Insurance Companies: Practice Question

a) Briefly explain the following terms as used by insurance companies:

(i) Whole life policy; (1 mark)

(ii) Endowment policy; (1 mark)
(iii) Surrender value (1 mark)

(b) The following balances were extracted from the books of Ulinzi Insurance Company Ltd.
As at 31 March 2023:
Debits Sh.
Expenses of management:
Fire 579,000
Marine 258,000
Claims paid:
Fire 840,000
Marine 805,500
Commission:
Fire 522,000
Marine 370,500
Directors’ fees 130,500
Depreciation on furniture 6,000
Contribution to NSSF 22,500
Investments 18,886,500
Debentures on mortgage bank 4,402,500
Interest accrued 54,000
Shares in companies 4,230,000
Premiums outstanding:
Fire 1,056,000
Marine 894,000
Sundry debtors 289,5000
Fixed deposits 213,000
Cash and bank balances 981,000
Furniture less depreciation 48,000
Library books 15,000

Credits Sh.
Reserve for unexpired risks:
Marine 1,830,000
Fire 976,500
Premium less reinsurance:
 Fire 2,479,500
Marine 1,677,000
Additional reserves:
Fire 1,071,000
Marine 112,500
Claims outstanding on 1 April 2022:
Fire 28,500
Marine 1,500
Interest on investments 385,500
Miscellaneous receipts 1,500

Share capital:
210,000 ordinary shares Sh.100 each 21,000,000
General reserve 1,917,000
Staff provident fund 213,000
Sundry creditors 900,000
Contingency reserve 300,000
Investment fluctuation reserve 210,000

The following additional information is available:

1. Estimated liability in respect of claims outstanding at the close of the year was
as follows:
Fire Sh.39,000 Marine Sh.141,000

2. The following provisions are to be made:

(i) Sh.150,000 survey expenses for marine insurance claims
(ii) Sh.300,000 for taxation

2. An additional reserve of 10% of the net premium was made for the unexpired
risks in the case of fire insurance in addition to the balance brought forward.

3. In respect of fire insurance, a reinsurance premium paid Sh.450,000, a claim of

Sh.150,000 covered by insurance and a commission at 5% on reinsurance ceded
have still to be accounted for.

4. The market value of the investments is Sh.21,375,000.

5. The reserve for unexpired risk should be 100% of the premium less reinsurance
in marine business.
Required:

The revenue accounts and Income Statement for the year ended 31 March 2023 and a
balance sheet as at that date. (17 marks)