On May 5, 2021, Insurance Regulatory and Development Authority of India in order to provide the manner in which the premium and unearned premium reserve should be recognized by insurers carrying on general insurance business makes Insurance Regulatory and Development Authority of India (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) (First Amendment) Regulations, 2021.
For Para 2 of Part I of Schedule B relating to Account in principles for preparation of financial statements of the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations, 2002, the following shall be substituted, namely:
(i) Premium shall be recognized as income over the contract period or the period of risk, whichever is appropriate.
(ii)“Premium received in Advance” is the premium where the period of inception of the risk is outside the accounting period and is to be shown under current liabilities.
(iii)“Unallocated premium” includes premium deposit and premium which has been received but for which risk has not commenced. It is to be shown under current liabilities.
2A. Unearned Premium Reserve A reserve for unearned premium shall be created as the amount representing that part of the premium written which is attributable to, and allocated to the succeeding accounting periods. Such Reserves shall be computed as under:
(i)Marine Hull –100 percent of Net Written Premium during the preceding twelve months;
(ii)Other Segments –50percent of Net Written Premium during the preceding twelve months; or on the basis of 1/365thmethod on the unexpired period of the respective policies.
However, Insurers shall follow the method of provisioning of Unearned Premium Reserve in a consistent manner. Any change in the method of provisioning can be done only with the prior written approval of the Authority.