MANU/IRDA/0042/2022

Authority : Insurance Regulatory and Development Authority

Circular No. : IRDA/F&A/CIR/MISC/123/6/2022

Date : 15.06.2022

To

CMD/CEO of GIC and FRBs including Lloyds

Accounting of Premium, claims and related expenses on estimation basis

1. At present, para 2 of Part I of Schedule B of the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations, 2002 provides as under for recognition of premium:

"2. Premium

(i) Premium shall be recognized as income over the contract period or the period of risk, whichever is appropriate.

(ii) "Premium received in Advance" is the premium where the period of inception of the risk is outside the accounting period and is to be shown under current liabilities.

(iii) "Unallocated premium" includes premium deposit and premium which has been received but for which risk has not commenced. It is to be shown under current liabilities."

2. The Authority has carried out an analysis of the premium recognized by the FRBs and GIC Re and observed that while some of the FRBs are accounting for the premium on "actual" basis, some others are doing so on "estimation" basis.

3. It is further observed that no uniform method/procedure has been followed by the reinsurers on accounting of the premium on estimation basis. The premium is accounted on estimation basis by the Reinsurer due to the following reasons:

(i) lag or delay in receiving the statement of accounts from the Insurer(s); and/or

(ii) alignment of accounting practices with parent organization.

4. Given that a significant part of the premium is ........