Accounting Diffrences

General Comments about the Insurance Industry Insurance Companies generate revenues by selling insurance policies. These policies provide a known amount of revenue for an unknown amount of losses offsetting that revenue. This can make the matching principle difficult. Some of the potential losses can come years after the insurance policy was written and the premiums received. The liabilities for these future losses are estimated by actuaries and are subject to a certain amount of interpretation by management. The accounting for the premium revenues is reflected in written vs. earned premium. Various statutory requirements are based on written premium, which is the amount of premium booked in a given accounting period. Earned premium is generally used for recognizing revenues for financial reporting. As insurance policies are written on an annual basis or longer, the premiums (revenues) are spread over the duration of the policy period even if the potential liability exceeds the policy ...