Economic and financial fundamentals of insurance

Insurance is a special kind of economic relations, so the economic and financial framework for the insurance companies are different from other commercial activities. The differences relate primarily to issues of financial capacity and maintain the financial soundness of the insurer.

Financial stability is provided by an insurance company: the size of paid-up share capital of the insurance company the size of insurance reserves, the optimal portfolio allocation of insurance reserves, the system of reinsurance, adequacy of insurance rates and other factors.

 Financial Insurance Company

The figure shows a diagram of the formation and use of insurance company finances.

The main source of finance an insurance company are:
Equity
Premium
Income from investment activities

Own funds of the insurance company formed from two sources: contributions from the founders and the expense of profits. Characteristic of own funds is that they are free from any external obligations.

In order to ensure the financial stability of insurers, both in Russia and abroad, the law establishes the requirement for minimum levels of capital. In the early stages of development of insurance market in Russia, the requirements for minimum capital of insurance companies have been underestimated, which led to the creation of a large number of small insurance companies. Currently, the law "On organization of insurance business in the Russian Federation," set the minimum paid-up share capital of 30 million rubles., Except for companies engaged in life insurance, 60 million rubles. for insurance companies, life insurance, and 120 million rubles. professional reinsurers.

In all cases, the maximum liability of an individual at risk in the insurance contract may not exceed 10% of own funds of the insurer.

One of the main criteria for assessing the financial stability of insurers is to match the size of their own capital volume commitments (solvency margin). Insurers must comply with the normative relationship between assets and accepted insurance liabilities, representing the difference between them and the free assets of the insurer. From this it follows that the condition must be observed:
A - D> H

where
A - actual size of the assets of the insurer, now.;
About - the actual amount of the obligations of the insurer, now.;
H - normative (ie, the minimum allowable) the amount of the excess insurer's assets over its liabilities now.

At the same time under the insurer's assets is assets in the form of fixed assets, materials, funds, and financial investments. Debt obligations of the insurer to characterize the physical and legal persons. Liabilities include insurance reserves, loans and bank loans, other borrowings and working capital and reserves for liabilities and charges, payment obligations under the reinsurance transactions and other payables.

Methods of calculating the size of the ratio of regulatory assets and liabilities of insurers established FSIS. Calculations by this method are presented to state agency for supervision of insurance activities simultaneously with the submission of financial statements. If the actual size of the available assets of the insurer less regulation, it must take steps to improve the financial situation.