IRDAI DRAFT CIRCULAR ON ACCOUNTING OF PREMIUM CLAIMS AND RELATED EXPENSES

IRDAI vide its email dated September 28, 2023 has issued a draft circular on Accounting of Premium, claims and related expenses by Insurers, Reinsurers and FRBs including Lloyds of India

Background :

IRDAI vide its circular no. IRDAI/F&I/CIR/MISC/123/6/2022 dated June 15, 2022 had issued directions to GIC and FRBs including Lloyds of India on accounting of premium, claims and related expenses on estimation basis for the last quarter in a financial year considering the nature of business undertaken by them.

IRDAI has now proposed to repeal the aforesaid Circular and issue below directions with an objective to ensure consistency and improve the efficiency while financial reporting amongst the Insurers, Reinsurers and FRBs including Lloyds of India on accounting practices in the context of

• Recognition of premium pertaining to Government Schemes and Submission of Statement of Accounts (SOA) by direct Insurers and
• Accounting of Premium, claims and related expenses by Reinsurers and FRBs including Lloyds of India

Proposed Directions :

• Insurers (Direct) Recognition of premium pertaining to Government Schemes :

Premium with respect to Government Sponsored and subsidized Schemes (such as Crop, Weather Based Crop Insurance schemes (WBCIS) and Health Schemes etc.) shall be recognised in the books of accounts as under :

• Where part of the premium is paid by the insured and the balance / entire amount of premium is subsidised by the Central / State Government – On receipt of the insured’s share of premium (if any) and corresponding subsidy to be received from central / state Government, should be accounted on the basis of details procured from the Scheme related portals or underlying documentation available for assumption of risk.
• The subsidy amount receivable from Central /State Government should be reflected under “Schedule 12 – Outstanding premium” of IRDA (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations, 2002.
• Manner and timelines for Submission of Statement of Accounts (SOA) by direct Insurers Cedants/Insurers shall provide the Reinsurers/FRBs, a SOA including information on:
• Premium accounted in their books of accounts
• Claims and related expenses (if applicable) within 25 days from the end of each quarter. Cedant/insurer can take credit of the premium ceded towards the reinsurance while computation of Required Solvency Margin for the said quarter SOA submitted by the cedent/Insurer to be confirmed by the Reinsurer/FRNs/CBR within stipulated timelines Any change in SOA to be communicated within 15 days of finalisation of accounts along with adjustments arising therefrom
• Reinsurers and FRBs including Lloyds of India: Recognise the accounted premium, claims and related expenses (if applicable) in their books of accounts as per the details submitted through SOAs and discontinue the preparation of accounts on estimation basis. Premium receivables from Direct Insurers relating to State/Central Government sponsored schemes to the extent they are not realised within a period of 365 days shall be valued at zero under valuation of assets for calculation of solvency.
• The proposed circular shall be effective from financial year 2024-25 onwards.
• The Audit Committee of the respective Insurers, Reinsurers and Board executive committee of FRBs including Lloyds of India shall ensure compliance of the same.

A copy of the proposed circular for sharing comments / suggestions latest by October 5, 2023 is attached herewith for your ready reference.

Source category: IRDAI

Attachments

• /2023/267_Draft_Circular_Accounting_Premium_claims_related_expenses_for_GIcouncil_comments_27092023.pdf