ON FINANCIAL STATEMENTS FOR YEAR ENDED MARCH 31 2021
OF ICICI LOMBARD GENERAL INSURANCE 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 LOMBARDGENERAL INSURANCE COMPANY LIMITED ("the Company") which comprise the BalanceSheet as at March 31 2021 the Revenue accounts of fire marine and miscellaneousinsurance (collectively known as the Revenue accounts') the Profit and Lossaccount and the Receipts and Payments account for the year then ended the schedulesannexed there to a summary of the significant accounting policies and other explanatorynotes thereon.
In our opinion and to the best of our information and according to theexplanations given to us we report that the aforesaid financial statements prepared inaccordance with the requirements of Accounting Standards as specified under Section 133 ofthe Companies Act 2013 (the Act') including relevant provisions of theInsurance Act 1938 the Insurance Regulatory and Development Authority of India Act 1999(the "IRDAI Act") and other accounting principles generally accepted in Indiato the extent considered relevant and appropriate for the purpose of these financialstatements and which are not inconsistent with the accounting principles as prescribed inthe Insurance Regulatory and Development Authority of India (Preparation of FinancialStatements 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 the case of Balance Sheet of the state affairs of the Company asat March 31 2021;
b. in the case of Revenue Accounts of the operating profit in so faras it relates to the Fire and Miscellaneous business and operating loss in so far as itrelates to the Marine business for year ended on that date;
c. in the case of Profit and Loss Account of the profit for the yearended on that date; and
d. in case of Receipts and Payments Account of the receipts andpayments for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing(SAs) specified under section 143(10) of the Act. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit ofthe financial statements section of our report. We are independent of the Company inaccordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that is relevant to our audit of thefinancial statements under the provisions of the Act and the Rules made thereunder and wehave fulfilled our other ethical responsibilities in accordance with these requirementsand the Code of Ethics. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that in our professionaljudgement were of most significance in our audit of the financial statements of thecurrent period and include the most significant assessed risks of material misstatement(whether or not due to fraud) that we identified. These matters included those which hadthe greatest effect on: the overall audit strategy the allocation of resources in theaudit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of thefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters.
|Sr. No. Key Audit Matter ||How our Audit addressed this Key Matter |
|1. Information Technology Systems and Controls (IT Controls): ||Our key audit procedures included but were not limited to the following: |
|The company is highly dependent on its complex IT architecture comprising hardware software multiple applications automated interfaces and controls in systems for recording storing and reporting financial transactions. ||We obtained an understanding of the entity's IT related control environment. Furthermore we conducted a risk assessment and identified IT applications databases and operating systems that are relevant for the Company's financial reporting. |
| ||For the key IT systems relevant to reporting of financial information our areas of audit focus included access program change management automated transaction and interface controls. |
|Large volume of transactions that are processed on daily basis as part of its operations which impacts key financial accounting and reporting items such as premium income claims commission expenses and investments among others. || |
| ||In particular: |
| || We obtained an understanding of the entity's IT environment and key changes if any during the audit period that may be relevant to the audit. |
|There exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being materially misstated. || |
| || We sample tested the design implementation and operating effectiveness of the General IT controls over the key IT systems that are critical to financial reporting. This included evaluation of entity's controls to ensure segregation of duties and appropriate access rights. |
|The controls implemented by the entity in its IT environment determine the integrity accuracy completeness and the validity of the data that is processed by the applications and is ultimately used for financial reporting. These controls contribute to mitigating risk of potential misstatements caused by fraud or errors. || |
| || Controls over changes to software applications were evaluated to verify whether the changes were approved tested in an environment that was segregated from operation and moved to production by appropriate users. |
| || We also evaluated the design and tested the operating effectiveness of critical & key automated controls within various business processes. This included testing the integrity of system interfaces the completeness and accuracy of data feeds system reconciliation controls and automated calculations. |
|Our audit approach relies on automated controls and therefore procedures are designed to test control over IT systems segregation of duties interface and system application controls over key financial accounting and reporting systems. || |
| || We also reviewed the Information System Audit Reports to assess the impact of observations and management's response if any on financial reporting. |
| ||Results of our tests has provided audit evidence which we have used to draw conclusions including our reporting. |
|2. Investments (Refer Schedule 8 and 8A): ||Our audit procedures on Investments included the following: |
|The Company's investments represent 71.1% of the assets as at March 31 2021 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. |
| || Verified and obtained appropriate external confirmation for availability and ownership rights related to these investments. |
|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. || Tested the design implementation management oversight and operating effectiveness of key controls over the classification and valuation process of investments. |
| || 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. |
|The Company has a policy framework for Valuation and impairment of Investments. The || |
| || Examining the rating downgrades by credit rating agencies and assessing the risk of impairments to various investments. |
|Company performs an impairment review of its investments periodically and recognizes 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. Further the assessment of impairment involves significant management judgment. || 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. |
|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. || |
|3. Scheme of demerger of Bharti Axa General Insurance Limited's insurance business ("Insurance Undertaking") to ICICI Lombard General Insurance Limited (Refer note 5.2.27) ||We obtained an understanding of the regulatory framework involved in such large acquisition the process adopted including the strength and reputation team of advisors. |
| ||Our audit procedures include following; |
|During the year the Company has reported a Scheme of Demerger approved by Board of Directors of the Company between the company and Bharti Axa General Insurance Limited (Bharti Axa) whereby the Insurance undertaking of Bharti Axa is demerged and merged with the Company from the Appointed Date i.e. April 12020 subject to various regulatory approvals which is under process at the year end. || Review of due diligence report valuation reports and other expert advisory reports and manner in which these have been dealt with in decision making. |
| || We have read the transaction documents including approved Scheme of Demerger and identified pertinent terms relevant to the accounting and disclosure requirement for the transaction. We assessed and confirmed the Company's conclusion on proposed accounting and disclosure treatment of the Scheme and its compliance with Accounting Standard 14: Accounting for Amalgamations (AS-14). |
|This transaction involving issue of 35756194 additional equity shares (7.9% of paid-up capital) of the company is significant for suitable financial reporting. || |
| || We have read the minutes of meeting of Board of Directors its Committees and Members of the Company. |
| || We have enquired about the progress of the transaction as at the year-end to confirm the appropriateness of treatment in the financial statement. |
| || We have obtained and reviewed details of commitments and expenditure incurred related to the transaction for validating the accounting treatment thereof. |
| ||Results of our tests has provided audit evidence which we have used to draw conclusions including our reporting. |
INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITOR'SREPORT THEREON:
The Directors are responsible for the preparation of other information.The other information comprises Directors Report and Management Discussion & Analysisbut does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements ourresponsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the financial statements or ourknowledge obtained during the course of our audit or otherwise appears to be materiallymisstated.
If we identify such material inconsistencies or apparent materialmisstatements we are required to determine whether there is a material misstatement ofthe other information. If based on the work we have performed we conclude that there isa material misstatement of this other information we are required to report that fact.
We confirm that we have nothing material to report add or drawattention to in this regard.
RESPONSIBILITIES OF THE MANAGEMENT AND THOSE CHARGED WITH GOVERNANCEFOR THE FINANCIAL STATEMENTS
The Company's Board of Directors is responsible for the mattersstated in Section 134(5) of the Companies Act 2013 ("the Act") with respect tothe preparation of these financial statements that give a true and fair view of thefinancial position underwriting results financial performance and cash flows of theCompany in accordance with the accounting principles generally accepted in Indiaincluding the applicable Accounting Standards specified under Section 133 of the Act theInsurance Act the IRDAI Act the Regulations and orders / directions prescribed by theInsurance Regulatory and Development Authority of India (IRDAI') in this behalfand current practices prevailing within the insurance industry in India.
This responsibility also includes maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of theCompany and for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing asapplicable matters related to going concern and using the going concern basis ofaccounting unless management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so.
The Board of Directors is also responsible for overseeing theCompany's financial reporting process.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIALSTATEMENTS
Our objectives are to obtain reasonable assurance about whether thefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonableassurance is a high level assurance but it is not a guarantee that an audit conducted inaccordance with SAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if individuallyor in the aggregate that could reasonably be expected to influence the economic decisionsof users taken on the basis of these financial statements.
As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal financial controls relevantto the audit in order to design audit procedures that are appropriate in thecircumstances. Under section 143(3)(I) of the Act we are also responsible for expressingour opinion on whether the Company has adequate internal financial controls system inplace and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of thegoing concern basis of accounting and based on the audit evidence obtained whether amaterial uncertainty exists related to events or conditions that may cast significantdoubt on the ability of the Company to continue as a going concern. If we conclude that amaterial uncertainty exists we are required to draw attention in our auditor'sreport to the related disclosures in the financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditionsmay cause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of thefinancial statements including the disclosures and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findings.
We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.
The actuarial valuation of liabilities in respect of Incurred But NotReported (the "IBNR") Incurred But Not Enough Reported (the "IBNER")and Premium Deficiency Reserve (the "PDR") is the responsibility of theCompany's Appointed Actuary (the "Appointed Actuary"). The actuarialvaluation of these liabilities that are estimated using statistical methods as at March31 2021 has been duly certified by the Appointed Actuary and in his opinion theassumptions considered by him for such valuation are in accordance with the guidelines andnorms issued by the IRDAI and the Institute of Actuaries of India in concurrence with theIRDAI. We have relied upon the Appointed Actuary's certificate in this regard forforming our opinion on the valuation of liabilities for outstanding claims reserves andthe PDR contained in the financial statements of the Company.
Report on Other Legal and Regulatory Requirements
1. As required by the IRDAI Financial Statements Regulations we haveissued a separate certificate dated 17 April 2021 certifying the matters specified inparagraphs 3 and 4 of Schedule C to the IRDAI Financial Statement Regulations.
2. As required by the paragraph 2 of Schedule C to the IRDAI FinancialStatement Regulations and Section 143(3) of the Act in our opinion and according to theinformation and explanations give to us we report that:
a) We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of ouraudit.
b) As the Company's accounts are centralized and maintained at thecorporate office no returns for the purposes of our audit are prepared at the branchesand other offices of the Company.
c) Proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.
d) The Balance sheet the Revenue accounts the Profit and Loss accountand the Receipts and Payments account dealt with by this report are in agreement with thebooks of account.
e) The aforesaid financial statements comply with the applicableAccounting Standards specified under Section 133 of the Act to the extent they are notinconsistent with the accounting principles prescribed by the Regulations andorders/directions prescribed by IRDAI in this regard.
f) Investments have been valued in accordance with the provisions ofthe Insurance Act the Regulations and orders/directions issued by IRDAI in this regard.
g) On the basis of the written representations received from thedirectors as on 31st March 2021 taken on record by the Board of Directors none of thedirectors is disqualified as on 31st March 2021 from being appointed as a director interms of Section 164 (2) of the Act.
h) With respect to the adequacy of the internal financial controls withreference to the financial reporting of the Company and the operating effectiveness ofsuch controls refer to our separate Report in "Annexure A".
i) With respect to the other matters to be included in theAuditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors)Rules 2014 in our opinion and to the best of our information and according to theexplanations given to us:
i. The Company has disclosed the impact of pending litigations on itsfinancial position in its financial statements - Refer Note no. 5.1.1 to the financialstatements;
ii. The Company has made provision as required under the applicablelaw or accounting standards for material foreseeable losses if any on long-termcontracts. The Company did not have any outstanding long term derivative contracts - ReferNote no. 5.2.21 to the financial statements and "Other Matter" para above;
iii. During the year there were no amount required to be transferred tothe Investor Education and Protection Fund by the Company - Refer Note no. 5.2.22 to thefinancial statements.
3. With respect to the other matters to be included in theAuditor's report in terms of the requirements of Section 197(16) of the Act wereport that managerial remuneration payable to the Company's Directors is governed bythe provisions of Section 34A of the Insurance Act 1938 and is approved by IRDAI.Accordingly the managerial remuneration limits specified under Section 197 of the Act donot apply.
|For Chaturvedi & Co. ||For PKF Sridhar & Santhanam LLP |
|Chartered Accountants ||Chartered Accountants |
|Firm Registration No. ||Firm Registration No. |
|302137E ||003990S/S200018 |
|S N Chaturvedi ||R. Suriyanarayanan |
|Partner ||Partner |
|Membership No. 040479 ||Membership No. 201402 |
|UDIN: ||UDIN: |
|21040479AAAACJ7270 ||21201402AAAAAN7680 |
|Mumbai ||Mumbai |
|April 17 2021 ||April 17 2021 |
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 2021.
Report on the Internal Financial Controls with reference to theaforesaid financial statements under Clause (i) of Sub-section 3 of Section 143 of theCompanies Act 2013 ("the Act")
We have audited the internal financial controls with reference to theaforesaid financial statements of ICICI Lombard General Insurance Company Limited("the Company") as of March 31 2021 in conjunction with our audit of thefinancial statements of the Company for the year ended on that date.
MANAGEMENT'S RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS
The Company's management is responsible for establishing andmaintaining internal financial controls based on the "internal control with referenceto 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". These responsibilities include the design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theorderly and efficient conduct of its business including adherence to company's policiesthe safeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Companies Act 2013 the InsuranceAct the IRDAI Act the Regulations and orders / directions prescribed by the InsuranceRegulatory and Development Authority of India ('IRDAI') in this behalf and currentpractices prevailing within the insurance industry in India..
Our responsibility is to express an opinion on the Company's internalfinancial controls with reference to financial statements based on our audit. We conductedour audit in accordance with the Guidance Note and the Standards on Auditing prescribedunder section 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 aboutthe adequacy of the internal financial controls system with reference to financialreporting and their operating effectiveness. Our audit of internal financial controls withreference to financial reporting included obtaining an understanding of internal financialcontrols assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgement including the assessment of therisks of material misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Company's internal financialcontrols system with reference to financial reporting.
MEANING OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO FINANCIALREPORTING
A company's internal financial control with reference to financialreporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles. A company's internalfinancial control with reference to financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally acceptedaccounting principles and that receipts and expenditures of the company are being madeonly in accordance with authorisations of management and directors of the company; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorisedacquisition use or disposition of the company's assets that could have a material effecton the financial statements.
INHERENT LIMITATIONS OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TOFINANCIAL REPORTING
Because of the inherent limitations of internal financial controls withreference to financial reporting including the possibility of collusion or impropermanagement override of controls material misstatements due to error or fraud may occurand not be detected. Also projections of any evaluation of the internal financialcontrols with reference to the financial reporting to future periods are subject to therisk that the internal financial control with reference to the financial reporting maybecome inadequate because of changes in conditions or that the degree of compliance withthe policies or procedures may deteriorate.
In our opinion the Company has in all material respects an adequateinternal financial controls system with reference to financial reporting and such internalfinancial controls were operating effectively as at March 31 2021 based on "theinternal control with reference to the financial reporting criteria established by theCompany considering the essential components of internal control stated in the GuidanceNote on Audit of Internal Financial Controls Over Financial Reporting issued by theInstitute of Chartered Accountants of India" (the "Guidance Note").
The actuarial valuation of liabilities in respect of Incurred But NotReported (the "IBNR") Incurred But Not Enough Reported (the "IBNER")and Premium Deficiency Reserve (the "PDR") is the responsibility of theCompany's Appointed Actuary (the "Appointed Actuary"). The actuarial valuationof these liabilities that are estimated using statistical methods as at March 31 2021has been duly certified by the Appointed Actuary and in his opinion the assumptionsconsidered by him for such valuation are in accordance with the guidelines and normsissued by the IRDAI and the Institute of Actuaries of India in concurrence with the IRDAI.The said actuarial valuations of liabilities for outstanding claims reserves and the PDRhave been relied upon by us as mentioned in Other Matters paragraph in our Audit Report onthe financial statements for the year ended 31 March 2021. 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: 21040479AAAACJ7270 ||UDIN: 21201402AAAAAN7680 |
|Mumbai April 17 2021 ||Mumbai April 17 2021 |