Insurance Accounting, Quite Different from other Businesses.
Insurance companies manage their accounting books on 4 different levels and here's why. If you issue a policy in November 2018 with a cover of 12 months, you can't close it at year end of 2018. This is why, insurance accounting is more challenging and requires looking at books in a whole different mindset.
Policy Year:
- Takes into account performance during an individual policy
- Its generally a 12 months period
Underwriting Year:
- Used at account level
- Policy data are grouped into underwriting years based on the year in which the policy incepts or renews
- Two years will ellipse between the start of the underwriting year and the last date of cover of the last policy to be attached to that year
- Those risks will have been subject to the particular underwriting and pricing philosophy in use during the underwriting year
Calendar Year:
- Claims are allocated to the relevant year on the basis of the date of loss
- Premiums are allocated to that portion of the policy premium that is earned during the relevant calendar year
Accounting Year:
Similar to the calendar year approach but with the following modifications:
- The period will depend on the organization's financial year
- Prospective premium and claims developments from the accounting year have to be estimated
- Because estimates are incorporated, trends are harder to detect, therefore this information should only be used to support decision making as last resort
Roy Keyrouz - Insurance Professional