Use our Portfolio Manager
 to generate:

    - Insurance Chart
    - Cash Flow Chart
    - Premium Calendar

  Insurance Counsellor
  Calculators
   Log in

   Need for Insurance
  Insurance & Tax
  Retirement Planning
  Insurance as Investment

Home / IRDA Update 

Insurance cos can repay acquisition costs after 5 years

The IRDA in its draft accounting norms has said that insurance companies can amortise acquisition costs for a period of five years. The deferment of the acquisition of the costs will play an important role in the balance sheet of a new life insurance company. This is because first year commission in a life insurance policy can be as high as 75 percent of the premium. If the companies have to provide for the entire commission upfront they will have to report high losses.

The draft norms state that only commission and incentives in the nature of commission can be deferred when they are expected to give rise to future premium income. Any other acquisition costs should be expenses in the year in which they are incurred.

IRDA has also clarified that the capitalised part of the acquisition cost should be charged to expense in proportion to the premium revenue recognised unless any other rational or reasonable basis of amortisation is adopted. The draft report has also prescribed norms for revaluing investments in shares and property based on market rates with the surplus to be credited to separate revaluation reserves. Part of these surpluses can be utilised for declaring bonuses to policyholders up to the limits prescribed by the IRDA.

Balance sheets of the insurance companies are expected to become more transparent with a large number of disclosures required to be made a part of notes to accounts. Insurance companies will also have to maintain a catastrophe reserve that has to be created out of the surplus in the policyholder's account.

Accounting norms also state that insurance companies should comply with the Accounting Standards (AS) issued by the Institute of Chartered Accountants of India (ICAI) to the extent applicable to Life Insurance companies except in the case of Accounting Standards - AS 3, AS 13 and AS 17.

AS 13 will not apply as cash flow statements should be prepared only under the direct method. Also AS 13 will not apply and companies will have to adopt IRDA guidelines for valuing investments. Moreover, insurance companies will have to adopt segment reporting irrespective of whether their securities are listed or not, unlike prescriptions under AS 17.

More Updates

| Back | Top | Home |