Reservations about insurance
The reserves of insurance companies are of two kinds. The first group are formed with liquid and realized profits, as in all businesses, for example, Legal Reserve Voluntary Reserve, General Reserve forecast, etc.
The other group is made up of the technical reserves itself the exploitation of insurance.
The reserves of the first group aim to increase the means of action of the company prevent future losses or make further distributions to partners or shareholders. However, technical reserves do not respond to these purposes and represent a liability or commitment by the insurer, which puts well, illustrates the essential difference between the two types of reserves.
Reserve for unexpired risks: A certain portion of premiums collected each year in the eventual insurance is transferred to this reserve. For each of the classes of insurance that operates a book of this nature, both direct insurance and reinsurance taken for use.
The insured to purchase insurance, acquires the obligation to prepay the respective premium. What do immediately or in installments, the fact is that the company has values which must face claims relating to policies issued. The events occurring in the year of issuance of the policy is credited with the mass of values. But it is possible that losses found in the subsequent period. Therefore, reserve, premiums each year, a proportion that is credited to the reserve for current risks of each possible insurance to meet their payment is required.
On the establishment of such stocks following rules apply:
- In general, any risks insurance must reserve 80 % of premiums, net of cancellations and reinsurance, representative of the risk not run to the end of the year.
- In fidelity insurance and warranty must reserve 40 % of the net premiums of each year and an additional 15% of the average net premium of the last three years.
It is for life insurance. Theoretically these insurance premiums, by their nature, should raise continuously, the greater likelihood of death of the insured as time passes. But if the life insurance would be prohibitive to do a certain age. To avoid this inconvenience insurance companies receive premiums. The amount paid in excess during these early years, is the premium savings. With this and the part that is making the risk premium, as well as accrued interest, the insurance mathematical reserve is formed.
Pending Claims Reserve
This reserve is credited with the amount of reported claims that remain pending settlement and for that reason have not yet been paid, whether direct insurance or reinsurance.
Accumulation Life Insured Fund
This fund is credited to the items to be distributed to policyholders of Section Life as fringe benefit, according to the terms of the policies. These items may be profits or income from that division that affect them for that purpose.