TRIAL BALANCES

TRIAL BALANCE AS AT …
PARTICULARS LF DEBIT CE
RS.
CASH A/C 100000
CAPITAL A/C 100000

TOTAL 100000 100000

Trial Balance is a summary of all ledger account balances, generally prepared

at the end of the financial year, to verify the arithmetical accuracy.
 ERRORS

1.Error of Omission
2. Error of Commission
3.Compensating Error
4.Duplicating error
5.Error of Principle
6. Error of Transposition

2
 Revenue
Account
 Fire

 Marine Premium, Claims and

a portion of management
expenses + income on
policyholder’s funds
 Miscellaneous

Revenue Account will give operating Profit & Loss

 Profit & Loss Account P&L
for the period ended …
PARTICULARS AMOUNT PARTICULARS AMOUNT
SALARIES OPERATING
PROFIT B/F
RENT & TAXES
AUDIT FEES
ADVT.EXPENSES
TRAVELLILNG EXP
…
NET PROFIT Tfd to
Reserves
 BS
Balance sheet as on…
Liabilities Amount Assets Amount
Rs. Rs.
Share Capital Fixed Assets
Reserves & Investments
Surplus
Sundry Inventory
Creditors OWNERS
Loans EQUITY Sundry
/NET Debtors
WORTH Bank account
Cash
Total Total
RESERVES- Liability established for unpaid losses
- Estimates
-Created only when profit is available

SURPLUS- Asset – Liability

-Cushion for absorbing losses
- Helps to assess Financial Condition

PROVISION – Estimated liability for known losses

- Availability of profit not necessary

6
 Common terms

Gross Direct Premium, Net Premium, Net Earned Premium

Unexpired Risk reserve Sec 64V , Reserve Strain, reserve
release.
Incurred Claims
IBNR and IBNER
Premium Deficiency , Unearned premium 1/365, 1/12
Premium received in advance
Shareholders fund /Policyholders fund
PBT /PAT/EBIDTA/EPS

7
SCHEDULES
1 Premium
2 Incurred Claims
3 Commission
4 Management Expenses
5 Share Capital
5A Pattern of Shareholding
6 Reserves & surplus
7 Borrowings
8 Investments
9 Loans
10 Fixed Assets
11 Cash and bank balances
12 Other Advvances
13 Current Liabilities
14 Provisions
15 Miscellaneous expenditure
8
BANK RECONCILIATION STATEMENT
BANK ACCOUNT
COLLECTION/DISBURSEMENT ACCOUNT
BRS AS ON …
PARTICULARS DR CR
OPENING BALANCE B/F
COLLECTION All XXX
DISBURSEMENTS entries XXX
TRANSFERS found in XXX XXX
BANK CHARGES GL XXX
BALANCE C/F
TOTAL
BALANCE B/F
CHEQUES NOT CLEARED XXX
CHEQUES NOT PRESENTED XXX
TRANSFERS OF FUNDS NOT ACCOUNTEDXXX XXX
CREDITS IN BANK NOT ACCOUNTED XXX
DEBITS IN BANK NOT ACCOUNTED XXX

BANK BALANCE XXX

TOTAL XXX XXX

RECONCILED BY VERIFIED BY
9
IRDA (Preparation of
Financial Statements and Auditor’s report )
Regulations 2002

10
Preparation of Financial Statements
Schedule B applicable to General Insurance companies -
Contains 5 parts

Part 1 – General Principles for preparation of the financial

statements
Part 2 – Disclosures forming part of financial statements
Part 3 – General instructions for preparation of financial
statements
Part 4 – Contents of Management Report
Part 5 – Formats of the Financial Statement s

Schedule C of the regulations gives the Format of the

Auditor’s Report

11
 Part 1 – General Principles

1. Accounting Standards – Should conform to the Accounting

Standards except
a. AS 3 – Cash Flow Statement – only direct method
b. A S 13 – Investments – Not applicable
c. A S 17 – Segmental Reporting – though applicable to
Listed companies is made applicable to insurance
companies even not listed
2. Accounting of Premium -
a. recognized over the contract period or the period of risk
whichever is appropriate.
b. Premium received in advance – to be disclosed in ‘ Current
Liabilities’
c. Reserve for the unexpired risk to be created – ref sec 64V(1)
(ii)(b)
12
3. Premium Deficiency : -
a. if the sum of expected claim costs , related expenses and
maintenance costs EXCEEDS related reserve for
unexpired risks
b. Originally recognised if overall segment level negative ,
now after the master circular to be recognised even if
sub-segment level is negative.
4. Acquisition costs – to be recognised in the period in which
they are incurred.
5. Claims -
a. Outstanding claims for payment
b. IBNR and IBNER claims
c. Claims costs are to be recognised , salvages estimated
value adjusted.

13
6. Valuation of Investments
a) Real estate :
i. Investment Property to be valued at Historical cost less
depreciation & impairment loss
ii. Impairment loss to be recognised in P&L
iii. Fair value to be disclosed as additional information
b) Debt securities – & preference shares
i. Treated as ‘ held to maturity’
ii. Valued at Historical cost less amortisation
c) Equity investments –
i. listed Equity and derivative instruments –that are
traded in active markets – valued at FAIR VALUE
ii. The fair value will be the lower of BSE or NSE prices of
the last quoted closing price

14
iv. Active market –
securities traded are homogenous
availability of willing buyers and sellers is normal and
prices are publicly available.
v. In respect of listed instruments –
a. Unrealised gains /losses –shall be taken to FAIR VALUE
CHANGE ACCOUNT
b. Balance of the FVC account is not available for distribution
as dividends
c. If FVC account is debit – then the same shall be reduced
from profit before declaring dividend.
d. Impairment should be accounted for

15
vi. Unlisted & other than actively traded equity /derivative
instruments –
a. Are measured at historical costs
b. Provision for diminution in value to be recognised.

Any security not actively traded –

refer guidelines issued by SEBI
If a security traded for less than 50000 in volume and
Rs. 500000 in value – is treated as THINLYTRADED -
otherwise it is actively traded
7. Loans – valued at historical cost less impairment provisions
8. Catastrophe reserve: To be recognised if separate norms are
notified.
"When trading in an equity/equity related security (such as convertible debentures, equity warrants, etc.) in a
month is both less than Rs. 5 lacs and the total volume is less than 50,000 shares, it shall be considered as a thinly
traded security and valued accordingly".
For example, if the volume of trade is 100,000 and value is Rs. 400,000, the share does not qualify as thinly traded.
Also if the volume traded is 40,000, but the value of trades is Rs. 600,000, the share does not qualify as thinly
traded
16
 Part 2 – Disclosures
1. Contingent Liabilities:
a. Partly paid up investments
b. Underwriting commitments outstanding
c. Claims (other than on policies) acknowledged as debt
d. Guarantees given by/or on behalf of the company
e. Statutory demands in dispute , not provided for
f. Reinsurance obligations –not provided for in books

2. Encumbrances to the assets (in & outside India)

3. Commitments made & outstanding on loans /Invt/Fixed
assets
4. Claims, less reinsurances paid to claimants in/outside India
5. Actuarial assumption for determining claim liabilities –
where payment period exceed 4 years
6. Ageing of claims - claims o/s for > 6 months and others
17
 Part 2 – Disclosures

7. Premium , less reinsurance written in India/outside India

8. Extent of premium income recognised –with basis &
justification –whether external evidences relied upon
9. Value of contracts for
a. Purchases where deliveries are pending
b. Sales where payments are overdue
10. Basis of allocation of expenses to various classes of
business
11. Historical cost of those investments valued on FV basis
12. Computation of managerial remuneration *
13. Fair value of investment property & basis
14. Claim settled and remaining unpaid for > 6 months

* GSR 235 31-1-1978 Govt. companies are exempted.

18
 Further disclosures

• All Significant Accounting Policies to be stated.

• Any departure from accounting policies shall be
separately disclosed with reasons.

1. Investments made with any statutory requirement

2. Segregation into performing/Non performing assets
3. % of business sector wise
4. Summary of financial statements for the last 5 years
5. Accounting ratios as required to be reported
6. Basis of allocation of dividend, interest & rent between
revenue & P and L accounts.

19
Accounting ratios :
1. Gross premium growth rate
2. Gross premium to shareholders funds
3. Growth of shareholders funds
4. Net retention ratio
5. Net Commission ratio
6. Expenses of management to gross direct premium
7. Combined ratio
8. Technical reserves to net premium ratio
9. Underwriting balance ratio
10. Operating profit ratio
11. Liquid assets to liabilities ratio
12. Net earnings ratio
13. Return on net-worth
14. Reinsurance ratio
20
Basis of allocation of expenses and income
Apportioned on GDPI + Reinsurance accepted
Giving weightage of 75% for marine business and 100%
each for fire and miscellaneous business.

21
 Part 3 – General instructions
1. Corresponding previous year figures to be given
2. The figures in the statements are to be rounded off to
nearest thousands
3. Interest, dividend etc to be shown ‘Gross’ basis - TDS to be
included in advance taxes paid.
4. Provision means:
Amount written off /retained –providing for
depreciation, renewals, diminution in value –retained by
providing for a known liability – or retained for a loss
which cannot be accurately determined.
5. Reserve: is not provision;made out of profit
6. Capital reserve – not include any amount regarded as free
for distribution as dividend – Revenue reserve – any reserve
other than capital reserve.

22
• Liability includes all liabilities on expenditure contracted
for and all disputed or contingent liabilities
• Company to make provisions for damages under lawsuits
if it feels it may go against it.
• Extent of risk retained and reinsured –separately disclosed
• Debit balance of P&L account to be deducted from
uncommitted reserves

23
Part 4 – Management Report
1. Confirmation on continued validity of registration granted
by the IRDA
2. Certification that all statutory dues have been paid
3. Confirmation that shareholding pattern & any transfer of
shares are as per statutory & regulatory requirements
4. Declaration – Policyholders funds not invested abroad
(directly or indirectly)
5. Confirmation that solvency margins maintained
6. Certificate as to valuation of assets
7. Disclosure on overall risk exposure & steps taken to
mitigate
8. Operation in other countries – details of country risk &
exposure risk –the hedging strategy adopted.

24
Part 4 – Management Report
9. Ageing of claims –trends in average claims settlement time
during the past 5 years
10. Certification as to arriving at values of investments – how
the market value is arrived at
11. Review of asset quality
12. Director’s responsibility statement
a. Applicable AS have been followed
b. Accounting policies applied consistently
c. Adequate care taken to maintain adequate accounting
records
d. Statements prepared on a going concern basis
e. There exists an internal audit mechanism.
13. Payments to firms companies etc., where directors are
interested.

25
Segments – for Segmental reporting.
1. Fire
2. Marine – a. Cargo b. Hull
3. Miscellaneous
1. Motor
2. Workmen’s compensation/employers’ liability
3. Public/product liability
4. Engineering
5. Aviation
6. Personal accident
7. Health
8. Others.

26
• Reinsurance premium –ceded or accepted – to be shown on GROSS
basis (before deducting commission)
• Claims incurred shall include all claim costs – Claim
paid+Outstanding claims begng-outstanding claim end
• Expenses and income in excess of 1% of the GDPI-reinsurance or
Rs.500000 whichever is higher shall be shown as a separate line
item.
• 20% or more voting power is regarded as significant influence
• Associate companies , joint ventures to be disclosed.
• Investments maturing within 12 months from B/S date are
regarded as short term investments.
• Secured loans means secured wholly or partly against an asset of
the company.
• Investment property real estate to be shown under Schedule 8 and
not under Fixed assets schedule.
• Income from rent –realisable to be shown & not notional
27
 Accounting Standards
1 Disclosure of Accounting Policies 15 Employee benefits
2 Valuation of Inventories 16 Borrowing costs
3 Cash Flow Statements 17 Segmental reporting
4 Contingencies /events happening 18 Related party disclosures
after balance sheet date
5 Net profit or loss,Prior period items 19 Leases
and changes in accounting policies
6 20 Earning per share
7 Construction contracts 21 Consolidated fin. Statements
8 22 Accounting for taxes
9 Revenue recognition 23 Investment in associates (con)
10 Property, Plant & Equipment 24 Discontinuing operations
11 Effect of changes in Exchange rates 25 Interim fin. Statements.
12 Accounting for govt. grants 26 Intangible assets
13 Accounting for investments 27 Interest in joint ventures
14 Accounting for amalgamations 28 Impairment of assets
29 Provision, contingent
28
Assets/Liabilities
IFRS - International Financial Reporting Standards IFRS 13
IASB- International Accounting Standards Board IAS 29
GAAP – Generally Accepted Accounting Principles IFRIC 15
Ind-AS – Indian Accounting standards aligned SIC 10
for IFRS
XBRL – Extensible Business Reporting Language
Sustainability reporting –Triple Bottom line-
Planet/People/Profit
Phase Original Revised
Dates Dates

I Networth > Rs.1000 Crores 01-04-2015

II Net worth > Rs.500 croes 01-04-2016
III Other listed entities not covered 01-04-2017
abov
29
 IFRS OLD ROAD MAP

Phase Date Coverage

Phase 1 Opening balance sheet as 1. Companies that are part of NSE 50
of 1 April 2015* (Nifty 50)
2. Companies that are part of BSE Sensex
(BSE 50)
3. Companies whose shares or other
securities are listed on a stock
exchange outside India
4. Companies, listed or not, having net
worth exceeding INR1,000 crore

Phase 2 Opening balance sheet as Companies not listed in phase 1 and

of 1 April 2016* having net worth exceeding INR500 crore
Phase 3 Opening balance sheet as Listed companies not covered in the
of 1 April 2017* earlier phases

*If the financial year of a company commences at a date other than

1 April, then it shall prepare its opening balance sheet at the
commencement of the immediately following fiscal year.
30
 IFRS s ISSUED BY IASB

IFRS 1: First-time Adoption of International Financial Reporting Standards

IFRS 2: Share-based Payment
IFRS 3: Business Combinations
IFRS 4: Insurance Contracts
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations
IFRS 6: Exploration for and Evaluation of Mineral Assets
IFRS 7: Financial Instruments: Disclosures
IFRS 8: Operating Segments
IFRS 9: Financial Instruments
IFRS 10: Consolidated Financial statements
IFRS 11:Investment in joint arrangements
IFRS 12:Disclosure of Interests in Other Entities combines
IFRS 13: Fair Value Measurement
IFRS 14:Regulatory Deferral Accounts
IFRS 15: revenue from contract with customers
IFRS 16:Leases
31
IND AS
No Particulars
1 Presentation of Financial Statements
2 Inventories
7 Statement of Cash Flows
Accounting Policies, Changes in Accounting Estimates
8 and Errors
10 Events after the Reporting Period
11 Construction Contracts
12 Income Taxes
16 Property, Plant and Equipment

32
Ind –AS
19 Employee Benefits
Accounting for Government Grants and Disclosure of Government
20 Assistance

21 The Effects of Changes in Foreign Exchange Rates

23 Borrowing Costs

24 Related Party Disclosures

27 Consolidated and Separate Financial Statements

28 Investments in Associates and joint ventures

29 Financial Reporting in Hyperinflationary Economies

31 Interests in Joint Ventures

32 Financial Instruments: Presentation

33
Ind –AS
33 Earnings per Share

34 Interim Financial Reporting

36 Impairment of Assets

37 Provisions, Contingent Liabilities and Contingent Assets

38 Intangible Assets

39 Financial Instruments: Recognition and Measurement

40 Investment Property

101 First-time Adoption of Indian Accounting Standards

102 Share-based Payment

103 Business Combinations

34
Ind AS
104 Insurance Contracts
105 Non-current Assets Held for Sale and Discontinued Operations
106 Exploration for and Evaluation of Mineral Resources
107 Financial Instruments: Disclosures

Operating Segments
108
109 Financial instruments
110 ConsolidatedFinancial statements
111 Joint Arrangements
112 Disclosure of Interest in other entities
113 Fair Value Measurement
114 Regulatory Deferral Accounts
115 Revenue fromContracts with Customers
116 Lease

35
Investment

36
- Section 11 of Insurance Act –
- Division of policy holders and share holders funds
- Policy holders funds = claims outstanding + all technical reserves +
premium paid in advance
- Main objective – to meet claim on policy
- Available quantum is too high
- Major contributor to the nation’s economy
- Channelise the funds through proper regulation
i) in tune with national economic policy
ii) expectations of policy holders

37
 STATUTES
and
REGULATORY PROVISIONS
relating to
INVESTMENT

38
 GUIDING PRINCIPLES

INSURANCE ACT 1938

IRDA -(INVESTMENT )(Fifth Amendment)

REGULATIONS 2013
(original: IRDA Invt. Reg. 2000)
&
INVESTMENT POLICY

39
 Comparison of provisions
Pattern of invetment
2(3) Approved Securities
Minimum rating
27B Approved
Investments Exposure norms in Co. Group &
Industry
27B(3) Other Investments
Returns to be filed
27B(4) &(5) Exposure
Valuation norms
27B(6) Prohibition - Pvt.
Co. Accounting schedules

27C - Prohibition Internal

- Invt. Prudential Norms
Abroad
Financial Authority
Interest rate norms
Structured Operating procedure
Employee dealing guidelines
40
 SCHEME OF PRESENTATION
•PATTERN OF INVESTMENT
•PROVISIONS OF Act & IRDA
•Other Control Mechanisms
•Investment Committee
•Investment Policy
•Directions through circulars (IRDA)
•Accounting policies & statements
•Funds flow and Investment
•Risk Management

41
 CLASSIFICATION
APPROVED INVESTMENT

OTHER THAN APPROVED INVESTMENT

42
ORDER OF PRIORITY

SAFETY

LIQUIDITY

HIGH RETURNS

43
WEALTH MAXIMISATION

Rather than

PROFIT MAXIMISATION

44
I Central Government . Securities Not Less than 20%
Ii Central Govt. , State Govt or OAS Not less than 30%(incl (i)
above
Iii Approved Investments u/s 27B & other investments Not exceeding 70%
as per 27B(3) & Schedule II –subject to Exposure
&Prudential Norms as per Reg 9
Other investments u/s 27B(3) subject to exposure
Iv & Prudential norms Not more than 25%

V Housing & loans to St.government for Housing & NLT 15%

FFE (including approved &
a. bonds/debentures of Hudco , NHB unapproved )
b. Bonds /debenture s of housing finance co.
either accredited by NHB or guaranteed by
govt. or carrying a rating of not less than AA
c. ABS with underlying House loans

45
B. Investment in Infrastructure Not less than 10%
Subscription to bonds debenture and ABS with (including approved &
underlying infrastructure assets would qualify unapproved )

Infrastructure facility is defined in registration

regulations

Investements in I, ii above may be considered for

housing and infra provided the government issues
such a security specifically to meet the needs of
any of the sectors specified as infrastructure facility

46
 APPROVED INVESTMENT
AS PER SECTION 27B of the ACT
Approved securities as per sec 2(3) -
CGS,SGS and Guaranteed securities
Debentures - secured by 1st charge
- Interest paid 3 out of 4/5 yrs
- Dividend paid 3 out of 4/5 yrs

47
Debentures – First Charge on Plant & Machinery
The MV or BV whichever is less
shall be TWICE the value of the Debentures

Debentures - First Debentures

First charge on fixed assets
Floating charge on all assets
equ. Dividend paid for 3 out of 4 or 5 years

Pref. Shares – Div. paid 3 out of 4/5 yrs

48
 APPROVED INVESTMENT
AS PER SECTION 27B of the ACT
Equity shares - dividend paid for 3
out of 4 or 5 years
- minimum dividend 4%
including bonus shares

Loans - Secured by 1st charge

49
 APPROVED INVESTMENT
AS PER SECTION 2(cc) of the IRDA Reg.
Money Market Instruments
Call Money, Notice & Term Money
Treasury Bills
Commercial Paper
Certificate of Deposit
CBLO
Reverse Repo – in government securities and
corporate bonds

50
 APPROVED INVESTMENT
1) The securities shall be rated AA
2) To be rated by Rating agencies :
Crisil, ICRA, CARE, Fitch, Brickworks
3) All capable of rated shall have rating
4) For CP and CD rating shall be P1
5) In case of All India Fin. Ins. Can go up to A+ (with IC
approval) (not for others)
6) If goes below AA- to be classified under Other
Investments

51
 Regulation of Investment
Investment in equity shares be in Actively traded
and liquid instruments

Rating relaxation gone: Not less than 65% of

debt in AAA rated Instruments (including CGS SGS
OAS)
Not more than 8% of the investment in debt
instruments shall have A or below rating
Rating not to replace internal risk analysis

52
 OTHER THAN APPROVED INVT.
AS PER SECTION 27B(3) of the ACT
Shall not exceed 25%
All directors shall consent to the
investment
Either IC or Board is authorised to
approve.
NO powers to executives.

53
 Other Investments - examples

Mutual Funds - Other than liquid funds

predominantly investing in GILT and MONEY
MARKET Instruments.
Venture Capital Investments
Unsecured debentures/loans etc.,
Other investments which are unsecured

54
 PROHIBITIONS

INVESTMENT IN PRIVATE LIMITED

COMPANIES -27B(6)

INVESTMENT OF POLICY HOLDERS FUNDS

ABROAD. 27C

55
 EXPOSURE NORMS
AS PER THE ACT

Banking companies - shares

2% of sub.cpl+debentures (or)
10% of total assets of the insurer
whichever is less
Other than Banking companies- shares or
Debentures
10% of sub cpl+debentures (or)
10% of total assets of the insurer
whichever is less
56
 EXPOSURE NORMS

TYPE OF INVT. Limit for Co. Limit for Group. Limit for Industry

10% of outstan- ------------------------

ding equity Not over 15% of
1..Investment in Equity shares (face value) Insurer’s
Preference shares or 10% of invt. investments
Convertible Debenture Assets assets
---------------------------- Not over 15% (NIC
2. Investment in 10% of paid up of the insurer’s classification
debt/loans and any equity share Investment can be
other permitted capital,free assets adopted)
investments as per reserves,
Act/Rugulations other debentures Not over 5% in
than item 1 above or promoter co.
10% of invt.
Assets

• Assets = Assets as shown in the Balance Sheet excluding items

57
under the head “Miscellaneous Expenditure”.
 Overall limit for investment in equity and
debt
Investment Equity Debt
assets
Rs.250000 cr or 15% of 15% o f Pd.up sh
more outstanding cpl+free
equity reserves+deb

Rs. 50000 to 12% of 12%

250000 crores outstanding
equity
Less than 10% of 10%
rs.50000 cr outstanding
equity
58
E
Industry sector norms i.e NIC classification
X
not apply to infrastructure sector National
P
Industrial Classification
O
S Investment in IMMOVABLE property : 5% of
U investment assets
R Investment in Promoter group - Not to exceed
E 5%
Group company exposure in any group can
N go up to 15% with IC approval
O
R
Investment in Infrastructure debt Fund
backed by CG and approved by IRDA shall
M
qualify for infrastructure status
S
Financial & Insurance sector exposure - 25%
FD CD not to be treated as Exposure to fin &
59
insurance sector.
Exposure to PSU infrastructure company shall go up to 20% -in
equity /debt
The limit can be increased by another 5% with board approval
However, the residual maturity shall not be less than 5 years

Investment in public limited SPV – provided

investment is upto 20% of project cost of the SPV
investment is in debt only
parent company to guarantee the spv – but shall not excee
20% of the
net worth of the parent
Net worth of parent shall be Rs.250 crores if listed Rs.500
crores if unlisted
latest instrument of the parent company shall have rating of
AA

Investment returns to be submitted within 30 days

Investment in MBS and ABS to be restricted to 5%

60
 Other Control Mechanisms
Periodical Returns
1. Compliance Returns and reconciliations
2. Downgraded investments
3. Exception Reports
4. Industry wise and Group classifications
5. Non Performing assets
To be filed within 45 days from end of quarter
Periodical IRDA Inspection

61
INVESTMENT COMMITTEE
THE CHIEF EXECUTIVE OFFICER
Minimum TWO Non- Executive Directors
( We have three)
CHIEF OF INVESTMENT DIVISION
CHIEF OF FINANCE DIVISION
APPOINTED ACTUARY

NOTICE, AGENDA, MEETING & MINUTES

62
 1. All Act and Regulatory Provisions
2. Internal Prudential Norms
3. Delegated Financial Authority
4. Interest Rate Norms
5. Accounting Norms
I
N
V
E
S
6.Structured Operations Procedure, FO/MO/BO
7.Employee Dealing Guidelines
T
M
E
N
T

P
O
L
I

8.Information Tech. Policy

C
Y

9.Norms for investing in other investments

10.Management of risk
11. Asset Liability Management

63
 INVESTMENT POLICY

Investment policy to be implemented by the

IC
careful analysis of -Quantum to be
invested
-Term of investment
-Type of invstmnt.
Board to review the Policy on half yearly
basis
The policy shall be made available to the
Concurrent and Internal Auditors

64
•Exposure Norms
•Prudential Norms
•Interest rate Norms
•Financial Authority
•Investment Committee
•Statistical Returns to IRDA
•Standard Operating Procedure (SOP)
•IT Policy for Investment
•Employee Dealing Guidelines (Code of Conduct)

65
 INVESTMENT ASSETS
A) SHAREHOLDERS FUNDS Representing
SOLVENCY MARGIN

AND

B) POLICY HOLDERS FUNDS

At their carrying value as shown in the

balance sheet (excluding misc. exp)

66
Other directions through circulars
Investment in IPO
To be treated as approved Investment
Shall satisfy the dividend test prior to IPO

Size of issue (including offer for sale) Rs.200 Cr

Limit: 10% of subscribed capital by Face Value

or 10% of investment assets.

67
 Investment in Mutual Funds

Investment based on Investment assets - > 2000 crores & < 2000 crores

Funds investing Predominantly Treated as Limit

investing in GSEC, Money Market Approved Rs.100 cr+
Instruments (with Asset over Investmen
Rs.2000 Cr) 1.5% of
t
Investment
Assets

OTHER FUNDS Treated as

Limit
Other
5% of
Investme
nt Investment
Assets
Investment beyond the above % - to be classified into
Other Investment

68
 Asset backed/Mortgage backed
securities
Overall
limit in
Undelying investment mortgage
MBS both
like HOuse
MBS &
ABS
Underlying investment like ABS
not to
Auto loans, Personal Loans,
Card receivables. exceed
5% of Invt.
Rated AAA Assets
If down graded or cash flows not received To be classified in Other
Invt.
To be reported through appropriate return I.e Form 3A

69
Investment in Hybrid Bonds issued by Banks
Perpetual Bonds - 10 year tenor; call optin;
Step up interest if call not exercised . NO
difinite maturity

Upper Tier II Bonds - 10 years; call option;

Step Up interest rate if call not exercised;
definite maturity 15 years.

Tier II Bonds - 10 year bonds

All bonds are unsecured - But treated as

Approved Investment
70
 Venture Capital Funds
To invest in Infrastructure Projects only.

Limit - 5% of Investment Assets (or)

10% of the Fund size.

71
Valuation of equity – Classification of exchanges into Primary and Secondary
exchanges – either NSE or BSE – If NSE is selected as primary exchagnge the
closing price on valuation date will be adopted. If the share is not traded in
NSE or not listed there, then the closing price in the secondary exchange
will be taken.- The selection of the exchange rests with the IC of the
company.

72
Norms for investment in
repo/reverse repo in corporate
bonds

Norms for investment in Credit

default swaps

73
 Accounting guidelines

Formats prescribed by IRDA -

Classification into - for Scheudule 8
Long Term Short Term
Approved OTAI
Infra Non Infra
Active Thin
Quoted un quoted
Performing NPA

74
 Accounting guidelines

Valuation of investments
1. Actively traded equity shares at Fair Value -
Fair Value Change account - 50000 units or
Rs.500000 value
2. Certain other assets at historical cost subject to
amortisation
3. Certain other assets at FIMMDA valuation
norms

75
 Accounting norms
Part I Accounting Principles
Applicable Accounting standards
AS 3 Cash Flow Statement - Direct Method
AS 17 Segment Reporting
Valuation Norms
Part II Disclosures forming part of Fin. Statements
Contingent Liabilities
Significant Accounting Policies
Sector wise business done
Part III General Instructions
Part IV Contents of Management Report
Part V Financial Statements

76
 FINANCIAL STATEMENTS
SCHEDULE 8 - INVESTMENT
SCHEDULE 9 - LOANS
SCHEDULE 11 - CASH AND BANK BALANCES , FD, CBLO,
R.REPO
SCHEDULE 12 - ADVANCES &OTHER ASSETS , SEC 7
DEPOSIT
SCHEDULE 13 - CURRENT LIABILITIES
SCHEUDLE 14 - PROVISIONS for thinly traded shares and
NPA

77
 FUNDS FLOW

SURPLUS FROM CFAC

ADD: Interest , Dividend from existing
investments
ADD: Redemption proceeds from existing
investments
ADD: Sale of investment and capital profits

78
 FUNDS FLOW
COMMITMENTS:
TO CFAC For claim and Expenses
for GST, advance tax
for Third party pool account
Towards purchase of investment
Towards purchase of equity shares

SURPLUS left out: Deployed in Short Term

instruments
immediately
Then invested in Long Term
instruments 79
 AUDIT
CONCURRENT AUDIT
INTERNAL AUDIT
STATUTORY AUDIT - YEAR END
STATUTORY AUDIT - Limited Review HY
CAG AUDIT - Balance Sheet Audit Yr. End
CAG AUDIT - Transaction Audit
IRDA Inspection Audit - Whenever requierd
Risk Management Audit

Types of Report:
1-Clean
2-Qualified
3-Adverse
4-Disclaimer
 MONEY MARKET
PRIMARY SECONDARY

EQUITY DEBT OTHERS EQUITY DEBT OTHER

IPO RIGHT
S
/FPO BSE NSE OVER
PVT
PLACE MF-NFO THE
MENT COUNTER

FIXED BOOK DERIVATIVES

PRICE BUILD

FUTURES OPTIONS
CALL/PUT
INDEX/STOCK INDEX/STOCK
81
 TYPES OF INSTRUMENTS

Central , State Government instruments

Instruments issued by Companies guaranteed by Govt.
Corporate Debentures, Equity instruments
Mutual Funds –Both Liquid, Gilt and Debt funds
Money market instruments – CD, CP, Rev.Repo
Venture Capital Funds
Fixed deposit issued by Banks
Term Loans ,Loans to State Governments
Preference shares
CDS , SLBS

82
SHARES –EQUITY
DIVIDEND-DIVIDEND DISTRIBUTION TAX-CUM DIVIDEND, EX-
DIVIDEND, RECORD DATE-CORPORATE ACTIONS
ECONOMIC PARAMETERS
GDP
INFLATION-FOOD INFLATION /WPI & CPI
MONEY SUPPLY
RS/$ EXCHANGE RATE
OIL PRICE
MONSOON
IIP FIGURES
FISCAL DEFICITS
INTEREST RATES
BALANCE OF PAYMENTS

83
FUNDAMENTAL ANALYSIS
STUDY OF FINANCIAL AND OTHER DATA –BALANCE
SHEET P&L ACCOUNT ETC.,

TECHNICAL ANALYSIS
ON THE BASIS OF PRICE VOLUME TRADED ON THE
EXCHANGES –PATTERN FORMED ON GRAPHS

84
 Other Regulations
RBI Regulations on trading and NPA are applicable
IRDA has also issued guidelines on NPA
SEBI guidelines are applicable

Insurance Companies not to participate in Call Money Market

SEBI margin money payable for trading in T+2 segment
Margin placed with stock exchanges
Section 7 Deposit to be maintained (with HDFC - under
Separate CSGL account)
SGL account to be maintained in Mumbai only. If not to be
maintained on CSGL basis.(ours with HDFC Bank)

85
Non Performing Assets –
Substandard
Doubtful 1, 2, 3
Loss assets
Standard Assets
Derivatives Forwards
Futures
Options
Credit Default Swaps

Rating Agencies
Rating methodology

86
Infrastructure Development Fund – IDF
Exposure to a Infrastructure investee co. –
20% of outstanding equity – or 20% of equity
+free reserves +debentures and bonds
This can go up by another 5% with board
approval.
Outstanding tenor should not be less than 5
years at the time of investment.
Upto 20% of the project cost of any Public Ltd
SPV in infrastructure sector can be invested.
Only debt allowed ; parents guarantee is
available; latest issue of the parent is rated AA
; guarantee given by parent shall not exceed
20% of its NW; NW of the company to be – 500
crores for unlisted -250 cr for listed.

87
CREDIT DEFAULT SWAPS - INSURANCE COMPANIES CAN
PARTICIPATE FOR HEDGING AS USERS AND NOT WRITERS.

EPS - Earnings per share

PE Price earning ratio
Market capitalisation
QIB – Qualified Institutional Buyers
IPP – Institutional Placement program
OFS – Offer for sale
IPO – Initial public Offier
FPO – Further /Follow on Public officer
FII – Foreign Institutional Invetor
FDI- foreign Direct Investment
QIP – Qualified Institutiona Placement
DVR – Differential Voting Rights
ESOP – Employees Stock Option Scheme
YTM yield to Maturity (Yield to call)
CBLO Collateralized Borrowing and Lending Obligation

88
Rights , Bonus, Split, Cash offers, Open offers,
Listing, delisting,
Insider trading guidelines –Price sensitive information
ICDR guidelines –(ISSUE OF CAPITAL AND DISCLOSURE
REQUIREMENTS),
Take over regulations –hostile takeover
Algorithmic trading
Interim Dividend /Final dividend
Equity trades are settled on T+2 days cycle known as Rolling
settlement.
SEBI Securities Exchange Board of India
CIS collective investment schemes
BSE bombay Stock exchange
NSE National Stock Exchange
USE United Stock Exchange
MCX Multi commodity exchange
89
Cum –dividend or cum-interest inclusive of dividend or interest
EX-dividend or Ex –interest exclusive of dividend or interest
Derivatives – Futures and Options –call/put –european/american
Depository, Depository Participant, Custodian

NSDL National Securities Depository Limited

CSDL Central Securities depository Limited
DMA Daily Moving Average /Direct market access
FCCB Foreign currency Convertible Bonds
ECB External commercial Borrowing
GDR Global Depository receipts
ADR American Depository receipts
IDR Indian depository Rceceipts
IEPF Investor education and Protection Fund
ISIN International Securities Identification Number
MCA Ministry of Corporate Affairs
OTC Over The Counter
SLBM Securities Lending Borrowing mechanism
STT Securities transaction tax

90
Securities transaction tax
Introduced in October 2004
STT on equity transactions for delivery remains at 0.1%
STT on equity futures from .017% to .01%

Options: Under the current American style, a buyer can

exercise the contract at any time during its tenure. However,
in the European stock option, a buyer can do so only on
the expiry day.

Equity derivatinves
Commoditity derivatives
Currency derivatives
Exchange traded funds

BIS Bank for International Settlement

ICP Insurance Core Principles

91
OCB Overseas Corporate bodies
PLR Prime Lending rate
BPLR benchmark prime lending rate / base rate
PTC pass through certificate
VCF Venture Capital funds
LAF Liquidity Adjustment Facility
LIBOR London Inter Bank Offer R ate
MIBOR Mumbai Inter bank offer rate
NBFC Non Banking Finance Companies
CAR capital adequacy ratio
SLR Statutory Liquidity Ratio
CRR Cash Reserve Ratio
BIFR Board for Industrial Financial Reconstruction

92
Yield To Maturity Current Yield = annual
Current yield coupon interest / price
Yield to call

Net Asset Value

Mutual Funds
Exchange Traded Funds

Hedging

93
Solvency

94
Section 64VA of Insurance Act 1938

Solvency Margin Regulations

• Valuation of Assets - Form AA
• Valuation of Liabilities - Form HG
• Determination of available Solvency margin –Form KG table 1
• Determination of Required solvency margin -
• Arriving at solvency ratio - Form KG Table 2

95
 Valuation of Assets
Certain assets are taken as zero
1. Agent’s balances –outstanding premium – within India -not
realised within 30 days
2. Agent’s balances –outstanding premium- outside India – to the
extent not realisable
3. Sundry debtors – to the extent not realisable
4. Advances of unrealisable
5. Furniture, fixtures, stock & stationery
6. Deferred expenses
7. P&L appropriation account balance & other fictitious assets
(other than prepaid expenses)
8. Reinsurers balances outstanding > 3 months
9. Preliminary expenses Computers
10. Deferred tax assets 1st year 75%
2nd year 50%
Other assets to be valued 3rd year 25%
As per accounting rules Fourth year onwards to be taken as zero.
96
Liabilities valuation
Proper valuation to be done in respect of
Provision for bad and doubtful debts
Dividends declared –in full
Due to insurance companies –in full
Due to sundry creditors –in full
Provision for tax –in full
Foreign exchange reserves
Reserves: URR /Outstanding claims/IBNR –on actuarial basis
URR is made as per Section 64V of Insurance Act 1938
Both assets statement and liability statement should be
signed by the Actuary and Statutory auditors and the CFO.

97
Ite Category of Assets Policyholders’ Shareholders
m Funds Amount Funds Amount (
No. (in lakhs) in Lakhs )
1. Approved Securities

2 Approved Investments

3 Deposites

4 Non Mandated Investmetns

5 Other Assets – Specify

6 Total

7 Fair Value Change Account

8 Adjusted value of the Assets

(6-7)

98
Item Description Reserves Reserve IBNR Total
No. for for Reserve Reserve
Unexpired O/s s
Risks Claims
1 Fire

2 Marine
Hull
Cargo
3 Misc.
Motor
Engineering
Aviation
Rural Insurance
Others
4 Health

5 Total

99
RSM based on Net Premiums – RSM 1
Gross Premium x Factor A ------------(i)
Net Premium --------------------------(ii)
Higher of the two x 20%

RSM based on Incurred Claims – RSM 2

Gross Incurred Claims x Factor B -------(i)
Net Incurred Claims ---------------------(ii)
Higher of the two x 30%

Higher of RSM 1 and RSM 2 = RSM

100
 1 Fire 0.5 0.5
2 Marine Cargo 0.6 0.6
3 Marine Hull 0.5 0.5
4 Misc - Motor 0.75 0.75
5 Engineering 0.5 0.5
6 Aviation 0.5 0.5
7 Liability 0.75 0.75
8 Rural Insurance 0.5 0.5
9 Others 0.7 0.7
10 Health 0.75 0.75

101
 1 Fire
2 Marine Cargo
3 Marine Hull
4 Misc - Motor
5 Engineering
6 Aviation
7 Liability
8 Rural Insurance
9 Others
10 Health
11 Total

Three years average to be taken in case of claims

102
Item No. Description Notes Amount
1 Available assets in
Policy holders Funds
Deduct:
2 Liabilities
3 Other liabilities
4 Excess in PH funds

5 Available assets in
Share holders funds
Deduct:
6 Other liabilities
7 Excess in SH Funds

8 Total ASM
9 Total RSM
10 Solvency Ratio (8/9)

103
Solvency Margin report is to be submitted to authority every quarter

Due to extra provisioning for Third party pool provisions the Solvency margin
requirements were aligned –

The Solvency Margin required as of now stands as under

31-03-2012 31-03-2013 31-03-2014
1.30 1.40 1.50

RISK BASED SOLVENCY – SOLVENCY II

Calculation of the Required solvency based on the
risk underwritten by the insurance company
Postponed implementation to Year 2022

104
Special mention:
Where the company follows 1/365 method for URR under health
segment, the difference between the reserve so created and the reserve
that would have been created u/s 64V shall be transferred to
“Contingency reserve for Unexpired Risks “ - the reserve will not be
available for dividend distribution without approval of the authority. To
be shown in the appropriations in bold letters.

In view of extra provision in respect of Motor third party pool, the bonus
payable to higher officials would require approval of authority – for
employees the same may be paid.

Gratuity provision due to increased limit, is allowed to be amortised over

5 year period beginning with the year 2010-11.

Certain penalties imposed by various statutory authorities should be

displayed in the Notes forming part of accounts.

105
Rule 17E
Fire Miscellaneous Marine

Basic 5% 10% 5%

Additional
First 10 laks 35% of Premium First 5 laks 25% of
Next 5 laks 32.5% “ Next 5 laks 22.5%
Next 5 laks 30% Next 5 laks 20%
Next 7.5 laks 27.5% Next 7.5 laks 17.5%
Next 7.5 laks 25% Balance 15%
Next 10 laks 22.5%
Balance 20
 Auditors
IRDA guidelines
1. IRDA does not maintain a panel
2. Individual companies responsible for identifying the
auditors.
3. The Auditors shall be a FIRM
4. Established and in continuous practice for 15 years or more
5. Not more than 2 statutory audit will be permitted per firm.
6. Each company shall have two auditors on joint audit
7. One will have 5 years tenor and the other 4 years –
thereafter they shall be retained forperiod of 5 years
8. A cooling period of 2 years is applicable from 31-03-2006

107
 Auditors
Normally auditors are appointed by the Shareholders in
AGM. -section 224 to 233 –which are not applicable to Govt.
companies
Under section 619 (2) -Being Government company, -
Government is the shareholder -our auditors are appointed
by the C & AG – Comptroller and Auditor General of India -
The audit is conducted u/s 619(3)
The report is submitted u/s 619(4)
The report is required to be placed before the general
meeting. -619(5)
u/s 619A – an annual report is prepared by the government
and along with the balance sheet placed before both the
houses of Parliament.

108
Non Performing assets
An asset where interest is not paid for more than 90 days after the due date
is marked as NPA
Once marked as NPA , the revenue from the asset should not be recognised
At the year end – it should be classified into Sub standard, doubtful and Loss
asset
If the asset remain NPA for 12 months – Substandard
If the asset remain NPA for 24 month – Doubtful 1 category
If the asset remain NPA for 36 months – Doubtful 2 category
If the asset remain NPA for > 48 months –doubtful 3 category
Provision of 10%, 20%, 30% and 100% to be provided n the accounts
For the unsecured portion 100% provision to be made.
In case of Loss assets 100% provision is needed
In case of standard assets also 0.40 % provision is required.

109
Statement of expenses of management is filed annually.

ART – alternate Risk transfer

Unclaimed amount of policy holders shall be shown as under ‘
current liabilities ‘ under schedule 13
a. claims settled but not paid
b. sums due on maturity
c. any excess collection or charges refundable
d. cheques issued i.r.o above but not encashed by
policyhoders
Agewise 1-6, 7-12, 13-18,19-24,25-30,31-36,beyond 36 to
be given.

Investment income is apportioned to shareholders and

policyholders funds at the beginning of the year.
Shareholding of Psu companies is held by the government
110
 Various Abbreviations
IPO Initial Public Offer
FPO Follow on Public offer
QIP Qualified Institutional Placement
QIB Qualified Institutional Buyers
ASBA – Application Supported Blocked Account
FDI Foreign Direct Investment
FII Foreign Institutional Investors
QFI Qualified Foreign Investors
FPI Foreign Portfolio Investors
ADR American Depository Receipts
GDR Global Depository Receipts
111
IDR Indian Depository Receipts
CDS Credit Default Swaps
Cum-Dividend EX- Dividend
ECB External Commercial Borrowing
FCCB Foreign Currency Convertible Bonds
FIPB Foreign Investment Promotion Board
IPF Investor Protection Fund
ISIN International Securities Identification Number
PAN Permanent Account Number
STT Securities Transaction Tax
SEZ Special Economic Zones
CAGR Compounded Annual Growth Rate
112
VAT Value Added Tax
FTA Free Trade agreements
GATT General Agreement on Trade and Tariffs
GAAP Generally Accepted Accounting Practices
IIP Index of Industrial production
EPS Earnings per share
PE Price Earning Ratio
NAV Net assets Value
CD Certificate of Deposit
CP Commercial Paper
MF Mutual Fund
BIS Bank for International Settlements
113
CAD Current Account Deficit
FD Fiscal Deficit
PD Primary deficit
Primary dealers
CAG Comptroller and Auditor General
FIMMDA Fixed Income Money Market dealers
Association
ARC Asset Reconstruction Companies
AMFI Association of Mutual Funds in India
Rolling settlement
ESOP – Employees Stock Option Plan

114
115