2. What is a non-life insurance company?
Non-life insurance includes:
• All insurances that are not life insurances.
• Bought separately.
• Insurance of property against fire, burglary etc.
• It is very common and covers businesses, governments and
individuals.
• The period for most general insurance policies and plans is usually
one year, whereby premiums are paid on a one-time basis.
• Non-life Insurance protects them, monetarily, from disaster by
providing money in the event of a financial loss
• It is also bought by small businesses to protect capital, tools and
machinery against fire, theft.

3. Non-life insurance companies in Malta
Total licences at end September 2011
Source: Malta Financial Services Authority
Reinsurance Total licences
14% (at end September 2011)
Composite Non-Life 35
4%
Life Non-Life
Life 8
15% 67% Composite 2
Reinsurance 7
During this presentation we are discussing between three
Insurance Companies; Middle Sea, GasanMamo and Elmo. These
are the main companies in non-life insurance industry in Malta.

4. Non-life Insurance Policies
Personal Insurance Home Insurance
Travel Insurance Motor Insurance

5. Non-life Insurance Policies
Health Insurance Personal Accident Insurance
Business Insurance Yachts & Pleasure Craft Insurance

6. Accounting for Insurance

7. Accounting for Insurance
The Statement of Comprehensive Income of an insurance company
is divided into two parts:
1. Technical Account – Trading Account (the underwriting result)
2. Non-Technical Account – Profit and Loss Account

8. Technical Accounts of a
Non-Life Insurance
Company
(GasanMamo Insurance Limited
Annual Reports and Financial Statements
31 December 2010)

9. Non-Technical Accounts of a Non-Life Insurance Company
(GasanMamo Insurance Limited Annual Reports and Financial Statements – 31 December 2010)

10. Technical Accounts of a
Non-Life Insurance Company

11. Technical Accounts of a Non-Life Insurance Company
Earned premium, net of reinsurance (I)
Gross premium written
• Total premiums received for the whole year, from clients.
• When non-life insurance companies close contracts to provide
insurance against loss, the revenue expected to be received over the
life of the contract are called gross premium written.

12. What is reinsurance?
Reinsurance is the part of the risks from the direct insurer to a
second insurance company, known as the reinsurer who has no
direct contact with the insured.
Insured
Insurer
Reinsurer

13. Technical Accounts of a Non-Life Insurance Company
Earned premium, net of reinsurance (I)
Outward reinsurance premium
• This is also known as the cost of the reinsurance.
• It is part of gross premium that is passed on the reinsurance; the
premium for that portion of insurance is then paid to the
reinsurance. premium written.

14. Technical Accounts of a Non-Life Insurance Company
Earned premium, net of reinsurance (I)
Net Premium Written is an indication of the level of sales for risks
that they themselves cover.
Net Premium written = Gross premiums written - Outward reinsurance
Net premium written GasanMamo Middle Sea Elmo
Gross premium written €26,531,812 €33,155,000 € 13,300,687
Outward reinsurer’s premium (€2,180,006) (€14,699,000) (€4,100,575)
Net written premium €24,351,806 €18,456,000 €9,200,112

15. Differences between Premium Written, Earned and Unearned
Accrual Basis: “Only premium related to the relevant accounting
period are recognised as revenues (premium earned)”
Earned Premium:
• Part of the written premium for which protection of the policy
has already been given.
• What the insurance company profits.
Unearned Premium:
• Opposite of earned premium
• Therefore it is a portion of written premium that is considered as
unearned because protection of the policy is not given
• Would be returned to the insured if the policy is cancelled

16. Earned and Unearned Premium
Example:
If a €1,000 policy has a two-year life span and no claim has been
filed six months into the policy, the company will have an earned
premium amount of €250.
2 years = 24 months
24 months = €1000
6 months = ? (1000x6)/24 = €250
Therefore:
`
Written Premium = €1000
Earned Premium = €250
The rest (1000-250) €750 is called Unearned Premium

17. Technical Accounts of a Non-Life Insurance Company
Earned premium, net of reinsurance (II)
Provision of Unearned Premium/Unearned Premium Reserve (UPR)
It is a fund that contains the portion of the premium that has been
paid in advance for insurance that has not yet been provided.
Example: If in 2010 the UPR is €100 and in 2011 the UPR is €90 the
€10 is earned premium. Therefore we need to add it with other
earned premium which is a profit to the company.

18. Provision of Unearned Premium
GasanMamo
Unearned premium in 2009 = 11,751,355
Unearned premium in 2010 = (12,353,384) change of unearned premium
(net of reinsurance)
(602,029)
The increase in the unearned earnings reserve is not transferred into
the earned earning. This creates a negative effect to the Income
Statement. Therefore we need to deduct it from earned premium.

19. Provision of Unearned Premium
Change in the Gross
Provision for Unearned GasanMamo Middle Sea Elmo
Premium
Gross Amount (€602,029) (€937,000) (€26,800)
Reinsurer’s share / €635,000 (€10,155)
Change in the gross provision for
(€602,029) (€302,000) (€36,955)
unearned premium

20. Technical Accounts of a Non-Life Insurance Company
Earned premium, net of reinsurance
This is the entire earned
premium that a company has
after taking into account
reinsurance operations.
Earned Premium GasanMamo Middle Sea Elmo
Net written premium €24,351,806 €18,456,000 €9,200,112
Change in the gross provision for
(€602,029) (€302,000) (€36,955)
unearned premium
Earned premium, net of reinsurance €23,749,777 €18,154,000 €9,163,157

21. Technical Accounts of a Non-Life Insurance Company
Allocated investment return transferred from the non-technical
account
• Return on average technical provisions, after deducting the
capital employed in insurance operations
• The allocated investment return is based on risk-free interest.

22. Technical Accounts of a Non-Life Insurance Company
Allocated investment return transferred from the non-technical
account
GasanMamo Middle Sea Elmo GasanMamo
Investment return €1,370,567 €1,667,000 €1,102,643

23. Technical Accounts of a Non-Life Insurance Company
Total Technical Income
When one adds the Allocated investment return transferred from the
non-technical account to the Earned premium, the result will give the
Total Technical Income.
GasanMamo

24. Technical Accounts of a Non-Life Insurance Company
Total Technical Income
The Total Technical Income is the entire earned premium that a
company has after taking into account reinsurance operations.
Total Technical Income GasanMamo Middle Sea Elmo
Earned premium, net of reinsurance €23,749,777 €18,154,000 €9,163,157
Allocated investment return
transferred from the non-technical €1,370,567 €1,667,000 €1,102,643
account
Other technical income / / €304,484
Total Technical Income €25,120,344 €19,821,000 €10,570,284

25. Technical Accounts of a Non-Life Insurance Company
Claims incurred, net of reinsurance (I)
• Insurance claim - a formal request to an insurance company asking
for a payment based on the terms of the insurance policy.
• Gross Claims Paid - claims paid directly or through reinsurance
agreements including lawyer fees, adjustments fees, and all
expenses to settle a claim.
• Reinsurers’ Share - portion of gross claims that are covered by
reinsurers.

26. Technical Accounts of a Non-Life Insurance Company
Claims incurred, net of reinsurance (I)
Therefore:
Claims Paid = Gross Claims Paid – Reinsurers’ Shares
Claims Paid GasanMamo Middle Sea Elmo
Gross Amount €11,976,156 €18,036,000 €7,004,638
Reinsurers’ Share (€2,671) (€5,336,000) (€918,859)
Claims paid €11,973,485 €12,700,000 €6,125,779

27. Technical Accounts of a Non-Life Insurance Company
Claims incurred, net of reinsurance (II)
Provision for Claim/Claims Reserve
• Estimate of what a claim will cost
• Money set aside for claims for claims which may occur
• A claim is incurred when it happens.
• Represent future obligations, and therefore they treated as
liabilities in the balance sheet
• Measure company’s financial health

28. Technical Accounts of a Non-Life Insurance Company
Claims incurred, net of reinsurance (II)
Provision for Claim/Claims Reserve
Claims reserve money set aside for:
• Claims outstanding - Amount set aside by the insurer for claims
that been reported but not yet settled, including any projected
adjustment expenses
• IBNR (Incurred But Not Reported) - Amount set aside by the
insurer for claims that have been incurred but not yet reported
including any projected adjustment expenses

29. Provision for Claims
GasanMamo
Increase in the Gross Amount
Gross amount:
2010 2009
€12,732,194 - €12,101,923 = €630,271

30. Provision for Claims
GasanMamo
Reinsurance Share: Increase in the reinsurance share
2010 2009
(-€252,733) - (-€254,571) = €1,838

31. Provision for Claims
Provision for Claims GasanMamo Middle Sea Elmo
Gross Amount €630,271 (€71,000) (€20,585)
Reinsurers’ share €1,838 (€780,000) (€185,664)
Change in the provision for claims €632,109 (€851,000) (€205,249)
The total represents the difference between the balance in
outstanding claims reserves and IBNR reserves at the end of the
period and consecutively and the balance of the outstanding
claims reserves and IBNR reserves at the beginning of the period.
These reserves are net of the share of the reinsurance.

32. Technical Accounts of a Non-Life Insurance Company
Claims incurred, net of reinsurance
Claims incurred, net of
Claims Paid= Gross Claims Paid – Reinsurers’ Shares
reinsurance refers to the result
of adding changes in net
reserves to net claims paid.
Claims incurred GasanMamo Middle Sea Elmo
Claims paid €11,973,485 €12,700,000 €6,125,779
Change in the provision for claims €623,109 (€851,000) (€205,249)
Claims incurred, net of reinsurance €12,605,594 €11,849,000 €5,920,530

33. Technical Accounts of a Non-Life Insurance Company
Net Operating Expenses
• Net Operating Expenses refers to the total expenditure incurred
by the insurance in order to perform its daily operations. In
simple terms it’s the total costs of running the insurance.
• It consists of three elements:
1. Acquisition Costs
2. Change in Deferred Acquisition Costs (DAC)
3. Administrative Expenses

34. Technical Accounts of a Non-Life Insurance Company
Net Operating Expenses
1. Acquisition Costs – costs relating to acquire a costumer like
clerical work and inspection costs.
2. Deferred Acquisition Costs – costs of acquiring a new customer
over the duration of the insurance contract like commissions to
sales agents, underwriting and bonus interest.
3. Administrative Expenses - These include staff costs, premises
costs, depreciation charge, directors’ fees, auditor's
remuneration, professional fees, marketing and promotional
costs, and other general office expenditure.

35. Technical Accounts of a Non-Life Insurance Company
Net Operating Expenses
GasanMamo
GasanMamo Middle Sea Elmo
Net Operating Expenses €7,190,943 €5,102,000 €2,155,454

36. Technical Accounts of a Non-Life Insurance Company
Total Technical Charges
Total Technical Charges are the addition of the claims incurred and
the net operating expenses.
Total Technical Charges GasanMamo Middle Sea Elmo
Claims incurred, net of reinsurance €12,605,594 €11,849,000 €5,920,530
Net operating expenses €7,190,943 €5,102,000 €2,155,454
Total technical charges €19,796,537 €16,951,000 €8,750,984

37. Technical Accounts of a Non-Life Insurance Company
Balance in the Technical Account
The Balance in the Technical Account is the difference between
Technical Income and Technical Charges.
Balance in the Technical Account GasanMamo Middle Sea Elmo
Total Technical Income €25,120,344 €19,821,000 €10,570,284
Total Technical Charges (€19,796,537) (€16,951,000) (€8,750,984)
Balance €5,323,807 €2,870,000 €2,494,300

38. Balance Sheet
Statement of Financial Position of a
Non-Life Insurance Company

39. Statement of
Financial Position
of a Non-Life
Insurance Company
(GasanMamo Insurance Limited
Annual Reports and Financial Statements
31 December 2010)

40. Statement of Financial Position of a Non-Life Insurance Company
Assets:
Reinsurers’ share of technical provision/Reserves of the Reinsurer
• Represents setting reserve in reinsurance.
The technical provisions are likely to be the biggest items in the
Statement of Financial Position and adjustments to them are done
in the Technical Account.

41. Statement of Financial Position of a Non-Life Insurance Company
Assets:
Reinsurers’ share of technical provision/Reserves by the reinsurer
The reinsurance share of technical provision is made up of:
GasanMamo
GasanMamo Middle Sea Elmo
Reinsurance Share of Technical Provision (€252,733) (€15,357,000) (€3,390,992)

42. Statement of Financial Position of a Non-Life Insurance Company
Assets: Receivables
GasanMamo
GasanMamo Middle Sea Elmo
Insurance and other receivables €4,749,760 €10,303,000 €3,866,933

43. Statement of Financial Position of a Non-Life Insurance Company
Liabilities:
Technical Provisions - Gross
This represents the total amount of reserves kept by the company
which in this case are:
1. Unearned premium reserve
2. Claims reserve:
• Claims outstanding
• IBNR- Incurred But Not Reported

44. Statement of Financial Position of a Non-Life Insurance Company
Liabilities:
Technical Provisions - Gross
GasanMamo
GasanMamo Middle Sea Elmo
Technical Provisions €25,085,578 €55,531,000 €16,580,057

45. Statement of Financial Position of a Non-Life Insurance Company
Liabilities: Payables
GasanMamo
GasanMamo Middle Sea Elmo
Insurance and other payables €1,284,964 €12,674,000 €1,048,309

46. Conclusion
After looking at the accounts of the insurance, we can say that
accounting is important for every business because:
• It is the business’s language which deals with the interpretations
and finances of the company.
• It is a guiding force to sound management decisions
• And last and not least it helps your plan of your business to move
to the next level.