(A) SIGNIFICANT ACCOUNTING POLICIES:
Corporate Information
Life Insurance corporation of India (“Corporation”) is a statutory corporation established on 1st September, 1956, under the Life Insurance Corporation Act, 1956 (‘Governing Act’) engaged in the business of Life Insurance in and outside India. Corporation is governed by provisions of the governing Act; it is also registered with the Insurance Regulatory and Development Authority of India (‘IRDAI’), Registration No. 512 dated 01.01.2001 and is subject to such provisions of IRDA Act, 1999 as amended and regulations there under which are not inconsistent with the governing Act. The Corporation offers a range of individual and group insurance solutions including participating, non-participating and unit linked lines of businesses. The portfolio comprises of various insurance and investment products such as Protection, Pension, Savings, Investment, Annuity, Health and Variable. The equity shares of the Corporation are listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) (w.e.f. 17th May, 2022).
1. Basis of Preparation:
The Financial Statements have been prepared under the historical cost convention, with fundamental accounting assumptions of going concern, consistency and accrual basis, unless otherwise stated. The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in India (Indian GAAP), comprising regulatory norms and guidelines prescribed by the Life Insurance Corporation Act, 1956 (as amended), the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002 (“the Financial Statements Regulations”), the Master Circular on Preparation of Financial Statements and Filing of Returns of Life Insurance Business Ref No. IRDA/F&A/Cir/232/12/2013 dated December 11,2013 (“the Master Circular”) and other circulars issued by the IRDAI from time to time, provisions of the Insurance Act, 1938, as amended and in compliance with the Accounting Standards and 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.
2. Use of Estimates:
The preparation of Financial Statements is in conformity with generally accepted accounting principles in India (Indian GAAP), which requires the management to make 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 Financial Statements are based upon management’s evaluation of the relevant facts and circumstances up to and as on the date of the Financial Statements. Actual results may differ from the estimates. Any revision to the accounting estimates is accounted for prospectively.
3. Revenue Recognition:
Premium Income:-
a) Premiums are recognized as income when due, for which grace period has not expired and the previous installments have been paid. In case of Linked Business, the due date for payment is taken as the date when the associated units are created.
b) Income from linked funds which includes fund management charges, policy administration charges, mortality charges, etc. are recovered from linked fund in accordance with terms and conditions and recognized when due.
c) Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle arrangement with the re-insurer.
d) Interest income in respect of all government securities, debt securities including loans, debentures and bonds, Pass Through Certificate (PTC), mortgage loans is taken credit to the Revenue Account as per the guidelines issued by Insurance Regulatory and Development Authority.
e) In respect of purchase or sale of Government and other approved securities from secondary market, interest for the broken period is paid / received on cash basis.
f) Interest, Dividend, Rent, etc. are accounted at gross value (before deduction of Income Tax)
g) In respect of loans, debentures and bonds, accrued interest as at the date of the balance sheet is calculated as per method of calculation of simple interest mentioned in the loan document/information memorandum or such other document. In respect of Government and other approved securities and mortgage loans, accrued interest as at the date of balance sheet is calculated based on 360 days a year.
h) Profit or Loss on sale of Securities/Equities/ Mutual Fund is taken to Revenue only in the year of sale.
i) Dividend on quoted equity where right to receive the same has fallen due on or before 31st March (i.e. dividend declared by the company) is taken as income though received subsequently. Dividend on unquoted equity is taken as income only on receipt.
j) Interest on policy loans is accounted for on accrual basis.
k) Rental income is recognized as income when due and rent/license fees which is in arrear for more than 6 months is not recognized as income. Upfront premium is accounted on cash basis.
l) Dividend on Preference shares/Mutual Fund is taken as income only on receipt.
m) Interest on application Money on purchase of debentures/bonds is accounted on cash basis.
n) Income on venture capital investment is accounted on cash basis.
o) Income from zero coupon bonds is accounted on accrual basis.
p) Outstanding interest on NPA’s as at balance sheet date is provided as interest suspense.
q) Premium on redemption/maturity is recognized as income on redemption/maturity.
r) Processing fee is accounted on receipt basis.
. Acquisition Costs:
Acquisition Costs are expensed in the period in which they are incurred. Acquisition costs are those costs that vary with
and are primarily related to the acquisition of new and renewal insurance contracts.
. Benefits Paid:
a) Claims costs consist of the policy benefit amount and claims settlement costs, wherever applicable.
b) The date of recognition of claim shall be the date of receipt of intimation of death or surrender by the policy holder. The date of recognition of claims in case of Maturity, Survival benefits, Annuity etc. shall be as per the terms and condition of the policies.
c) Repudiated claims disputed before judicial authorities are treated as contingent liability based on management prudence.
d) The provision is made for disputed legal cases pertaining to repudiated claims where decision is given against the Corporation by Lower Forum/Court to the extent of entire amount awarded by the Forum/Court against LIC, pending the Appeal/Writ/Revision filed by LIC.
A] Non Linked Business
a) Debt Securities including Government Securities and Redeemable Preference Shares are considered as ‘held to maturity’ and the value is disclosed at historical cost subject to amortization as follows:
(i) Debt Securities including Government Securities, where the book value is more than the face value, the premium will be amortized on straight line basis over the balance period of holding/maturity. Where face value is greater than book value, discount is accounted on maturity.
(ii) Listed Redeemable Preference Shares, where the book value is more than the face value, the premium is amortized on a straight line basis over the balance period of holding/maturity and are valued at amortised cost if last quoted price (not later than 30 days prior to valuation date), is higher than amortised cost. Provision for diminution is made if market value is lower than amortised cost.
Unlisted Redeemable Preference Shares where the book value is more than the face value, the premium is amortised on a straight line basis over the balance period of holding/maturity and are valued at amortised cost less provision for diminution.
Listed Irredeemable Preference Shares are valued at book value if last quoted price (not later than 30 days prior to valuation date), is higher than book value. In case last quoted price is lower, it is valued at book value less provision for diminution.
Unlisted Irredeemable Preference Shares are valued at book value less provision for diminution.
b) Listed equity securities that are traded in active Markets are measured at fair value on Balance Sheet date and the change in the carrying amount of equity securities is taken to Fair Value Change Account.
c) Unlisted equity securities and thinly traded equity securities are measured at historical cost less provision for diminution in the value of such investments. Such diminution is assessed and accounted for in accordance with the Impairment Policy of the Corporation. A security shall be considered as being thinly traded as per guidelines governing mutual funds laid down from time to time by SEBI.
d) All Investments are accounted on cash basis except for purchase or sale of equity shares & government securities from the secondary market.
e) The value of Investment Properties is disclosed at the Revalued amounts and the change in the carrying amount of the investment property is taken to Revaluation Reserve. Investment property is revalued at least once in every three years. The basis adopted for revaluation of property is as under:-
(i) The valuation of investment property is carried out by Rent Capitalization Method considering the market rent.
(ii) Investment properties having land alone without any building/structure is revalued as per current market value.
f) Mutual fund and Exchange Traded Fund (ETF) investments are valued on fair value basis as at the Balance Sheet date and the change in the carrying amount of mutual fund /ETF is taken to Fair Value Change Account.
g) Investments in subsidiary companies, joint ventures and associates are disclosed at cost.
h) Investment in venture fund / Alternative Investment Fund (AIF) is valued at cost wherever NAV is greater than the Book Value. Wherever NAV is lower than Book value the difference is accounted as diminution.
i) Money Market Instruments are measured at book value.
B] Linked Business:
Valuation of Securities is in accordance with IRDAI directives issued from time to time.
7. Loans:
Loans are measured at historical cost subject to impairment provisions.
8. Fixed Assets:
a) Values of the fixed assets are stated at cost (inclusive of taxes) less depreciation.
b) Property under construction and amounts paid for the properties taken in possession, pending documentation, are accounted under ‘House Property and Land’.
9. Depreciation/Amortisation:
Depreciation /amortisation on fixed assets is provided using the straight-line method, based on useful lives of assets as estimated by the management. Depreciation is charged on monthly pro-rata basis for assets purchased/sold during the year. Assets individually costing up to ' 5,000, being low value assets are fully charged to revenue in the year of purchase. Based on useful life evaluation carried out by the management, the rates of depreciation are as follows:-
Rates of Depreciation charged on Fixed Assets:
Sr. . x Rate of
.. Asset
No. Depreciation
1 Furniture and fittings 10%
2 Refrigerators and water coolers, etc. 13.91%
3 Information Technology Equipment 30%
4 Vehicles 20%
5 Cycles 15%
6 Office Equipment 10%
7 Telephones, Fax/Epabx, Misc. Capital Equipment 10%
8 Communication equipments, Audio Visual & Allied equipment, Voltage stabilizers UPS 30%
9 Library Books and other publicity materials 20%
10 Engineering Department’s equipment costing over ' 5000/- 12.50%
11 House Property (Freehold) 2%
Pro rata based on
12 House Property and Land (Leasehold)
lease period
13 Ownership Flats purchased in Co-op Societies 2%
10. Impairment of assets:
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment exists, the recoverable amounts of those assets are estimated and impairment is recognized, wherever necessary.
Assets are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated current realizable value and value in use. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds estimated current realizable value of the asset or value in use.
The impairment for unlisted/thinly traded equity shares, preference shares and equity under affiliated investments as assessed and accounted for in accordance with the Impairment Policy of the Corporation.
11. Liability for Life Policies:
The liabilities towards Policyholders are determined by the Corporation’s Appointed Actuary pursuant to his annual investigation of the Corporation’s life insurance business.
12. Foreign Currency Transactions:
Transactions in foreign currencies are recorded at the exchange rates prevailing at the date of the transaction. Monetary items in foreign currency, if any, are translated at the year-end closing rates. The resultant exchange gain or loss arising on settlement/translation is recognized in the Revenue or Profit and Loss Account as applicable.
a) Life Fund relating to foreign business has been invested according to the statutory regulations of the respective countries.
b) Financial Statements of branches in foreign countries as at the year end are prepared in accordance with local laws and are translated at appropriate rates of exchange.
c) Exchange gains or losses arising on such conversions are recognised in the period in which they arise in the Revenue Account.
d) Operations carried out in Fiji, Mauritius and U.K. are of non integral nature. The Revenue A/c items are translated at the average exchange rate and Balance Sheet items at closing rate.
Revaluation Exchange difference is accumulated in Foreign Exchange fluctuation Reserve under shareholders or policyholders account as the case may be.
e) Investments made outside India by remittances sent from India are accounted for at original rupee cost or at the earliest recorded rupee cost, where original cost is not available.
13. Asset Classification and Provisioning for Non-Performing Assets:
a) Assets representing Loans, Debentures and Bonds and Mortgage Loans against House Property are classified based on record of recovery as:
i) Standard
ii) Sub-standard
iii) Doubtful and
iv) Loss Assets
As per the guidelines issued to Insurance Companies by Insurance Regulatory and Development Authority of India.
b) Provisioning for Non-Performing loans, debentures and bonds and Mortgage Loans against House Property is made as per the guidelines issued by Insurance Regulatory and Development Authority of India.
14. Benefits to employees:
a) Gratuity to employees is provided for (on the basis of Actuarial Valuation) through a Group Gratuity Insurance Policy issued by the Corporation and as such, the liability in respect thereof, forms part of the Life Fund.
b) In respect of employees who have opted for Provident Fund Scheme, matching contribution is made to the Provident Fund Trust formed under Life Insurance Corporation Act 1956.
c) In case of Defined Contribution Pension Scheme, the contributions are made when due and charged to Revenue account during the period when related services are rendered.
In case of Defined Benefit Plan for employees who have opted for Pension Scheme, in lieu of Provident Fund Scheme, the Corporation’s contribution is made to the Pension Fund Trust, in accordance with the Pension Rules notified by the Government of India and the said contribution including past service contribution is made on the basis of Actuarial calculation.
d) Leave Encashment Benefits on retirement are provided for ( on the basis of Actuarial Valuation) through a Group Leave Encashment Insurance Policy issued by the Corporation and as such, the liability in respect thereof, forms part of the Life Fund.
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