SIGNIFICANT ACCOUNTING POLICIES: I. SIGNIFICANT ACCOUNTING POLICIES: 1. ACCOUNTING CONVENTION The Balance Sheet, the Profit and Loss Account and the Revenue Accounts are drawn up in accordance with the provisions of Section 11(1) of the Insurance Act, 1938 read with the provisions of Sub-sections (1), (2), (3C) and (5) of Section 211 and Sub-section (5) of Section 227 of the Companies Act, 1956. The financial statements also conform to the stipulation specified under the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations, 2002. The said statements are brpared on historical cost convention and on accrual basis except as otherwise stated and conform to the statutory provisions and practices brvailing in the General Insurance Industry in India. 2. REINSURANCE BUSINESS 2.1 Reinsurance Revenues Premium is accounted based on accounts rendered by ceding companies upon receipt of accounts. At the year end, estimates are made for accounts not yet received, based on available information and current trends. In respect of Indian Market Terrorism Risk Insurance Pool and Indian Motor Third Party Insurance Pool, only the Corporation's share of revenues is recorded as brmium. 2.2 Outstanding Claims 2.2.1 Estimated liability for outstanding claims in respect of Reinsurance business carried out in India is based on advices received as of different dates up to the date of finalisation of accounts and wherever such advices are not received, on estimates based on available information, current trends, past underwriting experience of the management and actuarial estimation bases. 2.2.2 Provision for claims incurred but not reported (IBNR) is made as certified by the appointed actuary. 3. FOREIGN CURRENCY TRANSACTIONS 3.1 Revenue transactions in foreign currencies are converted at the daily rate of exchange on the day accounts are received and transactions are booked. The rates have been taken from Thomson Reuters India Pvt. Ltd. 3.2 Non-Monetary items including fixed assets and investments abroad are reported using the exchange rate applicable on the date of acquisition. 3.3 Monetary items such as receivables, payables and balances in bank accounts held in foreign currencies are converted using the closing rates of exchange at the balance sheet date. 3.4 The exchange gain/loss relating to revenue transaction, due to conversion of foreign currencies, are accounted for as revenue. 3.5 Foreign operations Foreign branch operations is considered as "non integral business" as brscribed in AS11 "The effects of changes in foreign exchange rates" (revised 2003) and translated accordingly. 4. RESERVE FOR UNEXPIRED RISK Reserve for Unexpired Risk in respect of Marine Insurance and Terrorism Risk Business (included in Fire and Engineering) is made at 100% of Net Premium, while for all other classes of insurance, is made at 50% of Net Premium and for London Branch as per local practice. Any additional provision as required by IRDA, shall be provided for foreign branches. 5. OPERATING EXPENSES RELATING TO INSURANCE BUSINESS (EXPENSES OF MANAGEMENT) 5.1 Debrciation (i) Debrciation on fixed assets is charged on written-down value method at the higher of the rates specified in the Income Tax Rules, 1962 and those specified in Schedule XIV to the Companies Act, 1956. In respect of leasehold properties and intangible assets amortisation is made over the period of lease/use. (ii) Debrciation is provided on a pro-rata basis on additions to fixed assets and on assets sold/discarded/destroyed during the year. 5.2 Retirement Benefits to Employees Liabilities on account of retirement benefits to the employees such as pension, gratuity and leave encashment are provided for on accrual basis, based on actuarial valuation and in compliance with Accounting Standard 15. 5.3 Apportionment of Expenses Balance of operating expenses relating to insurance business are apportioned to the Revenue Accounts on the basis of Gross Direct Premium plus Reinsurance Premium accepted, giving weight of 75% for Marine business and 100% for Fire, Miscellaneous and Life Reinsurance business. Expenses relating to investment are apportioned between Revenue and Profit & Loss Account in the same proportion as stated in Significant Accounting Policy No. 6. 6. APPORTIONMENT OF INTEREST, DIVIDENDS AND RENTS The income from interest, dividends and rent is apportioned between Profit and Loss Account and Revenue Accounts in the ratio of Shareholders' Fund and Policyholders' Fund respectively at the beginning of the year. The same is further apportioned amongst the revenue accounts on the basis of the respective Policyholders' Fund at the beginning of the year. Shareholders' fund consists of share capital and free reserves. Policyholders' Fund consists of provisions for outstanding claims and reserves for unexpired risks. 7. INVESTMENTS 7.1 Prudential norms brscribed by Reserve Bank of India and the IRDA are followed in regard to: (i) Revenue recognition, (ii) Classification of assets into performing and non-performing; and (iii) Provisioning against performing and non-performing assets. 7.2 Purchases and Sales of shares, bonds, debentures and Government securities are accounted for on the date of contracts. 7.3 The cost of investments includes brmium on acquisition and other related expenses. 7.4 Short term money market instruments such as Collateralised Borrowing and Lending Operations (CBLO), Commercial Paper and Treasury Bill, which are discounted at the time of contract at the agreed rate are accounted at their discounted value. 7.5 Investment portfolio in respect of equity shares are segregated into actively traded and thinly traded as brscribed by the IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002. 7.6 [a] Investments in equity shares that are actively traded are valued at fair value. Fair value for this purpose is lowest of the last quoted closing price at NSE/BSE in the month of March. [b] Investment in units of mutual funds are valued at Fair value as per IRDA guidelines 2003-04. Fair value for this purpose is the last quoted NAV in the month of March. 7.7 a) Unrealised gains/losses arising due to changes in the fair value of listed equity shares and mutual fund units are taken under the head "Fair Value Change Account" and on realisation reported in Profit and Loss Account. b) Pending realisation, the credit balance in the "Fair Value Change Account" is not available for distribution. c) Provision is made for diminution in value of investments relating to thinly traded and unlisted shares equivalent to the amount of difference in average book cost and break-up value of the shares except in companies where de-merger has taken place during the Financial Year and latest audited accounts are not available. Break-up value is computed from the annual reports of companies not beyond 21 months in case of those companies which close their annual accounts on dates other than 31st March or beyond 12 months in case of those companies which close their accounts on 31st March. d) Provision is made for diminution in value of investment relating to units of venture capital funds equivalent to the amount of difference in book cost and Net Asset Value (NAV). 7.8 Investment in equity and brference shares of companies, the net worth of which has been fully impaired or where the latest available audited accounts are beyond 21 months in case of those companies which close their annual accounts on dates other than 31st March or beyond 12 months in case of those companies which close their annual accounts on 31st March, as on the date of Balance Sheet are valued as under: 1. Actively traded equity shares: At their Market Value. 2. Thinly traded equity shares: Written down to nominal value of Rs. 1/- per company. 3. Preference shares: At a value proportionate to the face value of the equity shares that bears to its market value and carrying cost is reduced by the diminution value. 7.9 Final Dividend is accounted for as income in the year of declaration and Interim dividend is accounted as income where the warrants are dated 31st March or earlier. 7.10 Dividends/Interest on shares/debentures under objection/pending deliveries is accounted for on realisation/payment. 7.11 Profit or Loss on sale of investments is apportioned between Profit and Loss Account and Revenue Accounts in the ratio of Shareholders' Fund and Policyholders' Fund respectively at the beginning of the year. The same are further apportioned amongst the revenue accounts on the basis of the respective Policyholders' Fund at the beginning of the year. Shareholders' fund consists of Share Capital and Free Reserves. Policyholders' fund consists of provisions for outstanding claims and reserves for unexpired risks. Profit/Loss on sale of investments is computed at average book value of investments on the date of sale. 7.12 Expenses relating to safe custody, straight through processing and bank charges etc. on investments are charged to Profit and Loss Account and Revenue Accounts as stated in Significant Accounting Policy No.5.3. 7.13 Debt securities including Government 1.1 (a) securities and Redeemable Preference shares have been considered as 'held to maturity' securities and have been measured at historical cost subject to amortisation of brmium paid over residual period. The call date has been considered as maturity date for amortisation of Perpetual Bonds. 7.14 In case of repos transaction, difference between the selling and buying value is treated as interest income. 7.15 Investments in foreign equities are valued at cost as these are only strategic investments in associate companies. (c) Impairment, if any, will be recognized as an expense. 7.16 Income received from the Fixed Maturity Mutual Fund (Dividend Option) is booked as dividend. 8. FIXED ASSETS Fixed assets are stated at cost less debrciation. Cost of shares in Co-operative Societies/ Companies for property rights acquired is included under the head 'Buildings' under Fixed Assets. 9. COMPLIANCE WITH ACCOUNTING STANDARDS The Corporation has complied with relevant accounting standards brscribed by ICAI to the extent applicable and IRDA guidelines in brparation of its financial statements. 1. NOTES FORMING PART OF THE ACCOUNTS: 1. The Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations, 2002 have been adopted for brsentation of the accounts. 1.1 (a) Out of investment held in shares and debentures of the value of Rs. 297,142,249 thousands (Previous year Rs. 305,727,105 thousands), no confirmations regarding actual custody or other documentary evidence for investments of the book value of Rs. 1221 thousands (Previous year Rs. 1221 thousands) were available. (b) The number of shares/debentures actually held by the Corporation / Custodian of the Corporation is in excess of number held as per the books of the Corporation. The face value of such excess is Rs. 599 thousands (Previous year Rs. 587 thousands). (c) Sale of equity shares of a Company contracted through public offer in 1995-96 for Rs. 4,000 thousands (Previous year Rs. 4,000 thousands) has not been accounted for till date, on account of the significant uncertainty regarding completion of the sale, as the matter is subjudice. (d) The Fixed Maturity Mutual Fund Schemes are close ended mutual fund schemes with definite maturity date and with indicative returns. 2. (a) Provision for standard assets @ 0.40% has been made as per IRDA-Prudential norms for income recognition, Asset Classification and provisioning and other related methods in respect of debt portfolio amounting to Rs. 261,825 thousands (Previous year Rs. 236,112 thousands). 3. A scheme of Productivity Linked Lump-sum Incentive to the employees has not been applicable for the year ended 31st March, 2012, therefore provision of Rs. NIL has been made for the year ended 31st March, 2012, (Previous year Rs. 12,500 thousands). 4. The balances of amount Due To/From other persons/bodies carrying on insurance business and deposits held/are subject to confirmation/ reconciliation. Adjustments, if any, will be accounted for on receipt/confirmation of the same after examination. The Corporation has carried out extensive reconciliation of amount Due To/From deposits, debtors, creditors, other person/bodies carrying on insurance business and deposits held/given. The statements received from the various brokers and cedant companies up to 31.03.2012 have been reviewed and necessary adjustment entries have been passed. Receivables in respect of Companies in Liquidation and all over 3 years are fully provided, excluding balances of Domestic Companies. Thus Corporation has made a cumulative provision of Rs. 2,095,304 thousands for doubtful receivables. 5. ART Cover: The Corporation has entered into ART agreement with Swiss Re for providing (1) top end umbrella protection for both domestic and foreign inward business and further (2) to take exposures from the net retained shares on other protections. The two contracts were combined and renewed for a three-year period from 1st May 2010 for a cover of Rs. 2,000,000 thousands for domestic and $ 20 million for foreign business. This agreement provides a cost-effective complement to the traditional excess of loss protection and protects the Corporation's portfolio suitably. 6. Underwriting of Direct business stopped from 1st April, 2001. Figures shown in Revenue Accounts pertaining to run-off business. Run-off liabilities are sufficiently provided for based on advices received. 7. Disclosures forming part of financial statements as required by the IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002: 9.1 Contingent Liabilities: (a) Partly paid-up investments Rs. NIL (Previous year Rs. 3,930 thousand). (b) Underwriting commitments outstanding Rs. Nil (Previous year Rs. Nil). (c) Claims, other than under policies not acknowledged as debts: Rs. Nil (Previous year Rs. Nil). (d) Guarantees/LC given by or on behalf of the Corporation Rs. 5,811,173 thousands (Previous year Rs. 4,644,804 thousands). (e) Statutory demand/liabilities in dispute -Income-tax demands disputed in appeal, not provided for Rs. 4,604,563 thousands (Previous year Rs. 6,298,958 thousands). (f) Reinsurance obligations to the extent not provided for in the accounts Rs. Nil in view of Significant Accounting Policy No. 2.1. (g) The Corporation has put forth new commission rates on obligatory cessions for three domestic Insurance Companies. However, these rates are not acceptable by them. Hence, the difference arising in commission due to such non acceptance has not been provided by the Corporation. Contingent liability of Rs. 2,162,637 thousands has been shown to that extent, of which Rs. 1,292,903 thousands has already been deducted by the domestic Insurance Companies. 9.2 As at 31st March, 2012 all the assets of the Corporation in and outside India are free from encumbrances except for: [a] The Government of India stock 12.30%, 2016 for Rs. 301,480 thousands (Previous year 12.30%, 2016 for Rs. 303,541 thousands) deposited with Bank of India as security under Section 7 of the Insurance Act, 1938 and, [b] The Government of India Stock, 7.95% 2032 for Rs. 10,117 thousands and, 8.07% 2017 for Rs. 10,194 thousands and 8.20% 2022 for Rs. 29,976 thousands, 8.08% 2022 for Rs. 20,018 thousands, 8.13% 2022 for Rs. 39,512 thousands and 8.26% 2027 for Rs. 39,333 thousands total amounting to Rs. 149,150 thousands (Previous year total amounting to Rs. 150,630 thousands) and cash deposit of Rs. 2900 thousands (Previous year Rs. 2900 thousands) with Clearing Corporation of India Limited as deposit towards Settlement Guarantee Fund. [c] In view of margin requirements as recommended by SEBI vide Circular dated 19/03/2008, Corporation has provided Fixed Deposits amounting to Rs. 80,000 thousands (Previous year Rs. 80,000 thousands) as margins in cash segments viz. FDR of Rs. 50,000 thousands (Previous year Rs. 50,000 thousands) as collateral is held with NSCCL and FDR of Rs. 30,000 thousands (Previous year Rs. 30,000 thousands) as collateral is held with BSE. [d] Margin FDR held by Bank for issue as LC/ BG of Rs. 5,811,173 thousands (Previous year Rs. 4,644,804 thousands). 9.3 The Commitments made and outstanding for Loans, Investments and Fixed Assets (if any) as at 31st March, 2012 are Rs. 445,800 thousands (Previous year Rs. 574,832 thousands). 9.4 Disclosures of Claims less reinsurance during the financial year 2011-12 paid in India are Rs. 51,627,746 thousands (Previous year Rs. 45,706,215 thousands) and outside India are Rs. 29,866,073 thousands (Previous year Rs. 21,393,381 thousands). 9.5 Actuarial assumptions for determination of claim liabilities in the case of claims where the claim payments period exceeds four years - Nil as there are no such liabilities reported. 9.7 Premiums, less reinsurance, written from business during the financial year 2011-12 in India are Rs. 70,925,116 thousands (Previous year Rs. 62,728,585 thousands) and outside India are Rs. 54,657313 thousands (Previous year Rs. 42,397151 thousands). 9.8 Claims settled and remaining unpaid for a period of more than six months as on 31-03-2012 Nil (Previous year Nil). 9.9 Value of contracts in relation to investments, for a) Purchases, where deliveries are pending Rs. Nil (Previous year Rs. Nil). b) Sales, where payments are overdue Rs. Nil (Previous year Rs. Nil). 9.10 The basis of apportionment of operating expenses to the Revenue Accounts has been stated in the Significant Accounting Policy No. 5.3. 9.11 The historical cost of investments valued on Fair Value basis is Rs. 60,641,764 thousands (Previous year Rs. 58,889,556 thousands). 9.13 The basis of amortisation of debt securities is as stated in Significant Accounting Policy No. 7.13. 9.14 Provisions regarding unrealised gains/losses has been stated in the Significant Accounting Policies No. 7.7. 9.15 The Corporation does not hold any properties for investment purposes. 10. The Corporation generally makes payments to its creditors within a period of 45 days as stipulated in Micro, Small and Medium Enterprises Act 2006. The Corporation is in the process of identifying Micro, Small and Medium Enterprises as defined in above referred act. Hence relevant disclosures are not made. The Corporation has neither received any claims for interest nor provided any interest payable to Micro, Small and Medium Enterprises as required by aforesaid act. 11. Segment Reporting as per Accounting Standard-17 "Segment Reporting" of ICAI, has been complied with as required by IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002. 15. Additional Provision of Rs. 7,647 thousands has been made in respect of Reserve for Unexpired Risk as required by IRDA for 2011-12 for London Branch (Previous year Rs. 16843 thousands). 16. Based on the statements received from the Pool, liability for IBNR claim for Third Party Motor Pool was provided in the past. During the current year, the IRDA carried out independent assessment of the provision required for Indian Motor Third Party Pool (Commercial Vehicles) and vide its order IRDA/ NL/ORD/MPL/003/01/2012 dated January 3, 2012 directed all General Insurance and Reinsurance Companies to make a provision of not less than 159%, 188%, 200% and 213% for the underwriting years 2007-2008, 2008-2009, 2009-2010 and 2010-2011 respectively. Due to this, additional provision of Rs. 8,111,497 thousands has been created during the current year. Further the IRDA vide its order IRDA/NL/ORD/MPL/72/03/2012 dated March 22, 2012 declares the ultimate loss ratio of not less than 145% for the underwriting year 2011-12 accordingly provision of Rs. 9,116,790 thousands has been created of which brmium deficiency reserve has been created of Rs. 1,414,674 thousands during the current year. During the year, the IRDA vide its order IRDA/NL/ORD/MPL/277/12/2011 dated December 23, 2011 directed the dismantling of the Indian Motor Third Party Insurance Pool (IMTPIP). Further, the Company has exercised the option given under paragraph 3(a) of the IRDA Order No. IRDA/F&A/ ORD/MTPP/070/03/2012 dated March 22, 2012 the additional IMPTPIP liabilities upon re-estimation of actuarially determined liabilities relating to underwriting years (accounting years as the practice is) 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12 are accounted for and recognized in full in the financial year ending March 31, 2012 itself. 18. The Corporation has brpared Cash flow statement adopting the indirect method. 19. Tax liabilities in respect of foreign operation, if any, is accounted on actual basis. 20. Prior period items have not been separately disclosed, as the amount is not material. 21. The summary of the financial statements of the Corporation for the last five years is as per Annexure I. 22. The Accounting Ratios of the Corporation are stated in Annexure II. 23. Tax credit under section 115 JAA of Income Tax Act has been included in Schedule 12 - Advances and other Assets as on 31st March, 2012. 27. Dividend Distribution Tax rebrsents excess provision made in earlier year written back. 28. Figures relating to the brvious year have been regrouped / rearranged, wherever necessary. As per our report of even date For MANUBHAI & CO. Chartered Accountants Firm Regn No. 106041W KRISHNAKANT B. SOLANKI Partner Membership No.: 110299 For CONTRACTOR, NAYAK & KISHNADWALA Chartered Accountants Firm Regn No. 101961W HIREN C. SHAH Partner Membership No.: 100052 A. K. Roy Chairman-cum-Managing Director Sunil Soni Director B. Chakrabarti Director G. Srinivasan Director D. Sarkar Director Sunil Gupta Director N. Mohan General Manager (Finance) Suchita Gupta Company Secretary Place: Mumbai Date: 1st June, 2012 |