ON FINANCIAL STATEMENTS FOR YEAR ENDED MARCH 31 2020 OF ICICI LOMBARD GENERALINSURANCE COMPANY LIMITED
To the Members of
ICICI Lombard General Insurance Company Limited
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of ICICI LOMBARD GENERALINSURANCE COMPANY LIMITED ("the Company") which comprise the Balance Sheetas at March 31 2020 the Revenue accounts of fire marine and miscellaneous insurance(collectively known as the Revenue accounts') the Profit and Loss account and theReceipts and Payments account for the year then ended the schedules annexed there to asummary of the significant accounting policies and other explanatory notes thereon.
In our opinion and to the best of our information and according to the explanationsgiven to us we report that the aforesaid financial statements prepared in accordance withthe requirements of Accounting Standards as specified under Section 133 of the CompaniesAct 2013 (the Act') including relevant provisions of the Insurance Act 1938 (the"Insurance Act") the Insurance Regulatory and Development Authority of IndiaAct 1999 (the "IRDAI Act") and other accounting principles generally acceptedin India to the extent considered relevant and appropriate for the purpose of thesefinancial statements and which are not inconsistent with the accounting principles asprescribed in the Insurance Regulatory and Development Authority of India (Preparation ofFinancial Statements and Auditors' Report of Insurance Companies) Regulations 2002 (the"Regulations") and orders/directions/circulars issued by the InsuranceRegulatory and Development Authority of India ("IRDAI"/"Authority")to the extent applicable give a true and fair view in conformity with the accountingprinciples generally accepted in India as applicable to insurance companies: a. in thecase of Balance Sheet of the state affairs of the Company as at March 31 2020; b. in thecase of Revenue Accounts of the operating profit in Fire Marine and Miscellaneousbusiness for year ended on that date; c. in the case of Profit and Loss Account of theprofit for the year ended on that date; and d. in case of Receipts and Payments Accountof the receipts and payments for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the financial statementssection of our report. We are independent of the Company in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India together with the ethicalrequirements that is relevant to our audit of the financial statements under theprovisions of the Act and the Rules made thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.
Key audit matters
Key audit matters are those matters that in our professional judgement were of mostsignificance in our audit of the financial statements of the current period and includethe most significant assessed risks of material misstatement (whether or not due to fraud)that we identified. These matters included those which had the greatest effect on: theoverall audit strategy the allocation of resources in the audit; and directing theefforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements asa whole and in forming our opinion thereon and we do not provide a separate opinion onthese matters.
|Sr No. ||Key Audit Matters ||Our Responses |
|1. ||Acquisition of proprietary software platforms and underlying intellectual property assets developed by Unbox Technologies Private Limited (Refer Note 5.2.27) ||Our audit procedures included the following: |
| ||On 30th October 2019 the Company entered into a business transfer agreement to acquire proprietary software platforms and underlying intellectual property assets developed by Unbox Technologies Private Limited along with ancillary movable assets for housing the Software and employees for operations maintenance and development of the Software for an aggregate consideration of 2248500 thousands on a slump sale basis Rs. being managements estimate of fair value of the identifiable assets. The valuation was performed as part of the Purchase Price Allocation (PPA). The Company appointed independent professional valuers (experts) to perform the valuation for the purpose of PPA. || Review of the compliance with applicable regulations and examination of various legal and professional advices received by the company. |
| ||Significant assumptions and estimates were used in the determination of the fair values of the identified assets acquired and liabilities assumed in the transaction and thus we consider this area to be a Key Audit Matter. || Checking various approvals given by Those Charged With Governance. |
| || || Tracing the value of the consideration transferred with reference to the agreed terms of the transaction. |
| || || Review of the PPA reports including the work done by the experts to assess reasonableness of the underlying key assumptions used in determining the fair value of assets and liabilities as at the acquisition date. |
| || || Confirming that the valuation techniques used are consistent with generally accepted norms. |
| || || Confirming that identifiable assets acquired and liabilities assumed were appropriately valued in all material respects. |
| || || Assessing the management's determination of the fair value of the proprietary software. |
| || || Consideration of the accounting treatment and the adequacy of disclosure in the financial statements relating to this transaction. Based on our procedures we found that the key assumptions and methodologies used were within a reasonable range for fair value determination. |
|2. ||Investments (Refer Schedule 8 and 8A) ||Our audit procedures on Investment included the following: |
| ||The Company's investments represent 71% of the assets as at March 31 2020 which are to be valued in accordance with accounting policy framed as per the extant regulatory guidelines. || Understood Management's process and controls to ensure proper classification and valuation of Investment. |
| ||The valuation of all investments should be as per the investment policy framed by the Company which in turn should be in line with IRDAI Investment Regulations and Preparation of Financial Statement Regulations. The valuation methodology specified in the regulation is to be used for each class of investment. || Verified and obtained appropriate external confirmation for availability and ownership rights related to these investments. |
| || || Tested the design implementation management oversight and operating effectiveness of key controls over the classification and valuation process of investments. |
| ||The Company has a policy framework for Valuation and impairment of Investments. The Company performs an impairment review of its investments periodically and recognises impairment charge when the investments meet the trigger/s for impairment provision as per the criteria set out in the investment policy of the Company. || Test-checked valuation of different class of investments to assess appropriateness of the valuation methodologies with reference to IRDAI Investment Regulations along with Company's own investment policy. |
| ||Further the assessment of impairment involves significant management judgement. || Examining the rating downgrades by credit rating agencies and assessing the risk of impairments to various investments. |
| ||The classification and valuation of these investments was considered one of the matters of material significance in the financial statements due to the materiality of the total value of investments to the financial statements and further due to the market volatility impact caused due to global pandemic COVID-19 on the value of investments. || Reviewed the Company's impairment policy and assessed the adequacy of its impairment charge on investments outstanding at the year end. |
| || ||Based on procedures above we found the company's impairment valuation and classification of investments in its financial statements in all material respects to be fair. |
|3. ||Assessing the impact of Pandemic COVID 19 on the financial statements and internal control processes of the Company (Refer Note 5.2.28) ||Our audit procedures included the following: |
| ||The pandemic has created huge uncertainties on the operations of many established businesses and exposed them to several new risks. Due to this organisations have had to make significant changes to their normal processes to adapt to this sudden and unexpected turn of situation. || We looked at the company's exhaustive risk identification and mitigation analysis using its well established enterprise risk management framework to understand the implications assessment process and the company's current mitigation plans. |
| ||These changes could impact the measurement of assets and liabilities on varying degree. || Assessment of risks of counter party defaults by examining external credit rating movements if any and the process of identification of risky receivables and making suitable provisions in the financial statements. |
| ||Due to COVID-19 the Company is also exposed to various risks such as assessment of counter parties risks for receivables receipt of timely data from parties including reinsurers/ coinsurers operational controls compliance and several other risks. || Assessment of the temporary changes made to the internal control framework over financial reporting and carrying suitable tests for the effectiveness of key controls on the balance sheet date. |
| ||In view of the estimation uncertainties involved this was considered as a key audit matter. || Evaluating the overall presentation of the financial statements and ensuring the appropriateness and adequacy of the disclosures. |
| || || Checking the compliance against the various regulatory prescriptions applicable to the company to the extent those are relevant in the preparation of financial statement. |
| || ||On the basis of our procedures we consider the Company's assessment of impact on financial statements due to COVID-19 to be appropriate. |
INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITOR'S REPORT THEREON
The Directors are responsible for the preparation of other information. The otherinformation comprises Directors Report Business Responsibility Report ManagementDiscussion & Analysis Management Report and Corporate Governance Report but does notinclude the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained during thecourse of our audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements we arerequired to determine whether there is a material misstatement of the other information.If based on the work we have performed we conclude that there is a material misstatementof this other information we are required to report that fact.
We confirm that we have nothing material to report add or draw attention to in thisregard.
RESPONSIBILITIES OF THE MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIALSTATEMENTS
The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese financial statements that give a true and fair view of the financial positionunderwriting results financial performance and cash flows of the Company in accordancewith the accounting principles generally accepted in India including the applicableAccounting Standards specified under Section 133 of the Act the Insurance Act the IRDAIAct the Regulations and orders/directions prescribed by the Insurance Regulatory andDevelopment Authority of India (IRDAI') in this behalf and current practicesprevailing within the insurance industry in India.
This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgements and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so.
The Board of Directors is also responsible for overseeing the Company's financialreporting process.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel assurance but it is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate thatcould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal financial controls relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the ability ofthe Company to continue as a going concern. If we conclude that a material uncertaintyexists we are required to draw attention in our auditor's report to the relateddisclosures in the financial statements or if such disclosures are inadequate to modifyour opinion. Our conclusions are based on the audit evidence obtained up to the date ofour auditor's report. However future events or conditions may cause the Company to ceaseto continue as a going concern.
Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the financial statements thatindividually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in (i) planning the scope of our auditwork and in evaluating the results of our work; and (ii) to evaluate the effect of anyidentified misstatements in the financial statements.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
The actuarial valuation of liabilities in respect of Incurred But Not Reported (the"IBNR") Incurred But Not Enough Reported (the "IBNER") and PremiumDeficiency Reserve (the "PDR") is the responsibility of the Company's PanelActuary (the "Panel Actuary"). The actuarial valuation of these liabilitiesthat are estimated using statistical methods as at March 31 2020 has been duly certifiedby the Panel Actuary and in his opinion the assumptions considered by him for suchvaluation are in accordance with the guidelines and norms issued by the IRDAI and theInstitute of Actuaries of India in concurrence with the IRDAI. We have relied upon thePanel Actuary's certificate in this regard for forming our opinion on the valuation ofliabilities for outstanding claims reserves and the PDR contained in the financialstatements of the Company.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
1. As required by the IRDAI Financial Statements Regulations we have issued a separatecertificate dated 02 May 2020 certifying the matters specified in paragraphs 3 and 4 ofSchedule C to the IRDAI Financial Statement Regulations.
2. As required by the paragraph 2 of Schedule C to the IRDAI Financial StatementRegulations and Section 143(3) of the Act in our opinion and according to the informationand explanations given to us we report that:
a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit.
b) As the Company's accounts are centralised and maintained at the corporate office noreturns for the purposes of our audit are prepared at the branches and other offices ofthe Company.
c) Proper books of account as required by law have been kept by the Company so far asit appears from our examination of those books.
d) The Balance sheet the Revenue accounts the Profit and Loss account and theReceipts and Payments account dealt with by this report are in agreement with the books ofaccount.
e) The aforesaid financial statements comply with the applicable Accounting Standardsspecified under Section 133 of the Act and with the accounting principles prescribed bythe Regulations and orders/directions prescribed by IRDAI in this regard.
f) Investments have been valued in accordance with the provisions of the Insurance Actthe Regulations and orders/directions issued by IRDAI in this regard.
g) On the basis of the written representations received from the directors as on 31stMarch 2020 taken on record by the Board of Directors none of the directors isdisqualified as on 31st March 2020 from being appointed as a director in termsof Section 164 (2) of the Act.
h) With respect to the adequacy of the internal financial controls with reference tothe financial reporting of the Company and the operating effectiveness of such controlsrefer to our separate Report in "Annexure A".
i) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financialposition in its financial statements Refer Note no. 5.2.20 to the financialstatements;
ii. The Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts. The Companydid not have any outstanding long term derivative contracts Refer Note no. 5.2.21to the financial statements;
iii. During the year there were no amount required to be transferred to the InvestorEducation and Protection Fund by the Company - Refer Note no. 5.2.22 to the financialstatements.
3. With respect to the other matters to be included in the Auditor's report in termsof the requirements of Section 197(16) of the Act we report that managerial remunerationpayable to the Company's Directors is governed by the provisions of Section 34A of theInsurance Act 1938 and requires approval of IRDAI. Accordingly the managerialremuneration limits specified under Section 197 of the Act do not apply.
|For Chaturvedi & Co. ||For PKF Sridhar & |
|Chartered Accountants ||Santhanam LLP |
|(Firm Registration No. 302137E) ||Chartered Accountants |
| ||(Firm Registration No. 003990S/S200018) |
|S N Chaturvedi ||R. Suriyanarayanan |
|Partner ||Partner |
|Membership No. 040479 ||Membership No. 201402 |
|UDIN: 20040479AAAABZ5431 ||UDIN: 20201402AAAAAO1342 |
|Place : Mumbai ||Place : Mumbai |
|Date : May 2 2020 ||Date : May 2 2020 |
Referred to in paragraph 2 (h)' of Section Report on Other Legal andRegulatory Requirements' of our report of even date to the members of ICICI LombardGeneral Insurance Company Limited ("the Company") on the financial statements asof and for the year ended March 31 2020.
REPORT ON THE INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE AFORESAID FINANCIALSTATEMENTS UNDER CLAUSE (I) OF SUB-SECTION 3 OF SECTION 143 OF THE COMPANIES ACT 2013("THE ACT")
We have audited the internal financial controls with reference to the aforesaidfinancial statements of ICICI Lombard General Insurance Company Limited ("theCompany") as of March 31 2020 in conjunction with our audit of the financialstatements of the Company for the year ended on that date.
In our opinion the Company has in all material respects an adequate internalfinancial controls system with reference to financial reporting and such internalfinancial controls with certain changes for remote work environment were operatingeffectively as at March 31 2020 based on "the internal control with reference tothe financial reporting criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls Over Financial Reporting issued by the Institute of Chartered Accountants ofIndia" (the "Guidance Note").
MANAGEMENT'S RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS
The Company's management is responsible for establishing and maintaining internalfinancial controls based on the "internal control with reference to financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting issued by the Institute of Chartered Accountants of India". Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013.
Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note and the Standards on Auditing prescribed undersection 143(10) of the Companies Act 2013 to the extent applicable to an audit ofinternal financial controls with reference to the financial statements. Those Standardsand the Guidance Note require that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance about whether adequate internal financialcontrols with reference to the financial reporting was established and maintained and ifsuch controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system with reference to financial reporting and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial reporting included obtaining an understanding of internal financial controlsassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemwith reference to financial reporting.
MEANING OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO FINANCIAL REPORTING
A company's internal financial control with reference to financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial control withreference to financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles and that receiptsand expenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.
INHERENT LIMITATIONS OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO FINANCIALREPORTING
Because of the inherent limitations of internal financial controls with reference tofinancial reporting including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to the financial reporting to future periods are subject to the risk that theinternal financial control with reference to the financial reporting may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
The actuarial valuation of liabilities in respect of Incurred But Not Reported (the"IBNR") Incurred But Not Enough Reported (the "IBNER") and PremiumDeficiency Reserve (the "PDR") is the responsibility of the Company's PanelActuary (the "Panel Actuary"). The actuarial valuation of these liabilitiesthat are estimated using statistical methods as at March 31 2020 has been duly certifiedby the Panel Actuary and in his opinion the assumptions considered by him for suchvaluation are in accordance with the guidelines and norms issued by the IRDAI and theInstitute of Actuaries of India in concurrence with the IRDAI. The said actuarialvaluations of liabilities for outstanding claims reserves and the PDR have been reliedupon by us as mentioned in Other Matters paragraph in our Audit Report on the financialstatements for the year ended 31st March 2020. Accordingly our opinion on theinternal financial controls with reference to financial reporting does not includereporting on the adequacy and operating effectiveness of the internal controls over thevaluation and accuracy of the aforesaid actuarial liabilities.
|For Chaturvedi & Co. ||For PKF Sridhar & Santhanam LLP |
|Chartered Accountants ||Chartered Accountants |
|(Firm Registration No. 302137E) ||(Firm Registration No. 003990S/S200018) |
|S N Chaturvedi ||R. Suriyanarayanan |
|Partner ||Partner |
|Membership No. 040479 ||Membership No. 201402 |
|UDIN: 20040479AAAABZ5431 ||UDIN: 20201402AAAAAO1342 |
|Place : Mumbai ||Place : Mumbai |
|Date : May 2 2020 ||Date : May 2 2020 |