Life Insurance Company Accounts and Reporting
This domain examines how a life insurer's statutory accounts separate policyholders' and shareholders' money and how actuarial liabilities enter the financial statements.
Statutory statements
The IRDAI (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002 prescribe the Revenue Account, Profit and Loss Account, Balance Sheet and Cash Flow Statement. The Revenue Account is the policyholders' account: premiums, investment income, claims, surrender benefits, commissions, expenses and the actuarial valuation of liabilities. The P&L Account reflects shareholders' income and expenses. Assets and liabilities are shown separately for policyholders' funds, shareholders' funds and segregated ULIP funds.
Key reporting rules
The appointed actuary certifies the actuarial liability, and the auditor reports on the accounts. Public disclosures and solvency information must follow IRDAI requirements. For participating business, surplus is shared so that at least 90% goes to policyholders and no more than 10% to shareholders, reflecting Section 49 of the Insurance Act and IRDAI practice. Ind AS/IFRS 17 transition changes measurement and presentation, but the statutory separation of funds remains central.
Worked example
A par portfolio produces a surplus of ₹100 crore after providing for liabilities and bonuses. The policyholders' share is ₹90 crore and the shareholders' maximum is ₹10 crore. If ₹5 crore of ULIP fund-management charges were wrongly posted to the shareholders' P&L, the revenue account would overstate policyholders' surplus and the transfer would be misstated.
Traps
Mixing ULIP segregated funds with shareholders' funds; recognising profit before the actuarial valuation; netting assets and liabilities; treating the Revenue Account as the shareholders' P&L; ignoring the 90:10 surplus rule.