TaxTMI 
TaxTMI 
Ind AS 104 (Insurance Contracts)
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....at it holds. (b) financial instruments that it issues with a discretionary participation feature (see paragraph 35). Ind AS 107, Financial Instruments: Disclosures, requires disclosure about financial instruments, including financial instruments that contain such features. 3 This Ind AS does not address other aspects of accounting by insurers, such as accounting for financial assets held by insurers and financial liabilities issued by insurers (see Ind AS 32, Financial Instruments: Presentation, Ind AS 107 and Ind AS 109, Financial Instruments). 4 An entity shall not apply this Ind AS to: (a) product warranties issued directly by a manufacturer, dealer or retailer (see Ind AS 115, Revenue from Contracts with Customers and Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets). (b) employers' assets and liabilities under employee benefit plans (see Ind AS 19, Employee Benefits, and Ind AS 102, Share-based Payment) and retirement benefit obligations reported by defined benefit retirement plans. (c) contractual rights or contractual obligations that are contingent on the future use of, or right to use, a non-financial item (for e....
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.... is not specific to a party to the contract. Furthermore, those requirements also apply if the holder's ability to exercise a put option or cash surrender option is triggered by a change in such a variable (for example, a put option that can be exercised if a stock market index reaches a specified level). 9 Paragraph 8 applies equally to options to surrender a financial instrument containing a discretionary participation feature. Unbundling of deposit components 10 Some insurance contracts contain both an insurance component and a deposit component. In some cases, an insurer is required or permitted to unbundle those components: (a) unbundling is required if both the following conditions are met: (i) the insurer can measure the deposit component (including any embedded surrender options) separately (ie without considering the insurance component). (ii) the insurer's accounting policies do not otherwise require it to recognise all obligations and rights arising from the deposit component. (b) unbundling is permitted, but not required, if the insurer can measure the deposit component separately as in (a)(i) but its accounting policies requ....
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....nsurance assets against the related insurance liabilities; or (ii) income or expense from reinsurance contracts against the expense or income from the related insurance contracts. (e) shall consider whether its reinsurance assets are impaired (see paragraph 20). Liability adequacy test 15 An insurer shall assess at the end of each reporting period whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its insurance liabilities (less related deferred acquisition costs and related intangible assets, such as those discussed in paragraphs 31 and 32) is inadequate in the light of the estimated future cash flows, the entire deficiency shall be recognised in profit or loss. 16 If an insurer applies a liability adequacy test that meets specified minimum requirements, this Ind AS imposes no further requirements. The minimum requirements are the following: (a) The test considers current estimates of all contractual cash flows, and of related cash flows such as claims handling costs, as well as cash flows resulting f....
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....ve evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the cedant may not receive all amounts due to it under the terms of the contract; and (b) that event has a reliably measurable impact on the amounts that the cedant will receive from the reinsurer. 20A-20Q [Refer Appendix 1] 20R-20S [Refer Appendix 1] Changes in accounting policies 21 Paragraphs 22-30 apply both to changes made by an insurer that already applies Ind ASs and to changes made by an insurer adopting Ind ASs for the first time. 22 An insurer may change its accounting policies for insurance contracts if, and only if, the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs. An insurer shall judge relevance and reliability by the criteria in Ind AS 8. 23 To justify changing its accounting policies for insurance contracts, an insurer shall show that the change brings its financial statements closer to meeting the criteria in Ind AS 8, but the change need not achieve full compliance with those criteria. The following ....
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....he other requirements in this Ind AS. Prudence 26 An insurer need not change its accounting policies for insurance contracts to eliminate excessive prudence. However, if an insurer already measures its insurance contracts with sufficient prudence, it shall not introduce additional prudence. Future investment margins 27 An insurer need not change its accounting policies for insurance contracts to eliminate future investment margins. However, there is a rebuttable presumption that an insurer's financial statements will become less relevant and reliable if it introduces an accounting policy that reflects future investment margins in the measurement of insurance contracts, unless those margins affect the contractual payments. Two examples of accounting policies that reflect those margins are: (a) using a discount rate that reflects the estimated return on the insurer's assets; or (b) projecting the returns on those assets at an estimated rate of return, discounting those projected returns at a different rate and including the result in the measurement of the liability. 28 An insurer may overcome the rebuttable presumption described in paragraph 27 ....
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.... loss does. The related adjustment to the insurance liability (or deferred acquisition costs or intangible assets) shall be recognised in other comprehensive income if, and only if, the unrealised gains or losses are recognised in other comprehensive income. This practice is sometimes described as 'shadow accounting'. Insurance contracts acquired in a business combination or portfolio transfer 31 To comply with Ind AS 103, an insurer shall, at the acquisition date, measure at fair value the insurance liabilities assumed and insurance assets acquired in a business combination. However, an insurer is permitted, but not required, to use an expanded presentation that splits the fair value of acquired insurance contracts into two components: (a) a liability measured in accordance with the insurer's accounting policies for insurance contracts that it issues; and (b) an intangible asset, representing the difference between (i) the fair value of the contractual insurance rights acquired and insurance obligations assumed and (ii) the amount described in (a). The subsequent measurement of this asset shall be consistent with the measurement of the related ins....
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....not as expense or income (see Ind AS 1, Presentation of Financial Statements). (d) shall, if the contract contains an embedded derivative within the scope of Ind AS 109, apply Ind AS 109 to that embedded derivative. (e) shall, in all respects not described in paragraphs 14-20 and 34(a)-(d), continue its existing accounting policies for such contracts, unless it changes those accounting policies in a way that complies with paragraphs 21-30. Discretionary participation features in financial instruments 35 The requirements in paragraph 34 also apply to a financial instrument that contains a discretionary participation feature. In addition: (a) if the issuer classifies the entire discretionary participation feature as a liability, it shall apply the liability adequacy test in paragraphs 15-19 to the whole contract (ie both the guaranteed element and the discretionary participation feature). The issuer need not determine the amount that would result from applying Ind AS 109 to the guaranteed element. (b) if the issuer classifies part or all of that feature as a separate component of equity, the liability recognised for the whole contract sh....
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....surance assets and insurance liabilities, showing separately the effect of each change that has a material effect on the financial statements. (e) reconciliations of changes in insurance liabilities, reinsurance assets and, if any, related deferred acquisition costs. Nature and extent of risks arising from insurance contracts 38 An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from insurance contracts. 39 To comply with paragraph 38, an insurer shall disclose: (a) its objectives, policies and processes for managing risks arising from insurance contracts and the methods used to manage those risks. (b) [Refer Appendix 1] (c) information about insurance risk (both before and after risk mitigation by reinsurance), including information about: (i) sensitivity to insurance risk (see paragraph 39A). (ii) concentrations of insurance risk, including a description of how management determines concentrations and a description of the shared characteristic that identifies each concentration (eg type of insured event, geographical ar....
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....tivity, and information about those terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of the insurer's future cash flows. 39B-39M [Refer Appendix 1] Effective date and transition 40 * 41 * 41A * 41B * 41C * 41D * 41E * 41F * 41G As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraphs 4(a) and (c), B7(b), B18(h) and B21 are amended. An entity shall apply those amendments when it applies Ind AS 115. 41H Omitted * 41I Ind AS 116 amended paragraph 4. An entity shall apply that amendment when it applies Ind AS 116. 42-51 [Refer Appendix 1] Appendix A Defined terms This appendix is an integral part of the Ind AS. Cedant The policyholder under a reinsurance contract. deposit component A contractual component that is not accounted for as a derivative under Ind AS 109 and would be within the scope of Ind AS 109 if it were a separate instrument. direct insurance contract An insurance contract that is not a reinsurance contract. discretionary participation feature A c....
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.... contractual obligations under an insurance contract. insurance risk Risk, other than financial risk, transferred from the holder of a contract to the issuer. insured event An uncertain future event that is covered by an insurance contract and creates insurance risk. insurer The party that has an obligation under an insurance contract to compensate a policyholder if an insured event occurs. liability adequacy test An assessment of whether the carrying amount of an insurance liability needs to be increased (or the carrying amount of related deferred acquisition costs or related intangible assets decreased), based on a review of future cash flows. policyholder A party that has a right to compensation under an insurance contract if an insured event occurs. reinsurance assets A cedant's net contractual rights under a reinsurance contract. reinsurance contract An insurance contract issued by one insurer (the reinsurer) to compensate another insurer (the cedant) for losses on one or more contracts issue....
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.... level of service depends on an uncertain event meet the definition of an insurance contract in this Ind AS but are not regulated as insurance contracts in some countries. One example is a maintenance contract in which the service provider agrees to repair specified equipment after a malfunction. The fixed service fee is based on the expected number of malfunctions, but it is uncertain whether a particular machine will break down. The malfunction of the equipment adversely affects its owner and the contract compensates the owner (in kind, rather than cash). Another example is a contract for car breakdown services in which the provider agrees, for a fixed annual fee, to provide roadside assistance or tow the car to a nearby garage. The latter contract could meet the definition of an insurance contract even if the provider does not agree to carry out repairs or replace parts. B7 Applying this Standard to the contracts described in paragraph B6 is likely to be no more burdensome than applying the Ind ASs that would be applicable if such contracts were outside the scope of this Ind AS: (a) There are unlikely to be material liabilities for malfunctions and breakdowns that ha....
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....nsurance risk, not financial risk. B10 Some contracts expose the issuer to financial risk, in addition to significant insurance risk. For example, many life insurance contracts both guarantee a minimum rate of return to policyholders (creating financial risk) and promise death benefits that at some times significantly exceed the policyholder's account balance (creating insurance risk in the form of mortality risk). Such contracts are insurance contracts. B11 Under some contracts, an insured event triggers the payment of an amount linked to a price index. Such contracts are insurance contracts, provided the payment that is contingent on the insured event can be significant. For example, a life-contingent annuity linked to a cost-of-living index transfers insurance risk because payment is triggered by an uncertain event-the survival of the annuitant. The link to the price index is an embedded derivative, but it also transfers insurance risk. If the resulting transfer of insurance risk is significant, the embedded derivative meets the definition of an insurance contract, in which case it need not be separated and measured at fair value (see paragraph 7 of this Ind AS). B12 Th....
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....ated with insured events) is not insurance risk because an unexpected increase in expenses does not adversely affect the counterparty. B16 Therefore, a contract that exposes the issuer to lapse risk, persistency risk or expense risk is not an insurance contract unless it also exposes the issuer to insurance risk. However, if the issuer of that contract mitigates that risk by using a second contract to transfer part of that risk to another party, the second contract exposes that other party to insurance risk. B17 An insurer can accept significant insurance risk from the policyholder only if the insurer is an entity separate from the policyholder. In the case of a mutual insurer, the mutual accepts risk from each policyholder and pools that risk. Although policyholders bear that pooled risk collectively in their capacity as owners, the mutual has still accepted the risk that is the essence of an insurance contract. Examples of insurance contracts B18 The following are examples of contracts that are insurance contracts, if the transfer of insurance risk is significant: (a) insurance against theft or damage to property. (b) insurance against product liabil....
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....overy of a defect in the title, not the defect itself. (j) travel assistance (ie compensation in cash or in kind to policyholders for losses suffered while they are travelling). Paragraphs B6 and B7 discuss some contracts of this kind. (k) catastrophe bonds that provide for reduced payments of principal, interest or both if a specified event adversely affects the issuer of the bond (unless the specified event does not create significant insurance risk, for example if the event is a change in an interest rate or foreign exchange rate). (l) insurance swaps and other contracts that require a payment based on changes in climatic, geological or other physical variables that are specific to a party to the contract. (m) reinsurance contracts. B19 The following are examples of items that are not insurance contracts: (a) investment contracts that have the legal form of an insurance contract but do not expose the insurer to significant insurance risk, for example life insurance contracts in which the insurer bears no significant mortality risk (such contracts are non-insurance financial instruments or service contracts, see paragraphs B20 and B....
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....e contract use what is sometimes called deposit accounting, which involves the following: (a) one party recognises the consideration received as a financial liability, rather than as revenue. (b) the other party recognises the consideration paid as a financial asset, rather than as an expense. B21 If the contracts described in paragraph B19 do not create financial assets or financial liabilities, Ind AS 115 applies. Under Ind AS 115, revenue is recognised when (or as) an entity satisfies a performance obligation by transferring a promised good or service to a customer in an amount that reflects the consideration to which the entity expects to be entitled. Significant insurance risk B22 A contract is an insurance contract only if it transfers significant insurance risk. Paragraphs B8-B21 discuss insurance risk. The following paragraphs discuss the assessment of whether insurance risk is significant. B23 Insurance risk is significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance (ie have no discernible effect on the economics of the trans....
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....urer shall assess the significance of insurance risk contract by contract, rather than by reference to materiality to the financial statements. [For this purpose, contracts entered into simultaneously with a single counterparty (or contracts that are otherwise interdependent) form a single contract] Thus, insurance risk may be significant even if there is a minimal probability of material losses for a whole book of contracts. This contract-by-contract assessment makes it easier to classify a contract as an insurance contract. However, if a relatively homogeneous book of small contracts is known to consist of contracts that all transfer insurance risk, an insurer need not examine each contract within that book to identify a few non-derivative contracts that transfer insignificant insurance risk. B26 It follows from paragraphs B23-B25 that if a contract pays a death benefit exceeding the amount payable on survival, the contract is an insurance contract unless the additional death benefit is insignificant (judged by reference to the contract rather than to an entire book of contracts). As noted in paragraph B24(b), the waiver on death of cancellation or surrender charges is not inc....
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...., which has been superseded by IFRS 17, Insurance Contracts, issued by the International Accounting Standards Board for annual reporting periods beginning on or after 1January 2023] Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the differences between Indian Accounting Standard (Ind AS) 104 and the corresponding International Financial Reporting Standard (IFRS) 4, Insurance Contracts, issued by the International Accounting Standards Board. Comparison with IFRS 4, Insurance Contracts 1 Different terminology is used, to make it consistent with existing laws eg, term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. 2 The transitional provisions given in IFRS 4 have not been given in Ind AS 104, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. 3 IFRS 4 co....