A financial statement shows an insurance company’s financial health through its balance sheet and profit and loss statement.
When you hear the term financial statement, it may sound formal or intimidating. But the idea is actually pretty simple. A financial statement is a snapshot of how an insurance company is doing with its money. It shows what the company owns, what it owes, and how well it’s performing financially over time.
In the insurance world, financial statements are especially important because they help prove that an insurer can pay claims when customers need it most.
What a Financial Statement Means in Insurance
For an insurance company, a financial statement mainly includes two core documents:
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A balance sheet
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A profit and loss statement (also called an income statement)
Together, these reports give regulators a clear picture of the company’s financial strength. They help answer critical questions like: Does this insurer have enough money to pay claims? Are its assets strong and stable? Is it being managed responsibly?
These financial statements are reviewed by organizations such as the NAIC (National Association of Insurance Commissioners) and state insurance departments.
The Balance Sheet: What the Company Owns and Owes
The balance sheet is like a financial photograph taken at a specific moment in time.
It breaks down into three main parts:
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Assets – What the insurance company owns, such as cash, investments, and bonds
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Liabilities – What the company owes, including future claim payments
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Surplus – The difference between assets and liabilities
If assets are higher than liabilities, it’s a good sign. This surplus acts as a financial cushion, helping the company handle unexpected losses or large claim events.
The Profit and Loss Statement: How the Company Performs Over Time
While the balance sheet shows a single moment, the profit and loss statement tells a story over a period of time—usually a quarter or a year.
This statement shows:
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Premiums collected from policyholders
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Claims and expenses paid
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Investment income
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Overall profit or loss
For example, if an insurer collects more in premiums than it pays out in claims and expenses, it reports a profit. If claims spike due to disasters or poor pricing, the company may show a loss.
Why Financial Statements Matter to Regulators
Insurance isn’t just another business. Companies promise to pay future claims, sometimes many years later. Regulators rely on financial statements to make sure those promises can be kept.
The NAIC and state insurance commissioners use financial statements to:
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Check reserve requirements
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Review asset quality
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Monitor liabilities and risks
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Identify early warning signs of trouble
Regular reporting helps catch financial problems before they affect customers.
How Financial Statements Protect Policyholders
Even if you never see an insurer’s financial statement, it still works in your favor.
These reports help ensure that:
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Insurance companies stay financially stable
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Claims can be paid promptly
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Risky financial behavior is limited
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Failing insurers are identified early
In simple terms, financial statements help protect you from buying coverage from a company that can’t keep its promises.
How Often Insurance Financial Statements Are Filed
Insurance companies typically file:
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Quarterly financial statements
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Annual financial statements
These reports follow statutory accounting principles (SAP), which are stricter than regular business accounting. The goal isn’t to make profits look bigger—it’s to make sure companies remain solvent and conservative with policyholder money.
A Simple Real-Life Example
Imagine choosing between two insurers. One has strong financial statements showing large assets and solid reserves. The other barely meets minimum requirements.
If a major storm hits, the financially stronger company is more likely to pay claims smoothly. That’s the power of good financial reporting.
Final Thoughts on Financial Statements
A financial statement may seem like a behind-the-scenes document, but it plays a huge role in insurance safety and trust. By showing assets, liabilities, profits, and reserves, it helps regulators ensure insurance companies stay strong and reliable.
For policyholders, financial statements offer peace of mind. They’re one of the biggest reasons you can feel confident that your insurance coverage will actually be there when you need it most.
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