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General insurers, health insurers, specialized insurers, and reinsurers must follow updated presentation rules for financial statements starting from the first quarter of financial year 2019-20. Insurers report gross operating expenses in Schedule 4 and the Revenue Account without deducting excess expenses of management. Insurers report excess management expenses as income in the Revenue Account and as expenses in the Profit and Loss Account. Insurers report personal accident insurance as a separate sub-segment within the miscellaneous segment and club travel insurance with the health segment. Insurers adhere strictly to prescribed financial statement formats. Direct insurers create unearned premium reserve, premium deficiency reserve, and outstanding claims reserve for clean-cut reinsurance treaties. Insurers report intermediary remuneration as commission, maintain the segregation of funds, and charge corporate social responsibility expenditure to the Profit and Loss Account.
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भारतीय बीमा विनियामक और विकास प्राधिकरण INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
Circular
Ref No: IRDA/F&A/CIR/MISC/081/05/2019
Date: 20th May 2019
To,
CMDs/CEOs
All General Insurers, Health Insurers, Specialized Insurers and Reinsurers
Sub: Preparation of Financial Statements for FY2019-20 and Onwards
Ref:
In order to bring uniformity, comparability and fair presentation of Financial Statements filed by the insurers, the Authority, in exercise of the power under Section 14 of IRDA Act, 1999, hereby issues the following directions:
1. Presentation of Excess Expenses of Management (EoM) in Operating Expenses:
The Authority vide Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2016 have prescribed the limits of expenses of management. In case expenses of management exceeds the limits prescribed by the Regulations, the excess is required to be charged to Shareholders Account i.e. Profit and Loss Account.
It is observed that some insurers are disclosing the operating expenses net of excess EoM charged to shareholders account, in Revenue Account. This leads to distorted picture of the Underwriting Results of the Insurers. In light of the same, all Insurers are advised to present the excess of EoM in Financial Statements, as under:
2. Personal Accident Policies in Health Segment
In terms of Section 2(6C) of the Insurance Act, 1938, Personal Accident and Travel (Including domestic as well as overseas) are part of Health Insurance.
2.1 In order to have uniformity in case of business from Personal Accident and Travel, it is hereby specified that in Financial Statements:
2.2 For computation of Expenses of Management, Personal Accident and Travel shall be clubbed with Health Segment.
3. Deviation from Formats prescribed:
It is observed that some insurers have modified the formats as prescribed by the by IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002 by way of addition/deletion of line items.
All insurers are advised to strictly adhere to the formats prescribed by the Regulations. Any new line item, if so warranted to be disclosed separately, may be shown under "Others" in Revenue Account, P&L Account and/or relevant schedule of the financial statements by giving the break up.
4. Creation of UPR and Outstanding Claims Reserve (Including IBNR/IBNER) for Premium Ceded under Clean-cut Reinsurance Treaties
It is observed that some insurers enter into one-year Quota Share Reinsurance Treaty on Clean-cut basis. The provisions towards the unexpired premium reserve / IBNR / IBNER, on such treaties, is neither provided by Direct insurer (cedant) nor by the reinsurer(s).
It is hereby advised that Direct insurers (cedant) shall create the adequate reserves, as follows, in accordance with the IRDAI (Assets, Liabilities and Solvency Margin of General Insurance Business) Regulations, 2016:
5. Rewards and Remuneration to Agents/Brokers/Other intermediaries
In order to bring the consistency, uniformity and fair presentation, it is hereby advised that rewards and/or remuneration to agents, brokers or other intermediaries shall be shown as part of Commission.
6. Segregation of Policyholders' and Shareholders' Funds
The Authority has issued to Circular IRDA/F&A/CIR/CPM/010/01/2017 dated 12th January 2017 which mandates the insurers to segregate Policyholders' Funds and Shareholders' Funds. The provisions of the Circular, which was hitherto applicable till 31st March 2018, are now extended for FY2018-19 and onwards, till further orders. All other provisions of the above referred Circular shall continue to be applicable.
7. Corporate Social Responsibility Expenditure
In order to bring the consistency, uniformity and fair presentation, it is hereby advised that expenditure towards Corporate Social Responsibility shall be shown in Profit and Loss Account.
All insurers are advised to take note of the above for compliance, while finalizing the accounts of Q1 of FY2019-20 and thereafter.
(Pravin Kutumbe) Member (F&I)
