MCA amends Companies (Indian Accounting Standards) Rules, Inserts IND AS 117 wr.t. Insurance Contracts

The Corporate Affairs Ministry ( MCA ) has amended the Companies ( Indian Accounting Standards ) Rules, 2015, specifically targeting the insurance sector. As per the notification no. G.S.R. 492 (E) dated 12th August 2024, the Indian Accounting Standard ( Ind AS ) 117 has been introduced, with a complete focus on the nuances of insurance contracts.

The newly incorporated Ind AS 117 on Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the Standard.

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The objective of Ind AS 117 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows. 

With regards to the scope, an entity shall apply Ind AS 117 to:

1. insurance contracts, including reinsurance contracts, it issues;
2. reinsurance contracts it holds; and
3. investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts

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The notification also detailed the situations where the entities shall not apply Ind AS 117. The situations are:

1. warranties provided by a manufacturer, dealer or retailer in connection with the sale of its goods or services to a customer ( see Ind AS 115, Revenue from Contracts with Customers ).
2. employers’ assets and liabilities from 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.
3. contractual rights or contractual obligations contingent on the future use of, or the right to use, a non-financial item ( for example, some licence fees, royalties, variable and other contingent lease payments and similar items: see Ind AS 115, Ind AS 38, Intangible Assets and Ind AS 116, Leases ).
4. residual value guarantees provided by a manufacturer, dealer or retailer and a lessee’s residual value guarantees when they are embedded in a lease ( see Ind AS 115 and Ind AS 116 ).
5. 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. The issuer shall choose to apply either Ind AS 117 or Ind AS 32, Financial Instruments: Presentation, Ind AS 107, Financial Instruments: Disclosures and Ind AS 109, Financial Instruments to such financial guarantee contracts. The issuer may make that choice contract by contract, but the choice for each contract is irrevocable.
6. contingent consideration payable or receivable in a business combination ( see Ind AS 103, Business Combinations ).
7. insurance contracts in which the entity is the policyholder, unless those contracts are reinsurance contracts held ( see paragraph 3(b) ).
8. credit card contracts, or similar contracts that provide credit or payment arrangements, that meet the definition of an insurance contract if, and only if, the entity does not reflect an assessment of the insurance risk associated with an individual customer in setting the price of the contract with that customer ( see Ind AS 109 and other applicable Ind AS ). However, if, and only if, Ind AS 109 requires an entity to separate an insurance coverage component ( see paragraph 2.1(e)(iv) of Ind AS 109 ) that is embedded in such a contract, the entity shall apply Ind AS 117 to that component.

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With regards to the amendment, the ministry has all related  Indian Accounting Standards for the facilitation of the newly inserted IND AS 117 – Insurance Contracts to these Rules.

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