IRDAI Master Circular on Actuarial, Finance and Investment

IRDAI vide Circular bearing reference no: IRDAI/ACTL/CIR/MISC/80/5/2024 dated May 17, 2024, issued a Master Circular on Actuarial, Finance and Investment Functions of Insurers (“Master Circular”)

Major highlights of the Master Circular are as follows:

ACTUARIAL FUNCTIONS

1. Application for appointment of an Appointed Actuary:

• a. All Insurers other than FRBs shall submit an application for Appointment Actuary in the format prescribed (i.e. Annexure-ACTL-AA-1) along with Board Resolution for appointment and a copy of the Appointment Letter.
• b. A separate application has to be filed for relaxation of eligibility conditions; in case the Applicant Actuary is falling short of experience by not more than one year . In which case- nsurers shall appoint a Mentor i. Actuary satisfying the eligibility criteria under 1.3 (v) of the Master Circular and shall submit an application for the same in the prescribed format (i.e. Annexure-ACTL-AA-1).
• ii. Responsibilities of a Mentor Actuary as per 1.3 (iv) of the Master Circular.
• iii.The Appointed Actuary (‘AA’) shall be supported by the Mentor Actuary till the AA gets the required experience.
• iv. The Mentor Actuary shall not simultaneously work with any other insurer/reinsurer and shall avoid conflict of interest with respect to the duties of Mentor and duties of any other position held by him/her.
• v. Insurers may carry insurance business without an Appointed Actuary subjected to certain conditions mentioned below:
• vi. Insurers shall seek prior approval of IRDAI through an application for the appointment of an ‘Appointed Actuary’ in an individual capacity on a consultancy basis (for up to 180 days).
• vii. The Consulting Actuary shall not simultaneously work with any other insurer/reinsurer and shall avoid conflict of interest with respect to the duties of Mentor and duties of any other position held by him/her.
• viii. The Appointed Actuary, Mentor Actuary shall give a notice period of three months to the Insurers to cease to be an Appointed Actuary/Mentor Actuary.
• 2. Obligations of the insurers for providing adequate resources.

General Insurers/ Health Insurers

Life Insurers

General Insurers/Health Insurers shall have at least one actuary in addition to Appointed Actuary, for pricing and valuation purposes on or before 31 st December 2024.

Life Insurers shall have at least two actuaries in addition to the Appointed Actuary, for pricing and valuation purposes.

New Insurers and Reinsurers are exempted from the above obligations for a period of two years from the date of issuance of certificate of registration by the Authority.

• Provisions and conditions applicable to Foreign Reinsurance Branches (FRBs): a. Certifying Actuary and other signatories of FRBs shall certify the solvency statement and other regulatory actuarial reports for general and life reinsurance business. b. Actuary while certifying the above mentioned reports shall comply with the conditions mentioned under circular no. 2.2 (i) to 2.2 (vii) of Section I of the Master Circular.
• Valuation of Insurance Business: Insurers shall comply to the additional principles with respect to valuation of insurance business mentioned in the below table:

General Insurers and Stand-Alone Health Insurers

Life Insurers

Reinsurers

General Insurers shall prepare solvency statements mentioning the details such as norms for the treatment of assets, IT/Computer, Hypothecated/Encumbered Assets, and intangible assets like Trademark, and Logo.

Personal Accident/Travel insurance, will be grouped with the health segment for computing the Required Solvency Margin, with RSM-1 and RSM-2 applied accordingly.

Incurred but not reported (IBNR) claims reserves shall be estimated using sound actuarial principles and treated as part of Claims Liability.

Debt securities shall be valued as per Schedule-II of the Regulations.

Statements prescribed shall be submitted annually within one month from the adoption of accounts by the Board or by June 30 , whichever comes earlier.

General insurers shall submit additional Returns/Reports as specified in Table-GI, depending on applicability.

The Appointed Actuary and Chief Compliance Officer shall ensure completeness, reasonableness and correctness of the Motor Third party data before submission to IIBI while the Chief Compliance Officer shall ensure adherence to the applicable timelines.

The AA shall address non-linked insurance policies (discontinued during the inter-valuation period), by adopting suitable reserving methods.

The AA shall explicitly provide for linked policies (discontinued within the lock-in period) in the prescribed form.

AA shall make provision for potential strain upon revival of reduced paid-up linked policies.

The AA shall calculate the cost of options and guarantees ensuring that it’s a non-zero positive percentage of the premium.

The AA shall describe the method for estimating potential increases in mathematical reserves due to future exchange rate variations, including the valuation date rate, highest/lowest rates during the inter-valuation period.

The general fund reserve, must cover a mortality charge equivalent to 15 days of coverage at the valuation date.

Life Insurers shall set aside additional provisions as mandated, with RSM factors corresponding to their categorizations in the prescribed form.

For linked products offering investment/cap. guarantees, RSM factors for “with guarantees” shall apply only to relevant funds and shall be adjusted duly.

Life Insurers shall submit a “With Profit Committee (WPC) Report,” detailing its composition and contents, as specified.

Reinsurers shall submit annually within one month from the adoption of accounts by the Board or by June 30 , whichever is earlier.

The periodicity and due dates of applicable submissions for Indian Reinsurers are as mentioned in the Master Circular.

The periodicity and due dates of applicable submissions for Foreign Reinsurer’s Branches (FRBs) are as mentioned in the Master Circular.

Debt securities shall be valued as per Schedule-II of the Regulations.

Every FRB shall submit an additional actuarial certification from the parent reinsurance company on solvency and financial soundness of the foreign reinsurance company as a whole along with the regulatory returns filed with the Authority. The certification shall be based on the extant solvency norms as applicable to the parent foreign reinsurance company.

The combined asset and solvency statement at the entity level in case of Indian Reinsurers shall be in the Master Circular and be certified by both the Appointed Actuaries of life reinsurance business and general reinsurance businesses along with other signatories as mandated.

The combined asset and solvency statement at the overall branch level in case of FRBs as per the Regulations shall be certified by both the Actuaries certifying life reinsurance business and general reinsurance business along with other signatories as mandated by the Regulations.

Insurers/Reinsurers are not required to submit hard copies of any reports, returns or other documents related to actuarial valuation or reinsurance. PDF and MS-Word/Excel copies of the above listed documents are to be sent to the following email IDs with a copy to the Nodal Officer of Actuarial Department of IRDAI.

General Insurance: actuarial-valuation-nl@irdai.gov.in

Life Insurance: actuarial-valuation-l@irdai.gov.in

Reinsurance: : actuarial-valuation-nl@irdai.gov.in

The PDF copies of all such documents shall be digitally signed by the required signatories. Each page of the above-mentioned documents need not be digitally signed.

FINANCE FUNCTION

1. Compliance Requirements under the Regulations

Insurers have been directed to comply with the requirements relating to Finance as prescribed under the IRDAI (Actuarial, Finance and Investment) Regulations, 2024.

2. Furnishing of Annual Statements and publishing of Annual Reports on Website:

• a. Insurers shall submit audited accounts and statements to IRDAI within three months from the end of the financial year or within thirty days from the date of adoption of accounts by the Board , whichever comes earlier.
• b. All insurers must publish their Annual Report, mandated by Section 15 of the Insurance Act, 1938, on their respective websites.

3. Disclosure forming part of Financial Statement and Management Report in the format as per the Master Circular

Financial Statements

Management Report

• Insurers shall prepare separate Receipts and Payments Account in accordance with the Direct Method specified in as “Cash Flow Statement”; A summary of financial statements for the last five years; Accounting Ratios; Information on penalties imposed on the Insurer by various government/regulatory bodies; Disclosure of expenses related to outsourcing activities; Details of regrouping or reclassification of previous year’s figures.
• Ageing of claims indicating the trends in average claim settlement time during the preceding five years;
• A schedule of payments, which have been made to individuals, firms, companies and organizations in which Directors of the insurer are interested.
• Accounting and Disclosures Requirements

Life Insurance Companies

General and Health Insurers

Reinsurers, Foreign Reinsurance Branches and Lloyds

Insurers shall comply with requirements with respect to the Accounting of policies in force mentioned under relevant sections of the Master Circular.

Insurers shall comply with the conditions mentioned in specific chapters of the Master Circular for recognition of surplus arising in non-participating funds as profit in the P&L Account.

Insurers shall comply to the conditions specified under applicable Chapters/Circulars for declaring the bonus to the policyholders.

Insurers shall disclose to the Authority, the information relating to discontinued Policies specified under applicable Chapters/Circulars of the Master Circular.

Insurers shall disclose the information relating to Controlled Fund, Unit Linked Insurance Product business and amount representing the unclaimed amount of Policyholders as specified under the Master Circular.

Insurers/Reinsurers shall disclose the details of claims exceeding four years payment periods on an actuarial basis, such as long-term disability payments.

Insurers opting for Alternate Risk Transfer (ART), serving as reinsurance substitutes. ART shall be accounted for based on the “Substance over Form” principle. If separable, reinsurance and financing components shall adhere to GAAP. Else, if inseparable, the entire arrangement shall be treated as one financial transaction, accounted for accordingly.

Insurers/Reinsurers shall disclose information relating to the Segregation of Policyholders’ and shareholders’ funds, Recoupment of the Deficit as specified under the Master Circular.

Insurers/Reinsurers shall disclose the information relating to the transfer of securities to the Policyholders’ Account from the Shareholders’ account, Accounting treatment for Long Term Products as specified under the Master Circular.

FRBs/Reinsurers shall maintain a Head Office account as per norms specified under the Master Circular.

FRBs/Reinsurers shall ensure that in annual financial statements, no premium is accrued/accounted on an estimate basis at least up to the 3 rd quarter of each financial year. However, for the fourth quarter ending on 31 st March, where the statement of accounts has not been received in time, the premium, losses and related expenses may be accounted for on an estimation basis.

General Provisions

• Expenses related to Corporate Social Responsibility (CSR) activities shall not be charged to Policyholders’ Accounts. Such expenditure shall be shown in the P&L Account, with disclosures as per the Companies Act 2013 and related regulations.
• Insurers must submit returns as per notified Regulations, indicating ‘Not Applicable’ or ‘Nil’ if the information doesn’t apply, instead of deleting points from the filed returns.
• Insurers shall adhere to the specified formats and schedules outlined in the Regulations and directives by the Authority. Any new line item requiring separate disclosure can be included under “Others” in the Revenue or P&L Account, with details provided for each item.

INVESTMENT FUNCTION

1. General provisions: Insurers shall have a Board approved Policy on Investment in compliance with provisions mentioned in the Regulations. There shall be appropriate risk management systems with respect to investment. Insurers shall follow measures specified under the Master Circular.

2. Conditions applicable to specific categories of Investments: Insurers are allowed to make investments in the following categories subject to additional conditions specified under the Master Circular

• a. Investment in equity through Initial Public Offering (IPO),
• b. For investee companies formed from a demerger, the dividend criteria for the demerged company shall determine the classification of investments in equity and preference shares as “Approved or “Other Investments” for the first three financial years.
• c. Insurers may participate in the Securities Lending and Borrowing (SLB) scheme as per appropriate circular of SEBI, subject to compliance with SEBI and stock exchange positions limits and shall not lend more than 10% of the quantity of each security held in the fund.
• d. Repo and Reverse Repo transactions in Government and Corporate Debt Securities as per the Insurance Act, 1938, subject to the following conditions:
• e. For Life Insurers reverse repo in corporate debt is limited to 10% of total funds and 10% of any Segregated Fund (SFIN). No repo transactions are allowed.
• f. For General Insurers combined repo and reverse repo in Government and Corporate Debt are limited to 10% of investment assets. Reverse repo in Government Securities are treated like TREPS and exempt from the 10% limit.
• g. Repo tenure shall not exceed six months, and prior approval from the Investment Committee shall be required.
• h. Insurers may invest in Equity ETFs, as part of Mutual Fund exposure,
• i. Insurers may invest in Debt Securities issued by Banks
• j. Insurer may invest in GILT-ETFs under “Approved Investment” meeting conditions for Mutual Fund investments in GILT Sec/Liquid,

Investment Assets as per clause 8 of

the Schedule III of Regulations

Percentage to Investment

Assets

Less than Rs.50,000 Cr

10%

More than Rs. 50000 Crores and Less

than Rs.250000 Crores

7%

More than Rs. 250000 Crores

5%

• k. Investment in GILT, G Sec, and Liquid Mutual Funds is categorized under ‘Approved Investments’
• i. Insurers may invest in Alternative Investment Fund (AIF), subject to the conditions mentioned below:

Particulars

General Insurers

Life Insurers

An Overall Exposure to VFs and AIFs (all taken together)

5% of Investment Assets

3% of respective Fund

Exposure to single AIF/Venture Fund

10% of AIF /VF size, or 20% of Overall Exposure of 5% as above, whichever is lower.

The above ‘10%’ Limit shall be read as ‘20% ’ in case of Infrastructure Fund

10% of AIF /VF size, or 20% of Overall Exposure of 3% as above, whichever is lower.

The above ‘10% ’ Limit shall be read as ‘20%’ in case of Infrastructure Fund

• 3. Processes and Requirements with respect to Risk Management and Concurrent Audit: Insurers shall have Investment Risk Management Systems and processes and shall comply with requirements specified in the Master Circular.
• 4. Guidelines with respect to Valuation of Investment: Insurers shall follow the Guidelines mentioned under the Master Circular for the valuation of Investments such as Investments in equity exchange-traded funds, Mutual Funds etc.
• 5. Internal Risk Management Policy: Insurers shall have board approved Risk management Policy which shall include details as specified under the Master Circular.
• 6. Standard Operating Procedure: Insurers shall have a Standard Operating Procedure specifying the Guidelines to be adhered by employees in the Front, Mid and Back Office for personal investments. The Internal / Concurrent Auditor shall report on compliance adherence to this requirement.
• 7. Maker Checker Process and Business Continuity Process: Insurers shall have the procedure of Maker / Checker mapped in their Standard Operating Procedure / Operations Manual of Investment Operations. In addition to this, Insurers shall have an Off-site Back-up of Data in a City falling under a different Seismic Zone, either on their own or through a Service Provider. Further, the Insurers/service provider (if outsourced) are required to have the necessary infrastructure for Mission Critical Systems to address at least the following:
• i. Calculation of daily NAV (Fund wise)
• ii. Redemption processing.
• 8. Norms and Certifications: Insurers shall submit periodical returns and certifications on investment related matters as per the Formats and Periodicity as specified in the Master Circular on Submission of Returns.

Source category: IRDAI

Attachments

• /2024/394_2024_05_17_-_IRDAI_Master_Circular_on_Actuaril,_Finance_and_Investment_.pdf