Page 176 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 8: Accounting for Insurance Companies

Finally, Kelly IT Resources developed a partnership with Project Management Institute notes
(PMI), a national organisation specialising in project management education, training
and resources. Through PMI, KITR launched a mentor program that included career path
development for IT project coordinators.
the result
Kelly IT Resources was successful in improving the insurance company’s fill time from
more than 27 days to 14 days, leading to enhanced productivity and revenue. Consistent
client feedback and KITR’s overall tracking initiatives revealed high levels of employee
performance and satisfaction on the job. KITR’s onsite presence and comprehensive quality
program led to better communications with the company as well as more direct interaction
with employees, thus improving employee retention.

Questions
1. Discuss the problem of the case.
2. What are the consequences of the problem?
Source: http://www.kellyservices.us/US/Business-Services/Kelly-IT-Resources/Case-Studies/Insurance-Company-Case-
Study/
8.4 summary

l z The major differences in accounting for life insurance as compared with other industries
derive from the long time period between receipt of premiums and the payment of
claims.

l z This gives rise to the need for actuarial estimates of the liability in order to determine both
the solvency and the profitability of life business.

l z Companies normally ‘lay-off’ a proportion of the risk by reinsuring with other insurance,
or specialist reinsurance, companies. The accounting for the reinsurance premiums paid,
claims reimbursements received and commissions paid is effectively the mirror image of
the accounting for the direct insurance.
l z Investment return comprises interest and dividends and gains and losses from changes in
the market value of investments.

l z A realised gain arises when an investment is sold for more than its cost. Unrealised gains
arise when investments are revalued to market value at the year end but not actually
sold.
l z As solvency needs to be maintained over the very long periods for which policies are
written it is necessary to ensure that not only do assets currently exceed liabilities but even
more importantly that future cash inflows will match the requirements for future cash
outflows.

l z A crucial aspect of investment management is therefore to ensure adequate ‘matching’ of
the maturities of investments against the maturities of anticipated claims.
l z As there is usually a significant period between the inception of a policy and the receipt
of premiums, and the final payment of benefit, it is necessary to make provision, at the
end of each accounting period, for the future liability to pay the ultimate benefits to the
policyholders, the amount of which will depend on a range of factors. An actuarial estimate
of the ‘long term business provision’ needs to be made.

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