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Concepts and definitions

Assets covering technical provision

Assets covering technical provision is the result for the financial period in the insurance technical calculation of the insurance company. The main items in the calculation of assets covering technical provision are earned premium, claims incurred and operating expenses. In Finland, the income and expenses of investment activities for life insurance and pension insurance companies are included in the insurance technical calculation, not for non-life insurance companies.

Change in the provision for outstanding claims

The change in the provision for outstanding claims is the difference of the provision for outstanding claims at the beginning and end of the financial period. The change in the provision for outstanding claims is visible in the profit and loss account and claims incurred directed to the financial period can be determined as the sum of it and claims paid.

Change in the provision for unearned premiums

Calculated as the difference of the provision for unearned premiums at the beginning and end of the financial period. The change in the provision for unearned premiums is visible in the profit and loss account and earned premium directed to the financial period can be determined as the sum of premium income and provision for unearned premiums.

Claims incurred

Claims incurred consist of claims paid and changes in the provision for outstanding claims, from which reinsurers' shares are deducted. The part of claims to be paid is allocated to claims incurred that are directed to the financial period. Claims incurred are thus recorded on accrual basis.

Claims paid

Claims paid are recorded as expenses for the period when the benefits are paid before the reinsurers' share. The recording of claims paid is thus made on accrual basis. In addition to benefits, claims paid also include claims handling expenses.

Direct insurance

Insurance business received by the insurance company directly from the policy holder. In direct insurance the policy holder is a customer that is not another insurance company

Earned premium

Earned premium consists of the sum of premium income and change in premium income, from which the reinsurers’ shares are deducted. Earned premium is income allocated from premium income directed to the financial period. Earned premium is thus recorded on accrual basis.

Equalisation provision

Nowadays only concerns non-life insurance companies. The equalisation provisions equalises the effect of random variations of claims paid on assets covering technical provision. The average of a longer term claims ratio is used in calculating the equalisation provision.

Premium income

Premium income is recorded for the financial period when the insurance period started. It is reported before the reinsurers' share. Premium income is received from started insurance policies and assets at the end of the financial period. Credit losses of assets, insurance premium taxes, reductions and other public payments are deducted from premium income.

Provision for outstanding claims

Includes all provisions paid after the financial period which are formed from the insured events occurred in the financial period or before it.

Provision for unearned premiums

The provision for unearned premiums describes the part of the premium income in the financial period or earlier financial periods whose risk is directed to future financial periods.

Reinsurance

Reinsurance is an agreement between the direct insurance company and the insurance company acting as a reinsurer, by which the direct-writing company can transfer part of its insurance liability to be borne by another insurance company.

Assumed reinsurance refers to insurance business received by an insurance company from another insurance company. Ceded reinsurance, which is visible in the profit and loss account as reinsurers’ shares, refers to the share of insurance business transferred to another insurance company.

Technical provisions

Formed as the sum of the provision for unearned premiums and the provision for outstanding claims. In insurance companies’ profit and loss account, technical provisions describe the transfer items of claims paid and earned premium to be transferred to the balance sheet, which are the insurance company’s debt to policy holders. Technical provisions are thus comparable to accrued liabilities in the financial statement of other fields

Unit-linked insurances

In unit-linked insurances the insurance premiums of the policy holder are directed to one or several investment targets. The value of the insurance develops according to the value changes of the investment targets chosen by the policy holder.