IRDAI releases Report on New Standard on Insurance Contracts

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The Insurance Regulatory and Development Authority of India (IRDAI) on December 6 released a Report of the Working Group (WG) on New Standard on Insurance Contracts (Equivalent to IFRS 17 Insurance Contracts).

Executive Summary of the Recommendations is as follows:

• 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 May 18, 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.

6. 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.

The Report provides detailed information on: IFRS 17 / Ind AS 1171 Insurance Contracts; Approach on Drafting the Regulations on Preparation of Financial Statements; IRDAI Regulations/Circulars/Guidelines that will be impacted by IFRS 17 / Ind AS 117; and Other Aspects on implementation of IFRS 17 / Ind AS 117 as well as Order on Formation of the Working Group (WG); Activities of the Working Group; and Draft Regulations on Preparation of Financial Statements (Draft Regulations).

To view the entire Official Report in detail, please view the file attached herein.

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