The main income and expense items are reported in the income statement. The income statement of the Life Insurance segment is illustrated (roughly) below.
The changes in the fair value of investments are not directly recognized in the income statement. The gains or losses on e.g. investments in the stock markets are recorded in the income statement when the investments are sold.
Life insurance income statement items explained
Insurance premiums written represent the total volume of insurance payments during the accounting period. Depending on the type of insurance, premiums are recognised in premiums written either when the premium is charged, or when the premium has been paid. The breakdown of insurance premiums written into different types of insurance is shown below:
Unit-linked insurance products are a strategic emphasis area within Life Insurance and their share of insurance premiums written is expected to grow in the future.
Net income from investments shows the result made through investment activities. It mainly consists of interest earned on debt securities, dividends received, rental income and expenses on real estate investment properties and realised gains and losses on investments.
Net income from investments also includes the investment result from investments related to unit-linked contracts, but the corresponding effect is recognised as an increase in insurance liabilities for unit-linked contracts.
Claims incurred include claims or benefits payments made during the accounting period. It may relate to insured events that have incurred during the period or earlier periods. It also includes the change in the provision for outstanding claims (i.e. liabilities related to claims already incurred). The provision is intended to cover the anticipated future claims payments and costs of claim settlements.
Change in liabilities for insurance and investment contracts shows the change in the provision for unearned premiums. The provision for unearned premiums is intended to cover anticipated claims costs and operating expenses in the future, often after several years. In Life insurance, various methods are applied in the estimation of future costs. These involve assumptions on e.g. mortality, morbidity, investment yield and future operating expenses.
The provision for unearned premiums generally increases when premiums are written and decreases when claims are paid. The provision may also change when changes are made in actuarial assumptions.
Staff costs include wages and salaries to employees as well as pension and other social security costs.
Other operating income, expense and finance costs include any items of income that are related to insurance activities but are not included in premiums written or investment income, administrative expenses (e.g. rental costs) and depreciation on tangible and intangible assets as well as the interest expenses on financial liabilities.
Profit before taxes shows the profitability of the segment. In the Life Insurance segment, profit before taxes can further be broken down to investment result, expense result and risk result.
Change in the fair value of financial instruments is an important element in analyzing the financial development of the Life insurance business. It includes the unrealized gains or losses due to changes in the fair value of financial instruments that are classified as available-for-sale. These gains or losses are recognized on the income statement at the time they realize, i.e. when the investments are sold.
The profitability of the Life Insurance segment is analysed further below:
The investment result indicates how much the investment income generated by the company has outperformed (or underperformed) the return generated by the insurance policies.
The expense result indicates how much less (or more) realised expenses for the administration of the company's insurance policies have been in relation to the administrative expenses expected upon initiation of the policies.
The risk result indicates how much more (or less) the realized claims from insurance policies have been in relation to the amount of claims expected upon initiation of the policies.