Insurance Accounts for IC-01
Insurers are paid first and learn their costs later. Their accounts are built to bridge that gap.
Most businesses earn first and spend later on the same sale. An insurer is paid first and finds out its cost later. A motor insurer collects a year's premium in April and pays the accident claims that premium covers through to next March, and some for years after. Insurance accounting exists to handle that gap honestly.
IC-01 does not expect an accountant's depth. It expects you to know which statements an insurer prepares, the reserves that bridge premium and claims, and a handful of rules on when income and costs are recognised.
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What the Insurance Act Requires
- check_circleSection 10: an insurer in more than one class (life, fire, marine, miscellaneous) keeps a separate account of receipts and payments for each class. Life premiums go into a separate life insurance fund whose assets are kept apart from all other assets.
- check_circleSection 11: at the end of each financial year the insurer prepares a balance sheet, a profit and loss account, a receipts and payments account, a revenue account and other statements, in the form IRDAI specifies.
- check_circleSection 11 also requires separate accounts for shareholders' funds and policyholders' funds.
The Statements and Their Forms
Under IRDAI's 2024 finance regulations.
Revenue account (the policyholders' or technical account)
Life insurer
Form A-RA
General insurer
Form B-RA
Profit and loss account (the shareholders' account)
Life insurer
Form A-PL
General insurer
Form B-PL
Balance sheet
Life insurer
Form A-BS
General insurer
Form B-BS
Receipts and payments (cash flow)
Life insurer
Direct method only
General insurer
Direct method only
| Statement | Life insurer | General insurer |
|---|---|---|
| Revenue account (the policyholders' or technical account) | Form A-RA | Form B-RA |
| Profit and loss account (the shareholders' account) | Form A-PL | Form B-PL |
| Balance sheet | Form A-BS | Form B-BS |
| Receipts and payments (cash flow) | Direct method only | Direct method only |
The Reserves and Rules Behind the Numbers
- Premium recognition
- Life insurers recognise premium as income when it falls due. General insurers recognise it over the contract or risk period, which is why reserves are needed.
- Unearned premium reserve (UPR)
- The part of premium written that belongs to later periods. Illustration: a ₹12,000 annual policy written on 1 October has about ₹6,000 unearned at 31 March. IRDAI allows 50% of net written premium or the unexpired-period basis; marine hull uses 100%.
- Premium deficiency reserve
- Extra reserve when expected claims and costs for the unexpired period exceed the unearned premium.
- Unexpired risk reserve
- UPR plus any premium deficiency reserve.
- Outstanding claims
- Claims reported but not yet paid at the balance sheet date.
- IBNR and IBNER
- Incurred but not reported: losses that have happened but not yet been notified. Incurred but not enough reported: reported claims whose current estimate is too low. Both are estimated by the appointed actuary.
- Acquisition costs
- Commission and other costs of getting business. Expensed in the period they are incurred, not spread over the policy.
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Ind AS Has Arrived
The study course describes accounts under Indian GAAP and IRDAI's forms. From 1 April 2026, IRDAI's amended regulations require insurers to prepare financial statements under Indian Accounting Standards (Ind AS), including Ind AS 117 for insurance contracts, though IRDAI may grant up to a year's forbearance to an insurer that applied for it by 30 April 2026. For the exam, learn the course's framework; the concepts of premium, reserves and claims carry across.
How IC-01 Tests This
This is the chapter where candidates lose easy marks by skipping it. Questions are short and factual: which form a general insurer's revenue account uses, which accounting standard does not apply to general insurers (AS 13, on investments), which method the cash flow statement must use (direct), when life premium is income (when due). The trap is mixing life and general rules, such as recognising general insurance premium in full when received.
FAQs
What financial statements does an insurance company prepare?expand_more
A revenue account (policyholders' account), a profit and loss account (shareholders' account), a balance sheet and a receipts and payments account, in IRDAI's forms: A-RA, A-PL and A-BS for life insurers, B-RA, B-PL and B-BS for general insurers.
What is unearned premium reserve in general insurance?expand_more
The part of premium written that relates to the unexpired part of policies at the balance sheet date. It is held as a liability and earned as time passes.
What is IBNR in insurance?expand_more
Incurred but not reported: a reserve for losses that have already happened but have not yet been notified to the insurer at the balance sheet date.
Why do insurers keep separate shareholders' and policyholders' accounts?expand_more
Section 11 of the Insurance Act requires it, so that the funds held for policyholders' claims are not mixed with the owners' money.
Next steps
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