(A) SIGNIFICANT ACCOUNTING POLICIES:
1. Basis of Preparation:
The Financial Statements have been prepared under the historical cost convention, with fundamental accounting
assumptions of going concern, consistency and accrual basis, unless otherwise stated. The accounting and reporting
policies of the Corporation conform to accounting principles generally accepted in India (Indian GAAP), comprising
regulatory norms and guidelines prescribed by the Life Insurance Corporation Act, 1956 (as amended), Insurance
Regulatory and Development Authority of India (Actuarial, Finance and Investment Functions of Insurers) Regulations,
2024, Master Circular on Actuarial, Finance and Investment Functions of Insurers IRDAI/ACTL/CIR/MISC/80/05/2024
dated 17th May, 2024 (“the Master Circular”) and other circulars issued by the IRDAI from time to time, provisions of the
Insurance Act, 1938, as amended and in compliance with the Accounting Standards notified under Section 133 of the
Companies Act, 2013, and amendments and rules made thereto, to the extent applicable.
2. Use of Estimates:
The preparation of Financial Statements is in conformity with generally accepted accounting principles in India (Indian
GAAP), which requires the management to make estimates and assumptions that affect the reported amounts of income
and expenses for the year, reported balances of assets and liabilities and disclosures relating to contingent liabilities as on
the date of the Financial Statements. The estimates and assumptions used in the accompanying Financial Statements are
based upon management’s evaluation of the relevant facts and circumstances up to and as on the date of the Financial
Statements. Actual results may differ from the estimates. Any revision to the accounting estimates is accounted for
prospectively.
3. Revenue Recognition:
Premium Income:-
a) Premium is recognized as income when due, for which grace period has not expired and the previous installments
have been paid. In case of Linked Business, the due date for payment is taken as the date when the associated units
are created.
b) Income from linked funds which includes fund management charges, policy administration charges, mortality charges,
etc. are recovered from linked fund in accordance with terms and conditions and recognized when due.
c) Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle
arrangement with the re-insurer.
Investment Income:-
d) Interest income in respect of all Government securities, debt securities including loans, debentures and bonds,
Pass Through Certificate (PTC), mortgage loans is recognized in Revenue Account as per the guidelines issued by
Insurance Regulatory and Development Authority of India.
e) In respect of purchase or sale of Government and other approved securities from secondary market, interest for the
broken period is paid / received on settlement basis.
f) Interest, Dividend, Rent, etc. are accounted at gross value (before deduction of Income Tax)
g) In respect of loans, debentures and bonds, accrued interest as at the date of the balance sheet is calculated as per
method of calculation of simple interest mentioned in the loan document/information memorandum or such other
document. In respect of Government and other approved securities and mortgage loans, accrued interest as at the
date of balance sheet is calculated based on 360 days a year.
h) Profit or Loss on sale of Securities/Equities/ Mutual Fund is recognised in Revenue Account in the year of sale.
i) Dividend on quoted equity shares where right to receive the same has fallen due on or before 31st March (i.e. dividend
declared by the investee company) is taken as income though received subsequently. Dividend on unquoted equity
is taken as income only on receipt.
j) Interest on Loan against Policies is accounted for on accrual basis.
k) Rental income is recognized on accrual basis and rent/license fees which is in arrear for more than 6 months is not
recognized as income. Upfront premium on rent is accounted on cash basis.
l) Dividend on Preference shares/Mutual Fund is recognized as income only on receipt.
m) Interest on application Money on purchase of debentures/bonds is accounted on receipt basis.
n) Income on venture capital investment is accounted on receipt basis.
o) Income from zero coupon bonds is accounted on accrual basis.
p) Outstanding interest on NPA’s as at balance sheet date is recognized as interest suspense.
q) Premium on redemption/maturity of investments is recognized as income on redemption/maturity.
r) Processing fee for proposed investments, if any is accounted on receipt basis.
1. Acquisition Costs:
Acquisition Cost is expensed in the period in which they are incurred. Acquisition costs are those costs that vary with and
are primarily related to the acquisition of new and renewal insurance contracts.
5. Benefits Paid:
a) Benefits paid consist of the policy benefit amount and claims settlement costs, wherever applicable.
b) The date of recognition of claim shall be the date of receipt of intimation of death or surrender by the policy holder. The
date of recognition of claims in case of Maturity, Survival benefits, Annuity etc. shall be as per the terms and condition
of the policies.
c) Repudiated claims disputed before judicial authorities are treated as contingent liability based on management
assessment and prudence.
d) The provision is made for disputed legal cases pertaining to repudiated claims where decision is given against the
Corporation by Lower Forum/Court to the extent of entire amount awarded by the Forum/Court against LIC, pending
the Appeal/Writ/Revision filed by LIC.
5. Investments:
A] Non Linked Business
a) Debt Securities including Government Securities and Redeemable Preference Shares are considered as ‘held
to maturity’ and is carried at historical cost subject to amortization as follows:
(i) Debt Securities including Government Securities, where the book value is more than the face value, the
premium is amortized on straight line basis over the balance period of holding/maturity. Where face value
is greater than book value, discount is accounted on maturity.
(ii) Listed Redeemable Preference Shares, where the book value is more than the face value, the premium is
amortized on a straight line basis over the balance period of holding/maturity and is valued at amortised
cost if last quoted price (not later than 30 days prior to valuation date), is higher than amortised cost.
Provision for diminution is made if market value is lower than amortised cost.
Unlisted Redeemable Preference Shares where the book value is more than the face value, the premium is
amortised on a straight line basis over the balance period of holding/maturity and are valued at amortised
cost less provision for diminution.
Listed Irredeemable Preference Shares are valued at book value if last quoted price (not later than 30 days
prior to valuation date), is higher than book value. In case last quoted price is lower, it is valued at book
value less provision for diminution.
Unlisted Irredeemable Preference Shares are valued at book value less provision for diminution.
b) Listed equity securities that are traded in active Markets are measured at fair value on Balance Sheet date and
the change in the carrying amount of equity securities is taken to Fair Value Change Account.
c) Unlisted equity securities and thinly traded equity securities are measured at historical cost less provision for
diminution in the value of such investments. Such diminution is assessed and accounted for in accordance with
the Impairment Policy of the Corporation. A security shall be considered as being thinly traded as per guidelines
governing mutual funds laid down from time to time by SEBI.
d) All Investments are accounted on settlement basis except for purchase or sale of equity shares & government
securities from the secondary market.
e) The Investment Property is carried at the Revalued amounts and the change in the carrying amount of the
investment property is taken to Revaluation Reserve. Investment property is revalued at least once in every three
years. The basis adopted for revaluation of property is as under:-
(i) The valuation of investment property is carried out by Rent Capitalization Method considering the market
rent.
(ii) Investment properties having land alone without any building/structure is revalued as per current market
value.
f) Mutual fund and Exchange Traded Fund (ETF) investments are valued on fair value basis as at the Balance
Sheet date and the change in the carrying amount of mutual fund /ETF is taken to Fair Value Change Account.
g) Investments in subsidiary companies, joint ventures and associates are carried at cost.
h) Investment in venture fund / Alternative Investment Fund (AIF) is valued at cost wherever NAV is greater than
the Book Value. Wherever NAV is lower than Book value the difference is accounted as diminution.
i) Money Market Instruments are measured at book value.
j) Derivatives:
Interest Rate Derivative (IRD) contracts for hedging of highly probable forecasted transactions on insurance
contracts and investment cash flows in Life, Pension and Annuity business are accounted for in accordance with
the ‘Guidance Note on Accounting for Derivative Contracts’ issued by the Institute of Chartered Accountants of
India (ICAI) and IRDAI Investment Master Circular as amended from time to time.
The Corporation has well defined Board approved Interest rate risk hedging Policy and Process document
covering various aspects related to functioning of the derivative transactions undertaken to mitigate Interest
rate risk as per the Interest rate risk hedging strategy. At the inception of the hedge, the Corporation designates
and documents the relationship between the hedging instrument and the hedged item, the risk management
objective, strategy for undertaking the hedge and the methods used to assess the hedge effectiveness. Hedge
effectiveness is the degree to which changes in the fair value or cash flows of the hedged item that are attributable
to a hedged risk are offset by the changes in the fair value or cash flow of the hedging instrument. Hedge
effectiveness is ascertained at the time of inception of the hedge and periodically thereafter at subsequent
reporting dates.
Forward Rate Agreement (FRA) is a forward contract to hedge the risk of movements in interest rates. In a FRA
contract, the Corporation fixes the yield on the government bond for the period till the maturity of the contract.
The Corporation enters into FRA to hedge interest rate risk on forecasted transactions. (A) Reinvestment of
maturity proceeds of exiting fixed income investments; (B) Investment of interest income receivable; and (C)
Expected policy premium income receivable on insurance contracts which are already underwritten in Life,
Pension and Annuity business.
The Forward Rate Agreement (FRA) contract is valued at the difference between the market value of underlying
bond at the spot reference yield taken from the FBIL and present value of contracted forward price of underlying
bond including present value of intermediate coupon inflows from valuation date till FRA contract settlement
date. Mark-to-market valuation / fair valuation of the derivative financial instruments is done independently by
both the parties i.e the Corporation and the counter party. The counter party (Bank) valuation is considered for
margin settlement as the counter party (Bank) is the valuation agent as per FRA.
Hedging instruments are initially recognised at fair value and are re-measured at fair value at subsequent
reporting dates. The effective portion of fair value gain/loss on the interest rate derivative that is determined
to be an effective hedge is recognised in “Hedge Fluctuation Reserve” or “HFR” in the Balance Sheet and
the ineffective portion of the change in fair value of such derivative instruments is recognised in the Revenue
Account / Profit & Loss Account in the period in which they arise. The fair value gain/loss on the interest rate
derivative that is determined to be an ineffective hedge is recognised in the Revenue Account / Profit & Loss
Account in the period in which they arise.
The accumulated gains or losses that were recognised in the “Hedge Fluctuation Reserve” are reclassified into
Revenue Account / Profit & Loss Account, in the same period during which the income from investments acquired
from underlying forecasted cash flow is recognized in the Revenue Account / Profit & Loss Account. Hedge
accounting is discontinued when the hedging instrument is terminated or it becomes probable that the expected
forecast transaction will no longer occur or the risk management objective is changed or no longer expected to
be met. On such termination, accumulated gains or losses that were recognised into Hedge Fluctuation Reserve
are reclassified into Revenue Account / Profit & Loss Account.
B] Linked Business:
Valuation of Securities is in accordance with IRDAI directives issued from time to time.
7. Loans:
Loans are measured at historical cost subject to impairment provisions.
8. Fixed Assets:
a) Fixed assets are carried at cost (inclusive of taxes) less accumulated depreciation and impairment, if any.
b) Property under construction and amounts paid for the properties taken in possession, pending documentation, are
accounted under ‘House Property and Land’.
9. Depreciation/Amortisation:
Depreciation /amortisation on fixed assets is provided using the straight-line method, based on useful lives of assets as
estimated by the management. Depreciation is charged on monthly pro-rata basis for assets purchased/sold during the
year. All fixed assets costing upto ' 25000 each shall be capitalized and simultaneously depreciated fully to make the value
“NIL”.
Capital Work in Progress:
Costs of assets which are not ready for its intended use as at the date of Balance Sheet are presented as Capital Work-in
Progress.
10. Impairment of assets:
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment
exists, the recoverable amounts of those assets are estimated and impairment is recognized, wherever necessary.
Assets are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to the estimated current realizable value and value in use. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds estimated
current realizable value of the asset or value in use.
The impairment for unlisted/thinly traded equity shares, preference shares and equity under affiliated investments as
assessed and accounted for in accordance with the Impairment Policy of the Corporation.
11. Liability for Life Policies:
The liability towards Policyholders as at Balance Sheet date is determined by the Corporation’s Appointed Actuary pursuant
to his annual investigation of the Corporation’s life insurance business.
12. Foreign Currency Transactions:
Transactions in foreign currencies are recorded at the exchange rates prevailing at the date of the transaction. Monetary
items in foreign currency, if any, are translated at the year-end closing rates. The resultant exchange gain or loss arising
on settlement/translation is recognized in the Revenue or Profit and Loss Account as applicable.
a) Life Fund relating to foreign business has been invested according to the statutory regulations of the respective
countries.
b) Financial Statements of branches in foreign countries as at the year end are prepared in accordance with local laws
and are translated at appropriate rates of exchange.
c) Exchange gains or losses arising on such conversions are recognised in the period in which they arise in the Revenue
Account.
d) Operations carried at foreign Branch Offices are of non integral nature. The Revenue A/c items are translated at the
average exchange rate and Balance Sheet items at closing rate.
Revaluation Exchange difference is accumulated in Foreign Exchange fluctuation Reserve under shareholders or
policyholders account as the case may be.
e) Investments made outside India by remittances sent from India are accounted for at original rupee cost or at the
earliest recorded rupee cost, where original cost is not available.
13. Asset Classification and Provisioning for Non-Performing Assets:
a) As per the guidelines issued to Insurance Companies by Insurance Regulatory and Development Authority of India,
Assets representing Loans, Debentures, Bonds and Mortgage Loans against House Property are classified based on
record of recovery as:
i) Standard
ii) Sub-standard
iii) Doubtful and
iv) Loss Assets
b) Provisioning for Non-Performing Loans, Debentures, Bonds and Mortgage Loans against House Property is made as
per the guidelines issued by Insurance Regulatory and Development Authority of India.
14. Benefits to employees:
a) Gratuity to employees is provided for (on the basis of Actuarial Valuation) through a Group Gratuity Insurance Policy
issued by the Corporation and as such, the liability in respect thereof, forms part of the Life Fund.
b) In respect of employees who have opted for Provident Fund Scheme, matching contribution is made to the Provident
Fund Trust formed under Life Insurance Corporation Act 1956.
c) In case of Defined Contribution Pension Scheme, the contributions are made when due and charged to Revenue
account during the period when related services are rendered.
In case of Defined Benefit Plan for employees who have opted for Pension Scheme, in lieu of Provident Fund Scheme,
the Corporation’s contribution is made to the Pension Fund Trust, in accordance with the Pension Rules notified by
the Government of India and the said contribution including past service contribution is made on the basis of Actuarial
calculation.
d) Leave Encashment Benefits on retirement are provided for ( on the basis of Actuarial Valuation) through a Group
Leave Encashment Insurance Policy issued by the Corporation and as such, the liability in respect thereof, forms part
of the Life Fund.
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