Chapter 34 - Financial Reporting

Question 1

For this chapter should be able to do the following for the exam:

Answer 1

Be familiar with accounting concepts and principles

Comment sensibly on conclusions that can be drawn from analysing a simple set of accounts
- Highlight possible reasons for results, e.g. strength of basis or business growth etc.

Question 2

For this chapter only expected to:

• Discuss problems that arise in defining accounting concepts and principles
• Roughly understand how to put these principles into practice
• Understand implications of reporting principles and concepts for interpretation of accounts

Answer 2

Do not need to know specific rules

Question 3

Discuss the reporting standards for insurers in SA.

Answer 3

Mostly public companies

Preparation of financial statements

• IFRS or GAAP
• True and fair view
• Comparitives

Also use other reports

Question 4

Briefly outline some of the information contained in reports accompanying the financial accounts.

Answer 4

Chairperson’s and CEO statements
- Might give details of successes of the year (typically less will be said about failures)
- Report of performance against key objectives
- Changes at board and senior management level
- Idea of if company is flourishing or not
- Information on extraordinary events during the period:
> merger or acquisitions
> internal restructures
> unusual claims experience
> exceptional expenditure (e.g. during periods of growth)

Investment report

• Summary of investment strategy and performance
• Commonly included within another report

Strategic report

• Refers to company’s long and short-term strategic objectives
• Report how progress has been made or success has been achieved
• Report performance against key indicators

Risk report

• Attitude to risk
• Key risk exposures
• Risk management and mitigation strategies
• Could be included in other report

Remuneration report

• Salaries and bonuses for executive and non-executive directors
• Attendance at board meetings
• Turnover of directors
• Last 2 can be indication of state of the company

Corporate governance report

• Describe how company is organised in terms of board and board committees
• Statements of how board assures itself of independence

Question 5

List some of the important accounting ratios to be considered when looking at the accounts of insurance companies.

Answer 5

Incurred expenses to premium income
- Would normally excluded exceptionally large expenses

Commission to premium income

Operating ratio

• Total incurred (i.e. excluding IBNR) claims and expenses to premium income
• Used more for short-term classes of business (Why? see question p. 8)

Reinsurance premium payments to gross premium income

• Care is needed when looking at high level analyses’ such as this
• Should look at possible explanations for ratio values before drawing conclusions