Report of Working Group on new standard on Insurance Contracts (equivalent to IFRS 17) alongwith Annexures

REPORT OF THE WORKING GROUP ON NEW STANDARD ON INSURANCE CONTRACTS (EQUIVALENT TO IFRS 17 INSURANCE CONTRACTS) October 31, 2018Forwarding L.Gtter 31"0 otobe< 2018 To Or. SUbhash C Khunti3, Chairman, Insurance Regulato,y and OevelopmentAull1onty of India SY.N0.115/1, Financial Dlstnet, Nanakramguda,Gaehibow1i, 1 lfderabad-500032 Sr, Sub: Report of the Wonting Group on new standard on tn.suranc& Contracts (equivalent to IFRS 17 Insurance Contracts) Tl1ls has reference to the Older Rel: IROA/F&A/ORO/ACTS/184/08/2017 dated 21" August 2017eonstltutlng the WOfl<ing Group to submit its repon on the terms of referenoe contained 1he,ein, I have great pleasu-e in submitting the report of the Working GroLp. On behalf of the rrembers and special invitees of the Group and on my hP.hAlf, I convey n1y sincere lhaoks f:,r entrus:ing us with this resp::>n.sibility. Yours faithfully, 1\~f J./' J,. (Ashutosh Pednekar) Group Head· WOd<i1!) Group c c : Shri PravinKutumbe. Smt. Poumina Gupte, Member (F & I). Member (Actuary). IROAJ IRDAI~M,,i.J.v (Ashutosh Pednekar) Group Head Mombors: ~~ (S. B. zaware) (Sunll Sharma) Chairman, ASB, ICAI President. IAI ~~- ~<v~ (Vidhyadhar Kulkarni) \ ~~:t :;~:~~ hander) ~-63eA/v' (S.N. Rajos:r i) (S.M. Jain) (¼..\ ,j ®,-lF-- (Dinesh i'l;;'nt) (N. Kalpana) ~~-: j, Vikas Mehra) (Aa~u~ l2 ~-J ~ (RamandNp Sahni) (Venu~Z N) r,.._ rl l_,w-.✓- ~ _O ~ (Rahul Ahuja) ~ G . " f\•nkar Garlgapathy) (S~:ani) \jJ~~ (Murtuza Vajihi)Table of Contents Content Page No. Executive Summary of the Recommendations 1 Chapter I: Introduction 3 Chapter II: IFRS 17 / Ind AS 1171 Insurance Contracts 6 Chapter III: Approach on Drafting the Regulations on 12 Preparation of Financial Statements Chapter IV:IRDAI Regulations/Circulars/Guidelines 21 that will be impacted by IFRS 17/ Ind AS 117 Chapter V: Other Aspects on implementation of IFRS 26 17 / Ind AS 117 Annexure 1: Order on Formation of the Working Group (WG) Annexure 2: Activities of the Working Group Annexure 3: Draft Regulations on Preparation of Financial Statements (Draft Regulations) 1 Ind AS 117 referred to in the report is the Exposure Draft of Ind AS 117 issued by ICAI on 12th February 2018Executive Summary of the Recommendations Standard and Regulations 1. The Draft Regulations may be notified after notification of Ind AS 117 and addressing issues/concerns, if any, that may come up from the findings of the Ind AS compliant proforma financial statements prepared by insurers as per the Draft Regulations. 2. The recommendations of the WG in this report and the Draft Regulations proposed are based on the IFRS 17 notified by the International Accounting Standards Board (IASB) on 18th May 2017 and the Exposure Draft of Ind AS 117 issued by the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI). These may undergo a change in case the IASB concludes that there is a need to amend IFRS 17 or issue clarifications, which will have to be suitably considered by the Authority. 3. Section 11 of the Insurance Act 1938 may be amended to consider Statement of Changes in Equity as a separate financial statement. 4. The Authority may take up with the ASB with regard to the amendment to Ind AS 1 in order to facilitate usage of titles for financial statements stipulated under specialized legislations by which ‘Revenue Account’ in case of insurance companies can be presented as a separate statement rather than making it part of ‘Statement of Profit and Loss Account'. Financial Statements 5. Single format of financial statements without distinguishing between life and other than life insurance business is recommended. This is because, IFRS 17 differentiates measurement of insurance contracts based on duration of contracts and does not distinguish between life and general insurance business. 16. Cash Flow Statement under Direct method is recommended. The Authority may examine whether reinsurance companies can be permitted indirect method of preparing Cash Flow Statement. 7. Information presently required to be disclosed in the Management Report may be presented along with the Board of Directors’ Report in a manner similar to that of Corporate Governance Report. 8. Information primarily relevant to policyholders like fund-wise Revenue Account, Balance Sheet and additional disclosures may be presented by insurers on their respective websites instead of annexing these to financial statements. 9. As regards distribution of the revaluation reserve arising out of Investment Property under Shareholders funds, the Authority may consider giving separate stipulations. Others 10. Ind AS compliant Balance Sheet of Insurance Companies may be used as a basis to carry out adjustments for solvency computations. 11. Some of the Regulations/Regulatory Stipulations would be impacted by Ind AS 117 (some of them identified are given in Chapter IV) 12. IRDAI to enhance capability of the industry and the regulator on the understanding and usage of Ind AS in general and Ind AS 117 and Ind AS 109, Financial Instruments, in particular. 13. IRDAI may request ICAI and IAI to bring out / publish education material on application of Ind AS 117. 14. Though the terms of reference of the WG do not extend to determining the impact of taxation it is recommended that insurers to share their concerns along with proposed solutions, with the Authority and ICAI to be taken up with the Central Board of Direct Taxes. 2Chapter I: Introduction 1. India has converged with International Financial Reporting Standards (IFRS) as part of its commitment to the G20. Indian Accounting Standards (Ind AS) are the converged IFRS. For companies these have been notified in the Companies (Indian Accounting Standards) Rules, 2015, as amended. Implementation of Ind AS has been done in a phased manner as per the road map issued by the Ministry of Corporate Affairs (MCA). As per this road map entities regulated by the Insurance Regulatory and Development Authority of India (IRDAI / the Authority) were required to converge to Ind AS from 1st April 2018 with one year comparatives. 2. The Authority constituted an Implementation Group (IG) under the Chairpersonship of Smt. V. R. Iyer, Member-F&I vide order reference IRDA/F&A/ORD/ACTS/201/11/2015 dated 17th November 2015 to examine the implications of implementing Ind AS, address the implementation issues and facilitate formulation of operational guidelines to converge with Ind AS in the Indian Insurance sector. This IG, with Shri P. R. Ramesh as Group Head, submitted its report on December 29, 2016. The draft of the regulations recommended by the IG was issued as an Exposure Draft. 3. In the meantime, the International Accounting Standards Board (IASB) issued the new accounting standard on insurance contracts on 18th May 2017 (IFRS 17, Insurance Contracts) replacing IFRS 4. The Authority therefore, reviewed the position of Implementation of Ind AS in the Insurance Sector in India and postponed the effective date of implementation of Ind AS for its regulated entities by two years vide its circular dated 28th June 2017. Accordingly, the new effective date of convergence to Ind AS in the Insurance Sector is 1st April 2020. 34. In order to commence work on early adoption of new standard on insurance contracts in India equivalent of IFRS 17, Insurance Contracts a Working Group (WG) was constituted by the Authority vide its order dated August 21, 2017 (Annexure 1) with Shri Ashutosh Pednekar as the Working Group Head and members from the industry, professional experts, representative of the the Institute of Chartered Accountants of India (ICAI), representatives of the Institute of Actuaries of India (IAI) and officials of the IRDAI. The terms of reference of the WG are as under: - i. Review of the new standard 'IFRS 17 - insurance contracts' and to identify relevant areas/aspects, which require suitable adoption in the Indian context. ii. Identify changes arising out of new standard on insurance contracts a. to be carried out in the draft regulations/formats recommended by the Implementation Group vide their report dated 29th December 2016; b. to be carried out in other regulations/guidelines etc. iii. Any other aspects that may arise in the course of implementation of the standard in the insurance sector. The activities of the Group are briefly mentioned in Annexure 2. 5. Key recommendations of the Working Group are summarized in the Executive Summary. 6. It may be noted that various recommendations made in this report are based on the collective views of the members of the Working Group. These views are not intended to be authoritative interpretations of accounting standards and various laws and regulations. 4Acknowledgements 7. The WG wishes to place on record its gratitude to Shri T. S. Vijayan, the then Chairman of IRDAI who constituted the WG. Dr. Subhash C Khuntia, Chairman, IRDAI for his encouragement and support and Shri Pravin Kutumbe, Member (F&I), IRDAI and Smt. Pournima Gupte, Member (Actuary), IRDAI for their continuous support, guidance and valuable inputs. 8. The WG acknowledges the efforts and contributions of each and every member and invitees of the WG. 9. The WG benefitted from the efforts and the results of test run carried out on the draft of formats for preparation of financial statements by Star Union Dai- chi Life Insurance Co. Ltd. 10. The WG places on record the efforts and support extended by nominees of ICAI and IAI in finalizing this report. 11. The WG is grateful to Shri V. Manickam, Secretary General, Life Insurance Council and Shri R. Chandrasekaran, Secretary General, General Insurance Council, for organizing and facilitating the outreach meetings with insurers, which brought out various concerns/ issues on implementation. 12. The WG places on record its appreciation for the support received from the officials of Finance & Accounts and Actuarial departments of IRDAI in finalizing the Report. 5Chapter II: IFRS 17 / Ind AS 117 Insurance Contracts 1. In May 2017, the International Accounting Standards Board (IASB) issued IFRS 17, Insurance Contracts. This culminated a journey of almost twenty years. IFRS 17 replaced IFRS 4, Insurance Contracts, which was an interim standard. IFRS 17 is a wholesome standard that deals with the recognition, measurement, presentation and disclosure requirements of insurance contracts. It applies to all entities that issue insurance contracts and not necessarily to entities regulated by an insurance regulator of the respective country. IFRS 17 is effective from accounting periods commencing on or after January 1, 2021. Early adoption is permitted provided the entity adopts IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers. In India, the equivalent standards, viz. Ind AS 109 and Ind AS 115 are notified. Hence, early adoption of IFRS 17 is permitted. 2. As the accounting standard (IFRS 17) is very exhaustive, complex and introduces new concepts, hitherto not applied even internationally, the WG felt that it required a detailed study to check and verify its relevance and applicability in the Indian Context. Accordingly, the WG worked closely with ICAI which was preparing the Indian equivalent of the standard in order to ensure that the standard that may be notified will be in harmony with the Industry practices and to that extent, it is expected that no further ‘carve-outs/ regulatory overrides’ would be required by the Regulator. 3. The WG members facilitated industry inputs to the ICAI before it issued the exposure draft of Ind AS 117 Insurance Contracts, the Standard equivalent to IFRS 17. The exposure draft was issued on 12th February 2018. The WG members also contributed at the meetings of the Accounting Standards Board (ASB) of the ICAI on the comments received on the exposure draft before 6ICAI’s recommendation thereof to the National Advisory Committee on Accounting Standards (NACAS). The final standard is yet to be notified. 4. IFRS 17 requires a consistent accounting for all insurance contracts on a current measurement model and it is expected to provide useful information about profitability of insurance contracts. The definition of an insurance contract has remained substantially the same as in IFRS 4. However, the measurement of an insurance contract and its presentation in the financial statements has changed significantly. 5. Improvements introduced by IFRS 17 requires a company to measure insurance contracts using current estimates and assumptions that are updated (to be consistent with relevant market information), and that reflect the timing of cash flows and the uncertainty relating to the insurance contracts. The use of a measurement model with current inputs will provide current, updated information about the effect of insurance contracts on a company’s financial position and risk exposure, and transparent reporting of changes in the insurance contract assets and liabilities. 6. IFRS 17 requires a company to recognise profits as it delivers insurance services, rather than when it receives premiums, as well as to provide information about insurance contract profits that the company expects to recognise in the future. This information will provide additional metrics that can be used to evaluate the performance of insurers and how that performance changes over time. These requirements are significantly and fundamentally different from the present practices in India. It is expected that the financial numbers of an insurer will be much different from those presented as of now. Along with financial statements, there would be an impact on management information systems and reports too. 7. Because IFRS 17 requires a company to measure insurance contracts issued to reflect probability-weighted cash flows, as well as the timing and the risk of 7those cash flows, the implementation of IFRS 17 is expected to require a high level of integration between finance, actuarial and risk processes. 8. IFRS 17 substantially retains the scope of IFRS 4, so, essentially, the requirements under IFRS 17 affect the same population of contracts accounted for when applying IFRS 4. Similar to IFRS 4, IFRS 17 does not apply to insurance contracts in which the company is the policyholder; the only exception is when those contracts are reinsurance contracts. IFRS 17 applies to and provides consistent framework for accounting of contracts that are: a) insurance contracts issued (i.e. sold); b) reinsurance contracts held (i.e. acquired); or c) investment contracts with discretionary participation features issued. 9. A company is required to apply the requirements of IFRS 17 to a group of contracts rather than on a contract-by-contract basis. In grouping insurance contracts, a company is required to identify portfolios of contracts and to divide each portfolio into: a) a group of contracts that are onerous at initial recognition, if any; b) a group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently, if any; and c) a group of remaining contracts, if any. In addition, a group of contracts cannot include contracts issued more than one year apart. 10. With regard to recognition, IFRS 17 requires a company to recognise a group of insurance contracts it issues from the earliest of the following: a) the beginning of the coverage period; b) the date on which the first payment from a policyholder is due; and c) for a group of onerous contracts, when the group becomes onerous. 811. Ind AS 109 is required to be applied to determine whether there is an embedded derivative to be separated and, if there is, how to account for that derivative. It is also to be applied to separate from a host insurance contract an investment component if, and only if, that investment component is distinct. Ind AS 109 is required to be applied to account for the separated investment component. 12. There are two measurement models in IFRS 17 viz. general measurement approach which is also called the Building Block Approach (BBA) and the Premium Allocation Approach (PAA). An entity is required to assess its rights and obligations arising from a group of insurance contracts and reflect them net on the balance sheet on discounted basis. 13. IFRS 17 recognises that insurers manage risk by transferring a portion to reinsurers by entering into reinsurance contracts. The Standard generally requires an entity to account the reinsurance contracts that it holds by using an approach that is consistent with the accounting of the underlying insurance contracts. 14. The manner of presentation of the financial performance of an insurance contract is also prescribed by the Standard. This is done by presenting the insurance service result i.e. the insurance revenue less insurance service expenses and the insurance finance income or expenses in the statement of comprehensive income. 15. Revenue from insurance contracts represents the consideration that a company expects to be entitled to in exchange for services provided under the contracts. It includes the consideration that covers the amount of contractual service margin recognized in profit or loss for the period and the amount of insurance expenses incurred in the period. Many insurance contracts with investment features include a deposit component—i.e. an amount paid by the 9policyholder that is repaid by the insurer even if an insured event does not occur. Where such repayment happens, the amount so repaid need to be excluded from the insurance revenue, as the collection of a deposit is not revenue and the repayment of that deposit is not an expense 16. Insurance service expenses reflect the costs incurred in providing services in the period, including incurred claims, and exclude the repayment of deposit components. IFRS 17 requires a company to account for the fulfillment cash flows and the contractual service margin on a discounted basis that reflects the timing of cash flows. As time passes, the effect of the time value of money reduces and this reduction is reflected in the statement of profit and loss as an insurance finance expense. In effect, the insurance finance expenses are akin to interest paid on an advance payment and reflects the fact that policyholders typically pay premiums up front and receive benefits only at a later date. Insurance finance income or expenses also include the effect on the carrying amount of insurance contracts of some changes in financial assumptions (i.e. discount rates and other financial variables). A company recognises the effect of those changes in discount rates and other financial variables in the period in which the changes occur. The company can choose where to present this— either in profit or loss, or disaggregated between profit or loss and other comprehensive income. This choice is made by portfolio of contracts. 17. The Standard requires a number of disclosures with regard to additional information about amounts recognized in the balance sheet and in the statement of comprehensive income, the significant judgements made when applying IFRS 17, and the nature and extent of risks that arise from issuing insurance contracts. 18. For the purpose of this report, ‘IFRS 17’ and ‘Ind AS 117’ are used interchangeably. The WG has considered various requirements of the Standard in arriving at its recommendations. The WG has relied upon the 10various documents of IASB on IFRS 17 which include the Application Guidance, Illustrative Examples, Basis for Conclusions, the Effect Analysis. The Group also referred to publicly available illustrative formats of financial statements. 19. The WG noted that in case of any service offered by an insurer that does not meet the definition of an insurance contract, Ind AS 115 Revenue from Contracts with Customers will be applied for such services. 11Chapter III: Approach on Drafting the Regulations on Preparation of Financial Statements 1 To identify the changes arising out of IFRS 17 to be carried out in the draft regulations / formats recommended by the Implementation Group constituted under IRDAI Order dated 17th November 2015 in their report dated 29th December 2016, a Drafting Group was formed under the leadership of Sri Vidhyadhar Kulkarni, Head, Technical Directorate and Secretary, Accounting Standards Board (ASB), ICAI and Dr. Avinash Chander, Ex- Technical Director, ICAI as Co-chair. The Drafting Group used the Draft/Formats recommended by the Implementation Group as the basis document on which changes/modifications arising from the new standard viz. IFRS 17 have been carried out. The Draft Regulations have been formulated as per the approach indicated in the subsequent paragraphs with focus on IFRS 17 and are attached as Annexure 3. However, to the extent not revised on the under mentioned aspects, the Report of the Implementation Group dated 29th December 2016 holds good. Financial Statements 2 With a view to comply with the requirements of the Insurance Act 1938 as well as the requirements of Ind AS 1, the following are recommended to be the complete set of financial statements for the purpose of the Ind AS compliant IRDAI Regulations for the reasons stated hereinafter: a. Balance Sheet (including Statement of Changes in Equity), in accordance with Ind AS 1: Presentation of Financial Statements. b. Statement of Profit and Loss for the period, in accordance with Ind AS 1, Presentation of Financial Statements including Policyholders’ Account (Revenue Account) and Shareholders’ Account (Profit and Loss Account), as required by the Insurance Act, 1938. 12c. Receipts and Payments Account [Cash Flow Statement as per Ind AS 7: Statement of Cash Flows]. d. Notes including: i. Summary of significant accounting policies; ii. Other explanatory notes annexed to, or forming part of, any document referred to in Sub-clause (a) to Sub-clause (c) above; and iii. Comparative information in respect of the preceding period. 3 Since the Statement of Changes in Equity is an extension of the balance sheet and gives detailed information with regard to the share capital, reserves etc., it is recommended to be included as a part of the balance sheet even though under Ind AS 1, it is prescribed as a separate financial statement. This is because Section 11 of the Insurance Act 1938 does not recognize the Statement of Changes in Equity as a separate financial statement. 4 Since the Revenue Account (Policyholders’ Account) and the Profit and Loss Account (Shareholders’ Account) are required to be prepared under section 11 of the Insurance Act 1938, the Statement of Profit and Loss as per Ind AS 1 should be prepared to reflect the financial performance for the period for both policyholders and shareholders. The Revenue Account (Policyholders’ Account) and the Profit and Loss Account (Shareholders’ Account) are made part of Statement of Profit and Loss. 5 Section 11 of the Insurance Act 1938 is required to be amended to consider Statement of Changes in Equity as a separate financial statement. 6 Instead of identifying, as a separate financial statement as required under Ind AS 1, a Balance Sheet as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements or when it reclassifies items in 13its financial statements as specified in Ind AS 1, it was considered adequate that a requirement in this regard is included as a note to the Balance Sheet. 7 IFRS 17 differentiates measurement of insurance contracts based on duration of contracts and does not distinguish between life and general insurance business. Hence, separate formats for entities carrying on life insurance business and those carrying on general insurance business are not being recommended. Balance Sheet 8 Manner of presentation of various items of assets, liabilities and equity in the balance sheet was decided as follows: a. The presentation order in the balance sheet of assets, liabilities and equity should be based on the concept that equity represents residual interest in the assets of the entity after deducting liabilities. b. In the case of the insurance industry, given its nature of business, the liquidity-based presentation would provide more reliable and relevant information. Accordingly, the recommended balance sheet format follows liquidity based presentation. c. The presentation requirements particularly paragraph 78 of the Ind AS 117 have also been considered. 9 The presentation and disclosure requirements contained in the formats on Investment Property are based on the assumption that Ind AS 40, Investment Property, will be amended to permit both fair value model and cost model in accordance with the Exposure Draft in this regard issued by the ASB of the ICAI. Also, the proposed amendments to Ind AS 16, Property, Plant and Equipment, permitting fair value model for owner occupied property backing certain insurance contracts would also be carried out as a consequence of Ind AS 117. 1410 'Performance Wise' and 'Maturity Wise' disclosures under the Note on Loans as presently required in the Regulations are not included as more detailed disclosures are required under Ind AS 107, Financial Instruments: Disclosures. 11 With regard to requiring policy loans as a separate asset in the balance sheet, it was noted that BC 114 to IFRS17, has considered this aspect as to “whether to permit an entity to separate a non-insurance component when not required to do so by IFRS 17; for example, some investment components with interrelated cash flows, such as policy loans. Such components may have been separated when applying previous accounting practices. However, the IASB concluded that it would not be possible to separate in a non-arbitrary way a component that is not distinct from the insurance contract nor would such a result be desirable. Permitting an entity to separate such components would mean that the entity measures the components in the contract on an arbitrary basis. The Board also noted that when separation ignores interdependencies between insurance and noninsurance components, the sum of the values of the components may not always equal the value of the contract as a whole, even on initial recognition. That would reduce the comparability of the financial statements across entities.” In view of the same, loans against insurance contracts which are to be accounted for under Ind AS 117 are not included in the note on ‘Loans’ and would have to be considered in computation of the amounts of insurance contracts assets/liabilities. 12 Separate ‘notes’ to Balance Sheet for presenting “Investment contracts with Discretionary Participation Features” are not given. Since these contracts are also measured and reported similar to insurance contracts with direct participation features, relevant notes/formats as applicable for “Insurance Contracts not measured under Premium Allocation Approach” are recommended to be used. 15Statement of Profit and Loss 13 Considering the nature of the insurance business, and the requirements contained in Ind AS 1 that the expenses shall be reflected nature-wise, the Format of Statement of Profit and Loss has been prepared in a manner to meet the presentation requirements of Ind AS 1 as well as Ind AS 117 particularly, paragraphs 78 and 80, Ind AS 109 or Ind AS 115 or other standards as applicable. Exceptional items and gain or loss on discontinued operations are recommended to be presented separately as per the requirements of Schedule III to the Companies Act, 2013. 14 In order to promote comparability, it has been recommended that components of OCI be disclosed before tax related effects with a separate line item giving the aggregate amount of income tax relating to those components. 15 Ind AS 117, Insurance Contracts, gives options in the recognition, measurement and presentation of various items. While with regard to presentation of certain items in OCI under paragraph 88(b) and 89 (b) read with paragraph 90, the formats have been formulated as though both the options are permitted by the Regulator to the insurance sector. In respect of other optional treatments permitted in the Ind AS, a general instruction has been included permitting entities to follow any of the options. A considered view on whether or not to permit options or limit it to one to ensure uniform presentation is a Regulatory call, the consideration of which should be based on evaluation of pros and cons of each of the options. Notes to Financial Statements 16 The insurer is required to present the Revenue Account under the classification/types as recommended in the draft Regulations. Apart from the said requirement, the insurer shall also present segment information in accordance with the relevant Ind AS as applicable. Further, as per the requirements of Ind AS 117, information related to assets and liabilities has to 16be presented for various segments/classes of insurance business. In this regard, specific reference is invited to paragraph 96 of Ind AS117 which reads as under: “Paragraphs 29-31 of IAS 1 set out requirements relating to materiality and aggregation of information. Examples of aggregation bases that might be appropriate for information disclosed about insurance contracts are: a) Type of contract (for example, major product lines); b) Geographical area (for example, country or region); or c) Reportable segment as defined in IFRS 8 Operating segments.” Accordingly, various notes to accounts, particularly those related to insurance contract assets and liabilities contain information as required above. 17 The Transitional Provisions of Ind AS 117 contain various options with regard to existing insurance contracts covered under the Ind AS. In view of the long term nature of various insurance contracts which would continue for many years, the amounts under various options would be carried forward until the liabilities under the contracts are derecognised. The aforesaid transitional line items have been included in Notes related to insurance contracts liabilities/assets to ensure uniformity of presentation. Cash Flow Statement 18 The draft Regulations recommend the ‘direct method’ of preparing and presenting the cash flow statement, under Ind AS 7, Cash Flow Statement, since Section 11 of the Insurance Act 1938 requires preparation of 'Receipts and Payments' Account. There has been representation from reinsurance company that they be permitted indirect method of preparing cash flow statement. 17Regulatory Requirements and Other Aspects 19 A summary of financial statements for the last five years in the manner as may be prescribed by the Authority should be provided as at present. In the initial years, Ind AS financial statements would be available for less than five years, e.g., for the year 2020-21, with comparatives for the year 2019-20, information would be available for two years. The Authority needs to decide the regulations for prescribing the presentation of summary of the remaining preceding three years i.e., whether on the basis of Ind AS or as per the existing GAAP. However, the WG recommends that for such periods figures as per existing GAAP may be presented as Ind AS presentation for the remaining three years would require restatement of financial statements for those years as well. 20 Information presently required to be disclosed in the Management Report may be presented along with the Board of Directors’ Report in a manner similar to that of Corporate Governance Report by companies other than those carrying on insurance business. As in the case of Corporate Governance Report for companies other than insurance companies, the same may be separately audited and, accordingly, the auditor may give a separate report. 21 As per the existing Regulations, fund-wise Revenue Account, Balance Sheet and additional disclosures are to be annexed to the annual financial statements. The nature of disclosures required therein are primarily relevant to the policyholders. Accordingly, such information may be presented by insurers on their respective websites instead of annexing these to financial statements. The Authority may issue appropriate instructions in this regard. The formats of the Revenue Account and the Balance Sheet is recommended to be the same as per the draft Regulations to the extent applicable and subject to audit. 1822 Regulatory disclosures on discontinued policies, controlled fund and persistency ratios are recommended to be omitted from the draft Regulations as they are either covered under the standard, or covered elsewhere or are not relevant/redundant. 23 As per the extant stipulations under the IRDA (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations, 2002, the revaluation reserve arising out of revaluation of investment property has to be taken to Equity. The provision further states that "the Authority may specify the amount to be released from the revaluation reserve for declaration of bonus to policyholders". As this aspect is covered by the Ind AS 117, the same is not covered in the draft Regulations. However, in case directions are to be given as regards distribution of the revaluation reserve arising out of Investment Property under Shareholders funds, the Authority may consider giving separate stipulations. 24 For the benefit of preparers and users of the financial statements, in view of the complexities involved in the standard, education material will have to be provided by the ICAI and IAI soon after the IRDAI notifies the formats for implementation. 25 At present, Schedule ‘C’ of the IRDA (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations 2002, contains the requirements with regard to the Auditors’ Report. The ICAI may be requested to provide the format for the same in view of the fact that of late various Standards on Auditing have also been revised. 26 Based on the above, the draft regulations recommended by the Group are as follows: Part I: General Instructions Part II: Balance Sheet including Statement of Changes in Equity 19Part III: Statement of Profit and Loss Account Part IV: Disclosures 27 The WG discussed and accordingly, the group head has written to ASB, ICAI in August 2018, requesting for an amendment to Ind AS 1 in order to facilitate usage of titles for financial statements stipulated under specialized legislations by which ‘Revenue Account’ in case of Insurance companies can be presented as a separate statement rather than making it part of ‘Statement of Profit and Loss Account'. 20Chapter IV: IRDAI Regulations/Circulars/Guidelines that will be impacted by IFRS 17/ Exposure Draft of Ind AS 117 1. In order to identify changes to be carried out in other regulations / guidelines etc., a Regulatory Group was formed under the leadership of Smt. J Meena Kumari, Chief General Manager, IRDAI. The Regulatory Group was not required to draft the changes / amendments. 2. The following Regulations have been identified as being impacted by Ind AS 117 either requiring major amendments or modifications to references to the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002: Sr Regulations No 1 Insurance Regulatory and Development Authority (Actuarial Report and Abstract) Regulations, 2016 2 Insurance Regulatory and Development Authority (Assets, Liabilities and Solvency Margin of General Insurance Business) Regulations, 2016 3 Insurance Regulatory and Development Authority (Assets, Liabilities and Solvency Margin of life Insurance Business) Regulations, 2016 4 Insurance Regulatory and Development Authority (Registration of Indian Insurance Companies) Regulations, 2000 5 Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies)Regulations, 2002 6 Insurance Regulatory and Development Authority (Distribution of Surplus) Regulations, 2002 7 IRDAI (Scheme for Amalgamation and Transfer of Gen Ins Business) Regulations, 2011 8 IRDAI (Scheme of Amalgamation and Transfer of Life Ins Business) Regulations, 2013 9 IRDAI (Linked Insurance Products) Regulations, 2013 2110 IRDAI (Non-Linked Insurance Products) Regulations, 2013 11 IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations, 2015 12 IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015. 13 IRDAI (Regulation of Insurance business in Special Economic Zone)Rules, 2015 14 IRDAI (Other Forms of Capital) Regulations, 2015 15 IRDAI (Expenses of Management of Insurers transacting life insurance business) Regulations, 2016 16 IRDAI (Loans or Temporary advances to the Full-time Employees of the Insurers) Regulations, 2016 17 IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2016 18 IRDAI (Investment by Private Equity Funds in Indian Insurance Companies) Guidelines, 2017 3. Observations on certain Regulations: Regulation Observations IRDAI (Assets, Liabilities, and Solvency i. Terminology used in the ALSM Regulations Margin of Life Insurance Business) may be aligned with the terms of Ind AS: Regulations, 2016 & IRDAI (Assets, a) Terms like fictitious assets, sundry Liabilities, and Solvency Margin of debtors on account of Policy Contracts, General Insurance Business) leasehold improvements, debit balance in Regulations, 2016 (ALSM Regulations) P/L, Service tax (GST) etc, may be aligned with Ind AS terminology 22b) Terms used in the manner of determining the Mathematical reserves viz., the Gross Premium Valuation Method, Margin for adverse Deviation, are not used in the Ind AS 117 under those names instead the same concept is referred as fulfilment cash flows, risk adjustment for nonfinancial risk etc. ii. References to the IRDA (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002 require suitable amendments. iii. Methodology of liability valuation viz., 1/365 or 50%, the requirement of creating premium deficiency reserve etc., are not relevant under the new standard. iv. No differentiation between life, general, health, reinsurance business. v. Recommendation: A Single Regulation on the Assets, Liabilities and Solvency Margin may be formulated with same approach/principles IRDAI (Actuarial Report and Abstract for i Return on Assets are regulatory returns, the Life Insurance Business) Regulations, ARA Regulations are not impacted by the Ind 2016 (ARA Regulations) AS. ii Release of CSM for Par business will have to be specified (as required under the Insurance Legislation). iii ‘Surplus’ presented in an IFRS 17 financial statements will have to be studied to identify 23the amount on which bonus has to be declared. IRDA (Preparation of Financial Statements As the Regulations are based on Accounting and Auditors’ Report of Insurance Standards, they have to be repealed once Ind Companies) Regulations, 2002 AS compliant Regulations are notified. 4. IRDAI Circulars which needs to be amended suitably: Circular Observations Master Circulars on i IRDA/F&A/GDL/CG/100/05/2016 dated 18th May, 2016: preparation of financial Corporate Governance Guidelines needs amendments statements. to consider relevant points from Management Report Corporate Governance ii IRDA/F&A/CIR/232/12/2013 dated 11th December guidelines. 2013-Master Circular on Preparation of Financial Master Circular on Statements and Filing of Returns-Life Insurance Investments. Companies iii IRDA/F&I/CIR/F&A/231/10/2012 dated 5th October 2012-Master Circular on Preparation of Financial Statements: General Insurance Business & IRDA/F&A/CIR/FA/126/07/2013 dated 3rd July 2013 Corrigendum on Master Circular. 24Rationale: The circulars will undergo substantial changes as the same are covered under the Draft Regulations. Some stipulations which prescribe the timelines/formats will have to be issued under a separate Circular. iv Master Circular on Investments, IRDAI (Investments) Regulations, 2016: Rationale: The circular deals with investment categories, risk and audit committees and other operational guidelines along with ‘valuation of investments’, as the valuation of investments will now be governed by applicable Ind AS viz., Ind AS 109, Ind AS 40, the circular will have to undergo changes accordingly. 5. Other Recommendations: The Group recommends that the Ind AS compliant Balance Sheet of Insurance Companies may be used as a basis to carry out adjustments for solvency computations. 25Chapter V: Other Aspects on implementation of IFRS 17 / Ind AS 117 1 The WG recommends that Ind AS 117, Insurance Contracts, be applied by Indian insurers as per the timeline specified / notified by the MCA. Presently, transition to Ind AS is slated to happen on 1st April 2020 with comparatives as at 31st March 2019. The transition will necessitate insurers to move from a framework that is prescribed by regulations to a principle based Ind AS framework. The WG attempted to test run the draft formats. Industry represented that significant additional time and resources would be required to re-measure insurance contracts as per Ind AS 117. The WG hence recommends that the Authority call for Ind AS compliant proforma financial statements as per the draft regulations proposed. This would enable understanding the impact of Ind AS 117 on the insurance industry. 2 It is necessary for IRDAI to ensure a minimum level of presentation and disclosure requirements. Hence, the WG has prepared the draft of the regulations on preparation of financial statements. The IRDAI may consider the draft including the formats of financial statements to be the Ind AS compliant regulations to be issued after its due process. The WG accepts that the timeline for implementation of Ind AS 117 is short. The earlier reports of various committees of IRDAI on Ind AS are available and insurers have got the opportunity to read, understand and test the applications of various Ind AS. In respect of Ind AS 117 the insurers will need to set in motion a process by which management judgements can be made much in advance of the date when the Standard becomes effective. This will involve, at the minimum, a commitment from the top management, a project leader at a senior management level, involvement of the actuarial team, involvement of the auditors, simulations of various scenarios, assessing availability of information and its quality. The WG also felt that both the industry councils will have to play active role in implementation of Ind AS. This will enable a consistent application of the Standard and aid comparability between companies. 263 The Standard is principle-based and so are the other Ind AS. Hence, it is expected that the financial statements of insurers will look much different from the present formats. There could be diverse management estimates that would have a bearing on the manner in which the financial statements are prepared. All these would have to be under a regulatory scrutiny. It is essential for IRDAI to enhance its capability on the understanding and usage of Ind AS in general and Ind AS 117 and Ind AS 109 Financial Instruments in particular. This could be done through formal classroom trainings as well as availing the services of professionals and industry experts, in particularly for Ind AS 117 and Ind AS 109. 4 The WG recommends that education material on application of Ind AS 117 be issued. Presently, the ICAI has a process of issuing standard specific education material. The IRDAI may request the ICAI and IAI to prepare Ind AS 117 education material. The ICAI and IAI may be requested to involve insurance industry players proficient in Ind AS 117 for this purpose. The WG has identified the following points (though not exhaustive) which need to be considered for inclusion in the education material: - a) Calculation of risk adjustments b) Whether Health products (with renewability) option will have to follow BBA or PAA (as the option for renewability does not make the product long term, it cannot be BBA) c) Treatment of Bank Guarantees/Subsidies 5 One of the most critical aspects of a successful implementation of Ind AS 117 is deployment of appropriate computer systems and software applications. The WG recognizes that insurers will need time to assess various software applications and system providers. It is recommended that insurers commence the process at the earliest possible point in time without waiting for the Ind AS 117 to be notified as also the regulations. 276 The aspect of taxation was discussed in the industry outreach programmes. The terms of reference of the WG do not extend to determining the impact of taxation. Hence, the WG did not discuss the same. However, the WG has recommended to the insurers to prepare a document (preferably through the two councils) and share their concerns along with proposed solutions to address those concerns, with the Authority and ICAI for onward submission to the Central Board of Direct Taxes. This could, if required, be extended to changes required under the taxation laws and rules. 7 The WG was also closely watching international developments on implementation of IFRS 17. The IASB in its meeting held on October 24, 2018 discussed feedback it had received from stakeholders about the IFRS 17 and agreed on the criteria it will use in evaluating potential changes to IFRS 17, namely that any changes should not: • result in less useful information for investors; • disrupt existing implementation processes; and • risk undue delays in the effective date of a Standard that is much needed to address inadequacies in the current wide range of insurance accounting practices. As per the news item of the 24th October 2018 of IASB, the Board will discuss whether there is a need to propose changes to IFRS 17 in the coming months. If any changes were to be proposed, the Board will follow its normal due process for standard-setting, which includes a public consultation. 8 The recommendation of the WG in this report and the Draft Regulations proposed are based on the IFRS 17 notified by the IASB on 18th May 2017 and the Exposure Draft of Ind AS 117 issued by the ICAI. These may undergo a change in case the IASB concludes that there is a need to amend IFRS 17 or issue clarifications, which will have to be suitably considered by the Authority. 289 The WG opines that the general perception that there shall be minimal disruption in the General Insurance Industry in implementation of Ind AS is not true for the following reasons: • Till date there is little reliance on actuarial calculations/assumptions driven by legislative and objective calculations. • Contract terms are generally a year or less. • Recent innovations and legislative compulsions led to long term products in general insurance space. 10. The WG also deliberated the issue of when an obligation is considered as discharged vis-à-vis the requirement of the Insurance Act, 1938 and the wordings of the Standard. It was felt that a legal opinion be taken as regards ‘Unclaimed Amounts’ particularly to understand when is the obligation considered as discharged in accordance with para 74 of the standard when a claim is made and the payment is not received by the policyholder. 11. The WG deliberated and opined that an issue may be referred to IASB and IAI on whether Indian Par products are to be estimated under the BBA approach considering them under insurance contracts without direct participation feature as against the claim made by some of the industry participants to consider them as insurance contracts with direct participation feature. Also, while deliberating on the classification of Indian Par products, applicable legal provisions may be taken note of particularly compliance with Section 49 of the Insurance Act, 1938. ****** 29~,uft~ imT -3fu ~f.1~1qcfi ~cfil(-1 ~ INSURANCE REGULATORY AND ifllai DEVELOPMENT AUTHORITY OF INDIA IRDA/F&A/ORD/ACTS/ 184 / 08 /2017 August 21, 2017 ORDER Working Group on new standard on Insurance Contracts (equivalent to IFRS 17 Insurance Contracts) It has been decided that IRDAI shall commence work on early adoption of new standard on insurance contracts in India equivalent of IFRS 17 Insurance Contracts promulgated by the International Accounting Standards Board (IASB) on 18th May 2017. In order to work towards early adoption of new standard on insurance contracts, equivalent to IFRS 17, the following Working Group is constituted: Working Group Head: 1. Sri Ashutosh Pednekar Partner, M/s M. P. Chitale & Co. Members: 2. Sri Dinesh Pant Appointed Actuary, Life Insurance Corporation of India 3. Ms. Asha Murali Appointed Actuary, M/s ICICI Prudential Life Insurance Co. Ltd 4. Sri P. Kutumbe ED-F&A, Life Insurance Corporation of India 5. Sri G. Sai Kumar Sr VP & Financial Controller - F&A, M/s Star Union Dai-ichi Life Insurance Co. Ltd 6. Smt. S.N. Rajeswari GM-F&A, New India Assurance Co. Ltd. 7. Smt. Shefali Sehwani M/s ICICI Lombard General Insurance Co. Ltd. 8. Sri Rahul Ahuja Mis Max Bupa Health Insurance Co. Ltd. 9. Sri Murtuza Vajihi Partner, M/s M. P. Chitale & Co. 10. Representative of Institute of Chartered Accountants of India (ICAI) 11. President of Institute of Actuaries of India (IAI) 12.Smt. J. Meena Kumari, CGM (Inspection), IRDAI -qft~ 'll<R, ~<@, ~. ~-500 004. ~ 1 Parisharam Bhavan, 3rd Floor, Basheer Bagh, Hyderabad-500 004. India. (l) : 91-040-2338 1100, ~ ; 91-040-6682 3334 Ph.: 91-040-2338 1100, Fax: 91-040-6682 3334 {-i@: irda@irda.gov.in ~: www.irda.gov.in E-mail: irda@irda.gov.in Web.: www.irda.gov.in13. Sri S.P. Chakraborty, GM (Actuarial), IRDAI 14. Smt. J. Anita, GM (NL), IRDAI 15. Sri C.S. Kumar, DGM (Actuarial), IRDAI 16.Smt. Uma Maheswari, DGM (F&A-NL), IRDAI Member-Convener Smt. B. Padmaja, DGM (F&A-L), IRDAI The Working Group shall work on the following Terms of Reference: 1. Review of the new standard 'IFRS 17 - insurance contracts' and to identify relevant areas/aspects, which require suitable adoption in the Indian context 2. Identify changes arising out of new standard on insurance contracts a. To be carried out in the draft regulations/formats recommended by the Implementation Group vide their report dated 29th December 2016 b. To be carried out in other regulations/guidelines etc. 3. Any other aspects that may arise in the course of implementation of the standard in the insurance sector The Working Group may meet as many times as required and co-opt members (experts from industry and within IRDAI) as may be considered necessary. Expenses incurred by external Members in attending various meetings may be reimbursed as per the norms of the Authority. The Working Group shall report within three months of the order. Chai 2Annexure 2 Activities of the Working Group on New Standard on Insurance Contracts (Equivalent of IFRS 17 Insurance Contracts) was formed vide IRDA/ F&A/ ORD/ACTS /184/06/2017 dated 21st August 2017 (WG) 1. The WG met for seven times between 4th October 2017 and 8th October 2018 in which an extensive study and interactions have been taken up on the standard. In addition to the meetings in person, they interacted over phones/e-mails and video conferences. Out of the seven meetings two were combined meetings with ICAI. In the combined meeting, the members of the WG facilitated industry inputs elaborating about the nuances of Indian Insurance industry to ICAI. After detailed deliberations, ICAI issued the Exposure Draft of the Indian equivalent of IFRS 17 viz., Ind AS 117 on 12th February 2018. 2. Following the first meeting of the WG the following members were co-opted into the WG: a. Smt. Tania Chakrabarti, Appointed Actuary on Consulting Basis, M/s Bharti Axa General Insurance Co. Ltd. b. Shri V. C Jain, DGM & CFO, GIC of India c. Shri Shankar Garigapathy, Lloyds India Reinsurance Branch d. Shri Vidhyadhar Kulkarni, Head Technical Directorate and Secretary, Accounting Standards Board, ICAI In the subsequent deliberations, the following members were co-opted: a. Dr. Avinash Chander, Ex-Technical Director, ICAI b. Smt. Kalpana, LIC of India c. Shri Ramandeep Sahni, Bajaj Allianz Life Insurance Co. Ltd. d. Shri Venkat Krishnan, Bajaj Allianz Life Insurance Co. Ltd. Following Shri P. Kutumbe’s exit from LIC of India, Shri S.M. Jain, LIC of India was nominated for the WG. Pursuant to Smt. Shefali Sehwani’s exit Shri Vikas Mehra, 1was nominated from M/s ICICI Lombard General Insurance Co. Ltd. Smt. Shefali Sehwani represented Lloyds India Reinsurance Branch thereafter. Smt. Tania Chakrabarti and Sri V. C. Jain were unable to attend all the meetings of the WG. Smt. M. Sashikala, Director and General Manager, General Insurance Corporation of India and Smt. Jayashree R, DGM, General Insurance Corporation of India were able to attend the seventh meeting of the WG. Shri Sanjeeb Kumar, President of IAI attended the WG meetings initially, following Shri Sunil Sharma assuming the charge of the President of IAI, he attended the seventh meeting of the WG. Shri Ram Naresh, Shri Titus Francis and Shri Sharad S. from New India Assurance Co. Ltd. also attended some of the meetings. 3. In order to work upon second terms of reference of the WG, in a focused manner, two groups were formed to • Formulate Ind AS compliant draft of Regulations on Preparation of Financial Statements of Insurers along with formats for presentation viz., the Drafting Group (DG) • Study the impact of IFRS 17 on variousRegulations/Circulars/guidelines of IRDAI viz., Group on Regulations (GR) Drafting Group: 4. Drafting Group was formed under the leadership of Shri Vidhyadar Kulkarni, Secretary, Accounting Standards Board (ASB), ICAI and Dr. Avinash Chander, Ex- Technical Director, ICAI as Co-chair. The following were the members of the group: 2Sr.No. Name Organisation 1. Smt. S.N. Rajeswari, GM & CFO, New India Assurance Co. Ltd. 2. Smt. Kalpana Life Insurance Corporation of India Appointed Actuary, M/s ICICI Prudential Life 3. Smt. Asha Murali Insurance Co. Ltd. 4. Smt. Shefali Sehwani CFO, Lloyds' India Reinsurance Branch 5. Shri Vikas Mehra M/s ICICI Lombard General Insurance Co. Ltd. 6. Shri Murtuza Vajihi Partner, M/s M. P. Chitale& Co. 7. Shri Ramandeep Sahni CFO, Bajaj Allianz Life Insurance Co. Ltd. 8. Shri Venkatakrishna N. Bajaj Allianz Life Insurance Co. Ltd. 9. Shri Shardul Admane DGM (F&A - Life), IRDAI 10. Smt. B. Padmaja DGM (F&A - Life), IRDAI 5. The Drafting Group met eight times over ten days between February 2018 to September 2018. 6. The following members of the DG were involved in preparing the draft formats for discussions: Secretary, Accounting Standards Board (ASB), ICAI 1. Shri Vidhyadar Kulkarni and 2. Dr. Avinash Chander Ex- Technical Director, ICAI as Co-chair. 3. Shri Murtuza Vajihi Partner, M/s M. P. Chitale& Co. 4. Shri Ramandeep Sahni CFO, Bajaj Allianz Life Insurance Co. Ltd. 5. Sri Venkatakrishna N. Bajaj Allianz Life Insurance Co. Ltd. 6. Smt. B. Padmaja DGM (F&A - Life), IRDAI This group met five times over six days between March 2018 to June 2018. Group on Regulations: 7. Group to identify Regulations/Regulatory Stipulations impacted by Ind AS 117 was formed with the following members: 1. Smt. Meena Kumari, CGM, IRDAI as a lead 2. Shri S.P. Chakraborthy, GM, IRDAI 3. Shri Sudipta Bhattacharya, GM, IRDAI 4. Dr. Avinash Chander, Ex-Technical Director, ICAI 5. Shri Murtuza Vajihi, Partner, M/s M.P. Chitale & Co. 36. Smt. S.N. Rajeswari, GM, New India Assurance 7. Shri Dinesh Pant, AA, LIC of India 8. Smt. B. Padmaja, DGM, IRDAI 8. The Group met for three times. Outreach programmes/test run on the formats: 9. Considering the complexities of the new standard on insurance contracts viz., IFRS 17, the WG engaged with CFOs and Appointed Actuaries of both life and general insurance industry. General Insurance Council and Life Insurance Council organised the outreach meetings in July 2018 with respective sectors. During the outreach program, the WG requested the insurers to carry out a trail run on the formats. Volunteers were asked to run the audited figures of FY 2017-18 on the draft of new formats (insurers were asked to work upon presentation of the financials, measurement was not expected), to check the correctness/accuracy of the formats. This was because the WG appreciated that it would not be possible to do a re-measurement of insurance contracts as required by the Standard in the given timelines. Star Union Dai-Ichi Life Insurance Company Limited volunteered and submitted the audited numbers fitted into the draft Ind AS financial statements formats. The assumptions applied and the methodology used by it was explained which was useful to the WG in determining the efficacy of the draft formats. Other volunteers requested significantly more time and resources to carry out the trial run and hence were unable to provide their output of the trial run, owing to paucity of time. 10. The WG suggested in industry outreach meetings that the Standard needs to be read in detail and understood by reading the Application Guidance, Illustrative Examples and the Effect Analysis. 4Outreach with PSUs: 11. The WG also had separate meetings with seven PSUs of General Insurance sector in August 2018 and LIC of India in September 2018 to understand and address the specific issues unique to them like legacy aspects, taxation aspects etc., These PSUs involved operational level staff from various departments of their organisation in the meetings. Interactions with the International Accounting Standards Board: 12. The Head of the Working Group and some of the members along with IRDAI officials have been part of Interactions with International Accounting Standards Board (IASB) organised by ICAI in April 2018 and July 2018. During the interactions some of the grey areas of the standard were raised with officials of IASB. Interactions with ICAI: 13. Members of the WG were actively involved in facilitation of Industry inputs to the Accounting Standards Board of ICAI for issuance of Exposure Draft of Ind AS 117. Members of the WG were also involved in the discussions on the Exposure Draft of Ind AS 117 with the Accounting Standards Board of ICAI WG request to ASB: 14. Based on the discussions of the WG, the group head has written to ASB, ICAI in August 2018, requesting for an amendment to Ind AS 1 in order to facilitate usage of titles for financial statements stipulated under specialized legislations by which ‘Revenue Account’ can be presented as a 5separate statement rather than making it part of ‘Statement of Profit and Loss Account' by a insurance company. 6Annexure 3 Draft Regulations INSURANCE REGULATORY AND DEVELOPMENT AUTHORITYOF INDIA, HYDERABAD THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA (PREPARATION OF FINANCIAL STATEMENTS OF INSURERS) REGULATIONS, 20XX. NOTIFICATION HYDERABAD, the XXXX XXXXX, 20XX. F. No. IRDA/Reg/XXX/XXXX: In exercise of the powers conferred by section 114A of the Insurance Act, 1938, (4 of 1938), the Authority, in consultation with the Insurance Advisory Committee, hereby makes the following regulations, namely: - 1. Short title and commencement (1) These regulations may becalled the Insurance Regulatory and Development Authority of India (Preparation of Financial Statements of Insurers) Regulations, 20XX (‘The Regulations’). (2) They shall come into force with effect from accounting periods commencing on or after 1st April, 2020.On and from the commencement of these regulations, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002 shall stand repealed. Notwithstanding the said repeal any things done or any action taken or purported to have been done or takenor any operation undertaken or any direction given or any proceeding taken or any penalty, punishment, forfeiture or fine imposed under the repealed Regulations shall, insofar as it is not inconsistent with the provisions of these Regulations, be deemed to have been done or purported to have been done or taken under the corresponding provisions of theseRegulations; 2. Definitions - In these regulations, unless the context otherwise requires (1) “Act” means the Insurance Act, 1938 (4 of 1938); (2) “Authority” means the Insurance Regulatory and Development Authority of India established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999); (3) “Indian Accounting Standards(IndAS)” means the Indian Accounting Standards notified under the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time. (4) "Insurer" means the insurer as defined under section 2 (9) of the Act. 1All 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), shall have the meanings respectively assigned to them in those Acts. For the purpose of these Regulations, the terms and expressions defined in Ind AS shall prevail. 3. Preparation of Financial Statements -An insurer holding certificate of registration granted by the Authority shall comply with the Ind AS and the requirements ofthese Regulations except that in case of life insurance business, the investment property and/or the owner occupied property (to the extent permitted) that has/have been included as a part of investments backing the insurance contracts with direct participating featuresand investment contracts with discretionary participating features shall be measured and accounted for in accordance with the Fair Value Model as per Ind AS 40, Investment Property, and in case of other than the life insurance business, the same shall be measured and accounted for in accordance with the Cost Model as per that Ind AS. PART I General instructions for preparation of Financial Statements 1. This Schedule prescribes the minimum disclosure requirements in the Financial Statements. Complete set of Financial Statements for the purpose of these Regulations comprises: a) Balance Sheet (including Statement of Changes in Equity) in accordance with Ind AS1, Presentation of Financial Statements. b) Statement of Profit and Loss for the period, in accordance with Ind AS1, Presentation of Financial Statements including Policyholders’ Account (Revenue Account) and Shareholders’ Account (Profit and Loss Account), as required by the Insurance Act, 1938. c) Receipts and Payments Account [Cash Flow Statement as per direct method in accordance with Ind AS 7, Statement of Cash Flows]. d) Notes including: i. Summary of significant accounting policies ii. Other explanatory notes annexed to, or forming part of, any document referred to in Sub-clause (a) to Sub-clause (c) above. e) Comparative information in respect of the preceding period. 2. Line items, sub-line items and subtotals shall be presented as an addition or substitution on the face of the Financial Statements when required for compliance with the Act, Guidelines/Circulars issued by the IRDAI from time to time or specified in the Ind AS. 23. Where compliance with the requirements of the Act, Guidelines/Circulars issued by the IRDAI from time to time and Ind AS applicable to insurance companies require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head or sub-head or any changes, inter se, in the Financial Statements or statements forming part thereof, the same shall be made and the requirements of this notification shall stand modified accordingly. 4. The presentation and disclosure requirements specified in these Regulations are in addition to and not in substitution of the requirements specified in the Ind AS. Additional disclosures specified in the IndASshall be made in the notes to accounts or by way of additional statements, unless required to be presented on the face of the Financial Statements. Wherever an Ind AS provides for alternative presentation and disclosure requirements apart from those specified in the Regulations, an entity may adopt them. 5. (i) In addition to the disclosures specified in these Regulations, notes to accounts shall provide where required (a) narrative descriptions or disaggregations of items recognized in the Financial Statements; and (b) information about items that do not qualify for recognition in Financial Statements. (ii) Each item on the face of the Financial Statements shall be cross-referenced to any related information in the notes to accounts. In preparing the Financial Statements including the notes to accounts, a balance shall be maintained between providing excessive detail that may not assist users of Financial Statements and not providing important information as a result of too much aggregation, unless specific information is required to be disclosed separately by the Authority. 6. Financial Statements shall disclose all 'material' items, i.e. the items if they could, individually or collectively, influence the economic decisions that users make on the basis of the Financial Statements. Materiality depends on the size or nature of the item or a combination of both, to be judged in the particular circumstances. An entity need not provide a specific disclosure required by an Ind AS and/or these Regulations if the information is not material except when specifically required by law. 7. The figures in the Financial Statements may be rounded off to the nearest lakhs. 3Part II Balance Sheet including Statement of Changes in Equity Name of insurance company Registration No.... Date of Registration with IRDAI ….. Particulars Note Current Year Previous Year Assets Cash and cash equivalents 1 Investments 2 Loans 3 Other Financial Assets 4 Investment property 5 Insurance contract assets 6a Reinsurance contract assets 6b Property, Plant and Equipment 7 Goodwill 8 Other Intangible Assets 9 Current tax assets - Deferred tax assets - Other assets 10 Assets classified as held for sale - Total Assets Liabilities Insurance contract liabilities 6a Reinsurance contract liabilities 6b Investment contract liabilities (for life insurance business) 6c Borrowings 11 Other Financial liabilities 12 Current tax liabilities - Deferred tax liabilities - Other liabilities 13 Provisions 14 Total Liabilities (A) Equity Equity Share Capital Assigned Capital Other Financial Instruments classified as Equity Other Equity Total Equity (B) Total Liabilities & Equity (C)= (A) + (B) 4STATEMENT OF CHANGES IN EQUITY (Current Year) Registration No.…. Date of Registration .…… A. Equity Particulars Balance at the beginning of the year Changes during the year Balance at the end of the year Share Capital Assigned Capital Other Financial Instruments classified as Equity B. Other Equity Reserves and Surplus Insurance Equity Exchange Debt Finance Instrume Retained differences on Share Equity instruments Reserve nts Effective Earnings Revaluati translating P articulars a m pp eo np n dl ei ic y na gt ion c c fio o nm m anp p co o in u ae n l n dt of C Ra esp ei rta vl e S P Ae r cc e cu m or uii u nti m te s O Reth see rr v es t O Ch otr h mo eu prg rh e hen t O Ch otr h mo eu prg rh e h P C Ho a er s dt h gio eFn sl oo wf o Sn u rplus t s fh ota re t e ef ii m gn na e nnc tsia ol f Others Total allotment instruments sive Income ensive operation Income Balance at the beginning of the year Changes in accounting policy or prior period errors Restated balance at the beginning of the reporting period Profit for the year Other Comprehensive Income for the year Total Comprehensive Income for the year Dividends Transfer to Retained Earnings Other changes: Movement in Revaluation Reserve Deferred Tax on Revaluation Reserves movement Others changes (to be specified) Balance at the end of the year Note1:Insurance Finance Reserve relates to disaggregation of insurance finance income and expenses where an entity chooses to present the same under Other Comprehensive Income in accordance with the requirements of Ind AS 117. 2: Remeasurement of defined benefit plans and the fair value changes relating to own credit risk of financial liabilities designated at fair value through profit or loss (FVTPL) shall be recognised as a part of retained earnings with separate disclosure of such items along with the relevant amounts in the notes. 5STATEMENT OF CHANGES IN EQUITY (Previous Year) Registration No.…. Date of Registration .…… A. Equity Particulars Balance at the beginning of the year Changes during the year Balance at the end of the year Share Capital Assigned Capital Financial Instruments classified as Equity B. Other Equity Reserves and Surplus Insurance Equity Exchange Total Debt Finance Instrume Effective differences on Share Equity instruments Reserve nts Portion Revalua translating P articulars a m pp eo np n dl ei ic y na gt ion c c fio o nm m anp p co o in u ae n l n dt of C Ra esp ei rta vl e S P Ae r cc e cu m or uii u nti m te s R Eae rta ni in ne gd s O Reth see rr v es t O Ch otr h mo eu prg rh e hen t O Ch otr h mo eu prg rh e he o F Hf l e oC dw ga esh s t Si uo rn p lus t s fh ota re t e ef ii m gn na e nnc tsia ol f Others allotment instruments sive Income nsive operation Income Balance at the beginning of the year Changes in accounting policy or prior period errors Restated balance at the beginning of the reporting period Profit for the year Other Comprehensive Income for the year Total Comprehensive Income for the year Dividends Transfer to Retained Earnings Other changes: Movement in Revaluation Reserve Deferred Tax on Revaluation Reserves movement Others changes (to be specified) Balance at the end of the year Note1:Insurance Finance Reserve relates to disaggregation of insurance finance income and expenses where an entity chooses to present the same under Other Comprehensive Income in accordance with the requirements of Ind AS 117. 2: Remeasurement of defined benefit plans and the fair value changes relating to own credit risk of financial liabilities designated at fair value through profit or loss (FVTPL) shall be recognised as a part of retained earnings with separate disclosure of such items along with the relevant amounts in the notes. 6Notesto Balance Sheet Note 1: Cash and Cash equivalents Particulars Current Year Previous Year Cash (including cheques and drafts) Bank balances in deposits and current accounts Others (to be specified) Total Cash and Cash equivalents Cash and Cash equivalents - In India - Outside India Total Note: Cash and Cash Equivalents include amounts of Rs…….(Fair Value Rs.. ) towards underlying items of the Insurance Contracts with Direct Participating Features 7Note 2: Investments (Current Year) Policyholders Investments Shareholders Total Backing Insurance Contracts Backing Investment Contracts backing Unclaimed Particulars Direct Participating Other than Linked Non-linked Investment contracts with Discretionary Total Amounts Direct Participation Features Linked Business Others Participating Total Part I In India (1) Government securities (2) Debt securities (3) Equity instruments (4) Mutual funds (5) Others (specify) Total (A) Outside India (1) Government securities (2) Debt securities (3) Equity instruments (4) Mutual funds (5) Others (specify) Total (B) Total Investments (Part I) (C)= (A)+(B) Part II: Basis of Measurement (1) At Amortised Cost (Gross) Less: Impairment Loss Net Amortised Cost (2) At Fair Value Through Other Comprehensive Income-Debt (Gross) Less: Impairment Loss Net Fair Value Through Other Comprehensive Income-Debt (3) At Fair Value Through Other Comprehensive Income-Equity (4) Designated at Fair Value through Profit or Loss (5) At Fair Value Through Profit or Loss (6) Others (to be specified) Less: Impairment Loss Others (Net) Total (Part II) Part III: Interest Accrued included in above (1) At Amortised Cost (2) At Fair Value Through Other Comprehensive Income (3) Designated at Fair Value through Profit or Loss (4) At Fair Value Through Profit or Loss (5) Others (to be specified) Total (Part III) 8Note 2: Investments ( Previous Year) Policyholders Investments Shareholders Total Backing Insurance Contracts Backing Investment Contracts backing Unclaimed Direct Participating Other than Linked Non-linked Investment contracts with Discretionary Total Amounts Particulars Direct Participation Features Participating Linked Business Others Total Part I In India (1) Government securities (2) Debt securities (3) Equity instruments (4) Mutual funds (5) Others (specify) Total (A) Outside India (1) Government securities (2) Debt securities (3) Equity instruments (4) Mutual funds (5) Subsidiaries, associates and joint ventures (6) Others (specify) Total (B) Total Investments (Part I) (C)= (A)+(B) Part II: Basis of Measurement (1) At Amortised Cost (Gross) Less: Impairment Loss Net Amortised Cost (2) At Fair Value Through Other Comprehensive Income-Debt (Gross) Less: Impairment Loss Net Fair Value Through Other Comprehensive Income-Debt (3) At Fair Value Through Other Comprehensive Income-Equity (4) Designated at Fair Value through Profit or Loss (5) At Fair Value Through Profit or Loss (6) Others (to be specified) Less: Impairment Loss Others (Net) Total (Part II) Part III: Interest Accrued included in above (1) At Amortised Cost (2) At Fair Value Through Other Comprehensive Income (3) Designated at Fair Value through Profit or Loss (4) At Fair Value Through Profit or Loss (5) Others (to be specified) Total (Part III) 9Note 3: Loans Current Year Previous Year Amortised At Fair Value Total At Fair Value Total cost Particulars Amortised Through Through Through Designated at Through Designated at Fair cost Other Profit or Sub- Other Fair Value Profit or Value Through Comprehensi Loss Total Comprehens Through Loss Sub- Total Profit or Loss ve Income ive Income Profit or Loss SECURITY WISE CLASSIFICATION Secured (A) a) On mortgage of property i) In India ii) Outside India b) On Shares, Bonds, Government Securities, etc. c) Others (to be specified) Unsecured (B) Gross (C)=(A)+(B) Less : Impairment loss (D) Net (E)= (C)-(D) BORROWER-WISE CLASSIFICATION In India (a) Central and State Governments (b) Banks and Financial Institutions (c) Subsidiaries, Associates and Joint Ventures (d) Others (to be specified) Gross (F) Less : Impairment loss (G) Net Loans (H)= (F)-(G) Outside India (a) Central and State Governments (b) Banks and Financial Institutions (c) Subsidiaries, Associates and Joint Ventures (d) Others (to be specified) Gross (I) Less: Impairment Loss (J) Net Loans (K)= (I)-(J) Total Net Loans (H) + (K) Note: This note does not cover loans against insurance contracts which are to be accounted for under Ind AS 117 10Note 4:Other Financial Assets Current Particulars Previous Year Year Derivatives Dividends Receivable Rent Receivables Application money for investments Due from insurers(under co-insurance arrangements) Due from Insurance agents, Insurance Intermediaries Others(to be specified) Total - - Note (i): Disclosure of Derivatives would need to specify the kinds of derivatives i.e. Currency forwards, Interest Rate swaps, alongwith the disclosures of whether the same are towards cash flow hedges, fair value hedges, and/or undesignated derivatives. (ii): Other Financial Assets include amounts of Rs…….(Fair Value Rs.. ) towards underlying items of the insurance contracts with Direct Participating Features. 11Note 5:Investment Property for life insurance business Policyholders (I) Shareholders (II) Total (III)= (I) + (II) Particulars Previous Previous Previous Current Current Current Year Year Year Year Year Year LAND At the beginning of the year Additions Disposals Reclassification from/to held for sale Fair Value changes Other adjustments (please specify) At the end of the year Net carrying amount of Land as at the end of the year (A) BUILDINGS At the beginning of the year Additions Disposals Reclassification from/to held for sale Fair Value changes Other adjustments (please specify) At the end of the year Net carrying amount of Buildings as at the end of the year (B) Investment Property under construction (C) TOTAL (D)=(A) + (B)+(C) 12Note 5: Investment Property for other than life insurance business Policyholders (I) Shareholders (II) Total(III) = (I) + (II) Particulars Previous Previous Previous Current Current Current Year Year Year Year Year Year LAND At the beginning of the year Additions Disposals Reclassification from/to held for sale Other adjustments (please specify) At the end of the year Accumulated impairment as at the beginning of the year Disposals Impairment/(reversal of impairment ) Reclassification from/to held for sale Other adjustments (please specify) Accumulated impairment as at the end of year Net carrying amount of Land as at the end of the year (A) BUILDINGS At the beginning of the year Additions Disposals Reclassification from/to held for sale Other adjustments (please specify) At the end of the year Accumulated depreciation and impairment as at the beginning of the year Depreciation for the year Disposals Impairment/(reversal of impairment ) Reclassification from/to held for sale Other adjustments (please specify) Accumulated depreciation and impairment as at the end of year Net carrying amount of Buildings as at the end of the year (B) Investment Property under construction (C) TOTAL (D)=(A) + (B)+(C) 13Note 6: Insurance Contracts Assets/Liabilities - Summary Particulars Current Year Previous Year Assets Liabilities Assets Liabilities Insurance Contracts Re-Insurance Contracts Note: Liabilities in respect of Insurance Contracts and Reinsurance Contracts shall be presented for each class or segment of business. For the purpose of determining class or segment, an entity shall be guided by para 96 of Ind AS 117. 14Note 6a.1: Insurance Contracts not measured under the PAA: Movements in carrying amounts for each class or segment(Class or segment shall be as per para 96 of Ind AS 117) Analysis by remaining coverage and incurred claims Previous Year Current Year Total Liability/asset for Liability for Total Liability/asset for remaining coverage Particulars Liability remaining coverage Incurred forIncurred Excluding Claims Excluding loss Loss Loss Claims loss component component component component Opening assets Opening liabilities Net opening balance Changes in profit or loss and OCI Insurance revenue (A) i) Contracts under the modified retrospective approach ii) Contracts under the fair value approach iii) Other contracts Insurance service expenses(B) Incurred claims and other insurance service expenses Amortisation of insurance acquisition cash flows Losses and reversal of losses on onerous contracts Adjustments to liabilities for incurred claims Insurance service result(C) = (A) –(B) Investment components(D) Finance income/ expenses from insurance contracts (net)(E) Effect of movements in exchange rates(F) Others (to be specified)(G) Total changes in profit or loss and OCI(H)= (C)+(D) + (E) + (F)+ (G) Cash flows Premiums received Claims and other insurance service expenses paid (including investment components) Insurance acquisition cash flows Total cash flows Net closing balance Closing assets Closing liabilities Net closing balance Note: Break up of amounts between P/L and OCI to be shown 15Note 6a.2: Insurance Contracts measured under the PAA: Movements in carrying amounts for each class or segment (Class or segment shall be as per para 96 of Ind AS 117) Analysis by remaining coverage and incurred claims Previous year Current year Total Liability for Incurred Total Liability for Incurred claims claims Liability/ Liability/ Risk Insurance contracts asset for asset for Adjustme Risk Adjustment Estimation Remaining Estimation of Remaining nt for for non-financial of PV of coverage PV of future CF coverage non- risk future CF financial risk Opening assets Opening liabilities Net opening balance Changes in Profit or Loss and OCI Insurance revenue(A) i) Contracts under the modified retrospective approach ii) Contracts under the fair value approach iii) Other contracts Insurance service expenses(B) Incurred claims and other insurance service expenses Amortisation of insurance acquisition cash flows Adjustments to liabilities for incurred claims Insurance service result(C)=(A)-(B) Finance income /expenses from insurance contracts (net)(D) Effect of movements in exchange rates(E) Others (to be specified)(F) Total changes in Profit or Loss and OCI(G)= (C)+(D)+(E)+(F) Cash flows Premiums received Claims and other insurance service expenses paid Insurance acquisition cash flows Total cash flows Net closing balance Closing assets Closing liabilities Net closing balance 16Note 6a.3: Insurance Contracts not measured under the PAA : Movement of carrying amounts for each class or segment (Class or segment shall be as per para 96 of Ind AS 117) Analysis by measurement component Previous Year Current Year CSM Total Estimatio Risk CSM Total Estimatio n of PV Adjustment Risk Particulars n of PV Contracts Contracts Other of future for non- Contracts Contracts Adjustment for of future under under Fair Contrac Cash financial risk under under Other non-financial Cash Modified value ts Flows Modified Fair Contra risk Flows retrospective approach retrospective value cts approach approach approach Opening assets Opening liabilities Net opening balance Changes in Profit or Loss and OCI Changes that relate to current services CSM recognised for services provided Change in risk adjustment for non-financial risk for risk expired Experience adjustments Changes that relate to future services Contracts initially recognised in the year Changes in estimates that adjust the CSM Changes in estimates that result in losses and reversal of losses on onerous contracts Changes that relate to past services Adjustments to liabilities for incurred claims Insurance service result Net finance expenses from insurance contracts Effect of movements in exchange rates Total changes in Profit or Loss and OCI Total cash flows (analysed in Note6a.1) Net closing balance Closing assets Closing liabilities Net closing balance Note: Break up of amounts between P/L and OCI to be shown. For contracts measured under the PAA this table is not required. 17Note 6b.1: Reinsurance Contracts: Movement in Carrying Amounts for each class or segment (Class or segment shall be as per para 96 of Ind AS 117) Analysis by remaining coverage and incurred claims Previous Year Current Year Liability/ Total Liability / Liability Total Particulars Liability for asset for asset for for Incurred remaining remaining Incurred Claims coverage coverage Claims Opening assets Opening liabilities Net opening balance Changes in Profit or Loss and OCI Net expenses from reinsurance contracts Net finance income from reinsurance contracts Effect of non-performance risk of reinsurers Effect of movements in exchange rates Others (please specify) Cash flows Premiums paid Amounts received Total cash flows Net closing balance Note: This table is applicable for both the contracts measured under PAA and those not under PAA 18Note 6b.2: Reinsurance Contracts not measured under the PAA: Movement of carrying amounts for each class or segment (Class or segment shall be as per para 96 of Ind AS 117) Analysis by measurement component Current Year Previous Year CSM Total Estimati Risk CSM Total Risk on of PV Adjustmen Estimati Particulars on of PV Adjustment Contracts Contracts of future for non- Contracts Contracts of future for non- under under Fair Other CF financial under under Fair Other CF financial Modified value Contracts risk Modified value Contracts risk retrospective approach retrospective approach approach approach Opening assets Opening liabilities Net opening balance Changes in Profit or Loss and OCI Changes that relate to current services CSM recognised for services provided Change in risk adjustment for non- financial risk for risk expired Experience adjustments Changes that relate to future services Contracts initially recognised in the year Changes in estimates that adjust the CSM Changes in estimates that result in losses and reversal of losses on onerous contracts Changes that relate to past services Adjustments to incurred claims Net expenses from reinsurance contracts Net finance expenses from insurance contracts Effect of movements in exchange rates Total changes in Profit or Loss and OCI Total cash flows (analysed in Note6.3) Net closing balance Closing assets Closing liabilities Net closing balance Note: Break up of amounts between P/L and OCI to be shown. For contracts measured under the PAA this table is not required. 19Note6.1: Insurance and reinsurance contracts not measured under the PAA: Effect of contracts initially recognized in the year for each class or segment (Class or segment shallbe as per para 96 of Ind AS 117) Current Year Previous Year Particulars Profitable Onerous Total Profitable Onerous Total Contracts Contracts Contracts Contracts Insurance acquisition cash flows Claims and other insurance service expenses payable Estimates of present value of cash outflows Estimates of present value of cash inflows Risk adjustment for non-financial risk CSM Losses recognised on initial recognition New Reinsurance contracts held during the year Estimates of present value of cash inflows Estimates of present value of cash outflows Risk adjustment for non-financial risk CSM Total 20Note 6.2: Claims Development (to be given for ten years) (for other than life insurance business): For each class or segment (Class or segment shall be as per para 96 of Ind AS 117) Beyond Current Tot Particulars 10 CY(-)10 CY(-)9 CY(-)8 CY(-)7 CY(-)6 CY(-)5 CY(-)4 CY(-)3 CY(-)2 CY(-)1 Year al (CY) Estimates of undiscounted cumulative claims (A) At end of accident year one year later two year later three year later four year later five year later six year later seven year later eight year later nine year later ten year later Cumulative claims paid (B) Liabilities-accident years past ten years (C=A-B) Liabilities-accident years before the past ten years(D) Effect of discounting(E) Liabilities for incurred claims included in the Balance Sheet (including Statement of Changes in Equity) (F=C+D-E) Note: to be given for all the lines of business for Accident Year co-hort 21Note6c: InvestmentContracts Liabilities: Class/segment shall be as per para 96 of Ind AS 117 for life insurance business Current Previous Particulars Year Year Opening Balance Amounts recognised in Profit or Loss and in OCI* Investment return on underlying Management fees deducted Any movement in exchange rates Others (Please specify) Subtotal (a) Cash Flows: Premiums / Contributions received Benefits Paid Subtotal (b) Closing Balance * The items should be separately disclosed under profit or loss and in OCI as applicable Note: 1. The movement in investment contracts (Profit or Loss) shall be equal to investment return on underlying. Revenue from investment management services (Profit or Loss) shall be equal to management fees deducted 2. Investment contracts with discretionary participation features shall be presented separately in the same format as prescribed for ‘insurance contracts not measured under PAA approach’ 22Note 7:Property, plant and equipment Land Buildings Equipment Furniture and Vehicles Others (to be Total Fittings specified) Owner Owner Owner Occupied Occupied Occupied Particulars property property property backing Right to backing Right to Right to Right to Right to Right Free Right to backing Insurance Use Insurance Use Use Use Use to Use hold Use Insurance contract under a contract under a under a under a under a under /Ow under a contract Freehold with DPF lease Freehold with DPF lease Owned lease Owned lease Owned lease Owned a lease ned lease with DPF Total Current Year At cost or fair value at the beginning of the year Additions Revaluation adjustment, if any Disposals Reclassification from/to held for sale Other adjustments (please specify) At cost or fair value at the end of the year Accumulated depreciation and impairment as at the beginning of the year Depreciation for the year Disposals Impairment/(reversal) of impairment Reclassification from/to held for sale Other adjustments (please specify) Accumulated depreciation and impairment as at the end of year Net carrying amount as at the end of the year (A) Capital Work in Progress including advances for capital assets (B) Total (C) = (A) + (B) Previous Year At cost or fair value at the beginning of the year Additions Revaluation adjustment, if any Disposals Reclassification from/to held for sale Other adjustments (please specify) At cost or fair value at the end of the year Accumulated depreciation and impairment as at the beginning of the year Depreciation for the year Disposals Impairment/(reversal) of impairment Reclassification from/to held for sale Other adjustments (please specify) Accumulated depreciation and impairment as at the end of year Net carrying amount as at the end of the year (A) Capital Work in Progress including advances for capital assets (B) Total (C) = (A) + (B) 23Note 8: Goodwill Particulars Current Year Previous Year At cost, beginning of the period Additions Disposals Other adjustments (to be specified) Total cost (A) Accumulated impairment: At beginning of the period Additions Disposals Other adjustments (to be specified) Total impairment (B) Net carrying amount (C) =(A)+ (B) Note 9: Other Intangible Assets Current Year Prev ious Year Particulars Software Others Total Software Others Total At cost or fair value at the beginning of the period Additions Disposals Other adjustments (to be specified) At cost or fair value at the end of the period Accumulated amortization and impairment at beginning of the period Amortization for the year Disposals Impairment/(reversal) of impairment Other adjustments (to be specified) Total amortization and impairment Net carrying amount (A) Intangible assets under development (B) Total (C)= (A) + (B) Note 10: Other assets Particulars Current Year Previous Year Deposits with ceding companies Prepayments Stamps on Hand Others (to be specified) Total Other Assets 24Note 11: Borrowings Particulars Current Year Previous Year Debentures/Bonds Borrowings from Banks Borrowings from Financial Institutions Others (to be specified) Total Note 12: Other financial liabilities Particulars Current Year Previous Year Derivatives Insurance Agents and Insurance Intermediaries' Balances Balances due to Other Insurers (under co- insurance arrangements) Deposits held on reinsurance ceded Sundry Creditors Unclaimed amounts Others (to be specified) Total Note :Disclosure of Derivatives would need to specify the kinds of derivatives i.e. Currency forwards, Interest Rate Swaps, alongwith the disclosures of whether the same are towards cash flow hedges, fair value hedges, and/or undesignated derivatives Note 13: Other liabilities Particulars Current Year Previous Year Premiums received in advance Unallocated Premium* Proposal Deposit# Rates and Taxes Payable Others ( to be specified) Total Other Liabilities *Unallocated premium includes amounts received from policyholders pending unitisation and/or excess premium received. #Proposal Deposit includes amounts received from policyholders which are pending policy issuance. Note 14: Provisions Particulars Current Year Previous Year For defined benefit plans Others (to be specified) Total Provisions 25Part III Statement of Profit and Loss of .............. (Name of insurance company) for the year ended ........ Particulars Note Current Year Previous Year Shareholders Shareholders Total Policyholders (P & L A/c) Policyholders (P & L A/c) Total (Revenue (Revenue A/c) A/c) Insurance Revenue (A) 15 Insurance Service Expenses (B) 16 Net expenses from reinsurance (C) - contracts ** Insurance Service Result (A)- (D) (B)-(C) Interest revenue on financial assets 17 not measured at FVTPL Other investment revenue (including 18 fair value changes) Impairment loss on financial assets 19 Dividends Gains/losses arising from the derecognition of debt instruments measured at FVOCI Gains/losses arising from the derecognition of financial assets measured at amortised cost Investment Income (E) Finance income/ expenses from 20a + insurance contracts (net) 20b Finance income/ expenses from reinsurance contracts (net) Insurance Finance (F) Income/Expenses Movement in investment contract (G) liabilities Net Finance Result (E)-(F)- (H) (G) Revenue from investment management services Other income 21 Other expenses 16 Other finance costs 22 Other Revenue/expenses (net) (I) Profit /(Loss) before Exceptional (D) + (J) Items (H)+(I) Exceptional Items Profit / (Loss) before tax Income tax expense Profit/ (Loss) from continuing operations Profit/ (Loss) from discontinued operations Tax expense of discontinued operations Profit / (Loss) from discontinued 26operations (after tax) Profit/(loss) for the period Other Comprehensive Income 1 (i) Items that will not be reclassified to profit or loss (specify items and amounts) (ii) Income tax relating to items that will not be reclassified to profit or loss Sub-total 2 (i) Items that will be reclassified to profit or loss (specify items and amounts) (ii) Income tax relating to items that will be reclassified to profit or loss Sub-total Total Other Comprehensive Income Total Comprehensive Income Earnings per Equity Share (for continuing operations) (1) Basic (2) Diluted Earnings per Equity Share (for discontinued operations) (1) Basic (2) Diluted Earnings per Equity Share for profit/(loss) of the period (for discontinued and continuing operations) (1) Basic (2) Diluted ** Ind AS 117 para 86 gives an option to present income and expenses from reinsurance contracts as a single amount. In case the entity chooses to present this as a single amount, this line item may be used. If the entity chooses to present separately, then presentation has to be made in the respective notes of claims and premium as per Para 86 (a), (b) and (c) of Ind AS 117 27Notes to statement of profit and loss Note 15: Insurance revenue Particulars Current Year Previous Year Policyholders Shareholders Total Policyholders Shareholders Total Contracts not measured under the PAA Amounts relating to changes in liabilities for remaining coverage i). CSM recognised for services provided ii). Change in risk adjustment for non- financial risk. iii). Release of expected incurred claims and other insurance service expenses Recovery of insurance acquisition cash flows Sub-total Contracts measured under the PAA Premium allocated for the period Less: Acquisition costs Sub-Total Total insurance revenue 28Note 16: Insurance Service and Other Expenses for life insurance business Particulars Current Year Previous Year Policyholders Shareholders Total Policyholders Shareholders Total a) Incurred claims i). Mortality ii). Annuity iii). Health iv). Riders v). Others b) Losses and reversals on onerous contracts c) Adjustments to liabilities for incurred claims d) Employee benefit expenses e) Commission f) Other expenses (i) Travel & Conveyance (ii) Rent (iii) Rates & taxes (iv) Repairs & Maintenance (v) Energy Cost (vi) Printing & Stationery (vii) Communication expenses (viii) Legal & Professional fees (ix) Auditor Fees (x) Advertisement & Publicity (xi) Bank Charges (xii) Depreciation &Amortisation (xiii) Impairment losses (other than on financial assets) (xiv) Acquisition cost for financial instruments classified/ designated as FVTPL (xv) Miscellaneous expenses Adjusted for (A) Amounts attributed to insurance acquisition cash flows (Refer Note 6.1 & 6.3) (B) Amortisation of insurance acquisition cash flows (Refer Note 6.1 & 6.3) Total Represented by: -Insurance service expenses -Other expenses Note: Those changes related to carrying amounts of groups of insurance contracts included in Other Comprehensive Income applying para 90 of Ind AS 117shall be included in Other Comprehensive Income 29Note 16: Insurance Service and Other Expenses for other than life insurance business Particulars Current Year Previous Year Policyholders Shareholders Total Policyholders Shareholders Total a) Incurred claims b) Losses and reversals on onerous contracts c) Adjustments to liabilities for incurred claims d) Employee benefit expenses e) Commission f) Other expenses (i) Travel & Conveyance (ii) Rent (iii) Rates & taxes (iv) Repairs & Maintenance (v) Energy Cost (vi) Printing & Stationery (vii) Communication expenses (viii) Legal & Professional fees (ix) Auditor Fees (x) Advertisement & Publicity (xi) Bank Charges (xii) Depreciation &Amortisation (xiii) Impairment losses (other than on financial assets) (xiv) Acquisition cost for financial instruments classified/ designated as FVTPL (xv) Miscellaneous expenses Adjusted for Amounts attributed to insurance acquisition cash flows(Refer Note 6.1 & 6.3) Amortisation of insurance acquisition cash flows (Refer Note 6.1 & 6.3) Total Represented by: Insurance Service expenses Other expenses Note: Those changes related to carrying amounts of groups of insurance contracts included in Other Comprehensive Income applying para 90 of Ind AS 117shall be included in Other Comprehensive Income 30Note 17: Interest revenue on financial assets not measured at FVTPL Current Year Previous Year Particulars Amortised Cost Fair value through OCI Total Amortised Cost Fair value through OCI Total Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Interest on i). Government Securities ii). Deposits with Banks/Financial Institutions iii). Debentures/ Bonds iv). Other Debt Securities Total 31Note 18: Other Investment Revenue (including fair value changes) Current Year Previous Year At FVTPL Designated as FVTPL Total At FVTPL Designated as FVTPL Total Particulars Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders a) Net Gain/(loss) on Fair Value changes* i. G overnment Securities ii. D eposits with Banks/Financial Institutions iii. D ebentures/ Bonds iv. O ther Debt Securities v. E quity vi. M utual Funds vii. D erivatives viii. In vestment Property** ix. O wner Occupied Property backing insurance contracts with Direct Participating Features x. O thers (please specify) Sub-Total b) Rental Income from Investment Property c) Foreign exchange gain on Financial Assets Total * These includes both realised and unrealised gains/ (loss) ** Not required for other than life insurance business. 32Note 19: Impairment of financial assets Particulars Current Year Previous Year On financial instruments On financial instruments On financial instruments Total On financial instruments On financial instruments On financial Total measured at fair value measured at Amortised Cost measured at any other basis measured at fair value measured at Amortised instruments measured through OCI through OCI Cost at any other basis Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders Policyholders Shareholders i). Government Securities ii). Deposits with Banks/Financial Institutions iii). Debentures/ Bonds iv). Other Debt Securities v). Policy Loans vi). Others (to be specified) Total Impairment on Financial Instruments 33Note 20 a : Finance expenses from insurance contracts (of Policyholders) Current Previous Particulars Year Year Changes in fair value of underlying items of insurance contracts with direct participating features Changes in fair value of underlying items or fulfilment cash flows that do not adjust the CSM Interest accreted Effect of changes in interest rates and other financial assumptions Effect of measuring changes in estimates at current rates and adjusting the CSM at rates on initial recognition Others (please specify) Total finance expenses from insurance contracts Note : If an entity has selected the accounting policy in para 88(b) & 89(b), it shall disclose separately the amounts recognised in OCI. Note 20 b: Finance expenses from reinsurance contracts Current Previous Particulars Year Year Changes in fair value of underlying items of insurance contracts with direct participating features Changes in fair value of underlying items or fulfilment cash flows that do not adjust the CSM Interest accreted Effect of changes in interest rates and other financial assumptions Effect of measuring changes in estimates at current rates and adjusting the CSM at rates on initial recognition Others (please specify) Total finance expenses from reinsurance contracts Note : If an entity has selected the accounting policy in para 88(b) & 89(b), it shall disclose separately the amounts recognised in OCI. Note 21:Other Income Current Year Previous Year Particulars Policyholders Shareholders Total Policyholders Shareholders Total Net gain/(loss) on ineffective portion of hedges Net gain/(loss) on derecognition of property, plant and equipment Net gain or loss on foreign currency transactions and translation (other than considered as finance cost)( to be specified) Others ( to be specified) Total Other Income 34Note 22: Finance cost Current Year Previous Year Particulars Policyholders Shareholders Total Policyholders Shareholders Total Interest on financial liabilities measured at amortised cost Dividend on redeemable preference shares treated as liability Others (to be specified) Total Finance Cost 35Part IV A. Notes to Accounts 1. Contingent Liabilities and Commitments (to the extent not provided for) a) Contingent Liabilities shall be classified as: i. Claims, other than those under policies not acknowledged as debt; ii. Statutory demands/liabilities in dispute, not provided for; iii. Other money for which the company is contingently liable; iv. Guarantees excluding financial guarantees given by or on behalf of the Company. b) Commitments shall be classified as: i. Estimated amount of contracts remaining to be executed on capital account and not provided for; ii. Uncalled liability on shares and other investments partly paid; iii. Other commitments (specify nature). 2. The amount of dividends proposed to be distributed to equity and preference shareholders for the period and the related amount per share shall be disclosed separately. Arrears of fixed cumulative dividends on irredeemable preference shares shall also be disclosed separately. 3. When a company applies an accounting policy retrospectively or makes a restatement of items in the Financial Statements or when it reclassifies items in its Financial Statements, a "Balance Sheet" as at the beginning of the earliest comparative period shall be presented. 4. Share application money pending allotment shall be classified into equity or liability in accordance with relevant Indian Accounting Standards. Share application money to the extent not refundable shall be shown under the head Equity and share application money to the extent refundable shall be separately shown under 'Other financial liabilities'. 5. Preference shares including premium received on issue, shall be classified and presented as 'Equity' or 'Liability' in accordance with the requirements of the relevant Indian Accounting Standards. Accordingly, the disclosure and presentation requirements in this regard applicable to the relevant class of equity or liability shall be applicable mutatis mutandis to the preference shares. For instance, where redeemable preference shares are classified and presented under ‘liabilities' as 'borrowings', the disclosure requirement in this regard applicable to borrowings shall be applicable mutatis mutandis to such redeemable preference shares. 366. Compound financial instruments such as convertible debentures where split into equity and liability components, as per the requirements of the relevant Indian Accounting Standards, shall be classified and presented under the relevant heads in ‘Equity’ and 'Liabilities'. 7. Apart from the requirement of reflecting the Revenue Account as required under clause 1 (b) of Part I and other requirements under these Regulations, the insurance entity shall also present segment information in accordance with the Ind AS as applicable. 8. Items of expense and income in excess of one percent of the total revenue (insurance revenue & Insurance Finance Income) orRs. 5 lakh whichever is higher shall be shown separately. 9. The assigned capital for a foreign reinsurer operating through a branch office established in India in terms of Section 2 (9) (d) of the Act, shall be presented as a separate component of equity. 10. Basis of allocation and apportionment of expenses (other than Commission) to various classes of insurance business. 11. Computation of managerial remuneration. B. Regulatory Disclosures for life insurance business 1. An insurer shall prepare Revenue Account, at a minimum, for the sub-classes Life, Annuity, Pension, Health and Variable Insurance under the following types: 1) Participating 2) Non-Participating Non linked 3) Non-Participating Linked Further, divisions into Individual and Group business will have to be given. 2. Percentage of business sector-wise (Rural Sector, Social Sector) C. Regulatory Disclosures for other than life insurance business 1. An insurer (other than life insurance business) shall prepare Revenue Account separately for fire, marine and miscellaneous insurance business and separate schedules shall be prepared for the following lines of business. i). Fire ii). Marine Cargo and Marine (Other than Marine Cargo) iii). Motor iv). Health including Personal Accident a. Health Retail 37b. Health Group c. Health Government Schemes v). Miscellaneous a. Retail b. Group/Corporate vi). Any other segment which contributes more than 10 percent of the Miscellaneous class of business; vii). Any other class as may be specified by the Authority 2. Percentage of business sector-wise (Rural Sector, Social Sector and Motor TP) D. Regulatory Disclosures for life and other than life Insurance business 1. Details of various penal actions taken by various Government Authorities shall be disclosed as may be prescribed by the Authority; 2. Unclaimed amounts of policyholders shall be disclosed as may be prescribed by the Authority; 3. Encumbrances to assets of the company in and outside India. 4. Contracted amount in relation to investments for: i). Purchases where deliveries are pending; ii). Sales where receipts are pending 5. A summary of Financial Statements for the last five years, in the manner as may be prescribed by the Authority; 6. Accounting Ratios as may be prescribed by the Authority. 38