Uniqus Point of View

Implementation of Ind AS for Insurance Entities

1, December 2024

Journey so far

# The IRDAI had required 15 firms with foreign equity partners and/or strategic alliances to adopt Ind AS from 1 April 2024. These companies are significant because they may have financial estimates in accordance with IFRS 17 for their consolidated balance sheets. These estimates are required for presentation in the financial statements of their foreign associates

(Link – https://www.goodreturns.in/news/irdai-asks-15-insurance-companies-to-adopt-ind-as-from-april-2024-1293147.html)

The Institute of Chartered Accountants of India (‘ICAI’) had earlier issued an Exposure Draft on Indian Accounting Standard (Ind AS) 117, Insurance Contracts, which is consistent with IFRS 17.

Salient features of the IRDAI private directive

The following are key points from the IRDAI private directive:

Insurance companies are required to prepare and submit proforma Ind AS financial statements following the below-phased approach outlined by the IRDAI. Previously, we noted that the Reserve Bank of India (RBI) had implemented a proforma reporting approach for banks. The Insurance Regulatory and Development Authority of India (IRDAI) is now moving in a similar direction.

Transition date and comparative period for the purposes of proforma Ind AS financial statements

The IRDAI has not specified a fixed transition date or comparative period for proforma Ind AS financial statements. Uniqus suggests the following approach for phased implementation:

Uniqus Point of View

01 April 2023 – Opening balance sheet date

FY 2023-24 – Comparative period

FY 2024-25 – Proforma Go Live period Ind AS financial statements

This method helps avoid multiple opening balance sheet dates and enables insurers to prepare proforma Ind AS financial statements alongside statutory reporting. However, insurers should seek further clarity from IRDAI or refer to industry practices before finalizing their approach.

Use of assumptions in the preparation of Ind AS proforma financial statements

Due to resource and system constraints, insurers may need to rely on certain assumptions while preparing proforma Ind AS financial statements. It is essential to document and disclose these assumptions, along with any identified gaps and timelines for resolution.

Uniqus Point of View

Use of assumptions could potentially arise in the following areas:

– Transition approach to be followed
– Assessment for Discount rates and Risk adjustment
– Onerosity testing
– Costs to be considered as acquisition costs
– Classification of Investment portfolio under Ind AS 109
– Calculation of impairment for financial assets and model to be used

Standalone vs Consolidated financial statements

The IRDAI’s private directive does not specify whether insurers should submit standalone or consolidated proforma Ind AS financial statements.

Uniqus Point of View

In our view insurers may prepare and submit ‘standalone’ proforma Ind AS financial statements. This approach aligns with the previous practice when insurers were required to submit Ind AS 104 proforma financial statements. Additionally, banking entities in India also submit their proforma Ind AS financial statements on a standalone basis.

Limited Review / Audit of Ind AS proforma financial statements

The IRDAI requires proforma Ind AS financial statements to be signed by the CFO and Appointed Actuary and encourages a limited review or audit by an independent Chartered Accountant and Actuary.

Uniqus Point of View

– Signing by CFO & Actuary ensures accountability and accuracy.
– Independent review or audit adds an extra layer of assurance.
– Establishing internal controls (e.g., review documentation, meeting minutes, technical memos, assumption lists) will strengthen compliance.
– A well-documented process will help address IRDAI queries efficiently.
– Excessive unresolved issues could lead to a modified audit opinion, potentially undermining the purpose of the proforma statements.

A structured approach will help insurers identify and resolve challenges early, ensuring a smooth transition to Ind AS.

Adoption of Ind-AS

The IRDAI plans to implement Ind AS for insurers from April 1, 2027, based on insights from proforma submissions. A synchronized transition for banking entities may also be required, as many banks have insurance subsidiaries, ensuring harmonized financial reporting.

Uniqus Point of View

For a successful transition and implementation of Ind AS, insurers should leverage the proforma exercise to identify challenges and areas for improvement. By submitting these findings to the IRDAI, insurers can help the regulator assess and provide directives to facilitate a smooth transition. If all insurance entities diligently follow this process during the proforma exercise, the target transition date of 01 April 2027 can become a reality.

In that case, following shall be the date of opening balance sheet, comparatives and go-live period:

– Date of opening balance sheet – 01 April 2026
– Comparatives – FY 2026-27
– Go Live – FY 2027-28

Next Steps

Impact Assessment
Companies should compare existing accounting standards with Ind AS 117.

Capacity Building
Training personnel on new measurement models.

Process & Systems Strengthening
Implementing necessary IT and internal control upgrades.

Regulatory Coordination
Regular engagement with IRDAI to ensure a smooth transition.

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