2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1. Basis of preparation
The accompanying standalone financial statements are prepared and presented under the historical cost convention, unless otherwise stated, and on accrual basis of accounting, in accordance with accounting principles generally accepted in India (Indian GAAP). The company has prepared the standalone financial statements in compliance with the accounting standards notified under section 133 of the Companies Act 2013, and amendments and rules made thereto, to the extent applicable and in accordance with the provisions of the Insurance Act, 1938, as amended from time to time, including amendment brought by Insurance laws (Amendment) Act, 2015, Insurance Regulatory and Development Authority Act, 1999, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations, 2002 and various orders/ directions/circulars issued by the IRDAI from time to time and the practices prevailing within the insurance industry in India. Accounting policies applied have been consistent with those followed in the previous year.
The management evaluates all recently issued or revised accounting pronouncements on an ongoing basis.
2.2. Use of estimates
The Company's management makes estimates and assumptions that affect the reported amounts of income and expenses for the year, reported balances of assets and liabilities, and disclosures relating to contingent liabilities as on the date of the financial statements. The estimates and assumptions used in the accompanying standalone financial statements are based upon management's evaluation of the relevant facts and circumstances as on the date of the financial statements. Actual results could differ from those estimates. Any revision to accounting estimates is recognised prospectively.
2.3. Revenue recognition
2.3.1. Premium income
Premium for non-linked policies is recognised as income (net of goods and service tax) when due from policyholders. For unit linked business, premium is recognised as income when the associated units are created. Premium on lapsed policies is recognised as income when such policies are reinstated.
Products having regular premium paying plans with limited premium payment term and/or pre-determined policy term are treated as regular business with due classification of premium into first year and renewal. Premium income on products other than aforesaid is classified as single premium.
Top up premiums are considered as single premium.
2.3.2. Reinsurance premium ceded
Reinsurance premium ceded is accounted in accordance with the terms and conditions of the relevant treaties with the reinsurer. Profit commission on reinsurance ceded is net off premium ceded on reinsurance.
2.3.3. Reinsurance premium accepted
Reinsurance premium accepted is accounted in accordance with the terms and conditions of the relevant treaties/arrangements with the insurers.
2.3.4. Income from investments Interest income on investment
Interest income on investments is recognised on accrual basis. Amortisation of premium or accretion of discount on debt securities is recognised over the remaining term of such instruments on the basis of effective interest rate method.
Dividend income
Dividend income, in respect of other than unit linked business, is recognised when the right to receive dividend is established. Dividend income, in respect of unit linked business, is recognised on the ‘ex-dividend date'.
Securities Lending and Borrowing (SLB) fees
Fees received on lending of equity shares under Securities Lending and Borrowing scheme (SLB) is recognised as income over the period of the lending on a straight-line basis.
Lease rentals on investment property
Lease rentals on investment property is recognised on accrual basis and include only the realised rent and does not include any notional rent, as prescribed by IRDAI (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations 2002. Costs related to operating and maintenance of investment property are recognised as expense in the Revenue Account or Profit and Loss Account, when incurred.
Profit or loss on sale/redemption of debt securities
Profit or loss on sale/redemption of debt securities for other than unit linked business is the difference between the sale consideration net of expenses and the weighted average amortised cost as on the date of sale. Profit or loss on sale/redemption of debt securities for unit linked business is the difference between the sale consideration net of expenses and the weighted average book cost as on the date of sale.
Profit or loss on sale/redemption of equity shares, exchange traded fund (ETF) and mutual fund
Profit or loss on sale/redemption of equity shares, equity exchange traded fund (ETF) and mutual fund units is the difference between the sale consideration net of expenses and the weighted average book cost as on the date of sale. In respect of other than unit linked business, the profit or loss also includes the accumulated changes in the fair value previously recognised in Balance Sheet as “Fair Value Change Account”.
2.3.5. Income from unit linked policies
Income from unit linked policies, which includes fund management charges, policy administration charges, mortality charges and other charges, if any, are recovered from the unit linked funds in accordance with terms and conditions of policies issued and are recognised when due.
2.3.6. Fees and charges
Fees and charges include policy reinstatement fee and loan processing fee which are recognised on receipt basis.
Interest income on policy loans is also included in fees and charges which is recognised on an accrual basis.
2.4. Acquisition cost
Acquisition costs are costs that vary with and are primarily related to acquisition of insurance contracts. It consists of costs like commission, stamp duty, policy issuance, employee cost and other related costs pertaining to the acquisition of insurance contracts. These costs are expensed in the period in which they are incurred.
2.5. Employee benefits
2.5.1. Short term employee benefits
Employee benefits payable within twelve months of rendering the service are classified as short-term employee benefits. Benefits such as salaries, bonuses, short term compensated absences and other nonmonetary benefits are recognised in the period in which the employee renders the related service. All short term employee benefits are accounted on undiscounted basis.
2.5.2. Long term employee benefits: Post-employment
The Company has both defined contribution and defined benefit plans.
Defined contribution plan
Superannuation and National Pension Scheme: The Company has a defined contribution scheme for Superannuation and National Pension Scheme for employees who opt for it. The Superannuation scheme is managed by ICICI Prudential Life Insurance Company Limited Superannuation Scheme and the National Pension Scheme is managed and administered by pension fund management companies licensed by the Pension Funds Regulatory and Development Authority (‘PFRDA'). The contributions made to both the schemes are on a monthly basis, when due, and charged to Revenue Account and Profit and Loss Account on an undiscounted basis during the period in which the employee renders the related service. The Company does not have any further obligation beyond the contributions made to the funds.
Defined benefit plans
Gratuity and Provident fund are defined benefit obligations.
Gratuity: The gratuity benefit payable to the employees of the Company is as per the provisions of the Payment of Gratuity Act, 1972 or the Company's gratuity plan, whichever is higher. The gratuity liability of the Company is actuarially determined by an independent actuary at each Balance Sheet date using projected unit credit method.
The Company contributes towards net liabilities to ICICI Prudential Life Insurance Company Limited Employees' Group Gratuity Cum Life Insurance Scheme.
The Company recognises the net obligation of the Scheme in Balance Sheet as an asset or liability, respectively in accordance with Accounting Standard (AS) 15 (revised 2005), ‘Employee benefits'. The discount rate used for actuarial valuation is based on Government securities yield. Actuarial gains or losses arising from change in actuarial assumptions or experience adjustments (the effects of difference between the previous actuarial assumptions and what has actually occurred) are recognised in the Revenue account and Profit and
Loss account for the period in which they emerge. Estimated rate of return on plan assets is based on the expected average long-term rate of return on investments of the Fund during the estimated term of the obligations.
Provident fund: The Company's defined benefit obligation towards interest rate guarantee on the exempt provident fund is actuarially determined by an independent actuary and measured in accordance with the Guidance Note (GN 29) on Valuation of Interest Rate Guarantees on Exempt Provident Funds under AS 15 (Revised) issued by the Institute of Actuaries of India. The contribution paid or payable is charged to the Revenue Account and the Profit and Loss Account during the period in which the employee renders the related service.
2.5.3. Other long term employee benefits
Other long term employee benefits include accumulated compensated absences that are entitled to be carried forward for future encashment or availment, at the option of the employee subject to the rules framed by the Company and includes long term retention incentive payable to employees on fulfilment of criteria prescribed the Company. The Company's liability towards accumulated compensated absences entitlement outstanding at the close of the year and long-term retention incentive are determined actuarially, by an independent actuary using projected unit credit method and are recognised as a liability at the discounted present value of the obligation as at the Balance Sheet date. The Company assumes net liability for the above in accordance with AS-15 (Revised). Actuarial gains or losses arising from change in actuarial assumptions or experience adjustments (the effects of difference between the previous actuarial assumptions and what has actually occurred) are recognised in the Revenue account and Profit and Loss account in the period in which they emerge.
2.5.4. Employee share based payments
The Employee Stock Option Scheme (‘the Scheme') provides that eligible employees are granted options to subscribe to equity shares of the Company which vest in a graded manner. The vested options may be exercised within a specified period.
The Company follows the intrinsic value method to account for its share-based employee compensation plans in accordance with the Guidance Note on Accounting for Share based Payments, issued by the Institute of Chartered Accountants of India (ICAI). Intrinsic value is measured as the excess, if any, of the fair market price of the underlying shares over the exercise price on the grant date and amortised over the vesting period. The fair market price is the latest closing price, immediately prior to the grant date, on the stock exchange on which the shares of the company are listed.
If the shares are listed on more than one stock exchange, then, the stock exchange where there is highest trading volume on the said date is considered.
2.6. Operating leases
Leases where the lessor effectively retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating lease including escalations are recognised as an expense, on a straight-line basis, over the lease term in the Revenue/ Profit and Loss Account over the noncancellable lease term.
2.7. Borrowing costs
Borrowing costs are charged to the Profit and Loss Account in the period in which these are incurred.
2.8. Provision for doubtful debts
The Company regularly evaluates the probability of recovery and provides for doubtful deposits, advances and other receivables in accordance with the Company's policy which is in line with the IRDAI regulations.
2.9. Benefits paid
Benefits paid comprise of policy benefits and claim settlement costs, if any.
Death and rider claims are accounted for on receipt of intimation. Survival, maturity and annuity benefits are accounted when due. Withdrawals and surrenders under non linked policies are accounted on the receipt of intimation. Withdrawals and surrenders under unit linked policies are accounted in the respective schemes when the associated units are cancelled. Amount payable on lapsed/discontinued policies are accounted for on expiry of lock-in-period of these policies. Surrenders, withdrawals and lapsation are disclosed at net of charges recoverable. Claim settlement cost, legal & other fees form part of claim cost, wherever applicable.
Reinsurance claims are accounted for in the period in which the claim is intimated.
Repudiated claims and other claims disputed before the judicial authorities are provided for on prudent basis as considered appropriate by the management.
2.10. Policy liability valuation
The actuarial liabilities, for all inforce policies and policies where premiums are discontinued but a liability exists as at the valuation date, are calculated in accordance with the accepted actuarial practice, requirements of Insurance Act, 1938, as amended from time to time, regulations notified by the Insurance Regulatory and Development Authority of India, relevant Guidance Notes and Actuarial Practice Standards of the Institute of Actuaries of India.
The prescribed method of valuation is the Gross Premium Valuation (GPV). The reserve held represents the net present value of benefits and expenses less premiums. The following is the broad method of the valuation:
• The reserves are calculated on a per policy basis.
• Any negative reserves are zeroised, so that a policy is not treated as an asset.
• The minimum value of reserves is the higher of the guaranteed surrender value, non-guaranteed surrender value and zero.
• For Linked business, unit liabilities are fully matched and a non-unit reserve is also held which includes provisions for any costs of guarantees provided under the products.
• GPV under non-linked participating policies have a reference to the asset share of policies at valuation date.
The liabilities for group one-year renewable policies are calculated on an unexpired risk premium basis. For non-linked group savings products, account value is held as liabilities.
Valuation parameters are set prudently and include a margin for adverse deviation (MAD) as required under APS7 issued by Institute of Actuaries of India.
2.11. Funds for Future Appropriations (FFA)
The Funds for Future Appropriations (FFA), in the participating segment, represents the surplus, which is not allocated to policyholders or shareholders as at the Balance Sheet date.
No Funds for Future Appropriations is held for other funds
2.12. Investments
Investments are made and accounted for in accordance with the Insurance Act, 1938, Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016, Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002, Investments - Master circular, Investment Policy of the Company and various other circulars/notifications issued by the IRDAI in this context from time to time.
Investments are recorded at cost on the date of purchase, which includes brokerage and taxes, if any, but excludes interest accrued as on the date of purchase.
The Broken period interest paid/received is debited/ credited to income accrued on investments and deposits.
Bonus entitlements are recognised as investments on the ‘ex- bonus date'.
Rights entitlements are recognised as investments on the I ‘ex-rights date'.
Any front end discount on investments is reduced from the cost of such investments.
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2.12.1. Classification
Investments maturing within twelve months from the Balance Sheet date and investments made with the specific intention to dispose them off within twelve months from the Balance Sheet date are classified as short-term investments.
Investments other than short-term investments are classified as long-term investments.
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2.12.2. Valuation - Other than Unit Linked Funds Debt securities (including Government securities and redeemable preference shares): All debt securities including government securities and redeemable preference shares are considered as ‘held to maturity' and stated at historical cost, subject to amortisation of premium or accretion of discount over the remaining period to maturity on effective interest rate method.
Money Market Instruments:
Money market instruments like commercial paper, certificate of deposits and treasury bills are valued at historical cost, subject to accretion of discount over the remaining period to maturity based on effective interest rate method.
Equity shares, equity ETFs and Mutual funds:
Listed equity shares and equity exchange traded funds (ETF) at the Balance Sheet date are stated at fair value being the last quoted closing price on the National Stock Exchange of India Limited (‘NSE') (in case the securities are not listed on NSE, the last quoted closing price on BSE Limited (‘BSE') is used). Unlisted equity shares are stated at acquisition cost less impairment, if any. Equity shares lent under the Securities Lending and Borrowing scheme I (SLB) continue to be recognised in the Balance Sheet as the Company retains all the associated risks and rewards of these securities.
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Non-traded and thinly traded equity share are valued at last available price on NSE/BSE or the value derived using valuation principle of net worth per share, whichever is lower.
Mutual fund units are valued based on the previous day's I net asset values.
Unrealised gains/losses arising due to changes in the fair value of listed equity shares and mutual fund units are taken to the “Fair Value Change Account” in the Balance Sheet.
Real estate - investment property:
Investment property is held to earn rental income or for capital appreciation and is not occupied by the Company. Investment property is initially valued at cost including any directly attributable transaction costs. Investment property is revalued at least once in every three years. The change in carrying amount of investment property is taken to “Revaluation reserve” in the Balance Sheet.
Venture funds:
Investments in venture fund units are valued at historical cost.
Reverse repo and tri-party repo:
Investments in reverse repo and tri-party repo are valued at cost plus interest accrued.
Fixed deposits:
Fixed deposits with banks are valued at cost. Impairment of Investments:
The Company assesses at each Balance Sheet date whether there is any evidence of impairment of any investments. In case of impairment, the carrying value of such investment is reduced to its fair value and the impairment loss is recognised in the Revenue/Profit and Loss account after adjusting it with previously recognised revaluation reserve/fair value change account. However, at the Balance Sheet date if there is any indication that a previously recognised impairment loss no longer exists, then such loss is reversed and the investment is restated to that extent.
2.12.3. Valuation - Unit Linked Funds Debt securities (including Government securities): Central and State government securities are valued as per the valuation price provided by Credit Rating Information Services of India Limited (CRISIL).
Debt securities other than government securities with a residual maturity over 182 days are valued on a yield to maturity basis, by using spreads over the benchmark rate (based on the matrix released by CRISIL on daily basis) to arrive at the yield for pricing the security.
Debt securities with a residual maturity upto 182 days are valued at last valuation price plus the difference between the redemption value and last valuation price, based on effective interest rate method over the remaining period to maturity of instrument. (based on the matrix released by the CRISIL).
Securities with call option are valued at the lower of the value as obtained by valuing the security upto final maturity date or the call option date. In case there are multiple call options, the security is valued at the lowest value obtained by valuing the security at various call dates or upto the final maturity date (based on the matrix released by the CRISIL)
Securities with put option are valued at the higher of the value as obtained by valuing the security upto final maturity date or the put option date. In case there are multiple put options, the security is valued at the highest value obtained by valuing the security at various put dates or upto the final maturity date (based on the matrix released by CRISIL)
The securities with both put and call option on the same day would be deemed to mature on the put/call date and would be valued on a yield to maturity basis, by using spreads over the benchmark rate based on the matrix released by CRISIL. Investments in reverse repo and triparty repo are valued at cost plus interest accrued.
Money market instruments:
Money market instruments like commercial paper, certificate of deposits and treasury bills are valued at historical cost, subject to accretion of discount over the period of maturity/holding based on effective interest rate method.
Equity shares, redeemable preference shares, equity ETFs and Mutual Funds:
Listed equity shares, redeemable preference shares and equity ETF are valued at market value, being the last quoted closing price on NSE (in case of securities not listed on NSE, the last quoted closing price on BSE is used). Equity shares lent under the Securities Lending and Borrowing scheme (SLB) continue to be recognised in the Balance Sheet as the Company retains all the associated risks and rewards of these securities.
Non-traded and thinly traded equity share are valued at last available price on NSE/BSE or the value derived using valuation principle of net worth per share, whichever is lower.
Mutual fund units are valued based on previous day's Net Asset Value.
Venture funds:
Venture fund units are valued at the latest audited net asset value of the respective fund.
Fixed deposits:
Fixed deposits with banks are valued at cost.
Unrealised gains and losses are recognised in the Revenue account as prescribed by IRDAI (Preparation of Financial Statements and Auditors’ Report of Insurance Companies) Regulations 2002.
2.12.4. Transfer of investments
Transfer of investments from Shareholders' account to the Policyholders' account to meet the deficit in the Policyholders' account is made at the cost price or market price, whichever is lower. In case of debt securities including money market instruments, all transfers are made at the lower of the market price and the net amortized cost.
The transfer of investments between unit liked funds is done at the price as specified below.
a. In case of equity, preference shares, ETFs and Government Securities market price of the latest trade.
b. In case of securities mentioned in (a) if the trade has not taken place on the day of transfer and for all other securities not part of (a) previous day valuation price.
No transfer of investments is carried out between non-linked policyholders' funds.
2.12.5. Provision for Non-Performing Assets (NPA)
An asset is classified as a NPA if the interest and/ or installment of principal remain overdue for more than 90 days at Balance Sheet date. Provision is made in the Revenue Account and Profit and Loss Account based on the guidelines prescribed by IRDAI investment regulations.
2.13. Interest rate derivatives
Interest rate derivative contracts are used for hedging of highly probable forecasted transactions on insurance contracts and investment cash flows in life, pension and annuity business. The Company follows hedge accounting in accordance with the ‘Guidance Note on Accounting for Derivative Contracts' issued by the Institute of Chartered Accountants of India (ICAI) and IRDAI Investment Master Circular as amended from time to time.
At the inception of the hedge, the Company documents the relationship between the hedging instrument and the hedged item, the risk management objective and strategy for undertaking the hedge, nature of risk being hedged, identification of the instrument and the hedged item and the methods used to assess the hedge effectiveness. Hedge effectiveness is the extent to which changes in the fair value or the cash flows of the hedging instrument offset changes in the fair value or the cash flows of the hedged item. Hedge effectiveness is ascertained at the time of inception of the hedge and on each reporting date.
The Forward Rate Agreement (FRA) contract is valued at the difference between the market value of underlying bond at the spot reference yield taken from the SEBI approved rating agency and present value of the contracted forward price of underlying bond including present value of intermediate coupon inflows from valuation date till FRA contract settlement date, discounted by the INR-Overnight Index Swap (OIS) rate curve.
The Company follows cash flow hedge accounting for interest rate derivatives. The portion of the fair value gain/loss on the interest rate derivative that is determined to be an effective hedge is recognised directly in ‘Credit/ (Debit) Fair Value Change Account' in the Balance Sheet under policyholders' funds and the portion that gets determined as ineffective hedge or ineffective portion of effective hedge, based on the hedge effectiveness assessment is recognized in the Revenue Account under head “Transfer/Gain on revaluation/Change in fair value”.
The accumulated gains or losses that were recognised directly in the ‘Credit/(Debit) Fair Value Change Account' in the Balance Sheet are reclassified into the Revenue Account, in the same period or periods during which income on the investments acquired from underlying forecasted cash flow is recognized in the Revenue Account. In the event that all or any portion of gain or loss, recognised directly in the ‘Credit/(Debit) Fair Value Change Account' in the Balance Sheet is not expected to be recovered in future periods, the amount that is not expected to be recovered is reclassified to the Revenue Account.
2.14. Loans
Loans are stated at historical cost less repayments, subject to provision for impairment, if any.
Loans are classified as short term in case the maturity is less than twelve months. Loans other than short term are classified as long term.
2.15. Fixed assets and Impairment
2.15.1. Tangible assets and depreciation
Tangible assets are stated at acquisition cost less accumulated depreciation and impairment loss, if any. Cost includes the purchase price net of any trade discounts and rebates, any import duties and other taxes (other than those subsequently recoverable from the tax authorities) any cost directly attributable to bring the asset to its working condition for its intended use and other incidental expenses incurred upto that date. Subsequent expenditure incurred on tangible assets is expensed out except where such expenditure results in an increase in future benefits from the existing assets beyond its previously assessed standard of performance.
Schedule II of the Companies Act 2013 specifies the useful life of eight years for motor vehicles. As per Company policy, the motor vehicle is transferred to the employee on completion of five years or at written down value (WDV) in case of separation of employee before five years. Accordingly, the Company depreciates motor vehicles over five years. Assets costing upto ' 5,000 are considered to be immaterial in value and hence fully depreciated in the month of acquisition.
Depreciation is provided using the straight-line method (‘SLM') prorated from the date of being ready to use, upto the date of sale, based on estimated useful life for each class of asset.
The useful life of tangible assets are periodically reviewed.
2.15.2. Intangibles
Intangible assets comprising software are stated at cost less amortisation. Significant expenditure on improvements to software are capitalised when it is probable that such expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standards of performance and such expenditure can be measured and attributed to the asset reliably. Subsequent capital expenditures are amortised over the remaining useful life of the original software. Software expenses are amortised using SLM over a period of four years from the date of being ready to use.
The useful life of intangible assets are periodically reviewed.
2.15.3. Capital work in progress
Assets not ready for their intended use and other capital work-in-progress are carried at cost, comprising direct cost and related incidental expenses.
2.15.4. Impairment of assets
Management periodically assesses, using external and internal sources, whether there is any indication that an asset may be impaired. If any such indication exists, an estimate of the recoverable amount of the asset unit is made. Impairment occurs where the carrying
value of the asset exceeds the recoverable amount. Recoverable amount is higher of an asset's net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of the asset and its ultimate disposal. If at the Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount, subject to a maximum of depreciable historical cost.
2.16. Taxation
2.16.1. Direct taxes
Income tax expense comprises of current tax (i.e. amount of tax for the year determined in accordance with the Income Tax Act, 1961) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the year).
Current tax is the amount expected to be paid to the tax authorities after taking credit for allowances and exemptions in accordance with the Income Tax Act, 1961.
The Company calculates tax for the participating lines of business in order to ensure that the expenses pertaining to and identifiable with a particular line of business are represented as such to enable a more appropriate presentation of the financial statements. Accordingly, tax charge/credit on surplus/deficit arising from the participating line of business is disclosed separately in the Revenue account.
2.16.2. Indirect taxes
Goods and Services tax liability on life insurance service is set-off against the respective input tax credits available from tax paid on input services for each state. Un-utilised credits, if any, are carried forward under “Advances and other assets” for future set-off, where there is reasonable certainty of utilisation.
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