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ANNUAL REPORT 2011-12<br />
number of lives covered by the respective insurer in<br />
the social sector or 5.50 lakh lives, whichever is higher.<br />
I.4.7.14 In the social sector 1093 lakh lives were<br />
covered during the year 2011-12. The contribution of<br />
private sector was 218 lakh lives and public sector<br />
accounted for 875 lakh lives.<br />
I.4.8 FINANCIAL REPORTING AND ACTUARIAL<br />
STANDARDS<br />
Financial Reporting<br />
I.4.8.1 The Ministry of Corporate Affairs in its road map<br />
for convergence of Indian Accounting Standards to<br />
International Financial Reporting Standards (IFRS)<br />
has specified that all insurance companies shall<br />
convert their opening balance sheet as at 1 st April, 2012<br />
in compliance with the standards. This specifi cation<br />
was made by the Ministry of Corporate Affairs based<br />
on the commitment given by the Authority for<br />
convergence to IFRS by the said date. However, the<br />
recommendation of the Authority was based on the<br />
promise that various standards issued by International<br />
Accounting Standards Board (IASB) particularly on<br />
Insurance Contracts and Valuation of Financial Assets<br />
(IFRS-9) would be fi nalized by IASB and would be in<br />
place well before the start of 2012-13.<br />
I.4.8.2 IFRS-4 is an interim standard, focused primarily<br />
on disclosures and classification of insurance<br />
contracts. It introduces a defi nition for an insurance<br />
contract based on the contract containing significant<br />
insurance risk. It requires only limited changes to<br />
existing accounting practices for insurance contracts<br />
and extensive disclosures. IFRS-4 does not affect the<br />
business fundamentals since there is no change in the<br />
underlying transactions and in real cash flow. However,<br />
IFRS 4 would require a fundamental change to the<br />
reporting of business that is not classified as insurance.<br />
Such business could include pension business also.<br />
The Authority set up a Committee to study the<br />
implications of IFRS-4. The Committee had submitted<br />
its report in June, 2009 and its recommendations cover<br />
various issues such as unbundling of the contract,<br />
valuation of liabilities and assets, etc.<br />
I.4.8.3 The IASB has fi nally issued Exposure Draft on<br />
Insurance Contracts and has sought the views of the<br />
public and other stakeholders. The Authority, in order<br />
to study the provisions of the exposure draft on<br />
insurance contracts, constituted a group “Working<br />
group on convergence to IFRS”. The group carried out<br />
a detailed examination of the exposure draft and<br />
submitted its report. The Authority based upon the<br />
report of the group has given its comments on exposure<br />
draft on insurance contracts to IASB.<br />
I.4.8.4 The Authority is of the view that in the absence<br />
of a proper understanding of implication of various<br />
issues, in the short and long run, it would be too<br />
premature to migrate to the IFRS Standards as<br />
committed earlier by <strong>IRDA</strong>. It had not been possible<br />
for IASB to adhere to the timeline of June 2011 for<br />
finalisation of the Exposure Draft on Insurance<br />
Contracts. IASB is further going to come out with a<br />
limited revised exposure draft on insurance contracts.<br />
Even after its eventual fi nalisation, IASB provides a<br />
time period of 18 months for its implementation. This<br />
means, the standard on insurance contracts will be<br />
ready for implementation not before March 2014.<br />
I.4.8.5 In the above circumstances, the Authority has<br />
written to Ministry of Corporate Affairs to revisit the<br />
2012 date of compliance for insurance sector with IFRS<br />
standards and defer it till IASB comes out with the<br />
revised standards on insurance contracts and valuation<br />
of financial assets. In the meanwhile, Ministry of<br />
Corporate Affairs in consultation with the National<br />
Advisory Committee on Accounting Standards<br />
(NACAS) has notified Converged Standards (IND-AS)<br />
including IND-AS104, which is an adoption of IFRS-4<br />
Insurance Contracts. However, the date for<br />
implementation of the same is yet to be notifi ed.<br />
Appointed Actuary System<br />
I.4.8.6 The Appointed Actuary system is in place for<br />
more than a decade in the Indian Insurance Industry.<br />
From the time it was introduced, the role of Appointed<br />
Actuary has enhanced signifi cantly in line with the<br />
faster growth witnessed in the insurance sector. Apart<br />
from valuation, product design and pricing, Appointed<br />
Actuary performs a much wider role in enabling the<br />
company to improve its fi nancial condition to ensure<br />
solvency at all times.<br />
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