Radomir M. Lazarević

This article analyses the operations of insurance companies in Serbia in the period from 2009 to 2011, from the perspective of their technical results by years, insurance lines and total financial results as well as by capital adequacy as at 31 December 2011.
Company managements are responsible for preparation and fair presentation of accurate financial statements of a company, in this case – insurance companies. In addition, they are responsible for information in financial statements, which helps them to plan, decide and supervise. Management can define the form and content of such additional information in order to satisfy its needs, but never to the detriment of information accuracy. Financial statements of insurance companies need to be based on information concerning financial standing, performance and changes in financial standing of a company. Such information is used both by the management and users of financial statements, notably insureds and other insurance beneficiaries.
Users of financial statements are present and future prospective investors, employees, lenders, suppliers and other creditors, buyers, governments and their agencies as well as the general public. They use financial statements to meet their different needs for information.
Preparation of financial statements is not a formal obligation of an insurance company but a guideline for successful business operations and information to insureds and other creditors of a successful or unsuccessful business of a company. This also includes the information of disposal of funds. In addition, those reports are indicators of liquidity, solvency and the entire economic situation of an insurance company. Their business indicators, which are considered after 12 to 15 months upon the occurrence of business changes, as a rule, are not justified. Similarly, statement of operations which is accepted by acclamation, without any critical analysis, cannot be considered the report on business operations.
Company accounting cannot represent a mere registry of business changes. Instead, it should primarily act as an analyst of their causes and consequences and, consequently, it is obliged to respond to certain events and mark them with green, yellow or red light – depending on the consequences arising form financial statements. However, these activities can be successfully performed only by the accountant analyst and not by the accountant who acts as a record keeper.

In property and personal insurance it is necessary to determine technical and financial result as realistically as possible. In addition, financial result should, if possible, at least equal the amount of earned technical result, and should be expressed as equalization reserve within the total equity, while after a three-year period it may be used for payment of dividends to the shareholders and increase in equity of the insurance company. In addition to technical reserves and equity, including reserves generated on various bases, the property and personal insurance should include risk reserves, since risk balancing (of risk premium and claim settlements) is achieved in either a longer or a shorter period, depending on the number of objects insured. Thus, one-year positive financial result does not mean the generation of capital from profit. This will happen only if a positive financial result is achieved in the subsequent years, as well.

The existing Insurance Law and by-laws, adopted on the basis of the provisions of the Law, do not provide data according to the International Accounting Standards and International Financial Reporting Standards, and most of all they do not provide the data which are necessary for the insured to choose the insurance company he wishes to conclude an insurance contract with. It is necessary that future Insurance Law amendments, among other things, closely regulate the following issues:

– property and personal insurance funds and sources of funds;
– formation and use of guarantee fund and technical reserves in life and non-life insurance lines, and before all the methodology of guarantee fund and technical reserves coverage;
– capital adequacy and the coverage of declared loss at the end of a business year;
– deferral ofinsurance premiumto accounting periods according to the period ofinsurance contract;
– deferral and declaration of underwriting expenses in life and non-life insurance lines;
– issue of granting bonus, discount and calculating malus;
– methodology of drawing up and presenting statement of operations, according to insurance lines and in total(profit and loss account).