16 A. SIGNIFICANT ACCOUNTING POLICIES
1. Accounting Convention
The Standalone financial statements are drawn up in accordance with the provisions of IRDAI (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002 and circulars and/or guidelines issued in the context of preparation of the Standalone financial statements, and the provisions of the Companies Act 2013. The said statements are prepared on historical cost convention and on accrual basis and comply with accounting standards specified under Companies (Accounting Standards) Rules, 2021 read with Section 133 of Companies Act 2013, as amended and conform to practices prevailing in the General Insurance industry except as otherwise stated.
2. Use of Estimates
The preparation of Standalone financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities on the date of the Standalone financial statements. Actual results may differ from those estimates and assumptions. The estimates and assumptions used in the accompanying Standalone financial statements are based upon management's evaluation of the relevant facts and circumstances as on the date of the Standalone financial statements. Any revision to accounting estimates is recognized prospectively in current and future periods.
3. Revenue Recognition
A. Premium
Premium income is recognized on assumption of risk. A reserve for Unearned Premium for each segment, representing that part of the recognized premium attributable to the succeeding accounting periods, calculated on time apportionment basis or the period of risk, whichever is appropriate is created. This forms part of the un-expired risk reserves.
Reinsurance premium is recognized as per the terms of the reinsurance contracts. A reserve for Unearned Premium for each segment, representing that part of the recognized reinsurance premium attributable to the succeeding accounting periods, is also calculated on time apportionment basis. This also forms part of the un-expired risk reserves.
Any subsequent revisions to or cancellations of premium are recognized in the year in which they occur.
B. Commission
Commission Income on reinsurance cessions is recognized as income in the year in which reinsurance premium is ceded.
Profit commission under reinsurance treaties wherever applicable, is recognized on accrual. Any subsequent revisions of profit commission are recognized for in the year in which final determination of the profits are intimated by reinsurers.
4. Premium Received in Advance
Premium received in advance represents premium received in respect of policies issued during the year, where the risk commences subsequent to the Balance Sheet date.
5. Reserves for Un-expired Risk/s
Unearned premium reserve is computed in accordance with the guidelines issued by IRDAI as under:
a) Marine Hull: 100% of the Net Written premium during the preceding twelve months;
b) In respect of other segments: on the basis of 1/365 method on contract period or period of risk basis for the respective policies, whichever is appropriate.
6. Reinsurance Accepted
Reinsurance returns have been incorporated for the intimation/information received up to the cut-off date or on estimation basis wherever required.
7. Reinsurance Ceded
Reinsurance cessions are accounted for on the basis of actuals or on estimation basis wherever required.
8. Premium Deficiency
Premium deficiency is calculated where the sum of expected claims costs, related expenses and maintenance costs exceed the related unearned premium. The premium deficiency is recognized as per IRDAI guidelines and forms part of unexpired risk reserves.
9. Acquisition Costs
Acquisition costs are primarily related to acquisition of insurance contracts and have been expensed in the year in which they are incurred.
10. Incurred Claims
Claims are recognized as and when reported. Claims Paid (net of recoveries including salvages retained by the insured, includes interest paid towards claims and all expenses directly incurred in relation to their assessment) are charged to respective revenue accounts.
Outstanding Claims at Balance Sheet date are provided based on the management's assessment of the ultimate liability based on survey reports, past experience, information provided by clients and other sources, and applicable laws and subsequently modified for changes as appropriate on availability of further information and includes:
• In respect of direct business, claim intimations received up to the year-end;
• In respect of reinsurance accepted, advices received as of different dates of subsequent year up to the cut-off date or on estimation basis.
Provision for claims incurred but not reported (IBNR) and provision for claims incurred but not enough reported (IBNER); These provisions are determined by appointed actuary, which is in accordance with generally accepted actuarial practice, provisions of IRDAI (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002, the master circulars issued in the context of preparation of standalone financial statements, Insurance Regulatory and Development Authority of India (Assets, Liabilities, and Solvency Margin of General Insurance Business) Regulations, 2016 and stipulations of the Institute of Actuaries of India. (As amended from time to time)
All the outstanding claims for direct business are provided net of estimated salvage (if any).
In respect of motor third party claims where court summons have been served on the Company without adequate policy particulars to establish liability of the Company, provision is made as under:
• 1 /3rd of the estimated liability, for all such claims for which court summons have been served on the Company upto one year.
• 100% of the estimated liability, where such claims are outstanding for more than one year.
Interest on motor accident claims tribunal (MACT) claims is provided based on the prevailing trends in the motor third party claim awards.
11. Salvage and Claim Recoveries
Recoveries of claims and sale proceeds on disposal of salvage are accounted on realization and credited to claims.
12. Receipt and Payment Account
Receipt and Payment account is prepared as per Direct method as required by part -I of Schedule -B of IRDAI regulation.
13. Property, Plant and Equipment (Fixed Assets - Tangible)
A) Property, Plant and Equipment (PPE)
i) PPE are stated at cost less depreciation. Cost is
inclusive of borrowing cost and other incidental charges incurred up-to the date of installation/ put to use.
ii) Lease payment for assets taken on operating
lease are recognized as an expense in the revenue(s) accounts and profit and loss account over the lease term.
B) Depreciation
i) Depreciation on tangible assets is charged on Straight Line Method (SLM) as per the useful life prescribed under Schedule II of the Companies Act 2013 and the residual value of the asset shall be Re 1/-.
ii) Lease hold properties are amortized over the lease period.
iii) Depreciation on PPE added/disposed-off during the year is provided on pro rata basis.
iv) The residual value and useful lives are reviewed at each financial year end.
14. Intangible Assets
Intangible assets are stated at cost of acquisition less accumulated amortisation. The same is amortised over a period of four years on straight line basis. Software development / acquisition costs, except those which meet the recognition criteria as laid down in Accounting Standard 26 (AS 26), are charged to revenue. Any additions to already existing assets are amortised prospectively over the remaining residual life of the assets.
15. Impairment of Assets:
The PPE and Intangible assets are assessed for any indication that an asset is impaired. In case the recoverable amount of the fixed assets is lower than its carrying amount, a provision is made for the impairment loss.
16. Foreign Currency Transactions
a) Reinsurance operations:
Revenue transactions of re-insurance in foreign currencies are converted at the average of buying and selling rates of exchange of each quarter in which they are accounted.
Monetary assets and liabilities of re-insurance in foreign currencies are converted at the closing rate.
b) Foreign operations:
i) As per the Accounting Standard (AS) 11 “The Effects of Changes in Foreign Exchange Rates”, foreign branches/agencies are classified as 'non-integral foreign operations.
ii) The assets and liabilities (including contingent liabilities), both monetary and non-monetary items, of the non-integral foreign operations are translated at the closing rate.
iii) Income and expense items of the non-integral foreign operations are translated at the average exchange rate of the year.
iv) Depreciation on fixed assets held in foreign branches and agencies is provided on straight line rupee value at the year end at the rate and in manner as stated in “Depreciation” policy mentioned in above stated Property, Plant and Equipment Policy.
v) All resulting exchange difference is
accumulated in a foreign currency translation reserve until the disposal of the net investment in the foreign operations.
c) Foreign investments transactions during the year are converted at the exchange rates prevailing as on the last day of the month of purchase or sale.
d) Other assets and liabilities in foreign currencies are converted at the average of buying and selling rates of exchange prevailing at the year end.
e) The exchange gain/loss due to conversion of foreign currencies other than relating to non-integral foreign operations is taken to revenue(s) account and profit and loss account as applicable.
17. Loans and Investments
a) Loans are measured at historical cost subject to impairment. The Company reviews the quality of its loan assets at every reporting period and provides for impairment, if any.
b) Short Term Money Market Instruments such as Commercial Papers and Certificate of Deposits are shown at their discounted value and the difference between the acquisition cost and the redemption value is apportioned on time basis and recognised as accrued income.
c) Contracts for purchase and sale of shares, bonds, debentures are accounted for as “Investments” as on date of transaction.
d) The cost of investments includes premium on acquisition, brokerage, transfer stamps, transfer charges, Securities Transaction Tax and is net of incentive/ fee if any, received thereon.
e) Dividend income (other than interim dividend):
Dividend Income is accounted for as income in the year of declaration. Dividend on shares/interest on debentures under objection/pending delivery is accounted for on realisation. Interim dividend is accounted for where the amount is received/credited in the account of the company upto March 31.
Dividend on foreign investments is accounted on gross basis.
f) Interest Income is recognized on accrual basis on time proportion except income on non-performing assets (NPA) which is recognized on realization basis.
Amount received towards compensation for future loss of interest is recognised as income only to the extent attributable to the accounting year and balance is kept in interest received in advance account for apportionment in the relevant year.
g) Revenue in respect of Alternate Investment Fund/ Venture capital Fund is recognized on receipt basis.
h) Profit/Loss on realisation of investments is computed by taking weighted average book value as cost of
investments except:
• In respect of Government Securities/ Debentures/Bonds under trading portfolio, the profit/loss is worked out specific scrip wise.
• In respect of Government Securities / Debentures/Bonds and related debt instruments sold from investment portfolio, the profit/loss is worked out on first in first out basis (FIFO).
i) The Company follows the prudential norms prescribed by the Insurance Regulatory and Development Authority as regards asset classification, recognition of income and provisioning pertaining to loans/ advances/debentures.
j) Investment in government securities, debt securities and redeemable preference shares are considered as held till maturity and valued at cost. However, in terms of Insurance Regulatory and Development Authority Regulations the premium paid at the time of acquisition of securities is amortised over the residual period of maturity. In case investment becomes NPA, the balance of unamortised premium is debited to revenue(s) and profit and loss account on the date of NPA.
k) i) Investments in Mutual Funds are valued at Net
Asset Value (NAV) as at the Balance Sheet date and the difference between cost/book value and NAV is accounted in Fair Value Change Account. In case of non-availability of latest NAV as at the Balance Sheet date, investment is shown at cost.
ii) Investments in Venture Funds are valued at cost. If there is reduction in NAV, the same is charged to revenue and book value of investments is reduced accordingly. Any appreciation in NAV to the extent of loss earlier recognised, is taken to revenue. Wherever NAV as on Balance Sheet date is not available, latest available NAV is considered.
l) i) In accordance with IRDAI/F&I/INV/
CIR213/10/2013 dated October 30, 2013 for Valuation of Equity Portfolio, National Stock Exchange (NSE) is considered as Primary Stock Exchange and Bombay Stock Exchange (BSE) as Secondary Stock Exchange.
Investment Portfolio in respect of equity/ equity related instruments is segregated into actively traded and thinly traded as prescribed by Insurance Regulatory and Development Authority Regulations. The shares are treated as actively traded or thinly traded by taking into consideration total traded transactions in the month of March on NSE and BSE. consideration total traded transactions in the month of March on NSE and BSE.
ii) Actively traded equity/ equity related instruments are valued at the closing price at NSE or if the scrip is not traded at NSE, the scrip is valued at the closing price at BSE. The difference between weighted average cost and quoted value is accounted in Fair Value Change Account.
Exchange traded funds are valued as applicable to Equity portfolio. The difference between the weighted average cost and the quoted value is accounted in Fair Value change account.
iii) Investments in equity shares of Companies outside India are valued at the last quoted price at the stock exchange of the respective country.
m) Investment in thinly traded equity shares and unlisted equity shares are shown at cost. Difference between cost and break-up value is provided for as diminution in value. If the break-up value is negative, or break-up value is not available, then the provision is made for the entire cost. Break-up value is arrived as per latest Balance Sheet and which should not be more than 21 months prior to its valuation.
n) In case of investment in listed and unlisted equity/ equity related instruments / preference shares where the value has been impaired on or before March 31, 2000, the historical/weighted average costs are not available with the Company. As a consequence, the carrying value of such investments as on April 01, 2000 is presumed to be the historical/ weighted average cost.
o) Investments in equity/ equity related instruments/ preference shares made in those companies, which are making losses continuously for last three years and where capital is eroded (Break-up value is Less than Face Value), are considered to have impairment in value. Further, if the published accounts of a Company are not available for last three accounting years ending on or immediately preceding the date of working out impairment in value, it is presumed that the value of investment is fully impaired and is written off to a nominal value of Rs. 1/- per securities of a Company.
p) Valuation of investments as mentioned in point (o) above are done as under:
i) In respect of actively traded equity shares: -At market price (through fair value change account)
ii) In respect of other than actively traded equity shares: - lower of cost price or break-up value provided break-up value is positive. If break-up value is negative the nominal value is taken at Rs.1/- per securities of a Company.
iii) In respect of preference shares, if the dividend is not received for the last three years, such preference shares are written down to a value
which will bear to its face value, the same proportion as value taken/ which would have been taken for writing down equity shares bears to the face value of the equity shares. If the equity shares are written down to Rs.1/- per securities of a Company, preference shares are also written down to a nominal value of Rs.1/- per securities of a Company.
iv) Once the value of investment in equity/equity related instruments/ preference shares of a Company is impaired in accordance with the above-mentioned policy, the reversal of such impairment losses are recognized in revenue/ profit and loss when such Company achieves a positive net worth and capital is fully restored (Break-up Value is More than Face Value) as per the latest available published accounts immediately preceding the date of working out the reversal.
In respect of investments where the historical or weighted average cost is not available as mentioned in Policy No. 15(n), reversal of impairment loss is carried out and recognized only to the extent of impairment losses accounted after March 31, 2000.
q) Reverse Repo transactions are treated as secured lending transactions and accordingly disclosed in the Standalone financial statements. The difference between total consideration at the 1st and 2nd leg of the transaction is treated as interest income.
r) Tri Party Repo Dealing System (TREPS), which is issued at discount to the face value, is treated as money market instrument as per Reserve Bank of India notification. Discount earned at the time of lending through TREPS is shown as income, which is apportioned on time basis.
s) Un-realised gains / losses arising due to changes in the fair value of actively traded listed equity shares other than enumerated in Accounting Policy 15(n) are taken under the head “Fair Value Change Account” and on realization reported in profit and loss account.
Pending realization, the credit balance in the “Fair Value Change Account” is not available for distribution to shareholders/policyholders.
18. Employee Benefits
Employee benefits comprise of both defined contributions and defined benefit plans.
Provident Fund is a defined contribution plan. The Company's contribution towards provident fund is charged to Revenue Accounts as applicable. Further the Company has no further obligation beyond the periodic contributions.
Pension, Gratuity and Leave Encashment are defined benefit plans. The Company has incorporated a Pension Trust and Gratuity Trust. The Company's liability towards
pension, gratuity and leave encashment is accounted for on the basis of an actuarial valuation done at the year end and is charged to revenue accounts as applicable. In case of pension for the employee who joined from April 01, 2010 contribution is made to National Pension System (NPS) which is defined contribution plan wherein contribution towards pension fund is charged to Revenue accounts as applicable. The Company has no further obligation beyond the periodic contributions.
All short-term employee benefits are accounted on undiscounted basis during the accounting period based on service rendered by the employees.
19. Segment Reporting:
The Company's primary reportable segments are business segments, which have been identified inaccordance with AS 17 - Segment Reporting read with part -I of Schedule -B of IRDAI regulation. The income and expenses attributable to the business segments are allocated as mentioned in point no. 25 and 26 below.
20. Related Party Disclosure:
Related party identification and transactions are disclosed as per the requirement of AS-18 “Related Party Disclosures”.
21. Operating lease
The Rental in respect of operating lease is charged to Revenue/Profit and Loss account.
22. Earnings per Share (EPS)
EPS (basic/diluted) is arrived at based on net profit after taxation attributable to equity shareholders to the basic/ weighted average number of equity shares.
23. Taxation
a) Tax expense for the year, comprises current tax and deferred tax.
b) Current income tax expense comprises taxes on income from operations in India and in foreign jurisdiction. Income tax payable in India is determined in accordance with the provisions of the Income Tax Act 1961. Tax expense relating to foreign operations is determined in accordance with tax laws applicable in countries where such operations are domiciled.
c) Minimum Alternative Tax (MAT) paid in accordance with the tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax on future income. Accordingly, MAT is recognized as an asset in the Balance sheet when it is probable that the future economic benefit associated with it will flow to the Company and the asset can be measured reliably.
d) Deferred tax is recognized on timing differences between the accounting income and the taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on the Balance Sheet date.
e) Deferred tax assets relating to unabsorbed depreciation/business loss are recognized and carried forward to the extent there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.
f) Deferred tax assets relating to other timing difference are recognized and carried forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.
g) Refund of income tax is accounted on realization basis.
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