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INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (PREPARATION OF FINANCIAL STATEMENTS AND AUDITOR'S REPORT OF INSURANCE COMPANIES)REGULATIONS, 2000
F.No. IRDA/Reg./8/2000, dated the 14th August, 20001 -In exercise of the powers conferred by Sec.114-A of the Insurance Act, 1938 (4 of 1938), the Authority, in consultation with the Insurance Advisory Committee, hereby makes the following regulations, namely:-
Regulation 1 Short title and commencement
(1) These regulations may be called the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2000.
(2) They shall come into force from the date1 of their publication in the Official Gazette.
Regulation 2 Definitions
.-(1) In these regulations, unless the context otherwise requires-
(a) "Act" means the Insurance Act, 1938 (4 of 1938);
(b) "Authority" means the Insurance Regulatory and Development Authority established under sub-section (1) of S.3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
(c) All words and expressions used herein and not defined but defined in the Insurance Act, 1938 (4 of 1938), or in the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), or in the Companies Act, 1956 (1 of 1956) shall have the meanings respectively assigned to them in those Acts.
Regulation 3 Preparation of financial statements, management report and auditor's report
(1) An insurer carrying on life insurance business, after the commencement of these Regulations, shall comply with the requirements of Schedule A.
(2) An insurer carrying on general insurance business, after the commencement of these regulations, shall comply with the requirements of Schedule B :
Provided that this sub-regulation shall apply, mutatis mutandis, to re-insurers, until separate regulations are made.
(3) The report of the auditors on the financial statements of every insurer and re-insurer shall be in conformity with the requirements of Schedule C, or as near as thereto as the circumstances permit.
(4) The Authority may, from time to time, issue separate guidelines in the matter of appointment, continuance or removal of auditors of an insurer or re-insurers, as the case maybe, and such guidelines may include prescriptions regarding qualifications and experience of auditors, their rotation, period of appointment etc.
SCHEDULE A PRINCIPLES OF COMPENSATION
PART I ACCOUNTING PRINCIPLES FOR PREPARATION OF FINANCIAL STATEMENTS PART 2 DISCLOSURES FORMING PART OF FINANCIAL STATEMENTS PART 3 GENERAL INSTRUCTIONS FOR PREPARATION OF FINANCIAL STATEMENTS PART 4 CONTENTS OF MANAGEMENT REPORT PART 5 PREPARATION OF FINANCIAL STATEMENTS
PART 1. Applicability of accounting standards.-Every Balance Sheet, Revenue Account [Policy holders' Account], Receipts and Payments Accounts [Cash Flow statement] and Profit and Loss Account [Shareholders' Account] of an insurer shall be in conformity with the Accounting Standards (AS) issued by the ICAI, to the extent applicable to insurers carrying on life insurance business, except that: (i) Accounting Standard 3 (AS 3) - Cash Flow Statements - Cash Flow Statement shall be prepared only under the Direct Method. (ii) Accounting Standard 17 (AS 17) - Segment Reporting - shall apply irrespective of whether the securities of the insurer are traded publicly or not. 2. Premium.-Premium shall be recognised as income when due. For linked business the due date for payment may be taken as the date when the associated units are created. 3. Premium deficiency.-Premium deficiency shall be recognised if the sum of expected claim costs, related expenses and maintenance costs exceed related unearned premiums. 4. Acquisition costs.-Acquisition costs, if any, shall be expensed in the period in which they are incurred. Acquisition costs are those costs that vary with and are primarily related to the acquisition of new and renewal insurance contracts. The most essential test is the obligatory relationship between costs and the execution of insurance contracts (i.e., commencement of risk). 5. Claims cost.-The ultimate cost of claims shall comprise the policy benefit amount and claims settlement costs, wherever applicable. 6. Actuarial valuation-Liability for Life Policies in force.-The estimation of liability against life policies in force shall be determined by the appointed actuary of the insurer pursuant to his annual investigation of the life insurance business. Actuarial assumptions are to be disclosed by way of notes to the account. The liability shall be so calculated that together with future premium payments and investment income, the insurer can meet all future claims (including bonus entitlements to policy holders) and expenses. 7. Procedure to determine the value of investments.-An insurer shall determine the values of nvestments in the following manner:- (a) Real Estate - Investment Property.-The value of investment property shall be determined at historical cost, subject to revaluation at least once in every three years. The change in the carrying amount of the investment property shall be taken to Revaluation Reserve. The insurer shall assess at each balance sheet date whether any impairment of the investment property has occurred. Gains/losses arising due to changes in the carrying amount of real estate shall be taken to equity under 'Revaluation Reserve'. The 'Profit on sale of investments' or 'Loss on sale of investments', as the case may be, shall include accumulated changes in the carrying amount previously recognised in equity under the heading 'Revaluation Reserve' in respect of a particular property and being recycled to the relevant Revenue Account or Profit and Loss Account on sale of that property. The bases for revaluation shall be disclosed in the notes to accounts. The Authority may issue directions specifying the amount to be released from the revaluation reserve for declaring bonus to the policyholders. For the removal of doubt, it is clarified that except for the amount that is released to policyholders as per the Authority's direction, no other amount shall be distributed to shareholders out of Revaluation Reserve Account. An impairment loss shall be recognised as an expense in the Revenue/ Profit and Loss Account immediately, unless the asset is carried at revalued amount. Any impairment loss of a revalued asset shall be treated as a revaluation decrease of that asset and if the impairment loss exceeds the corresponding revaluation reserve, such excess shall be recognised as an expense in the Revenue/Profit and Loss Account. (b) Debt Securities-Debt securities, including government securities and redeemable preference shares, shall be considered as "held to maturity" securities and shall be measured at historical cost subject to amortisation. (c) Equity Securities and Derivative Instruments that are traded in active markets-Listed equity Securities and derivative instruments that are traded in active markets shall be measured at fair value on the balance sheet date. For the purpose of calculation of fair value, the lowest of the last quoted closing price at the stock exchanges where the securities are listed shall be taken. The insurer shall assess on each balance sheet date whether any impairment of listed equity security(ies)/derivative(s) instruments has occurred. An active market shall mean a market, where the securities traded are homogenous, availability of willing buyers and willing sellers is normal and the prices are publicly available. Unrealised gains/losses arising due to changes in the fair value of listed equity shares and derivative instruments shall be taken to equity under the head 'Fair Value Change Account'. The 'Profit on sale of investments' or 'Loss on sale of investments', as the case may be, shall include accumulated changes in the fair value previously recognised in equity under the heading 'Fair Value Change Account' in respect of a particular security and being recycled to the relevant Revenue Account or Profit and Loss Account on actual sale of that listed security. The Authority may issue directions specifying the amount to be released from the Fair Value Change Account for declaring bonus to the policy holders. For the removal of doubt, it is clarified that except for the amount that is released to policyholders as per the Authority's prescription, no other amount shall be distributed to shareholders out of Fair Value Change Accoun. Also, any debit balance in Pair Value Charge Account shall be reduced from profit/free reserves while declaring dividends. The insurer shall assess, on each balance sheet date, whether any impairment has occurred. An impairment loss shall be recognised as an expense in Revenue/Profit and Loss Account to the extent of the difference between the remeasured fair value of the security/ investment and its acquisition cost is reduced by any previous impairment loss recognised as expense in Revenue/Profit and Loss Account. Any reversal of impairment loss, earlier recognised in Revenue/Profit and Loss Account shall be recognised in Revenue/Profit and Loss Account. (d) Unlisted and other than actively traded Equity Securities and Derivative Instruments-Unlisted equity securities and derivative instruments and listed equity securities and derivative instruments that are not regularly traded in active markets shall be measured at historical cost. Provision shall be made for diminution in value of such investments. The provision so made shall be reversed in subsequent periods if estimates based on external evidence show an increase in the value of the investment over its carrying amount. The increased carrying amount of the investment due to the reversal of the provision shall not exceed the historical cost. For the purposes of this regulation, a security shall be considered as being not actively traded. If its trading volume does not exceed ten thousand units in any trading session during the last twelve months. 8. Loans.-Loans shall be measured at historical cost subject to impairment provisions. The insurer shall assess the quality of its loan assets and shall provide for impairment. The impairment provision shall not be less than the aggregate amount of loans which are subject to defaults of the nature mentioned below: (i) interest remaining unpaid for over a period of six months; and (ii) instalment(s) of loan falling due and remaining unpaid during the last six months. 9. Linked business.-The accounting principles used for valuation of investments are to be consistent with principles enumerated above. A separate set of financial statements, for each segregated fund of the linked business, shall be annexed. Segregated funds represent funds maintained in accounts to meet specific investment objectives of policy holders who bear the investment risk. Investment income/gains and losses generally accrue directly to the policy-holders. The assets of each account are segregated and are not subject to claims that arise out of any other business of the insurer. 10. Funds for future appropriation.-The funds for future appropriation shall be presented separately. The funds for future appropriation represent all funds, the allocation of which, either to the policy-holders or to the shareholders, has not been determined by the end of the financial year.
APPENDIX A(RA) Form A(RA)
APPENDIX A(PL) Form A(PL)
APPENDIX A(BS) Form A(BS)
SCHEDULE 1 Premium
Particulars
Current Year
Previous Year
(Rs. '000)
(Rs. '000)
Premium from direct business written
Add: Premium on re-insurance accepted
Less: Premium on re-Insurance ceded
Net Premium
Adiustment for changes In Unearned Premium
Adjustment for changes In premium received In advance
Total Premium Earned (Net)
Premium Income from business effected:
In India
Outside India
Total Premium Earned (Net)
Notes: (a) In case of premiums less re-insurance, in respect of any segment of insurance business exceeds 10 per cent. of total premium earned, the same shall be disclosed separately. (b) Re-insurance premiums whether on bustiness ceded or accepted are to be brought into account, before deducting commission, under the head of re-insurance premiums.
SCHEDULE 2 Commission Expenses
Particulars
Current Year
Previous Year
(Rs. -000)
(Rs. -000)
Claims paid
Direct
Add. Re-insurance accepted
Less: Re-insurance Ceded
Net Claims paid
Total Claims Incurred
Claims paid to claimants
In India
Outside India
Total Claims Incurred
Notes: (a) Incurred But Not Reported (IBNR), Incurred But Not Enough Reported (IBNER) claims should be included in the amount for claims. (b) Claims Include claims settlement costs. (c) The surveyor fees, legal and other expenses shall also form part of claims cost. (d) Claims cost should not be adjusted for estimated salvage value if there is a sufficient certainty of its realisation.
SCHEDULE 3 Operating Expenses Related to Insurance Business
Particulars
Current Year
Previous Year
(Rs. '000)
(Rs. -000)
Commission Paid
Direct Add: Re-insurance Accepted Less: Commission on Re-insurance ceded
Net Commission
Note: The profit/commission, if any, are to be combined with the Re-insurance accepted or Re-insurance ceded figures.
SCHEDULE 4 Benefits Paid [NET]
Particulars
Current Year
Previous Year
(Rs. '000)
(Rs. '000)
1.
Employees' remuneration and welfare benefits
2.
Managerial remuneration
3.
Travel, conveyance and vehicle running expenses
4.
Rents, rates and taxes
5.
Repairs
6.
Printing & stationery
7.
Communication
8.
Legal & professional charges
9.
Medical fees
10.
Auditors' fees, expenses etc.
(a) as auditor
(b) as adviser or In any other capacity, in respect of
(i) Taxation matters
(ii) Insurance matters
(iii)Management services; and
(c) in any other capacity.
11.
Advertisement and publicity
12.
Interest & Bank Charges
13.
Others (to be specified)
14.
Depreciation
TOTAL
Notes: (a) Items of expenses in excess of one per cent. of net premium or Rs 5,00,000 whichever is higher, shall be shown as a separate line Item. (b) Under the sub-head "Others", 'Operating Expenses (Insurance Business shall include items like foreign exchange gains or losses and other items.
SCHEDULE 5 Share Capital
Particulars
Current Year
Previous Year
(Rs. '000)
(Rs. '000)
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