Financial Statements of Life Insurance

1. Financial Statementsof Life Insurance Le Huu Phong

2. Basic understanding needs Make best decisions Company’s financial position Financial Statements Know potential impacts Meet business environment Balance Sheet Profit & Loss ……

3. Vietnam Life Insurance How do appraise their financial condition?

4. 2 insurers’ key financial goals 2 key success Solvency Profitability owns more than it owes earns more than it spends

5. 5 key business questions What does the company…? own owe Solvency & Profitability earn spend retain

6. Owners’ Equity statement Cash flow statement Income statement Balance sheets To answer the question… Financial statements

7. Key financial statements For basic understanding, 2 keys financial statements of the Balance sheet and Income Statement under (VAS – Vietnam Accounting Standard) will be introduced.

8. Balance Sheet ABC Life Insurance Company Balance Sheet as of December 31, 2011 Assets1,095 A. Current Assets219 I. …… II. …… B. Non-Current Assets876 I. …… II. …… Liabilities and Owners’ Equity 1,095 A. Liabilities191 I. …… II. …… B. Owners’ Equity 904 I. …… II. ……

9. Balance Sheet • Balance sheet is a financial statement that shows an insurer’s financial condition as of a specific date. • The main purpose is to measure the owners’ wealth from what a company owes (liabilities) and what it owns (assets).

10. Balance Sheet - Assets Assets A. Current Assets219 I. Cash equivalents 129 II. Short-term investments 20 III. Account receivables 55 IV. Other short-term assets 15 B. Non-current Assets876 I. Fixed assets 33 II. Long-term investments 813 III. Other long-term assets 30 Total Assets 1,095

11. ASSET Account classification • Cash equivalents Cash on hand and Cash in bank • Investment assets Bonds, Stocks, Time deposits… • Physical assets Buildings, office equipments… • Receivables Interests, business deposits… • Regulatory deposit Legal deposit

12. Balance Sheet - Assets Assets A. Current Assets219 I. Cash equivalents 129 II. Short-term investments 20 III. Account receivables 55 IV. Other short-term assets 15 B. Non-current Assets876 I. Fixed assets 33 II. Long-term investments 813 III. Other long-term assets 30 Total Assets 1,095

13. Short and Long…. From 3 months and less Cash equivalents Short-term Over 3 and less 12 months Over 12 months Long-term

14. Balance Sheet – L & OE Liabilities & Owners’ Equity Liabilities 191 Current liabilities 20 Non-current liabilities 1 Technical Reserves 170 Owners’ Equity 904 Legal capital 900 Retain earnings 4 Total Liabilities & Owners’ Equity 1,095

15. LIABILITIES Account classification • Unpaid policy payables Surrender values, Claims… • Statutory obligations Compulsory insurances, all kind of taxes… • Vendor payables • Accruals • Deferred tax liabilities • Technical reserves

16. OWNERS’ EQUITY Account classification • Paid-in capital Money that an insurer has invested • Retaining earnings The cumulative amount of a company’s earning over time

17. Balance Sheet ABC Life Insurance Company Balance Sheet as of December 31, 2011 Assets1,095 A. Current Assets219 I. …… II. …… B. Non-Current Assets876 I. …… II. …… Liabilities and Owners’ Equity 1,095 A. Liabilities191 I. …… II. …… B. Owners’ Equity 904 I. …… II. ……

18. Basic accounting equation The basic accounting equation presents the relationship among the three key account classifications on the balance sheet: assets, liabilities and owners’ equity. Assets = Liabilities + Owners’ Equity

19. Income Statement ABC Life Insurance Company Income Statement For the year end December 31, 2011 Insurance related Gross premiums 186 Expenses (125) Financial activities Investment income 152 Investment expense(22) Other activities Other income 10 Other expenses (3) Income before tax 198 Income tax expense (25%) 50 Net Income 148

20. Income Statement • Income statement is a financial statement that reports an insurer’s revenues and expenses during a specific period. • The main purpose is to indicates whether the insurer experienced net income (profit) or a net loss during the period.

21. Income Statement ABC Life Insurance Company Income Statement For the year end December 31, 2011 Insurance related Gross premiums 186 Expenses (125) Financial activities Investment income 152 Investment expense(22) Other activities Other income 10 Other expenses (3) Income before tax 198 Income tax expense (25%) 50 Net Income 148

22. Income Statement – Part 1 Insurance related (Operating) Revenues Gross premiums written Expenses - Increasing in reserves - Contractual benefit pay-outs - Direct expenses - Sale related expenses - Administration expenses Net operating income Revenues minus Expenses

23. Expense in details Commission Direct expenses Medical examination Investigation

24. Expense in details Agent bonuses Policy related costs Sale expenses Customer cares Brandings Business development For agency force

25. Expense in details Staff salary & related Office running costs Management expenses Consultant IT related Business development For staff

26. Income Statement – Part 2 Financial activities Revenues - Interests of Bond, Time deposits… - Gain on exchange rate Expenses - Broker & Custodian fee - Loss on exchange rate Net financial activities income Revenues minus Expenses

27. Income Statement – Part 3 Other activities Revenues - Service provided - Gain on sell fixed assets - Others Expenses - Asset liquidation - Others Net other activities income Revenues minus Expenses

28. Users of Financial Statement Internal Users External Users • Management • to make decisions. • Group policy-owners. • Beneficiaries. • Investors • Tax authorities • Competitors… • Employee • to understand the financial position of company.

29. Summary Key to a insurers’ success Solvency Profitability owns more than it owes earns more than it spends

30. Summary Financial Statement Balance Sheet What does insurer owe? Assets L&OE Liabilities 4,050 1,300 2,750 What does insurer own? Owners' Equity 4,050 4,050 What has insurer retained?

31. Summary Financial Statement Income Statement What has the Insurer earned? Revenue 1,500 Expense 1,000 Net income 500 What has the insurer spent?

32. Summary Assets L&OE L&OE 4,050 2,750 1,300 Retained earnings Net income 4,050 4,050 Revenue 1,500 Expense 1,000 Net income 500

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