Brief Overview of the Insurance Sector

The insurance sector is made up of companies that offer risk management in the form
of insurance contracts. The basic concept of insurance is that one party, the insurer, will
guarantee payment for an uncertain future event. Meanwhile, another party, the insured
or the policyholder, pays a smaller premium to the insurer in exchange for that
protection on that uncertain future occurrence.

As an industry, insurance is regarded as a slow-growing, safe sector for investors. This

perception is not as strong as it was in the 1970s and 1980s, but it is still generally true
when compared to other financial sectors.

Insurance companies – The Introduction

A company, which may be for-profit, non-profit or government-owned, that sells the

promise to pay for certain expenses in exchange for a regular fee, called a premium.
For example, if one purchases health insurance, the insurance company will pay for
(some of) the client's medical bills, if any. Likewise, in life insurance, the company will
give the client's beneficiary a certain amount of money when the client dies. The
insurance company covers its expenses and/or makes a profit by spreading the risk of
any one client over the pool of premiums from many clients.
a financial institution which UNDERWRITES the risk of loss of, or damage to, personal
and business assets (general INSURANCE) and life and limb (life and accident
insurance). Some companies specialize in one or other of these areas, but others
(referred to as ‘composites’) operate in both sectors. Insurance companies issue
insurance policies to cover a variety of contingencies (fire, flooding, breakage, theft,
death, etc.), involving potential financial loss to policy holders or their dependents in
return for regular payments of a premium. An insurance company operates by pooling
risk among a large number of policy holders; premiums are based on the probability of a
particular event occurring and the average financial loss associated with each. This is
done by the company's actuarial staff using statistical techniques to analyses past
claims. For very large insurance risks an insurance company may resort to reinsurance
sharing the insurance premium with other insurers in proportion to the share of potential
claim which they are prepared to accept. In addition, many insurance companies offer
contractual savings schemes.
Insurance companies use the premiums they receive not only to settle day-to-day
claims but also to generate additional income and profit by investing their funds in
FINANCIAL SECURITIES, particularly UK and overseas government fixed-interest
bonds and corporate stocks and shares Their portfolios attempt to maintain a careful
balance between immediate liquidity needs and longer-term investment returns. Life
insurance business, in particular, because of its long-term contractual nature, is
especially conducive to offering long-term investment returns to policy holders as well
as the insurance company. With profit life insurance policies are now commonplace, as
are unit-linked policies which are directly related to fund performance Life insurance
policies linked to the provision of MORTGAGE finance for house purchase are another
innovation.

Different Types of Insurance Companies

Not all insurance companies offer the same products or cater to the same customer
base. Among the largest categories of insurance companies are accident and health
insurers; property and casualty insurers; and financial guarantors. The most common
types of personal insurance policies are auto, health, homeowners, and life. Most
individuals in the United States have at least one of these types of insurance, and car
insurance is required by law.
Accident and health companies are probably the most well-known. These include
companies such as UnitedHealth Group, Anthem, Aetna and AFLAC, which are
designed to help people who have been physically harmed.

Life insurance companies mainly issue policies that pay a death benefit as a lump sum
upon the death of the insured to their beneficiaries. Life insurance policies may be sold
as term life, which is less expensive and expires at the end of the term or permanent
(typically whole life or universal life), which is more expensive but lasts a lifetime and
carries a cash accumulation component. Life insurers may also sell long-term disability
policies that replace the insured's income if they become sick or disabled. Well-known
life insurers include Northwestern Mutual, Guardian, Prudential, and William Penn.

Property and casualty companies insure against accidents of non-physical harm. This

can include lawsuits, damage to personal assets, car crashes and more. Large property
and casualty insurers include State Farm, Nationwide and Allstate.
Businesses require special types of insurance policies that insure against specific types
of risks faced by a particular business. For example, a fast-food restaurant needs a
policy that covers damage or injury that occurs as a result of cooking with a deep fryer.
An auto dealer is not subject to this type of risk but does require coverage for damage
or injury that could occur during test drives.
Reinsurance Insurance. Some companies engage in reinsurance to reduce risk.
Reinsurance is insurance that insurance companies buy to protect themselves from
excessive losses due to high exposure. Reinsurance is an integral component of
insurance companies' efforts to keep themselves solvent and to avoid default due to
payouts, and regulators mandate it for companies of a certain size and type.

For example, an insurance company may write too much hurricane insurance, based
on models that show low chances of a hurricane inflicting a geographic area. If the
inconceivable did happen with a hurricane hitting that region, considerable losses for
the insurance company could ensue. Without reinsurance taking some of the risks off
the table, insurance companies could go out of business whenever a natural disaster
hits.

Accounting Standard that apply to the Insurance Industry

IFRS 17 requires an insurer to report on the balance sheet its obligations from
insurance contracts as the total of:
• the current estimates of amounts the insurer expects to collect from premiums
and to pay for claims, benefits and expenses, including an adjustment for the timing and
risk of those amounts (fulfilment cash flows); and
• the expected profit for providing future insurance coverage (contractual service
margin).
Measuring the insurer’s obligations at current value is consistent with the requirements
in IAS 37 Provisions, Contingent Liabilities and Contingent Assets for provisions and
also with those in IFRS 9 Financial Instruments for financial liabilities. For liabilities with
characteristics similar to insurance obligations, both IAS 37 and IFRS 9 require
measurements based on current estimates of future cash flows.
Recognising profit at the same time services—such as insurance coverage—are
provided is consistent with IFRS 15 Revenue from Contracts with Customers.
 Regulators of Insurance Companies

Securities And Exchange Commission Of Pakistan (SECP)

The Insurance Association of Pakistan (IAP)

Regulations of Insurance Companies

The insurance company has a lot of accounting regulations.

1. Short title and commencement
2. Definitions
3. Applications and scope
4. Provision applicable to returns only
5. Provision for statements to be prepared
6. Provision applicable only to published financial statements
7. Segment analysis
8. Audit report
9. Appropriation to profit of shareholders fund from statutory fund
 10. Shareholder interst in statutory fund
11. Shareholder fund and policy fund
12. Admissibility of Assets
Non-Life Insurance
1. Segment analysis
2. Audit report
3. Premiums
4. Claims
5. Reinsurance Expense
6. Claims recoveries
7. Acquisition Costs
8. Exchange Commissions
9. Premium Deficiency
10. Statement of estimated Exposure
11. Admissibility of Assets
Please find in the link all of these regulations in detail
https://pakistanlawyer.com/2016/06/27/insurance-accounting-regulations-2012/

Major listed companies

List of notable insurance companies in Pakistan

• State Life Insurance Corporation of Pakistan

• Jubilee Life
• EFU Life
• UBL Insurers Limited
• IGI Insurance
• Adamjee Insurance
• Adamjee Insurance Co. Ltd.
• Alfalah Insurance Company Ltd.
• Allianz EFU Health Insurance Limited
• Alpha Insurance Co. Ltd.
 Business model of an insurance company

The business model of an Insurance company involves an agreement or contract

between the insurance company (insurer) and people who are insured (customer or
insurance policyholder). The base of the business model of insurance companies
revolves around prediction and diversification of risk. It is a risk-sharing model in which
risk is pooled from individuals and redistributed among a large group of people. Before
discussing the business model of Insurance companies in detail, let’s first have a look at
the “Working mechanism of Insurance business”.
Different elements mentioned in the above business model canvas of Insurance
Companies are as under:

A) Value Proposition
Following is the value proposition of insurance companies.

 Insurance companies provide different insurance policies to cover various

unforeseen events to enable businesses and individuals to disburse their daily
activities smoothly. These policies remove the future possibility of any big and
unaffordable potential loss by providing security and mental peace. Also, losses
of the few people are distributed among many.
 Different insurance policies are offered by insurance companies to cover various
types of risks like home insurance, life insurance, vehicle insurance, health
insurance, etc.
 Businesses and companies can also take benefits of various insurance plans like
Worker’s compensation, Property insurance, Group mediclaim, Group personal
accident insurance, Fire insurance, etc. to save the interest of their employees
and business assets in hard times or unexpected losses.
 Insurance companies cover risks of customers against old age, death, illness,
disability, etc. They provide various additional benefits or services along with
core insurance products aimed at risk prevention, fast handling of claims, etc.
This also includes providing health advice or cyber-security advice.
 Insurers offer various saving plans for long-term benefits, like pensions. The
products offered by the insurance companies are mostly the combination of
investment and protection against different risks. Thus, customers get the
advantage of both returns on investment and life risk cover.
 The products of Insurance companies have guaranteed minimum returns. So, it
ensures people, that their savings are safe. Even in fluctuations in stock markets,
customers will still get the money as agreed at the defined time.
 Value Proposition Especially Offered by Life Insurance
Companies
The chart depicts the value proposition offered by life insurance companies

 Financial Security (peace of mind):

– In case of death: Life insurance companies offer great peace of mind by ensuring
financial safety to the family in case of demise of life insurance policyholder.
– In case of health issues or major disease/illness: The major part of the income of
Indians is used in healthcare and medicines. There are great chances of no earning
or income during treatment in case of suffering from a critical or major illness. Life
insurance companies play a significant role during this time by providing financial
protection to fulfill family needs, medicine, and treatment needs.
 For example, ICICI Prudential life insurance has an ICICI Pru iProtect Smart Plan
that includes ICICI Prudential smart health cover for the critical illness of worth Rs.
10 lakh cover and for 15 years.
 Secure future of children: Life insurance companies encourage savings or funds
for the education of children. A child insurance plan is there to fulfill educational
needs of children. These policies generally come under ULIP (Unit linked
insurance plan) that facilitates the increase in investments and educational
support. Such as, a parent at the age of 35 years takes a 15-year child insurance
plan with Rs. 10 lakh sum assured and saves Rs. 1 lakh on annual basis for the
purpose of higher education of a child. In case of unfortunate death of the parent
at the age of 40, Rs. 10 lakh amount will be handed over to the child for fulfilling
the requirement of immediate educational cost.
For example, ICICI prudential life insurance has ICICI Pru Smart Life plan that
gives the additional benefit of waiving off the remaining premium amount in case
of death of parent that also without intact of financial protection cover.
 Avoiding loan burden by wealth creation: Life insurance companies also offer
few
life insurance plans that provide the medium for wealth creation. These plans or policies
provide benefits of life cover and great returns by investing the premium of policyholders
in various beneficial investment categories. This helps in minimizing the burden of
taking and repaying loan for financial needs by encouraging savings and enhancing
wealth. For example, ICICI Pru Signature which is a ULIP plan of ICICI Prudential life
insurance offers such benefits.
 Retirement benefits: In the old age, everyone wants to be free from all financial
burdens and work pressures to enjoy the retirement period. This can be peaceful if
there is a stable monthly income or pension. As more people are working in private
sectors where pension benefit is not available or very rare, so retirement seems like
a burden or pressure. To avoid such worries on retirement, life insurance companies
offers retirement plans through which retired people are able to get a pension and
can live their life without being financially dependable on others. These retirement
plans provide regular pension to a retired person and his/her spouse. For example, if
a 60 years old person buys ICICI Pru retirement plan i.e. Immediate Annuity-
retirement plan of Rs. 1 crore then he/she can receive Rs. 61k per month as
retirement pension for the rest of the life.
  Tax benefit through tax savings: Tax benefits are also offered in Life insurance
plans by insurance companies. The premium paid by the policyholder comes under
the tax deduction of section 80C in the Income Tax act. So, up to Rs. 1.5 lakh
annual premium is a deductible amount from gross income that lowers the tax outgo.
Moreover, the maturity insurance plans are totally tax-free.

B) Customer Segments
Different customers of Insurance companies (including life insurance companies) are
 Household customer segment: This includes self-employed people, retired
employees, and salaried class customers
 Trade sector: Different small and large businesses are included in this
 Industrial sector: Both public and private industries are also customers of
Insurance companies
 Institutes: Various universities, schools, colleges, and institutes fall in this
customer segment
 Rural sector: This segment is categorized as per age i.e. kids, youth, old age,
etc. and gender-wise segment i.e. Men and Women.
C) Key Partners
The key partners of insurance companies are:

 Life Insurance and general insurance companies have network partner

companies to support them in their different operational activities. The key partners
of insurance companies are categorized as below:
Channel and distribution partners: This includes third party intermediaries of
insurance companies like agents, brokers, banks, independent consultants that
work on the behalf of insurance companies in providing products and services of
them and also, expand the market reach of insurance companies. Different banks
and insurance companies have a partnership for selling insurance products of
insurance companies to clients of banks. This partnership is termed as
Bancassurance.
 Vendor and suppliers as partners: This includes suppliers of technologies,
services, equipment to support the main operations of insurance companies. For
example, ICICI Prudential Life Insurance has tie-up with Paytm for marketing and
selling its product i.e. ICICI Pru iProtect Smart (a protection product) using the
Paytm app. Similarly, the
 company is in partnership with Airtel Payment Bank to provide easy and fast
access to savings and life insurance plans of ICICI Prudential to the customers of
Airtel Payment Bank.
 Strategic and Alliance partners: This includes different companies that have a tie-
up with insurance companies for projects related to the marketing and branding of
insurance companies.
 Community and Social partners: Various charitable and non-profit organizations
are partners of insurance companies for community and social projects.

D) Key Resources
These are the key resources of insurance of insurance companies.

 Insurance agents and brokers: The insurance agents and brokers are the main
resources of Insurance companies, especially life insurance. These are the 1st
point of contact for customers who are looking for insurance. These agents and
brokers facilitate customers in selecting the best insurance cover by providing all
necessary information. Insurance agents usually work for a particular insurance
company and sell the insurance products of that company only. Wherein, insurance
 brokers serve customers who are looking for insurance and so these brokers are
associated with multiple insurance companies to sell their products.
 Online portal or Website: Insurance companies have their own website that
contains all necessary information about their products and services for different
types of customers according to their needs. People can apply directly to these
websites for insurance cover. Also, customers can apply through the website of
Insurance agents, brokers, and third parties.
 Mobile App: Various life insurance companies have their own mobile app to
facilitate customers with quick and easy apply, access for insurance, and related
services. For example, ICICI Prudential Life Insurance has a mobile and tablet
app i.e. ICICI PruLife for the purpose of online sourcing and servicing of life
insurance policies. Customers, Advisors, Employees, and Sales Partners of the
company can access and use the app.

 Key Activities
The main activities of Insurance companies are as below:

 Marketing: This includes primarily marketing activities like advertisement and

promotion of insurance-related products and services. Different agents and Brokers
are the sources to sell and advertise most of life or health insurance policies. All big
groups in the insurance sector have their own websites for promoting the product
features of insurance companies.
 Underwriting: Insurance companies are involved in underwriting which is the
process of categorizing the potential insurance policyholders into the applicable risk
classification. The purpose of underwriting is to charge the appropriate price or rate.
  Administration: Insurance companies do various administrative activities once
the insurance policy is sold out and underwriter approves it like establishing
records, collecting premiums, answering queries of customers, and various other
administrative jobs. Administration includes management of various other functions
i.e. accounting, customer service, information systems, personnel management,
and office administration.
 Investments: Different Insurance companies have their own investment firms
(e.g. mutual funds firms) that perform tasks related to investing the premium in the
capital market in order to gain the best ROI (return on investment) for providing
security to policyholders.
 Reinsurance: Insurance companies are also involved in reinsurance activities
through which they transfers either complete or a part of its risk to another
insurance company under an insurance contract.
 Legal and Regulatory Issues: Insurance companies have lawyers who are
involved in various legal activities like drafting insurance contracts, interpreting
provision of contracts at the time of presenting claims, defending the insurance
company in lawsuits, communication with regulators, etc.
 Claims adjustment activities: This includes activities related to providing payment
to insured customers on losses.
F) Channels

These are the channels of insurance companies.

  Websites: Insurance companies have websites that display information related

to their products, services, and other activities. The website of the insurance
company provides an online medium for making online payment of premium,
getting insurance proof, filing a claim and to monitor its progress, etc. It includes
detail of various policies that an insurance company offers to its customers along
with specific provisions.
  Mobile App: Insurance companies also have a mobile app using which
customers can access the information related to their policy, file a claim, and can
track their progress, etc.
 Parent company or Banks: Few of the Insurance companies have their own
banks as a parent channel for initiating insurance activities like HDFC Life
Insurance has its parent company i.e. HDFC Bank.
 Individual agents and brokers: Insurance companies sell and promote various
insurance products and services through the channel network of brokers and
agents. For this, insurance companies provide a commission to them.
 Branches: Insurance companies have different branches at different locations of
the country which acts as a channel for insurance business activities. These
branches also sell and promote insurance products directly other than brokers or
agents.
 Social media: Social media like Facebook, Linkedin, Twitter, Whatsapp, etc. are
also key channels of Insurance companies where they advertise and promote their
products and services to generate sales.
 Call centres: Various insurance companies take services of call centers of BPOs
for selling and promoting their insurance products.

G) Customer Relationship
The insurance companies offer the following customer services.

 Insurance companies provide a wide range of services to its customers for

superior customer relations. Through the online portal or websites of these
companies, customers can manage various activities like bill payments, account
information, access of resources, and claim submission directly without any hassle
of interacting with sales or service representatives.
 Insurance companies offer continuous support to customers by providing various
online resources such as answering FAQs (frequently asked questions) and guides,
direct customer support assistance through the dedicated support and service staff
of the insurance companies to provide guidance and resolve queries via email or
over the phone call.
H) Revenue Streams
The main resource of revenue/income of Insurance companies (including life insurance)
is the premium paid by people who have purchased insurance. These premiums can be
lump-sum i.e. all payment at once or in instalments or regular intervals i.e. monthly,
quarterly, annually, etc.

Other than charging premiums for insurance coverage, insurance companies also
reinvest these premium amounts in other assets that generate interest income.

I) Cost structure and Competitor Review

Costing
Different costs that revenue of Insurance Company (including Life Insurance Company)
covers are as under:

 Losses and loss-related adjustment expenses: A life insurance company

keeps a portion of its reserves for unpredictable future losses, investigation cost,
and loss adjustment costs. These reserves are kept by estimating the losses an
insurance company may experience in the future. Loss adjustment cost or expense
is the cost bore by the insurance company during the settlement of claims. So, they
have claim representatives who investigate claimed losses. As the company has to
pay them for the services, so these expenses come under loss-related adjustment
expenses.
 Acquisition cost: These expenses mainly include marketing-related costs, like
advertisements, commissions of insurance agents and brokers, etc.
 Administrative expenses: These are considered fixed costs like office
equipment and computers, etc.
 Taxes: Insurance companies are also liable to pay taxes and are considered as
expenses.

What Are Financial Statements?

Financial statements are written records that convey the business activities and the
financial performance of a company. Financial statements are often audited by
government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing,
or investing purposes. Financial statements include:

 Balance sheet
 Income statement
 Cash flow statement.
Using Financial Statement Information
Investors and financial analysts rely on financial data to analyze the performance of a
company and make predictions about its future direction of the company's stock price.
One of the most important resources of reliable and audited financial data is the annual
report, which contains the firm's financial statements.

The financial statements are used by investors, market analysts, and creditors to

evaluate a company's financial health and earnings potential. The three major financial
statement reports are the balance sheet, income statement, and statement of cash
flows.

Understanding Balance Sheets

The balance sheet provides an overview of a company's assets, liabilities, and
stockholders' equity as a snapshot in time. The date at the top of the balance sheet tells
you when the snapshot was taken, which is generally the end of the fiscal year.

The Balance Sheet Formula

Assets = (Liabilities+Owner’s Equity)

The balance sheet totals will be calculated already, but here's how you identify them.

1. Locate total assets on the balance sheet for the period.

2. Total all liabilities, which should be a separate listing on the balance sheet. It may
not include contingent liabilities.
3. Locate total shareholder's equity and add the number to total liabilities.
4. Total assets should equal the total of liabilities and total equity.

Data From the Balance Sheet

The balance sheet identifies how assets are funded, either with liabilities, such as debt,
or stockholders' equity, such as retained earnings and additional paid-in capital. Assets
are listed on the balance sheet in order of liquidity.

Liabilities are listed in the order in which they will be paid. Short-term or current liabilities
are expected to be paid within the year, while long-term or non-current liabilities are
debts expected to be paid in over one year.

Items Included in the Balance Sheet

Below are examples of items listed on the balance sheet.

Assets

 Cash and cash equivalents are liquid assets, which may include Treasury

bills and certificates of deposit.
 Accounts receivables are the amount of money owed to the company by its
customers for the sale of its product and service.
 Inventory
Liabilities

 Debt including long-term debt

 Wages payable
 Dividends payable

Shareholders' Equity

 Shareholders' equity is a company's total assets minus its total

liabilities. Shareholders' equity represents the amount of money that would be
returned to shareholders if all of the assets were liquidated and all of the
company's debt was paid off.
 Retained earnings are part of shareholders' equity and are the amount of net
earnings that were not paid to shareholders as dividends. 

Example of a Balance Sheet 

Below is a portion of Exxon Mobil Corporation's (XOM) balance sheet as of September
30, 2018. 

 Total assets were $354,628.

 Total liabilities were $157,797.
 Total equity was $196,831.
 Total liabilities and equity were $354,628, which equals the total assets for the
period.1

Income Statements
Unlike the balance sheet, the income statement covers a range of time, which is a year
for annual financial statements and a quarter for quarterly financial statements. The
income statement provides an overview of revenues, expenses, net income and
earnings per share. It usually provides two to three years of data for comparison.

Income Statement Formula and Calculation

\text{Net Income}=(\text{Revenue}-\text{Expenses})Net Income=(Revenue−Expenses)

1. Total all revenue or sales for the period.

2. Total all expenses and costs of operating the business.
3. Subtract total expenses from revenue to achieve net income or the profit for the
period.

Data From Income Statements

An income statement is one of the three important financial statements used for
reporting a company's financial performance over a specific accounting period. Also
known as the profit and loss statement or the statement of revenue and expense, the
income statement primarily focuses on a company’s revenues and expenses during a
particular period.

Once expenses are subtracted from revenues, the statement produces a company's
profit figure called net income.

Types of Revenue
Operating revenue is the revenue earned by selling a company's products or services.
The operating revenue for an auto manufacturer would be realized through the
production and sale of autos. Operating revenue is generated from the core business
activities of a company.

Non-operating revenue is the income earned from non-core business activities. These

revenues fall outside the primary function of the business. Some non-operating revenue
examples include:

 Interest earned on cash in the bank

 Rental income from a property
 Income from strategic partnerships like royalty payment receipts
 Income from an advertisement display located on the company's property

Other income is the revenue earned from other activities. Other income could include
gains from the sale of long-term assets such as land, vehicles, or a subsidiary.

Types of Expenses
Primary expenses are incurred during the process of earning revenue from the primary
activity of the business. Expenses include the cost of goods sold (COGS), selling,
general and administrative expenses (SG&A), depreciation or amortization,
and research and development (R&D). Typical expenses include employee wages,
sales commissions, and utilities such as electricity and transportation.

Expenses that are linked to secondary activities include interest paid on loans or debt.
Losses from the sale of an asset are also recorded as expenses.

The main purpose of the income statement is to convey details of profitability and the
financial results of business activities. However, it can be very effective in showing
whether sales or revenue is increasing when compared over multiple periods. Investors
can also see how well a company's management is controlling expenses to determine
whether a company's efforts in reducing the cost of sales might boost profits over time.

Example of an Income Statement

Below is a portion of Exxon Mobil Corporation's (XOM) income statement as of
September 30, 2018.

 Total revenues were $76,605 for the period.

 Total costs were $67,525.
 Net income or profit was $6,240.

Special items to be found in an Insurance Company’s

Financial Statement

Insurance Receivable

The amount of any insurance proceeds which a Person is entitled to receive pursuant to

policies of insurance required to be maintained under this Agreement other than any
policy of insurance maintained by the Authority solely for the benefit of the Authority;

Reinsurance Receivable

Life insurance companies pay premiums for reinsurance to other insurance companies

to spread or allocate the risk of high-value policies they underwrite. Reinsurance
receivables are credits to reinsurance companies such as claims and premium refund of
cancellation and lapse.
Incurred But Not Reported (IBNR)
Incurred but not reported (IBNR) is a type of reserve account used in the insurance
industry as the provision for claims and/or events that have transpired, but have not yet
been reported to an insurance company.

In IBNR situations, an actuary will estimate potential damages, and the insurance

company may decide to set up reserves to allocate funds for the expected losses. To an
actuary, these types of events and losses are said to have been incurred but not
reported.

Unearned Premium Reserve (UEPR or UPR)

The amount of unexpired premiums on policies or contracts as of a certain date (the

total annual premium less the amount earned).

Insurance Claim

An insurance claim is a formal request by a policyholder to an insurance company for

coverage or compensation for a covered loss or policy event. The insurance company
validates the claim (or denies the claim). If it is approved, the insurance company will
issue payment to the insured or an approved interested party on behalf of the insured.

Insurance Claims Payable

Claims Liabilities at the end of the period divided by average claims expense per calendar
day for such period.

Premium deficiency reserve (PDR

A premium deficiency reserve (PDR) is the amount needed by an insurer if the
unearned premiums collected may not be sufficient to meet future claims and expenses.
A premium deficiency occurs when expected losses, claims costs, administrative costs,
selling costs, shareholder dividends, and other expenses exceed related unearned
premiums.