Principles of Risk Management and Insurance, 13th Edition

Property and Casualty Insurers

To understand the financial operations of an insurance company, it is necessary to examine the insurer’s financial statements. Two important financial statements are the balance sheet and the income and expense statement.¹

Balance Sheet

A balance sheet is a summary of what a company owns (assets), what it owes (liabilities), and the difference between total assets and total liabilities (owners’ equity). A balance sheet shows these values on a specific date. This financial statement is called a balance sheet because the two sides of the financial statement must be equal:

$$\text{Total assets}=\text{Total liabilities}+\text{Owners' }equity$$

Exhibit 7.1 shows the balance sheet for the ABC Insurance Company at the end of 2015. Note ...