities that are likely to cause economic outflows should be disclosed.

Moreover, it is also necessary to disclose the liabilities of some enterprises which often have great impact on the financial condition and operating results of enterprises, even if the economic benefits caused by them are outflowing from enterprises.

For an insurance company, though the annual undue reserve is not the current liability of the insurance company, this potential liability for compensation is likely to outflow the interests of the insurance company.

It is unlikely that the insurance company will pay more than the normal level to cope with the catastrophe risk, but once it happens, it will have a greater impact on the operating results of the insurance company.

Therefore, the special reserve should also be disclosed in the notes to the accounting statements.

Like the disclosure principle of outstanding claims reserve, the reasons for the withdrawal of undue liability reserve, long term liability reserve, life insurance liability reserve, long-term health insurance liability reserve and special reserve fund should be disclosed in the notes to the accounting statements. The disclosure of the amount can also be reflected by disclosing the method and proportion of the reserve.