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Friday 25 March 2011

GENERAL INSURANCE COMPANY

Applicability of AS to G.I.C. :
1. AS – 3  As per Direct Method only.
2. As – 4  Not applicable w.r.t. liabilities arising out of I. Policies.
3. AS – 9  Not applicable w.r.t. incomes of insurance business.
4. AS – 13  As per regulation. Apply AS – 13 where regulation is silent.
5. AS – 17  Applicable in each case irrespective of its applicability clause.

Auditors’ Report :
1. (a) obtained all information
(b) proper books of Ac/. Maintained.
(c) Proper returns received from branches.
(d) Balance sheet, revenue A/c., P&L A/c., R&P A/c. in agreement with books.
(e) Acturial valuation of liability certified.

2. (i) Opinion on :
(a) Balance sheet – true and fair view of affairs.
(b) Revenue – true and fair view of surplus / deficit.
(c) P & L – true and fair view of profit / loss.
(d) R & P – true and fair view of receipt / payment.
(ii) Financial Statement prepared in accordance with regulation.
(iii) Investment as per reg.
(iv) A/c policies appropriate.

3. Certify that
(i) Reviewed management report and no mistake therein.
(ii) Insurer complied with terms of registration.

4. Certificate that
(i) Verified cash balance and securities.
(ii) Extent of verification of investment etc., relating to any trust undertaken by insurer as trustee.
(iii) No asset in contravention of Act.

Requirement of schedule B to IRD A Regulation 2002
Part 1 A/c principles for prep. of financial information
(i) Applicability of A/c std.
(ii) Premium
(iii) Premium Deficiency
(iv) Acquisition cost (Expand in the period in which incurred)
(v) Claims
(vi) Valuation of Investment
(vii) Loan
(viii) Catastrophe Disaster Reserve



Part 2: Disclosure
Part 3: General Instruction
(Last year figures, notional income, Provision/Reserve)
Part 4: Management Report
• Confirmation for validity of registration
• Conformation that all statutory dues have been paid.
• Conformation that shareholding pattern is in accordance with law.
• Conformation that solvency margin is maintained
• Conformation that valuation of I
• Conformation that management has not invested any money outside India.
• Conformation that overall risk exposure
• Conformation that operation in other countries
• Conformation that aging of claims
• Conformation that quality of asset & portfolio
• Conformation that payment to parties in which director are interested
• Responsibility statement.

1. Investment in other than approved investment if :
(i) Such investment < 25% of total investment; and
(ii) Consent of all Directors.
2. Insurer not to invest in one insurance / investment company exceeding –
(i) 10% of total asset of insurer; or
(ii) 2% of share capital/debenture of company concerned.
For other companies (other than insurance / investment company) 2% is replaced by 10%.
3. Funds of policy holders not to be invested outside India.
4. Every insurer to keep at all times
(i) at least 20% of Assets
(ii) at least 30% (including (i)
(iii) at least 5% of total assets
(iv) at least 10% of total assets
(v) upto 55% Central Govt. Securities.
State Govt. and other guaranteed securities
Housing & loan to State Government
in approved securities under infrastructure / social sector. Other securities.
Guidelines
(ii) Proper Balance between infrastructure and social sector.
(iii) Based on rating of assets.
(iv) Rating by independent agency
(v) Should be at lest “A A” grade.
(vi) In shares in actively traded / liquid investment.

Valuation of Investment
(i) Real Estate – Investment property : Historical cost less acc. Dep. Less impairment loss. Residual value as zero.
(ii) Debt Securities – as ‘held to maturity’ – Historical cost.
(iii) Equity / Derivative Active Market – F.V. at B/S date. Impairment as exps. Changes in F.V. in “Fair Value change A/c.”
(iv) Unlisted and other – at H.C. provision made for diminution in value such provision may be reversed but increased carrying amount not to exceed its historical cost.
VERIFICATION
Premium
 Credited to separate Bank A/c.
 No Risk Assumption without receipt of premium.
Three types of premium – for direct business for re-insurance business and share of co-insurance premium.
 Recognised over policy period. As per risk pattern. Some portion of premium allocable to succeeding period thus called unearned premium.
 Reserve for unexpired risk.
 Premium deficiency = expected cost – related unearned premium. Provision to be made.
 Internal controls and procedures.
 Cover notes serially numbered.
 Premium recognition on aforesaid criteria.
 Company not at risk for uncollected premium, short premium, not collected in time, etc.
 Reinsurance  look for all its details.
 Collection after B/S date whether relating to year under audit.
 Co-insurance, company’s share of premium.
 Premium register chronologically  in order of time of premium.
 Due date and date of collection.
 Year end transactions.
 Service tax  applied on premium
 Refund of premium.


Verification of claims
1. Provision for all unsettled claims.
2. Only for those co. is legally liable.
3. Not exceed insured amount.
4. Event after B/S date.
5. Average clause.
6. Co insurance, provision only for its share.
7. Reasons for long delays after claim lodged.
8. Under litigation, legal advice.
9. Provision net of salvage value.
10. No contingent lia. W.r.t. claim intimated.
11. Intimation within reasonable time.
12. Claim paid duly sanctioned.
13. Claim paid for its share in co-insurance.
14. Claim paid after salvage accounted for.
15. Claim paid discharge note from claimant.
Unexpired Risk Reserve
Not all risk expire as on B/S date. Risk will be there in succeeding year w.r.t. premium received in this year, thus provide for –
(i) 50% of all other types and
(ii) 100% for marine Hull.

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