Accounting of Premium_ claims and related expenses on estimation basis

IRDAI has issued a circular vide Ref no. IRDA/F&A/CIR/MISC/123/6/2022 dated June 15, 2022 on “Accounting of Premium, claims and related expenses on estimation basis” (Circular).

Background:

IRDAI, after carrying out an analysis of the premium recognized by the FRBs, GIC Re has observed that a significant part of the premium is being accounted on estimation basis and that there is no uniformity in accounting of the premium. Accordingly, IRDAI has laid down the following framework for accounting and disclosures of premium recognized on estimation basis in the annual report.

Framework for accounting and disclosures of premium :

• FRBs/Reinsurers to ensure that in annual financial statements, no premium is accrued / accounted on estimate basis at least up to 3rd quarter of each financial year.
• However, for the fourth quarter if the statement of accounts has not been received in time, the premium, losses and related expenses may be accounted on estimation basis, subject to insurer ensures following:
• a consistent methodology is followed across the entire portfolio the estimates shall be trued up as actual values emerge statement to be included in annual report stating total premium, claims and expenses accounted for during the financial year and premium, claims and expenses accounted on estimation basis complete disclosure shall be made for three years (including the current Financial Year) giving the segment wise break up of premium, claims and expenses accounted on estimation basis and its actual experience as per the prescribed format Management comments on variations, if any, beyond 10% on a yearly basis under Notes to accounts if annual figures are available at time of closing the books of accounts for the said financial year shall be placed In case if the information not being available, the above referred submissions shall be made in the annual report for the next financial year; and If the actual figures are not available at the time of closure of books of accounts for the financial year, any deviation before ± 10% shall be reported to the Authority in the prescribed format within 15 days from the end of first quarter of the next financial year.

The Circular is effective from financial year 2022-23 onwards

Source category: IRDAI

Attachments

• /2022/58_2022-06-15_-Accounting_of_Premium_claims_and_related_expenses_on_estimation_basis.pdf