gr-518 - Financial Management - Project Paper - Analysis of Financial Statements

Running head: FINANCIAL STATEMENT ANALYSIS 1
Financial Statement Analysis Insurance Companies
GR 518 Financial Management Team Project
Elisa Adriano, Terryann Bodden, Opal Ruiz
International College of the Cayman Islands
Dr. Alicia Law
June 19, 2017

FINANCIAL STATEMENT ANALYSIS 2
Island Heritage Insurance Company, Ltd.
Company overview
This company was founded in the Cayman Islands on January 4, 1996. The companys
financial statement year end is December 31st. The 2015 financial statements of Island Heritage
were audited by PwC, a local audit firm in the Cayman Islands. In 2012, the company was acquired
by BF&M which is a reputable Bermuda-based insurance group, Island Heritage Insurance
Company, Ltd (Island Heritage Insurance, 2016). The company offers a broad range of insurance
products and services at reasonable prices which are available to its customers in the Cayman
Islands, in addition to licensed agents and brokers throughout the Caribbean. The Groups main
business function is insurance (Island Heritage Insurance, 2016). It calculates and charges a
premium to clients or policyholders. When viewed collectively, these premium amounts are
expected to take care of the companys underwriting expenses and claims which may take some
time to be settled. There are certain business risks innate in an insurance company. The main
risks are calculating premiums, settling claims, and forecasting claim costs and management of
investment funds (Island Heritage Insurance, 2016).
In order to reduce underwriting risk, the Group purchases reinsurance to split the risks
which are initially assumed when the Group writes its premiums (Island Heritage Insurance, 2016).
Such initiations with reinsurance encompass Quota Share, Facultative, Risk Excess and
Catastrophe Excess of Loss programmes. None the less, reinsurance does not mean that the
company does not have the responsibility to pay its policyholders (Island Heritage Insurance,
2016). The Group is still responsible to pay policyholders for any amount that is not covered by
reinsurance. Island Heritage has branches in Anguilla, Antigua, Bahamas, Barbados, the British
Virgin Islands, the Cayman Islands, Dominica, Grenada, St Kitts & Nevis, St Lucia, St Maarten,
St Vincent & the Grenadines, Turks & Caicos and the US Virgin Islands (Island Heritage
Insurance, 2016).
The companys website can be found at: http://www.islandheritageinsurance.com/
Financial Statements
We had analysed the consolidated financial statements covering the two years period ending
December 31, 2015 and 2014 of Island Heritage Insurance Company, Ltd. and its subsidiaries
(Island Heritage). The four financial statements composing of 1) balance sheet is presented in
appendix 1, 2) the income statements presented in appendix 2, 3) the statement of changes in stock
holders equity presented in appendix 3, and the cash flows presented in appendix 4. The
companys financial statements were presented in United States dollar, rounded off to the nearest
thousand. Note that the asset portion of the balance sheet for Island Heritage was presented by the
auditors stating the non-current asset first before the current portion (Island Heritage Insurance,
2016).
Generally assets are presented in order of liquidity, assets such as cash, cash equivalents,
accounts receivables, marketable securities, inventories and other assets that can be converted to
cash in less than a year period is presented first under the current asset portion. While assets
expected to be realized or converted to cash for more than twelve month period such as; property,
plant and equipment, long term receivables and other non-current assets are classified under the
non-current asset portion of the balance sheet (Brigham & Ehrhardt, 2014).
PWC (2014) however, stated in their guide to financial statement presentation that although
the balance sheet is generally presented in order of liquidity, the U.S. GAAP does not specifically
require the order in which the balance sheet item should be presented. The companies may
therefore chose to present as the first line in the balance sheet the asset that they deem significantly
important such as the property, plant and equipment (PWC, 2014).
Island Heritages balance sheet (also known as the financial position) figures for 2015 reflected
total assets of one hundred twenty five million dollars (us$125M), total liabilities of seventy four
million dollars (us$74M), and total stockholders equity of fifty one million dollars (us$51M).
While the balance sheet figures for year 2014 reflected total assets of one hundred twenty four
million dollars (us$124M), total liabilities of seventy three million dollars (us$73M), and total
stockholders equity of fifty one million dollars (us$51M) (Island Heritage Insurance, 2016).
The income statements (also known as the results of operations) figure of the company
reflected a total net premiums earned of thirty million dollars (us$30M) and net income of seven
million dollars (us$7M) for the year 2015. While the results of operations figure for the year 2014
reflected total net premiums earned of thirty four million dollars (us$34M) and net income of ten
million dollars (us$7M) (Island Heritage Insurance, 2016).
Horizontal Analysis
Horizontal analysis is a type of financial analysis that compares line by line financial figures
of two or more consecutive accounting periods. Horizontal analysis is one way of detecting
favourable or unfavourable variances in the financial statement items over time periods. (Stevens-
Huffman, 2013).
Balance Sheet horizontal analysis
Assets
Analysis of Island Heritages balance sheet figures for the years 2015 and 2014 as illustrated
in appendix 1 reflects a minimal increase of less than 1% in the total assets but the following
balance sheet line items had notable percentage of variances: Intangible assets increased by one
hundred fifty four thousand dollars (us$154,000) or 60.63%. Cash and cash equivalents had
increased by four million one hundred thousand dollars (us$4,100,000) or 20.64%. Fixed deposits
and experience deposit receivable amounting to two million twenty one thousand (us$2,021,000)
and one million four hundred eighty thousand (us$1,480,000) respectively had both zeroed out in
2015 meaning 100% decreased in the amount. Insurance receivables & other assets account had
increased by four million two hundred twenty thousand dollars (us$4,220,000) or 23.48%. While
the deferred policy acquisition cost had decreased by one million one hundred four thousand
dollars (us$1,104,000) or negative 14.60% (Island Heritage Insurance, 2016).
Liabilities and Equity
The total liabilities of the company had increased by 1.60% or total amount increased of one
million one hundred sixty nine thousand dollars (us$1,169,000) but the three notable variances in
the liability account were the following: The decrease of 73.59% or eight hundred sixty four
thousand dollars for income tax payable (us$864,000). The 100% increase in deferred tax liability
amounting to five thousand dollars (us$5,000). And the significant increase of 20205.56% or seven
million two hundred seventy four thousand dollars (us$7,274,000) on due to related parties
account. The stockholders equity account had decreased by less than one percent or total amount
of three hundred eighty nine thousand dollars (Island Heritage Insurance, 2016).
Balance sheet variances explained
Cash and cash equivalents
The 20.64% or four million one hundred thousand dollars (us$4,100,000) increase in cash and
cash equivalents for the year 2015 was reflected in details in the companys Statement of Cash
flows. The companys operating activities had provided nine hundred sixteen thousand
(us$916,000) portion of the increase, the investing activities had provided net increase cash of one
million seven hundred four thousand dollars (us$1,704,000), while the financing activities had
provided net increase of one million four hundred eighty thousand dollars (us$1,480,000) (Island
Heritage Insurance, 2016).
Regulatory and Fixed deposits
Island Heritage operates in various jurisdictions within the Caribbean region, in compliance
with these jurisdictions regulatory requirement, the company have to maintain a regulatory
deposits with banks and government agency within the jurisdiction. Majority of the companys
regulatory deposits account is maintained in Bahamas. The regulatory deposits figure for the
company for the year 2015 had a minimal increase of 18% from 2014. The fixed deposit with 182
days term had matured in 2015 resulting to 100% decrease from 2014 balance (Island Heritage
Insurance, 2016).
Experience deposit receivable
As part of the Island Heritages affiliated groups agreement, part of the companys annual
premiums paid shall be segregated as credit to the experience deposit account and accumulated for
the benefit of the affiliated companies. Although the said groups agreement was agreed to run for
three years ending March 31, 2017, the affiliated companies can also elect to revert the said
agreement provided that the Groups experience account has a positive balance. On March 31,
2015 the company elected to revert the agreement and collects the one million four hundred eighty
thousand dollars (us$1,480,000) resulting to 100% decrease from 2014 balance (Island Heritage
Insurance, 2016).
Insurance receivables & other assets
The 23.48% increase in the companys insurance receivables & other assets account was
caused by the increase in all of the accounts sub account components with figure and percentage
increase as follows: Premium receivable four hundred eighty seven thousand dollars
(us$487,000), 4% increase. Ceding commission receivables - one million four hundred forty seven
thousand dollars (us$1,447,000), 41% increase. Reinsurance receivables eight hundred fifteen
thousand dollars (us$815,000) 151% increase. Broker rebate receivables nine hundred thirty
seven thousand dollars (us$937,000), 252% increase. Prepayments five hundred thirty four
thousand dollars (us$534,000), 123% increase. The last component was the investment income
receivables of which contributed nothing in the accounts percentage increase (Island Heritage
Insurance, 2016).
Intangible assets
The 60.63% or one hundred fifty four thousand dollars (us$154,000) increase in intangible assets
represents was attributable to the companys additional expenditures incurred in the development
of its underwriting system (Island Heritage Insurance, 2016).
Income tax payable
The decrease of 73.59% or equivalent amount of eight hundred sixty four thousand dollars
(us$864,000) in the income tax payable account for 2015 was attributable to the income tax
payments made by the company during the year ranging from 25% to 37.4% of the income earned
from various jurisdictions where it operates other than the Cayman Islands. Total tax payments
made for year 2015 amounts to one million eight hundred twenty one thousand dollars
(us$1,821,000) this covers the 2014s income tax balance and partly 2015s income tax due (Island
Due to related parties
The companys due to related parties percentage increase of 20205.65% or seven thousand two
hundred seventy four thousand dollars (us$7,274,000) was attributable to the unpaid dividends
payable to the related party or its ultimate parent as of December 31, 2015. The company had
declared as of December 31, 2015 dividend amounting to seven million five hundred thousand
dollars (us$7,500,000), this amount was not paid or outstanding as of the closing of the financial
period 2015. Island Heritage in the normal course of business incurs receivables and payables
among its related parties and settles the same at closing of each year period via dividend offsetting
(Island Heritage Insurance, 2016).
Income Statement Horizontal Analysis
The results of operation of Island Heritage for the year 2015 reflected decline in company
performance, the net profit and comprehensive income had decline by 34.07% or equivalent
amount of three million six hundred twenty nine thousand dollars (us$3,629,000). All the income
statement line items reflected decline in figures except for commission income which had
increased by 12.31% or equivalent amount of one million five hundred eight thousand dollars
(us$1,508,000). The gross premium written had decreased by seven million six hundred twenty
three thousand dollars (us$7,623,000) but its equivalent negative percentage change from the
2014s figure was only 7.55%. Change in net unearned premiums account had decreased by
38.34% or equivalent amount of one million five hundred seventeen thousand dollars
(us$1,517,000). The recovered insurance claims & loss adjustment expenses figure had declined
by 48.48% or equivalent amount of two million two hundred thirty one thousand dollars
(us$2,231,000). The resulting net underwriting income had decreased by 15.49% or equivalent
amount of three million four hundred forty six thousand dollars (us$3,446,000). The percentage
change in net investment income had significantly decreased by 78.97% but the equivalent amount
change only amounts to four hundred thirteen thousand dollars (us$413,000). The overall
decreased in company performance had decreased the companys net profit before tax of 31.81%
or equivalent amount of three million seven hundred nineteen thousand dollars (us$3,719,000)
Net premiums earned (Sales)
The 12.07% percentage decrease or equivalent amount of four million seventy thousand dollars
(us$4,070,000) in the companys net premiums earned was attributable to the decrease in net
premiums written of 8.58% and the decrease in the change in net unearned premiums account of
38.37%. The net premiums earned was the net resulting figure after deducting the reinsurance
ceded (7.12% decrease from 2014) to the gross premiums written (7.55% decrease from 2014).
Gross premiums written refers to the total insurance premiums sold by the company, while the
reinsurance ceded refers to the amount of written insurance premiums that were passed on to
another insurance companies also called the reinsurers to lessen the risk exposures of the company
Cost of Sales
The companys cost of sales or insurance premiums (net of adjustments on previously
estimated insurance claims expenses) were composed of insurance claims & loss expenses, and
acquisition cost. The 2015s figures for these cost accounts have decreased by 3.59% and 5.25%
respectively or total amount decrease of one million three hundred forty seven thousand dollars
(us$1,347,000) and total percentage decrease of 8.84% (Island Heritage Insurance, 2016).
Net underwriting income
To arrive with the net underwriting income, the companys net premiums earned was reduced
by the cost of sales, while recovery from insurance claims & loss adjustment as well as profits
derived from underwriting commission were added to the net premiums earned. During the year
2015 the companys recovered insurance claims & loss adjustment had reduced to almost half
(48.48%) or equivalent amount of two million two hundred thirty one thousand dollars
(us$2,231,000) from 2014 figure. While the insurance commission income earned hand increased
by 12.31% or equivalent amount of one million five hundred eight thousand dollars (us$1,508,000)
Net investment income
The companys investment income was derived from its investment portfolio composing of
U.S. Treasury securities, non-U.S Government securities, corporate bonds and U.S. equities. The
companys investment account figure had decreased by minimal percentage of 2.14% or equivalent
amount of four hundred forty seven thousand dollars (us$447,000). The decrease in investment
figure for 2015 was attributable to the decrease in the observed fair market value of the said
investments. The International Financial Reporting Standards ruling number 9 (IFRS 9) as
quoted in the Island Heritages notes to financial statements, requires that the financial instruments
or investment in securities to be valued at its fair market value (Island Heritage Insurance, 2016).
During the year 2015 the company earned total investment income of five hundred forty six
thousand dollars (us$546,000) derived from interest income (us$277,000), dividend income
(us$118,000) and gain on sale of investments (us$151,000). The investment income figure
however, were reduced by the decrease in fair market value of the said investment in the amount
equivalent to four hundred thirty six thousand dollars (us$436,000). This explains the 78.97%
decreased in the net investment income (Island Heritage Insurance, 2016).
Vertical Analysis
Vertical analysis also known as common size analysis; common size balance sheet shows the
percentage or ratio of balance sheet items as to the total assets, while the common size income
statement shows the percentage of each income statement items as to the net sales. The percentage
results is very useful in determining which item in the balance sheet or income statement was the
source of positive or negative variance (Brigham & Ehrhardt, 2014).
Balance Sheet Vertical Analysis
The companys total assets composition for the year 2015 and 2014 were composed of 91.68%
and 91.44 % respectively for current assets and 8.32% and 8.56% respectively for non-current
assets. Island Heritages cash and cash equivalent account has a high percentage share on the total
asset at 19.17% and 15.99% for the year 2015 and 2014 (Island Heritage Insurance, 2016).
Stevens-Huffman (2013) expressed that a company that maintains cash balance of 10 to 20 percent
of its total assets reflects good health. Cash is very important especially for growing company
(Stevens-Huffman, 2013). The total percentage liquid assets excluding receivables to total assets
represents 46.99% and 45.95% for years 2015 and 2014 respectively, these liquid accounts were
composed of cash and cash equivalents, fixed deposits, regulatory deposits, and investments. Total
receivables account represents 17.76% and 15.66%, while reinsurance assets represents 21.77%
and 23.74% of total assets for year 2015 and 2014(Island Heritage Insurance, 2016).
Although the company maintains high percentage of liquid assets, the companies percentage
of total liabilities represents 59.47% and 58.90% for 2015 and 2014 (Island Heritage Insurance,
2016). Brigham & Ehrhardt (2014) discussed that if the companys total debt ratio is high, the
shareholders share in loss is magnified in the event of decline in operational performance. Island
Heritages financial statements reflects decline in the companys performance, hence, there was a
huge decline in the share in the reported income for shareholders (Island Heritage Insurance, 2016).
Income Statement Vertical Analysis
The gross premiums written (Gross Sales)

The horizontal analysis for gross premiums written reflects a decrease of 7.55% in figures but
if we will analyse the account as to its percentage relationship as to the years net premiums earned,
its percentage actually increased by 15.39% as compared to the gross premium rate for the year
2014 (from 299.38% in 2014 to 314.77% in 2015). This simply means that the company had
increased their premium rate but had sold lesser volume of insurance premium in 2015 as
compared to 2014 (Island Heritage Insurance, 2016).
Reinsurance ceded
The amount of written premiums ceded to other reinsurers had decreased by 7.12% as noted
in the horizontal analysis of the account, but its percentage as to the total net insurance premiums
earned actually had increased by 11.18%, from 211.12% in 2014 to 223% in 2015. This means
that the percentage volume of written premiums being reinsured for the year 2015 had increased
by 11.88% as compared to the percentage volume being reinsured in 2014 (Island Heritage
Insurance, 2016).
Cost of Sales
The insurance claims & loss adjustment percentage relationship as to the net premiums earned
for the year 2015 had increased by 2.42%, from 25.11% in 2014 it rise to 27.53% in 2015. This
means that the company had incurred higher cost of sales for every insurance premium written
The percentage relationship of acquisition cost for 2015 had increased by 4.57% as compared
to the 2014s rate, from 58.90% rate in 2014 to 63.47% rate in 2015. Just like the insurance claims
& loss adjustment, the company in 2015 had incurred higher acquisition cost for every insurance
premium written (Island Heritage Insurance, 2016).

The commission income as well as the recovered insurance claims & adjustment expenses
were contra account to cost of sales, meaning these account reduces the amount of cost of sales.
Vertical analysis reflects that the commission income percentage as to total net insurance
premiums earned had increased by 10.07% from 36.33% in 2014 to 46.47% in 2015. This means
that the net cost of sales percentage would have been higher should the company had not earned
additional commission income (Island Heritage Insurance, 2016).
The recovered insurance claims & loss adjustment expenses just like the commission income
was a contra account to the cost of sales. For the year 2015 horizontal analysis had reflected a
48.48% decreased in the amount but it actually decreased by only 5.65% if we will look at its
percentage relationship with the insurance premiums earned, from 13.65% in 2014 it became 8%
in 2015. This means that the net cost of sales amount would have been lower should the company
had recovered higher or the same percentage of recovered cost as it was in 2014 (Island Heritage
Insurance, 2016).
The net underwriting income of the company per horizontal analysis had decreased by 15.49%,
this was influenced by the 2.57% decreased in net underwriting income percentage as to the net
insurance premiums earned (Island Heritage Insurance, 2016).
Operating expenses
The percentage of operating expenses as it relates to the net insurance premiums earned had
increased by 4.04% from 32.93% in 2014 to 36.97% in 2015 (Island Heritage Insurance, 2016).
British Caymanian Insurance Company Limited
Company overview
British Caymanian Insurance Company Limited was incorporated in the Cayman Islands on
December 20th, 1984. The companys yearend is December 31st. The 2015 financial statements
of British Caymanian were audited by Ernst & Young, a local audit firm in the Cayman Islands
(British Caymanian Insurance, 2015). The company, also known as BritCay provides complete
service in business and personal insurance and financial planning products to various clients
including employers and individuals. The service lines offered by the company include property,
marine, health insurance and pension (British Caymanian Insurance, 2015). Additionally, life
Assurance and medium to long term investment plans are available. BritCay is a subsidiary and its
parent is 75% owned by Colonial Group International. CGI companies share a common goal which
is delivering internationally competitive products and services at the best possible price to our local
markets (British Caymanian Insurance, 2016).
The companys website can be found at: https://cayman.cgigroup.com/en/
Financial Statements
Introduction to Financial Analysis for British Caymanian Insurance Company Ltd
We were tasked with analysing the financial statements for British Caymanian Insurance
Company Ltd for a two-year period ending December 31, 2015 and 2014. Hence this section is in
relation to analysing the companys financial statements as it relates to its financial performance
as evaluated via a horizontal and vertical analysis. According to Szramiak (2017) the horizontal
analysis is also commonly referred to as time series analysis and focuses on highlighting changes
in numbers and trends over a period of time. Horizontal analysis is beneficial as it allows for the
evaluation and detection of cyclicality and growth patterns and to compare these variables among
different firms (Szramiak, 2017). As mentioned by Szramiak (2017) vertical analysis is also known
as common-size analysis and highlights the relative size of line items so that the income statement
and balance sheet can be compared between companies of different sizes. The information was
obtained from an Independent Auditors Report and was prepared by Ernst and Young Ltd. The
financial statements analysed consisted of 1) balance sheet as shown in appendix 6, 2) the income
statements shown in appendix 7, 3) the statement of changes in stock holders equity as shown in
presented in appendix 8, and the cash flows as shown in appendix 9.
Overview of Balance Sheet / Income Statement for BritCay
British Caymanian Insurances balance sheet (also referred to as Statement of Financial
Position) figures for 2015 reported total assets of $50,783,328 total liabilities of $23,208,267 and
total liabilities and stockholders equity of $50,783,328. Conversely, the balance sheet figures for
2014 reported total assets of $53,073,937 total liabilities of $25,446,122 and total liabilities and
stockholders equity of $53,073,937(British Caymanian Insurance, 2016). According to Brigham
and Ehrhardt (2014) the balance sheet can be described as a statement of a companys financial
position at a particular period of time. British Caymanian Insurances income statement (also
referred to as Statement of Comprehensive Income) reported total net premiums earned of
$7,571,797 and net income of $1,587,246 for the year 2015. Conversely, for the year 2014 the
company reported total net premiums of $7,798,758 and net income of $2,862,987 (British
Caymanian Insurance, 2016). As stated by Brigham and Ehrhardt (2014) the income statement can
be described as a summary of the companys revenues and expenses within a particular financial
period.
Balance Sheet Horizontal Analysis
Assets

In conducting a horizontal analysis of British Caymanian Insurance Company Limited
Statement of Financial Position as at December 31 2015 and 2014; the companys cash and cash
equivalents increased from $6,751,098 in 2014 to $8,455,970 in 2015 (British Caymanian
Insurance, 2016). This represents an increase of 25.25 %. Cash and cash equivalents are a
representation of BritCays current accounts, short-term deposit balances, and demand deposits.
In 2015 7% of cash and cash equivalents are held at a Bermuda based bank and another 93% are
held in various unrelated banks predominantly in the Cayman Islands (British Caymanian
Insurance, 2016). Cash and cash equivalents increased as in 2015 approximately $900,000 were
held in banks with ratings of A S&P equivalent of higher ratings compared to only $550,000 in
2014 (British Caymanian Insurance, 2016). Furthermore, cash and cash equivalents also increased
as in 2014 $3,800,000 was held in BBB S&P or equivalent ratings while in 2015 this increased
to $5,200,000 (British Caymanian Insurance, 2016). Therefore, in analysing the financial
statements the cash and cash equivalent increased as BritCay held more cash and cash equivalents
in its current accounts, short-term deposit balances, and demand deposits accounts across the
Cayman Islands and Bermuda (British Caymanian Insurance, 2016).
Financial assets
Furthermore, the companys financial assets also increased by 17.20% from $20,839,706
in 2014 to $24,423,839 in 2015 (British Caymanian Insurance, 2016). BritCays financial assets
increased from 2014 to 2015 as the company invested more in managed funds in 2015 compared
to 2014 (British Caymanian Insurance, 2016). In particular, the amount of money invested in
managed funds increased from $16,807,591 in 2014 to $21,313,735 in 2015 (British Caymanian
Insurance, 2016). Therefore, this represents an increase of $4,506,144 being invested in managed
funds. Therefore, in analysing the financial statements the financial assets increased as a result
BritCay investing more money in managed funds over 2014 to 2015 (British Caymanian Insurance,
2016).
Amounts due from related parties
According to BritCays balance sheet as at December 31 2015, in 2014 the amounts owed
from related parties was $5,175,774 compared to 2015 when only $968,975 was the amounts owed
from related parties (British Caymanian Insurance, 2016). This drop in the amounts owed from
related parties represents a reduction in the sum of ($4,206,799) or -81.28% (British Caymanian
Insurance, 2016). The amounts that are due from related parties are evaluated and monitored
monthly in order to detect any signal of impairment (British Caymanian Insurance, 2016).
Additionally, as at December 31, 2015 a total of $845,064 of the total related parties balance was
due to be collected from Gibbons Management Limited which represents 87% of the total amount
that is due from related parties and as of December 31 2015, and all amounts are considered to be
collectible (British Caymanian Insurance, 2016).
Insurance balances receivables
BritCays balance sheet at December 31 2015 shows that there was a -24.06% decrease in
insurance balances receives (British Caymanian Insurance, 2016). In decrease resulted from
insurance balances receivables from 2014 to 2015 from $4,788,488 to $3,636,381(British
Caymanian Insurance, 2016). The breakdown for BritCays insurance balances receivables
consists of $2,734,745 for instalments not currently due, $742,149 for up to 30 days, and $159,487
for 31 60 days (British Caymanian Insurance, 2016). Insurance balance receivables declined as
at December 31 2015 approximately $990,136 of insurance balances receivables due to British
Caymanian Insurance were due from key clients groups, brokers or agents (British Caymanian
Insurance, 2016). However, it is the opinion of the companys management team that this
concentration will not significantly affect the companys financial position (British Caymanian
Insurance, 2016). Further to this, British Cayman Insurance (2016) states that its insurance
balances receivable is reported net of an allowance for doubtful accounts of $50,000 as at
December 31 2015 (British Caymanian Insurance, 2016). Additionally, insurance balance
receivables also include premiums of $376,663 due from related companied in 2015, it is important
to note this is a decrease from $468,729 in 2014 (British Caymanian Insurance, 2016).
Accounts Receivables and accrued interest
In a similar manner, the companys accounts receivables and accrued interest also
decreased from 2014 to 2015 by -8.76% or ($137,458) (British Caymanian Insurance, 2016). In
2014 accounts receivable and accrued interest was recorded at $1,569,540 and at $1,432,055 in
2015 (British Caymanian Insurance, 2016).
Reinsurance balances receivables
In 2014 the companys reinsurance balances receivables was reposted at $300,629 in 2014
and at $201,941 in 2015 (British Caymanian Insurance, 2016). Therefore, according to BritCays
2015 balance sheet the company reported a reduction in its reinsurance receivables by ($98, 688)
or -32.83% (British Caymanian Insurance, 2016). According to British Caymanian Insurance,
(2016) the companys reinsurance balances receivables decreased as reinsurance balances
receivables amounts past due in 2015 were reported at $159,979 compared to $422,230 which was
due in the previous year in 2014. With that said, this is not considered as impaired management as
BritCay expects that these funds are fully recoverable (British Caymanian, 2016).
Prepaid reinsurance premiums
BritCays prepaid reinsurance premium for 2014 were recorded at $9,167,208 and
$7,418,266 in 2015 hence there was a decrease of -19.08% or ($1,748,942) (British Caymanian
Insurance, 2016). The Notes to Financial Statements does not provide an indication as to why
prepaid reinsurance premiums reported a decrease of -19.08% as at December 31 2015. Therefore,
the Notes to Financial Statements do not provide any detail variance of prepaid reinsurance
premiums between 2014 and 2015 (British Caymanian Insurance, 2016).
Prepaid and other assets
According to BritCays balance sheet as at December 31 2015 there was a 38.84% increase
on prepaid and other assets (British Caymanian Insurance, 2016). Furthermore, in 2014 the
company reported its prepaid and other assets at $179,393 and at $249,077 for the following year
in 2015 (British Caymanian Insurance, 2016). Whats more is that this represents an increase of
prepaid and other assets in the sum of $69,684 (British Caymanian Insurance, 2016). This occurred
as the change in non-cash operating capital reported a decrease in prepaid and other assets in 2015
of $69,684 (British Caymanian Insurance, 2016). The Notes to Financial Statements do not provide
any explanation as to the change in prepaid and other assets between 2014 and 2015 (British
Caymanian Insurance, 2016).
Deferred acquisition expenses
In 2015, there was a decrease in BritCays deferred acquisition of -19.15% or ($151,097)
(British Caymanian Insurance, 2016). This was due to the fact that BritCays deferred acquisition
went from $789,118 in 2014 to $638,021 in 2015 (British Caymanian Insurance, 2016). There is
no explanation in the Notes to Financial Statements as to why there was a decrease in BritCays
deferred acquisition expenses in 2015 (British Caymanian Insurance, 2016).
Conclusion of asset items on balance sheet

It is important to note that overall BritCays balance sheet as a December 31 2015
BritCays total assets have decreased by ($2,290,306) or -4.32 % as the companys total assets
went from $53,073,937 in 2014 to $50,783,328 in 2015 (British Caymanian Insurance, 2016).
Liabilities
Accounts payable and other liabilities
BritCays Balance Sheet as at December 31 2015 reports that the companys accounts
payable and other liabilities decreased from $430,792 in 2014 to $379,002 in 2015 respectively
(British Caymanian Insurance, 2016). This represents a decrease of negative -12.02% or ($51,790)
(British Caymanian Insurance, 2016).
Unearned premiums
Furthermore, there was a decrease in unearned premiums in the sum of ($1,869,205) or -
12.91% (British Caymanian Insurance, 2016). Therefore, BritCays unearned premiums went from
$14,143,031 in 2014 to $12,606.826 in 2015 (British Caymanian Insurance, 2016). According to
the change in non-cash operating working capital, unearned premiums declined from (1,317,004)
in 2014 to (1,869,205) in 2015 (British Caymanian Insurance, 2016). The Notes to Financial
Statement does not provide any details on the variance of unearned premiums.
Deferred commission income
As at December 31 2015 BritCays deferred commission income reduced by -16.74% from
2014, as in 2014 the company reported its deferred commission income at $1,826,244 and
$1,520,513 in 2015 (British Caymanian Insurance, 2016). According to the change in non-cash
operating working capital deferred commission income decreased from (173,933) in 2014 to
(305,731) in 2015 (British Caymanian Insurance, 2016). The Notes to Financial Statements does
not indicate why deferred commission income decreased from 2014 to 2015.
Income Statement Horizontal Analysis
Premiums written
BritCays Statement of Comprehensive Income as at December 31 2015 and 2014 indicates
the premiums written decreased by -14% from 2014 to 2015 (British Caymanian Insurance, 2016).
This represents a total decrease in premiums written of $4,798,552 (British Caymanian Insurance,
2016). Therefore, premiums written went from $33,805,854 in 2014 to $29,007,302 (British
Caymanian Insurance, 2016). The Notes to Financial Statements that premiums written decreased
during this period as the companys Income and Expenses reports (as transactions carried out with
related parties) premiums written at $2,958,033 in 2915 and $3,059,478 in 2014, hence the income
and expenses showed that overall premiums written decreased during this period (British
Change in unearned premiums written
Additionally, change in unearned premiums written increased by 42% or $552,202 (British
Caymanian Insurance, 2016). This occurred as change in unearned premiums written was reported
at $1,317,003 in 2014 and at $1,869,205 in 2015 (British Caymanian Insurance, 2016). The notes
to financial statements did not provide an explanation as to why change in unearned premiums
written declined over 2014/2015 (British Caymanian Insurance, 2016)
Reinsurance premiums ceded
According to BritCays Statement of Comprehensive Income reinsurance premiums ceded
increased from $26,379,192 in 2014 and $21,555,768 in 2015 (British Caymanian Insurance,
2016). The represents a decrease in reinsurance premiums ceded in the sum of ($4,823,424) or -
18% (British Caymanian Insurance, 2016). The Notes to Financial Statement reports under the
Income and Expenses section (as transactions carried out with related parties) reinsurance
premiums ceded at ($214,616) consistently for 2014 and 2015 (British Caymanian Insurance,
2016).
Change in prepaid reinsurance premiums
Change in prepaid reinsurance premiums saw a notable increase of 85% during the
2014/2015 financial period (British Caymanian Insurance, 2016). The companys change in
prepaid reinsurance premiums went from $944,907 in 2014 to $1,748,942 in 2015. This therefore
represents an increase of $804,035 (British Caymanian Insurance, 2016). The Notes to Financial
Statements does not provide any details in relation to prepaid reinsurance premiums variances.
Premiums ceded
Premiums ceded in 2014 were recorded $27,324,758 compared to $23,304,710 the in 2015
(British Caymanian Insurance, 2016). Hence, premiums ceded decreased by -17% or ($4,019,389)
(British Caymanian Insurance, 2016). The notes to the financial statements have not provided an
indication as to why premiums ceded decreased from 2014 to 2015.
Claims paid
BritCays claims paid decreased from the 2014/2015 financial year by -27% (British
Caymanian Insurance, 2016). In 2014 BritCays claims paid were recorded at ($3,561,573) and in
2015 claims paid were recorded at ($4,910,179) in 2014 (British Caymanian Insurance, 2016).
This means that in 2015 BritCay paid out ($1,348,606) less claims than it did in the previous year.
Change in outstanding loss provisions
In 2014 BritCay reported change in outstanding loss provisions of $52, 261 in 2014 and
($321,375) was reported in 2015 (British Caymanian Insurance, 2016). This represents a decrease
in change in outstanding loss provisions of -716% (British Caymanian Insurance, 2016).
Claims recovered and recoverable from reinsurers

Claims recovered and recoverable from reinsurers was recorded at $1,388,001 in 2014 and
$523,162 in2015 (British Caymanian Insurance, 2016). This represents a significant decrease in
claims recovered and recoverable from reinsurers over the 2014/2015 financial period (British
Caymanian Insurance, 2016).Accordingly, claims recovered and recoverable from reinsurers
decreased by -62% or ($864,839) (British Caymanian Insurance, 2016). The Notes to Financial
Statements reports that the claims settled in 2015 by reinsurance at ($499,134) and in 2014 claimed
settled by reinsurers were reported at ($1,547,833) (British Caymanian Insurance, 2016).
Commission Income
According to BritCays Statement of Comprehensive Income as at December 31 2015 and
2014 commission income reported a -14% or ($773,623) decrease (British Caymanian Insurance,
2016). In 2014, commission income was reported at $5,645,961 in 2014 and $4,872,338 in 2015
(British Caymanian Insurance, 2016). The Notes to Financial Statement does not provide
information on the variance of commission income.
Commission expense
In a similar manner, commission expense reported a decrease of -14% (British Caymanian
Insurance, 2016). In 2014 BritCays commission expense was reported at ($1,981,522) in 2014
and in the following year in 2015 the companys commission expense was reported at ($1,699,869)
(British Caymanian Insurance, 2016). This means that the companys commission expense
actually decreased from 2014 to 2015. The Notes to Financial Statement did not provide an
explanation for the variance in the commission experience over the 2014/2015 financial period.
Net investment income
From 2014 to 2015 BritCays net investment income exponentially decreased from
$780,371 in 2014 to $16,020 in 2015 to (British Caymanian Insurance, 2016). This accounts for a
decrease of -98% or ($764,651) (British Caymanian Insurance, 2016). This occurred as The Notes
to Financial Statements report that dividends and interest (net of amortization) was reported at
$457, 238 in 2015 and $569,101 in 2014; foreign exchange gain was reports at $75,708 in 2015
and $20,344 in 2014; net realized gain (loss) on sale of investments at fair value through profit and
loss was reported at $118,513 in 2015 and ($1,072,593) in 2014; net unrealized (loss) gain on
investments was reported at ($526,581) in 2015 and $1,361,970 in 2014; and management fees
and investment expenses were reported at ($108,858) in 2015 and ($98, 451) in 2014 (British
Net income and comprehensive income for the year
Net income and comprehensive income for the year saw a decrease of 45% or ($1,275,741)
(British Caymanian Insurance, 2016). Therefore, net income and comprehensive income decreased
from $2,862,987 in 2014 to $1,587,246 in 2015 (British Caymanian Insurance, 2016).
Balance Sheet Vertical Analysis
Assets
As at December 31 2015, Cash and cash equivalents consists of 17% of BritCays total
assets (British Caymanian Insurance, 2016). This represents a 4% increase from 13% in 2014
Financial assets
The companys balance sheet as at December 31 2015, financial assets made up 48% of
BritCays total assets and this represents an increase from 39% from the previous year in 2014
Insurance balances receivables

Insurance balance receivables were reported at 7% of total assets as a December 31 2015
(British Caymanian Insurance, 2016). This represents a 2% decrease as insurance balance
receivables were recorded as 9% of total assets in 2014 (British Caymanian Insurance, 2016).
Prepaid reinsurance premiums
As at December 31 2015, 15% of BritCays total assets were represented by prepaid
insurance premiums (British Caymanian Insurance, 2016). Prepaid insurance premiums were
recorded at 17% in 2014 therefore there was a 2% decrease in prepaid insurance premiums over
the 2014 to 2015 period (British Caymanian Insurance, 2016).
Liabilities
Reinsurance balances payable

As at December 31 2015 reinsurance balance payable represented 11% of total liabilities
for British Caymanian Insurance Company Ltd (British Caymanian Insurance, 2016). As at
December 31 2015 reinsurance balance payable presented 12% of total liabilities (British
Outstanding losses and loss expense
Outstanding losses and loss expense represented 21% of BritCays total liabilities as at
December 31 2015 (British Caymanian Insurance, 2016). Outstanding losses and loss expense
increased by 4% as in 2014 outstanding losses and loss expenses represented 17% of total liabilities
Unearned premiums
From 2014 to 2015 unearned premiums remained constant at 57% of total liabilities
Shareholders equity
Share capital
As at December 31 2015 share capital was recorded at 6% of total liabilities and
shareholders equity (British Caymanian Insurance, 2016). Likewise, share capital was also
recorded at 6% of total liabilities and shareholders for the previous year in 2014 (British
Share premium
BritCays share premium was reported as 54% of total liabilities and shareholders equity
as at December 31 2015 (British Caymanian Insurance, 2016). As at December 31 2014 BritCays
share premium was reported as 52% of total liabilities and shareholders equity therefore the share
premium increased by 2% of total liabilities and shareholders equity from 2014 to 2015 (British
Total equity attributable to the equity holder of the Company
As at December 31 2015 the total equity attributable to the equity holder of the company
was reported at 54% of BritCays total liabilities and shareholders equity (British Caymanian
Insurance, 2016). As at December 31 2015 BritCays total equity attributable to the equity holder
of the company was reported at 52% of total liabilities and shareholders equity, which means that
there was a 2% increase from 2014 to 2015 (British Caymanian Insurance, 2016).
Income Statement Vertical Analysis
Premiums Written
The horizontal analysis for BritCays premiums written reflects a decrease of -14% in
figures; however, if we analyse the account as to its percentage relationship as to the years total
premiums earned its percentage actually decreased by -50.38% as compared to the total premiums
earned for the year 2014 (from 433.48% in 2014 to 383.10% in 2015) (British Caymanian
Insurance, 2016). This means that the company has decreased their premium rate and sold less
volume in 2015 compared to 2014 (British Caymanian Insurance, 2016).
Reinsurance premiums ceded
The amount of reinsurance ceded to other reinsurers for BritCay has decreased by -18% as
noted in the horizontal analysis of the account, but its percentage as to the total bet insurance
premiums earned had has actually decreased by -53.56% from 338.25% in 2014 to 284.68% in
2015 (British Caymanian Insurance, 2016). This means that the percentage volume of written
premiums being reinsured for the year 2015 has decreased by -53.56% as compared to the
percentage volume being reinsured in 2014 (British Caymanian Insurance, 2016).
Cost of Sales
BritCays insurance claims & loss adjustment percentage relationship as to the net
premiums earned for the year 2015 had increased by 11.01%, from -62.29% in 2014 to -51.28%
in 2015 (British Caymanian Insurance, 2016). This means that BritCay incurred higher cost of
sales for each insurance premium written (British Caymanian Insurance, 2016).
The percentage relationship of acquisition percentage cost for 2015 2.96% as compared to
2014s rate, from -25.41% in 2014 to -22.45% in 2015 (British Caymanian Insurance, 2016).
Similar to the insurance claims & loss adjustment, in 2015 BritCay incurred higher acquisition
cost for each insurance premium written (British Caymanian, 2016).
BritCays vertical analysis reflects that the commission income percentage as to total net
insurance premiums earned had decreased by -8.05% from 72.40% in 2014 to 64.35% in 2015.
This means that the net cost of sales percentage would have been lower had the company not
earned additional commission income (British Caymanian Inaurance, 2016).

For the year 2015 horizontal analysis for BritCay had reflected a -62.31% decrease in
recovered insurance claims & loss adjustment expenses, however, it actually decreased by -10.89%
if we will look at its percentage relationship with the insurance premiums earned from 17.80% in
2014 it became 6.91% in 2015 (British Caymanian Insurance, 2016).
The net underwriting income for BritCay as per horizontal analysis had decreased by -
7.62%, this was influenced by the -4.97% decrease in net underwriting income percentage as to
the net insurance premiums earned (British Caymanian Insurance, 2017).
Operating expenses
The percentage of operating expenses as it relates to net insurance premiums earned had
decreased by -0.99% from -75.79% in 2014 to -76.78% in 2015 (British Caymanian Insurance,
2016).
Financial Ratios
Current ratio - The current ratio compares a companys current assets with its current liabilities.
The current ratio will illustrate if the company can pay off its short-term liabilities in an emergency
selling its current assets (Lan, 2012).
Total asset turnover ratio The asset turnover looks at how efficiently a company uses its total
assets to raise revenues. This ratio is computed by dividing revenues by average total assets (Lan,
2012).
Debt-to-asset ratio - Debt to asset ratio is a solvency ratio which looks at a companys ability to
pay its long term obligations. This is considered to be the simplest solvency ratio and it measures
the amount of the companys total assets that is leveraged by debt (Lan, 2012). A low number
indicates that the company is not using a large amount of financial leverage, which reduces its
financial risk (Lan, 2012).
Debt-to-equity ratio - The debt-to-equity ratio looks at the amount of debt capital a company
utilizes in comparison to the amount of equity capital it uses. A ratio equal to 1.00 illustrates that
the company uses the same amount of debt as equity. I such a situation, creditors can claim all
assets, which leaves nothing for if the company were to be liquated (Lan, 2012).
Net profit margin - Net profit margin looks at the similarity between a companys net income
and net revenue. This ratio is computed by dividing net income by net revenue (bottom line).
This is an indicator as to whether the company is able to translate sales into earnings for
shareholders. Investors usually seek out companies that have strong net profit margins.
Gross profit margin - Gross profit margin examines pricing decisions and product costs. Gross
profit margin is tied to competition. Therefore it will be reduced if competition increases.
Companies that possess higher profit margins typically have a competitive advantage in quality,
perception or branding, which allow them to charge more for its products (Lan, 2012).
Return on total assets - The return on total assets ratio looks at the relationship between the profits
of the company and its total assets. It measures how well the company used its assets to generate
profits (Lan, 2012).
Financial Ratio - Island Heritage Insurance Ltd.
Liquidity Ratios
Current ratio was 1.54 in 2014 and 1.55 in 2015. The ratios as seen in 2014 and 2015 indicate
that the company can cover its current liabilities 1.5 times in the current year if it was to sell off
its current assets at current value (Island Heritage Insurance, 2016).

Asset Management Ratios
Days sales outstanding was 206 in 2014 and 261 in 2015 (Island Heritage Insurance, 2016).
Total assets turnover ratio was 0.24 in 2014 and 0.27 in 2015 (Island Heritage Insurance, 2016).
Debt-to-asset ratio was 0.59 in 2014 and 0.59 in 2015. Since the numbers as indicated in 2014 and
2015 are less than 1, the company does not appear to have a large portion of its total assets backed
by debt (Island Heritage Insurance, 2016).
Debt Management Ratios
Debt-to-equity ratio was 1.47 in 2014 and 1.43 in 2015. As seen in 2014 and 2015, the
company has 1.47 and 1.43 of equity over its debt. These ratios are not that strong and could have
been higher (Island Heritage Insurance, 2016).
Profitability Ratios
Net profit margin was 0.24 in 2014 and 0.32 in 2015 (Island Heritage Insurance, 2016). The
net profit margin of 32% indicates that for every $1 of revenue raised by the company, $0.32 is
created for the shareholders. Operating profit margin was 0.27 in 2014 and 0.35 in 2015 (Island
Heritage Insurance, 2016). Gross profit margin was 0.63 in 2014 and 0.66 in 2015. This means
that in the most recent year, 66% of revenues generated by the company are used to pay for the
cost of goods sold (Island Heritage Insurance, 2016). Basic earning power (BEP) Ratio was 0.06
in 2014 and 0.09 in 2015 (Island Heritage Insurance, 2016). Return on total assets (ROA) was 0.06
in 2014 and 0.09 in 2015. This means that in 2015, $0.09 in profit is generated by each $1.00 in
assets (Island Heritage Insurance, 2016). Return on common Equity was 0.14 in 2014 and 0.21 in
2015. In 2015, there was $0.21 in profit for every $1.00 in equity invested in the business (Island
Financial Ratios - British Caymanian Insurance

Liquidity Ratios
Current ratio was 1.90 in 2014 and 1.92 in 2015. The ratios as seen in 2014 and 2015 indicate
that the company can cover its current liabilities 1.92 times in the current year if it was to sell off
its current assets at current value (British Caymanian Insurance, 2015).
Asset Management Ratios
Days sales outstanding was 744 in 2014 and 238 in 2015 (British Caymanian Insurance, 2015).
Total assets turnover ratio was 0.12 in 2014 and 0.12 in 2015 (British Caymanian Insurance, 2015).
Debt Management Ratios
Debt-to-asset ratio was 0.48 in 2014 and 0.46 in 2015. Since the numbers as indicated in 2014
and 2015 are less than 1, the company does not appear to have a large portion of its total assets
backed by debt (British Caymanian Insurance, 2015). Debt-to-equity ratio was 0.92 in 2014 and
0.84 in 2015. As seen in 2014 and 2015, the company has 0.92 and 0.84 of equity over its debt.
These ratios are not that strong and could have been higher (British Caymanian Insurance, 2015).
Profitability Ratios
Net profit margin was 0.37 in 2014 and 0.21 in 2015. The net profit margin of 21% indicates
that for every $1 of revenue raised by the company, $0.21 is created for the shareholders (British
Caymanian Insurance, 2015). Operating profit margin was 0.37 in 2014 and 0.21 in 2015 (British
Caymanian Insurance, 2015). Gross profit margin was 1.02 in 2014 and 0.98 in 2015. This means
that in the most recent year, 98% of revenues generated by the company are used to pay for the
cost of goods sold (British Caymanian Insurance, 2015). Basic earning power (BEP) Ratio was
0.05 in 2014 and 0.03 in 2015 (British Caymanian Insurance, 2015). Return on total assets (ROA)
was 0.05 in 2014 and 0.03 in 2015. This means that in 2015, $0.05 in profit is generated by each
$1.00 in assets (British Caymanian Insurance, 2015). Return on common Equity was 0.10 in 2014
and 0.06 in 2015. In 2015, there was $0.10 in profit for every $1.00 in equity invested in the
business (British Caymanian Insurance, 2015).
Comparative Balance Sheet Analysis
Island Heritage Insurance vs. British Caymanian Insurance
Non-current assets
In completing a comparative analysis for Island Heritage and BritCay balance sheets it is
noted that both companies are comparable for non-current assets, although, BritCay is slightly
disadvantaged as the vertical analysis reveals that its non-current assets increased by 3.48% from
8.78% in 2014 to 12.27% in 2015 (British Caymanian Insurance, 2016). The vertical analysis
reveals that Island Heritage was able to maintain its level of non-current assets as it 2014 the
company reported an increase in non-current assets of 8.56% and 8.32% was reported for 2014
Current Assets
In relation to the vertical analysis for current analysis, the figured reveals that both
companies are comparable for liquidity for current assets as both were able to maintain their
respective percentages of current assets (British Caymanian Insurance & Island Heritage, 2016).
Based on vertical analysis in 2014 Island Heritage reported its percentage of current assets at
91.44% in 2014 and 91.68% in 2015 (Island Heritage, 2016). In a similar manner, BritCay reported
its percentage of current assets at 91.21% in 2014 and 87.73% in 2015 (British Caymanian
Insurance, 2016).
Liabilities
In reviewing the current liabilities in respect to horizontal analysis, it is noted that the
percentage for due to related parties is significantly higher for Island Heritage at 20205.56%,
however this is actually 5.85% as per vertical analysis is due to dividends being declared by the
company (Island Heritage, 2016). On the contrary BritCay has an advantage as the company was
able to maintain their percentage of liabilities as per vertical analysis of 2.46% for 2014 and 2.51%
for 2015 (British Caymanian Insurance, 2016). This therefore reveals that BritCay has the
advantage in respect to current liabilities as the company has a lower level of liabilities whereas
Island Heritage has a higher level of liabilities (British Caymanian Insurance & Island Heritage,
2016).
Contributed Surplus
In doing a comparative analysis of the equity section of the balance sheet for Island
Heritage and BritCay it is noted that Island Heritage has an advantage as its contributed surplus is
reported at 23.61% for 2014 and 23.53% for 2015, hence the company was able to maintain its
percentage of contributed surplus over this period (Island Heritage, 2016). Additionally, Island
Heritage has an advantage over BritCay as according to the vertical analysis as its contributed
surplus for 2015 is reported at 23.53% whereas BritCays percentage of contributed surplus is
reported at 52.28% for 2015 (British Caymanian Insurance & Island Heritage, 2016). Therefore,
Island Heritage has the advantage as its contributed minimal capital to operate the firm unlike
BritCay as its contributed surplus of BritCay is almost double as to that of Island Heritage (Island
Heritage, 2016).
Comparative Results of Operation (Income Statement) Analysis
Island Heritage Insurance vs. British Caymanian Insurance
After analysing the results of operations of the two insurance companies under study we had
found out that each company have its advantage and disadvantages over the other. Below are the
strengths and weaknesses of the two companies (the strength of one company was the weakness
of the other):
British Caymanian Insurance Strength
Based on the vertical analysis of the two insurance companies, British Caymanian Insurance
reflected a better performance over Island Heritage Insurance. The 2015 and 2014 resulting
percentage of gross profit from regular operation also referred to as the net underwriting income
of British Caymanian were 97.53% and 102.49% for the respective years. While the Island
Heritage Insurances profit from regular operation only results to 63.40% and 65.96% for 2015
and 2014 (Island Heritage Insurance, 2016 and British Caymanian Insurance, 2016).
It shows in the vertical analysis comparison that British Caymanian was able to dictate a higher
premium price. The companys gross premium written were 383.10% and 433.48% above net
premiums earned for the years 2015 and 2014. While Island Heritage had their gross premium
written percentage rate of only 34.77% for 2015 and 299.38% in 2014 (Island Heritage Insurance,
2016 and British Caymanian Insurance, 2016).
British Caymanian also have high percentage rate of commission income earned for both year
2015 and 2014 earning percentage rate of 64.35% and 75.79% respectively. The higher percentage
earnings derived from commission income had greatly reduced the companys cost of sales.
Commission income account is a contra cost of sales account for insurance companies (Island
Heritage Insurance, 2016 and British Caymanian Insurance, 2016).
British Caymanian also has a tax advantage over Island Heritage, as reflected in each of the
companys income statement; British Caymanian pays no income tax while Island Heritage had
reported income tax expense average of 3% (Island Heritage Insurance, 2016 and British

Island Heritage Insurance Strength
The overall performance of Island Heritage for the year 2015 and 2014 were actually not bad
because the companys resulting bottom line figure of 23.69 was higher than British Caymanians
20.96% bottom line figure for the year 2015. For both companies the 2015s bottom line
percentage figure had decline from 2014s percentage figure. Island Heritages net income
percentage declined only by 7.91% while British Caymanians net income had declined to 15.75%.
(Island Heritage Insurance, 2016 and British Caymanian Insurance, 2016).
Island Heritages higher bottom line figure was attributable to their lower operating expense.
The company was able to maintain their operating expense below 40% for the years 2015 and
2014. While British Caymanians operating expenses eats up the companys high gross profit from
operation. The companys operating expense for the years 2015 and 2014 were 76.78% and
75.79%. The staff cost, professional fee, communication expense, office rental were among the
notably higher percentage share in operating expense for British Caymanian, while Island Heritage
reflects lower percentage for those said expense. Added to Island Heritages strength which
potential employees might consider was the training and development expense for the companys
staff (Island Heritage Insurance, 2016 and British Caymanian Insurance, 2016).
Conclusion
From the analysis that was performed we can conclude that Island Heritage Insurance
Company Limited was the strongest performer when it came to Net Profits. In 2014, the company
made $10,653,000 and $7,024,000 in 2015. British Caymanian Insurance Company Limited only
made $3,491,000 in 2014 and $1,936,000 in 2015. The difference in Net Profits can be partly
attributed to the fact that British Caymanian Insurance Company Limited earned much less
premiums than its counterpart Island Heritage Insurance Company Limited. Although British
Caymanian Insurance Company had a tax saving advantage, Island Heritage Insurance Company
Limited still produced better results. British Caymanian Insurance Company also had negative
retained earnings in both years.
The Island Heritages operational presence in other Caribbean jurisdictions has contributed
a lot in the companys operational profit. This is an option that British Caymanian Insurance Ltd.
may consider to improve the companys bottom line figure.
References
Brigham E. F. & Ehrhardt M.C.(2014). Financial Management Theory & Practice (14th ed.).
South Western, Cengage Learning.
British Caymanian Insurance (2017). Audited Financial Statements. CGIGroup.com. retrieved

April 28, 2017 from
https://cayman.cgigroup.com/media/filer_public/2016/06/16/bci_2015.pdf
Island Heritage (2017). Financials. Island Heritage Insurance.com. retrieved April 28, 2017 from
http://www.islandheritageinsurance.com/financials
Lan, J. (September, 2012) 16 Financial Ratios for Analyzing a Companys Strengths and
Weaknesses. American Association of Individual Investors Journal. Retrieved from
http://www.aaii.com/journal/article/16-financial-ratios-for-analyzing-a-companys-strengths-
and-weaknesses.touch
PWC (2014). Financial Statement Presentation. PWC.com. Retrieved May 24, 2017 from
https://www.pwc.com/us/en/cfodirect/assets/pdf/accounting-guides/pwc-guide-financial-
statement-presentation-2014.pdf
Island Heritage (2017). Financials. Island Heritage Insurance.com retrieved April 28, 2017 from
http://www.islandheritageinsurance.com/financials
Stevens-Huffman, L. (2013, May). Accounting treasure hunt. Smart Business Akron/Canton, 15-
17. Retrieved May 28, 2017, from
http://web.a.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=22c39c85-0b61-44cd-9566-
d5da4b46928c%40sessionmgr4009&vid=7&hid=4212
Szramiak, J. (2017). 2 ways to analyze an income statement. Retrieved from
http://www.businessinsider.com/horizontal-and-vertical-analysis-of-income-statements-
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Running head: FINANCIAL STATEMENT ANALYSIS 1

Financial Statement Analysis Insurance Companies

GR 518 Financial Management Team Project

Elisa Adriano, Terryann Bodden, Opal Ruiz

International College of the Cayman Islands

Dr. Alicia Law

June 19, 2017

Island Heritage Insurance Company, Ltd.

by BF&M which is a reputable Bermuda-based insurance group, Island Heritage Insurance

investment funds (Island Heritage Insurance, 2016).

The companys website can be found at: http://www.islandheritageinsurance.com/

important such as the property, plant and equipment (PWC, 2014).

million dollars (us$7M) (Island Heritage Insurance, 2016).

Balance Sheet horizontal analysis

dollars (us$1,104,000) or negative 14.60% (Island Heritage Insurance, 2016).

Liabilities and Equity

Balance sheet variances explained

Cash and cash equivalents

Heritage Insurance, 2016).

Regulatory and Fixed deposits

Experience deposit receivable

Insurance receivables & other assets

of its underwriting system (Island Heritage Insurance, 2016).

Income tax payable

Heritage Insurance, 2016).

Due to related parties

(Island Heritage Insurance, 2016).

Income Statement Horizontal Analysis

(Island Heritage Insurance, 2016).

Net premiums earned (Sales)

(Island Heritage Insurance, 2016).

The companys cost of sales or insurance premiums (net of adjustments on previously

Net underwriting income

(Island Heritage Insurance, 2016).

Net investment income

investments. The International Financial Reporting Standards ruling number 9 (IFRS 9) as

decreased in the net investment income (Island Heritage Insurance, 2016).

source of positive or negative variance (Brigham & Ehrhardt, 2014).

Balance Sheet Vertical Analysis

Income Statement Vertical Analysis

The gross premiums written (Gross Sales)

compared to 2014 (Island Heritage Insurance, 2016).

(Island Heritage Insurance, 2016).

premium written (Island Heritage Insurance, 2016).

additional commission income (Island Heritage Insurance, 2016).

Net underwriting income

insurance premiums earned (Island Heritage Insurance, 2016).

British Caymanian Insurance Company Limited

markets (British Caymanian Insurance, 2016).

The companys website can be found at: https://cayman.cgigroup.com/en/

Introduction to Financial Analysis for British Caymanian Insurance Company Ltd

presented in appendix 8, and the cash flows as shown in appendix 9.

Overview of Balance Sheet / Income Statement for BritCay

British Caymanian Insurances balance sheet (also referred to as Statement of Financial

stockholders equity of $53,073,937(British Caymanian Insurance, 2016). According to Brigham

referred to as Statement of Comprehensive Income) reported total net premiums earned of

Balance Sheet Horizontal Analysis

Cash and cash equivalents

In conducting a horizontal analysis of British Caymanian Insurance Company Limited

equivalents increased from $6,751,098 in 2014 to $8,455,970 in 2015 (British Caymanian

to $5,200,000 (British Caymanian Insurance, 2016). Therefore, in analysing the financial

Cayman Islands and Bermuda (British Caymanian Insurance, 2016).

Amounts due from related parties