Inssurance company income statement

[avengerbg]

I might be wrong, but i think there is something wrong with income statement of insurance companies. Mine increased its cash from initial 7.5 mil to over 16 mil, but in income statement its 4.8 mil in loss. I think its becouse claim reserves are calculated as loss, while its actualy a capital left aside for future needs to cover claims.

[Paulywauly]

Claims Reserves are recorded as a liability on a company's balance sheet. They are a payment that will be made in the future, so yes, they are basically the same as a loss.

[avengerbg]

then they are double loss, you get negatives for paid claims, and for claim reserves. So acording to your statement, claim reserve is counted once for loss when they are reserved. And again when they are paid too. Might not know much of economy, but that seems very wrong. Also im speaking about income statement, not balance sheet, they are quite different.

Even with my limited knowlidge of economy, income statement, should show money that entered the company from goods and services, from which should be substracted all assotited costs and expenses, since, claim reserves are to be paid in the future, they are not expenses yet, so they should not be substracted yet.

You have to pay electricity bill, so its liability, but untill you pay it, its not expenses for you yet, the money are still in your pocket, to say it with example.

[Paulywauly]

I'm not sure how it works in the game. I was referring to real life. It wouldn't count as a double loss because a claims reserve is never the exact amount of the actual claim payout. Insurance companies are legally required to put aside money into the claims reserve, this money cannot be used for anything else. If the reserve is €100 and the total claim ends up being €90, then the left over €10 can be put back into the company's cash.

So it's not a double loss. When a claim is paid out, it's more of a confirmed loss.

[avengerbg]

What i ment is that money going for claim reserve are deducted from income, and in same time paid claims are also deducted from income, which in my opinion shows incorect income statement.

for example, your income is 100$, you have 50$ going in claim reserve, and paid 25$ claims, so total for the month you made profit of 25$, next month you again have income of 100$, 50$ going to claim reserve, and 25$ paid claims, so you again have 25$ profit, but for second month those 25$ paid claims was already deducted from income as claim reserves, so they shouldnt be deducted again, or they shouldnt be deducted at first place. in current state, you will have 25+25=50$ profit for that 2 months, while in my opinion you should have ether (100-50)+(100-50)=100$ profit, or (100-25)+(100-25)=150$
profit. depending which one you count for expense. Thats why i said its double loss, becouse once its deducted when they are reservered, and once when they are paid. I accept your comment that insurance companies are legaly obligated to make claim reserves, so that should be the only amount deducted from income statment in my opinion. Altho its good to know amount of paid claims too ....

[Paulywauly]

I understand what you're saying now. Are the losses being generated from the company "refilling" its reserve to maintain its requirements? Also, is it taking into account the administrative costs?

Forgive me ignorance on the insurance part of the game as I only currently have the banking part.

[avengerbg]

here is the income statement screen.

[Paulywauly]

Thanks for posting that. It's a very simplified version as it doesn't differentiate between gross premium and net premium taking into a account premium/claims ceded to the reinsurers.
So I'm not really able to understand what is wrong with it.

Sorry.

[avengerbg]

what i mean is, claims are paid from claim reserves, isnt it? And claim reserves are substracted from income to form profit. But claims are also substracted, even that they should come from claim reserves. So as i understand it, claims are substracted from income twice, once in from of claims, and once in from of claim reserves from which they are paid. Thats what i think its wrong.

[lillud321]

I Think. the way the game préents the amounts between Claims reseves and CLaims is weird. Claim reserve shoud eather be a Assets account or a liability account. So it should not appear une the income statement. Here is the general accounting way to take into account a reserves account:

There are two possibility . A you use it as an asset . B you use it as a liability :

Claims.JPG (90.41 KiB) Viewed 1064 times