MCA notifies Ind AS 104 for Insurance Contracts

The Ministry of Corporate Affairs (MCA) has notified Indian Accounting Standards (Ind AS) 104 for Insurance Contracts via issuing a Notification.

The Notification Read as Follows:

In exercise of the powers conferred by section 133 read with section 469 of the Companies Act, 2013 (18 of 2013), the Central Government, hereby makes the following rules further to amend the Companies (Indian Accounting Standards) Rules, 2015.

These rules may be called the Companies (Indian Accounting Standards) Third Amendment Rules, 2024. They shall come into force on the date of their publication in the Official Gazette.

In the Companies (Indian Accounting Standards) Rules, 2015 (hereinafter referred to as the said rules), in rule 5, the following proviso shall be inserted, namely: –

“Provided that an insurer or insurance company may provide its financial statement as per Ind AS 104 for the purposes of consolidated financial statements by its parent or investor or venturer till the Insurance Regulatory and Development Authority notifies the Ind AS 117 and for this purpose, Ind AS 104 shall, as specified in the Schedule to these rules, continue to apply.”

Objective of Ind AS

The objective of this Indian Accounting Standard (Ind AS) is to specify the financial reporting for insurance contracts by any entity that issues such contracts (described in this Ind AS as an insurer). In particular, this Ind AS requires:

(a) limited improvements to accounting by insurers for insurance contracts.

(b) disclosure that identifies and explains the amounts in an insurer‘s financial statements arising from insurance contracts and helps users of those financial statements understand the amount, timing and uncertainty of future cash flows from insurance contracts.

Scope of Ind AS

An entity shall apply this Ind AS to:

(a) insurance contracts (including reinsurance contracts) that it issues and reinsurance contracts that 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.

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).

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 example, some licence fees, royalties, variable lease payments and similar items), as well as a lessee‘s residual value guarantee embedded in a lease (see Ind AS 116, Leases, Ind AS 115, Revenue from Contracts with Customers, and Ind AS 38, Intangible Assets).

(d) financial guarantee contracts unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, in which case the issuer may elect to apply either Ind AS 32, Ind AS 107 and Ind AS 109 or this Ind AS to such financial guarantee contracts. The issuer may make that election contract by contract, but the election for each contract is irrevocable.

(e) contingent consideration payable or receivable in a business combination (see Ind AS 103, Business Combinations).

(f) direct insurance contracts that the entity holds (ie direct insurance contracts in which the entity is the policyholder). However, a cedant shall apply this Standard to reinsurance contracts that it holds.

For ease of reference, this Ind AS describes any entity that issues an insurance contract as an insurer, whether or not the issuer is regarded as an insurer for legal or supervisory purposes.

A reinsurance contract is a type of insurance contract. Accordingly, all references in this Ind AS to insurance contracts also apply to reinsurance contracts.

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