Let's take a look at a set of US GAAP P&C financial statements, and we'll start with the income statement.

Firstly, we see net premiums earned.

These are net because they reflect premiums after deducting the amount ceded to reinsurance.

The next item is investment income, as US GAAP includes all the income items together at the top of the income statement.

And this item is the investment income generated from investments in the balance sheet.

Together, the investment income and net premiums earned give total revenue.

Note that some P&C insurers have fee income from other products included in revenue as well.

We then start the expense items with the net claims expense, which is sometimes also referred to as losses and loss adjustment expenses.

This includes all the claims incurred during the period and any costs directly associated with assessing those losses.

Note that this item is net because it is after subtracting any claims which are recovered from the reinsurers.

Next, we have policy acquisition costs.

This reflects the amount of deferred acquisition costs paid to brokers and paid for processing new policies, and it is then amortized through expenses over the period of cover.

Note that when we calculate underwriting profit, this is usually the net premiums earned, less the net claims expense, less policy acquisition costs that have been amortized.

We then have other operating costs, which includes the overheads of the business, such as staff costs, IT costs, and head office costs.

We then have finance costs, which is primarily interest expense on borrowings, and the expenses are then added together to give total expenses.

The final item of note here is the tax expense.

Although all companies pay taxes on their profits, it's worth noting that insurance companies sometimes have lower tax rates than other corporates, and that's because some of their investment income and dividends are tax-deductible or taxed at a preferential rate.

Now let's take a look at the balance sheet.

It's typical for the largest item in assets to be the investments balance, as is the case here. For a P&C company, typically, most of the investments are in fixed income instruments, such as government and corporate bonds.

These are relatively liquid but also minimize downside risk in case of shocks to the economic system. The next item is the premiums receivable, and this reflects premiums written where the amounts have not yet been paid by the policyholder.

The next item is reinsurance recoverables, and these reflect the claims which are recoverable from the reinsurers.

It's important to note that although the claimed expense in the income statement is presented net of amounts recoverable from reinsurers, the balance sheet shows the reinsurance recoverables gross of the insurance liabilities. So the amounts recoverable from reinsurers are included as a separate asset item.

The next item is prepaid insurance premium, and that reflects the premiums paid upfront to reinsurers, where the cover hasn't yet been provided. So we can think of this as the reinsurance version of unearned premiums.

The next item is deferred acquisition costs.

These are amounts which have been paid during the acquisition of new policies, which haven't yet been amortized to the income statement.

So that's the assets in the balance sheet.

Now let's take a look at liabilities and equity, and our first liability item is unearned premiums. These are the amounts of premiums written which haven't yet been earned, so it's effectively like a deferred revenue liability.

The next liability item is the loss reserves or claims reserves.

Those are the claims which have been incurred, which haven't yet been settled with policyholders.

Together, the unearned premiums and claims reserves are referred to as the insurance reserves, as they reflect the total liability to policyholders.

The final liability here is debt. This reflects the loans and bonds used to help finance the business.

Most insurance companies have some relatively long-dated borrowings to help finance the business, as certain longer-dated borrowings can qualify as part of regulatory capital.

The final item here is equity. This is an important item for insurance companies as it's covered by regulatory capital requirements.

Which means that there is a minimum level of equity required relative to the amount of insurance reserves.