The final accounts of insurance companies in India are subject to rigorous regulatory oversight by the Insurance Regulatory and Development Authority of India (IRDAI) and are also guided by the Companies Act, 2013. These financial statements play a crucial role in providing transparency and accountability in the insurance sector. This article delves into the key aspects of insurance companies’ final accounts.
Final accounts of insurance Companies as per IRDAI Regulations and Companies Act 2013.
Application of Indian Accounting Standards With respect to the Insurance Companies (Relevant Status is reproduced below).
On 1st April 2020 — Mandatory Basis.
> (a) Insurers/insurance companies.
> (b) Holding, subsidiary, joint venture or associate companies of the above, other than those companies already covered under the corporate roadmap announced by MCA
> As Amended by Companies (Indian Accounting Standards) Second Amendment Rules 2019.
Present Status: IRDAI has appointed an expert committee to study about the implementation of Ind AS in insurance sector.
As per IRDA regulations, following are the financial statements of an insurance Company.
I. Revenue Account: The revenue account is the first financial statement for insurance companies. It includes:
1. Premiums Earned – Net: This section segregates premiums into (a) Premium, (b) Reinsurance ceded, and (c) Reinsurance accepted, providing a clear picture of the insurance premium transactions.
2. Income from Investments: This category comprises (a) Interest, Dividends & Rent – Gross, (b) Profit on sale/redemption of investments, (c) Loss on sale/redemption of investments, (d) Transfer/Gain on revaluation/change in fair value*, and (e) Other Income. It reflects the income generated from investments held by the company.
3. Total (A): The total revenue is calculated as the sum of premiums earned and income from investments.
II. Profit and Loss Account: The profit and loss account follows the revenue account and encompasses:
1. Amounts transferred from/to the Policyholders Account (Technical Account): This section deals with transfers between the policyholders’ account and the technical account.
2. Income from Investments: Similar to the revenue account, this category includes income from investments, profits, and losses on investments, and other income.
3. Expense other than those directly related to the insurance business: It covers provisions for diminution in the value of investments (Net), provision for doubtful debts, and other specified expenses.
4. Total (A): This total represents the profit or loss before taxation.
5. Provision for Taxation: It accounts for the tax obligations of the insurance company.
3. Profit/Loss after tax: This is the final profit or loss figure after accounting for taxes.
III. Balance Sheet: The balance sheet provides a snapshot of the company’s financial position and includes:
1. Sources of Funds: This section outlines shareholders’ funds, including share capital, reserves, and surplus. It also includes borrowings.
2. Policyholders’ Funds: This part comprises credit/(debit) fair value change account, policy liabilities, insurance reserves, and provision for linked liabilities.
3. Funds for Future Appropriations: This represents funds set aside for future use.
4. Total: The total sources of funds.
5. Application of Funds: This section covers investments held by shareholders and policyholders, assets held to cover linked liabilities, loans, fixed assets, and current assets.
6. Net Current Assets (C): Calculated as the difference between current assets and current liabilities.
7. Miscellaneous Expenditure: This accounts for expenses that have not been fully written off or adjusted.
8. Debit Balance in Profit & Loss Account (Shareholders’ Account): Reflects any negative balance in the profit and loss account.
Their financial statements are based on the following:
1. Insurance Regulatory and Development Authority (IRDA) Act 1999.
2. Relevant ASs.
I. Revenue A/C
| Particulars | Schedule | Amount |
| Premiums earned – net
(a) Premium (b) Reinsurance ceded (c) Reinsurance accepted Sub-Total Income from Investments (a) Interest, Dividends & Rent – Gross (b) Profit on sale/redemption of investments (c) (Loss on sale/redemption of investments) (d) Transfer/Gain on revaluation/change in fair value* (e) Other Income Total (A) Commission Operating Expenses related to Insurance Business Provisions for Doubtful debt Provisions for taxation Provisions (other than taxation (a) For diminution in the value of investments (Net) (b) Provision for Required Solvency Margin Total (B) Benefits paid (Net) Interim Bonuses Paid Change in valuation of liability in respect of life policies (a) Gross (b) Amount ceded in Reinsurance (c) Amount accepted in Reinsurance Total (C) Surplus/(Deficit) (D) = (A)-(B)-(C) Appropriations Transfer to Shareholders’ Account Transfer to Other Reserves Balance being Funds for Future Appropriations Total (D) |
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II. Profit and Loss Account.
| Particulars | Schedule | Amount |
| Amounts transferred from/to the Policyholders Account (Technical Account)
Income from Investments (a) Interest, Dividends & Rent – Gross (b) Profit on sale/redemption of investments (c) Loss on sale/redemption of investments Other Income :Transfer from General Reserve Total (A) Expense other than those directly related to the insurance business Provisions (Other than taxation) (a) For diminution in the value of investments (Net) (b) Provision for doubtful debts (c) Others (to be specified) Total (B) Profit/(Loss) before tax Provision for Taxation Profit/Loss after tax Appropriations (a) Balance at the beginning of the year (b) Interim Dividends paid during the year. (c) Proposed final dividend. (d) Transfer to General Reserve Profit carried forward to the Balance Sheet |
III. Balance sheet.
| Particulars | Schedule No | Amount |
| Sources of Funds
Shareholders’ Funds Share capital Reserves and Surplus Credit/(Debit) Fair value change account Sub-Total Borrowings Policyholders’ Funds : Credit/(Debit) Fair value change account Policy liabilities Insurance reserves Provision for Linked Liabilities Sub-Total Funds for Future Appropriations Total Application of Funds Investments Shareholders’ Policyholders’ Assets held to cover linked liabilities Loans Fixed asset Current Assets : Cash and Bank Balances Advances and Other Assets Sub-Total (A) Current Liabilities Provisions Sub-Total (B) Net Current Assets (C) = (A – B) Miscellaneous Expenditure (to the extent not written off or adjusted) Debit Balance in Profit & Loss account (Shareholders’ Account) Total Contingent Liabilities Significant Accounting Policies & Notes to Accounts |
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Conclusion: Insurance companies in India follow a structured process for preparing their final accounts as per IRDAI regulations and the Companies Act, 2013. These financial statements are critical for transparency and accountability within the insurance sector. Additionally, the application of Indian Accounting Standards (Ind AS) ensures that these accounts adhere to international accounting standards. It’s worth noting that IRDAI has appointed an expert committee to study the implementation of Ind AS in the insurance sector, highlighting the evolving nature of financial reporting in this industry.
References:
Life Insurance Corporation of India. (n.d.). Financial Statement 2020-2021.
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