Accounting Policies of SBI Life Insurance Company Ltd. Company
Mar 31, 2023
SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2023
A. Corporate Information and Nature of Operations
SBI Life Insurance Company Limited (''the Company'') incorporated on October 11, 2000 as a Company under the Companies Act, 1956 as amended. The Company is registered with the Insurance Regulatory and Development Authority of India (''the Authority'' or '' IR DA I'') vide registration no. 111 dated March 29, 2001 and is carrying on the business of life insurance. The Company''s life insurance business comprises of individual life and group business, including participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked insurance products, variable insurance products, health and micro insurance. Some of these policies have riders such as accident and disability benefit, level term and critical illness. The equity shares of the Company are listed on the National Stock Exchange (NSE) and BSE Limited (formerly known as Bombay Stock Exchange).
B. Basis of Preparation and Significant Accounting Policiesa. Basis of preparation and presentation
The Financial Statements are prepared under the historical cost convention, on accrual basis in accordance with the generally accepted accounting principles in India (Indian GAAP) and in compliance with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Company (Accounts) Rules, 2014, further amended by Companies (Accounting Standards) Amendment Rules, 2016, to the extent applicable, the provisions of the Insurance Act, 1938, as amended by the Insurance Laws (Amendment) Act, 2015 and Insurance (Amendment) Act, 2021, the Insurance Regulatory and Development Act, 1999, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors'' Report of Insurance Companies) Regulations, 2002 (the Accounting Regulations), the Master Circular on Preparation of Financial Statements and Filing of Returns of Life Insurance Business dated December 11, 2013 and various other circulars and notifications issued by the IRDAI thereafter.
The accounting policies used in preparation of the financial statements are consistent with those followed in the previous year.
The preparation of the financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as of the date of the financial statements. The reliance upon estimates and assumptions used in the accompanying financial statements are based on management''s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Difference between the actual and estimates are recognised in the period in which the actual results materialise or are known. Any revision to accounting estimates is recognised prospectively in current and future periods.
b. Revenue recognitioni. Premium Income
Premium of non-linked business is recognised as income (net of Goods and Service Tax) when due from policyholders. In respect of linked business, premium income is recognised when the associated units are allotted. In case of variable insurance products (VIPs), premium income is recognised on the date when the Policy Account Value is credited. Uncollected premium from lapsed policies is not recognised as income until such policies are revived.
Top up premiums are considered as single premium.
Income from linked funds which includes fund management charges, policy administration charges, mortality charges, etc. are recovered from linked fund in accordance with terms and conditions of policy and recognised when recovered.
Dividend income for quoted shares is recognised on ex-dividend date, for non-quoted shares the dividend is recognised when the right to receive dividend is established.
Investment income on Alternate Investment Funds (AIFs), Real Estate Investment Trusts (REITs) Infrastructure Investment Trusts (InvITs), are recognized as and when declared by respective Fund/Trust.
Interest income is recognised on accrual basis. Pre-acquisition interest paid/received to/from counterparty on purchase/sale transaction is debited/credited to interest accrued and not due account. Accretion of discount and amortisation of premium in respect of debt securities are effected over the remaining term of such instruments on the basis of the related Yield-to-Maturity.
Realised gains and losses in respect of equity securities and units of mutual funds, Equity Exchange Traded funds (ETFs), Infrastructure Investment Trusts (InvITs) and Real Estate Investments Trusts (REITs) are calculated as the difference between the net sales proceeds and their cost. In respect of debt securities, the realised gains and losses are calculated as difference between net sales proceeds
or redemption proceeds and weighted average amortised cost. Cost in respect of equity shares and units of mutual funds, Equity Exchange Traded funds (ETFs), Infrastructure Investment Trusts (InvITs) and Real Estate Investments Trusts (REITs) are computed using the weighted average method.
Fees received on lending of equity shares under Securities lending and borrowing scheme (SLB) is recognised as income over the period of the lending on straight-line basis.
Interest income on loans is recognised on an accrual basis. Loan processing fee is recognised on receipt basis.
Renta l income is recognised in the income statement on the straight line basis over the lease period.
Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle arrangement with the re-insurer.
d. Liability for life policies (Policy liabilities)
The actuarial liability of all the life insurance policies has been calculated by the Appointed Actuary in accordance with the Insurance Act 1938, and as per the rules & regulations and circulars issued by IRDAI from time to time and the relevant Guidance Notes (GN) and/or Actuarial Practice Standards (APS) issued by the Institute of Actuaries of India.
Non-linked business is reserved using a prospective gross premium valuation method. Mathematical reserves are calculated based on future assumptions having regard to current and future experience e.g. interest rates, mortality and expenses.
For participating products, appropriate future bonus assumptions have been made.
For Group-Par-Pension, the reserve is the Accumulated Fund Value.
For Non-Linked - Individual fund-based products and Non-Linked - Group fund-based products, the policy liability in respect of savings portion is equal to the fund value as on the date of valuation.
The unit liability in respect of Individual - Linked and Group - Linked business has been considered as the value of the units standing to the credit of the policy holders, using the net asset value (NAV) as on the valuation date.
The adequacy of charges under individual unit linked policies to meet future expenses has been tested and provision made as appropriate. Provision has also been made for the cost of guarantee under Unit Linked products offered with Guarantee.
Variable insurance policies (VIPs) have also been valued in a manner similar to the ULIP business by considering liability as the policy account standing to the credit of the policyholders plus additional provisions for adequacy of charges to meet expenses.
e. Funds for future appropriation
For non-linked participating business, the balance in the funds for future appropriations account represents funds, the allocation of which, either to participating policyholders'' or to shareholders'', has not been determined at the Balance Sheet date. Transfers to and from the fund reflect the excess or deficit of income over expenses and appropriations in each accounting period arising in the Company''s policyholders'' fund. In respect of participating policies any allocation to the policyholder would also give rise to a shareholder transfer in the required proportion.
i. Claims cost consist of the policy benefit amounts and claims settlement costs, where applicable.
ii. Claims by death and rider are accounted when intimated. Intimations up to the end of the period are considered for accounting of such claims.
iii. Claims by maturity are accounted on the policy maturity date.
iv. Survival and annuity benefit claims are accounted when due.
v. Surrenders and withdrawals are accounted as and when intimated. Benefits paid also includes amount payable on lapsed policies which are accounted for as and when due. Surrenders, withdrawals and lapsation are disclosed at net of charges recoverable.
vi. Repudiated claims disputed before judicial authorities are provided for based on management prudence considering the facts and evidences available in respect of such claims.
vii. Amount recoverable from re-insurers are accounted for in the same period as the related claim are intimated and are reduced from claims.
Acquisition costs such as commission, medical fees, etc. are costs that are primarily related to the acquisition of new and renewal insurance contracts. The same are expensed in the period in which they are incurred.
h. Fixed assets, intangibles and depreciation Fixed assets
Fixed assets are stated at cost, less accumulated depreciation and impairment, if any. Cost includes the purchase price and any other cost which can be directly attributed to bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on existing fixed assets is expensed out except where such
expenditure increases the future economic benefits from the existing assets.
Intangibles
Intangible assets are stated at cost, less accumulated amortisation and impairment, if any. Expenditure incurred on major application software and their customisation or further development is recognised as an intangible asset. The same is capitalised under fixed assets if such expenditure results in a benefit of enduring nature. Other software expenses are expensed in the period in which they are incurred. Subsequent expenditure incurred on existing assets is expensed out except where such expenditure increases the future economic benefits from the existing assets, in which case the expenditure is amortised over the remaining useful life of the original asset.
Capital work-in-progress
Costs of assets as at the Balance sheet date not ready for its intended use are disclosed as capital work-in-progress. Advances paid towards the acquisition of fixed assets and intangibles at the Balance Sheet date are disclosed as capital work-in-progress.
Depreciation/amortisation
The Company is following straight line method of depreciation provided on pro rata (monthly) basis for period of use for the following type of assets based on useful life as prescribed under Part "Câ of Schedule II to the Companies Act, 2013:
|
Nature of asset |
Useful life |
|
Furniture & fittings |
10 Years |
|
Office equipments |
5 Years |
|
Vehicles |
8 Years |
|
Building |
60 Years |
|
Information technology equipment |
3 Years |
|
Servers & networks |
6 Years |
Software expenses are amortised over a maximum period of 3 years.
Leasehold improvements are amortised equally over the period of lease. Capital expenditure on individual assets up to '' 1,000 are not capitalized and expensed out as revenue expenditure.
Assets individually costing more than '' 1,000 and up to '' 20,000 are fully depreciated in the month of acquisition.
Depreciation is charged to Revenue and Profit & Loss Account based on the "put to useâ criteria.
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment exists, the recoverable amounts of those assets are estimated and impairment is recognised,
if the carrying amount of those assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived by discounting the estimated future cash flows to their present value based on an appropriate discount factor. If at the Balance sheet date, there is an indication that an impairment loss recognised for an asset in earlier accounting periods is no longer required or has decreased; reversal of impairment loss is recognised. The recoverable amount is reassessed and the asset is reflected at recoverable amount, subject to a maximum of depreciable historical cost.
j. Foreign currency transactions
As per AS 11 on The Effects of Changes in Foreign Exchange rates, transactions denominated in foreign currencies are recorded in INR at the exchange rate prevailing on the date of transaction.
Monetary assets and liabilities denominated in foreign currency as at the Balance Sheet date are converted at the exchange rates prevailing on that date.
Non-monetary items like fixed assets which are recorded at historical cost are reported using the exchange rate at the date of transaction.
Non-monetary items other than fixed assets, which are recognised at fair value or other similar valuation are reported using exchange rate at the date when such value was determined.
Exchange differences either on settlement or on translation are recognised in the Revenue Account or Profit and Loss Account, as the case may be.
Investments are made and accounted in accordance with the Insurance Act, 1938, Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016, and Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, Investment Policy of the Company and various other circulars/notifications as issued by IRDAI from time to time.
Investments are recorded on the trade date at cost, which includes brokerage, security transaction tax, education cess and stamp duty, wherever applicable and excludes interest paid, if any, on purchase.
i. Classification of Investments
Investments maturing within twelve months from balance sheet date and investments made with the specific intention to dispose-off within twelve months from balance sheet date shall be classified as "Short-term investment".
Investments other than Short-term investments are classified as "Long-term investmentsâ.
ii. Valuation - shareholders'' investments and non-linked policyholders'' investments Debt securities
Debt securities, including Government securities and money market securities are stated at historical cost subject to amortisation of premium or accretion of discount over a period of holding/maturity on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments & preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, the closing price at primary exchange i.e. NSE is considered.
If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (''SLB''), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Bonus entitlements are recognised as investments on the ''ex-bonus date''. Rights entitlements are recognised as investments on the ''ex-rights date''.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under "Equityâ as specified by IRDAI, are valued at prices obtained from Credit Rating Information Services of India Limited (''CRISIL'').
Unrealised gains or losses arising due to change in the fair value of equity shares are recognised in the Balance Sheet under "Fair value change accountâ.
On each balance sheet date, the Company assess whether impairment of listed equity securities has occurred. Any impairment loss is recognised as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the remeasured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognised as an expense in the Revenue or Profit and Loss Account. Any reversal of impairment loss, earlier recognised in Revenue or Profit and Loss Account, is recognised in the Revenue or Profit and Loss Account.
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealised gains or losses arising due to change in the fair value of mutual fund units are recognised in the Balance Sheet under "Fair value change accountâ.
Alternative Investment Funds (AIFs)
Investments in Alternative Investment Funds (AIFs) are valued at latest available NAV. Unrealised gains or losses arising due to change in the fair value of Alternative Investment Funds (AIFs) are recognised in the Balance Sheet under "Fair value change accountâ.
Interest Rate Derivatives (IRDs)
Interest Rate Derivative (IRD) contracts for hedging of highly probable forecasted transactions on insurance contracts and investment cash flows in life, pension and annuity business, are accounted for in the manner specified in accordance with ''Guidance Note on Accounting for Derivative Contracts'' issued by the Institute of Chartered Accountants of India (ICAI) in June 2015 effective from FY 2016-17, IRDAI circular no. IRDA/F&I/INV/ CIR/138/06/2014 dated June 11, 2014 (''the IRDAI circular on Interest Rate Derivatives'') and IRDAI Investment Master Circular issued in May 2017.
The Company has well defined Board approved interest rate risk hedging Policy and Process document covering various aspects related to functioning of the derivative transactions undertaken to mitigate interest rate risk as per the Interest rate risk hedging strategy. At the inception of the hedge, the Company designates and documents the relationship between the hedging instrument and the hedged item, the risk management objective, strategy for undertaking the hedge and the methods used to assess the hedge effectiveness. Hedge effectiveness is the degree to which changes in the fair value or cash flows of the hedged item that are attributable to a hedged risk are offset by changes in the fair value or cash flows of the hedging instrument. Hedge effectiveness is ascertained at the time of inception of the hedge and periodically thereafter at Balance Sheet date.
Forward Rate Agreement ("FRAâ) is a forward contract to hedge the risk of movements in interest rates. In a FRA contract, the Company fixes the yield on the government bond for the period till the maturity of the contract. The Company enters into FRA to hedge interest rate risk on forecasted transactions: a) Reinvestment of maturity proceeds of existing fixed income investments; b) Investment of interest income receivable; and c) Expected policy premium income receivable on insurance contracts which are already underwritten in Life, Pension & Annuity business.
The Company follows "hedge accountingâ for accounting of all Interest rate derivative financial instruments as per Guidance Note on Accounting for Derivative Contracts issued by Institute of Chartered Accountants of India (ICAI).
The Forward Rate Agreement (FRA) contract is valued at the difference between the market value of underlying bond at the spot reference yield taken from the SEBI approved rating agency and present value of contracted forward price of underlying bond including present value of intermediate coupon inflows from valuation date till FRA contract settlement date, at applicable INR-OIS rate curve. The fair valuation or Mark to market valuation of the derivative financial instruments is done independently by both the parties i.e. the Company and the counter party. The counter party (bank) valuation is considered for margin settlement as the counter party (bank) is the valuation agent as per forward rate agreement.
Hedging instruments are initially recognised at fair value and are re-measured at fair value at subsequent reporting dates. The effective portion of fair value gain/loss on the interest rate derivative that is determined to be an effective hedge is recognised in equity account i.e. "Hedge Fluctuation Reserveâ or "HFRâ under the head ''Credit/(Debit) Fair Value Change Account'''' in the Balance Sheet and the ineffective portion of the change in fair value of such derivative instruments is recognised in the Revenue Account or Profit and Loss account in the period in which they arise. The fair value gain/loss on the interest rate derivative that is determined to be an ineffective hedge is recognised in the revenue account or profit and loss account in the period in which they arise.
The accumulated gains or losses that were recognised in the Hedge Fluctuation Reserve are reclassified into Revenue Account or profit and loss account, in the same period during which the income from investments acquired from underlying forecasted cash flow is recognized in the Revenue Account or profit and loss account. Hedge accounting is discontinued when the hedging instrument is terminated or it becomes probable that the expected forecast transaction will no longer occur or the risk management objective is changed or no longer expected to be met. On such termination, accumulated gains or losses that were recognised in the Hedge Fluctuation Reserve are reclassified into Revenue Account or Profit and Loss account. Costs associated with derivative contracts are considered as at a point in time cost.
Real Estate Investment Trusts (REITs)/ Infrastructure Investments Trusts (InvITs)
The Investment in Units of REITs/InvITs are valued at Market Value (last quoted price should not be later than 30 days). For the purpose of determining market value, the closing price at primary exchange i.e. NSE is considered. If NSE closing price is not available for any security, then BSE closing price is used for valuation. Where market quote is not
available for the last 30 days, the units are valued as per the latest NAV (not more than 6 months old) of the units published by the trust. Unrealised gains or losses arising due to change in the fair value of Real Estate Investment Trust (REITs)/Infrastructure Investments Trusts (InvITs) are recognised in the Balance Sheet under "Fair value change accountâ.
iii. Valuation - Linked business Debt securities
Debt securities including Government securities with remaining maturity of more than one year are valued at prices obtained from Credit Rating Information Services of India Limited (''CRISIL'').
Debt securities including government securities with remaining maturity of less than one year are valued on yield to maturity basis, where yield is derived using market price provided by CRISIL on the day when security is classified as short term. If security is purchased during its short term tenor, it is valued at amortised cost using yield to maturity method. In case of securities with options, earliest Call Option/ Put Option date will be taken as maturity date for this purpose.
Money market securities are valued at historical cost subject to amortisation of premium or accretion of discount on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments & preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, closing price at primary exchange i.e. NSE is considered.
If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under "Equityâ as specified by IRDAI, are valued at prices obtained from CRISIL.
Unrealised gains or losses arising due to change in the fair value are recognised in the Revenue Account.
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealised gains or losses arising due to change in the fair
value of mutual fund units are recognised in the Revenue Account.
Real Estate Investment Trusts (REITs)/ Infrastructure Investments Trusts (InvIT)
The Investment in Units of REITs/InvITs are valued at Market Value (last quoted price should not be later than 30 days). For the purpose of determining market value, the closing price at primary exchange i.e. NSE is considered. If NSE closing price is not available for any security, then BSE closing price is used for valuation. Where market quote is not available for the last 30 days, the units are valued as per the latest NAV (not more than 6 months old) of the units published by the trust. Unrealised gains or losses arising due to change in the fair value of REITs units are recognised in the Revenue Account.
a. Transfer of investments from Shareholders'' fund to Policyholders'' fund
In the case of deficit in Revenue Account, transfer of securities from shareholders to policyholders is done as below:
(i) Debt securities are transferred at lower of net amortised cost or market value on the date of transfer;
(ii) Equity securities are transferred at lower of cost or market value on the date of transfer.
b. Transfer of investments from Policyholders'' fund to Shareholders'' fund
In the case of surplus in Revenue Account, transfer of securities from policyholders'' to shareholders'' is done as below:
(i) Debt securities are transferred at net amortised cost;
(ii) Equity securities are transferred at market value on the date of tra nsfer.
c. Transfer of investments between non-linked Policyholders'' funds
No transfer of investments is carried out between non-linked policyholders'' funds.
d. Transfer of investments between unit-linked funds
In case of unit linked fund, inter schemes transfers of equity, preference shares, ETFs and Government Securities are made at prevailing market price at the time of transfer. In case, if the trade has not taken place on the day of transfer, the transfer of investments is accounted at previous day valuation price as per IRDAI (Investment) Regulations.
For all other securities, transfer of investments is accounted at previous day valuation price as per IRDAI (Investment) Regulations.
On each balance sheet date, the Company assesses whether there is any indication of impairment of investments or reversal of impairment loss recognised in prior periods. Any impairment loss is recognised as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the re-measured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognised as an expense in the Revenue or Profit and Loss Account. Any reversal of impairment loss, earlier recognised in Revenue or Profit and Loss Account, is recognised in the Revenue or Profit and Loss Account.
vi. Provision for Non-performing Assets (NPAs)
All assets where the interest and/or principal repayment remain overdue for more than 90 days at the Balance Sheet date are classified as NPA and provided for in accordance with the requirement of applicable IRDAI Regulations/circulars.
Investments in Loans are stated at historical cost, less repayments, subject to provision for impairment losses & non-performing asset (NPA) provision, if any.
m. Provision for Standard Assets
In accordance with the IRDAI guidelines on ''Prudential norms for income recognition, asset classification, provisioning and other related matters in respect of debt portfolio'' vide the Master circular, adequate provisions are made for estimated loss arising on account from/ under recovery of loans and advances (other than loans and advances granted against insurance policies issued by the insurer) outstanding at the balance sheet date in respect of standard assets.
(i) Post-employment benefit Defined benefit plans Provident Fund
The Company makes contribution towards provident fund, a defined benefit retirement plan. The provident fund is administered by the trustees of the SBI Life Insurance Company Limited Employees PF Trust. The contribution paid or payable under the schemes is charged to the Revenue Account during the period in which the employee renders the related service. Further, an actuarial valuation is conducted annually by an independent actuary to recognise the deficiency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate.
The Company has incorporated a gratuity trust. The Company makes contribution to a Gratuity Fund administered by trustees of SBI Life Insurance Company Limited Employees Gratuity Fund. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee''s salary and the years of employment with the Company.
The Company accounts for the liability for future gratuity benefits in accordance with Accounting Standard - 15 (Revised). The net present value of the Company''s obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains and losses are recognised in the Revenue Account.
The Company accrues liability for Employees COVID Ex-gratia Scheme in accordance with Accounting Standard - 15 (Revised) ''Employee Benefits'' issued by ICAI and notified under section 133 of the Companies Act, 2013. The Net Present Value (NPV) of the Company''s obligation towards the Employees COVID Ex-gratia Scheme, which is a defined benefit plan, is actuarially determined based on the Projected Unit Credit Method (PUCM) as at the Balance Sheet date.
(ii) Other long-term employee benefits Compensated Absences and Long Term Service Awards
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
Long Term Service Awards are recognised as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
The Company accrues the liability for compensated absences and long term service awards in accordance with Accounting Standard - 15 (Revised). The net present value of the Company''s obligation is determined based on the projected unit credit method as at the Balance Sheet date.
(iii) Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid for the services rendered by employees is recognised during the period when the employees renders the service. These benefits include salaries and bonuses, short term compensated absences, premium for staff
medical insurance (hospitalization), premium for employee group term insurance scheme etc.
(iv) Employee share based payments
The Company follows the intrinsic value method to account for its share-based employee compensation plans in accordance with the Guidance Note on Accounting for Employee Share based Payments, issued by the Institute of Chartered Accountants of India (ICAI). The intrinsic value is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. The intrinsic value of options, if any, at the grant date is amortised over the vesting period. The fair market price is the latest closing price, immediately prior to the grant date, on the stock exchange on which the shares of the Company are listed. If the shares are listed on more than one stock exchange, then, the stock exchange which records the highest trading volume on the date, immediately prior to the grant date is considered.
(i) Operating lease
Where the Company is the lessee
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognised as an expense over the lease period on a straight line basis.
Where the Company is the lessor
Assets subject to operating leases are included in fixed assets. Lease income is recognised in the Profit and Loss Account on a straight-line basis over the lease term. Costs, including depreciation are recognised as expense in the Profit and Loss Account.
Leases under which the Company assumes substantially all the risk and rewards of ownership of the asset are classified as finance leases. Such leased asset acquired are capitalised at fair value of the asset or present value of the minimum lease rental payments at the inception of the lease, whichever is lower.
Provision for current income tax, if any, is made on an accrual basis after taking credit for all allowances and exemptions in accordance with the Income Tax Act, 1961.
Deferred income tax is recognised for future tax consequences attributable to timing differences between income as determined by the financial statements and the recognition for tax purposes. The effect of deferred tax asset or liability of a change in the tax rates are recognised
using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent that there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets or liabilities are reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably or virtually certain to be realised.
Goods and Service Tax liability on output service is setoff against the input tax credits available from tax paid on input services. Unutilised credits, if any, are carried forward under "Advances and other assetsâ for future set off and are deferred for recognition to the extent there is reasonable certainty that the assets can be realised in future.
As per Accounting Standard 17 on "Segmental Reportingâ read with IRDA (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, the Company has classified and disclosed segmental information in to participating, nonparticipating and linked businesses, which are further segmented into Individual life, group, health, pension, variable and annuity.
r. Provisions and contingent liabilities
The Company recognises a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible
obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Loss contingencies arising from litigation etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Contingent assets are neither recognised nor disclosed.
As per AS 20 on Earnings Per Share, basic earnings per share are calculated by dividing the net profit or loss for the period in the shareholders'' account by the weighted average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
Cash and cash equivalents for the purpose of Receipts and Payments Account comprises of cash and cheques in hand, bank balances, deposits with banks and other shortterm highly liquid investments with original maturities of three months or less. Receipts and Payments Account is prepared and reported using the Direct Method in accordance with Accounting Standard (AS) 3, Cash Flow Statementsâ as per requirements of IRDAI Master Circular on Preparation of Financial Statements and IRDA (Preparation of Financial Statements and Auditors'' Report of Insurance Companies) regulations.
Mar 31, 2022
A. Corporate Information and Nature of Operations
SBI Life Insurance Company Limited (âthe Companyâ) incorporated on October 11, 2000 as a Company under the Companies Act. The Company is registered with the Insurance Regulatory and Development Authority of India (âIRDAIâ) vide Registration No. 111 dated March 29,
2001 and is carrying on the business of life insurance and annuity. The Companyâs life insurance business comprises of individual life and group business, including participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked insurance products, variable insurance products, health and micro insurance. Some of these policies have riders such as accident and disability benefit, level term and critical illness. The equity shares of the Company are listed on the National Stock Exchange (NSE) and BSE Limited (formerly known as Bombay Stock Exchange).
B. Basis of Preparation and Significant Accounting Policies
a) Basis of preparation and presentation
The Financial Statements are prepared under the historical cost convention, on accrual basis in accordance with the generally accepted accounting principles in India (Indian GAAP) and in compliance with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Company (Accounts) Rules, 2014, further amended by Companies (Accounting Standards) Amendment Rules, 2016, to the extent applicable, the provisions of the Insurance Act, 1938, as amended by the Insurance Laws (Amendment) Act, 2015 and Insurance (Amendment) Act, 2021, the Insurance Regulatory and Development Act, 1999, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditorsâ Report of Insurance Companies) Regulations,
2002 (the Accounting Regulations), the Master Circular on Preparation of Financial Statements and Filing of Returns of Life Insurance Business dated December 11, 2013 and various other circulars and notifications issued by the Insurance Regulatory and Development Authority of India thereafter.
The accounting policies used in preparation of the financial statements are consistent with those followed in the previous year.
The preparation of the financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent
liabilities as of the date of the financial statements. The reliance upon estimates and assumptions used in the accompanying financial statements are based on managementâs evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Difference between the actual and estimates are recognised in the period in which the actual results materialise or are known. Any revision to accounting estimates is recognised prospectively in current and future periods.
b) Revenue recognitioni. Premium Income
Premium of non-linked business is recognised as income (net of goods and service tax) when due from policyholders. In respect of linked business, premium income is recognised when the associated units are allotted. In case of variable insurance products (VIPs), premium income is recognised on the date when the Policy Account Value is credited. Uncollected premium from lapsed policies is not recognised as income until such policies are revived.
Top up premiums are considered as single premium.
Income from linked funds which includes fund management charges, policy administration charges, mortality charges, etc. are recovered from linked fund in accordance with terms and conditions of policy and recognised when recovered.
Dividend income for quoted shares is recognised on ex-dividend date, for non-quoted shares the dividend is recognised when the right to receive dividend is established.
Investment income on Alternate Investment Funds (AIFs), Real Estate Investment Trusts (REITs) Infrastructure Investment Trusts (InvITs), are recognised as and when declared by respective Fund/Trust.
Interest income is recognised on accrual basis. Pre-acquisition interest paid/received to/from counterparty on purchase/sale transaction is debited/credited to interest accrued and not due account. Accretion of discount and amortisation of premium in respect of debt securities are effected over the remaining term of such instruments on the basis of the related Yield-to-Maturity.
Realised gains and losses in respect of equity securities and units of mutual funds, Equity Exchange Traded funds (ETFs), Infrastructure Investment Trusts (InvITs) and Real Estate
Investments Trusts (REITs) are calculated as the difference between the net sales proceeds and their cost. In respect of debt securities, the realised gains and losses are calculated as difference between net sales proceeds or redemption proceeds and weighted average amortised cost. Cost in respect of equity shares and units of mutual funds, Equity Exchange Traded funds (ETFs), Infrastructure Investment Trusts (InvITs) and Real Estate Investments Trusts (REITs) are computed using the weighted average method.
Fees received on lending of equity shares under Securities lending and borrowing scheme (SLB) is recognised as income over the period of the lending on straight-line basis.
Interest income on loans is recognised on an accrual basis. Loan processing fee is recognised on receipt basis.
Rental income is recognised in the income statement on the straight line basis over the lease period.
Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle arrangement with the re-insurer.
d) Liability for life policies (Policy liabilities)
The actuarial liability of all the life insurance policies has been calculated by the Appointed Actuary in accordance with the Insurance Act, 1938, and as per the rules & regulations and circulars issued by IRDAI from time to time and the relevant Guidance Notes (GN) and/or Actuarial Practice Standards (APS) issued by the Institute of Actuaries of India.
Non-linked business is reserved using a prospective gross premium valuation method. Mathematical reserves are calculated based on future assumptions having regard to current and future experience e.g. interest rates, mortality and expenses.
For participating products, vested bonuses are those which were distributed by the Company consequent to the actuarial valuations carried out annually at the end of each financial year dated March 31, 2002 to March 31, 2022. For participating pension products, special one-time bonus declared during financial year 2003-04 and 2004-05 have been taken into account. Appropriate future bonus assumptions have been made.
For Group-Par-Pension, the reserve is the Accumulated Fund Value.
For Non-Linked - Individual fund-based products and Non-Linked - Group fund-based products, the policy
liability in respect of savings portion is equal to the fund value as on the date of valuation.
The unit liability in respect of Individual - Linked and Group - Linked business has been considered as the value of the units standing to the credit of the policy holders, using the net asset value (NAV) as on the valuation date.
The adequacy of charges under individual unit linked policies to meet future expenses has been tested and provision made as appropriate. Provision has also been made for the cost of guarantee under Unit Linked products offered with Guarantee.
Variable insurance policies (VIPs) have also been valued in a manner similar to the ULIP business by considering liability as the policy account standing to the credit of the policyholders plus additional provisions for adequacy of charges to meet expenses.
Appointed Actuary is satisfied that the nature and extent of re-insurance arrangements require no additional reserve to be set aside apart from reinsurance reserves set aside based on Unearned Premium Reserve (UPR) methodology.
Considering the prudence of the valuation basis and the margins in the assumptions, our assessment is that, the reserve set aside is sufficient to meet all future policy outgoes under adverse conditions.
e) Funds for future appropriation
For non-linked participating business, the balance in the funds for future appropriations account represents funds, the allocation of which, either to participating policyholdersâ or to shareholdersâ, has not been determined at the Balance Sheet date. Transfers to and from the fund reflect the excess or deficit of income over expenses and appropriations in each accounting period arising in the Companyâs policyholdersâ fund. In respect of participating policies any allocation to the policyholder would also give rise to a shareholder transfer in the required proportion.
The fund for future appropriations held in the unit-linked funds, represents surplus that has arisen from lapsed policies unlikely to be revived. This surplus is required to be held within the policyholdersâ fund till the point at which the policyholdersâ can no longer revive their policy.
f) Benefits paid
i. Claims cost consist of the policy benefit amounts and claims settlement costs, where applicable.
ii. Claims by death and rider are accounted when intimated. Intimations up to the end of the period are considered for accounting of such claims.
iii. Claims by maturity are accounted on the policy maturity date.
iv. Survival and annuity benefit claims are accounted when due.
v. Surrenders and withdrawals are accounted as and when intimated. Benefits paid also includes amount payable on lapsed policies which are accounted for as and when due. Surrenders, withdrawals and lapsation are disclosed at net of charges recoverable.
vi. Repudiated claims disputed before judicial authorities are provided for based on management prudence considering the facts and evidences available in respect of such claims.
vii. Amount recoverable from re-insurers are accounted for in the same period as the related claim and are reduced from claims.
Acquisition costs such as commission, medical fees, etc. are costs that are primarily related to the acquisition of new and renewal insurance contracts. The same are expensed in the period in which they are incurred.
h) Fixed assets, intangibles and depreciation Fixed assets
Fixed assets are stated at cost, less accumulated depreciation and impairment, if any. Cost includes the purchase price and any other cost which can be directly attributed to bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on existing fixed assets is expensed out except where such expenditure increases the future economic benefits from the existing assets.
Intangible assets are stated at cost, less accumulated amortisation and impairment, if any. Expenditure incurred on major application software and their customisation or further development is recognised as an intangible asset. The same is capitalised under fixed assets if such expenditure results in a benefit of enduring nature. Other software expenses are expensed in the period in which they are incurred. Subsequent expenditure incurred on existing assets is expensed out except where such expenditure increases the future economic benefits from the existing assets, in which case the expenditure is amortised over the remaining useful life of the original asset.
Costs of assets as at the Balance sheet date not ready for its intended use are disclosed as capital work-inprogress. Advances paid towards the acquisition of fixed assets and intangibles at the Balance Sheet date are disclosed as capital work-in-progress.
The Company is following straight line method of depreciation provided on pro rata (monthly) basis for period of use for the following type of assets based on useful life as prescribed under Part âCâ of Schedule II to the Companies Act, 2013:
|
Nature of Asset |
I^Useful life |
|
Furniture & fittings |
10 years |
|
Office equipments |
5 years |
|
Vehicles |
8 years |
|
Building |
60 years |
|
Information technology equipment |
3 years |
|
Servers & networks |
6 years |
Software expenses are amortised over a maximum period of 3 years.
Leasehold improvements are amortised equally over the period of lease. Capital expenditure on individual assets up to '' 1,000 are not capitalised and expensed out as revenue expenditure. Assets individually costing more than '' 1,000 and up to '' 20,000 are fully depreciated in the month of acquisition.
Depreciation is charged to Revenue and Profit & Loss Account based on the âput to useâ criteria as per IRDAI guidelines.
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment exists, the recoverable amounts of those assets are estimated and impairment is recognised, if the carrying amount of those assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived by discounting the estimated future cash flows to their present value based on an appropriate discount factor. If at the Balance sheet date, there is an indication that an impairment loss recognised for an asset in earlier accounting periods is no longer required or has decreased; reversal of impairment loss is recognised. The recoverable amount is reassessed and the asset is reflected at recoverable amount, subject to a maximum of depreciable historical cost.
j) Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the exchange rate prevailing on the date of transaction.
Monetary assets and liabilities in foreign currency as at the Balance Sheet date are converted at the exchange rates prevailing on that date.
Non-monetary items like fixed assets which are recorded at historical cost are reported using the exchange rate at the date of transaction.
Non-monetary items other than fixed assets, which are recognised at fair value or other similar valuation are reported using exchange rate at the date when such value was determined.
Exchange differences either on settlement or on translation are recognised in the Revenue Account or Profit and Loss Account, as the case may be.
Investments are made and accounted in accordance with the Insurance Act, 1938, Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016, and Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditorâs Report of Insurance Companies) Regulations, 2002, Investment Policy of the Company and various other circulars/ notifications as issued by IRDAI from time to time.
Investments are recorded on the trade date at cost, which includes brokerage, security transaction tax, education cess and stamp duty, wherever applicable and excludes interest paid, if any, on purchase.
Bonus entitlements are recognised as investments on the âex-bonus dateâ. Rights entitlements are recognised as investments on the âex-rights dateâ.
i. Classification of Investments
Investments maturing within twelve months from balance sheet date and investments made with the specific intention to dispose-off within twelve months from balance sheet date shall be classified as short-term investments.
Investments other than Short-term investments are classified as âLong-term investmentsâ.
ii. Valuation - shareholdersâ investments and non-linked policyholdersâ investmentsDebt securities
Debt securities, including Government securities and money market securities are stated at historical cost subject to amortisation of premium or accretion of discount over a period of holding/ maturity on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments & preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, the closing price at primary exchange i.e. NSE is considered.
If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (âSLBâ), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under âEquityâ as specified by IRDAI, are valued at prices obtained from Credit Rating Information Services of India Limited (âCRISILâ).
Unrealised gains or losses arising due to change in the fair value of equity shares are recognised in the Balance Sheet under âFair value change accountâ.
On each balance sheet date, the Company assess whether impairment of listed equity securities has occurred. Any impairment loss is recognised as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the remeasured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognised as an expense in the Revenue or Profit and Loss Account. Any reversal of impairment loss, earlier recognised in Revenue or Profit and Loss Account, is recognised in the Revenue or Profit and Loss Account.
Investments in mutual funds are valued at the previous dayâs Net Asset Value (NAV). Unrealised gains or losses arising due to change in the fair value of mutual fund units are recognised in the Balance Sheet under âFair value change accountâ.
Alternative Investment Funds (AIFs)
Investments in Alternative Investment Funds (AIFs) are valued at latest available NAV. Unrealised gains or losses arising due to change in the fair value of Alternative Investment Funds (AIFs) are recognised in the Balance Sheet under âFair value change accountâ.
Interest Rate Derivatives (IRDs)
Interest Rate Derivative (IRD) contracts for hedging of highly probable forecasted transactions on insurance contracts and investment cash flows in life, pension and annuity business, are accounted for in the manner specified in accordance with âGuidance Note on Accounting for Derivative Contractsâ issued by the Institute of Chartered Accountants of India (ICAI) in June 2015 effective from FY 2016-17, IRDAI Circular No. IRDA/F&I/ INV/CIR/138/06/2014 dated June 11, 2014 (âthe IRDAI circular on Interest Rate Derivativesâ) and IRDAI Investment Master Circular issued in May 2017.
The Company has well defined Board approved interest rate risk hedging Policy and Process document covering various aspects related to functioning of the derivative transactions undertaken to mitigate interest rate risk as per the Interest rate risk hedging strategy. At the inception of the hedge, the Company designates and documents the relationship between the hedging instrument and the hedged item, the risk management objective, strategy for undertaking the hedge and the methods used to assess the hedge effectiveness. Hedge effectiveness is the degree to which changes in the fair value or cash flows of the hedged item that are attributable to a hedged risk are offset by changes in the fair value or cash flows of the hedging instrument. Hedge effectiveness is ascertained at the time of inception of the hedge and periodically thereafter at Balance Sheet date.
Forward Rate Agreement (âFRAâ) is a forward contract to hedge the risk of movements in interest rates. In a FRA contract, the Company fixes the yield on the government bond for the period till the maturity of the contract. The Company enters into FRA to hedge interest rate risk on forecasted transactions: a) Reinvestment of maturity proceeds of existing fixed income investments; b) Investment of interest income receivable; and c) Expected policy premium income receivable on insurance contracts which are already underwritten in Life, Pension & Annuity business.
The Company follows âhedge accountingâ for accounting of all Interest rate derivative financial instruments as per Guidance Note on Accounting for Derivative Contracts issued by Institute of Chartered Accountants of India (ICAI).
The Forward Rate Agreement (FRA) contract is valued at the difference between the market value of underlying bond at the spot reference yield taken from the SEBI approved rating agency and present value of contracted forward price of underlying bond including present value of intermediate coupon inflows from valuation date till FRA contract settlement date, at applicable INR-OIS rate curve. The fair valuation or Mark to market valuation of the derivative financial instruments is done independently by both the parties i.e. the Company and the counter party. The counter party (bank) valuation is considered for margin settlement as the counter party (bank) is the valuation agent as per forward rate agreement.
Hedging instruments are initially recognised at fair value and are re-measured at fair value at subsequent reporting dates. The effective portion of fair value gain / loss on the interest rate derivative that is determined to be an effective hedge is recognised in equity account i.e. âHedge
Fluctuation Reserveâ or âHFRâ under the head âCredit/(Debit) Fair Value Change Accountââ in the Balance Sheet and the ineffective portion of the change in fair value of such derivative instruments is recognised in the Revenue Account or Profit and Loss account in the period in which they arise. The fair value gain / loss on the interest rate derivative that is determined to be an ineffective hedge is recognised in the revenue account or profit and loss account in the period in which they arise.
The accumulated gains or losses that were recognised in the Hedge Fluctuation Reserve are reclassified into Revenue Account or profit and loss account, in the same period during which the income from investments acquired from underlying forecasted cash flow is recognised in the Revenue Account or profit and loss account. Hedge accounting is discontinued when the hedging instrument is terminated or it becomes probable that the expected forecast transaction will no longer occur or the risk management objective is changed or no longer expected to be met. On such termination, accumulated gains or losses that were recognised in the Hedge Fluctuation Reserve are reclassified into Revenue Account or Profit and Loss account. Costs associated with derivative contracts are considered as at a point in time cost.
Real Estate Investment Trusts (REITs)/ Infrastructure Investments Trusts (InvITs)
The Investment in Units of REITs/InvITs are valued at Market Value (last quoted price should not be later than 30 days). For the purpose of determining market value, the closing price at primary exchange i.e. NSE is considered. If NSE closing price is not available for any security, then BSE closing price is used for valuation. Where market quote is not available for the last 30 days, the units are valued as per the latest NAV (not more than 6 months old) of the units published by the trust. Unrealised gains or losses arising due to change in the fair value of Real Estate Investment Trust (REITs)/Infrastructure Investments Trusts (InvITs) are recognised in the Balance Sheet under âFair value change accountâ.
iii. Valuation - linked business Debt securities
Debt securities including Government securities with remaining maturity of more than one year are valued at prices obtained from CRISIL.
Debt securities including government securities with remaining maturity of less than one year are valued on yield to maturity basis, where yield is derived using market price provided by CRISIL on the day when security is classified as short-term. If security is purchased during its short-term tenor, it is valued at amortised cost using yield to maturity method. In case of securities with options, earliest
Call Option / Put Option date will be taken as maturity date for this purpose.
Money market securities are valued at historical cost subject to amortisation of premium or accretion of discount on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments & preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, closing price at primary exchange i.e. NSE is considered.
If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under âEquityâ as specified by IRDAI, are valued at prices obtained from CRISIL.
Unrealised gains or losses arising due to change in the fair value are recognised in the Revenue Account.
Investments in mutual funds are valued at the previous dayâs Net Asset Value (NAV). Unrealised gains or losses arising due to change in the fair value of mutual fund units are recognised in the Revenue Account.
Real Estate Investment Trusts (REITs)/ Infrastructure Investments Trusts (lnvIT)
The Investment in Units of REITs / InvITs are valued at Market Value (last quoted price should not be later than 30 days). For the purpose of determining market value, the closing price at primary exchange i.e. NSE is considered. If NSE closing price is not available for any security, then BSE closing price is used for valuation. Where market quote is not available for the last 30 days, the units are valued as per the latest NAV (not more than 6 months old) of the units published by the trust. Unrealised gains or losses arising due to change in the fair value of REITs units are recognised in the Revenue Account.
In the case of deficit in Revenue Account, transfer of securities from shareholders to policyholders is done as below:
(i) Debt securities are transferred at lower of net amortised cost or market value on the date of transfer;
(ii) Equity securities are transferred at lower of cost or market value on the date of transfer.
In the case of surplus in Revenue Account, transfer of securities from policyholdersâ to shareholdersâ is done as below:
(i) Debt securities are transferred at net amortised cost;
(ii) Equity securities are transferred at market value on the date of transfer.
No transfer of investments is carried out between non-linked policyholdersâ funds. In case of unit linked fund, inter schemes transfers are affected at prevailing market value at the time of transfer.
On each balance sheet date, the Company assesses whether there is any indication of impairment of investments or reversal of impairment loss recognised in prior periods. Any impairment loss is recognised as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the re-measured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognised as an expense in the Revenue or Profit and Loss Account. Any reversal of impairment loss, earlier recognised in Revenue or Profit and Loss Account, is recognised in the Revenue or Profit and Loss Account.
vi. Provision for Non-Performing Assets (NPAs)
All assets where the interest and/or principal repayment remain overdue for more than 90 days at the Balance Sheet date are classified as NPA and provided for in accordance with the requirement of applicable IRDAI Regulations/circulars.
Investments in Loans are stated at historical cost, less repayments, subject to provision for impairment losses & non-performing asset (NPA) provision, if any.
m) Provision for Standard Assets
In accordance with the IRDAI guidelines on âPrudential norms for income recognition, asset classification, provisioning and other related matters in respect of debt portfolioâ vide the Master circular, adequate provisions are made for estimated loss arising on account from/ under recovery of loans and advances (other than loans and advances granted against insurance policies issued by the insurer) outstanding at the balance sheet date in respect of standard assets.
(i) Post-employment benefit Defined benefit plans Provident Fund
The Company makes contribution towards provident fund, a defined benefit retirement plan. The provident fund is administered by the trustees of the SBI Life Insurance Company Limited Employees PF Trust. The contribution paid or payable under the schemes is charged to the Revenue Account during the period in which the employee renders the related service. Further, an actuarial valuation is conducted annually by an independent actuary to recognise the deficiency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate.
Gratuity
The Company has incorporated a gratuity trust. The Company makes contribution to a Gratuity Fund administered by trustees of SBI Life Insurance Company Limited Employees Gratuity Fund. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employeeâs salary and the years of employment with the Company.
The Company accounts for the liability for future gratuity benefits based in accordance with Accounting Standard - 15 (Revised). The net present value of the Companyâs obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains and losses are recognised in the Revenue Account.
The Company accrues liability for Employees COVID Ex-gratia Scheme in accordance with Accounting Standard - 15 (Revised) âEmployee Benefitsâ issued by ICAI and notified under Section 133 of the Companies Act, 2013. The Net Present Value (NPV) of the Companyâs obligation towards the Employees COVID Ex-gratia Scheme, which is a defined benefit plan, is actuarially determined based on the Projected Unit Credit Method (PUCM) as at the Balance Sheet date.
(ii) Other long-term employee benefits Compensated absences and long-term service awards
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as a liability at the present
value of the defined benefit obligation at the Balance Sheet date.
Long-Term Service Awards are recognised as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
The Company accrues the liability for compensated absences and long-term service awards in accordance with Accounting Standard - 15 (Revised). The net present value of the Companyâs obligation is determined based on the projected unit credit method as at the Balance Sheet date.
(iii) Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid for the services rendered by employees is recognised during the period when the employees renders the service. These benefits include salaries and bonuses, short-term compensated absences, premium for staff medical insurance (hospitalisation), premium for employee group term insurance scheme etc.
(iv) Employee share based payments
The Company follows the intrinsic value method to account for its share-based employee compensation plans in accordance with the Guidance Note on Accounting for Employee Share based Payments, issued by the Institute of Chartered Accountants of India (ICAI). The intrinsic value is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. The intrinsic value of options, if any, at the grant date is amortised over the vesting period. The fair market price is the latest closing price, immediately prior to the grant date, on the stock exchange on which the shares of the Company are listed. If the shares are listed on more than one stock exchange, then, the stock exchange which records the highest trading volume on the date, immediately prior to the grant date is considered.
(i) Operating Lease
Where the Company is the lessee
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognised as an expense over the lease period on a straight line basis.
Where the Company is the lessor
Assets subject to operating leases are included in fixed assets. Lease income is recognised in the Profit and Loss Account on a straight-line basis over the lease term. Costs, including depreciation
are recognised as expense in the Profit and Loss Account.
(ii) Finance Lease
Leases under which the Company assumes substantially all the risk and rewards of ownership of the asset are classified as finance leases. Such leased asset acquired are capitalised at fair value of the asset or present value of the minimum lease rental payments at the inception of the lease, whichever is lower.
p) Taxation Direct taxes
Provision for current income tax, if any, is made on an accrual basis after taking credit for all allowances and exemptions in accordance with the Income Tax Act, 1961.
Deferred income tax is recognised for future tax consequences attributable to timing differences between income as determined by the financial statements and the recognition for tax purposes. The effect of deferred tax asset or liability of a change in the tax rates are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent that there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets or liabilities are reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably or virtually certain to be realised.
Indirect taxes
Goods and service tax liability on output service is setoff against the input tax credits available from tax paid on input services. Unutilised credits, if any, are carried forward under âAdvances and other assetsâ for future set off and are deferred for recognition to the extent there is reasonable certainty that the assets can be realised in future.
As per Accounting Standard 17 on âSegmental Reportingâ read with IRDA (Preparation of Financial Statements and Auditorâs Report of Insurance Companies) Regulations, 2002, the Company has classified and disclosed segmental information into participating, non-participating and linked businesses, which are further segmented into Individual life, group, health, pension, variable and annuity.
r) Provisions and contingent liabilities
The Company recognises a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Loss contingencies arising from litigation etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Contingent assets are neither recognised nor disclosed.
Basic earnings per share are calculated by dividing the net profit or loss for the period in the shareholdersâ account by the weighted average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
Cash and cash equivalents for the purpose of Receipts and Payments Account comprises of cash and cheques in hand, bank balances, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
Mar 31, 2019
Schedules forming part of financial statements
SCHEDULE 16
Significant accounting policies and notes forming part of the accounts for the year ended March 31, 2019
A. Corporate Information
The Company is a joint venture between State Bank of India (SBI) and BNP Paribas Cardif SA. The Company is registered with the Insurance Regulatory and Development Authority of India (''IRDAI'') and is carrying on the business of life insurance and annuity. The Company''s life insurance business comprises of individual life and group business, including participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked insurance products, variable insurance products, health and micro insurance. Some of these policies have riders such as accident and disability benefit, level term and critical illness. The equity shares of the Company are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
B. Significant Accounting Policies
a. Basis of preparation and presentation
The Financial Statements are prepared under the historical cost convention, on accrual basis in accordance with the generally accepted accounting principles in India (Indian GAAP) and in compliance with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Company (Accounts) Rules, 2014, further amended by Companies (Accounting Standards) Amendment Rules, 2016, to the extent applicable, the provisions of the Insurance Act, 1938, as amended by the Insurance Laws (Amendment) Act, 2015, the Insurance Regulatory and Development Act, 1999, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors'' Report of Insurance Companies) Regulations, 2002 (The Accounting Regulations), the Master Circular on Preparation of Financial Statements and Filing of Returns of Life Insurance Business dated December 11, 2013 and various circulars and notifications issued by the Insurance Regulatory and Development Authority of India thereafter.
The accounting policies followed are consistent with those followed in the previous year.
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as of the date of the financial statements. The reliance upon estimates and assumptions used in the accompanying financial statements are based on management''s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Difference between the actual and estimates are recognised in the period in which the actual results materialise or are known. Any revision to accounting estimates is recognised prospectively in current and future periods.
b. Revenue recognition i. Premium Income
Premium of non-linked business is recognised as income (net of service tax/ goods and service tax) when due from policyholders. In respect of linked business, premium income is recognised when the associated units are allotted. In case of variable insurance products (VIPs), premium income is recognised on the date when the Policy Account Value is credited. Uncollected premium from lapsed policies is not recognised as income until such policies are revived.
Top up premiums are considered as single premium.
ii. Income from Linked funds
Income from linked funds which includes fund management charges, policy administration charges, mortality charges, etc. are recovered from linked fund in accordance with terms and conditions of policy and recognised when recovered.
iii. Investment Income
Dividend income for quoted shares is recognised on ex-dividend date, for non-quoted shares the dividend is recognised when the right to receive dividend is established.
Interest income is recognised on accrual basis. Pre-acquisition interest paid/received to/from counterparty on purchase/sale transaction is debited/credited to interest accrued and not due account. Accretion of discount and amortisation of premium in respect of debt securities are effected over the remaining term of such instruments on the basis of the related Yield-to-Maturity.
Realised gains and losses in respect of equity securities and units of mutual funds are calculated as the difference between the net sales proceeds and their cost. In respect of debt securities, the realised gains and losses are calculated as difference between net sales proceeds or redemption proceeds and weighted average amortised cost. Cost in respect of equity shares and units of mutual fund are computed using the weighted average method.
Fees received on lending of equity shares under Securities lending and borrowing scheme (SLB) is recognised as income over the period of the lending on straight-line basis.
iv. Income from loans
Interest income on loans is recognised on an accrual basis. Loan processing fee is recognised on receipt basis.
v. Rental Income
Rental income is recognised in the income statement on the straight line basis over the lease period.
c. Reinsurance premium ceded
Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle arrangement with the re-insurer.
d. Liability for life policies (Policy liabilities)
The actuarial liability of all the life insurance policies has been calculated by the Appointed Actuary in accordance with the Insurance Act 1938, and as per the rules & regulations and circulars issued by IRDAI from time to time and the relevant Guidance Notes (GN) and /or Actuarial Practice Standards (APS) issued by the Institute of Actuaries of India.
Non-linked business is reserved using a prospective gross premium valuation method. Mathematical reserves are calculated based on future assumptions having regard to current and future experience e.g. interest rates, mortality and expenses.
For participating products, vested bonuses are those which were distributed by the company consequent to the actuarial valuations carried out annually at the end of each financial year dated 31st March, 2002 to 31st March, 2019. For participating pension products, special one-time bonus declared during financial year 2003-04 and 2004-05 have been taken into account. Appropriate future bonus assumptions have been made.
For Group-Par-Pension, the reserve is the Accumulated Fund Value.
For Non-Linked - Individual fund-based products and Non-Linked - Group fund-based products, the policy liability in respect of savings portion is equal to the fund value as on the date of valuation.
The unit liability in respect of Individual - Linked and Group - Linked business has been considered as the value of the units standing to the credit of the policy holders, using the net asset value (NAV) as on the valuation date.
The adequacy of charges under individual unit linked policies to meet future expenses has been tested and provision made as appropriate. Provision has also been made for the cost of guarantee under Unit Linked products offered with Guarantee.
Variable insurance policies (VIPs) have also been valued in a manner similar to the ULIP business by considering liability as the policy account standing
to the credit of the policyholders plus additional provisions for adequacy of charges to meet expenses.
Appointed Actuary is satisfied that the nature and extent of re-insurance arrangements require no additional reserve to beset aside apart from reinsurance reserves set aside based on UPR methodology.
Considering the prudence of the valuation basis and the margins in the assumptions, our assessment is that, the reserve set aside is sufficient to meet all future policy outgoes under adverse conditions.
e. Funds for future appropriation
For non-linked participating business, the balance in the funds for future appropriations account represents funds, the allocation of which, either to participating policyholders'' or to shareholders'', has not been determined at the Balance Sheet date. Transfers to and from the fund reflect the excess or deficit of income over expenses and appropriations in each accounting period arising in the Company''s policyholders'' fund. In respect of participating policies any allocation to the policyholder would also give rise to a shareholder transfer in the required proportion.
The fund for future appropriations held in the unit-linked funds, represents surplus that has arisen from lapsed policies unlikely to be revived. This surplus is required to be held within the policyholders'' fund till the point at which the policyholders'' can no longer revive their policy.
f. Benefits paid
i. Claims cost consist of the policy benefit amounts and claims settlement costs, where applicable.
ii. Claims by death and rider are accounted when intimated. Intimations up to the end of the period are considered for accounting of such claims.
iii. Claims by maturity are accounted on the policy maturity date.
iv. Survival and annuity benefit claims are accounted when due.
v. Surrenders and withdrawals are accounted as and when intimated. Benefits paid also includes amount payable on lapsed policies which are accounted for as and when due. Surrenders, withdrawals and lapsation are disclosed at net of charges recoverable.
vi. Repudiated claims disputed before judicial authorities are provided for based on management prudence considering the facts and evidences available in respect of such claims.
vii. Amount recoverable from re-insurers are accounted for in the same period as the related claim and are reduced from claims.
g. Acquisition costs
Acquisition costs such as commission, medical fees, etc. are costs that are primarily related to the acquisition of new and renewal insurance contracts. The same are expensed in the period in which they are incurred.
h. Fixed assets, intangibles and depreciation Fixed assets
Fixed assets are stated at cost, less accumulated depreciation and impairment, if any. Cost includes the purchase price and any other cost which can be directly attributed to bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on existing fixed assets is expensed out except where such expenditure increases the future economic benefits from the existing assets.
Intangibles
Intangible assets are stated at cost, less accumulated amortisation and impairment, if any. Expenditure incurred on major application software and their customisation or further development is recognised as an intangible asset. The same is capitalised under fixed assets if such expenditure results in a benefit of enduring nature. Other software expenses are expensed in the period in which they are incurred. Subsequent expenditure incurred on existing assets is expensed out except where such expenditure increases the future economic benefits from the existing assets, in which case the expenditure is amortised over the remaining useful life of the original asset.
Capital work in progress
Costs of assets as at the Balance sheet date not ready for its intended use are disclosed as capital work-in-progress. Advances paid towards the acquisition of fixed assets and intangibles at the Balance Sheet date are disclosed as capital work-in-progress.
Depreciation/ amortisation
The Company is following straight line method of depreciation provided on pro rata (monthly) basis for period of use for the following type of assets based on useful life as prescribed under Part "C" of Schedule II to the Companies Act, 2013:
|
Nature of Asset |
Useful life |
|
Furniture & fittings |
10 Years |
|
Office equipments |
5 Years |
|
Vehicles |
8 Years |
|
Building |
60 Years |
|
Information technology equipment |
3 Years |
|
Servers & networks |
6 Years |
Software expenses are amortised over a maximum period of 3 years.
Leasehold improvements are amortised equally over the period of lease. Capital expenditure on individual assets up to Rs. 1,000 are not capitalized and expensed
out as revenue expenditure. Assets individually costing more than Rs. 1,000 and up to Rs. 20,000 are fully depreciated in the month of acquisition.
Depreciation is charged to Revenue and Profit & Loss Account based on the "put to use" criteria as per IRDAI guidelines.
i. Impairment of fixed assets
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment exists, the recoverable amounts of those assets are estimated and impairment is recognised, if the carrying amount of those assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived by discounting the estimated future cash flows to their present value based on an appropriate discount factor. If at the Balance sheet date, there is an indication that an impairment loss recognised for an asset in earlier accounting periods is no longer required or has decreased; reversal of impairment loss is recognised. The recoverable amount is reassessed and the asset is reflected at recoverable amount, subject to a maximum of depreciable historical cost.
j. Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the exchange rate prevailing on the date of transaction.
Monetary assets and liabilities in foreign currency as at the Balance Sheet date are converted at the exchange rates prevailing on that date.
Non-monetary items like fixed assets which are recorded at historical cost are reported using the exchange rate at the date of transaction.
Non-monetary items other than fixed assets, which are recognised at fair value or other similar valuation are reported using exchange rate at the date when such value was determined.
Exchange differences either on settlement or on translation are recognised in the Revenue Account or Profit and Loss Account, as the case may be.
k. Investments
Investments are made and accounted in accordance with the Insurance Act, 1938, Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016, and Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, Investment Policy of the Company and various other circulars/ notifications as issued by IRDAI from time to time.
Investments are recorded on the trade date at cost, which includes brokerage, security transaction tax, education cess and stamp duty, wherever applicable and excludes interest paid, if any, on purchase.
Bonus entitlements are recognised as investments on the ''ex- bonus date''. Rights entitlements are recognised as investments on the ''ex-rights date''.
Classification of Investments
Investments maturing within twelve months from balance sheet date and investments made with the specific intention to dispose-off within twelve months from balance sheet date shall be classified as short-term investments.
Investments other than Short-term investments are classified as "Long-term investments".
Valuation - shareholders'' investments and non-linked policyholders'' investments
Debt securities
Debt securities, including Government securities and money market securities are stated at historical cost subject to amortisation of premium or accretion of discount over a period of holding/ maturity on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments & preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, the closing price at primary exchange i.e. NSE is considered.
If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (''SLB''), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under "Equity" as specified by IRDAI, are valued at prices obtained from Credit Rating Information Services of India Limited (''CRISIL'').
Unrealised gains or losses arising due to change in the fair value of equity shares are recognised in the Balance Sheet under "Fair value change account".
On each balance sheet date, the Company assess whether impairment of listed equity securities has occurred. Any impairment loss is recognised as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the re-measured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognised as an expense in the Revenue or Profit and Loss Account. Any reversal of impairment loss, earlier recognised in Revenue or Profit and Loss Account, is recognised in the Revenue or Profit and Loss Account.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealised gains or losses arising due to change in the fair value of mutual fund units are recognised in the Balance Sheet under "Fair value change account".
Alternative Investment Funds (AlFs)
Investments in Alternative Investment Funds (AlFs) are valued at latest available NAV. Unrealised gains or losses arising due to change in the fair value of Alternative Investment Funds (AlFs) are recognised in the Balance Sheet under "Fair value change account".
Valuation - Linked business
Debt securities
Debt securities including Government securities with remaining maturity of more than one year are valued at prices obtained from CRISIL.
Debt securities including government securities with remaining maturity of less than one year are valued on yield to maturity basis, where yield is derived using market price provided by CRISIL on the day when security is classified as short-term. If security is purchased during its short-term tenor, it is valued at amortized cost using yield to maturity method. In case of securities with options, earliest Call Option /Put Option date will be taken as maturity date for this purpose.
Money market securities are valued at historical cost subject to amortisation of premium or accretion of discount on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments & preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, closing price at primary exchange i.e. NSE is considered.
If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under "Equity" as specified by IRDAI, are valued at prices obtained from CRISIL.
Unrealised gains or losses arising due to change in the fair value are recognised in the Revenue Account.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealised gains or
losses arising due to change in the fair value of mutual fund units are recognised in the Revenue Account.
Transfer of investments
In the case of deficit in Revenue Account, transfer of securities from shareholders to policyholders is done as below:
(i) Debt securities are transferred at lower of net amortised cost or market value on the date of transfer;
(ii) Equity securities are transferred at lower of cost or market value on the date of transfer.
In the case of surplus in Revenue Account, transfer of securities from policyholders'' to shareholders'' is done as below:
(i) Debt securities are transferred at net amortised cost;
(ii) Equity securities are transferred at market value on the date of transfer.
No transfer of investments is carried out between non-linked policyholders'' funds. In case of unit linked fund, inter schemes transfers are affected at prevailing market value at the time of transfer.
I. Loans
Investments in Loans are stated at historical cost, less repayments, subject to provision for impairment losses & non-performing asset (NPA) provision, if any.
m. Provision for Standard Assets
In accordance with the IRDAI guidelines on ''Prudential norms for income recognition, asset classification, provisioning and other related matters in respect of debt portfolio'' vide the Master circular, adequate provisions are made for estimated loss arising on account from/under recovery of loans and advances (other than loans and advances granted against insurance policies issued by the insurer) outstanding at the balance sheet date in respect of standard assets.
n. Employee benefits
(i) Post-employment benefit
Defined benefit plans
Provident Fund
The Company makes contribution towards provident fund, a defined benefit retirement plan. The provident fund is administered by the trustees of the SBI Life Insurance Company Limited Employees PF Trust. The contribution paid or payable under the schemes is charged to the Revenue Account during the period in which the employee renders the related service. Further, an actuarial valuation is conducted annually by an independent actuary to recognise the deficiency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate.
Gratuity
The Company has incorporated a gratuity trust. The Company makes contribution to a Gratuity Fund administered by trustees of SBI Life Insurance Company Limited Employees Gratuity Fund. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee''s salary and the years of employment with the Company.
The Company accounts for the liability for future gratuity benefits based in accordance with Accounting Standard - 15 (Revised). The net present value of the Company''s obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains and losses are recognised in the Revenue Account.
(ii) Other long-term employee benefits
Compensated Absences and Long-Term Service Awards
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
Long-Term Service Awards are recognised as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
The Company accrues the liability for compensated absences and long-term service awards in accordance with Accounting Standard - 15 (Revised). The net present value of the Company''s obligation is determined based on the projected unit credit method as at the Balance Sheet date.
(iii) Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid for the services rendered by employees is recognised during the period when the employees renders the service. These benefits include salaries and bonuses, short-term compensated absences, premium for staff medical insurance (hospitalization), premium for employee group term insurance scheme etc.
(iv) Employee State based payments
The Company follows the intrinsic value method to account for its share-based employee compensation plans in accordance with the Guidance Note on Accounting for Employee Share based Payments, issued by the Institute of Chartered Accountants of India (ICAI). The intrinsic value is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. The intrinsic value of options, if any, at the grant date is amortised over the vesting period. The fair market price is the latest closing price, immediately prior to the grant date, on the stock exchange on which the shares of the Company are listed. If the shares are listed on more than one stock exchange, then, the stock exchange which records the highest trading volume on the date, immediately prior to the grant date is considered.
o. Accounting for Leases (i) Operating Lease
Where the Company is the lessee
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognised as an expense over the lease period on a straight line basis.
Where the Company is the lessor
Assets subject to operating leases are included in fixed assets. Lease income is recognised in the Profit and Loss Account on a straight-line basis over the lease term. Costs, including depreciation are recognised as expense in the Profit and Loss Account.
(ii) Finance Lease
Leases under which the Company assumes substantially all the risk and rewards of ownership of the asset are classified as finance leases. Such leased asset acquired are capitalised at fair value of the asset or present value of the minimum lease rental payments at the inception of the lease, whichever is lower.
p. Taxation Direct Taxes
Provision for current income tax, if any, is made on an accrual basis after taking credit for all allowances and exemptions in accordance with the Income Tax Act, 1961.
Deferred income tax is recognised for future tax consequences attributable to timing differences between income as determined by the financial statements and the recognition for tax purposes. The effect of deferred tax asset or liability of a change in the tax rates are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent that there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets or
liabilities are reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably or virtually certain to be realised.
Indirect Taxes
Goods and service tax liability on output service is set-off against the input tax credits available from tax paid on input services. Unutilised credits, if any, are carried forward under "Advances and other assets" for future set off and are deferred for recognition to the extent there is reasonable certainty that the assets can be realised in future.
q. Segmental reporting
As per Accounting Standard 17 on "Segmental Reporting" read with IRDA (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, the Company has classified and disclosed segmental information into participating, non-participating and linked businesses, which are further segmented into Individual life, group, health, pension, variable and annuity.
r. Provisions and contingent liabilities
The Company recognises a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Loss contingencies arising from litigation etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Contingent assets are neither recognised nor disclosed.
s. Earnings per Share
Basic earnings per share are calculated by dividing the net profit or loss for the period in the shareholders'' account by the weighted average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
t. Cash and Cash Equivalents
Cash and cash equivalents for the purpose of Receipts and Payments Account comprises of cash and cheques in hand, bank balances, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
C. Notes to Accounts 1. Contingent Liabilities
|
(Rs. ''000) |
|||
|
Sr. No |
Particulars |
As at March 31, 2019 |
As at March 31, 2018 |
|
1 |
Partly paid - up investments |
6,550,000 |
1,000,000 |
|
2 |
Claims, other than against policies, not acknowledged as debts by the Company |
10,819 |
10,681 |
|
3 |
Underwriting commitments outstanding (in respect of shares and securities) |
- |
- |
|
4 |
Guarantees given by or on behalf of the Company |
- |
|
|
5 |
Statutory demands or liabilities in dispute, not provided (Refer Note 1) |
- |
- |
|
6 |
Reinsurance obligations to the extent not provided for in accounts |
- |
|
|
7 |
Others: |
||
|
Insurance claims disputed by the Company, to the extent not provided or reserved |
1,043,530 |
825,365 |
|
|
Directions issued by IRDAI under section 34(1) of Insurance Act, 1938 (Refer Note 2) |
3,723,263 |
3,649,485 |
|
|
Unclaimed amount transferred to Senior Citizens'' Welfare Fund (Refer Note 3) |
- |
45 |
|
|
Total |
11,327,612 |
5,485,576 |
Notes: Note 1:
Show cause notices issued by various Government Authorities are not considered as obligation. When any order or notice is raised by the authorities for which the Company is in appeal under adjudication, these are disclosed as contingent liability except in cases where the probability of any financial outflow is remote.
Note 2:
(a) IRDAI has issued directions under Section 34 (1) of the Insurance Act, 1938 to distribute the administrative charges paid to master policyholders amounting to Rs. 843,174 thousands (previous year ended March 31, 2018: Rs. 843,174 thousands) vide order no. IRDA/Life/ORD/Misc/228/10/2012 dated October 5, 2012. The Company had filed an appeal against the said order with the Ministry of Finance, Government of India, who remanded the case back to IRDAI on November 4, 2015. IRDAI issued further directions dated January 11, 2017 reiterating the directions issued on October 5, 2012. The Company has filed an appeal against the said directions/ orders with the Securities Appellate Tribunal.
(b) IRDAI has issued directions under section 34 (1) of the Insurance Act, 1938 to refund the excess commission paid to corporate agents to the members or the beneficiaries amounting to Rs. 2,752,948 thousands (previous year ended March 31, 2018: Rs. 2,752,948 thousands) vide order no. IRDA/Life/ORD/Misc/083/03/2014 dated March 11, 2014. The Company has filed an appeal against the order with the Securities Appellate Tribunal.
Note 3:
Pursuant to IRDAI''s circular IRDA/F&A/CIR/MISC/105/07/2018 on unclaimed amount of policyholders'' dated July 11, 2018 insurers need not disclose the amounts transferred to Senior Citizens'' Welfare Fund (SCWF) as contingent liability as a part of financial statements from financial year 2018-19 onwards. During the year ended March 31, 2018, the Company has transferred an amount of Rs. 45 thousands to SCWF.
Note 4:
There has been a Supreme Court judgment dated February 28, 2019 relating to components of salary structure that need to be considered while computing provident fund contribution under the Employees'' Provident Funds and Miscellaneous Provident Act, 1952. There are interpretive aspects related to the judgment which require clarification. The Company will continue to assess any further development in this matter for the implication on the financial statements, if any on receiving additional clarity on the subject.
Mar 31, 2018
SCHEDULE 16
Significant accounting policies and notes forming part of the accounts for the year ended March 31, 2018
A. Nature of Operations
The Company is a joint venture between State Bank of India (SBI) and BNP Paribas Cardif SA. The Company is registered with the Insurance Regulatory and Development Authority of India (''IRDAI'') and is carrying on the business of life insurance and annuity. The Company''s life insurance business comprises of individual life and group business, including participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked insurance products, variable insurance products, health and micro insurance. Some of these policies have riders such as accident and disability benefit, level term and critical illness.
During the year ended March 31, 2018, Initial Public Offer of 120,000,000 equity shares of face value of Rs, 10 each of the Company at Offer Price of Rs, 700 per equity shares aggregating to Rs, 8,388.73 crores (net of employee discount) through an Offer for Sale by State Bank of India and BNP Paribas Cardif S.A. of 80,000,000 equity shares and 40,000,000 equity shares, respectively was completed. The equity shares of the Company were listed on National Stock Exchange Limited (''NSE'') and Bombay Stock Exchange Limited (''BSE'') on October 03, 2017.
B. Significant Accounting Policies
a. Basis of preparation and presentation
The Financial Statements are prepared under the historical cost convention, on accrual basis in accordance with the generally accepted accounting principles in India (Indian GAAP) and in compliance with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Company (Accounts) Rules, 2014, further amended by Companies (Accounting Standards) Amendment Rules, 2016, to the extent applicable, the provisions of the Insurance Act, 1938, as amended by the Insurance Laws (Amendment) Act, 2015, the Insurance Regulatory and Development Act, 1999, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors'' Report of Insurance Companies) Regulations, 2002 (The Accounting Regulations), the Master Circular on Preparation of Financial Statements and Filing of Returns of Life Insurance Business dated
December 11, 2013 and various circulars and notifications issued by the Insurance Regulatory and Development Authority of India thereafter.
The accounting policies followed are consistent with those followed in the previous year.
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as of the date of the financial statements. The reliance upon estimates and assumptions used in the accompanying financial statements are based on management''s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Difference between the actual and estimates are recognized in the period in which the actual results materialize or are known. Any revision to accounting estimates is recognized prospectively in current and future periods.
b. Revenue recognition
i. Premium Income
Premium of non-linked business is recognized as income (net of service tax/ goods and service tax) when due from policyholders. In respect of linked business, premium income is recognized when the associated units are allotted. In case of variable insurance products (VIPs), premium income is recognized on the date when the Policy Account Value is credited. Uncollected premium from lapsed policies is not recognized as income until such policies are revived.
Top up premiums are considered as single premium.
ii. Income from Linked funds
income from linked funds which includes fund management charges, policy administration charges, mortality charges, etc. are recovered from linked fund in accordance with terms and conditions of policy and recognized when recovered.
iii. Investment Income
Dividend income for quoted shares is recognized on ex-dividend date, for non quoted shares the dividend is recognized when the right to receive dividend is established.
interest income is recognized on accrual basis. Pre acquisition interest paid/received to/from counterparty on purchase/sale transaction is debited/credited to interest accrued and not due account. Accretion of discount and amortisation of premium in respect of debt securities are affected over the remaining term of such instruments on the basis of the related Yield-to-Maturity.
Realized gains and losses in respect of equity securities and units of mutual funds are calculated as the difference between the net sales proceeds and their cost. In respect of debt securities, the realized gains and losses are calculated as difference between net sales proceeds or redemption proceeds and weighted average amortized cost. Cost in respect of equity shares and units of mutual fund are computed using the weighted average method.
Fees received on lending of equity shares under Securities lending and borrowing scheme (SLB) is recognized as income over the period of the lending on straight-line basis.
iv. Income from loans
interest income on loans is recognized on an accrual basis. Loan processing fee is recognized on receipt basis.
v. Rental Income
Rental income is recognized in the income statement on the straight line basis over the lease period.
c. Reinsurance premium ceded
Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle arrangement with the re-insurer.
d. Liability for life policies (Policy liabilities)
The actuarial liability of all the life insurance policies has been calculated by the Appointed Actuary in accordance with the Insurance Act 1938, and as per the rules & regulations and circulars issued by IRDAI from time to time and the relevant Guidance Notes (GN) and / or Actuarial Practice Standards (APS) issued by the Institute of Actuaries of India.
Non-linked business is reserved using a prospective gross premium valuation method. Mathematical reserves are calculated based on future assumptions having regard to current and future experience e.g. interest rates, mortality and expenses.
For participating products, vested bonuses are those which were distributed by the company consequent to the actuarial valuations carried out annually at the end of each financial year dated 31st March, 2002 to 31st March, 2017. For participating pension products, special one-time bonus declared during financial year 2003-04 and 2004-05 have been taken into account. Appropriate future bonus assumptions have been made.
For Group-Par-Pension, the reserve is the Accumulated Fund Value.
For Non-Linked - Individual fund-based products and Non-Linked - Group fund-based products, the policy liability in respect of savings portion is equal to the fund value as on the date of valuation.
The unit liability in respect of Individual - Linked and Group - Linked business has been considered as the value of the units standing to the credit of the policy holders, using the net asset value (NAV) as on the valuation date.
The adequacy of charges under individual unit linked policies to meet future expenses has been tested and provision made as appropriate. Provision has also been made for the cost of guarantee under Unit Linked products offered with Guarantee.
Variable insurance policies (VIPs) have also been valued in a manner similar to the ULIP business by considering liability as the policy account standing to the credit of the policyholders plus additional provisions for adequacy of charges to meet expenses.
Appointed Actuary is satisfied that the nature and extent of re-insurance arrangements require no additional reserve to be set aside apart from reinsurance reserves set aside based on UPR methodology.
Considering the prudence of the valuation basis and the margins in the assumptions, our assessment is that, the reserve set aside is sufficient to meet all future policy outgoes under adverse conditions.
e. Funds for future appropriation
For non-linked participating business, the balance in the funds for future appropriations account represents funds, the allocation of which, either to participating policyholders'' or to shareholders'', has not been determined at the Balance Sheet date. Transfers to and from the fund reflect the excess or deficit of income over expenses and appropriations in each accounting period arising in the Company''s policyholders'' fund. In respect of participating policies any allocation to the policyholder would also give rise to a shareholder transfer in the required proportion.
The fund for future appropriations held in the unit-linked funds, represents surplus that has arisen from lapsed policies unlikely to be revived. This surplus is required to be held within the policyholders'' fund till the point at which the policyholders'' can no longer revive their policy.
f. Benefits paid
i. Claims cost consist of the policy benefit amounts and claims settlement costs, where applicable.
ii. Claims by death and rider are accounted when intimated. Intimations up to the end of the period are considered for accounting of such claims.
iii. Claims by maturity are accounted on the policy maturity date.
iv. Survival and annuity benefit claims are accounted when due.
v. Surrenders and withdrawals are accounted as and when intimated. Benefits paid also includes amount payable on lapsed policies which are accounted for as and when due. Surrenders, withdrawals and causation are disclosed at net of charges recoverable.
vi. Repudiated claims disputed before judicial authorities are provided for based on management prudence considering the facts and evidences available in respect of such claims.
vii. Amount recoverable from re-insurers are accounted for in the same period as the related claim and are reduced from claims.
g. Acquisition costs
Acquisition costs such as commission, medical fees, etc. are costs that are primarily related to the acquisition of new and renewal insurance contracts. The same are expensed in the period in which they are incurred.
h. Fixed assets, intangibles and depreciation Fixed assets
Fixed assets are stated at cost, less accumulated depreciation and impairment, if any. Cost includes the purchase price and any other cost which can be directly attributed to bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on existing fixed assets is expensed out except where such expenditure increases the future economic benefits from the existing assets.
Intangibles
Intangible assets are stated at cost, less accumulated amortisation and impairment, if any. Expenditure incurred on major application software and their customization or further development is recognized as an intangible asset. The same is capitalized under fixed assets if such expenditure results in a benefit of enduring nature. Other software expenses are expensed in the period in which they are incurred. Subsequent expenditure incurred on existing assets is expensed out except where such expenditure increases the future economic benefits from the existing assets, in which case the expenditure is amortized over the remaining useful life of the original asset
Capital work-in-progress
Costs of assets as at the Balance sheet date not ready for its intended use are disclosed as capital work-in-progress. Advances paid towards the acquisition of fixed assets and intangibles at the Balance Sheet date are disclosed as capital work-in-progress.
Depreciation/ amortisation
The Company is following straight line method of depreciation provided on pro rata (monthly) basis for period of use for the following type of assets based on useful life as prescribed under Part "C" of Schedule II to the Companies Act, 2013:
|
Nature of Asset |
Useful life |
|
Furniture & fittings |
10 Years |
|
Office equipments |
5 Years |
|
Vehicles |
8 Years |
|
Building |
60 Years |
|
Information technology equipment |
3 Years |
|
Servers & networks |
6 Years |
Software expenses are amortized over a maximum period of 3 years.
Leasehold improvements are amortized equally over the period of lease. Capital expenditure on individual assets up to '' 1,000 are not capitalized and expensed out as revenue expenditure. Assets individually costing more than '' 1,000 and up to '' 20,000 are fully depreciated in the month of acquisition.
Depreciation is charged to Revenue and Profit & Loss Account based on the "put to use" criteria as per IRDAI guidelines.
i. Impairment of fixed assets
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment exists, the recoverable amounts of those assets are estimated and impairment is recognized, if the carrying amount of those assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived by discounting the estimated future cash flows to their present value based on an appropriate discount factor. If at the Balance sheet date, there is an indication that an impairment loss recognized for an asset in earlier accounting periods is no longer required or has decreased; reversal of impairment loss is recognized. The recoverable amount is reassessed and the asset is reflected at recoverable amount, subject to a maximum of depreciable historical cost.
j. Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the exchange rate prevailing on the date of transaction.
Monetary assets and liabilities in foreign currency as at the Balance Sheet date are converted at the exchange rates prevailing on that date.
Non-monetary items like fixed assets which are recorded at historical cost are reported using the exchange rate at the date of transaction.
Non-monetary items other than fixed assets, which are recognized at fair value or other similar valuation are reported using exchange rate at the date when such value was determined.
Exchange differences either on settlement or on translation are recognized in the Revenue Account or Profit and Loss Account, as the case may be.
k. Investments
investments are made and accounted in accordance with the Insurance Act, 1938, Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016, and Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, Investment Policy of the Company and various other circulars/ notifications as issued by IRDAI from time to time.
investments are recorded on the trade date at cost, which includes brokerage, security transaction tax, education cess and stamp duty, wherever applicable and excludes interest paid, if any, on purchase.
Bonus entitlements are recognized as investments on the ''ex- bonus date''. Rights entitlements are recognized as investments on the ''ex-rights date''.
Classification of Investments
Investments maturing within twelve months from balance sheet date and investments made with the specific intention to dispose off within twelve months from balance sheet date shall be classified as short-term investments.
investments other than Short-term investments are classified as "Long-term investments".
Valuation - shareholders'' investments and non-linked policyholders'' investments Debt securities
Debt securities, including Government securities and money market securities are stated at historical cost subject to amortisation of premium or accretion of discount over a period of holding/ maturity on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments & preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, the closing price at primary exchange i.e. NSE is considered. If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (''SLB''), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under "Equity" as specified by IRDAI, are valued at prices obtained from Credit Rating Information Services of India Limited (''CRISIL'').
Unrealized gains or losses arising due to change in the fair value of equity shares are recognized in the Balance Sheet under "Fair value change account".
On each balance sheet date, the Company assess whether impairment of listed equity securities has occurred. Any impairment loss is recognized as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the premeasured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognized as an expense in the Revenue or Profit and Loss Account. Any reversal of impai rment l oss, earl i er recog ni sed i n Revenue or Profit and Loss Account, is recognized in the Revenue or Profit and Loss Account.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealized gains or losses arising due to change in the fair value of mutual fund units are recognized in the Balance Sheet under "Fair value change account".
Alternative Investment Funds (AIFs)
Investments in Alternative Investment Funds (AIFs) are valued at latest available NAV. Unrealized gains or losses arising due to change in the fair value of Alternative Investment Funds (AIFs) are recognized in the Balance Sheet under "Fair value change account".
Valuation - Linked business Debt securities
Debt securities including Government securities with remaining maturity of more than one year are valued at prices obtained from CRISIL.
Debt securities including government securities with remaining maturity of less than one year are valued on yield to maturity basis, where yield is derived using market price provided by CRISIL on the day when security is classified as short term. If security is purchased during its short term tenor, it is valued at amortized cost using yield to maturity method. In case of securities with options, earliest Call Option / Put Option date will be taken as maturity date for this purpose.
Money market securities are valued at historical cost subject to amortisation of premium or accretion of discount on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments & preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, closing price at primary exchange i.e. NSE is considered. If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under "Equity" as specified by IRDAI, are valued at prices obtained from CRISIL.
Unrealized gains or losses arising due to change in the fair value are recognized in the Revenue Account.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealized gains or losses arising due to change in the fair value of mutual fund units are recognized in the Revenue Account.
Transfer of investments
In the case of deficit in Revenue Account, transfer of securities from shareholders to policyholders is done as below:
(i) Debt securities are transferred at lower of net amortized cost or market value on the date of transfer
(ii) Equity securities are transferred at lower of cost or market value on the date of transfer.
i n the case of surplus in Revenue Account, transfer of securities from policyholders'' to shareholders'' is done as below:
(i) Debt securities are transferred at net amortized cost;
(ii) Equity securities are transferred at market value on the date of transfer.
No transfer of investments is carried out between non-linked policyholders'' funds. In case of unit linked fund, inter schemes transfers are affected at prevailing market value at the time of transfer.
l. Loans
investments in Loans are stated at historical cost, less repayments, subject to provision for impairment losses & non performing asset (NPA) provision, if any.
m. Provision for Standard Assets
In accordance with the IRDAI guidelines on ''Prudential norms for income recognition, asset classification, provisioning and other related matters in respect of debt portfolio'' vide the Master circular, adequate provisions are made for estimated loss arising on account from/under recovery of loans and advances (other than loans and advances granted against insurance policies issued by the insurer) outstanding at the balance sheet date in respect of standard assets.
n. Employee benefits
(i) Post-employment benefit Defined benefit plans Provident Fund
The Company makes contribution towards provident fund, a defined benefit retirement plan. The provident fund is administered by the
trustees of the SBI Life Insurance Company Limited Employees PF Trust. The contribution paid or payable under the schemes is charged to the Revenue Account during the period in which the employee renders the related service. Further, an actuarial valuation is conducted annually by an independent actuary to recognize the deficiency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate.
Gratuity
The Company has incorporated a gratuity trust. The Company makes contribution to a Gratuity Fund administered by trustees of SBI Life Insurance Co. Limited Employees Gratuity Fund. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee''s salary and the years of employment with the Company.
The Company accounts for the liability for future gratuity benefits based in accordance with Accounting Standard - 15 (Revised). The net present value of the Company''s obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains and losses are recognized in the Revenue Account.
(ii) Other long-term employee benefits
Compensated Absences and Long Term Service Awards
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
Long Term Service Awards are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
The Company accrues the liability for compensated absences and long term service awards in accordance with Accounting Standard
- 15 (Revised). The net present value of the Company''s obligation is determined based on the projected unit credit method as at the Balance Sheet date.
(iii) Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid for the services rendered by employees is recognized during the period when the employees renders the service. These benefits include salaries and bonuses, short term compensated absences, premium for staff medical insurance (hospitalization), premium for employee group term insurance scheme etc.
o. Accounting for Leases
(i) Operating Lease
Where the Company is the lessee
Leases where the less or effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognized as an expense over the lease period on a straight line basis.
Where the Company is the less or
Assets subject to operating leases are included in fixed assets. Lease income is recognized in the Profit and Loss Account on a straight-line basis over the lease term. Costs, including depreciation are recognized as expense in the Profit and Loss Account.
(ii) Finance Lease
Leases under which the Company assumes substantially all the risk and rewards of ownership of the asset are classified as finance leases. Such leased asset acquired are capitalized at fair value of the asset or present value of the minimum lease rental payments at the inception of the lease, whichever is lower.
p. Taxation Direct Taxes
Provision for current income tax, if any, is made on an accrual basis after taking credit for all allowances and exemptions in accordance with the Income Tax Act, 1961.
Deferred income tax is recognized for future tax consequences attributable to timing differences between income as determined by the financial statements and the recognition for tax purposes. The effect of deferred tax asset or liability of a change in the tax rates are recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent that there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets or liabilities are reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably or virtually certain to be realized.
Indirect Taxes
Goods and service tax liability on output service is set off against the input tax credits available from tax paid on input services. Unutilized credits, if any, are carried forward under "Advances and other assets" for future set off and are deferred for recognition to the extent there is reasonable certainty that the assets can be realized in future.
q. Segmental reporting
As per Accounting Standard 17 on "Segmental Reporting" read with IRDA (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, the Company has classified and disclosed segmental information into par, non par and linked businesses, which are further segmented into Individual life, group, health, pension, variable and annuity.
r. Provisions and contingent liabilities
The Company recognizes a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Loss contingencies arising from litigation etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Contingent assets are neither recognized nor disclosed.
s. Earnings per Share
Basic earnings per share are calculated by dividing the net profit or loss for the period in the shareholders'' account by the weighted average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.
t. Cash and Cash Equivalents
Cash and cash equivalents for the purpose of Receipts and Payments Account comprises of cash and cheques in hand, bank balances, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
Mar 31, 2017
Schedule 16
Significant accounting policies and notes forming part of the accounts for the year ended March 31, 2017
A. Nature of Operations
The Company is a joint venture between State Bank of India (SBI) and BNP Paribas Cardif. The Company is registered with the Insurance Regulatory and Development Authority of India (''IRDAI'') and is carrying on the business of life insurance and annuity. The Company''s life insurance business comprises of individual life and group business, including participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked insurance products, variable insurance products and micro insurance. Some of these policies have riders such as accident and disability benefit, level term and critical illness.
B. Significant Accounting Policies
a. Basis of preparation and presentation
The Financial Statements are prepared under the historical cost convention on accrual basis in accordance with the generally accepted accounting principles in India and in compliance with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Company (Accounts) Rules, 2014, further amended by Companies (Accounting Standards) Amendment Rules, 2016, to the extent applicable, the provisions of the Insurance Act, 1938, as amended by the Insurance Laws (Amendment) Act, 2015, the Insurance Regulatory and Development Act, 1999, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors'' Report of Insurance Companies) Regulations, 2002 (The Accounting Regulations) and various circulars and notifications issued by the Insurance Regulatory and Development Authority of India thereafter.
The significant accounting policies followed are consistent with those followed in the previous year.
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as of the date of the financial statements. The reliance upon estimates and assumptions used in the accompanying financial statements are based on management''s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Difference between the actual and estimates are recognized in the period in which the actual results materialize or are known. Any revision to accounting estimates is recognized prospectively in current and future periods.
b. Revenue recognition
i. Premium Income
Premium of non-linked business is recognized as income (net of service tax) when due from policyholders. In respect of linked business, premium income is recognized when the associated units are allotted. In case of variable insurance products (VIPs), premium income is recognized on the date when the Policy Account Value is credited. Uncollected premium from lapsed policies is not recognized as income until such policies are revived.
Top up premiums are considered as single premium.
ii. Income from Linked funds
Income from linked funds which includes fund management charges, policy administration charges, mortality charges, etc. are recovered from linked fund in accordance with terms and conditions of policy and recognized when recovered.
iii. Investment Income
Dividend income for quoted shares is recognized on ex-dividend date, for non quoted shares the dividend is recognized when the right to receive dividend is established.
Interest income is recognized on accrual basis. Accretion of discount and amortization of premium in respect of debt securities are affected over the remaining term of such instruments on the basis of the related Yield-to-Maturity.
Realized gains and losses in respect of equity securities and units of mutual funds are calculated as the difference between the net sales proceeds and their cost. In respect of debt securities, the realized gains and losses are calculated as difference between net sales proceeds or redemption proceeds and weighted average amortized cost. Cost in respect of equity shares and units of mutual fund are computed using the weighted average method.
Fees received on lending of equity shares under Securities lending and borrowing scheme (SLB) is recognized as income over the period of the lending on straight-line basis.
iv. Income from loans
Interest income on loans is recognized on an accrual basis. Loan processing fee is recognized on receipt basis.
v. Rental Income
Rental income is recognized in the income statement on the straight line basis over the lease period.
c. Reinsurance premium ceded
Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle arrangement with the reinsurer.
d. Liability for life policies (Policy liabilities)
The actuarial liability of all the life insurance policies has been calculated by the Appointed Actuary in accordance with the Insurance Act 1938, and as per the rules & regulations and circulars issued by IRDAI from time to time and the relevant Guidance Notes (GN) and / or Actuarial Practice Standards (APS) issued by the Institute of Actuaries of India.
Non-linked business is reserved using a prospective gross premium valuation method. Mathematical reserves are calculated based on future assumptions having regard to current and future experience e.g. interest rates, mortality and expenses.
For participating products, vested bonuses are those which were distributed by the company consequent to the actuarial valuations carried out annually at the end of each financial year dated 31st March, 2002 to 31st March, 2016. For participating pension products, special one-time bonus declared during financial year 2003-04 and 2004-05 have been taken into account. The bonus declared at the end of the last financial year is assumed for the future years as well. In addition to the future reversionary bonus, terminal bonus payable on death and maturity is also assumed.
For Group Pension the reserve is the Accumulated Fund Value.
For Non-Linked - Individual fund-based products and Non-Linked - Group fund-based products, the policy liability in respect of savings portion is equal to the fund value as on the date of valuation.
The unit liability in respect of Individual - Linked and Group - Linked business has been considered as the value of the units standing to the credit of the policy holders, using the net asset value (NAV) as on the valuation date.
The adequacy of charges under individual unit linked policies to meet future expenses has been tested and provision made as appropriate. Provision has also been made for the cost of guarantee under Unit Linked products offered with Guarantee.
Variable insurance policies (VIPs) have also been valued in a manner similar to the ULIP business by considering liability as the policy account standing to the credit of the policyholders plus additional provisions for adequacy of charges to meet expenses.
Appointed Actuary is satisfied that the nature and extent of re-insurance arrangements require no additional reserve to be set aside apart from reinsurance reserves set aside based on UPR methodology.
Considering the prudence of the valuation basis and the margins in the assumptions, our assessment is that, the reserve set aside is sufficient to meet all future policy outgoes under adverse conditions.
e. Funds for future appropriation
For non-linked business, the balance in the funds for future appropriations account represents funds, the allocation of which, either to participating policyholders'' or to shareholders'', has not been determined at the Balance Sheet date. Transfers to and from the fund reflect the excess or deficit of income over expenses and appropriations in each accounting period arising in the Company''s policyholders'' fund. In respect of participating policies any allocation to the policyholder would also give rise to a shareholder transfer in the required proportion.
The fund for future appropriations held in the unit-linked funds, represents surplus that has arisen from lapsed policies unlikely to be revived. This surplus is required to be held within the policyholders'' fund till the point at which the policyholders'' can no longer revive their policy.
f. Benefits paid
i. Claims cost consist of the policy benefit amounts and claims settlement costs, where applicable.
ii. Claims by death and rider are accounted when intimated. Intimations up to the end of the period are considered for accounting of such claims.
iii. Claims by maturity are accounted on the policy maturity date.
iv. Survival and annuity benefit claims are accounted when due.
v. Surrenders are accounted as and when intimated. Benefits paid also includes amount payable on lapsed policies which are accounted for as and when due. Surrenders and lapsation are disclosed at net of charges recoverable.
vi. Repudiated claims disputed before judicial authorities are provided for based on management prudence considering the facts and evidences available in respect of such claims.
vii. Amount recoverable from re-insurers are accounted for in the same period as the related claim and are reduced from claims.
g. Acquisition costs
Acquisition costs such as commission, medical fees, etc. are costs that are primarily related to the acquisition of new and renewal insurance contracts. The same are expensed in the period in which they are incurred.
h. Fixed assets, intangibles and depreciation Fixed assets
Fixed assets are stated at cost, less accumulated depreciation and impairment, if any. Cost includes the purchase price and any other cost which can be directly attributed to bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on existing fixed assets is expensed out except where such expenditure increases the future economic benefits from the existing assets.
Intangibles
Expenditure incurred on major application software and their customization or further development is recognized as an intangible asset. The same is capitalized under fixed assets if such expenditure results in a benefit of enduring nature. Other software expenses are expensed in the period in which they are incurred. Intangible assets are stated at cost less accumulated depreciation/amortization.
Capital work in progress
Advances paid towards the acquisition of fixed assets and intangibles at the Balance Sheet date are disclosed as capital work-in-progress.
Depreciation
The Company is following straight line method of depreciation provided on pro rata (monthly) basis to period of use for the following type of assets based on useful life as prescribed under Part "C" of Schedule II to the Companies Act, 2013:
Leasehold improvements are amortized equally over the period of lease. Capital expenditure on individual assets up to Rs,1,000 are not capitalized and expensed out as revenue expenditure. Assets individually costing more than Rs,1,000 and up to Rs,20,000 are fully depreciated in the month of acquisition.
Depreciation is charged to Revenue and Profit & Loss Account based on the "put to use" criteria as per IRDAI guidelines.
i. Impairment of fixed assets
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment exists, the recoverable amounts of those assets are estimated and impairment is recognized, if the carrying amount of those assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived by discounting the estimated future cash flows to their present value based on an appropriate discount factor.
j. Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the exchange rate prevailing on the date of transaction. Monetary assets and liabilities in foreign currency as at the Balance Sheet date are converted at the exchange rates prevailing on that date. Exchange differences either on settlement or on translation are recognized in the Revenue Account or Profit and Loss Account.
k. Investments
Investments are made and accounted in accordance with the Insurance Act, 1938, Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016, and Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, Investment Policy of the Company and various other circulars/ notifications as issued by IRDAI from time to time.
Investments are recorded on the trade date at cost, which includes brokerage, security transaction tax, education cess and stamp duty, wherever applicable and excludes interest paid, if any, on purchase.
Bonus entitlements are recognized as investments on the ''ex- bonus date''. Rights entitlements are recognized as investments on the ''ex-rights date''.
Classification of Investments
Investments maturing within twelve months from balance sheet date and investments made with the specific intention to dispose off within twelve months from balance sheet date shall be classified as short-term investments.
I nvestments other than Short-term investments are classified as "Long-term investments".
Valuation - shareholders'' investments and non-linked policyholders'' investments Debt securities
Debt securities, including Government securities and money market securities are stated at historical cost subject to amortization of premium or accretion of discount over a period of holding/ maturity on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments and preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, the closing price at primary exchange i.e. National Stock Exchange of India Limited (''NSE'') is considered.
If NSE closing price is not available for any security, then Bombay Stock Exchange of India Limited (''BSE'') closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
In case of Security Lending & Borrowing (''SLB''), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under "Equity" as specified by IRDAI, are valued at prices obtained from Credit Rating Information Services of India Limited (''CRISIL'').
Unrealized gains or losses arising due to change in the fair value of equity shares are recognized in the Balance Sheet under "Fair value change account".
On each balance sheet date, the Company assess whether impairment of listed equity securities has occurred. Any impairment loss is recognized as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the re-measured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognized as an expense in the Revenue or Profit and Loss Account. Any reversal of impairment loss, earlier recognized in Revenue or Profit and Loss Account, is recognized in the Revenue or Profit and Loss Account.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealized gains or losses arising due to change in the fair value of mutual fund units are recognized in the Balance Sheet under "Fair value change account".
Alternative Investment Funds (AIFs)
Investments in Alternative Investment Funds (AIFs) are valued at latest available NAV. Unrealized gains or losses arising due to change in the fair value of Alternative Investment Funds (AIFs) are recognized in the Balance Sheet under "Fair value change account".
Valuation - Linked business Debt securities
Debt securities including Government securities with remaining maturity of more than one year are valued at prices obtained from CRISIL.
Debt securities including government securities with remaining maturity of less than one year are valued on yield to maturity basis, where yield is derived using market price provided by CRISIL on the day when security is classified as short term. If security is purchased during its short term tenor, it is valued at amortized cost using yield to maturity method. In case of securities with options, earliest Call Option / Put Option date will be taken as maturity date for this purpose.
Money market securities are valued at historical cost subject to amortization of premium or accretion of discount on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity, equity related instruments and preference shares
Listed equity shares, equity related instruments & preference shares are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, closing price at primary exchange i.e. NSE is considered.
If NSE closing price is not available for any security, then BSE closing price is used for valuation.
Unlisted equity shares, equity related instruments & preference shares are measured at historical cost.
I n case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for equity shares as mentioned above.
Additional Tier 1 (Basel III Compliant) Perpetual Bonds classified under "Equity" as specified by IRDAI, are valued at prices obtained from CRISIL.
Unrealized gains or losses arising due to change in the fair value are recognized in the Revenue Account.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealised gains or losses arising due to change in the fair value of mutual fund units are recognized in the Revenue Account.
Transfer of investments
In the case of deficit in Revenue Account, transfer of securities from shareholders to policyholders is done as below:
(i) Debt securities are transferred at lower of net amortized cost or market value on the date of transfer
(ii) Equity securities are transferred at lower of cost or market value on the date of transfer.
In the case of surplus in Revenue Account, transfer of securities from policyholders'' to shareholders'' is done as below:
(i) Debt securities are transferred at net amortized cost;
(ii) Equity securities are transferred at market value on the date of transfer.
No transfer of investments is carried out between non-linked policyholders'' funds. In case of unit linked fund, inter schemes transfers are affected at prevailing market value at the time of transfer.
l. Loans
Investments in Loans are stated at historical cost, less repayments, subject to provision for impairment losses & non performing asset (NPA) provision, if any.
m. Provision for Standard Assets
In accordance with the IRDAI guidelines on ''Prudential norms for income recognition, asset classification, provisioning and other related matters in respect of debt portfolio'' vide the Master circular, adequate provisions are made for estimated loss arising on account from/under recovery of loans and advances (other than loans and advances granted against insurance policies issued by the insurer) outstanding at the balance sheet date in respect of standard assets.
n. Employee benefits
(i) Post-employment benefit Provident Fund
The Company makes contribution towards provident fund, a defined benefit retirement plan. The provident fund is administered by the trustees of the SBI Life Insurance Company Limited Employees PF Trust. The contribution paid or payable under the schemes is charged to the Revenue Account during the period in which the employee renders the related service. Further, an actuarial valuation is conducted by an independent actuary to recognize the deficiency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate.
Gratuity
The Company has incorporated a gratuity trust. The Company makes contribution to a Gratuity Fund administered by trustees of SBI Life Insurance Co. Limited Employees Gratuity Fund. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee''s salary and the years of employment with the Company.
The Company accounts for the liability for future gratuity benefits based on an actuarial valuation conducted by an independent actuary based on parameters suggested under Accounting Standard - 15 (Revised). The net present value of the Company''s obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains and losses are recognized in the Revenue Account.
(ii) Long-term employee benefits Compensated Absences and Long Term Service Awards
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
Long Term Service Awards are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
The Company accrues the liability for compensated absences and long term service awards based on the actuarial valuation as at the Balance Sheet date conducted by an independent actuary based on parameters suggested under Accounting Standard - 15 (Revised). The net present value of the Company''s obligation is determined based on the projected unit credit method as at the Balance Sheet date.
(iii) Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid for the services rendered by employees is recognized during the period when the employees renders the service. These benefits include salaries and bonuses, short term compensated absences, premium for staff medical insurance (hospitalization), premium for employee group term insurance scheme etc.
o. Accounting for Leases
(i) Operating Lease Where the Company is the lessee
Leases where the less or effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognized as an expense over the lease period on a straight line basis.
Where the Company is the less or
Assets subject to operating leases are included in fixed assets. Lease income is recognized in the Profit and Loss Account on a straight-line basis over the lease term. Costs, including depreciation are recognized as expense in the Profit and Loss Account.
(ii) Finance Lease
Leases under which the Company assumes substantially all the risk and rewards of ownership of the asset are classified as finance leases. Such leased asset acquired are capitalized at fair value of the asset or present value of the minimum lease rental payments at the inception of the lease, whichever is lower.
p. Taxation Direct Taxes
Provision for current income tax, if any, is made on an accrual basis after taking credit for all allowances and exemptions in accordance with the Income Tax Act, 1961.
Deferred income tax is recognized for future tax consequences attributable to timing differences between income as determined by the financial statements and the recognition for tax purposes. The effect of deferred tax asset or liability of a change in the tax rates are recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent that there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets or liabilities are reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably or virtually certain to be realized.
Indirect Taxes
Service tax liability on output service is set-off against the service tax credits available from tax paid on input services. Unutilized credits, if any, are carried forward under "Advances and other assets" for future set off and are deferred for recognition to the extent there is reasonable certainty that the assets can be realized in future.
q. Segmental reporting
As per Accounting Standard 17 on "Segmental Reporting" read with IRDA (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2 002, the Company has classified and disclosed segmental information into par, non par and linked businesses, which are further segmented into Individual life, group, health, pension, variable and annuity.
r. Provisions and contingent liabilities
The Company recognizes a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Loss contingencies arising from litigation etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Contingent assets are neither recognized nor disclosed.
s. Earnings per Share
Basic earnings per share are calculated by dividing the net profit or loss for the year in the shareholders'' account by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.
t. Cash and Cash Equivalents
Cash and cash equivalents for the purpose of Receipts and Payments Account comprises of cash and cheques in hand, bank balances, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
Mar 31, 2016
NOTES TO ACCOUNTS
Schedule 16
Significant accounting policies and notes forming part of the accounts for the year ended March 31, 2016
A. Nature of Operations
The Company is a joint venture between State Bank of India (SBI) and BNP Paribas Cardif. SBI owns 74% of the total capital and BNP Paribas Cardif the remaining 26%. The Company is registered with the Insurance Regulatory and Development Authority of India (''IRDAI'') and is carrying on the business of life insurance and annuity. The Company''s life insurance business comprises of individual life and group business, including participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked insurance products, variable insurance products and micro insurance. Some of these policies have riders such as accident and disability benefit, level term and critical illness.
B. Significant Accounting Policies
a. Basis of preparation and presentation
The Financial Statements are prepared under the historical cost convention on accrual basis in accordance with the generally accepted accounting principles in India and in compliance with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Company (Accounts) Rules, 2014, to the extent applicable, the provisions of the Insurance Act, 1938, as amended by the Insurance Laws (Amendment) Act, 2015, the Insurance Regulatory and Development Act, 1999, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors'' Report of Insurance Companies) Regulations, 2002 (The Accounting Regulations) and various circulars and notifications issued by the Insurance Regulatory and Development Authority of India thereafter.
The significant accounting policies followed are consistent with those followed in the previous year except as disclosed in the notes to accounts, if any.
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as of the date of the financial statements. The reliance upon estimates and assumptions used in the accompanying financial statements are based on management''s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Difference between the actual and estimates are recognized in the period in which the actual results materialize or are known. Any revision to accounting estimates is recognized prospectively in current and future periods.
b. Revenue recognition
i. Premium Income
Premium of non-linked business is recognized as income (net of service tax) when due from policyholders. In respect of linked business, premium income is recognized when the associated units are allotted. In case of variable insurance products (VIPs), premium income is recognized on the date when the Policy Account Value is credited. Uncollected premium from lapsed policies is not recognized as income until such policies are revived.
Top up premiums are considered as single premium.
ii. Income from Linked funds
Income from linked funds which includes fund management charges, policy administration charges, mortality charges, etc. are recovered from linked fund in accordance with terms and conditions of policy and recognized when recovered.
iii. Investment Income
Dividend income for quoted shares is recognized on ex-dividend date, for non quoted shares the dividend is recognized when the right to receive dividend is established.
Interest income is recognized on accrual basis. Accretion of discount and amortization of premium in respect of debt securities are affected over the remaining term of such instruments on the basis of the related Yield-to-Maturity. Interest income is reflected net of amortization of premium or accretion of discount.
Realized gains and losses in respect of equity securities and units of mutual funds are calculated as the difference between the net sales proceeds and their cost. In respect of debt securities, the realized gains and losses are calculated as difference between net sales proceeds or redemption proceeds and weighted average amortized cost. Cost in respect of equity shares and units of mutual fund are computed using the weighted average method.
Fees received on lending of equity shares under Securities lending and borrowing scheme (SLB) is recognized as income over the period of the lending on straight-line basis.
iv. Income from loans
Interest income on loans is recognized on an accrual basis.
v. Rental Income
Rental income is recognized in the income statement on the straight line basis over the lease period.
c. Reinsurance premium ceded
Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle arrangement with the re-insurer.
d. Liability for life policies (Policy liabilities)
The actuarial liability of all the life insurance policies has been calculated by the Appointed Actuary in accordance with the Insurance Act 1938, and as per the rules & regulations and circulars issued by IRDAI from time to time and the relevant Guidance Notes (GN) and / or Actuarial Practice Standards (APS) issued by the Institute of Actuaries of India.
Non-linked business is reserved using a prospective gross premium valuation method. Mathematical reserves are calculated based on future assumptions having regard to current and future experience e.g. interest rates, mortality and expenses.
For participating products, vested bonuses are those which were distributed by the company consequent to the actuarial valuations carried out annually at the end of each financial year dated 31st March, 2002 to 31st March, 2015. For participating pension products, special one-time bonus declared during financial year 2003-04 and 2004-05 have been taken into account. The bonus declared at the end of the last financial year is assumed for the future years as well. In addition to the future reversionary bonus, terminal bonus payable on death and maturity is also assumed.
For Group Pension the reserve is the Accumulated Fund Value.
For Non-Linked - Individual fund-based products and Non-Linked - Group fund-based products, the policy liability in respect of savings portion is equal to the fund value as on the date of valuation.
The unit liability in respect of Individual - Linked and Group - Linked business has been considered as the value of the units standing to the credit of the policy holders, using the net asset value (NAV) as on the valuation date.
The adequacy of charges under individual unit linked policies to meet future expenses has been tested and provision made as appropriate. Provision has also been made for the cost of guarantee under Unit Linked products offered with Guarantee.
Variable insurance policies (VIPs) have also been valued in a manner similar to the ULIP business by considering liability as the policy account standing to the credit of the policyholders plus additional provisions for adequacy of charges to meet expenses.
Appointed Actuary is satisfied that the nature and extent of re-insurance arrangements require no additional reserve to be set aside apart from reinsurance reserves set aside based on UPR methodology.
Considering the prudence of the valuation basis and the margins in the assumptions, our assessment is that, the reserve set aside is sufficient to meet all future policy outgoes under adverse conditions.
e. Funds for future appropriation
For non-linked business, the balance in the funds for future appropriations account represents funds, the allocation of which, either to participating policyholders'' or to shareholders'', has not been determined at the Balance Sheet date. Transfers to and from the fund reflect the excess or deficit of income over expenses and appropriations in each accounting period arising in the Company''s policyholders'' fund. In respect of participating policies any allocation to the policyholder would also give rise to a shareholder transfer in the required proportion.
The fund for future appropriations held in the unit-linked funds, represents surplus that has arisen from lapsed policies unlikely to be revived. This surplus is required to be held within the policyholders'' fund till the point at which the policyholders'' can no longer revive their policy.
f. Benefits paid
i. Claims cost consist of the policy benefit amounts and claims settlement costs, where applicable.
ii. Claims by death and rider are accounted when intimated. Intimations up to the end of the period are considered for accounting of such claims.
iii. Claims by maturity are accounted on the policy maturity date.
iv. Survival and annuity benefit claims are accounted when due.
v. Surrenders are accounted as and when intimated. Benefits paid also includes amount payable on lapsed policies which are accounted for as and when due. Surrenders and causation are disclosed at net of charges recoverable.
vi. Repudiated claims disputed before judicial authorities are provided for based on management prudence considering the facts and evidences available in respect of such claims.
vii. Amount recoverable from re-insurers are accounted for in the same period as the related claim and are reduced from claims.
g. Acquisition costs
Acquisition costs such as commission, medical fees, etc. are costs that are primarily related to the acquisition of new and renewal insurance contracts. The same are expensed in the period in which they are incurred.
h. Fixed assets, intangibles and depreciation Fixed assets
Fixed assets are stated at cost, less accumulated depreciation and impairment, if any. Cost includes the purchase price and any other cost which can be directly attributed to bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on existing fixed assets is expensed out except where such expenditure increases the future economic benefits from the existing assets. Advances paid towards the acquisition of fixed assets at the Balance Sheet date are disclosed as capital work-in-progress.
Intangibles
Expenditure incurred on major application software and their customization or further development is recognized as an intangible asset. The same is capitalized under fixed assets if such expenditure results in a benefit of enduring nature. Other software expenses are expensed in the period in which they are incurred. Intangible assets are stated at cost less accumulated depreciation/amortization.
Depreciation
The Company is following straight line method of depreciation provided on pro rata (monthly) basis to period of use for the following type of assets based on useful life as prescribed under Part "C" of Schedule II to the Companies Act, 2013:
Leasehold improvements are amortized equally over the period of lease. Capital expenditure on individual assets up to '' 1,000 are not capitalized and expensed out as revenue expenditure. Assets individually costing more than Rs, 1,000 and up to Rs, 20,000 are fully depreciated in the month of acquisition.
Depreciation is charged to Revenue and Profit & Loss Account based on the "put to use" criteria as per IRDAI guidelines.
i. Impairment of fixed assets
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment exists, the recoverable amounts of those assets are estimated and impairment is recognized, if the carrying amount of those assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived by discounting the estimated future cash flows to their present value based on an appropriate discount factor.
j. Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the exchange rate prevailing on the date of transaction. Monetary assets and liabilities in foreign currency as at the Balance Sheet date are converted at the exchange rates prevailing on that date. Exchange differences either on settlement or on translation are recognized in the Revenue Account or Profit and Loss Account.
k. Investments
Investments are made and accounted in accordance with the Insurance Act, 1938, the Insurance Regulatory and Development Authority (Investment) Regulations, 2000, Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, Investment Policy of the Company and various other circulars/ notifications as issued by IRDAI from time to time.
Investments are recorded on the trade date at cost, which includes brokerage, security transaction tax, education cess and stamp duty, wherever applicable and excludes interest paid, if any, on purchase.
Bonus entitlements are recognized as investments on the ''ex- bonus date''. Rights entitlements are recognized as investments on the ''ex-rights date''.
Classification of Investments
Investments maturing within twelve months from balance sheet date and investments made with the specific intention to dispose of within twelve months from balance sheet date shall be classified as short-term investments.
Investments other than Short-term investments are classified as "Long-term investments".
Valuation - shareholders'' investments and no linked policyholders'' investments
Debt securities
Debt securities, including Government securities and money market securities are stated at historical cost subject to amortization of premium or accretion of discount over a period of holding/ maturity on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity shares
Listed equity securities are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, the closing price at primary exchange i.e. National Stock Exchange of India Limited (''NSE'') is considered. If NSE price is not available on a particular valuation day, closing price of the secondary exchange i.e. BSE Limited (BSE) is considered. Unlisted equity securities are measured at historical cost.
In case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for Equity shares as mentioned above.
Unrealized gains or losses arising due to change in the fair value of equity shares are recognized in the Balance Sheet under "Fair value change account".
On each balance sheet date, the Company assess whether impairment of listed equity securities has occurred. Any impairment loss is recognized as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the re-measured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognized as an expense in the Revenue or Profit and Loss Account. Any reversal of impairment loss, earlier recognized in Revenue or Profit and Loss Account, is recognized in the Revenue or Profit and Loss Account.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealized gains or losses arising due to change in the fair value of mutual fund units are recognized in the Balance Sheet under "Fair value change account".
Alternative Investment Funds (AIFs)
Investments in Alternative Investment Funds (AIFs) are valued at latest available NAV. Unrealized gains or losses arising due to change in the fair value of Alternative Investment Funds (AIFs) are recognized in the Balance Sheet under "Fair value change account".
Valuation - Linked business Debt securities
Debt securities including Government securities with remaining maturity of more than one year are valued at prices obtained from Credit Rating Information Services of India Limited (''CRISIL'').
Debt securities including government securities with remaining maturity of less than one year are valued on yield to maturity basis, where yield is derived using market price provided by CRISIL on the day when security is classified as short term. If security is purchased during its short term tenor, it is valued at amortized cost using yield to maturity method. In case of securities with options, earliest Call Option / Put Option date will be taken as maturity date for this purpose.
Money market securities are valued at historical cost subject to amortization of premium or accretion of discount on yield to maturity basis.
Investments in Fixed Deposits with banks and Reverse Repo are valued at cost.
Equity shares
Listed equity securities are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, closing price at primary exchange i.e. National Stock Exchange of India Limited (''NSE'') is considered. If NSE price is not available on a particular valuation day, closing price of the secondary exchange i.e. BSE Limited (BSE) is considered. Unrealized gains or losses arising due to change in fair value are recognized in the Revenue Account. Unlisted equity securities are measured at historical cost.
In case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for Equity shares as mentioned above.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealized gains or losses arising due to change in the fair value of mutual fund units are recognized in the Revenue Account.
Transfer of investments
In the case of deficit in Revenue Account, transfer of securities from shareholders to policyholders is done as below:
(i) Debt securities are transferred at lower of net amortized cost or market value on the date of transfer
(ii) Equity securities are transferred at lower of cost or market value on the date of transfer.
In the case of surplus in Revenue Account, transfer of securities from policyholders'' to shareholders'' is done as below:
(i) Debt securities are transferred at net amortized cost;
(ii) Equity securities are transferred at market value on the date of transfer.
No transfer of investments is carried out between non-linked policyholders'' funds. In case of unit linked fund, inter schemes transfers are affected at prevailing market value at the time of transfer.
l. Loans
Investments in Loans are stated at historical cost, less repayments, subject to provision for impairment losses & non performing asset (NPA) provision, if any.
m. Provision for Standard Assets
In accordance with the IRDAI guidelines on ''Prudential norms for income recognition, asset classification, provisioning and other related matters in respect of debt portfolio'' vide the Master circular, adequate provisions are made for estimated loss arising on account from/under recovery of loans and advances (other than loans and advances granted against insurance policies issued by the insurer) outstanding at the balance sheet date in respect of standard assets.
n. Employee benefits
(i) Post-employment benefit Provident Fund
The Company makes contribution towards provident fund, a defined benefit retirement plan. The provident fund is administered by the trustees of the SBI Life Insurance Company Limited Employees PF Trust. The contribution paid or payable under the schemes is charged to the Revenue Account during the period in which the employee renders the related service. Further, an actuarial valuation is conducted by an independent actuary to recognize the deficiency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate.
Gratuity
The Company has incorporated a gratuity trust. The Company makes contribution to a Gratuity Fund administered by trustees of SBI Life Insurance Co. Limited Employees Gratuity Fund. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee''s salary and the years of employment with the Company.
The Company accounts for the liability for future gratuity benefits based on an actuarial valuation conducted by an independent actuary based on parameters suggested under Accounting Standard - 15 (Revised). The net present value of the Company''s obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains and losses are recognized in the Revenue Account.
(ii) Long-term employee benefits
Compensated Absences and Long Term Service Awards
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date. Long Term Service Awards are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
The Company accrues the liability for compensated absences and long term service awards based on the actuarial valuation as at the Balance Sheet date conducted by an independent actuary based on parameters suggested under Accounting Standard - 15 (Revised). The net present value of the Company''s obligation is determined based on the projected unit credit method as at the Balance Sheet date.
(iii) Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid for the services rendered by employees is recognized during the period when the employees renders the service. These benefits include salaries and bonuses, short term compensated absences, premium for staff medical insurance (hospitalization), premium for employee group term insurance scheme etc.
o. Accounting for Leases
(i) Operating Lease
Where the Company is the lessee
Leases where the less or effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognized as an expense over the lease period on a straight line basis.
Where the Company is the less or
Assets subject to operating leases are included in fixed assets. Lease income is recognized in the Profit and Loss Account on a straight-line basis over the lease term. Costs, including depreciation are recognized as expense in the Profit and Loss Account.
(ii) Finance Lease
Leases under which the Company assumes substantially all the risk and rewards of ownership of the asset are classified as finance leases. Such leased asset acquired are capitalized at fair value of the asset or present value of the minimum lease rental payments at the inception of the lease, whichever is lower.
p. Taxation Direct Taxes
Provision for current income tax, if any, is made on an accrual basis after taking credit for all allowances and exemptions in accordance with the Income Tax Act, 1961.
Deferred income tax is recognized for future tax consequences attributable to timing differences between income as determined by the financial statements and the recognition for tax purposes. The effect of deferred tax asset or liability of a change in the tax rates are recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent that there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets or liabilities are reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably or virtually certain to be realized.
Indirect Taxes
Service tax liability on output service is set-off against the service tax credits available from tax paid on input services and unutilized credits, if any, are carried forward under "Advances and other assets" for future set off. Unutilized credits are deferred for recognition to the extent there is reasonable certainty that the assets can be realized in future.
q. Segmental reporting
As per Accounting Standard 17 on "Segmental Reporting" read with IRDA (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, the Company has classified and disclosed segmental information in to par, non par and linked businesses, which are further segmented into Individual life, group, health, pension, variable and annuity.
r. Provisions and contingent liabilities
The Company recognizes a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Loss contingencies arising from litigation etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Contingent assets are neither recognized nor disclosed.
s. Earnings per Share
Basic earnings per share are calculated by dividing the net profit or loss for the year in the shareholders'' account by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.
t. Cash and Cash Equivalents
Cash and cash equivalents for the purpose of Receipts and Payments Account comprises of cash and cheques in hand, bank balances, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
Mar 31, 2015
Notes to Accounts
SCHEDULE - 16
Significant accounting policies and notes forming part of the accounts for the year ended March 31, 2015
A. Nature of Operations
The Company is registered with the Insurance Regulatory and Development Authority of India (''IRDAI'') and is carrying on the business of life insurance and annuity. The Company''s life insurance business comprises of individual life and group business, including participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked insurance products and micro insurance. Some of these policies have riders such as accident and disability benefit, level term and critical illness.
B. Significant Accounting Policies
a. Basis of preparation and presentation
The Financial Statements are prepared under the historical cost convention on accrual basis in accordance with the generally accepted accounting principles in India and in compliance with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with Paragraph 7 of the Company (Accounts) Rules, 2014, to the extent applicable, the provisions of the Insurance Act, 1938, as amended by the Insurance Laws (Amendment) Act, 2015, the Insurance Regulatory and Development Act, 1999, the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors'' Report of Insurance Companies) Regulations, 2002 (The Accounting Regulations) and relevant regulations notified by the Insurance Regulatory and Development Authority issued thereafter. The significant accounting policies followed are consistent with those followed in the previous year.
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as of the date of the financial statements. The reliance upon estimates and assumptions used in the accompanying financial statements are based on management''s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Difference between the actual and estimates are recognized in the period in which the actual results materialize or are known. Any revision to accounting estimates is recognized prospectively in current and future periods.
b. Revenue recognition
i. Premium of non-linked business is recognized as income (net of service tax) when due from policyholders. In respect of linked business, premium income is recognized when the associated units are allotted. In case of variable insurance products (VIPs), premium income is recognized on the date when the Policy Account Value is credited. Uncollected premium from lapsed policies is not recognized as income until such policies are revived.
ii. Top up premiums are considered as single premium.
iii. Income from linked funds which includes fund management charges, policy administration charges, mortality charges, etc. are recovered from linked fund in accordance with terms and conditions of policy and recognized when recovered.
iv. Dividend income for quoted shares is recognized on ex-dividend date, for non quoted shares the dividend is recognized when the right to receive dividend is established.
v. Interest income is recognized on accrual basis. Accretion of discount and amortization of premium in respect of debt securities are affected over the remaining term of such instruments on the basis of the related Yield-to-Maturity. Interest income is reflected net of amortization of premium or accretion of discount.
vi. Realized gains and losses in respect of equity securities and units of mutual funds are calculated as the difference between the net sales proceeds and their cost. In respect of debt securities, the realized gains and losses are calculated as difference between net sales proceeds or redemption proceeds and weighted average amortized cost. Cost in respect of equity shares and units of mutual fund are computed using the weighted average method.
vii. Fees received on lending of equity shares under Securities lending and borrowing scheme (SLB) is recognized as income over the period of the lending on straight-line basis.
viii. Rental income is recognized in the income statement on the straight line basis over the lease period.
ix. Interest on loans against policies is recognized on an accrual basis.
c. Reinsurance premium ceded
Premium ceded on re-insurance is accounted in accordance with the terms of the re-insurance treaty or in-principle arrangement with the re-insurer.
d. Liability for life policies (Policy liabilities)
The actuarial liability of all the life insurance policies has been calculated by the Appointed Actuary in accordance with the Insurance Act 1938, and as per the rules & regulations and circulars issued by Insurance Regulatory and Development Authority of India (IRDAI) from time to time and the relevant Guidance Notes (GN) and / or Actuarial Practice Standards (APS) issued by the Institute of Actuaries of India.
Non-linked business is reserved using a prospective gross premium valuation method. Mathematical reserves are calculated based on future assumptions having regard to current and future experience e.g. interest rates, mortality and expenses.
For participating products, vested bonuses are those which were distributed by the company consequent to the actuarial valuations carried out annually at the end of each financial year dated 31st March, 2002 to 31st March, 2014. For participating pension products, special one-time bonus declared during financial year 2003-04 and 2004-05 have been taken into account. The bonus declared at the end of the last financial year is assumed for the future years as well. In addition to the future reversionary bonus, terminal bonus payable on death and maturity is also assumed.
For Group Pension the reserve is sum of Accumulated Fund Value and Unearned Premium Reserve (UPR).
For Non-Linked - Individual fund-based products and Non-Linked - Group fund-based products, the policy liability in respect of savings portion is equal to the fund value as on the date of valuation.
The unit liability in respect of Individual - Linked and Group - Linked business has been taken as the value of the units standing to the credit of the policy holders, using the net asset value (NAV) as on the valuation date.
The adequacy of charges under individual unit linked policies to meet future expenses has been tested and provision made as appropriate. Provision has also been made for the cost of guarantee under Unit Linked products offered with Guarantee.
Variable insurance policies (VIPs) have also been valued in a manner similar to the ULIP business by considering liability as the policy account standing to the credit of the policyholders plus additional provisions for adequacy of charges to meet expenses.
Appointed Actuary is satisfied that the nature and extent of re-insurance arrangements require no additional reserve to be set aside apart from reinsurance reserves set aside based on UPR methodology.
Considering the prudence of the valuation basis and the margins in the assumptions, our assessment is that, the reserve set aside is sufficient to meet all future policy outgoes under adverse conditions.
e. Funds for future appropriation
For non-linked business, the balance in the funds for future appropriations account represents funds, the allocation of which, either to participating policyholders'' or to shareholders'', has not been determined at the Balance Sheet date. Transfers to and from the fund reflect the excess or deficit of income over expenses and appropriations in each accounting period arising in the Company''s policyholders'' fund. In respect of participating policies any allocation to the policyholder would also give rise to a shareholder transfer in the required proportion.
The fund for future appropriations held in the unit-linked funds, represents surplus that has arisen from lapsed policies unlikely to be revived. This surplus is required to be held within the policyholders'' fund till the point at which the policyholders'' can no longer revive their policy.
f. Benefits paid
i. Claims cost consist of the policy benefit amounts and claims settlement costs, where applicable.
ii. Claims by death and rider are accounted when intimated. Intimations up to the end of the period are considered for accounting of such claims.
iii. Claims by maturity are accounted on the policy maturity date.
iv. Survival and annuity benefit claims are accounted when due.
v. Surrenders are accounted as and when intimated. Benefits paid also includes amount payable on lapsed policies which are accounted for as and when due. Surrenders and lapsation are disclosed at net of charges recoverable.
vi. Repudiated claims disputed before judicial authorities are provided for based on management prudence considering the facts and evidences available in respect of such claims.
vii. Amount recoverable from re-insurers are accounted for in the same period as the related claim and are reduced from claims.
g. Acquisition costs
Acquisition costs such as commission, medical fees, etc. are costs that are primarily related to the acquisition of new and renewal insurance contracts. The same are expensed in the period in which they are incurred.
h. Fixed assets, intangibles and depreciation Fixed assets
Fixed assets are stated at cost, less accumulated depreciation. Cost includes the purchase price and any other cost which can be directly attributed to bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on existing fixed assets is expensed out except where such expenditure increases the future economic benefits from the existing assets. Advances paid towards the acquisition of fixed assets at the Balance Sheet date are disclosed as capital work-in-progress.
Intangibles
Expenditure incurred on major application software and their customization or further development is recognized as an intangible asset. The same is capitalized under fixed assets if such expenditure results in a benefit of enduring nature. Other software expenses are expensed in the period in which they are incurred. Intangible assets are stated at cost less accumulated depreciation/amortization.
Depreciation
The Company is following written down value method of depreciation provided on pro rata (monthly) basis to period of use for the following type of assets acquired on or after April 1, 2014 at rates (Useful life) prescribed under Part "C" of Schedule II to the Companies Act, 2013:
In respect of information technology equipment and servers & networks, depreciation is provided on straight line method at the rate of 33.33% and 16.67% per annum respectively. Software is depreciated at the rate of 60% per annum on written down value method. Leasehold improvements are amortized equally over the period of lease. Capital expenditure on individual assets up to Rs, 1,000 are not capitalized and expensed out as revenue expenditure in the same year. Assets individually costing more than Rs, 1,000 and up to Rs, 20,000 are fully depreciated in the year of acquisition.
Depreciation is charged to Revenue and Profit & Loss Account based on the "put to use" criteria as per IRDAI guidelines.
Transitional Provision
Pursuant to requirement of Companies Act, 2013, the carrying value of assets existing on March 31, 2014 is depreciated over the remaining useful life of the assets based on written down value method of depreciation provided on pro rata (monthly) basis to the remaining useful life of assets.
i. Impairment of fixed assets
The carrying values of assets at each Balance Sheet date are reviewed for impairment. If any indication of such impairment exists, the recoverable amounts of those assets are estimated and impairment is recognized, if the carrying amount of those assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived by discounting the estimated future cash flows to their present value based on an appropriate discount factor.
j. Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the exchange rate prevailing on the date of transaction. Monetary assets and liabilities in foreign currency as at the Balance Sheet date are converted at the exchange rates prevailing on that date. Exchange differences either on settlement or on translation are recognized in the Revenue Account or Profit and Loss Account.
k. Investments
Investments are made in accordance with the Insurance Act, 1938, the Insurance Regulatory and Development Authority (Investment) Regulations, 2000, as amended by circulars or notifications issued by IRDAI from time to time.
Investments are recorded on the trade date at cost, which includes brokerage, security transaction tax, education cess and stamp duty, wherever applicable and excludes interest paid, if any, on purchase.
Bonus entitlements are recognized as investments on the ''ex- bonus date''. Rights entitlements are recognized as investments on the ''ex-rights date''.
Classification of Investments
Investments maturing within twelve months from balance sheet date and investments made with the specific intention to dispose of within twelve months from balance sheet date shall be classified as short-term investments.
Investments other than Short-term investments are classified as "Long-term investments".
Valuation - shareholders'' investments and no linked policyholders'' investments
Debt securities
Debt securities, including Government securities are stated at historical cost subject to amortization of premium or accretion of discount.
Equity shares
Listed equity securities are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, the closing price at primary exchange i.e. National Stock Exchange of India Limited (''NSE'') is considered. If NSE price is not available on a particular valuation day, closing price of the secondary exchange
i.e. BSE Limited (BSE) is considered. Unlisted equity securities are measured at historical cost.
In case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for Equity shares as mentioned above.
Unrealized gains or losses arising due to change in the fair value of equity shares are recognized in the Balance Sheet under "Fair value change account".
On each balance sheet date, the Company assess whether impairment of listed equity securities has occurred. Any impairment loss is recognized as an expense in the Revenue or Profit and Loss Account to the extent of the difference between the re-measured fair value of the security or investment and its weighted average cost as reduced by any previous impairment loss recognized as an expense in the Revenue or Profit and Loss Account. Any reversal of impairment loss, earlier recognized in Revenue or Profit and Loss Account, is recognized in the Revenue or Profit and Loss Account.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealized gains or losses arising due to change in the fair value of mutual fund units are recognized in the Balance Sheet under "Fair value change account".
Alternative Investment Funds (AIFs)
Investments in Alternative Investment Funds (AIFs) are valued at latest available NAV. Unrealised gains or losses arising due to change in the fair value of Alternative Investment Funds (AIFs) are recognized in the Balance Sheet under "Fair value change account".
Valuation - Linked business Debt securities
Government securities with remaining maturity of more than one year are valued at prices obtained from Credit Rating Information Services of India Limited (''CRISIL'') except Government of India strips which are valued at prices obtained from FIMMDA. Debt securities other than Government securities with remaining maturity of more than one year are valued on the basis of CRISIL Bond Valuer. The amortized or average cost of Government and other debt securities with remaining maturity of less than one year are amortized over the remaining life of the securities. Unrealized gains or losses arising on such valuation are recognized in the Revenue Account.
Equity shares
Listed equity securities are measured at fair value on the Balance Sheet date. For the purpose of determining fair value, closing price at primary exchange i.e. National Stock Exchange of India Limited (''NSE'') is considered. If NSE price is not available on a particular valuation day, closing price of the secondary exchange i.e. BSE Limited (BSE) is considered. Unrealized gains or losses arising due to change in fair value are recognized in the Revenue Account. Unlisted equity securities are measured at historical cost.
In case of Security Lending & Borrowing (SLB), Equity Shares lent are valued as per valuation policy for Equity shares as mentioned above.
Mutual funds
Investments in mutual funds are valued at the previous day''s Net Asset Value (NAV). Unrealized gains or losses arising due to change in the fair value of mutual fund units are recognized in the Revenue Account.
Transfer of investments
In the case of deficit in Revenue Account, transfer of securities from shareholders to policyholders is done as below:
(i) Debt securities are transferred at lower of net amortized cost or market value on the date of transfer
(ii) Equity securities are transferred at lower of cost or market value on the date of transfer.
In the case of surplus in Revenue Account, transfer of securities from policyholders'' to shareholders'' is done as below:
(i) Debt securities are transferred at net amortized cost;
(ii) Equity securities are transferred at market value on the date of transfer.
In case of unit linked fund, inter schemes transfers are affected at prevailing market value at the time of transfer.
l. Loans
Loans against policies are stated at historical cost. m. Employee benefits
(i) Post-employment benefit Provident Fund
The Company makes contribution towards provident fund, a defined benefit retirement plan. The provident fund is administered by the trustees of the SBI Life Insurance Company Limited Employees PF Trust. The contribution paid or payable under the schemes is charged to the Revenue Account during the period in which the employee renders the related service. Further, an actuarial valuation is conducted by an independent actuary to recognize the deficiency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate.
Gratuity
The Company has incorporated a gratuity trust. The Company makes contribution to a Gratuity Fund administered by trustees of SBI Life Insurance Co. Limited Employees Gratuity Fund. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee''s salary and the years of employment with the Company.
The Company accounts for the liability for future gratuity benefits based on an actuarial valuation conducted by an independent actuary based on parameters suggested under Accounting Standard -15 (Revised). The net present value of the Company''s obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains and losses are recognized in the Revenue Account.
(ii) Long-term employee benefits
Compensated Absences and Long Term Service Awards
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date. Long Term Service Awards are recognized as a liability at the present value of the defined benefit obligation at the Balance Sheet date.
The Company accrues the liability for compensated absences and long term service awards based on the actuarial valuation as at the Balance Sheet date conducted by an independent actuary based on parameters suggested under Accounting Standard -15 (Revised). The net present value of the Company''s obligation is determined based on the projected unit credit method as at the Balance Sheet date.
(iii) Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid for the services rendered by employees is recognized during the period when the employees renders the service. These benefits include salaries and bonuses, short term compensated absences, premium for staff medical insurance (hospitalization), premium for employee group term insurance scheme etc.
n. Accounting for operating leases
Where the Company is the lessee
Leases where the less or effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognized as an expense over the lease period.
Where the Company is the less or
Assets subject to operating leases are included in fixed assets. Lease income is recognized in the Profit and Loss Account on a straight-line basis over the lease term. Costs, including depreciation are recognized as expense in the Profit and Loss Account.
o. Taxation
Direct Taxes
Provision for current income tax, if any, is made on an accrual basis after taking credit for all allowances and exemptions in accordance with the Income Tax Act, 1961.
Deferred income tax is recognized for future tax consequences attributable to timing differences between income as determined by the financial statements and the recognition for tax purposes. The effect of deferred tax asset or liability of a change in the tax rates are recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent that there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets or liabilities are reviewed as at each Balance Sheet date and written down or written up to reflect the amount that is reasonably or virtually certain to be realized.
Provision for Wealth Tax, if any, is made at the appropriate rate, as per the applicable provisions of Wealth Tax Act, 1957.
Indirect Taxes
Service tax liability on output service is set-off against the service tax credits available from tax paid on input services and unutilized credits, if any, are carried forward under "Advances and other assets" for future set off. Unutilized credits are deferred for recognition to the extent there is reasonable certainty that the assets can be realized in future.
p. Segmental reporting
As per Accounting Standard 17 on "Segmental Reporting" read with IRDA (Preparation of Financial Statements and Auditor''s Report of Insurance Companies) Regulations, 2002, the Company has classified and disclosed segmental information into par, non par and linked businesses, which are further segmented into Individual life, group, health, pension and annuity.
q. Provisions and contingent liabilities
The Company recognizes a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Loss contingencies arising from litigation etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
r. Earnings per Share
Basic earnings per share are calculated by dividing the net profit or loss for the year in the shareholders'' account by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.
s. Cash and Cash Equivalents
Cash and cash equivalents for the purpose of Receipts and Payments Account comprises of cash and cheques in hand, bank balances, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
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