The National Financial Reporting Authority (NFRA) is evaluating a new accounting standard for insurance contracts, Ind AS 117. This standard is based on the global IFRS 17, aimed at improving transparency and understanding of the insurance industry’s financial position. With the potential to change the way insurance companies measure, present and disclose information, Ind AS 117 could have significant implications for the Indian insurance sector.
NFRA recently held a meeting to examine proposals from the Institute of Chartered Accountants of India (ICAI) regarding a new accounting standard for insurance contracts, Ind AS 117. Once recommendations are shared with the Ministry of Corporate Affairs, Ind AS 117 will need to be considered and notified by the Central Government to replace the existing standard, Ind AS 104.
Ind AS 117 is based on IFRS 17
Ind AS 117 is based on the International Financial Reporting Standard (IFRS) 17, which was issued by the International Accounting Standards Board (IASB) in May 2017. As a complete overhaul of accounting for the insurance industry, IFRS 17 has become effective globally since January 1, 2023. It aims to help investors and other users better understand insurers’ risk exposure, profitability and financial position.
Unique Features of IFRS 17
IFRS 17 is specifically designed for the insurance and investment contracts of insurance entities and is capable of capturing the unique features of insurance products. This standard entails a paradigm shift in measurement, presentation and disclosure requirements, highlighting the importance of proper and transparent accounting for the insurance industry. With $13 trillion in assets, insurers account for 12% of the total assets of listed companies that use IFRS Standards.
India’s Role in Global Affairs
NFRA Chairperson Dr Ajay Bhushan Prasad Pandey emphasized India’s recent reforms and the nation’s prominent role in global affairs. He noted that Ind AS 117 is substantially converged with IFRS 17, which is adopted in over 140 countries. This move aligns with India’s policy of embracing international best practices, leveling the playing field for Indian companies. The adoption of Ind AS 117 will enable the Indian insurance industry to present globally comparable financial information, attracting investment and increasing insurance penetration in the country.
Prior Consultations and Outreach
Before the NFRA meeting, an outreach event with members from the life insurance industry took place in February 2023, including participation from the Insurance Regulatory and Development Authority of India (IRDAI). Participants provided valuable insights into the proposed Ind AS 117 and expressed the need for its early notification. The ICAI conducted extensive public consultations by issuing exposure drafts of the proposed standard in 2018, 2021 and 2022.
Conclusion
The adoption of Ind AS 117 demonstrates India’s commitment to aligning with international best practices and strengthening the insurance industry’s financial reporting. As the Indian insurance sector continues to grow and evolve, the implementation of this new standard will be vital in attracting investment and increasing insurance penetration throughout the country. With the support of the NFRA, ICAI and other stakeholders, Ind AS 117 is poised to enhance the global competitiveness of the Indian insurance industry.
As per news reports dated 18/07/2023, the NFRA’s suggestions are being reviewed by the MCA. The standards will be officially announced soon under the Companies (Indian Accounting Standards) Rules 2015. After that, the insurance regulator (IRDAI) may declare the date when the Insurance Industry will adopt the new accounting standards. These new standards will replace the existing Ind AS-104: Insurance Contracts.