Document Detail

Title: Circular
Reference No.: IRDA/F&A/CIR/MISC/081/05/2019
Date: 20/05/2019
Preparation of Financial statements for FY 2019-20 and Onwards





AllGeneral Insurers, Health Insurers, Specialized Insurers and Reinsurers


Sub:Preparation of Financial Statements for FY2019-20 and Onwards


1.    InsuranceRegulatory and Development Authority (Preparation of Financial Statements andAuditor’s Report of Insurance Companies) Regulations, 2002;

2.    MasterCircular on Preparation of Financial Statements: General Insurance Businessdated 5th Oct 2012

Inorder to bring uniformity, comparability and fair presentation of FinancialStatements filed by the insurers, the Authority, in exercise of the power underSection 14 of IRDA Act, 1999, hereby issues the following directions:


1.Presentation of Excess Expenses of Management (EoM) in Operating Expenses:

TheAuthority vide Insurance Regulatory and Development Authority of India(Expenses of Management of Insurers transacting General or Health Insurancebusiness) Regulations, 2016 have prescribed the limits of expenses ofmanagement. In case expenses of management exceed the limits prescribed by theRegulations, the excess is required to be charged to Shareholders Account i.e.Profit and Loss Account.


Itis observed that some insurers are disclosing the operating expenses net ofexcess EoM charged to shareholders account, in Revenue Account. This leads todistorted picture of the Underwriting Results of the Insurers. In light of thesame, all Insurers are advised to present the excess of EoM in FinancialStatements, as under:

     I.       Report the gross amount of Operating expensesin Schedule-4 and Revenue Account without deducting ‘Excess of allowableexpenses’;

   II.       Report excess of allowable expenses as incomeunder Revenue account under separate sub line item as “Contribution fromShareholders Funds towards Excess EoM” in the line item “Others”;

  III.       Report excess of allowable expenses asexpenses under Profit & Loss account under separate sub line item,“Contribution to policyholders Funds towards Excess EoM” in line item “OtherExpenses”;


2.Personal Accident Policies in Health Segment

Interms of Section 2(6C) of the Insurance Act, 1938, Personal Accident and Travel(Including domestic as well as overseas) are part of Health Insurance.


2.1In order to have uniformity in case ofbusiness from Personal Accident and Travel, it is hereby specified that inFinancial Statements:

     I.       Personal Accident shall continue to be shownas a separate sub-segment within “Miscellaneous segment”;

   II.       As the Insurance Regulatory and DevelopmentAuthority (Preparation of Financial Statements and Auditor’s Report ofInsurance Companies) Regulations, 2002 do not provide a separate segment/subsegment for Travel (including domestic as well as overseas) insurance, it shallbe clubbed with “Health Segment”;


2.2For computation of Expenses of Management,Personal Accident and Travel shall be clubbed with Health Segment.

3.Deviation from Formats prescribed:

Itis observed that some insurers have modified the formats as prescribed by theby IRDA (Preparation of Financial Statements and Auditor’s Report of InsuranceCompanies) Regulations, 2002 by way of addition/deletion of line items.

Allinsurers are advised to strictly adhere to the formats prescribed by theRegulations. Any new line item, if so warranted to be disclosed separately, maybe shown under “Others” in Revenue Account, P&L Account and/or relevantschedule of the financial statements by giving the break up.


4.Creation of UPR and Outstanding Claims Reserve (Including IBNR/IBNER) forPremium Ceded under Clean-cut Reinsurance Treaties

Itis observed that some insurers enter into one-year Quota Share ReinsuranceTreaty on Clean-cut basis. The provision towards the unexpired premium reserve/ IBNR / IBNER, on such treaties, is neither provided by Direct insurer (cedant)nor by the reinsurer(s).

Itis hereby advised that Direct insurers (cedant) shall create the adequatereserves, as follows, in accordance with the IRDAI (Assets, Liabilities andSolvency Margin of General Insurance Business) Regulations, 2016:

      I.       Unearned Premium Reserve and PremiumDeficiency Reserve towards the unexpired risk at the end of the treaty period;and

     II.       Outstanding Claims Reserve (includingIBNR/IBNER) towards the outstanding claims on the date of expiry of the treaty.


5.Rewards and Remuneration to Agents/Brokers/Other intermediaries

Inorder to bring the consistency, uniformity and fair presentation, it is hereby advisedthat rewards and/or remuneration to agents, brokers or other intermediariesshall be shown as part of Commission.


6.Segregation of Policyholders’ and Shareholders’ Funds

TheAuthority has issued to Circular IRDA/F&A/CIR/CPM/010/01/2017 dated 12thJanuary 2017 which mandates the insurers to segregate Policyholders’ Funds andShareholders’ Funds. The provisions of the Circular, which was hithertoapplicable till 31stMarch 2018, are now extended for FY2018-19 andonwards, till further orders. All other provisions of the above referredCircular shall continue to be applicable.


7.Corporate Social Responsibility Expenditure

Inorder to bring the consistency, uniformity and fair presentation, it is herebyadvised that expenditure towards Corporate Social Responsibility shall be shownin Profit and Loss Account.


Allinsurers are advised to take note of the above for compliance, while finalizingthe accounts of Q1 of FY2019-20 and thereafter.


(Pravin Kutumbe)

Member (F&I)


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