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General Comments about the Insurance IndustryInsurance Companies generate revenues by selling insurance policies These policies provide a known amount of revenue for an unknown amount of losses offsetting that revenue This can make the matching principle difficult Some of the potential losses can come years after the insurance policy was written and the premiums received The liabilities for these future losses are estimated by actuaries and are subject to a certain amount of interpretation by managementThe accounting for the premium revenues is reflected in written vs earned premium Various statutory requirements are based on written premium which is the amount of premium booked in a given accounting period Earned premium is generally used for recognizing revenues for financial reporting As insurance policies are written on an annual basis or longer the premiums revenues are spread over the duration of the policy period even if the potential liability exceeds the policy period The future liability is estimated and booked against the earned premiums Some costs however are not matched against this revenue primarily commissions paid to the insurance agent that sold the policy This expense is fully recognized at the time the premium is bookedThese effects can have both positive and negative implications In an era of declining written premiums revenue can actually increase and expenses should decrease because of the costs incurred at the time the policy was written Very few insurance companies in the United States actually make a profit by selling insurance The profit is generally made from the investment income earned investing the premiums they receive now but do not expect to pay out until some point in the future This paper examines the published financial information of Reliance Group Holdings and Travelers Property Casualty Corp for the fiscal year ending December 31 1998 and the third quarter reports for the quarter ending September 30 1999 The letters to the shareholders are examined as well as the financial statements and subsequent
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