Page 193 - India Insurance Report 2023- BIMTECH

India Insurance Report - Series II 181

• Onerous contracts are not identified • Mandatory early recognition of losses on onerous
contracts
• Revenue includes premium and may include an
investment component • Revenue excludes investment component and
represents the reduction of the liability held as
• Reinsurance is calculated and presented on a net
the entity provides insurance service and
basis
respective risk is released
• Reinsurance is calculated separately and
presented on a gross basis

• Acquisition costs are recognized upfront • Acquisition costs are amortized but is optional
to be recognized upfront under PPA
• Time value of money is not considered (No
discounting) • Time value of money is considered in revenue,
expense, asset or liability recognition
• Change in value of market variables goes through
(discounting is fundamental)
P&L
• Change in the value of market variables may go
• Disclosures help users understand amounts in the
through P&L or OCI
insurer’s financial statements
• Disclosures are granular and detailed

1.5. What are the Most Significant Changes for Indian Non-Life Insurers?

Existing accounting practice for Indian non-life insurers is based on the requirements laid out in the
IRDAI. However, for most Indian non-life insurance companies/ contracts, the major accounting change
is the introduction of Explicit Risk adjustment for non-financial risk in measuring the liability for incurred
claims and discounting along with the more transparent reporting of any movement in these elements. Of
the insurance contracts eligible for PAA, many are expected to be non-life insurance contracts (e.g., annual
motor insurance contracts). The PAA model simplifies the general measurement model (GMM), accounting
for the liability for remaining coverage but not for incurred claims. Incurred claims will be required to be
accounted for on a best estimate basis without any prudence (i.e., the margin of adverse deviation or global
reserve). Risk adjustments would be required to be then added to best estimates on prescribed methods.

1.6. What are the Most Significant Changes for Indian Life Insurers?

While the existing accounting practices vary, for most life insurance contracts, the most significant
financial reporting changes would be:

• The introduction of a single accounting model rather than a different accounting model based on
product type
• Updated, rather than locked in assumptions
• Identification of non-distinct investment components within the insurance contract cash flows

• Current value measurement of guarantees and options