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General insurers, standalone health insurers, reinsurers, and foreign reinsurer branch offices must comply with modified financial statement and auditor report regulations. Insurers must bifurcate shareholders and policyholders funds, maintain separate policyholders investment schedules, recoup deficits on a half-yearly basis, and follow specific unearned premium reserve methods. Foreign reinsurers must maintain a Head Office account split into assigned capital and current account. Insurers must file statutory auditor certificates by specified deadlines.
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भारतीय बीमा विनियामक और विकास प्राधिकरण INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
IRDA/F&A/CIR/CPM/056/03/2016
April 04, 2016
CIRCULAR
To
All insurers
Sub: IRDA (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations, 2002
The provisions of sections 10 and 11 have been modified vide the Insurance Laws (Amendment) Act, 2015. These amendments have necessitated changes to the IRDA (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations 2002.
Given that the Ministry of Corporate Affairs has issued a press release which provides that Insurance Sector has to move to Ind As from the financial year 2018-19 with one year comparatives, the Authority has kept the draft IRDAI (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2015 in abeyance and directs all Insurers to continue to comply with IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002 and the circulars and/or guidelines issued thereunder, with the following modifications:
Section 11 (2) of the Insurance Laws (Amendment) Act, 2015 mandates that every insurer shall keep separate funds of shareholders and policyholders. In view of the said provision, general insurers including reinsurers, standalone health insurers and specialised insurers are advised as under:
Where an insurer proposes to file an application for Public Listing under ICDR Regulations issued by the Authority, such insurer shall ensure bifurcation of the policyholders' fund and shareholders' fund in compliance with clauses (i) and (ii) above, before filing of such application with the Authority.
For the purpose of the above, the policyholders' fund and shareholders' fund are defined as under:
Policyholders' Funds:
The policyholders' fund for this purpose shall include the following
Other Liabilities in point (e) above, comprise of (i) Premium received in advance (ii) Unallocated premium (iii) Balance due to OTHER Insurance Companies (iv) Due to other Members of a Pool such as Third Party Pool; Terrorism Pool; etc. (vi) Sundry creditors (due to Policyholders).
Other Assets in point (e) above, comprise of (i) Outstanding premium (ii) due from other entities carrying on Insurance business including Re-insurers (iii) Balance with Pool such as Thirty Party Pool; Terrorism pool; etc.
Shareholders' Funds: Shareholders' funds comprise of Share Capital plus all Reserves and Surplus (except Revaluation Reserve and fair value change account) net of accumulated losses and Miscellaneous expenditure to the extent not written off as at the Balance Sheet date.
As a result of the above, the Fair Value Change account as appears in the Balance Sheet shall accordingly stand bifurcated under the shareholders fund and policyholders' fund.
Recoupment of the Deficit: Every Insurer shall ensure that the policyholders' fund as defined in 1 (iii) above, are fully supported by the policyholders' investments shown in Schedule-8A. Therefore, any deficit / shortfall in policyholders' investments arising out of the loss in the Revenue Account or otherwise shall be recouped by transfer of securities from the shareholders' investments to the policyholders' investments on a half yearly basis. The valuation of such securities shall be in accordance with the valuation norms as specified in the IRDA (Preparation of Financial Statements and Auditors' Report) Regulations, 2002.
Unearned Premium Reserve (UPR):
A Reserve for Unearned Premium shall be created as the amount representing that part of the premium written which is attributable to, and is to be allocated to the succeeding accounting periods. Such Reserves shall be computed as under:
The insurers can follow either percentage or 1/365th method for computation of UPR of the other segments. However, Insurers shall follow the method of provisioning of UPR in a consistent manner. Any change in the method of provisioning can be done only with the prior written approval of the Authority.
Other provisions of UPR specified in the corrigendum No IRDA-F&A-CIR-FA-126-07-2013 Dt. 3rd July, 2013 to the Master Circular on Preparation of Financial statements of the (General Insurance Companies) shall continue to be applicable.
Accounting of the branch office of foreign reinsurer which is permitted to operate in India as per the IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd's) Regulations, 2015 and IRDAI (Lloyd's India) Regulations, 2016 shall be done as per the regulation 28(6) and 50 (5) respectively of the said Regulations, which prescribe that the branch office of foreign reinsurer shall submit financial returns including statement of accounts in the manner as may be specified in the IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002. Accordingly, the directions in this regard are issued as under:
A. In case of a foreign reinsurer carrying on the business of reinsurance, through a branch office established in India, a Head Office account shall be maintained;
B. The Head Office Account shall be maintained in two parts as under:
Provided that, at any time, the net balance of (i) and (ii) shall not be less than the Assigned Capital specified by the Authority.
