Financial resources of an insurance organization

Insurance as an activity is based primarily on the formation and use of an insurance fund, which entails the possibility of deviations in the volume of the formed insurance fund and its need for payment of insurance compensation. This feature of insurance affects and the conditions for the formation and use of financial resources by insurers. Factors that affect the financial resources of an insurance organization include:

a) the types of insurance provided for by the license within which the insurance organization operates;

b) investment activity;

c) Authorized capital, provided by law and approved by the charter.

The financial resources of the insurance organization are shown in Fig. 2.1.

Own capital is formed by paying contributions by founders in the authorized capital. Formation of the size of the charter capital of an insurance organization is of special importance at the initial stage, when activity has not yet been started and insurance funds have not been formed. During this period, the authorized capital is the only guarantee of the insurer's solvency. In the future, for an insurance organization, the share capital is also of great importance; For example, at any time, due to inaccuracies in the tariff policy, improperly formed insurance portfolio, impairment of assets, the insurer may need additional financial resources, and in such situations, the authorized capital plays the role of such resources. The composition of equity capital includes the following parts: statutory, additional, reserve capital, retained earnings.

Composition of financial resources of an insurance organization

Fig. 2.1. Composition of the financial resources of the insurance organization

The formation of reserve capital is carried out at the expense of profit before reaching a certain size (in the joint-stock company - 15% of the authorized capital). Reserve capital under certain circumstances can be used to cover non-productive losses and losses, as well as to pay off bonds and repurchase shares of the company in the absence of other funds. The formation and use of reserve capital is based on legislation.

The attracted capital is formed by insurance reserves, the source of which are the funds of the insured, coming in the form of insurance premiums, not belonging to the insurer. These funds are only temporarily, for the duration of the insurance contracts, are at the disposal of the insurance organization, forming the fund of the insurer, after which they are used for payment within the insured amount, or converted into a revenue base provided that the insurance contract is breakeven. They can be temporarily used by the insurer as an investment source and, with a break-even contract, either go to the revenue base or return to the insured in the part stipulated by the terms of the contract.

The principal difference between insurance funds and insurance reserves is that the insurance fund characterizes the amount of insurance premiums paid by policyholders during a certain period, and the insurance reserves reflect the amount of "deferred insurance payments" and obligations under contracts for a specific date.

The borrowed capital of the insurer includes accounts payable, for example, payroll indebtedness, bank credit.

In the course of conducting the main activity, the insurance organization forms an insurance fund from premiums paid by the insured, and uses it to cover the insured's losses and finance the organization of the insurance business. In connection with the possibility of forming large monetary resources in the form of an insurance fund and own funds, the insurance organization also engages in investment activities. Taking into account these features of the activity of the insurance organization, two directions of money turnover can be distinguished:

- turnover of funds forming insurance reserves to ensure insurance coverage;

- turnover of funds associated with the organization of insurance.

In the turnover of funds from the point of view of providing insurance coverage, the funds that form insurance reserves and the funds of the formed insurance reserves directed to invest in order to make profit should be included.

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