Irda prepares roadmap for compliance with IFRS

In what would bring volatiliy in revenue costs and perhaps change the financial books of insurance companies, the Insurance Regulatory and Development Authority (Irda) has laid down recommendations to move towards International Financial Standards (IFRS).

The government wants compliance with the IFRS provisions by 2011. To work towards compliance with IFRS, Irda has formed a committee under the chairmanship of R Kannan, member, actuary.

The regulator wants both insurance contracts and investment contracts to be valued differently. The actuaries of the insurance companies said the change in the accounting method will change the value of liabilities.

However, there is no standard method for evaluating liabilities under IFRS, assets would be valued under AS 30. Under this method, assets will be classified under three heads — held to maturity (HTM), available for sale and available for trading. This will bring about volatility in the revenue account.

“Classification of investments under IFRS is expected to have a considerable impact on insurance companies. Classification of securities under HTM category could be an issue if sold off before maturity, even in preceding two years, because of the ‘Tainting’ provisions,” Irda said.

“We had to move towards IFRS eventually, since the ICAI had the time frame till 2011. The accounting standards are similar across countries. There is need for additional norms in the IFRS as liabilities can be tricky,” said SBI Life Appointed Actuary Sanjeev Pujari.

The regulator has focused on the risks emanating from the insurance contracts. It has asked insurers to explain the nature and extent of risks arising from the insurance contracts.

Moreover, Irda wants insurers to describe the process of determining the assumptions of assets and liabilities. It wants the insurers to disclose the insurance risk, sensitivity to insurance risks, concentration of insurance risk, exposure to market risk under embedded derivatives and key performance indicators, including lapsation rate, claim ratio and premium collection.