Page 52 - IC26 LIFE INSURANCE FINANCE

PREPARATION OF FINANCIAL STATEMENTS AND AUDITOR’S REPORT OF
INSURANCE COMPANIES

Accounting principles for preparation of financial statements

Guidelines for Life Insurance Companies

Every Balance Sheet, Revenue Account [Policyholders’ Account], Receipts and Payments Account [Cash
Flow statement] and Profit and Loss Account [Shareholders’ Account] of an insurer shall be in
conformity with the Accounting Standards (AS) issued by the ICAI, to the extent applicable to insurers
carrying on life insurance business, except that:

(i) Accounting Standard 3 (AS 3) – Cash Flow Statements – Cash Flow Statement shall be prepared only
under the Direct Method.

(ii) Accounting Standard 17 (AS 17) - Segment Reporting – shall apply irrespective of whether the
securities of the insurer are traded publicly or not.

Premium-Premium shall be recognised as income when due.

Premium Deficiency-Premium deficiency shall be recognised if the sum of expected claim costs, related
expenses and maintenance costs exceeds related unearned premiums.

Acquisition Costs-Acquisition costs, if any, shall be expensed in the period in which they are incurred.

Claims Cost -The ultimate cost of claims shall comprise the policy benefit amount and claims settlement
costs, wherever applicable.

Actuarial Valuation- Liability for Life Policies in force-The estimation of liability against life policies in
force shall be determined by the appointed actuary of the insurer pursuant to his annual investigation
of the life insurance business. Actuarial assumptions are to be disclosed by way of notes to the account.

Procedure to determine the value of investments-
An insurer shall determine the values of investments in the following manner:-

a) Real Estate – Investment Property-
The value of investment property shall be determined at historical cost, subject to revaluation
at least once in every three years.

The change in the carrying amount of the investment property shall be taken to Revaluation
Reserve.

The insurer shall assess at each balance sheet date whether any impairment of the investment
property has occurred.

Gains/ losses arising due to changes in the carrying amount of real estate shall be taken to
equity under ‘Revaluation Reserve’.

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