Technical Guide on Internal/Concurrent
Audit of Investment Functions of
Insurance Companies (2013)
Committee on Banking, Insurance and Pension
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
New Delhi
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Edition : May, 2013
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Foreword
Internal/Concurrent Audit of investment functions of an insurer is an essential
part of management process to ensure effective controls and in short, a
comprehensive compliance checking mechanism. This audit is essential for
ensuring sound internal accounting functions and effective controls and
setting tone for a vigilant internal audit to preclude the incidence of serious
errors and fraudulent manipulations. It attempts to shorten the interval
between the occurrence of a transaction and its examination by an
independent person not involved in its documentation.
The Insurance Regulatory and Development Authority (IRDA) has mandated
the insurers to have their investment functions verified through internal or
concurrent audit (depending on the AUM of insurers), either through internal
resources or by an independent audit firm. This is to be done in order to
ensure that the transactions/decisions are within the policy parameters laid
down by the Investment Committee of the insurers and are in compliance
with the terms and conditions for exercise of delegated authority and not
violating the Guidelines and Regulations of IRDA and the provisions of
Insurance Act and other applicable Laws.
Recently, to keep pace with the dynamics of the economic landscape of the
nation as well as insurance industry, the IRDA has amended its Investment
Regulations for insurance companies. Consequent to the amendments to
the Investment Regulations, it is imperative that the Technical Guide on
Internal/Concurrent Audit of investment Functions of Insurance Companies
issued by the Committee on Banking, Insurance and Pension (COBIP) in
2009 be revised so as to cover the requirements of the amended
Regulations. The Technical Guide has been revised thoroughly for providing
guidance to the members on conducting internal/concurrent audit of
investment functions of insurers.
I take this opportunity to thank the IRDA for reposing confidence in ICAI and
its fraternity by not only making it mandatory that the Internal / Concurrent
Audit of insurers shall be conducted by the Chartered Accountants, but also
stipulating that the audit shall be done as per the Technical Guide issued by
ICAI in this regard.
I appreciate the efforts put in by my fellow colleague in the Central Council of
ICAI, CA. J. Venkateswarlu, Chairman, COBIP, members and special
invitees of the Committee and the other professionals who were involved in
revising this Technical Guide. I also wish to place my appreciation to the
Chairman IRDA and his dynamic team for guiding ICAI in the revision
process.
CA. Subodh Kumar Agrawal
President, ICAI
New Delhi
30th May 2013
iv
Preface
One of the major functions of an insurer is investment of its funds and with
the ever growing fund size of investments, safeguarding and protection of the
same has acquired enormous significance. Insurance Regulatory and
Development Authority (IRDA), the regulator, has put in place a tight
framework for regulating this important function of insurers. The IRDA has
devised two tier system for effective management and control of investment
functions of insurers whereby the investment department of insurance
companies manage investments and an independent Chartered Accountant
firm (subject to quantum of fund size) is engaged to conduct the internal /
concurrent audit of the same to ensure compliance with the Investment
Regulations.
As per the latest amended investment regulations notified vide IRDA
(Investment) (5th Amendment) Regulations, 2013, the IRDA has mandated
the insurers having Assets Under Management (AUM) of not more than
Rs.1000 Crores to have its investment functions audited on a quarterly basis
through independent Internal Audit (either through internal resources or
through firms of Chartered Accountants) and insurer with AUM of over Rs.
1000 Crores to appoint an independent firm of Chartered Accountants as
Concurrent Auditor to have its Investment transactions and related Systems
audited on concurrent basis. It has further mandated that the internal /
concurrent audit shall be conducted as per the Technical Guide on
Internal/Concurrent Audit of Investment Functions of Insurance Companies
issued by the ICAI. The Guide provides framework and guidance on the
manner of conduct of internal/concurrent audit of investment functions of
insurance companies, as mandated by the IRDA.
In the light of release of the IRDA (Investment) (5th Amendment) Regulations
2013, to help the members in providing value added service to the insurers
and to comply with the amended investment regulations of IRDA, the
Committee on Banking, Insurance & Pension (COBIP) has revised the
Technical Guide on Internal / Concurrent Audit of Investment Functions of
Insurance Companies, which was originally issued in 2009. The revised
guide covers all the relevant areas in the internal / concurrent audit of
investment functions as mandated by IRDA.
I place on record my sincere gratitude to CA S N Jayasimhan, Joint Director,
IRDA; Shri Sanjeev Kumar Jain, Joint Director, IRDA, Shri. R Kumar, Deputy
Director, IRDA; Shri Suresh Nair, Sr Assistant Director, IRDA; Ms Uma
Maheswari, Sr Assistant Director, IRDA, Shri Rakesh Sarodey, IRDA, CA D
Subramanian; CA N. Venkatakrishnan; CA V Manickam; Shri. R
Chandrasekar; CA Abhirajan Gupta, Shri K S Gopalakrishnan for their
guidance and advice in revising the Guide. I am highly thankful to CA. P.S.
Prabhakar for preparing the basic draft of this Technical Guide. I am happy
to acknowledge the contribution of CA Vijay Kumar; CA Ketan Vikemsey;
CA Viraj Londhe; CA Ramandeep Sahni; CA Pradipta Roy; CA Sanjay
Agarwal; Shri Saroj Kumar Pati; CA Pradeep Mahapatro; CA Anand Desai;
Shri. Bharat Kalsi; CA Vittal Raj and CA Amit Kataria for their advice and
guidance.
I am thankful to the President of ICAI, CA Subodh Kumar Agrawal, and Vice
President of ICAI, CA. K. Raghu for their support and encouragement. I am
grateful to CA. Shriniwas Yeshwant Joshi, Vice Chairman of COBIP, CA. Jay
Chhaira, CA. Prafulla Premsukh Chhajed, CA. Tarun Jamnadas Ghia, CA. V.
Murali, CA. Vijay Kumar Garg, CA. Mukesh Singh Kushwah, CA. Naveen
N.D. Gupta, CA. Vijay Kumar Gupta, CA. Charanjot Singh Nanda, Shri Manoj
Kumar, CA. D.K. Singla, CA. S. V. Sunder Krishnan, CA. M. H. Singhal and
CA. Patni Dilip Kumar, members of COBIP for their valuable guidance and
cooperation in revising this Technical Guide. I appreciate the efforts put in
by the officials of Secretariat of the Committee in timely release of this
Technical Guide.
CA. J. Venkateswarlu
New Delhi Chairman
29th May 2013 Committee on Banking Insurance and Pension of ICAI
vi
Contents
Foreword iii
Preface v
1 Framework of Internal/Concurrent Audit for Insurance
Companies 01
2. Investment Functions of Insurer Internal/Concurrent Audit
Scope 5
3. Internal/Concurrent Audit Checklist Life & General Insurers 14
4. Internal/Concurrent Audit Additional Checklist Life & ULIP
Business 41
5. Format of Internal/Concurrent Audit Report on Investment
Functions of Insurance Companies 49
ANNEXURES
`A' Standard Operating Procedure (SOP) 65
`B' Permitted Assets Category 71
`C' Pattern of Investments 75
`D' Investment Policy 82
`E' Investment Deals Testing 83
`F' Investment of Ulip 84
`G' Project/Term Loans 86
`H' Segregation of Duties (SOD) Front Office/Mid Office/Back 88
Office
`I' Exposure /Prudential Norms 97
`J' NAV Process 112
`K' Returns to be submitted by an Insurer 120
APPENDICES
`A' Insurance Regulatory and Development Authority 125
(Investment) (Fifth Amendment) Regulations, 2013
`B' IRDA CIRCULAR NO. INV/CIR/008/2008-09 DATED
22.08.2008 Issued by IRDA to Insurers 187
`C' IRDA Letter No. IRDA/F&I/CIR/INV/067/04/2013
dt.1st April, 2013 212
`D' Guidance Note on Preparation of Investment Returns
(Version-01) issued by IRDA in May, 2013 235
`E' Format of Engagement Letter 284
viii
1
Framework of Internal / Concurrent
Audit for Insurance Companies
1. Introduction
One of the major functions of an insurance company is investment of funds
and with the ever growing fund size of insurers' investments, safeguarding
and protection of the investments has acquired enormous significance. IRDA,
the regulator of insurance industry, has put in a tight framework for regulating
this all-important function of insurers. As the investment department of
insurance companies manages investments of insurance companies
comprising of both "Shareholders" and "Policyholders" funds, it is essential
that a periodic review be carried out through Internal Audit (or) Concurrent
Audit in order to ensure `safety' of Policyholders' funds and support a good
quality Investment portfolio towards `Solvency Margin'. Towards achieving
such objectives, IRDA notified the IRDA (Investment) Regulations, 2000 on
16th Aug, 2000 in the Gazette of India and, to keep pace with the dynamics of
the economic landscape of the Nation as well as the insurance industry,
periodically amended these Regulations in 2001, 2002, 2004, 2008 and the
latest in Feb, 2013. The regulations, as amended, holistically cover:
1. Proactive and dynamic investment management.
2. Synchronous and asynchronous interfaces with other domains
(Accounting and Actuarial).
3. Real-time and integrated IT System Management and Security
management.
An effective management is a three stage process of Measurement,
Monitoring and Management. Mere measurement will not amount to
monitoring. Similarly, mere monitoring does not mean management. Hence,
proactive and dynamic investment management system envisages
monitoring the Investment Operations to assist in management's decision
making and measurement to support monitoring. Thus, it is further two
stages beyond measurement i.e. purposeful monitoring and effective
management.
Technical Guide
Synchronous and asynchronous interfacing of investment domain with other
domains is essential not only for the present system but also because it is
flexible enough to incorporate future changes in regulation for both
investment and other domains. Also, real-time and integrated IT systems and
security management are essential to ensure data integrity, audit trail at data
entry points, review of system with due monitoring and reporting on the
compliance aspects etc.
2. Internal/Concurrent Audit
(a) Internal / Concurrent Audit of investment functions of an insurer is
essentially part of management process to ensure effective controls and in
short, a comprehensive compliance check mechanism. Such audits should,
by reporting on the controls and processes, passively aid the investment
departments to ensure that the transactions / decisions are within the policy
parameters laid down by the "Investment Committee" formed by the Board,
and are in compliance with the terms and conditions for exercise of
delegated authority and do not violate the guidelines of IRDA and the
Insurance Act. The Audit is expected to cover all the transactions, recorded
during the period covered in the Audit Report.
(b) The internal / concurrent audit requirement flows from the Investment
Regulations. IRDA has issued guidelines through its Circular No.
INV/CIR/023/2009-10 dated 4th Aug, 2009 directing all insurers having Assets
Under Management (AUM) (both Shareholders' Funds and Policyholders'
funds taken together) not over Rs. 1000 Crores to have the investment
functions audited on a Quarterly basis through internal audit (either through
internal sources or by appointing an external firm of Chartered Accountants)
and those insurers having AUM over Rs. 1000 Crores to have the investment
functions audited on a Quarterly basis through concurrent audit by appointing
an external firm of Chartered Accountants. The appointment of the auditor
will be done by the Audit Committee of the Board. The internal audit
requirement will get converted to Concurrent Audit requirement from the
quarter following the quarter in which the AUM exceeds Rs. 1000 Crores for
the first time. An insurer who gets covered under Concurrent Audit for the
first time, will continue to have the Investment functions concurrently audited,
even if the AUM falls subsequently below Rs.1,000 Crores. The scope
remains unchanged whether it is done through Internal Source or through an
external Chartered Accountant firm. If the Audit of Investment Operations, as
per the AUM criteria, fall under Internal Audit, and if the Internal Auditor is an
2
Framework of Internal/Concurrent Audit for Insurance Companies
employee of the Insurer, the Internal Auditor shall be a Chartered
Accountant. While the scope of the audit is detailed in the following chapter,
the Technical Guide provides comprehensive Check List, which is as good as
a functional Audit Programme for an Auditor.
(c) The Auditor appointed shall report to the Audit Committee of the
Board, taking into consideration the responses of the Investment
Committee (IC).
(d) Compliance to "Implementation of Investment Risk Management
Systems & Process", as committed by the Insurers' Board shall be confirmed
by the Internal/Concurrent Auditor for its implementation. Also, the Audit is
expected to confirm that the Audit Committee's Recommendations, along
with the implementation details of the previous Quarter, are placed before
the Insurer's Board, and are a part of its Agenda.
3. Broad Scope of the Audit
As mentioned earlier, the scope of the Internal /Concurrent audit is detailed
in the following Chapter. The broad scope of this audit is envisaged on -
(a) Confirming the implementation of Investment Risk Management
Systems and Process, as committed by Insurers Board, listing the
proof based on which such confirmation is made.
(b) Confirming the implementation of Audit Committee's (of the Board)
recommendations of Previous Quarter.
(c) Review of the Standard Operating Procedures (SOP) & Systems
supporting the investment process. (Refer Annexure `A')
[The scope shall cover the investment policy and SOP of the insurer
for compliance with IRDA guidelines.]
(d) Review of investment related transactions and operations.
(i) The scope shall cover extensively the Front Office, Mid Office &
Back Office functions, the Investment domain requirement and
Systems and Process supporting the Investment transactions.
(ii) The review shall include follow-up of all previous pending audit
observations.
3
Technical Guide
(iii) The review shall cover ALL categories of Investments
permissible, falling under both Shareholders' and Policyholders'
funds. [Annexure `B']
(iv) The Audit shall cover ALL transactions/operations and have the
same periodicity as that at which such transactions are
recorded.
(e) Audit Report & Certification.
4. Frequency of Audit
The frequency of audit shall be Daily / Weekly / Monthly, commensurate with
the volume of transactions of the insurer. Monthly checklists should be
prepared and sent to CIO and CFO of the Company to enable corrective
actions in time. However, a consolidated report shall be prepared once in
every quarter and submitted to the company.
5. Reporting
The Internal / Concurrent Auditor has to issue his audit Certificate for every
quarter end along with the Annexures thereto in the format prescribed (refer
Chapter 5 of this Technical Guide).
The internal / concurrent auditor has to discuss all the audit observations
with the CIO / CFO to obtain the feedback / replies and take them into
consideration before issuing the Certificate to the Audit Committee.
The IRDA (Investment) (5th Amendment) Regulations, 2013 also requires the
Internal /Concurrent Auditor's certification in Form 4 (Part B). It has to be
noted that the Regulations mandate that all the Returns mentioned in
Regulation No. 10 are to be submitted by an insurer within 30 days from the
end of each quarter. As this requirement is also for Form 4 (Part B), it is
imperative for the Auditor to take due care to verify and certify the Form-4 in
time.
4
2
Investment Functions of Insurer-
Internal / Concurrent Audit Scope
Internal/Concurrent Audit is an examination of financial transactions and is
contemporaneous with the occurrence of transactions or is to be carried out
almost simultaneously. It attempts to shorten the interval between the
occurrence of a transaction and its examination by an independent person
not involved in its documentation. There is emphasis in substantive checking
in key areas rather than test checking. This audit is essentially a
management process integral to the establishment of sound internal
accounting functions and in effect, controls, and sets the tone for a vigilant
audit to preclude the incidence of serious errors and fraudulent
manipulations. Such an Audit is expected to cover all the transactions,
without any exception, recorded during the period covered in the Audit
Report.
An internal/concurrent auditor may not sit in judgment on the decisions taken
by the authorized official. However, the auditor will necessarily have to see
that the transactions or decisions are within the policy parameters laid down
by the Board / Investment Committee; that they do not violate the
instructions / prescriptions of IRDA and Insurance Act, 1938, and that they
are within the delegated authority and in compliance with the terms and
conditions for exercise of delegated authority.
If the Auditor finds any deviation in the operations of the Investment
department from the Board/IC approved policies, those deviations with their
observation shall be brought the notice of the Audit Committee of the
Company. The Auditor shall also Report the serious observations instantly to
the management to take immediate steps to prevent the recurrence of such
incidents.
Two detailed checklists, one applicable to Life and Non-Life Insurance
business, and the other covering the additional points applicable to Life &
Linked business (ULIP) have been given separately in the succeeding
chapters and the Internal/Concurrent Auditors may find them as an extant
audit programme itself. While every effort has been taken to map the
Technical Guide
checklists in accordance with the regulatory requirement in respect of such
Audits and to the information already being submitted by the Insurer to the
IRDA in various forms, nothing precludes the Auditor to travel beyond such
checklists in case he needs to derive additional comfort in any transaction(s).
In fact, in view of the heavy reliance placed on the auditors by the Regulator,
it is indeed imperative for the auditor to ensure that his certification and
report on the important function of Internal/Concurrent audit is never short on
facts but never long on clerical errors that do not impact materially. As most
insurers have systematised their Investment functions, it would be better for
the Internal / Concurrent Auditor to get familiarised with the system and even
learn to input dummy data and take out dummy reports. This will enable him
to derive comfort on the system and data integrity. He may even take a call
on sampling and test checking of transactions of same type once he checks
and verifies the system integrity in certain modules.
It is in this background that a well defined scope is necessary to even plan
an audit of the nature expected of an Internal/Concurrent Auditor. The
Auditor, while making an audit plan based on the Scope, would do well to
first understand the broad structure under which the Investment functions are
designed in an insurance company, under the paradigm of the laws and
regulations in force.
The broad structure revolves around the following, about each of which the
Internal / Concurrent Auditor has to be completely familiar with:
1. Pattern of investments - Shareholders funds / Policyholders Funds
2. Pattern of investments - as applicable to LIFE/PENSION/ULIP/NON-
LIFE (Annexure `C')
3. Prudential and Exposure norms (Annexure `I')
4. Rating Requirements
5. Sub limits prescribed in the circulars on various investments*
6. Broad category of Investments
7. Valuation of Investments
8. Fund Accounting and NAV process on ULIP funds
9. Investment Policy (Annexure `D')
10. Standard Operating Procedure (Annexure `A')
6
Investment Functions of Insurer-Internal / Concurrent Audit Scope
11. Financial Authority
12. Model Code of Conduct
13. Outsourcing
14. Systems requirements
15. Definition of Infrastructure compliance
16. Issues pertaining to Other Regulators
17. Quarterly & other Investment Returns to the Regulator (Annexure `K')
18. Remarks of Concurrent Auditor /Systems auditor of Previous quarter
19. Placement before the Audit Committee of the Board
*Sub limits have been specified in the Regulations and circulars for various
types of investments for:
(i) Mutual Funds
(ii) Venture Funds (Alternate Investment Funds) only Cat I is permitted
(iii) SRs/PTC/ABS
(iv) Tier II capital of Bank Bonds
(v) Derivatives
(vi) Repo and Reverse Repo on Corporate Bonds
(vii) Credit Default Swaps
(viii) Infrastructure Debt Funds
(ix) SPVs of Infrastructure
(x) Fixed Deposits
(xi) Immovable Properties
(xii) Loans/ Project Loans Creation of Securities
Scope of Audit
Taking into consideration the foregoing, the minimum Internal/Concurrent
Audit Scope of an Insurer, as per the requirements of Insurance Regulatory
and Development Authority, shall include the following:
7
Technical Guide
1. Review of Standard Operating Procedure (SOP) -(Annexure `A')
(a) To be approved by the Investment Committee
(b) Amendments, if any, to be approved by the Investment Committee
2. Investment Policy (IP) (Annexure `D')
(a) Approval by Board of Directors
(b) In framing the policy, the Board will be guided by the guidelines given
in Regulation 13 (1) of IRDA (Investment) (5th Amendment)
Regulations 2013. The main areas to be covered are:
(i) Liquidity
(ii) Prudential Norms broadly, separately covering norms for
various industries, i.e. Manufacturing, Banking & Financial
Institutions, Infrastructure, etc.
(iii) Exposure Limits
(iv) Stop Loss Limits in securities trading
(v) Management of all Investment, fund wise performance
measurement, Credit and market risks
(vi) Management of assets and liabilities mismatch
(vii) Investment audits and Investment Statistics
(c) The relevant provisions of Insurance Act, 1938.
(d) Submitting to Investment Committee / Board , the status of
Compliance / Operationalising of Investment Policy
3. Investment Committee (IC)
(a) Members
(b) Meetings
(c) Minutes.
(d) Recommendations
(Whether IC includes representatives of Mid Office / Back Office in addition
to CFO)
8
Investment Functions of Insurer-Internal / Concurrent Audit Scope
4. Delegation of Authority to IC
(a) To be approved by the Board
(b) Amendments if any, to be approved by Board
5. Front Office Mid Office Back Office segregation of duties
(Annexure `H')
(Including deployment of requisite skilled manpower, investment system and
infrastructure to Mid office and Back Office commensurate to Front Office)
6. Maintenance of voice recorder for transactions done
7. Custodian Controls
(a) Arrangements
(b) Reconciliation
(c) Physical holding / custody.
8. Appointment of Brokers (by Back office)
(a) Procedures / Criteria (as stipulated in Investment Policy / SOP) for
Ceiling per broker (as stipulated in Investment Policy / SOP)
(b) Execution of Legal Agreement with Brokers for empanelment covering
terms and conditions of brokerage business (in a standard format).
(c) Broker appointment by Back Office, Dealing with Front Office and
Review / monitoring by Mid-Office
(d) Business to be routed through them,
9. Exposure / Prudential / Other Norms Company / Group / Sector/
Industry [both Regulatory (IRDA Regulations & Insurance Act) and
Internal Norms (as per Investment Policy)]. (Annexure `I')
10. Non performing investments (Annexure `J')
(a) Classification
(b) Income recognition
(c) Provisioning
9
Technical Guide
11. Categories of Investments
(a) Central Government Securities, Approved Securities, Housing and
Infrastructure Investments and other Approved Investments
(b) Prescribed percentages
(c) Deviations
(d) Ongoing monitoring
12. Inter- fund transfers
(a) Permitted areas
(b) Rates
13. Rating of Securities
(a) Rating Criteria
(b) Whether the Investments which are not in rated securities, capable of
being rated
(c) Downgraded securities' classification
14. Controls & Compliance with Regulations for different types of
Investments
(a) Investment in equity shares through IPOs
(b) Investment in Mutual Funds, Asset Backed Securities, PTCs And SRs
(c) Investment in Perpetual Debt Instruments of Banks Tier-I capital and
Debt capital instruments of upper Tier-II capital
(d) Investment in Venture Funds
(e) Investment in any other instruments approved by IRDA including but
not limited to CDS, Reverse Repo in Corporate Securities etc.
15. Investment Deals Testing: (Annexure `E')
(a) Daily transaction register
(b) Journal vouchers
(c) Investment ledgers
(d) Counter party confirmations
10
Investment Functions of Insurer-Internal / Concurrent Audit Scope
(e) Contract notes from brokers
(f) Deal tickets
16. Sanction of Loans: (Annexure `G')
(a) Scrutiny of request in the form of detailed proposal
(b) Promoter Assessment and Financial Assessment
(c) Repaying capacity
(d) Automatic re-classification of loans as `Other Investments', which are
not covered with adequate `security', as required by the Act.
(e) Whether the company has uniform policy to charge `Up-front Fees /
Processing Charges'? In case of waiver of such charges, whether
necessary internal approval has been sought?
(f) Where pre-commitment and pre-disbursement conditions have been
stipulated, whether the same have been duly complied with?
(g) Whether Financing documents and Security documents have been
executed and the security clause as stipulated in Security document
has been created in favour of the company along with registration of
charge in the O/o ROC.?
(h) Post Sanction review and monitoring: To verify whether the borrower is
complying with the interest and principal obligations in time. Whether
any visit / review of physical and financial progress is done on
periodical basis, say quarterly, and review report in standard format is
submitted to IC.
(i) Whether Escrow and Trust & Retention Account (TRA) Agreement or
equivalent arrangement is in place for tracking the cash-flows of the
borrower company and working smoothly.
17. Investment in Debt Instruments
(a) Whether Debt Investment is supported by documents like Information
Memorandum (IM)/ subscription Agreement, Term Sheet, Latest Credit
Rating rationale and taking into account the amount for which rating is
given etc.
11
Technical Guide
(b) Whether security stipulated under IM / Subscription agreement has
been created in favour of lender or Trustee. If not, whether any penal
charges have been stipulated as per the policy of the Company.
(c) Whether hard copy or soft copy of IM /subscription agreement and
other documents are available for internal/ concurrent audit and kept in
safe custody.
(d) Wherever Security Trustee has been appointed for ensuring the
creation of security, whether necessary due diligence has been done
and security is created.
18. Investible Surplus:
Determination of the Investible surplus (premium income minus expenses
minus policyholder's payments)
19. Compliance to IRDA Accounting Regulations:
(a) Compliance with general accounting standards
(b) Adherence to accounting policies of the insurer
20. Minimum Risk management System & Process - The minimum risk
management systems and processes prescribed by the IRDA are to be
complied with by the Insurer all the time
21 Segregation between shareholder and policy holder funds:
(a) Bifurcation of Income and Investment assets
(b) Whether bifurcation of investments done at entry level
22 NAV: (Annexure `J')
(a) Calculation
(b) System
(c) Outsourcing
(d) Process
23 Employee dealing guidelines :
(a) Implementation
(b) Monitoring
24 Deposit U/s 7 of Insurance Act 1938:
(a) Sufficiency
12
Investment Functions of Insurer-Internal / Concurrent Audit Scope
(b) Certification from banks
25 Investment in promoter groups:
(a) Identification of companies
(b) Maintenance and updation of list of promoter group companies
(c) Verification with company profile in the system
(d) Whether within the prescribed limits
26 Investment returns to IRDA (Annexure `K')
(a) Timely submission
(b) Accuracy of the data
(c) Procedure for generation of data
27 Amortisation of debt securities and valuation of investment
portfolio at periodic intervals Whether as per IRDA guidelines
28 Outsourcing of Investment functions:
(a) Permissions from IRDA
(b) As per norms.
29 Banking:
(a) Tracking of transactions
(b) Reconciliations
30 Generation of exception reports and their scrutiny should be
submitted to IC.
31 Placement of IRDA circulars before Audit Committee of the Board/
IC
32 Inspection by IRDA Follow-up on the observations from the
previous reports.
33 Follow up for recovery of overdues
34 Follow up on open items in the Previous Concurrent Audit Report
and the Systems audit report
13
3
Internal / Concurrent Audit Checklist
Life & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
1 INVESTMENT POLICY
1.1 Whether the Investment Low Annually
Policy is approved by the
Board of Directors and the
same is in accordance with
IRDA Investment
Regulations?
1.2 Does the Investment Policy Low Quarterly
cover all the areas as
provided in the IRDA
Investment Regulations?
1.3 Whether the Investment Low Half-Yearly
Policy is being reviewed half
yearly by the management?
1.4 Have amendments to the Medium For every
Investment Policy, if any, amendment
been approved by the Board
of the Insurer?
1.5 Has the Standard Operating Low Annually
Procedure (SOP) been
approved by the Investment
Committee of the Insurer?
1.6 Whether the SOP, for each Medium Quarterly
`category of investment' is the
same for all fund(s)?
1.7 Does SOP of the Insurer, for High For every
"each" Category of
Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
Investment, (as per amendment
Guidelines
INV/GLN/001/2003-04, as
amended from time to time,
issued by the IRDA) provide
individual activities to be
carried out in Front, Mid and
Back office?
1.8 Whether the IC approved High For each
SOP has been followed for Investment
100% of the investments?
1.9 Has the model code of High Annually
conduct, to prevent insider /
personal trading of officers
involved in Investment
Operations, including front,
mid and back office as
approved by the Board, is
implemented? If so:
a. Does it cover Officers Low Annually
involved in Investment
Operations at various
levels?
b. Does it cover all Officers Low Annually
of such level as
prescribed by the Board?
c. Has the Board been Low Quarterly
informed of compliance
or otherwise to model
code of conduct during
the Quarter?
d. Has the Concurrent High Quarterly
Auditor issued their Audit
Report of previous
Quarter, with any
qualification on aspects
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of model code of conduct
implemented by the
Insurer?
e. Has breach of model High Quarterly
code of conduct, if any,
reported during the
previous Quarter, been
dealt properly and
appropriate action as
recommended by Audit
Committee/ Board been
taken?
2 INVESTMENT COMMITTEE
2.1 Is the Constitution of the Low Annually
Investment Committee of the
Insurer in full compliance with
the requirements mentioned
under Regulation 13 of
Investment Regulations?
2.2 Whether the exceptions to High Quarterly
investments policy/SOP been
adequately reported to
Board/IC and action has been
taken.
3 MONITORING OF INVESTMENTS & SETTLEMENT
3.1. Investee Company
Exposure
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Impact
3.1.1 Investment in equity, High For every
preference shares, transaction
convertible debenture:
Did the exposure at any point
of time exceed the limits set
in Regulation 9 (A.1.(a) or
A.1.(b) or A.1.(c) considered
separately) of this Regulation,
in the case of Life insurers /
an amount under Regulation
9 (A.2) or (A.3) of this
Regulation, in the case of
General Insurer / Re-insurer,
whichever is lower?
3.1.2 Investment in Debt/ loans and
any other permitted
Investments as per Act /
Regulation, other than
`Equity', Preference Shares,
Convertible Debentures:
Did the exposure at any point High For every
of time exceeded the limits transcation
set in Regulation 9 (A.1.(a) or
A.1.(b) or A.1.(c) above
considered separately) of this
Regulation, in the case of Life
insurers / an amount under
Regulation 9 (A.2) or (A.3) of
this Regulation, in the case of
General Insurer / Re-insurer
whichever is lower?
3.1.3 Is the maximum exposure High For every
under limit for a single transaction
`investee' company from all
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investment assets (Equity /
Preference Shares /
Convertible Debenture /
Debentures/ bonds / CPs /
loans and any other permitted
debt Investments as per Act /
Regulation), within the limit
prescribed in Regulation 9 (B)?
3.1.4 Are the debt investments High For every
made in infrastructure SPVs transaction
in compliance with the limits,
terms and conditions as
mentioned in Note: 4 of the
Investment Regulations?
3.2 Limit for the entire Group of
the Investee Company
3.2.1 Are the total investments High For every
made in the entire "Group of transaction
the Investee Company" within
the limits set out in
Regulation 9(A.1.(a) or
A.1.(b) orA.1.(c) in the case
of Life insurers / under
Regulation 9 (A.2) or (A.3) of
this Regulation, in the case of
General Insurer / Re-insurer,
or 15% of investment Assets
in all companies belonging to
the group ?
3.3 Promoter Group Company
3.3.1 Are the total investments
made in all "Companies
falling under Insurer's
Promoter Group":
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Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
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Impact
a. not more than 5% in High For every
aggregate of its total transaction
investments in all companies
belonging to the promoters'
groups;
b. not made investments in High For every
any companies belonging to transaction
the promoters' group by way
of private placement (equity);
c. Not made investment in High For every
unlisted instruments [equity & transaction
debt certificate of deposits
and fixed deposits (without
prejudice to Section 27A (9)
and Section 27B (10) of the
Act) held in a Scheduled
Commercial Bank], except for
companies formed by
Insurers under Sec 27A (4) or
Sec 27B (5) of the Act?
3.4 Industry sector
3.4.1 Are the investments made by High For every
the insurer in any industrial transaction
sector [except Financial and
Insurance Activities sector as
per National Industrial
Classification (All Economic
Activities) - 2008]: not in
excess of the lower of:
15% of the amount under
Regulation 9 (A.1.(a) or
A.1.(b) or A.1.(c) considered
separately) of this regulation
in the case of life insurer / an
amount under Regulation 9
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No. Particulars Suggested Periodicity of Auditor's
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(A.2) or (A.3) of this
regulation, in the case of
General Insurer / Re-insurer
(or) 15% of Investment
Asset?
3.4.2 Are the investments made by High For every
the insurer in Financial and transaction
Insurance Activities sector as
per National Industrial
Classification (All Economic
Activities) - 2008 (excluding
Fixed Deposit, Term Deposit
and Certificates of Deposit)
not in excess of 25% of its
total investment assets?
3.4.3 Are the classification of High For every
industrial sectors done on the transaction
lines of National Industrial
Classification (All Economic
Activities) - 2008 [NIC] for all
sectors, except "infrastructure
sector"?
3.4.4 Has exposure been High For every
calculated for Financial and transaction
Insurance Activities sector at
Section level (of NIC (All
Economic Activities) 2008)?
3..5 Are no further exposures
made in Housing &
Infrastructure in excess of the Medium Daily /
limits reported to the Monthly
Authority as at 31st March
2013?
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Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
Note: Any investment made in
housing and infrastructure as
per earlier regulations which
are in excess of the limits
specified as per Regulation 9,
as at 31st March, 2013,
Investee company, Group,
Promoter Group wise, as
certified by the Internal /
Concurrent Auditor shall be
filed with IRDA
3.6 Whether exposure norms High At any point
have been adhered to both of time
funds representing solvency
margin [FRSM] and funds
held in excess of required
solvency margin.
4 Rating Criteria
4.1 Are investments under High For every
`Approved Investments' made transaction
only in rated instruments, if
such instruments are capable
of being rated?
4.2 At the time of purchase, are High For every
Corporate Bonds rated below transaction
AA (A+ with the prior approval
of the Board of the Insurer) or
its equivalent and P1 or
equivalent (in case of short
term instruments) classified
under "Other Investments"?
4.3 Are instruments downgraded High Quarterly
below the minimum rating
prescribed under Note 3 & 4
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Technical Guide
No. Particulars Suggested Periodicity of Auditor's
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Impact
to Regulation 3 to 8 of the
IRDA (Investment)
Regulation, 2000, as
amended from time to time,
reclassified under "Other
Investments" through the
System?
4.4 Are `Debt' instruments High At required
(including Central Govt, State periodicity
Govt Securities and Other
Approved Securities) - fund
wise, in the case of life
insurer (including ULIP funds
at segregated fund level) and
Investment Assets in the case
of general insurer - have a
minimum rating of Sovereign,
AAA or equivalent rating for
long term and Sovereign, P1+
or equivalent for short term
instruments, not less than
75% (Life Insurer) / 65%
(General Insurer)?
Note : For the purpose of
calculating the 75%/65% of
the investment in debt
instruments the following
shall not be taken either in
the numerator or
denominator:
1. Reverse Repo with
corporate bond
underlying
2. Fixed Deposit
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Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
3. Investment in
Promoter Group
Mutual Fund(s) and
un-rated Mutual funds
4.5 Are `Debt' instruments High At required
(including Central periodicity
Government Securities, State
Government Securities and
Other approved securities)
fund wise, in the case of life
insurer (including ULIP funds
at segregated fund level) and
Investment Assets in the case
of general insurer having a
rating of A or below or
equivalent rating for long
term, not more than 5% (8%
in the case of Non-Life
Insurers)?
4.6 Has the insurer, apart from High At required
the credit rating evaluated by periodicity
the rating agencies, carried
out their own risk analysis
commensurate with the
complexity of the product(s)
and the materiality of their
holding for every investment
made?
4.7 Are all investments in assets Medium For every
or instruments which are transaction
capable of being rated
(except Fixed Deposits with
Scheduled Commercial
Banks) made based on
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No. Particulars Suggested Periodicity of Auditor's
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`instrument' rating and NOT
based on Investee `Company'
rating?
4.8 Have Investments in debt Medium For every
instruments rated AA minus transaction
or below {A Plus or below in
case of Debt instruments
issued by All India Financial
Institutions} been classified
under Other Investments?
5 Exposure verification and
Sec. 7 Deposit
5.1 Has the Exposure been High Quarterly
verified through the System
and is within the SOP /
Regulatory limits?
5.2 Does the System have the High Quarterly
capability of providing alerts
at transaction level BEFORE
taking exposure?
5.3 Has the Insurer maintained High Quarterly
deposits under Section 7 of
Insurance Act, 1938 and
circulars issued thereunder?
6 Investment Management
6.1 Whether any of the functions High On going
of the insurer relating to
Investment Operations falling
under Front / Mid / Back
Office, (covering both
Shareholders and
Policyholders Investments),
are outsourced (except to the
extent permitted under Point
24
Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
11 and 12 of Annexure II to
Circular INV/CIR/008/2008-09
Dt. 22nd Aug, 2008 with
respect to Outsourcing of
Investment Advice and NAV
Calculation).
6.2 Is the segregation of front, Medium On going
mid and back office, as per
Technical Guide on Internal /
Concurrent Audit of
Investment functions of
Insurance Companies issued
by the Institute of Chartered
Accountants of India?
6.3 Is the increase during the
quarter, in Shareholders'
funds (other than income
from shareholders'
investments, maintained in a
separate custody account)
held beyond solvency margin
requirement, supported by
surplus calculation certified
by the Appointed Actuary?
6.4 Are the investments made High Quarterly
during the Quarter, within the
exhaustive `Categories of
Investments' prescribed
under Guidelines
INV/GLN/001/2003-04, as
amended from time to time?
6.5 Has the Insurer, during the Medium Quarterly
Quarter, taken any Derivative
position (including interest
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Technical Guide
No. Particulars Suggested Periodicity of Auditor's
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Impact
rate swap and Credit default
swap)? If Yes:
a. Has the Derivative Policy High Quarterly
been approved by the
Board of the Insurer?
b. Has the insurer taken prior High Quarterly
approval of IRDA for such
Derivative policy?
c. Is there a process to High Quarterly
identify the risk to be
hedged [`fund-wise' in the
case of Life Insurers]?
d. Does such derivative High Quarterly
position comply with IRDA
Guidelines?
e. Is the derivative exposure High Quarterly
taken clearly identified
with the portfolio risk to be
hedged?
f. Has the Insurer filed the Medium Quarterly
regulatory information /
returns required under the
Guidelines issued?
6.6 Whether investments made in High Quarterly
immovable property covered
under Section 27A (1) (n) of
the Act exceeded at the time
of investment, 5% of the
Investment Assets [as per
FORM 3B (Part A)] in the
case of General Insurer /
within 5% of Life fund,
Pension & General Annuity
Fund, [as per FORM 3A (Part
A)] in the case of Life Insurer.
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Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
6.7 Are investments in equity High Quarterly
shares through IPO, Mutual
fund, Venture fund, SEBI
approved Alternate
Investment Funds, Corporate
Bond Reverse Repo, IDF (as
per Note 2 to Regulation 9)
Perpetual Debt instruments of
Bank's Tier-I Capital and
Debt Capital instruments of
Bank's Upper Tier-II Capital,
made in compliance with the
relevant circulars issued in
this regard from time to time
and SOP?
6.8 Are investments in asset High Quarterly
backed securities, PTC, SRs
both under Approved and
Other investment category,
made within 10% of
Investment assets in case of
Life Companies and 5% of
Investment assets in case of
Non life companies?
6.9 Are any securitized assets Medium Quarterly
with underlying housing or
infrastructure assets, if
downgraded below AAA or
equivalent, reclassified as
Other Investments?
6.10 Has Shareholders funds been Medium Quarterly
split into Funds Representing
Solvency Margin (FRSM) in
FORM 3A (Part A) and
balance?
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6.11 If funds are split as above, Medium Quarterly
between FRSM and Balance,
have the same been
maintained in separate
custodian accounts with
identified `scrips' for both Life
and General (including Re-
insurance) companies and
reconciled with that in FORM
3A (Part A)?
6.12 Are Investments made in a Medium For every
Public Limited Special transaction
Purpose Vehicle (SPV)
engaged in infrastructure
sector within 20% of the
project cost (or) amount
under Regulation 9 (B) (i),
whichever is lower?
6.13 If answer to point above is Medium For every
`yes', have all the transaction
requirements mentioned
under Note 4 to Regulation 9
been complied with?
6.14 Do investments made in Medium For every
Mortgaged Backed Securities transaction
[MBS] / Assets Backed
Securities [ABS] comply with
the requirements of Note 5 to
Regulation 9?
6.15 Has `each' purchase and sale High For every
of Investments, as mentioned transaction
in the Deal Slip, been
identified with respect to
`each' fund / `segregated
fund' in respect of ULIP
funds?
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Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
6.16 Are all thinly traded equity (as Medium Quarterly
per SEBI norms) classified as
"Other Investments"?
6.17 If any instruments are dealt Medium Quarterly
with in physical form, whether
adequate controls with regard
to storage and accounting of
such instruments maintained?
6.18 Whether broker appointment Medium For every
is as per norms defined by appointment
the insurer in SOP?
6.19 In the case of securities, Medium Quarterly
whether aggregating all deals
done through broker and
comparison thereof with the
aggregate buy/sell deals on a
periodical basis as prescribed
in the SOP of the insurer (this
is required to monitor
transaction volume limits
through each broker) is taking
place?
6.20 Whether brokerages paid are Medium Quarterly
within the internal guidelines
of the insurer?
6.21 Is the appointment of Medium Quarterly
custodian made with requisite
approvals?
6.22 Are periodic audits of the Medium Quarterly
custodian, to ascertain that
adequate controls are in
place, conducted?
6.23 Whether Escalation Matrix is Medium
available and followed for
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Technical Guide
No. Particulars Suggested Periodicity of Auditor's
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Impact
resolving any discrepancies
with the custodian.
7 SYSTEMS / PROCEDURE
7.1 Is the software application for Medium Quarterly
Investment Operations fully
automated without manual
intervention in calculating the
exposure norms of Investee
Company, Group, Promoter
Group and Industry Sector,
as per the various slabs of
`investment assets' provided
under Regulation 9 (B)?
7.2 Have all non-compliances High Quarterly
reported in the Chartered
Accountant's certificate
issued (as per the Technical
Guide on Investment Risk
Management Systems &
Process of Insurance
Companies, by ICAI) on the
`status' of implementation of
Investment Risk Management
Systems and Process been
rectified as per timelines
committed to IRDA?
7.3 Is the Primary Data Server of High On going
the Computer Application
used for Investment
Management maintained /
situated within the Country?
8 INVESTMENT ACCOUNTING
& SETTLEMENT
30
Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
8.1 Has the insurer, reconciled Medium On going
investments, fund-wise, with
bank and custodian records
on `day-to-day basis for `each'
segregated fund?
8.2 Has the insurer, reconciled Medium
investment accounts, for each
fund in the case of Non-ULIP
Business and General
Insurance Business, with
Custodians records?
8.3 Has valuation of investments Medium Quarterly
of `each' fund (including
ULIP) is done as prescribed
in IRDA (Preparation of
Financial Statements and
Auditors Report of Insurance
Companies) Regulations,
2002?
8.4 Is the Investible Surplus Medium Daily
determined as per procedure
laid down in SOP?
8.5 Are there adequate controls Medium Monthly
in place to ensure accuracy of
Investible Surplus?
8.6 Whether there is proper Medium Monthly
internal control in place to
ensure that the investments
do not exceed the available
cash position in the
respective portfolios.
8.7 Whether the failed deals are Medium Quarterly
reported to appropriate
authorities, stating the reason
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No. Particulars Suggested Periodicity of Auditor's
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Impact
8.8 Whether all the deals placed Medium On going
by the front office are settled
and accounted by the Back
office.
8.9 Whether the settlement date Medium On going
is tracked properly.
8.10 Whether the exception report Medium Monthly
is generated along with the
reasons for failure of
settlement.
8.11 Whether management has Medium On going
taken corrective actions for
the exceptions.
8.12 Whether the funds are Medium On going
transferred as per the
settlement date and traced in
the bank statement.
8.13 Whether demat statement is Medium Daily
being received on a daily
basis from the custodian.
8.14 Whether the settlement bank Medium Daily
reconciliation statement is
prepared on a daily basis and
is signed by the preparer and
reviewer.
8.15 Whether the settlement Medium Monthly
bank's reconciliation
statement been reviewed.
8.16 Whether the custodian's Medium Daily
reconciliation is prepared on
a daily basis and is signed by
the preparer and reviewer.
8.17 Whether the custodian Medium On going
reconciling items are followed
up on a timely basis.
32
Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
8.18 Whether the accounting Medium On going
entries passed to record
purchase / sale of
investments are appropriate
8.19 Whether amount received Medium On going
against security sold is
properly recorded.
8.20 Has all interest and dividend Medium On going
income been accounted on
accrual basis?
8.21 Whether Income is accounted Medium Monthly
as per the Accounting
Standards and other
regulations specified by IRDA
and the accounting policies of
the insurer.
8.22 Whether the Investments are Medium Monthly
accounted and disclosed as
per the Accounting Standards
and other regulations as
applicable and specified by
IRDA.
8.23 Are there controls to ensure Medium Quarterly
that all Corporate actions are
acknowledged and recorded?
8.24 Check for corporate actions Medium Quarterly
during the audit period and
verify that these have been
correctly recorded and
accounted.
8.25 Is there a procedure for Medium Quarterly
exercise of voting rights and
seeking representation on
Board of companies?
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Technical Guide
No. Particulars Suggested Periodicity of Auditor's
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Impact
8.26 Are the procedures and Medium Quarterly
decisions taken by the
insurance companies
adhered to during the period
under review?
8.27 Whether accounting and Medium Monthly
recording for Investment
Reclassification as NPA and
downgrading done?
8.28 Whether the deals are Medium On going
instantly put into the system
for verification, confirmation
and settlement by the Mid
Office and Back Office?
9 REPORTING
9.1 Are periodical Investment High Quarterly
Returns to be filed for the
Quarter prepared in full
compliance with the
"Guidance Note on
preparation of Investment
Returns" issued by IRDA?
9.2 Has the Internal / Concurrent High Quarterly
audit Report of the previous
Quarter with the with
comments of Audit
Committee of the Board, on
`very serious', `serious' points
(as per the Technical Guide
on Internal / Concurrent Audit
of Investment functions of
Insurance Companies, issued
by the Institute of Chartered
Accountants of India) in the
report, and status of
34
Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
implementation of Audit
committee recommendation
been placed before the Board
of the Insurer during the
current quarter?
9.3 Has the Audit Report of the High Quarterly
previous Quarter along with
Audit Committee's
recommendation and its
implementation status filed
with the Authority along with
these returns?
9.4 Has the Board, during the Medium Quarterly
previous Quarter, reviewed
the performance of
investments? [the review in
the case of life insurers
should cover both Non-Linked
and Linked funds [SFIN]
level].
9.5 Have all the negative Medium Quarterly
deviations reported in FORM
4A (Part A)?
9.6 Whether there has been any Medium Quarterly
change in investment limits
during the period under
review which is likely to result
in non compliance. If yes,
whether the same has been
correctly effected in the
system.
9.7 Is the list of day end reports Medium Daily
generated as per SOP and
verified by back office?
9.8 Whether the following
minimum has been reported
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Technical Guide
No. Particulars Suggested Periodicity of Auditor's
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to the board on quarterly Medium Quarterly
basis product wise by Life
Insurers & Line of business
wise by General Insurers:
(i) New business scale
planned versus actual
at the end of the
period1 to maturity
(ii) Expenses projected
versus actual
(iii) Persistency / renewal
premium streams
projected versus actual
(iv) Claims - projected
versus actual
(v) Actual Yield versus
projected yield or
returns
(vi) Action plan and follow
up status
9.9 Transfer of share holders' High Quarterly
funds in excess of
Solvency Margin:
(i) Whether transfer is made
only after fully complying
with mandatory
investment in Central
Government Securities,
State Government and
Other Approved
Securities and in Housing
& Infrastructure
36
Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
Investments from funds
representing solvency
margin.
(ii) Whether such transfer
made between quarters
has been duly certified
by the Concurrent
Auditor.
10 DEALS / PROPOSALS
DEAL TESTING
10.1 Whether Delegation of Medium On going
Authority is approved by the
board/IC and implemented as
defined in the SOP of the
Insurer.
10.2 Whether the transactions Medium On going
executed are approved by the
appropriate authority as
defined in the SOP and
whether they are within the
eligible limits for
authorisation.
10.3 Are there amendments if any, Medium On going
to the delegation of authority
approved by Board / IC?
10.4 Is there a record (Audit Trail) Medium On going
of all deals that have been
done?
10.5 Are all deal slips serially High On going
numbered and available?
Check if there are any
missing deal slips.
10.6 Is there a record of approvals Medium On going
for each deal?
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Technical Guide
No. Particulars Suggested Periodicity of Auditor's
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Impact
10.7 Verify that each deal has a Medium On going
deal slip with appropriate
details viz., security name,
quantity, amount, broker
name etc.
10.8 Whether intimation for the Medium On going
trades sent to custodian is
with proper documentation
(such as amount, quantity,
value, description etc.).
10.9 Whether equity deals are Medium On going
settled through STP dump.
10.10 Whether deals are authorized Medium On going
and matched with the
underlying documents such
as counterparty confirmation
etc.
10.11 Whether calculation of Medium On going
profit/loss is happening on
trade upon deal entry.
10.12 Verify that all trades Medium On going
executed/investments made
are classified correctly and
appropriately reported to
IRDA, as per the guidelines
on category of Investments.
10.13 Verify that there is adequate Medium On going
segregation of duties
between people booking,
confirming and accounting
trade.
10.14 Whether the Dealers have Medium On going
been strictly following the
dealing guidelines during the
investments.
38
Internal / Concurrent Audit ChecklistLife & General Insurers
No. Particulars Suggested Periodicity of Auditor's
Business Verification Comments
Impact
11 Project / Term Loans
11.1 Whether Scrutiny of request High On going
in the form of detailed
proposal.
11.2 Is Promoter Assessment and High On going
Financial Assessment carried
out?
11.3 Has repaying capacity, on High On going
promoters' strength
assessed?
11.4 Has re-classification of loans High On going
as `Other Investments', which
are not covered with
adequate `security', as
required by Act been done
through the system?
11.5 Whether the company has High On going
uniform policy to charge `Up-
front Fees / Processing
Charges'. In case of waiver of
such charges, whether
necessary internal approvals
have been sought.
11.6 Where pre-commitment and High
pre-disbursement conditions
have been stipulated, have
the same been duly complied
with?
11.7 Whether Financing High On going
Documents and Security
Documents have been
executed and the security
clause as stipulated in
Security document has been
created in favour of the
company along with
registration of charge of it.
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Technical Guide
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Impact
11.8 Post Sanction review and High On going
monitoring Whether the
borrower is making the
interest and principal
obligations in time? Whether
any visit / review of physical
and financial progress is done
on periodical basis say on
quarterly basis etc. and
review report in standard
format is submitted to IC.
11.9 Whether Escrow and Trust & High On going
Retention Account (TRA)
Agreement or equivalent
arrangement is in place for
tracking the cash-flows of the
borrower company and
whether it is working
smoothly.
40
4
Internal / Concurrent Audit Additional
Checklist Life & ULIP Business
No. Particulars Suggested Periodicity Auditor's
Business of Comments
Impact Verification
1 UNIT LINKED (Annexure
`F')
1.1 Has inter-fund transfer been High Ongoing
done as per circular
IRDA/FA/02/10/2003-04 and
any other circular issued
from time to time, between
ULIP funds during Market
Hours, for Equity and Debt
at the prevailing price and
not based on broker quote?
1.2 Whether every ULIP plan Medium Monthly
has a separate D-mat
account and all securities
held in all funds are in
segregated D-mat accounts.
1.3 Does each `Segregated Medium Monthly
fund' [SFIN] have underlying
`Scrips', identified up to to
Custodian level?
1.4 Does each `Segregated Medium Ongoing
Fund' [SFIN] have not less
than 75% of Approved
Investments as specified in
the Regulation?
Technical Guide
No. Particulars Suggested Periodicity Auditor's
Business of Comments
Impact Verification
1.5 With respect to `each' Medium Ongoing
Segregated Fund [including
Discontinued Policy Fund
(DPF)] in the case of ULIP
business, whether
reconciliation of "Units" has
been made between Policy
Admin System (PAS) and
Investment Accounting
Systems through a fully
automated system using
process integrators to ensure
seamless data transfer without
manual intervention.
1.6 Has the life insurer in the case High Daily
of ULIP business reconciled
through the system the
premium received (net of
charges and benefits paid)
under each product (Unique
Identification Number UIN
wise) with value of all the
segregated fund(s)
(Segregated Fund
Identification Number SFIN
wise) net of fund management
charges, held under a single
UIN, on a day to day basis,
during the quarter?
1.7 Has the life insurer disclosed Medium Daily
UIN wise reconciliation on the
Insurer's website on the same
day?
1.8 Is there a fully automated Medium Daily / At
system to generate, on a day required
to day basis, Form 3A - Part E periodicity
(Investment Details of ULIP
Products to Segregated
Funds)?
42
Internal / Concurrent Audit Checklist Life & ULIP Business
No. Particulars Suggested Periodicity Auditor's
Business of Comments
Impact Verification
1.9 Whether the Insurer's Policy Medium Monthly /
Admin System (PAS) is Quarterly
`automated' for tracking
`policy-wise', information of
discontinued policies along
with the information of the
particular ULIP fund to which
the same pertains.
1.10 Has the life insurer disclosed Medium Monthly
the value of policy wise units
held by policyholder on the
Insurer's policyholder portal as
per the format prescribed
under Annexure III of
IRDA/F&I/CIR/INV/067/04/2013
Dt. 1st Apr, 2013 w.e.f 1st
October 2013?
1.11 Whether any investments in High Monthly
Immovable Properties been
made out of ULIP Funds.
1.12 Has the Insurer floated any Medium Quarterly
new fund during the quarter?
1.13 If the answer to point above is Medium Quarterly
`yes', have the directions in
respect of Fund Approval
procedure and Guidelines on
NAV Process as per Circular
IRDA/F&I/CIR/INV/173/08/2011
Dt. 29th Jul, 2011 been
complied with?
1.14 Investments of Unit Linked
funds: High Daily /
(i) Whether insurer invests Monthly
only in investments
wherein day-to-day
valuations are available.
43
Technical Guide
No. Particulars Suggested Periodicity Auditor's
Business of Comments
Impact Verification
(ii) Has it been ensured that
no investments are made
in any Funds of Fund or
a fund for which NAV is
not available on a day-to-
day basis?
2 NAV COMPUTATION,
ACCOUNTING &
RECONCILIATION
2.1 Has the life insurer disclosed High Daily / At
fund wise NAV (SFIN wise) on required
the Insurer's website and life periodicity
council website on the same
day?
2.2 Has NAV of each segregated High Daily / At
fund [SFIN] been audited required
before its declaration by periodicity
Internal / Concurrent Auditor
on a day-to-day basis (on T+0
basis)?
2.3 NAV for last business day of Medium Yearly
Financial Year:
(i) Whether applications
received on the last
business day up to 3 PM
are processed with NAV
of the last business day.
(ii) Whether applications
received after 3.00 PM of
the last business day are
processed with NAV of the
immediate next business
day and fall into the next
financial year.
44
Internal / Concurrent Audit Checklist Life & ULIP Business
No Particulars Suggested Periodicity Auditors
business of comments
impact verification
2.4 Verify investment valuation High Monthly
of various securities and
check whether it is in
accordance with IRDA
regulations.
2.5 Check whether the Medium Monthly
Company uses appropriate
sources for deriving market
value / fair value of the
investment.
2.6 Check holding Medium Daily / At
reconciliation. required
periodicity
2.7 MERGER / SPLIT OF
EXISTING FUND
2.7.1 Verify the basis of split of High Monthly
investment where the funds
are split.
2.7.2 Approval by Investment Medium Monthly
Committee post split
relating to D-mat accounts
of both the schemes.
2.7.3 Approval by Investment Medium Monthly
Committee post merger
relating to D-mat accounts
of both the schemes.
2.8 UNIT CAPITAL MEDIUM MONTHLY
ACCOUNTING ENTRY
2.8.1 Verify whether unit capital Medium Monthly
accounting is carried out at
face value.
2.8.2 Verify whether the Medium Monthly
accounting of unit capital and
the difference between NAV
and Unit Capital is accounted
as per the accounting policy
laid down.
45
Technical Guide
No Particulars Suggested Periodicity Auditors
business of comments
impact verification
3 NAV AUDIT
3.1 Check whether NAV High Daily / At
Process as prescribed is required
carried out. periodicity
3.2 CHECK AND VERIFY
3.2.1 Whether there is an internal High Daily
process existing to ensure
that units are daily
reconciled as per the policy
service system with
Investment accounting
system.
3.2.2 Whether the Units created High Daily / At
or redeemed bring in or required
take out correct money of periodicity
the fund to ensure the
interests of all the
policyholders are protected.
(If there is any difference
the same shall be
compensated).
3.2.3 Whether Investments High Daily / At
including bidding through required
IPO or other periodicity
primary/secondary offers
are allocated to the
different portfolios at the
inception.
3.2.4 Whether Inter-scheme High Daily / At
transfers are done within required
the market hour. and to periodicity
save the expenses it shall
not be done to enrich one
portfolio at the cost of the
other.
46
Internal / Concurrent Audit Checklist Life & ULIP Business
No Particulars Suggested Periodicity Auditors
business of comments
impact verification
3.2.5 Whether the investments of Medium Daily / At
the schemes strictly follow required
the pattern of investment, periodicity
prudential norms and the
limits mentioned in the
product feature.
3.2.6 Whether the Valuations of Medium Daily / At
the investments are required
adequate and as per the periodicity
accounting policy. The
deviation shall be disclosed
and shall be more
appropriate.
3.2.7 Whether the NAVs declared High Daily / At
are correct and tally with required
the system. periodicity
3.2.8 If there is change in NAV High Daily / At
due to an error, the same required
shall be compensated to periodicity
the policyholders or fund as
per the IRDA guidelines.
4 OTHERS
4.1 Is there any shortfall/deficit Low Monthly
in meeting the Discontinued
Policies Fund (DPF)
liabilities?
4.2 If the answer to above point Low Monthly
is `Yes', has the Insurer
provided for such shortfall /
deficit on a quarterly basis?
5 IRDA RETURNS
47
Technical Guide
No Particulars Suggested Periodicity Auditors
business of comments
impact verification
5.1 Whether the IRDA returns High Quarterly
are prima-facie correct and
prepared with due diligence
5.2 Whether the Company Medium Monthly
maintains a record of the
communication with the
IRDA and the Company
submits the data as
required within the
stipulated time
5.3 Whether there is a System High Monthly
put in place by the Insurer
to ensure that the IRDA
Investment periodical
Returns are prepared as
per the Guidelines issued
by IRDA for preparing
Investment Returns.
48
5
Format of Internal / Concurrent Audit
Report on Investment Functions of
Insurance Companies
Internal/Concurrent Audit Report on Investment
Functions
To
The Audit Committee of the Board of Directors
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
We have conducted the internal/concurrent audit of the Investment Functions
of M/s ------------------------------------------------ (the `Insurer'/'the Company') for
the quarter ended----------, as stipulated in Regulation 13.F of IRDA
(Investment) (Fifth Amendment) Regulations, 2013 notified by the Insurance
Regulatory and Development Authority (`IRDA') on the 16th February, 2013,
as amended from time to time.
The management of the Insurer is responsible for design, implementation
and maintenance of the Investment Policy, Standard Operating Procedures
(SOPs) and Risk Management Systems and Processes in accordance with
the IRDA Regulations, Guidelines, Circulars and other applicable Laws and
Regulations and compliance thereto. Our responsibility is to examine the
compliance of the insurer with the aforesaid, and also evaluate how far such
Investment Policy, SOPs and Investment Risk Management Systems and
Processes provide effective control over the investment functions of the
Insurer.
Technical Guide
We conducted our internal/concurrent audit as per the Technical Guide on
Internal/Concurrent Audit of Investment Functions of Insurance Companies
issued by the Institute of Chartered Accountants of India. Our engagement
was planned and performed to obtain reasonable assurance whether:
(i) The investment policy and SOPs of the insurer are in compliance with
the minimum requirements of IRDA and other applicable statutory and
regulatory requirements
(ii) The investment Policy, SOPs and Risk Management Systems &
Processes provide adequate control over investment functions of the
insurer
(iii) The Insurer, in respect of its investment transactions, has complied
with the applicable IRDA Regulations, Guidelines and Circulars ; the
Investment policy approved by its Board of Directors and the SOPs as
approved by its Investment Committee.
We also confirm that the Audit Committee's Recommendations, along with
the implementation details of the previous Quarter, were placed before the
Insurer's Board as a part of its Agenda.
We have examined the relevant records and information systems of the
Insurer and have obtained all information, explanations and representations
from the Chief Executive Officer /Chief Investment Officer/ Chief Technology
Officer/Chief Information Officer, which to the best of our knowledge and
belief were necessary for the purpose of our examination.
Based on our examination, in our opinion and to the best of our information
and according to the explanations given to us, subject to the following
serious non-compliances:
1. ----------------------------------------------------------------------
2. ----------------------------------------------------------------------
We report that:
1. The Insurer has complied with the applicable IRDA Regulations,
Guidelines and Circulars and the Insurer's Investment Policy
50
Format of Internal/Concurrent Audit Report on Investment...
2. All investment transactions of the insurer are in compliance with the
procedure laid down in the SOP approved by the Investment
Committee, covering Front, Mid and Back Offices.
3. The Insurer's Board of Directors:
(a) has approved and implemented a Model Code of Conduct, for
preventing insider / personal trading, complying the minimum
requirement mandated under SEBI (Prohibition of Insider
Trading) Regulations, 1992, as amended from time to time for
Officers involved in Investment Operations at various levels,
including Front, Mid and Back Office to whom the code of
conduct applies.
(b) during the quarter under audit, has been informed by the
Investment Committee of its compliance with the Model Code of
Conduct and has taken action as recommended by the Audit
Committee.
(c) has reconciled the value of Investments shown under FORM 6
for Purchase / Sale of investments and acted upon all the
unmatched open items. We also confirm that there are no longer
open items pending for more than 15 days.
(d) has valued the debt investment portfolio based on the valuation
matrix provided by a SEBI approved Rating Agency, as
approved by its Investment Committee. We also confirm that
there is no change in the valuation matrix adopted during the
quarter from that of the previous quarter.
(e) has taken cognizance of, addressed and resolved all issues of
non-compliance, reported in FORM 4 (Part - B) on Status of
Implementation of Investment Risk Management Systems and
the issues reported by the Internal/Concurrent auditors in the
previous periods, subject to ..........................(report if any
unresolved issues remain)
4. The key areas of non-mitigated/residual risk resulting from deficient
compliance with a risk management implication as identified by us are
given in Annexure I appended to this Report. Further, we have given
the list of non-conformities / non-confirmations to the stated audit
51
Technical Guide
objectives with appropriate classification of the nature of non-
conformance and our recommendations thereon in Annexure II
appended to this Report.
This report is issued solely for use of the Insurer for submission to IRDA
pursuant to IRDA (Investment)(Fifth Amendment) Regulations, 2013.
For................................................
Chartered Accountants
(Firm Registration No. ....................)
Place:
Date: Partner
[ICAI membership number]
Encl: As above
52
Format of Internal/Concurrent Audit Report on Investment...
Annexure - I
Please include current audit findings and unresolved prior audit issues in
the table below.
Nature of Business Risk Overall Description
Observation Impact Weight Rating of Risk
Rating
From report
A. INVESTMENT IMPACT IS RATED AS UNDER
High Impact (Value 3) Any observation that is
1. Non-compliance with the provisions of the Insurance Act, IRDA
Investment Regulations and guidelines & circulars issued thereunder
2. Non-compliance to implementation of model code of conduct, as
approved by Insurer's Board, for preventing insider / personal trading,
of Officers involved in Investment Operations at various levels,
including Front, Mid and Back Office
3. Any other issue that the Auditors may decide to be of high impact on
business operations
Medium Impact (Value 2) - Any other issue that the Auditor's may decide to
be of Medium impact on business operations
SAMPLE INSTANCES
1. Non compliance to SOP / Investment Policies of the insurer
2. Non Compliance to any other statutory Act other than IRDA and
Insurance Act
3. Any other observation which an auditor is of the opinion causes
medium impact on Business Operations
53
Technical Guide
Low Impact (Value 1) - Any other issue that the Auditor's may decide to be
of low impact on business operations
SAMPLE INSTANCES
1. Procedural level non compliance to SOP / Investment Policies of the
insurer
2. Subject to internal ratifications and approvals (and where such
ratifications/approval has since been obtained)
3. Any observation that has been rectified during the audit and that does
not involve an issue relating to a high or medium classification
mentioned above
B. RISK WEIGHT MATRIX
Procedure/ Control is Procedure/ Control is Risk Weight
available adhered to
Y Y 1
N Y 2
Y N 3
N N 4
Overall Rating = Investment Impact X Risk Weight
C. DESCRIPTION OF RISK RATING
Overall Rating Description
1-3 No Need to Report to IRDA
4-5 Procedural Non Compliance
6-9 Serious Non Compliance
10-12 Very Serious Non Compliance
54
Format of Internal/Concurrent Audit Report on Investment...
Annexure II
Audit Report / Confirmations
The Auditor shall report on Insurer's compliance to EACH of the
following points WITHOUT EXCEPTION. If there is no observation for
any of the below-mentioned points, the Auditor shall clearly record a
`NIL' statement to that effect.
Part A Transactions during the Quarter NOT covered by SOP
Part B Transaction with different SOP, but falling under the same / single
Category (as per IRDA guidelines on Category of Investment), or under
different fund(s)
Part C Issues having impact on Systems or Process NOT covered by SOP
along with procedure for handling such issues in Front, Mid and Back Office
Part D Transactions which have breached
1. Internal Norms (including transactions that have breached insider /
personal trading guidelines issued by the Insurer's Board)
2. Regulatory Norms (including Circulars & Guidelines issued from time
to time)
3. Act (Violations)
Part E Issues having impact on the Systems or Process, currently
COVERED by SOP but requires amendment (along with suggested
amendment to the SOP covering Front, Mid and Back Office)
Part F Issues identified and resolved having NO impact on Systems or
Process
Part G CONFIRMATIONS ON:
A. POLICY / SYSTEMS / PROCEDURE
1. Has the Insurer, having not less than Rs. 500 Crores of Assets Under
Management (both Shareholders and Policyholders funds, under ALL funds)
complied with Regulation 13 (C) (2) of IRDA (Investment) (5th Amendment)
Regulations, 2013 and Point 11 and 12 of Annexure II to Circular
55
Technical Guide
INV/CIR/008/2008-09 Dt. 22nd Aug, 2008 with respect to Outsourcing of
Investment Advice and NAV Calculation?
2. Has the primary data server of the Investment Management
Application within the Country?
3. Has the Insurer implemented an automated system to comply with
exposure norms as certified by the CEO, CIO and CFO under Section I, II, III
and IV of FORM 4? If the Insurer had not established such automated
Systems, the Internal / Concurrent Auditor shall attach a separate note to
the Audit Report explaining how exposure norms are monitored by the
Insurer on a day to day basis.
4. Has the Investment Policy (IP) (fund wise in the case of Unit linked
business) been approved by the Insurer's Board and has addressed all
issues required under IRDA (Investment) Regulations, 2000, as amended
from time to time?
5. Has the Insurer classified various Risks for Investment impact
reporting? Has the same been approved by Audit Committee of or Risk
Management Committee?
6. Has the Insurer, taken any Derivative position in the Quarter under
audit? If yes;
a. Has the Derivative Policy been approved by the Board of the Insurer?
b. If yes, is there a process for identifying the risk to be `hedged' [`fund-
wise' in the case of Life Insurers]
c. Has the derivative position taken clearly identified with the portfolio
risk to be hedged?
7. Has the IP been periodically reviewed, as required under IRDA
(Investment) Regulations, 2000, as amended from time to time?
8. Has the Board reviewed (both life and non-life Insurers) during the
previous quarter the performance of products [at line of business level in
the case of General Insurers]?
9. Has the life insurer, in the case of ULIP business, reconciled through
the system the premium received (net of charges and benefits paid) under
each product (Unique Identification Number UIN wise) with value of all the
segregated fund(s) [Segregated Fund Identification Number SFIN wise] net
56
Format of Internal/Concurrent Audit Report on Investment...
of fund management charges, held under a single UIN, on a day to day
basis, during the quarter?
10. Has the life insurer disclosed UIN wise reconciliation, on the Insurer's
website on the same day?
11. Is there a fully automated system to generate, on a day to day basis,
Form 3A - Part E (Investment Details of ULIP Products to Segregated
Funds)?
12. Has the life insurer, for his Unit linked Policyholders, implemented a
System through his Policyholder Portal, to disclose "value" of "policy-
wise (UIN)" "units" held alongside the benefits as per "benefit illustration"
provided to such Policyholder?
13. Has the life insurer established a System to disclose fund wise (SFIN
wise) NAV on the Insurer's website and Life Insurance Council website on
the same day?
14. Have the amendments, if any, made to the IP comply with IRDA
(Investment) Regulations, 2000 amended from time to time, Circulars and
Guidelines issued thereunder and provisions of Insurance Act, 1938?
15. Is there an automated System to classify investments as per the IRDA
Category of Investments as per Guidelines: INV/GLN/001/2003-04, as
amended from time to time?
16. In the case of Life Insurers, with respect to ULIP business, is the
Investment Trial Balance, in respect of each `Segregated Fund' [with clear
link to Segregated Fund Identification Number (SFIN)] generated through
the system?
17. With respect to Discontinued Policy Fund (DPF) and for `each'
Segregated Fund in the case of ULIP business, has reconciliation of "Units"
been made, between Policy Admin System (PAS) and Investment Accounting
Systems through a fully automated System using process integrators to
ensure seamless data transfer without manual intervention?
18. Is there a clear segregation of functions and activities of Investment
operations between Front, Mid and Back Office, as provided in the
Technical Guide on Internal / Concurrent Audit of Investment functions
of Insurance Companies, issued by ICAI?
57
Technical Guide
19. Does the Chief Investment Officer (CIO) and Chief Financial Officer
(CFO) report independently to the Chief Executive Officer (CEO)?
20. Had the Insurer disclosed the reconciliation as required under
Annexure II of IRDA/F&I/CIR/INV/067/04/2013 Dt. 1st Apr, 2013 on Insurer's
website on a day-to-day basis w.e.f 1st October, 2013? And has such
reconciliation been disclosed on a monthly basis till such automation?
21. Is the Insurer's Policy Admin System (PAS) `automated' for tracking
`policy-wise', information of discontinued policies along with the information
of the particular ULIP fund to which the same pertains?
B. CONFIRMATION ON PROVISIONS OF ACT / REGULATIONS
1. Has all investment been made in compliance with Section 27C of
Insurance Act, 1938?
2. Are Money Market Investments classified as per Regulation 2(h) of
IRDA (Investment) Regulations, 2000 as amended from time to time?
3. Does the policyholders' fund under the `Life Fund' include "Non-unit"
reserve of ULIP Business?
4. Has the Insurer reported material adverse impact, if any on the
investment portfolio as required under Regulation 8 of IRDA (Investment)
Regulations, 2000?
5. Does each `Segregated fund' [SFIN] have identifiable `Scrips' in
compliance of Circular: INV/CIR/020/2008-09, Dated: 11th Nov, 2008 Anx
2?
6. Has the same been identified at custodian level, by separate sub code,
for such `Segregated Fund' (Ref: INV/CIR/008/2008-09 Dt. 22nd Aug, 2008)?
7. Has the Insurer complied fully with the directions of circular:
IRDA/CIR/INV/062/JAN/05 dated 17th Jan, 2005?
8. Has the insurer complied with ALL the Guidelines/circular issued from
time to time by IRDA?
9. Has the total investments made in ALL "Companies falling under the
Promoter Group of the Insurer" is:
(a) less than 5% in aggregate of its total investments (all funds taken
together in the case of Life Insurer)?
58
Format of Internal/Concurrent Audit Report on Investment...
(b) Not been made by way of Private Placement?
(c) Not been made in unlisted instruments?
10. Does the Insurer comply with the provisions of Section 29(1) of
Insurance Act 1938?
11. Does the insurer comply with the NPA norms as prescribed vide CIR
No: 32/2/F&A/CIR/169/Jan/2006-07 as amended from time to time?
12. Has `every' write-off arising out of NPAs been approved by the Board
of the Insurer?
13. Has the insurer complied with the norms of `Approved Investments'
under Schedule I / (Schedule 2 for General Insurers) read along with
Regulation 3 and 4 of IRDA (Investment) (4th Amendment) Regulations,
2008, as amended from time to time?
14. Has the insurer complied with ALL the norms mentioned under Note to
Regulation 5 of IRDA (Investment) (4th Amendment) Regulations, 2008, as
amended from time to time?
15. Are all investments in `infrastructure' fully covered by the definition of
`infrastructure facility' vide Section 2(h) of IRDA (Registration of Indian
Insurance Companies) Regulations, 2000, as amended from time to time?
C. CONFIRMATION ON INVESTMENT OPERATIONS / EXPOSURE
1. Has the Insurer implemented a System to ensure that the Investment
Returns to be filed with IRDA are prepared as per the "Guidance Note on
preparation of Investment Returns" issued by IRDA? [The Internal /
Concurrent Auditor shall make a specific comment on this point]
2. Has the insurer, under Shareholders funds, clearly split Funds
Representing Solvency Margin (FRSM) in FORM 3A (Part A)?
3. Has the insurer, reconciled investment accounts, fund-wise, with bank
and custodian records on a `day-to-day basis for `each' segregated fund?
4. Has the Insurer reconciled Govt. Securities and CBLO holding,
operated through a common account and allocated between various
segregated fund wise [SFIN] at the inception?
5. In connection with the model code of conduct, as approved by the
Board of the Insurer, implemented to prevent Insider / personal trading:
59
Technical Guide
(a) Were there any instances of violation of the model code of conduct
during the Quarter under Audit?
(b) Have the details of violations, if any, during the previous quarter(s),
been reported to the Audit Committee and Board of the Insurer?
(c) Were action(s) recommended by Audit Committee / Board
implemented?
6. Whether the following minimum has been reported to the board during
the Quarter product wise by Life Insurers & Line of business wise by General
Insurers:
(a) New business scale planned versus actual at the end of the period1 to
maturity
(b) Expenses projected versus actual
(c) Persistency / renewal premium streams projected versus actual
(d) Claims - projected versus actual
(e) Actual Yield versus projected yield or returns
(f) Action plan and follow up status
7. Has the insurer, reconciled investment accounts, for each fund in the
case of Non-ULIP Business and General Insurance Business with Custodian
Books?
8. Has inter-fund transfer been done as per circular IRDA/FA/02/10/2003-
04, between ULIP funds, during Market Hours, for Equity and Debt at the
prevailing price and not on the basis of broker quote?
9. If funds are split as per point 3 above between FRSM and Balance,
have the same been maintained in separate custodian accounts with
identified `scrips' for both Life and General (including Re-insurance)
companies and reconciled with FORM 3A (Part A) / FORM 3B?
10. If funds are split as per point 8 above, do such funds, representing
solvency margin, follow the pattern of Investments as prescribed under
Regulations?
11. Is there any shortfall / deficit in meeting the Discontinued Policies
Fund (DPF) liabilities?
60
Format of Internal/Concurrent Audit Report on Investment...
12. Has the Write-Off of NPA, if any, shown in FORM 7 of IRDA
(Investment) Regulations, 2000 as amended from time to time, been
approved by the Insurer's Board?
13. Has the Insurer provided for such shortfall / deficit and earmarked
Assets for such shortfall from revenue account on a quarterly basis?
61
ANNEXURES
Annexure `A'
STANDARD OPERATING PROCEDURE (SOP)
(The following are the minimum requirements to be adhered to as per IRDA
directive)
(LIFE INSURERS)
(Periodicity of Verification - Quarterly)
A. GENERAL FRAME WORK
1. Investment policy Governance framework
2. Delegation of Authority at different levels
3. Accounting conventions and standards
4. Valuation and Unit pricing frameworks
5. Internal & Regulatory reporting
6. Risk management practices
7. Classification of Risks, for Investment Impact Reporting, between High,
Medium and Low
B. REGULATORY FRAMEWORK
1. Insurance Act, 1938
2. IRDA Regulations, Circulars and Guidelines made there under.
C. INTERNAL ADMINISTRATION
1. Committee(s) formed to monitor / manage the following key areas of
Investment Operations
a. Liability and Asset Management
b. Operational Risk Management
c. Market Risk Management
d. Credit Risk Management
e. Technology Management
Technical Guide
2. Structure Front, Mid and Back Office segregation of functions (Minimum
segregation shall be as provided in Annexure H of this Technical Guide
under "Segregation of Duties in Front / Mid and Back Office")
3. Counter Party Management
4. Broker Management
5. Model Code of Conduct to prevent insider / personal trading (in
compliance with SEBI (Prohibition of Insider Trading) Regulation, 1992 as
amended from time)
6. Custodial Services Management
7. MIS including frequency
D. INTERNAL CONTROL
1. Chief Investment Officer (CIO), Chief Financial Officer (CFO) and
reporting matrix
2. Segregation of responsibilities
3. Limit Management
4. Procedure for making Investment (for each Category of Investment as
per IRDA Guidelines, along with activities carried out in Front, Mid & Back
Office) The procedure or its subsequent amendment shall be approved by
the Investment Committee of the Insurer.
5. Deal execution controls
6. Periodic credit review
E. TECHNOLOGY MANAGEMENT
1. Information security policy including application and database security
policies
2. Historical and Transactional data management
3. System support
a. Deal execution including STP
b. Limit and alert management
c. Risk management
d. Internal controls
66
Annexure `A'
e. Blocking/Locking transactions
4. Access and Process control management
5. Disaster recovery strategy and Business Continuity plan
F. SOP MANAGEMENT
1. Employee education: Training and Cross training
2. Controlling procedural drift
(System to monitor SOP regularly by tracking the opportunities which
require SOP to be tweaked for appropriate modification in it)
3. Evaluation and review system
67
Technical Guide
STANDARD OPERATING PROCEDURE (SOP)
(The following are the minimum requirements to be adhered to as per IRDA
directive)
NON LIFE INSURERS
(Periodicity of Verification - Quarterly)
A. GENERAL FRAME WORK
1. Investment policy Governance framework
2. Delegation of Authority at different levels
3. Accounting conventions and standards
4. Internal & Regulatory reporting
5. Risk management practices
6. Classification of Risks, for Investment Impact Reporting, between High,
Medium and Low
B. REGULATORY FRAMEWORK
1. Insurance Act, 1938
2. IRDA Regulations, circulars and guidelines made there under.
C. INTERNAL ADMINISTRATION
1. Committee(s) shall be formed to monitor / manage the following key areas
of Investment Operations
a. Liability and Asset Management
b. Operational Risk Management
c. Market Risk Management
d. Credit Risk Management
e. Technology Management
2. Structure Front, Mid and Back Office segregation of functions (Minimum
segregation shall be as provided in Annexure H of this Technical Guide
under "Segregation of Duties in Front / Mid and Back Office")
68
Annexure `A'
3. Counter Party Management
4. Broker Management
5. Model Code of Conduct to prevent insider / personal trading (in
compliance with SEBI (Prohibition of Insider Trading) Regulation, 1992 as
amended from time)
6. Custodial Services Management
7. MIS including frequency
D. INTERNAL CONTROL
1. Chief Investment Officer (CIO), Chief Financial Officer (CFO) and
reporting matrix
2. Segregation of responsibilities
3. Limit management
4. Procedure for making Investment (for each Category of Investment as
per IRDA Guidelines, along with activities carried out in Front, Mid & Back
Office) The procedure or its subsequent amendment shall be approved by
the Investment Committee of the Insurer.
5. Deal execution controls
6. Periodic credit review
E. TECHNOLOGY MANAGEMENT
1. Information security policy including application and database security
policies
2. Historical and Transactional data management
3. System support
a. Deal execution including STP
b. Limit and alert management
c. Risk management
d. Internal controls
e. Blocking/Locking transactions
4. Access and Process control management
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Technical Guide
5. Disaster recovery strategy and Business Continuity plan
F. SOP MANAGEMENT
1. Employee education: Training and Cross training
2. Controlling procedural drift
(System to monitor SOP regularly by tracking the opportunities which require
SOP to be tweaked for appropriate modification in it)
3. Evaluation and review system
70
Annexure `B'
PERMITTED ASSETS CATEGORY
Schedule I
(See Regulation 3 to 6)
List of Approved Investments for Life Business
`Approved Investments' for the purposes of section 27A of the Act shall consist of
the following:
(a) all investments specified in section 27A of the Act except
(i) clause (b) of sub-section (1) of section 27A of the Act;
(ii) first mortgages on immovable property situated in another country
as stated in clause (m) of sub-section (1) of section 27A of the Act;
(iii) Immovable property situated in another country as stated in clause
(n) of sub-section (1) of section 27A of the Act.
(b) In addition the following investments shall be deemed as approved
investments by the Authority under the powers vested in it vide clause (s) of sub-
section (1) of section 27A of the Act.
(i) All loans secured as required under the Act, rated debentures
(including bonds) and other rated & secured debt instruments as
per Note appended to Regulation 3 to 8. Equity shares and
preference shares and debt instruments issued by all India
Financial Institutions recognized as such by Reserve Bank of India
investments shall be made in terms of investment policy
guidelines, benchmarks and exposure norms, limits approved by
the Board of Directors of the insurer.
(ii) Bonds or debentures issued by companies rated not less than AA
or its equivalent and P1 or equivalent ratings for short term bonds,
debentures, certificate of deposits and commercial papers by a
credit rating agency, registered under SEBI (Credit Rating
Agencies) Regulations 1999 would be considered as `Approved
Investments'.
(iii) Subject to norms and limits approved by the Board of Directors of
the insurers deposits (including fixed deposits as per section 27A
Technical Guide
(9) of Insurance Act, 1938) with banks (e.g. in current account, call
deposits, notice deposits, certificate of deposits etc.) included for
the time being in the Second Schedule to Reserve Bank of India
Act, 1934 (2 of 1934) and deposits with primary dealers duly
recognized by Reserve Bank of India as such.
(iv) Collateralized Borrowing and Lending Obligations (CBLO) created
by the Clearing Corporation of India Ltd and recognized by the
Reserve Bank of India and exposure to Gilt, G Sec and liquid
mutual fund forming part of Approved Investments as per Mutual
Fund Guidelines issued under these regulations and money market
instrument / investment.
(v) Asset Backed Securities with underlying Housing loans or having
infrastructure assets as underlying as defined under `infrastructure
facility' in clause (h) of regulation 2 of Insurance Regulatory and
Development Authority (Registration of Indian Insurance
Companies) Amendment Regulations, 2008 as amended from time
to time.
(vi) Commercial papers issued by a company or All India Financial
Institution recognized as such by Reserve Bank of India having a
credit rating by a credit rating agency registered under SEBI
(Credit Rating Agencies) Regulations 1999.
(vii) Money Market instruments as defined in Regulation 2(h) of these
Regulation.
Explanation
1. All conditions mentioned in the `note' appended to Regulation 3 to 8 shall
be complied with.
72
Annexure `B'
Schedule II
(See Regulation 7 & 8)
List of Approved Investments for General Business
`Approved Investments' for the purpose of section 27B of the Act shall consist of
the following:
(a) All investments specified in section 27B of the Act except
(i) clause (b) of sub-section (1) of section 27A of the Act;
(ii) Immovable property situated in another country as stated in clause
(n) of sub-section (1) of section 27A of the Act;
(iii) First mortgages on immovable property situated in another country
as stated in clause (i) of sub-section (1) of section 27B of the Act.
(b) In addition the following investments shall be deemed as approved
investments by the Authority under the powers vested in it vide clause (j) of sub-
section (1) of section 27B of the Act:
(i) All loans secured as per the Act, rated debentures (including
bonds) and other rated & secured debt instruments as per Note
appended to Regulations 3 to 8. Equity shares, preference shares
and debt instruments issued by All India Financial Institutions
recognized as such by Reserve Bank of India investments shall
be made in terms of investment policy guidelines, benchmarks and
exposure norms, limits approved by the Board of Directors of the
insurer.
(ii) Bonds or debentures issued by companies rated not less than AA
or its equivalent and P1 or Equivalent ratings for short term bonds,
debentures, certificate of deposits and commercial papers by a
credit rating agency, registered under SEBI (Credit Rating
Agencies) Regulations 1999 would be considered as `Approved
Investments'.
(iii) Subject to norms and limits approved by the Board of Directors of
the insurers deposits (including fixed deposits as per section 27B
(10) of Insurance Act, 1938) with banks (e.g. in current account,
call deposits, notice deposits, certificate of deposits etc.) included
for the time being in the Second Schedule to Reserve Bank of India
Act, 1934 (2 of 1934) and deposits with primary dealers duly
recognized by Reserve Bank of India as such.
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Technical Guide
(iv) Collateralized Borrowing & Lending Obligations (CBLO) created by
the Clearing Corporation of India Ltd and recognized by the
Reserve Bank of India and exposure to Gilt, G Sec and liquid
mutual fund forming part of Approved Investments as per Mutual
Fund Guidelines issued under these regulations and money market
instrument / investment.
(v) Asset Backed Securities with underlying Housing loans or having
infrastructure assets as underlying as defined under `infrastructure
facility' in clause (h) of regulation 2 of Insurance Regulatory and
Development Authority (Registration of Indian Insurance
Companies) Amendment Regulations, 2008 as amended from time
to time.
(vi) Commercial papers issued by a company or All India Financial
Institution recognized as such by Reserve Bank of India having a
credit rating by a credit rating agency registered under SEBI (Credit
Rating Agencies) Regulations 1999
(vii) Money Market instruments as defined in Regulation 2(h) of this
Regulation.
Explanation:
1. All conditions mentioned in the `note' appended to Regulation 3 to 8 shall
be complied with.
Note:
1. Investments covered under Section 27A and 27B and Approved
Investments under Schedule I & II of IRDA (Inv) Regulations, are
summarised and `Grouped' into various Categories in the Guidelines
provided by IRDA with Category codes.
2. The asset categories are "exhaustive" as per IRDA Guidelines. No new
asset category can be included, unless it is permitted by IRDA.
74
Annexure `C'
PATTERN OF INVESTMENTS
(Periodicity of Verification For every transaction)
LIFE INSURANCE
Regulation of Investments
3. A life insurer, for the purpose of these Regulations, shall invest and at all
times keep invested, the Investment Assets forming part of the Controlled Fund
as defined in Section 27A of the Act as under:
a. all funds of Life insurance business and One Year Renewable pure
Group Term Assurance Business (OYRGTA), and non-unit reserves of all
categories of Unit linked life insurance business, as per Regulation 4
b. all funds of Pension, Annuity and Group Business [as defined under
Regulation 2 (d) of IRDA (Actuarial Report and Abstract) Regulations,
2000] as per Regulation 5; and
c. the unit reserves portion of all categories of Unit linked funds, as per
Regulation 6
4. Without prejudice to Sections 27 or 27A of the Act, every insurer carrying
on the business of Life Insurance, shall invest and at all times keep invested his
Investment Assets as defined in Regulation 3 (a) (other than funds relating to
Pension & General Annuity and Group Business and unit reserves of all
categories of Unit Linked Business) in the following manner:
No Type of Investment Percentage to
funds as under
Regulation 3(a)
(i) Central Government Securities Not less than
25%
(ii) Central Government Securities, State Government Not less than
Securities or Other Approved Securities 50%
(incl (i) above)
(iii) Approved Investments as specified in Section 27A Not exceeding
of the Act and Other Investments as specified in 50%
Technical Guide
No Type of Investment Percentage to
funds as under
Regulation 3(a)
Section 27A(2) of the Act and Schedule I to these
Regulations, (all taken together) subject to
Exposure / Prudential Norms as specified in
Regulation 9:
(iv) Other Investments as specified under Section 27A Not exceeding
(2) of the Act, subject to Exposure / Prudential 15%
Norms as specified in Regulation 9:
(v) Investment in housing and infrastructure by way of Total Investment
subscription or purchase of: in housing and
A. Investment in Housing infrastructure
(a) Bonds / debentures of HUDCO and National (i.e.,) investment
Housing Bank in categories (i),
(b) Bonds / debentures of Housing Finance (ii), (iii) and (iv)
Companies either duly accredited by National above taken
Housing Banks, for house building activities, together shall not
or duly guaranteed by Government or be less than 15%
carrying current rating of not less than `AA' of the fund under
by a credit rating agency registered under Regulation 3(a)
SEBI (Credit Rating Agencies) Regulations,
1999
(c) Asset Backed Securities with underlying
housing loans, satisfying the norms specified
in the guidelines issued under these
regulations from time to time.
B. Investment in Infrastructure
(Explanation: Subscription or purchase of Bonds /
Debentures, Equity and Asset Backed Securities
with underlying infrastructure assets would qualify
for the purpose of this requirement.
`Infrastructure facility' shall have the meaning as
given in clause (h) of regulation 2 of Insurance
Regulatory and Development Authority (Registration
of Indian Insurance Companies) Amendment
Regulations, 2008 as amended from time to time
76
Annexure `C'
No Type of Investment Percentage to
funds as under
Regulation 3(a)
Note: Investments made under category (i) and (ii)
above may be considered as investment in housing
and infrastructure, provided the respective
government issues such a security specifically to
meet the needs of any of the sectors specified as
`infrastructure facility'
5. Without prejudice to Sections 27 or 27A of the Act, every insurer carrying
on Pension, Annuity and Group Business [as defined under Regulation 2 (d) of
IRDA (Actuarial Report and Abstract) Regulations, 2000] shall invest and at all
times keep invested his Investment Assets of Pension, Annuity and Group
business in the following manner:
No Type of Investment Percentage to
funds under
Regulation 3(b)
(i) Central Government Securities Not less than
20%
(ii) Central Government Securities, State Government Not less than
Securities or Other Approved Securities 40%
(incl (i) above)
(iii) Balance to be invested in Approved Investments, as Not exceeding
specified in Schedule I, subject to Exposure / 60%
Prudential norms as specified in Regulation 9.
Note: For the purposes of this regulation no investment falling under `Other
Investments' as specified under 27A (2) of the Act shall be made"
6. Unit Linked Insurance Business: - Every insurer shall invest and at all
times keep invested his segregated fund(s) under Regulation 3(c) (with
underlying securities at custodian level) of Unit linked business as per pattern of
investment offered to and approved by the policy-holders where the units are
linked to categories of assets which are both marketable and easily realizable.
However the investment in Approved Investments shall not be less than 75% of
such fund(s) in each such segregated fund"
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Technical Guide
GENERAL INSURANCE (INCLUDING RE-INSURERS)
Regulation of Investments
7. General Insurance Business without prejudice section 27B of the Act,
every General insurer (including Health insurer) shall invest and at all times keep
invested his investment assets in the manner set out below:
No Type of Investment Percentage of
Investment
Assets
(i) Central Government Securities Not less than
20%
(ii) Central Government Securities, State Government Not less than
Securities or Other Approved Securities 30%
(incl (i) above)
(iii) Approved Investments as specified in Section 27B of Not exceeding
the Act and Other Investment as specified in Section 70%
27B(3) of the Act and Schedule II to these
Regulations, (all taken together) subject to Exposure
/ Prudential Norms as specified in Regulation 9:
(iv) Other investments as specified under Section 27B Not more than
(3) of the Act, subject to Exposure / Prudential 25%
Norms as specified in Regulation 9:
(v) Housing and loans to State Government for Housing Total Investment
and Fire Fighting equipment, by way of subscription in housing (i.e.,)
or purchase of: investment in
A. Investments in Housing categories (i), (ii),
(a) Bonds / Debentures issued by HUDCO, (iii) and (iv) above
National Housing Bank taken together
(b) Bonds / debentures of Housing Finance shall not be less
Companies either duly accredited by National than 5% of the
Housing Banks, for house building activities, Investment
or duly guaranteed by Government or carrying Assets.
current rating of not less than `AA' by a credit
rating agency registered under SEBI (Credit
Rating Agencies) Regulations, 1999
(c) Asset Backed Securities with underlying
78
Annexure `C'
No Type of Investment Percentage of
Investment
Assets
Housing loans, satisfying the norms specified
in the Guidelines issued under these
regulations from time to time.
B. Investment in Infrastructure
(Explanation: Subscription or purchase of Bonds/ Total Investment
Debentures, Equity and Asset Backed Securities in Infrastructure
with underlying infrastructure assets would qualify for
(i.e.,) investment
the purpose of this requirement. in categories (i),
(ii), (iii) and (iv)
`Infrastructure facility' shall have the meaning as above taken
given in clause (h) of regulation 2 of Insurance together shall not
Regulatory and Development Authority (Registration be less than 10%
of Indian Insurance Companies) (Amendment) of the Investment
Regulations, 2008 as amended from time to time. Assets.
Note: Investments made under category (i) and (ii)
above may be considered as investment in housing
or infrastructure, as the case may be, provided the
respective government issues such a security
specifically to meet the needs of any of the sectors
specified as `infrastructure facility'
8. Reinsurance Business Every re-insurer carrying on re-insurance
business in India shall invest and at all times keep invested his investment
assets in the same manner as set out in Regulation 7
Note For the purpose of Regulations 3 to 8:
1. All investment in assets or instruments, which are capable of being rated
as per market practice, shall be made on the basis of credit rating of such assets
or instruments. No approved investment shall be made in instruments, if such
instruments are capable of being rated, but are not rated
2. The rating should be done by a credit rating agency registered under SEBI
(Credit Rating Agencies) Regulations, 1999
3. Corporate bonds or debentures rated not less than AA or its equivalent
and P1 or equivalent ratings for short term bonds, debentures, certificate of
deposit and commercial paper, by a credit rating agency, registered under SEBI
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Technical Guide
(Credit Rating Agencies) Regulations, 1999 would be considered as `Approved
Investments'
4. The rating of a debt instrument issued by All India Financial Institutions
recognized as such by RBI shall be of `AA' or equivalent rating. In case
investments of this grade are not available to meet the requirements of the
investing insurance company, and Investment Committee of the investing
insurance company is fully satisfied about the same, then, for the reasons to be
recorded in the Investment Committee's minutes, the Investment Committee may
approve investments in instruments carrying current rating of not less than `A+'
or equivalent as rated by a credit rating agency, registered under SEBI (Credit
Rating Agencies) Regulations, 1999, would be considered as `Approved
Investments'
5. Approved Investments under regulations 4, 5, 6, 7 and 8 which are
downgraded below the minimum rating prescribed should be automatically re-
classified under `Other Investments' category for the purpose of pattern of
investment
6. Investments in equity shares listed on a registered stock exchange should be
made in actively traded and liquid instruments viz., equity shares other than
those defined as thinly traded as per SEBI Regulations and guidelines governing
mutual funds issued by SEBI from time to time
7 (a) Not less than 75% of investment in debt instruments (including Central
Government Securities, State Government Securities or Other Approved
Securities) in the case life insurer and not less than 65% of investment in debt
instruments (including Central Government Securities, State Government
Securities or Other Approved Securities) in the case of general insurer - shall be
in sovereign debt, AAA or equivalent rating for long term and sovereign debt,
P1+ or equivalent for short term instruments. This shall apply at segregated
fund(s) in case of Unit linked business.
(b) Not more than 5% of funds under Regulation 3 (a) and Regulation 3 (c) in
debt instruments (including Central Government Securities, State Government
Securities or Other Approved Securities) in the case of life insurer and not more
than 8% of investment in debt instruments (including Central Government
Securities, State Government Securities or Other Approved Securities) in the
case of general insurer shall have a rating of A or below or equivalent rating for
long term
(c) No investment can be made in other investments out of funds under
Regulation 3 (b)
80
Annexure `C'
(d) Investments in debt instruments rated AA - (AA minus) or below shall form
part of Other Investments
8 Notwithstanding the above, it is emphasized that rating should not replace
appropriate risk analysis and management on the part of the Insurer. The Insurer
should conduct risk analysis commensurate with the complexity of the product(s)
and the materiality of their holding, or could also refrain from such investments
Instruction to Internal / Concurrent Auditors:
1. Pattern of investments and exposure norms in the case of Unit Linked
funds (ULIPs) shall be calculated for each segregated fund (Segregated fund
identification number SFIN wise) and net current assets shall form part of
`Approved investments' for the purpose of pattern of Investments
2. Bank FDs, Mutual Funds, CBLO, Reverse Repo, Net investment current
assets, Venture funds, Derivative instruments, immovable property and any other
non-debt investments shall not be considered either in numerator or denominator
in calculating 75%/65% of investments in debt instruments (including Central
Government Securities, State Government Securities or Other Approved
Securities) to be in AAA rated investments.
81
Annexure `D'
INVESTMENT POLICY
(Periodicity of Verification Annually)
1. INTRODUCTION
(a) The Investment Policy (IP) of the insurer shall be approved by the Board.
The IP requires to be reviewed at least half-yearly.
(b) The investment performance at SFIN level and product performance
requires to be reviewed by the Board
(c) The Investment policy should outline the investment philosophy,
investment objectives & the planning for day-to-day investment
management, delegation of power to Investment Committee with respect
to `Operational' matter on Investments.
(d) It should contain both the short-term and the long-term perspectives.
2. MINIMUM CONTENT OF INVESTMENT POLICY
(a) The insurer's vision (investment related)
(b) Organizational structure of Investment Department
(c) Standard Operating Procedure (SOP) framework
(d) Regulatory / Internal requirements (Hard and Soft Limits)
(e) Investment objectives (Fund wise)
(f) Preferable asset mix (within statutory patterns)
(g) Quarterly performance evaluation parameters
(h) Acceptable risk tolerance level
(i) Risk Management (Identification, Assessment, Measurement, Mitigation,
Monitoring and reporting)
(j) Valuation of all asset classes
(k) Internal Controls and Audit
(l) Quarterly Reporting parameters to Board both on Fund and Product
performance
Annexure `E'
INVESTMENT DEALS TESTING
(Periodicity of Verification Every Deal)
A. INVESTMENT CUT OFF TESTING
1. Daily transaction register (DTR) for trades up to the end of quarter.
2. Daily trades file from Investment Accounting System
3. Confirmation from the custodians for trades done on last business day.
4. Deal tickets for the trades done on last business day.
B. INVESTMENT DEAL DATA CONTROL TESTING
1. Daily transaction register (`DTR') for the period from beginning of the
quarter to end of the quarter of buy and sell of equity, debt, G-Secs, derivatives,
Repos /Reverse Repos etc..
2. A complete transaction report of all the inter-scheme trades (involving all
types of securities) done during the audit period.
3. Deal tickets for the above trades.
4. Contract notes from brokers for the above trades.
5. Negotiated Dealer System (`NDS') output for the GOI trades.
6. Counter party confirmations for corporate debt deals other than inter-
scheme deals
7. Investment ledgers of the scrip involved in the trades.
8. Journal vouchers for identification of profit/loss booked from the
transaction.
Annexure `F'
INVESTMENT OF ULIP
(Periodicity of Verification Every Investment)
PARTICULARS REMARKS
1. Obtain a copy of various ULIP products issued by the
Company during the life cycle of the Company
2. Obtain an understanding of process followed by the
Company for ULIP funds.
3. Obtain the product brochures and verify for any new unit
linked products launched by the Company
The auditor shall :
1. Review efficacy of the System & Process in place
2. Verify that the conversion charges including risk
premium are as per offer document
3. Verify reconciliation of Units & provide instant resolution
for differences, if any
4. Management of fund schemes is as per Investment
Objective of portfolio
5. Verify prompt allotment of deals to respective schemes
Inter-Scheme Transfer
The auditor shall:
1. check that the transfer is only between approved ULIP
schemes
2. check that there is no undue benefit to any portfolio
Verify the following based on Company Policy:
1. Allocation
2. Creation of units
3. Redemptions of units
4. calculation of NAV
5. Fund Management Fees Policy/Administration Charges
General procedures related to computation of NAV:
1. Verify whether investments are made within the
investment objective (defined in terms of asset
Annexure `F'
PARTICULARS REMARKS
allocation, strategy etc) for each scheme of the ULIP
business as defined in the Investment Policy
2. Verify that all investments are made within the provision
of IRDA and rules made thereunder
3. Verify whether unit reconciliation is carried out on daily
basis
4. Verify whether inter scheme transfer of investments is
made within the IRDA guidelines prescribed from time to
time.
5. Verify the process of computation of NAV.
6. Verify the following items leading to the computation of
NAV:
(a) Creation/redemption of units
(b) Accounting for investments
(c) Expensing of various charges/fees
(d) Income recognition
(e) Reconciliation of Bank, Stock & units
(f) Valuation of investments
7. Verify that the investments are accounted on the trade
date basis and the accrual incomes are calculated from
the settlement basis.
8. Verify that the valuations are carried out as per the IRDA
guidelines.
9. Verify that the insurer does not invests in any security
those are readily realizable and marketable.
10. Verify that the valuation of unquoted and illiquid
investments is as per the valuation norms.
85
Annexure `G'
PROJECT / TERM LOANS
(Periodicity of Verification Every Loan)
G. PRE SANCTION
1. Scrutiny of request in the form of detailed proposal
2. Aggregate Credit Exposure to promoters, borrowers and industry
3. Integrity and reputation of borrowers or counterparties
4. Repayment history and repayment ability
5. Purpose of Loan and repayment plan
6. Technical, economic viability of the project
7. Projections and repaying capacity ratios
8. Negotiations done for rates, if any
9. Justification by the sanctioning authority that the interest rate spread
available in the proposal is adequate to the risk associated in the
proposal.
10. Automatic re-classification of loans as `Other Investments', which are not
covered with adequate `security', as required by the Act.
11. Security Coverage (Movable & Immovable properties). If land is given as
security, then a Valuation Report (by an independent valuer) and a Legal
Report (by a lawyer) shall be insisted upon.
12. Documents obtained and whether these are vetted by Law Officer / Legal
Department.
13. Terms and conditions of credits including covenants or collateral to limit
changes in the future risk profile of borrowers.
14. Other details such as Cost of materials Turnover, Audit report, IT
Returns.,
15. Existence of Internal approvals of the company for raising the loan (such
as board approval etc)
16. Promoter track record
Annexure `G'
17. Percentage of Promoter holding and percentage of promoter shares
already pledged
18. Put/Call options
19. Report from the bankers of the borrower
20. Third party guarantees and due diligence of guarantors
21. Approvals if the instrument is proposed to be listed
22. Credit Agency grading of borrowing, issue
H. POST SANCTION
(a) Appropriateness of Holiday period to be given
(b) Minimum Capital Requirements - for major risks namely Credit Risk,
Market Risk and Operational Risk.
(c) Supervisory Review Process - Inspecting and evaluating the ability of
borrower to assess and monitor its capital adequacy and risk
management, as well as taking supervisory actions in an appropriate and
timely manner.
(d) Market Discipline
(e) Independent and on going credit review with accurate credit grading
appropriate amount and scope, and reporting to allow monitoring of risk
management.
(f) A well defined policy detailing the exposure norms, assessment of working
capital, the deployment ceiling for various industrial sectors, tenor specific,
project specific etc to avoid concentration risk.
(g) Listing requirements if the loan is proposed to be listed
I. POST DISBURSAL PROCEDURE
(a) Repayment as per the plan
(b) Application of penalty interest
(c) Changes to Instrument grading
(d) Changes to Borrowing grading
(e) Filing of the periodical returns/information as agreed upon.
(f) Changes in constitution/structure of Board
87
Annexure `H'
SEGREGATION OF DUTIES (SOD)
FRONT OFFICE / MID OFFICE / BACK OFFICE
(Periodicity of Verification - Ongoing)
A. GENERAL
1. Front & Back Office Operations
(a) Insurer having Assets under Management (AUM) in excess of Rs.500
crores shall ensure separate personnel acting as fund manager and
dealer.
(b) The Investment System should have separate modules for Front and
Back Office.
(c) Transfer of data from Front Office to Back Office should be electronic
without Manual intervention (Real time basis) i.e., without the need for
re-entering data at Back Office.
(d) The Insurer may have multiple Data Entry Systems, but all such
Systems should be seamlessly integrated without manual intervention.
(e) The Front Office shall report through the Chief Investment Officer
(CIO) to the Chief Executive Officer (CEO). The Mid Office and Back
Office, to be headed by separate personnel, shall be the overall
responsibility of Chief Financial Officer (CFO) who shall independently
report to the CEO.
2. Employee Dealing Guidelines
The Standard Operating Procedure followed by the Insurer shall clearly
specify the Guidelines to be adhered to by the Dealer That is the Insurer
shall clearly specify the Trading guidelines for Personal Investments of the
dealer. The compliance of this requirement shall be commented upon by the
Internal / Concurrent Auditor.
3. Maker Checker Process
Insurer should have the procedure of Maker / Checker mapped in their
Standard Operating Procedure / Operations Manual of Investment
Annexure `H'
Operations. The Internal / Concurrent Auditor shall comment on such
practice in his report.
4. Audit Trail At Data Entry Points
The Audit trail should be available for all data entry points including at the
Checker / Authorizer level.
5. Business Continuity Process
To ensure Business continuity, the Insurer should have a clear Off-site back-
up of data in a city falling under a different Seismic Zone, either on his own
or through a Service Provider. Further, the Insurer / service provider (if
outsourced) is required to have the necessary infrastructure for Mission
Critical Systems to address at least the following:
1. Calculation of daily NAV (Fund wise)
2. Redemption processing.
B. FRONT OFFICE
1. Segregation Of Fund Manager / Dealer
(a) Investment Department should have documented the segregation of
Fund Managers and Dealers through Authority Matrix as a part of its
`Standard Operating Procedure'.
(b) The Insurer should have documented the Access Controls and
Authorization process for Orders and Deal execution.
(c) The Dealing Room should have a Voice Recorder and procedure for
maintaining the recorded conversation and their disposal including
procedure like no mobile phone usage in dealing rooms and other best
practices.
2. Investment In Investee / Group Company / Industry Sector
System based checks should be in place for investments in an Investee
Company, Group and Industry Sector. The system should signal when the
Internal / Regulatory limits are nearly reached PRIOR to taking such
exposure and making actual investment.
3. Inter Fund Transfer
The System should handle Inter Fund transfer as per Circulars issued by
IRDA from time to time. The Investment Committee may fix the Cut Off time
as per Market practice, for such transfer within the fund. (The inter fund
89
Technical Guide
transfer should be like any other Market deal and the same needs to be
carried out with in the Market hours only)
C. MID OFFICE
1. Market Risk
(a) The system should be capable of computing various portfolio returns.
(b) Regular limits monitoring and Exception Reporting. Also reporting on
movement of prices.
2. Liquidity Risk
(a) The Insurer should have a Cash Management System to provide the
funds available for Investment considering the settlement obligations
and subscription and redemption of units etc, to preempt any
leveraged position or liquidity risk.
(b) The System should be validated not to accept any commitment beyond
availability of funds.
3. Credit Risk
(a) The Investment System should capture Instrument Ratings to enable it
to automatically generate FORM 2 (Statement of Downgraded
Investments) through the System.
(b) System should automatically monitor various Regulatory limits on
Exposure & Rating.
(c) The System should have the ability to track changes in ratings over a
period, and generate appropriate alerts, along with ability to classify
investments between Approved and Other Investments.
(d) The Insurer should conduct periodic credit reviews for all companies in
the portfolio. The periodicity should be clearly mentioned in the
Investment Policy.
(e) The Insurer is required to keep a track of movement of Securities
between Approved and Other Investments Status, as a part of Audit
trail, at individual security level.
4. Tracking Of Regulatory Limits
(a) The System should have key limits preset for ensuring compliance
with all Regulatory requirements and should be supported by workflow
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Annexure `H'
through the System, (Real time basis) for such approval, if Regulatory
limit is close to being breached.
(b) The System should have capability of generating Exception reports for
Audit by Internal / Concurrent Auditor.
5. Review, Monitoring And Reporting
(a) The System should automatically track and report all internal limits
breaches. All such breaches should be audited by Internal /
Concurrent Auditor.
(b) Implementation and Review of Asset & Liability Matching and other
Investment Policy Guidelines.
D. BACK OFFICE
1. Data Input Error
The system should be validated in such a way, that the Deal can only be
rejected by the Back Office and not edited.
2. Settlement Risk
The System should be validated to restrict Short Sales at the time of placing
the order.
3. Computation of `NAV'
(a) The System should be capable of computing NAV and compare it with
the NAV computed by the Service provider, if outsourced.
(b) The Insurer should maintain NAV history (Fund wise) in his Public
Domain from the Start of the Fund to current date.
(c) `NAV' error Computation & Compensation
1. All expenses and incomes accrued up to the Valuation date
shall be considered for computation of NAV.
2. In case the NAV of a Plan differs by more than 1% due to non -
recording of the transactions or any other errors / mistakes, the
investors or fund(s) as the case may be, shall be paid the
difference in amount as follows:-
(i) If the investors are allotted units at a price higher than
NAV or are given a price lower than NAV at the time of
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Technical Guide
sale of their Units, they shall be paid the difference in
amount by the plan.
(ii) If the investors are charged lower NAV at the time of
purchase of their units or are given higher NAV at the
time of sale of their units, the Insurer shall pay the
difference in amount to the Plan and shall be
compensated by non unit reserve of the ULIP funds.
(iii) The Internal / Concurrent Auditor shall look into the above
issues and specifically report on it and comment on the
Systems in place to take care of such issues on an
ongoing basis.
(iv) A log of NAV errors and the management action taken on
those errors shall be maintained in the System and be
forwarded to Internal / Concurrent Auditors.
4. Errors During Broker Execution Leg
All equity deals should be through STP gateway for all broker transactions.
5. Uploading Of Valuation Price Files
System to have capability to upload Corporate Actions such as Stock Splits,
Dividend, Rights Issue, Buy Back, Bonus issues etc., for computation of NAV
/ Portfolio valuation.
6. Reconciliation
(a) Fund wise, in the case of Life Insurers, reconciliation with Investment
Accounts, Bank, and Custodian records should be done on day-to-day
basis for all types of products. In the case of ULIP products, Units
reconciliation with Policy Admin Systems should be ensured on a day
to day basis.
(b) In the case of General Insurer / Re-insurer reconciliation with
Investment Accounts, Bank and Custodian records should be done on
a day-to-day basis.
92
MACRO FLOW OF INVESTMENT FUNCTIONS IN FRONT / MID / BACK OFFICE
MINIMUM SEGREGATION OF INVESTMENT FUNCTIONS
No PARTICULARS FRONT OFFICE (FO) MID OFFICE (MO) BACK OFFICE (BO)
1 Treasury a. Dealing in Primary G a. Monitoring Exposure limits a. Disbursement of sanctions and
operation Sec, Secondary GSec analyzing credit and ALM Settlements.
Bonds, FDs, Bonds, Mutual requirement of non linked
Fund, Money market portfolios.
instruments (Reverse Repos,
FD, CoD, CP, TB, CBLO etc)
etc as per the fund
objectives and ALM
requirement
2 Corporate Debt a. Investment decisionsa. Credit appraisal of a. IPO/ FBO/ Rights/ Preferential
& Company and sanctions for
proposals related to Corporate issue submission of application,
Matters subscription to Debt/ Bonds IPO/ FBO Analysis
NCDs, b. Execution of Agreements,
Bonds. b. Research view on Rights, Creation Securities disbursement of
b. Open Offer, Buy back, reduction
Participation in Rights, sanctions etc
of interest rates/ prepayment of
Preferential Issues etc. IPO/
FBO, Buy back etc NCDs
c. Matters relating to
Preferential Issues etc
3 Equity a. (Dealing) Buying and a. Price scanning and a. Broker settlement,
Technical Guide
No PARTICULARS FRONT OFFICE (FO) MID OFFICE (MO) BACK OFFICE (BO)
operations Selling including large confirmation. Broker Monitoring. b. Daily business statements,
quantities, Strategies, b. Revision of limits c. Matter related to SEBI, Press
b. Mandate preparation & release etc. Broker empanelment &
approval from Competent related matters
Authority (for Traditional and d. Set up of Buying and Selling
ULIP funds) limits Sale of unquoted/ written down
c. Equity Research stocks
4 All project a. Investment decisions a. Appraisal of Project and a. Execution of Agreement,
proposals of and sanctions for project recommendation on sanction/ settlement, Security creation etc
Corporate, financial assistance, Venture rejection including waiver of
Venture capital, capital securitization etc financial and nonfinancial
Securitization conditions precedent
etc)
5 Financial a. Investment decisions a. Credit appraisal of a. Execution of agreement, Security
assistance to and sanctions for Financial proposals related to Govt. / creation, disbursement of sanctions etc
Govt. / Local assistance to Govt. / Local Local authorities Processing of
Authorities authorities recall/ refinancing, Merger/
demerger/ acquisition etc
6 Restructuring a. Processing of a. Followup with companies
OTS, NPA and restructuring/ OTS proposals, regarding AGM, EGM, CGM etc.
followup with CDR issues and matters related Nominee Director matters etc
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Annexure `H'
No PARTICULARS FRONT OFFICE (FO) MID OFFICE (MO) BACK OFFICE (BO)
corporate to corporate financial
assistance. Merger/ demerger,
acquisition etc
7 Accounting and a. IRDA Compliance, General accounts, dividend accounting
Establishment submission of returns etc (Including refunds), corporate actions,
Custodian reconciliation, valuation, Trial
Balance, Schedule preparation
submission of Final accounts Audit &
Inspection matters and Parliamentary
queries. All establishment matters
8 Risk a. Exposure norms, MIS a. IC matters
Management preparation, Investment policies
preparation/ review, concept
notes, Board notes employees
declaration etc
9 Daily cash flow a. Assessment of a. Cash flow statements for the next
statements and Investible funds day
investible funds
10 Legal a. All matters concerning Legal
aspects of Investment and RTI Act
including settlement of legal expenses.
b. Appointment of Nominee/
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Technical Guide
No PARTICULARS FRONT OFFICE (FO) MID OFFICE (MO) BACK OFFICE (BO)
Directors
11 Performance a. Reviewing the fund
Review performance vis-à-vis
Benchmarks and Peer group
selected for each fund
Reviewing the traditional fund
investments are as per Liability
Vs Assets Management
requirement and best suited
based on the movement of
interest rate and index
movement.
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Annexure `I'
EXPOSURE / PRUDENTIAL NORMS
(Periodicity of Verification Daily / Periodic intervals of time)
Without prejudice to anything contained in Sections 27A and 27B of the
Act every insurer shall limit his investment as per the following exposure
norms:
A. Exposure norms for investment assets of:
1. (a) all funds of Life insurance business and One Year
Renewable pure Group Term Assurance Business
(OYRGTA), and non-unit reserves of all categories of Unit
linked life insurance business
(b) all funds of Pension, Annuity and Group Business [as
defined under Regulation 2 (d) of IRDA (Actuarial Report
and Abstract) Regulations, 2000]
(c) the unit reserves portion of all categories of Unit linked
funds, as per Regulation 6" Life, Pension, Annuity and
Group business and each segregated fund within Unit
Linked Insurance business (except for promoter group
exposure)
2. General Insurance business,
3. Re-insurance Business
for both Approved Investments as per the Act, Schedule I and Schedule
II of these Regulations, and Other Investments as permitted under
27A(2) and 27B(3) of the Act shall be as under.
B. The maximum exposure limit for a single `investee' company
(equity, debt and other investments taken together) from all investment
assets under point (A.1.a, A.1.b, A.1.c all taken together), (A.2) and (A.3)
mentioned above, shall not exceed the lower of the following;
(i) an amount of 10% of investment assets as under Regulation 2 (g)
(1), Regulation 2 (g) (2)
(ii) an aggregate of amount calculated under point (a) and (b) of the
following table
Technical Guide
Type of Limit for Limit for the Limit for Industry
Investment `Investee' entire Group Sector to which
Company of the Investee Investee
Company Company belongs
(1) (2) (3) (4)
a. 10%* of Not more than Investment by the
Investment in Outstanding 15% of the insurer in any
`Equity', Equity Shares amount under industrial sector
Preference (Face Value) point A.1.(a) or should not exceed
Shares, A.1.(b) or 15% of the
Convertible or A.1.(c) or A.2 amount under
Debentures or A.3 or 15% point A.1.(a) or
10% of the of investment A.1.(b) or A.1.(c)
amount under Assets in all or A.2 or A.3 or or
point A.1.(a) or companies 15% of investment
A.1.(b) or belonging to Asset, whichever
A.1.(c) above the group, is lower
considered whichever is
separately in lower
the case of Life Note: Industrial
insurers / Exposure to Sector shall be
amount under Investments classified in the
A.2 or A.3 in made in lines of National
the case of companies Industrial
General Insurer belonging to Classification (All
/ Re-insurer Promoter Economic
Group shall be Activities) - 2008
whichever is made as per [NIC] for all
lower Point 7 under sectors, except
notes to infrastructure
Regulation 9 sector. Exposure
b. 10%* of the
shall be calculated
Investment in Paid-up Share
at Division level
Debt / Loans capital, Free
from A to R. For
and any other reserves
Financial and
permitted (excluding
Insurance
Investments revaluation
Activities sector
as per Act / reserve) and
exposure shall be
Regulation Debentures /
at Section level.
other than Bonds of the
item `a' `Investee'
above. company Exposure to
`infrastructure'
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Annexure `I'
Type of Limit for Limit for the Limit for Industry
Investment `Investee' entire Group Sector to which
Company of the Investee Investee
Company Company belongs
(1) (2) (3) (4)
or investments are
subject to Note: 1,
10% amount 2, 3 and 4
under point mentioned below
A.1.(a) or
A.1.(b) or
A.1.(c) above
considered
separately in
the case of Life
insurers. An
amount under
A.2 or A.3 in
the case of
General Insurer
/ Re-insurer
whichever is
lower.
*In the case of insurers having investment assets within the meaning of
Regulation 2 (g) (1) and Regulation 2 (g) (2) of the under mentioned size,
the (*) marked limit in the above table for investment in equity,
preference shares, convertible debentures, debt, loans or any other
permitted investment under the Act / Regulations, shall stand substituted
as under:
Limit for `investee' company
Investment assets
Equity Debt
Rs 250000 Crores or 15% of outstanding 15% of paid up share
more equity shares (face capital, free reserves
value) (excluding revaluation
reserve) & debentures
/ bonds
Rs. 50000 Crores but 12% of outstanding 12% of paid up share
less than Rs. 250000 equity shares (face capital, free reserves
Crores value) (excluding revaluation
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Technical Guide
Limit for `investee' company
Investment assets
Equity Debt
reserve) & debentures
/ bonds
Less than Rs. 50000 10% of outstanding 10% of paid up share
Crores equity shares (face capital, free reserves
value) (excluding revaluation
reserve) & debentures
/ bonds
Note:
1 Industry sector norms shall not apply for investments made in
`Infrastructure facility' sector as defined under Regulation 2(h) of
IRDA (Registration of Indian Insurance Companies) Regulations,
2000 as amended from time to time. NIC classification shall not
apply to investments made in `Infrastructure facility'
2 Investments in Infrastructure Debt Fund (IDF), backed by Central
Government as approved by the Authority, on a case to case basis
shall be reckoned for investments in Infrastructure.
3 Exposure to a public limited `Infrastructure investee company' will
be 20% of outstanding equity shares (face value) in case of equity
(or) 20% of equity plus free reserves (excluding revaluation
reserve) plus debentures / bonds taken together, in the case of
debt (or) amount under Regulation 9 (B) (i), whichever is lower.
The 20% mentioned above, can be further increased by an
additional 5%, in case of debt instruments alone, with the prior
approval of Board of Directors. The outstanding tenure of debt
instruments, beyond the exposure prescribed in the above table, in
an infrastructure Investee Company, should not be less than 5
years at the time of investment. In case of Equity investment,
dividend track record as per Sec 27A (1) (l) and 27B (1) (h) of the
Act, in the case of primary issuance of a wholly owned subsidiary
of a Corporate / PSU shall apply to the holding company. However
all investments made in an `infrastructure investee company' shall
be subject to group / promoter group exposure norms.
4 An insurer can, at the time of investing, subject to group / promoter
group exposure norms, invest a maximum of 20% of the project
cost (as decided by a competent body) of an Public Limited
Special Purpose Vehicle (SPV) engaged in infrastructure sector
(or) amount under Regulation 9 (B) (i), whichever is lower, as a
part of Approved Investments provided:
100
Annexure `I'
a. such investment is in Debt
b. the parent company guarantees the entire debt extended
and the interest payment of SPV
c. the principal or interest, if in default and if not paid within 90
days of the due date, such debt shall be classified under
other investments.
d. the latest instrument of the parent company (ies) has (have)
rating of not less than AA
e. such guarantee of the parent company (ies) should not
exceed 20% of net worth of parent company (ies) including
the existing guarantees, if any, given
f. the net worth of the parent company (ies), if unlisted, shall
not be less than Rs. 500 crores or where the parent
company (ies) is listed on stock exchanges having
nationwide terminals, the net worth shall not be less than
Rs. 250 Crores
Investment Committee should continuously evaluate the risk of
such investments and take necessary corrective actions where the
parent company (ies) is floating more than one SPV
5 Investment in securitized assets [Mortgaged Backed Securities
(MBS) / Asset Backed Securities (ABS) / Security Receipts (SR)
both under approved and other investment category shall not
exceed 10% of Investment Assets in case of Life companies and
5% of Investment Asset in the case of Non-life companies.
Approved Investment in MBS / ABS with underlying Housing or
Infrastructure Assets shall not exceed 10% of investment assets in
the case of life companies and not more than 5% of investment
assets in the case of non-life companies. Any MBS / ABS with
underlying housing or infrastructure assets, if downgraded below
AAA or equivalent, shall be reclassified as Other Investments.
6 Investment in immovable property covered under Section 27A (1)
(n) of the Act shall not exceed, at the time of investment, 5% of (a)
Investment Assets in the case of general insurer and (b) 5% of
Investment Assets of funds relating to life funds, pension, annuity
and group funds in the case of life insurer
7 Subject to exposure limits mentioned in the table above, an insurer
shall not have investments of more than 5% in aggregate of its
total investments in all companies belonging to the promoters'
groups. Investment made in all companies belonging to the
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Technical Guide
promoters' group shall not be made by way of private placement
(equity) or in unlisted instruments (equity, debt, certificate of
deposits and fixed deposits (without prejudice to Section 27A (9)
and Section 27B (10) of the Act) held in a Scheduled Commercial
Bank), except for companies formed by Insurers under Sec 27A
(4) or Sec 27B (5) of the Act.
8 The exposure limit for financial and insurance activities (as per
Section K of NIC classification 2008) shall stand at 25% of
investment assets for all insurers.
9 Investment in fixed deposit and certificate of deposit of a
Scheduled Bank shall be made in terms of the provisions of
Section 27A (9) and Section 27B (10) of the Act. Such investments
would not be deemed as exposure to financial and insurance
activities (as per Section K of NIC classification - 2008).
FORM 4 COMPLIANCE
I. Investee Company Exposure:
(a) Investment in equity, preference shares, convertible debenture:-
Exposure at any point of time did not exceed 10% of outstanding equity
shares (face value) or 10% of the amount under point Regulation 9
(A.1.(a) or A.1.(b) or A.1.(c) considered separately) of this Regulation, in
the case of Life insurers / an amount under Regulation 9 (A.2) or (A.3) of
this Regulation, in the case of General Insurer / Re-insurer whichever is
lower.
[In case of Infrastructure Co, the limit of 10% shall be read as 20%.
Where the investment assets of the insurer is Rs. 250000 Crores or
more, the limit of 10% shall be read as 15% of outstanding equity shares
(face value) or where the investment assets of the insurer is Rs.50000
Crores but less than Rs 250,000 Crores the limit of 10% shall be read as
12% of outstanding equity shares (face value)]
(b) Investment in Debt/ loans and any other permitted Investments as
per Act / Regulation, other than `Equity', Preference Shares, Convertible
Debentures :-
Exposure at any point of time did not exceed 10% of the paid-up share
capital, free reserves (except revaluation reserve) and debenture / bonds
of the investee company or 10% of amount under point Regulation 9
(A.1.(a) or A.1.(b) or A.1.(c) above considered separately) of this
Regulation, in the case of Life insurers / an amount under Regulation 9
(A.2) or (A.3) of this Regulation, in the case of General Insurer / Re-
insurer whichever is lower.
102
Annexure `I'
[In case of Infrastructure Co, the limit of 10% shall be read as 20%.
Where the investment assets of the insurer is Rs. 250000 Crores or
more, the limit of 10% shall be read as 15% of paid up share capital, free
reserves (excluding revaluation reserve) and debenture / bonds or where
the investment assets of the insurer is Rs.50000 Crores but less than Rs
250,000 Crores the limit of 10% shall be read as 12% paid up share
capital, free reserves (excluding revaluation reserve) and debenture /
bonds]
(c) Has the maximum exposure under limit for a single `investee'
company from all investment assets (Equity / Preference Shares /
Convertible Debenture / Debentures/ bonds / CPs / loans and any other
permitted debt Investments as per Act / Regulation), are within the limit
prescribed in Regulation 9 (B) (In case of Infrastructure Co, the limit of
10% shall be read as 20%)?
(d) Has debt investments made in infrastructure SPV have complied
with the limits, terms and conditions as mentioned in the Note: 4 of the
Investment Regulation 9?
(e) Investment in equity, preference shares, convertible debenture:-
Exposure at any point of time did not exceed 10% of outstanding equity
shares (face value) or 10% of the amount under point Regulation 9
(A.1.(a) or A.1.(b) or A.1.(c) considered separately) of this Regulation, in
the case of Life insurers / an amount under Regulation 9 (A.2) or (A.3) of
this Regulation, in the case of General Insurer / Re-insurer whichever is
lower.
[In case of Infrastructure Co, the limit of 10% shall be read as 20%.
Where the investment assets of the insurer is Rs. 250000 Crores or
more, the limit of 10% shall be read as 15% of outstanding equity shares
(face value) or where the investment assets of the insurer is Rs.50000
Crores but less than Rs 250,000 Crores the limit of 10% shall be read as
12% of outstanding equity shares (face value)]
(f) Investment in Debt/ loans and any other permitted Investments as
per Act / Regulation, other than `Equity', Preference Shares, Convertible
Debentures :-
Exposure at any point of time did not exceed 10% of the paid-up share
capital, free reserves (except revaluation reserve) and debenture / bonds
of the investee company or 10% of amount under point Regulation 9
(A.1.(a) or A.1.(b) or A.1.(c) above considered separately) of this
Regulation, in the case of Life insurers / an amount under Regulation 9
(A.2) or (A.3) of this Regulation, in the case of General Insurer / Re-
insurer whichever is lower.
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Technical Guide
[In case of Infrastructure Co, the limit of 10% shall be read as 20%.
Where the investment assets of the insurer is Rs. 250000 Crores or
more, the limit of 10% shall be read as 15% of paid up share capital, free
reserves (excluding revaluation reserve) and debenture / bonds or where
the investment assets of the insurer is Rs.50000 Crores but less than Rs
250,000 Crores the limit of 10% shall be read as 12% paid up share
capital, free reserves (excluding revaluation reserve) and debenture /
bonds)
(g) Has the maximum exposure under limit for a single `investee'
company from all investment assets (Equity / Preference Shares /
Convertible Debenture / Debentures/ bonds / CPs / loans and any other
permitted debt Investments as per Act / Regulation), are within the limit
prescribed in Regulation 9 (B) (In case of Infrastructure Co, the limit of
10% shall be read as 20%)?
(h) Has debt investments made in infrastructure SPV have complied
with the limits, terms and conditions as mentioned in the Note: 4 of the
Investment Regulation 9?
II. Limit for the entire Group of the Investee Company
Has total investments made in entire "Group of the Investee Company"
is the lower of:
(a) amount under point Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c)
above considered separately) of this Regulation, in the case of Life
insurers / an amount under Regulation 9 (A.2) or (A.3) of this Regulation,
in the case of General Insurer / Re-insurer (or)
(b) 15% of investment Assets in all companies belonging to the group
(In case of Infrastructure company the limit mentioned in point `a' above
shall be read as 20%)
III. Promoter Group Company
Has total investments made in all "Companies falling under Insurer's
Promoter Group":
(a) is not more than 5% in aggregate of its total investments in all
companies belonging to the promoters' groups.
(b) not made investments in any companies belonging to the
promoters' group by way of private placement (equity)
(c) not made any investment in unlisted instruments [equity & debt
certificate of deposits and fixed deposits (without prejudice to
Section 27A (9) and Section 27B (10) of the Act) held in a
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Annexure `I'
Scheduled Commercial Bank], except for companies formed by
Insurers under Sec 27A (4) or Sec 27B (5) of the Act.
IV. Industry sector
Has investment made by the insurer in any industrial sector [except
Financial and Insurance Activities sector as per National Industrial
Classification (All Economic Activities) - 2008]:
(a) not exceeded the lower of:
15% of the amount under Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c)
considered separately) of this regulation in the case of life
insurer / an amount under Regulation 9 (A.2) or (A.3) of this
regulation, in the case of General Insurer / Re-insurer
(or) 15% of investment Asset
(b) Has the investment made by the insurer in Financial and
Insurance Activities sector as per National Industrial
Classification (All Economic Activities) - 2008 (excluding Fixed
Deposit, Term Deposit and Certificates of Deposit) not exceeded
25% of its total investment assets?
(c) Is the classification of industrial sectors been done on the lines of
National Industrial Classification (All Economic Activities) - 2008
[NIC] for all sectors, except "infrastructure sector".
(d) Has exposure been calculated at Division level from A to R of
(NIC (All Economic Activities) 2008) Classification for all sectors
other than infrastructure sector?
(e) Has exposure been calculated for Financial and Insurance
Activities sector at Section level (of NIC (All Economic Activities)
2008)?
V. Rating Criteria
1. Are investments under `Approved Investments' made only in rated
instruments, if such instruments are capable of being rated?
2. At the time of purchase, are Corporate Bonds rated below AA (A+
with the prior approval of the Board of the Insurer) or its equivalent and
P1 or equivalent (in case of short term instruments) classified under
"Other Investments"?
3. Are instruments downgraded below the minimum rating
prescribed under Note 3 & 4 to Regulation 3 to 8 of the IRDA
(Investment) Regulation, 2000, as amended from time to time,
reclassified under "Other Investments" through the System?
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Technical Guide
4. Are `Debt' instruments (including Central Govt, State Govt
Securities and Other Approved Securities) - fund wise, in the case life
insurer (including ULIP funds at segregated fund level) and Investment
Assets in the case of general insurer - have a minimum rating of
Sovereign, AAA or equivalent rating for long term and Sovereign, P1+ or
equivalent for short term instruments, not less than 75% (Life Insurer) /
65% (General Insurer)?
5. Are `Debt' instruments (including Central Government Securities,
State Government Securities and Other approved securities) fund wise,
in the case of life insurer (including ULIP funds at segregated fund level)
and Investment Assets in the case of general insurer have a rating of A
or below or equivalent rating for long term, are not more than 5% (8% in
the case of Non-Life Insurers)?
VI. Others
D. CONFIRMATION ON POLICY / SYSTEMS / PROCEDURE
1. Has the software application for Investment Operations, been fully
automated without manual intervention in calculating the exposure norms
of Investee Company, Group, Promoter Group and Industry Sector, as
per the various slabs of `investment assets' provided under Regulation 9
(B)?
2. Is the Constitution of the Investment Committee of the Insurer in full
compliance with the requirements mentioned under Regulation 13 of
Investment Regulation?
3. Was none of the functions of the insurer relating to Investment
Operations falling under Front / Mid / Back Office, (covering both
Shareholders and Policyholders Investments), outsourced (except to the
extent permitted under Point 11 and 12 of Annexure II to Circular
INV/CIR/008/2008-09 Dt. 22nd Aug, 2008 with respect to Outsourcing of
Investment Advice and NAV Calculation)?
4. Is the Audit Committee of the Board, headed by a Chartered
Accountant, provided he is a member of the Board of the Insurer?
5. Have periodical Investment Returns to be filed for the Quarter,
prepared in full compliance with the "Guidance Note on preparation of
Investment Returns" issued by IRDA?
6. Have amendments to the Investment Policy, been approved by the
Board of the Insurer?
7. Has the model code of conduct, to prevent insider / personal trading
of officers involved in Investment Operations, including front, mid and
back office as approved by the Board, implemented? If so:
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Annexure `I'
(f) Does it cover Officers involved in Investment Operations at various
levels?
(g) Does the code of conduct cover each Officer in such level?
(h) Has the Board been informed of compliance or otherwise to model
code of conduct during the Quarter?
(i) Has the Concurrent Auditor issued his Audit Report of previous
Quarter, without any qualification on aspects of model code of
conduct implemented by the Insurer?
(j) Where breach of model code of conduct, if any, reported during
the previous Quarter, been dealt properly and appropriate action
as recommended by Audit Committee/ Board been taken?
8. Does the segregation of front, mid and back office are as per
Technical Guide on Internal / Concurrent Audit of Investment functions of
Insurance Companies issued by the Institute of Chartered Accountants of
India?
9. Have all non-compliance reported in the Chartered Accountant's
certificate issued (as per the Technical Guide on Investment Risk
Management Systems & Process of Insurance Companies, by ICAI) on
the `status' of implementation of Investment Risk Management Systems
and Process been implemented as per timelines committed to IRDA?
10. Has the Internal / Concurrent audit Report of the previous
Quarter with the with comments of Audit Committee of the Board, on
`very serious', `serious' points (as per the Technical Guide on Internal /
Concurrent Audit of Investment functions of Insurance Companies,
issued by the Institute of Chartered Accountants of India) in the report,
and status of implementation of Audit committee recommendation been
placed before the Board of the Insurer during the current quarter?
11. Have the Audit Report of the previous Quarter along with Audit
Committees recommendation and its implementation status filed with the
Authority along with these returns?
12. Have the increase during the quarter, in Shareholders' funds
(other than income from shareholders' investments, maintained in a
separate custody account) held beyond solvency margin requirement, is
supported by surplus calculation certified by the Appointed Actuary?
[annex a copy of Appointed Actuary's Certificate to this return]
13. Has the Board reviewed (both life and non-life Insurers) during the
previous quarter the performance of products [at line of business level in
the case of General Insurers]?
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Technical Guide
14. Has the Board, during the previous Quarter, reviewed (both life
and non-life insurers) the performance of investments? [the review in
the case of life insurers should cover both Non-Linked and Linked
funds [SFIN] level]
15. Has the life insurer, in the case of ULIP business reconciled,
through the system, the premium received (net of charges and benefits
paid) under each product (Unique Identification Number UIN wise) with
value of all the segregated fund(s) (Segregated Fund Identification
Number SFIN wise) net of fund management charges, held under a
single UIN, on a day to day basis, during the quarter?
16. Has the life insurer disclosed UIN wise reconciliation, on the
Insurer's website on the same day?
17. Is there a fully automated system to generate, on a day to day
basis, Form 3A - Part E (Investment Details of ULIP Products to
Segregated Funds)?
18. Has the life insurer disclosed the value of policy wise units held by
policyholder on the Insurer's policyholder portal?
19. Has the life insurer disclosed fund wise NAV (SFIN wise) on the
Insurer's website and life council website on the same day?
20. Has the Standard Operating Procedure (SOP) approved by the
Investment Committee of the Insurer?
21. Does the SOP, for each `category of investment' is same across
all fund(s)?
22. Does SOP of the Insurer, for "each" Category of Investment, (as
per Guidelines INV/GLN/001/2003-04, as amended from time to time,
issued by the Authority) provide individual activities to be carried out in
Front, Mid and Back office?
23. Have all investments made (100%) followed the IC approved
SOP?
24. Does the Investment made during the Quarter, are within the
exhaustive `Categories of Investments' prescribed under Guidelines
INV/GLN/001/2003-04, as amended from time to time?
25. Has the Insurer during the Quarter taken any Derivative position
(including interest rate swap and Credit default swap)? If Yes:
a. Has the Derivative Policy been approved by the Board of the
Insurer?
108
Annexure `I'
b. Has the insurer taken prior approval of IRDA for such Derivative
policy?
c. If so, is there a process to identify the risk to be hedged [`fund-
wise' in the case of Life Insurers]?
d. Does such derivative position comply with IRDA Guidelines?
e. Has derivative exposure taken, are clearly identified with the
portfolio risk to be hedged?
f. Has the Insurer filed the regulatory information / returns required
under the Guidelines issued?
26. Are investment made in immovable property covered under
Section 27A (1) (n) of the Act shall not exceed, at the time of investment,
within 5% of the Investment Assets [as per FORM 3B (Part A)] in the
case of General Insurer / within 5% of Life fund, Pension & General
Annuity Fund, [as per FORM 3A (Part A)] in the case of Life Insurer.
27. Have NO investments in Immovable Properties been made out of
ULIP Funds?
28. Are investments in equity shares through IPO, Mutual fund,
Venture fund, SEBI approved Alternate Investment Funds, Corporate
Bond Reverse Repo, IDF (as per Note 2 to Regulation 9) Perpetual Debt
instruments of Bank's Tier-I Capital and Debt Capital instruments of
Bank's Upper Tier-II Capital, made in compliance with the relevant
circulars issued in this regards from time to time?
29. Are investments in asset backed securities, PTC, SRs both under
Approved and Other investment category, made within 10% of
Investment assets in case of Life Companies and 5% of Investment
assets in case of Non life companies
30. Are any securitized assets with underlying housing or
infrastructure assets, if downgraded below AAA or equivalent reclassified
as Other Investments
E. CONFIRMATION ON INVESTMENT OPERATIONS / EXPOSURE
1. Has Shareholders funds been split Funds Representing Solvency
Margin (FRSM) in FORM 3A (Part A)?
2. If funds are split as per point 1 above, between FRSM and
Balance, have the same been maintained in separate custodian account
with identified `scrips' for both Life and General (including Re-insurance)
companies and reconciled with FORM 3A (Part A) / FORM 3B?
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Technical Guide
3. Do each `Segregated fund' [SFIN] have underlying `Scrips',
identified upto to Custodian level?
4. Do each `Segregated Fund' [SFIN] have not less than 75% of
Approved Investments as defined in the Act?
5. Does all investments in assets or instruments which are capable of
being rated (except Fixed Deposits with Scheduled Commercial Banks)
are made based on `instrument' rating and NOT based on Investee
`Company' rating?
6. Have Investments in debt instruments rated AA - (AA minus) or
below classified under Other Investments?
7. Are Investments made in a Public Limited Special Purpose
Vehicle (SPV) engaged in infrastructure sector is within 20% of the
project cost (or) amount under Regulation 9 (B) (i), whichever is lower?
8. If answer to point above is `yes', have all the requirements
mentioned under Note 4 to Regulation 9 have been complied?
9. Are investments made in Mortgaged Backed Securities [MBS] /
Assets Backed Securities [ABS] complied with the requirements of Note
5 to Regulation 9?
10. Has `each' purchase and sale of Investments, as mentioned in
the Deal Slip, been identified with respect to `each' fund / `segregated
fund' in respect of ULIP funds?
11. Are all thinly traded equity (as per SEBI norms) classified as
"Other Investment"?
12. Has inter fund transfer, been done as per circular
IRDA/FA/02/10/2003-04 and any other circular issued from time to time ,
between ULIP funds during Market Hours, for Equity and Debt at the
prevailing price and not based on broker quote?
13. With respect to `each' Segregated Fund [including Discontinued
Policy Fund (DPF)] in the case of ULIP business, whether reconciliation
of "Units" have been made, between Policy Admin System (PAS) and
Investment Accounting Systems through a fully automated system
using process integrators to ensure seamless data transfer without
manual intervention?
14. Does the Primary Data Server of the Computer Application used
for Investment Management, maintained within the Country?
15. Has the insurer, reconciled investments, fund-wise, with bank and
custodian records on `day-to-day basis for `each' segregated fund?
110
Annexure `I'
16. Has the insurer, reconciled investment accounts, for each fund in
the case of Non-ULIP Business and General Insurance Business, with
Custodian records?
17. Has valuation of investments of `each' fund (including ULIP), done
as prescribed in IRDA (Preparation of Financial Statements and Auditors
Report of Insurance Companies) Regulations, 2002?
18. Is there any shortfall/deficit in meeting the Discontinued Policies
Fund (DPF) liabilities?
19. If the answer to above point is `Yes', has the Insurer provided for
such shortfall / deficit on a quarterly basis?
20. Have all the negative deviations reported in FORM 4A (Part A)?
21. Has NAV of each segregated fund [SFIN] been audited before its
declaration by Internal / Concurrent Auditor on a day-to-day basis (on
T+0 basis)?
22. Has the Insurer floated any new fund during the quarter?
23. If the answer to point above is `yes', has the directions in respect
of Fund Approval procedure and Guidelines on NAV Process as per
Circular IRDA/F&I/CIR/INV/173/08/2011 Dt. 29th Jul, 2011 complied with?
24. Has the insurer, apart from the credit rating evaluated by the rating
agencies, carried out their own risk analysis commensurate with the
complexity of the product(s) and the materiality of their holding for every
investment made?
111
Annexure `J'
NAV PROCESS
(Periodicity of Verification Daily / Periodic Intervals)
A. Settlement entries
B. Bank entries
C. Primary market deals/IPO
D. Security master creation
E. Units creation/liquidation
F. Corporate actions
G. Secondary market debt/equity deal authorization
H. Valuation process
A. SETTLEMENT ENTRIES
1. Equity (Sale) T+2:
Bank settlement (trade receivables) entries passed for trades settling on
current day.
2. Equity (Purchase) T+1:
Bank settlement (trade payables) entries passed for trades settling on
current day. It may also be settled on T+2 basis, if the company had
deposited margin money with the exchanges as required for equity
settlement.
3. Debt (purchase/Sale) T+1:
Bank settlement (trade payables/receivables) entries passed for trades
settling on current day. Corporate Debt deals dealt on T+O basis shall be
settled on T+O basis.
4. Money market transactions & Non-SLR T+1:
Bank settlement (trade payables/receivables) entries passed for trades
settling on current day. Money market transactions excluding treasury
bills s could also be dealt and settled on T+O basis.
5. Reverse Repo withdrawal:
Reverse Repo maturities posted in bank accounts
6. Brokerage Payments:
Brokerage Payment settled in Bank
Annexure `J'
B. BANK ENTRIES
1. Coupon Payments for Debt Investments:
Interest receipt entries passed in Bank (Reconciled with Custody
Corporate Actions report)
2. Redemptions/Maturities for Debt Investments:
Redemptions/Maturity receipt entries passed in bank account
(Reconciled with Custody Corporate Actions report).
3. Dividend Receipts for Equity Investments:
Dividend receivables received in bank on the receipt date (Reconciled
with Custody Corporate Actions report)
4. Management Fees, Custodian Fees & CCIL Charges:
Payment entries pertaining to Management transfer to Non-Linked
Funds, Custodian Fees and CCIL fees passed in Bank accounts on
respective payment dates.
5. Booking of Application Money:
Application Money booked in current asset account on the date of
payment of application money towards prospective investments. Applied
quantity shall be allocated to the intended portfolios on the date of
application. In case of application for equity through IPO, FPO and other
primary options, if the insurer pays the amount in advance through cash
or FD in lieu of cash under ASBA, the same shall be considered as
current asset.
C. PRIMARY MARKET DEALS/IPO
1. Booking of Primary market Deals - Debt:
Primary market applications shall be booked in Investment account on
the date of application and allotment of such debt instruments shall be
made on the same proportionate basis as the application was made.
2. Booking of Equity IPO:
Equity Investments accounted on the date of allotments of the IPO Issue.
However, the application money shall be booked under the respective
portfolios on the date of application.
D. SECURITY MASTER CREATION
1. Equity Investments:
Based on the inputs from treasury & investment mid-office functions the
security masters are created in the system (linked via NSE/BSE codes).
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Technical Guide
The procedure includes documentation of supporting & supervisory sign
off.
2. Debt Investments :
Security masters for debt Instruments are prepared on the basis of
Information memorandum and deals in case of primary and secondary
market deals respectively. The procedure includes documentation of
supporting and supervisory sign off.
E. UNITS CREATION / LIQUIDATION
1. Unit capital movement is an integral part of NAV calculation. It
keeps track of the capital movement (subscription and redemption) in the
funds and requires the following:
2. Reconciliation with Policy Admin system:
The unit report is reconciled with the Policy Admin System Trial Balance
before booking the entries in the system.
3. Reconciliation with operating system :
Unit Report is reconciled with the system's (operating system)
Creation/Liquidation Report post booking of unit capital entries.
F. CORPORATE ACTIONS
1. Reconciliation of Custodian report with Third party service
Provider:
The Custodian report for equity ex-dates is reconciled with Global
corporate actions report on NSE/BSE of Third Party Service Provider for
Dividend, Bonus, split, mergers, de-mergers, amalgamations, capital
reduction, and follow-on issues.
2. For Government Securities and other SLR securities, RBI-NDS
gives the corporate actions and is considered for valuation.
G. SECONDARY MARKET DEBT /EQUITY DEAL AUTHORIZATION
1. Equity Deals :
(a) STP (Straight Through Process) Reconciliation:
Equity deals received from various brokerage houses are reconciled with
the STP system & cross checked with operating system for Scrip code,
quantity, rate, STT, brokerage & consideration.
(b) Authorization in Operating System:
Post verification the deals are authorized in operating system.
(c) Custodian /Broker settlement:
114
Annexure `J'
Post STP reconciliation the equity trade files ISO files are sent to
custodian & broker houses via STP.
2. Equity Deals NIFTY Basket (purchase/sale):
The NIFTY Basket (trade file) is consolidated for all the brokers &
uploaded in operating system. Post upload are reconciled with the source
file and subsequently authorized.
H. VALUATION PROCESS
1. Equity:
NSE and BSE closing price files are uploaded in operating system
.Subsequently the system global price is checked with the source files.
Equity investments are to be valued at lower of closing price NSE or
BSE.
2. Debt:
(a) Debentures & Bonds:
Valuations for all debentures & bonds are arrived at using yield matrix
provided by a Bond Valuer approved by the Investment Committee. The
valuations report giving prices for each such securities is generated by
Bond Valuer and subsequently uploaded in operating system. Debenture
& Bonds could also be valued consistently using the yield matrix and
bond valuer of FIMMDA or any other independent agencies.
(b) G-Sec:
The G-sec prices provided by FIMMDA or any other rating agency is
directly uploaded in the operating system for valuation consistently.
(c) State Government Bonds:
State Government securities shall be valued by adding the minimum
spreads, as recommended by the FIMMDA or any other independent
agency, to the base G-sec yield curve of the same maturity.
(d) Reverse Repos:
Valued at cost plus interest accrued on reverse repo rate
(e) Collateralised Borrowing and Lending Obligation (CBLO):
Valued at accreted cost on Straight line till the beginning of the day plus
the difference between the redemption value and the cost spread
uniformly (straight line method) over the remaining maturity period of the
instruments. The income shall be recognized as discount accrued. The
Insurers may also use YTM basis of amortisation for amortising the
discount on purchase of certificate of Deposits.
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Technical Guide
(f) Treasury Bills:
Valued at accreted cost on Straight line till the beginning of the day plus
the difference between the redemption value and the cost spread
uniformly (straight line method) over the remaining maturity period of the
instruments. The income shall be recognized as discount accrued. The
Insurers may also use YTM basis of amortisation for amortising the
discount on purchase of Treasury Bills.
(g) Commercial Papers:
Valued at accreted cost on Straight line method till the beginning of the
day plus the difference between the redemption value and the cost
spread uniformly (straight line method) over the remaining maturity
period of the instruments. The income shall be recognized as discount
accrued. The Insurers may also use IRR/YTM basis of amortisation for
amortising the discount on purchase of commercial papers.
(h) Certificate of Deposit:
Valued at accreted cost on Straight line method till the beginning of the
day plus the difference between the redemption value and the cost
spread uniformly (straight line method) over the remaining maturity
period of the instruments. The income shall be recognized as discount
accrued. The Insurers may also use IRR/YTM basis of amortisation for
amortising the discount on purchase of certificate of Deposits.
(i) Fixed Deposits:
Valued at cost till the date of maturity
(j) Non-Convertible debentures (NCD):
Maturity >182 days
Valued on YTM basis by using spread over benchmark rates (matrix
released by CRISIL on daily basis) to arrive at the yield for pricing the
security. The benchmark spreads are incorporated in the IC approved
Bond valuer on daily basis and accordingly the instruments are valued on
yield to maturity basis depending upon its maturity buckets &
corresponding ratings.
Maturity <182 days
Securities purchased with residual maturity of upto182 days are to be
valued at cost plus the difference between the redemption value and cost
spread uniformly over the remaining maturity period of the instrument. In
case of securities with maturity >182 days at the time of purchase, the
last available valuation price should be used. Depending upon the
116
Annexure `J'
premium or discount at the time of purchase ,the price will be subject to
amortization/accretion
(k) Call option:
The securities with call option shall be valued (by IC approved Bond
Valuer) at the lower of the value as obtained by valuing the security to
final maturity and valuing the security to call option. In case there are
multiple call options, the lowest value obtained by valuing to the various
call dates and valuing to the maturity date is to be taken as the value of
the instrument.
(l) Put option:
The securities with put option shall be valued (by IC approved BOND
VALUER) at the higher of the value as obtained by valuing the security to
final maturity and valuing the security to put option In case there are
multiple put options, the highest value obtained by valuing to the various
put dates and valuing to the maturity date is to be taken as the value of
the instruments.
(m) Put & call option on the same day:
The securities with both Put and Call option on the same day would be
deemed to mature on the Put/Call day and would be valued accordingly
(by IC approved BOND VALUER).
(n) Annually compounding coupon:
Securities having annual compounding coupons shall be valued on YTM
basis by using spread over benchmark rates (matrix released by IC
approved Bond Valuer on daily basis) to arrive at the yield for pricing the
security. The gross/dirty price so arrived shall be reduced by the coupon
calculated from last interest payment date or allotment date whichever is
earlier to arrive at the clean price. Such reduction shall take into account
the compounding coupon calculations wherever applicable.
(o) Coupon reset Paper:
6 monthly benchmark coupon reset paper/Floater are to be valued at
cost plus the difference between the redemption value and cost spread
uniformly over the remaining maturity period of the instrument.
Depending upon the premium or discount at the time of purchase, the
price will be amortized/accreted respectively. On the date of reset such
accretion/amortization shall be also reset for pricing.
(p) NSE MIBOR Paper:
NSE MIBOR instruments including those with daily put call options shall
be valued at cost till the date of maturity.
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Technical Guide
(q) PTC/Asset backed securities/structured papers:
Maturity >182 days:
Valued on YTM basis by using spread over benchmark rates (matrix
released by IC approved Bond Valuer on daily basis) to arrive at the yield
for pricing the security. The benchmark spreads are incorporated in the
IC approved Bond valuer on daily basis and accordingly the instruments
are valued on yield to maturity basis depending upon its maturity buckets
& corresponding ratings. However such instruments are valued on
gross/dirty price (i.e. including accrued interest). The periodic cash flows
shall be updated in IC approved Bond Valuer as per specified intervals
and valued accordingly.
Maturity < 182 days:
Valued on the basis of amortization/accretion (cost plus accrued interest
till the beginning of the day plus the difference between the redemption
value and the cost spread uniformly over the remaining maturity period of
the instruments) Depending upon the premium or discount at the time of
purchase, the price will be subject to amortization/accretion respectively.
(r) Zero coupon bonds:
Valued on YTM basis by using spread over benchmark rates (matrix
released by daily basis) to arrive at the yield for pricing the security. The
benchmark spreads are incorporated in IC approved Bond valuer on daily
basis and accordingly the instruments are valued on yield to maturity
basis depending upon its maturity buckets and corresponding ratings.
Further, for those with maturity <182 days, valuations norms NCD shall
be applicable.
3. Mutual Fund :
The scheme NAVs received from various fund houses is reconciled with
AMFI website. Subsequently, they are uploaded in operating system for
portfolio valuations.
4. Venture Fund:
Investments in the units of the Venture fund can be made from ULIP
funds, only if the values of those units are available on day to day basis.
5. Security Receipts:
Security receipts shall be valued at market value on day to basis. No
investment shall be made in Security Receipts, if the value is not
available on a day-to-day basis.
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Annexure `J'
6. Special Bonds:
Special bond / Oil Bond issued by government of India shall be valued on
daily basis.
7. Global Portfolio Price Check:
Post Upload all the prices for all asset classes are cross checked with
source files
119
Annexure `K'
RETURNS TO BE SUBMITTED BY AN INSURER
(Periodicity of Verification - Quarterly)
Every insurer shall submit to the Authority the following returns within
such time, at such intervals duly verified/certified in the manner as
indicated there against.
No Form Description Periodicity Time limit Verified /
of Return for Certified by
submission
1 Form Statement of Quarterly Within 30 Principal Officer
1 Investment days of the / Chief of
and Income on end of the (Investments)/
Investment Quarter Chief of
(Finance)
2 Form Statement of Quarterly Within 30 Principal Officer
2 Downgraded days of the / Chief of
(Part Investments, end of the (Investments)/
A, B) Details of Quarter Chief of
Rated (Finance)
Instruments
3 Form Statement of Quarterly Within 30 Principal Officer
3A Investments days of the / Chief of
(Part Assets (Life end of the (Investments)/
A, B, Insurers) Quarter Chief of
C, (Finance)
D,E)
4 Form Statement of Quarterly Within 30 Principal Officer
3B Investment days of the / Chief of
(Part Assets end of the (Investments)/
A, B) (General Quarter Chief of
Insurance & (Finance)
Re-insurer)
5 Form Exposure / Quarterly Within 30 Principal
4 Prudential and days of the Officer, Chief of
(Part other end of the (Investments),
A) Investment Quarter Chief of
Norms (Finance)
Compliance
Certificate
Annexure `K'
No Form Description Periodicity Time limit Verified /
of Return for Certified by
submission
6 Form Internal / Quarterly Within 30 Internal /
4 Concurrent days of the Concurrent
(Part Auditor's end of the Auditor
B) Certificate on Quarter appointed under
Investment this regulation
Risk
Management
Systems -
Implementatio
n Status
7 Form Statement of Quarterly Within 30 Principal Officer
4A Investment days of the / Chief of
(Part Subject to end of the (Investments)/
A, B, Exposure Quarter Chief of
C) Norms (Finance)
Investee
Company,
Group,
Promoter
Group,
Industry Sector
8 Form Statement of Quarterly Within 30 Principal Officer
5 Investment days of the / Chief of
Reconciliation end of the (Investments)/
Quarter Chief of
(Finance)
9 Form Statement of Quarterly Within 30 Principal Officer
5A Investment in days of the / Chief of
Mutual Funds end of the (Investments)/
Quarter Chief of
(Finance)
10 Form Certificate Quarterly Within 30 Chairman,
6 under sections days of the Director 1,
28 (2A), 28 end of the Director 2,
(2B) and 28B Quarter Principal Officer
(3) of the
Insurance Act,
1938
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Technical Guide
No Form Description Periodicity Time limit Verified /
of Return for Certified by
submission
11 Form Statement of Quarterly Within 30 Principal Officer
7 Non- days of the / Chief of
Performing end of the (Investments)
Assets Quarter /Chief of
(Finance)
Note:
1. The Internal / Concurrent Audit Report of the previous quarter with
comments of Audit Committee of the Board, on `very serious', `serious'
points (as per the Technical Guide on Internal / Concurrent Audit of
Investment functions of Insurance Companies, issued by the Institute of
Chartered Accountants of India) in the report, and status of
implementation of Audit committee recommendation shall be filed with
the Authority along with current quarter returns
2. All returns for the quarter ending March shall be filed within the period
stipulated above based on provisional figures and later re-submitted with
Audited figures within 15 days of adoption of accounts by the Board of
Directors.
122
APPENDICES
Appendix `A'
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
NOTIFICATION
Hyderabad, the 16th February, 2013
Insurance Regulatory and Development Authority
(Investment) (Fifth Amendment) Regulations, 2013
F. No. IRDA/Reg./16/74/2013 In exercise of the powers conferred by
Sections 27A, 27B, 27D and 114A of the Insurance Act, 1938 (4 of
1938), the Authority, in consultation with the Insurance Advisory
Committee, hereby makes the following regulations to further amend the
Insurance Regulatory and Development Authority (Investment)
Regulations, 2000, notified on 16th August, 2000 in the Gazette of India
and amended on 31st May 2001 in the Gazette of India, further amended
on 2nd April, 2002 in the Gazette of India and further amended on 5th
January 2004 and further amended on 31st Jul, 2008 and further
amended on 8th Feb, 2013 namely:-
1. Short title and commencement:
1. (1) These regulations may be called the Insurance Regulatory
and Development Authority (Investment) (Fifth Amendment)
Regulations, 2013
(2) They shall come into force on the date of their publication in
the Official Gazette
2. Amendment to Regulation 2:
Regulation 2 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000 shall be substituted with the following:-
"Definitions
2. In these regulations, unless the context otherwise requires,--
(a) "Act" means the Insurance Act, 1938 (4 of 1938)
(b) "Accretion of funds" means investment income, gains on
sale/redemption of existing investment and operating surplus
(c) "Accounting Standard" (AS) means: Accounting Standard as
recommended by the Institute of Chartered Accountants of India and
Technical Guide
notified by the Central Government under the Companies Act, 1956 or
any successor enactment thereunder
(d) "Authority" means the Insurance Regulatory and Development
Authority established under sub-section (1) of section 3 of the Insurance
Regulatory and Development Authority Act, 1999 (41 of 1999)
(e) "Financial Derivatives" means a derivative as defined under
clause (aa) of section 2 of the Securities Contracts (Regulation) Act,
1956, and includes a contract which derives its value from interest rates
of underlying debt securities and such other derivative contracts as may
be stipulated by the Authority, from time to time
(f) "Group" means: two or more individuals, association of
individuals, firms, trusts, trustees or bodies corporate, or any
combination thereof, which exercises, or is established to be in a position
to exercise, significant influence and / or control, use of common brand
names, directly or indirectly, over any associate as defined in AS 23,
body corporate, firm or trust, or (ii) Associated persons, as may be
stipulated by the Authority, from time to time, by issuance of guidelines
under these regulations.
(g) "Investment Assets" mean all investments made out of:
(1) in the case of a Life Insurer
(a) shareholders' funds representing solvency margin,
non-unit reserves of unit linked insurance business,
participating and non-participating funds of
policyholders at their carrying value
(b) policyholders' funds of Pension, Annuity business and
Group business at their carrying value
(c) policyholders' unit reserves of unit linked insurance
business at their market value as per guidelines
issued under these regulations, from time to time
(2) in the case of a General Insurer
(a) shareholders' funds representing solvency margin
and policyholders funds at their carrying value
as shown in its balance sheet drawn as per the Insurance Regulatory
and Development Authority (Preparation of Financial Statements and
Auditors' Report of Insurance Companies) Regulations, 2000, but
excluding items under the head `Miscellaneous Expenditure'
126
Appendix `A'
(h) Money Market Instruments
Money Market Instruments shall comprise of Short term funds with
maturity not more than one year comprising of the following instruments:
1. Certificate of deposit rated by a credit rating agency registered
under SEBI (Credit Rating Agencies) Regulations, 1999
2. Commercial paper rated by a credit rating agency registered under
SEBI (Credit Rating Agencies) Regulations, 1999
3. Repos, Reverse Repo
4. Treasury Bills
5. Call, Notice, Term Money
6. CBLO as per Schedules I and II of these Regulations.
7. Any other instrument as may be prescribed by the Authority
(i) "Promoter" means a promoter as defined under Regulation 2 (m)
of IRDA (Issuance of Capital by Life Insurance Companies) Regulations,
2011
(j) "Principal Officer" means any person connected with the
management of an insurer or any other person upon whom the Authority
has served notice of its intention of treating him as the principal officer
thereof.
(k) All words and expressions used herein and not defined but defined
in the Insurance Act, 1938 (4 of 1938), or in the Insurance Regulatory
and Development Act, 1999 (41 of 1999), or in any Rules or Regulations
made thereunder, shall have the meanings respectively assigned to them
in those Acts or Rules or Regulations"
3. Amendment of Regulation 3:
Regulation 3 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000 shall be substituted with the following:-
"Regulation of Investments
3. A life insurer, for the purpose of these Regulations, shall invest
and at all times keep invested, the Investment Assets forming part of the
Controlled Fund as defined in Section 27A of the Act as under:
a. all funds of Life insurance business and One Year Renewable pure
Group Term Assurance Business (OYRGTA), and non-unit reserves
of all categories of Unit linked life insurance business, as per
Regulation 4
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Technical Guide
b. all funds of Pension, Annuity and Group Business [as defined
under Regulation 2 (d) of IRDA (Actuarial Report and Abstract)
Regulations, 2000] as per Regulation 5; and
c. the unit reserves portion of all categories of Unit linked funds, as
per Regulation 6"
4. Insert New Regulation 4:
Insert the following New Regulation 4 to the Insurance Regulatory and
Development Authority (Investment) Regulations, 2000:-
"4. Without prejudice to Sections 27 or 27A of the Act, every insurer
carrying on the business of Life Insurance, shall invest and at all times
keep invested his Investment Assets as defined in Regulation 3 (a) (other
than funds relating to Pension & General Annuity and Group Business
and unit reserves of all categories of Unit Linked Business) in the
following manner:
No Type of Investment Percentage to
funds as under
Regulation 3(a)
(i) Central Government Securities Not less than
25%
(ii) Central Government Securities, State Not less than
Government Securities or Other Approved 50% (incl (i)
Securities above)
(iii) Approved Investments as specified in Section Not exceeding
27A of the Act and Other Investments as 50%
specified in Section 27A(2) of the Act and
Schedule I to these Regulations, (all taken
together) subject to Exposure / Prudential
Norms as specified in Regulation 9:
(iv) Other Investments as specified under Section Not exceeding
27A (2) of the Act, subject to Exposure / 15%
Prudential Norms as specified in Regulation 9:
(v) Investment in housing and infrastructure by
way of subscription or purchase of:
A. Investment in Housing Total
(d) Bonds / debentures of HUDCO and Investment in
National Housing Bank housing and
(e) Bonds / debentures of Housing Finance infrastructure
Companies either duly accredited by (i.e.,)
128
Appendix `A'
No Type of Investment Percentage to
funds as under
Regulation 3(a)
National Housing Banks, for house investment in
building activities, or duly guaranteed by categories (i),
Government or carrying current rating of (ii), (iii) and (iv)
not less than `AA' by a credit rating above taken
agency registered under SEBI (Credit together shall
Rating Agencies) Regulations, 1999 not be less than
(f) Asset Backed Securities with underlying 15% of the fund
housing loans, satisfying the norms under
specified in the guidelines issued under Regulation 3(a)
these regulations from time to time.
B. Investment in Infrastructure
(Explanation: Subscription or purchase of
Bonds / Debentures, Equity and Asset Backed
Securities with underlying infrastructure assets
would qualify for the purpose of this
requirement.
`Infrastructure facility' shall have the meaning
as given in clause (h) of regulation 2 of
Insurance Regulatory and Development
Authority (Registration of Indian Insurance
Companies) Amendment Regulations, 2008 as
amended from time to time
Note: Investments made under category (i)
and (ii) above may be considered as
investment in housing and
infrastructure, provided the respective
government issues such a security
specifically to meet the needs of any of
the sectors specified as `infrastructure
facility'
5. Insert New Regulation 5:
Insert the following New Regulation 5 to the Insurance Regulatory and
Development Authority (Investment) Regulations, 2000:-
"5. Without prejudice to Sections 27 or 27A of the Act, every insurer
carrying on Pension, Annuity and Group Business [as defined under
Regulation 2 (d) of IRDA (Actuarial Report and Abstract) Regulations,
129
Technical Guide
2000] shall invest and at all times keep invested his Investment Assets of
Pension, Annuity and Group business in the following manner:
No Type of Investment Percentage to
funds under
Regulation 3(b)
(i) Central Government Securities Not less than
20%
(ii) Central Government Securities, State Not less than
Government Securities or Other Approved 40%
Securities (incl (i) above)
(iii) Balance to be invested in Approved Not exceeding
Investments, as specified in Schedule I, 60%
subject to Exposure / Prudential norms as
specified in Regulation 9.
Note: For the purposes of this regulation no investment falling under
`Other Investments' as specified under 27A (2) of the Act shall be made"
6. Insert New Regulation 6:
Insert the following New Regulation 6 to the Insurance Regulatory and
Development Authority (Investment) Regulations, 2000:-
"6. Unit Linked Insurance Business: - Every insurer shall invest and at all
times keep invested his segregated fund(s) under Regulation 3(c) (with
underlying securities at custodian level) of Unit linked business as per
pattern of investment offered to and approved by the policy-holders
where the units are linked to categories of assets which are both
marketable and easily realizable. However the investment in Approved
Investments shall not be less than 75% of such fund(s) in each such
segregated fund"
7. Amendment to Regulation 4:
Regulation 4 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000, shall be substituted with the following:-
"Regulation of Investments
7. General Insurance Business without prejudice section 27B of the
Act, every General insurer (including Health insurer) shall invest
and at all times keep invested his investment assets in the manner
set out below:
130
Appendix `A'
No Type of Investment Percentage of
Investment
Assets
(i) Central Government Securities Not less than
20%
(ii) Central Government Securities, State Not less than
Government Securities or Other Approved 30%
Securities (incl (i) above)
(iii) Approved Investments as specified in Section Not exceeding
27B of the Act and Other Investment as 70%
specified in Section 27B(3) of the Act and
Schedule II to these Regulations, (all taken
together) subject to Exposure / Prudential
Norms as specified in Regulation 9:
(iv) Other investments as specified under Section Not more than
27B (3) of the Act, subject to Exposure / 25%
Prudential Norms as specified in Regulation 9:
(v) Housing and loans to State Government for Total Investment
Housing and Fire Fighting equipment, by way of in housing (i.e.,)
subscription or purchase of: investment in
A. Investments in Housing categories (i),
(d) Bonds / Debentures issued by HUDCO, (ii), (iii) and (iv)
National Housing Bank above taken
(e) Bonds / debentures of Housing Finance together shall
Companies either duly accredited by not be less than
National Housing Banks, for house building 5% of the
activities, or duly guaranteed by Investment
Government or carrying current rating of Assets.
not less than `AA' by a credit rating agency
registered under SEBI (Credit Rating
Agencies) Regulations, 1999
(f) Asset Backed Securities with underlying
Housing loans, satisfying the norms
specified in the Guidelines issued under
these regulations from time to time.
B. Investment in Infrastructure Total Investment
(Explanation: Subscription or purchase of in Infrastructure
Bonds/ Debentures, Equity and Asset Backed (i.e.,)
Securities with underlying infrastructure assets investment in
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Technical Guide
No Type of Investment Percentage of
Investment
Assets
would qualify for the purpose of this categories (i),
requirement. (ii), (iii) and (iv)
`Infrastructure facility' shall have the meaning above taken
as given in clause (h) of regulation 2 of together shall
Insurance Regulatory and Development not be less than
Authority (Registration of Indian Insurance 10% of the
Companies) (Amendment) Regulations, 2008 Investment
as amended from time to time. Assets.
Note: Investments made under category (i) and
(ii) above may be considered as
investment in housing or infrastructure,
as the case may be, provided the
respective government issues such a
security specifically to meet the needs of
any of the sectors specified as
`infrastructure facility'
8. Insert New Regulation 8:
Insert the following New Regulation 8 to the Insurance Regulatory and
Development Authority (Investment) Regulations, 2000:-
8. Reinsurance Business Every re-insurer carrying on re-insurance
business in India shall invest and at all times keep invested his
investment assets in the same manner as set out in Regulation 7
9. Amendment of Note appended at the end of Regulation 4:
Note appended at the end of Regulation 4 of the Insurance Regulatory
and Development Authority (Investment) Regulations, 2000, shall be
substituted with the following:-
"Note For the purpose of Regulations 3 to 8:
1. All investment in assets or instruments, which are capable of being
rated as per market practice, shall be made on the basis of credit
rating of such assets or instruments. No approved investment shall
be made in instruments, if such instruments are capable of being
rated, but are not rated.
2. The rating should be done by a credit rating agency registered
under SEBI (Credit Rating Agencies) Regulations, 199.
132
Appendix `A'
3. Corporate bonds or debentures rated not less than AA or its
equivalent and P1 or equivalent ratings for short term bonds,
debentures, certificate of deposit and commercial paper, by a
credit rating agency, registered under SEBI (Credit Rating
Agencies) Regulations, 1999 would be considered as `Approved
Investments'.
4. The rating of a debt instrument issued by All India Financial
Institutions recognized as such by RBI shall be of `AA' or
equivalent rating. In case investments of this grade are not
available to meet the requirements of the investing insurance
company, and Investment Committee of the investing insurance
company is fully satisfied about the same, then, for the reasons to
be recorded in the Investment Committee's minutes, the
Investment Committee may approve investments in instruments
carrying current rating of not less than `A+' or equivalent as rated
by a credit rating agency, registered under SEBI (Credit Rating
Agencies) Regulations, 1999, would be considered as `Approved
Investments'.
5. Approved Investments under regulations 4, 5, 6, 7 and 8 which are
downgraded below the minimum rating prescribed should be
automatically re-classified under `Other Investments' category for
the purpose of pattern of investment.
6. Investments in equity shares listed on a registered stock exchange
should be made in actively traded and liquid instruments viz.,
equity shares other than those defined as thinly traded as per
SEBI Regulations and guidelines governing mutual funds issued
by SEBI from time to time.
7 (a) Not less than 75% of investment in debt instruments
(including Central Government Securities, State Government
Securities or Other Approved Securities) in the case life
insurer and not less than 65% of investment in debt
instruments (including Central Government Securities, State
Government Securities or Other Approved Securities) in the
case of general insurer - shall be in sovereign debt, AAA or
equivalent rating for long term and sovereign debt, P1+ or
equivalent for short term instruments. This shall apply at
segregated fund(s) in case of Unit linked business.
(b) Not more than 5% of funds under Regulation 3 (a) and
Regulation 3 (c) in debt instruments (including Central
Government Securities, State Government Securities or
133
Technical Guide
Other Approved Securities) in the case of life insurer and not
more than 8% of investment in debt instruments (including
Central Government Securities, State Government Securities
or Other Approved Securities) in the case of general insurer
shall have a rating of A or below or equivalent rating for
long term.
(c) No investment can be made in other investments out of funds
under Regulation 3 (b).
(d) Investments in debt instruments rated AA - (AA minus) or
below shall form part of Other Investments.
8 Notwithstanding the above, it is emphasized that rating should not
replace appropriate risk analysis and management on the part of
the Insurer. The Insurer should conduct risk analysis
commensurate with the complexity of the product(s) and the
materiality of their holding, or could also refrain from such
investments.
10. Amendment of Regulation 5:
Regulation 5 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000, shall be substituted with the following:-
9. Exposure / Prudential Norms
Without prejudice to anything contained in Sections 27A and 27B of the
Act every insurer shall limit his investment as per the following exposure
norms:
A. Exposure norms for investment assets of:
1. (a) all funds of Life insurance business and One Year
Renewable pure Group Term Assurance Business
(OYRGTA), and non-unit reserves of all categories of Unit
linked life insurance business.
(b) all funds of Pension, Annuity and Group Business [as
defined under Regulation 2 (d) of IRDA (Actuarial Report
and Abstract) Regulations, 2000].
(c) the unit reserves portion of all categories of Unit linked
funds, as per Regulation 6" Life, Pension, Annuity and
Group business and each segregated fund within Unit
Linked Insurance business (except for promoter group
exposure).
2. General Insurance business,
3. Re-insurance Business
134
Appendix `A'
for both Approved Investments as per the Act, Schedule I and Schedule
II of these Regulations, and Other Investments as permitted under
27A(2) and 27B(3) of the Act shall be as under.
B. The maximum exposure limit for a single `investee' company
(equity, debt and other investments taken together) from all investment
assets under point (A.1.a, A.1.b, A.1.c all taken together), (A.2) and (A.3)
mentioned above, shall not exceed the lower of the following;
(i) an amount of 10% of investment assets as under Regulation 2 (g)
(1), Regulation 2 (g) (2)
(ii) an aggregate of amount calculated under point (a) and (b) of the
following table
Type of Limit for Limit for the Limit for Industry
Investment `Investee' entire Group Sector to which
Company of the Investee Investee
Company Company belongs
(1) (2) (3) (4)
a. Investment 10%* of Not more than Investment by the
in `Equity', Outstanding 15% of the insurer in any
Preference Equity Shares amount under industrial sector
Shares, (Face Value) point A.1.(a) or should not exceed
Convertible or A.1.(b) or 15% of the
Debentures 10% of the A.1.(c) or A.2 amount under
amount under or A.3 or 15% point A.1.(a) or
point A.1.(a) or of investment A.1.(b) or A.1.(c)
A.1.(b) or Assets in all or A.2 or A.3 or or
A.1.(c) above companies 15% of investment
considered belonging to Asset, whichever
separately in the group, is lower
the case of Life whichever is
insurers / lower Note: Industrial
amount under Sector shall be
A.2 or A.3 in Exposure to classified in the
the case of Investments lines of National
General Insurer made in Industrial
/ Re-insurer companies Classification (All
belonging to Economic
whichever is Promoter Activities) - 2008
lower Group shall be [NIC] for all
b. Investment 10%* of the made as per sectors, except
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Technical Guide
Type of Limit for Limit for the Limit for Industry
Investment `Investee' entire Group Sector to which
Company of the Investee Investee
Company Company belongs
(1) (2) (3) (4)
in Debt / Paid-up Share Point 7 under infrastructure
Loans and capital, Free notes to sector. Exposure
any other reserves Regulation 9 shall be
permitted (excluding calculated at
Investments revaluation Division level
as per Act / reserve) and from A to R. For
Regulation Debentures / Financial and
other than Bonds of the Insurance
item `a' `Investee' Activities sector
above. company exposure shall be
or at Section level.
10% amount
under point Exposure to
A.1.(a) or `infrastructure'
A.1.(b) or investments are
A.1.(c) above subject to Note: 1,
considered 2, 3 and 4
separately in mentioned below
the case of Life
insurers. An
amount under
A.2 or A.3 in
the case of
General Insurer
/ Re-insurer
whichever is
lower.
* In the case of insurers having investment assets within the meaning of
Regulation 2 (g) (1) and Regulation 2 (g) (2) of the under mentioned size,
the (*) marked limit in the above table for investment in equity,
preference shares, convertible debentures, debt, loans or any other
permitted investment under the Act / Regulations, shall stand substituted
as under:
136
Appendix `A'
Investment assets Limit for `investee' company
Equity Debt
Rs 250000 Crores 15% of outstanding 15% of paid up share
or more equity shares (face capital, free reserves
value) (excluding revaluation
reserve) & debentures /
bonds
Rs. 50000 Crores 12% of outstanding 12% of paid up share
but less than Rs. equity shares (face capital, free reserves
250000 Crores value) (excluding revaluation
reserve) & debentures /
bonds
Less than Rs. 10% of outstanding 10% of paid up share
50000 Crores equity shares (face capital, free reserves
value) (excluding revaluation
reserve) & debentures /
bonds
Note:
1 Industry sector norms shall not apply for investments made in
`Infrastructure facility' sector as defined under Regulation 2(h) of
IRDA (Registration of Indian Insurance Companies) Regulations,
2000 as amended from time to time. NIC classification shall not
apply to investments made in `Infrastructure facility'
2 Investments in Infrastructure Debt Fund (IDF), backed by Central
Government as approved by the Authority, on a case to case basis
shall be reckoned for investments in Infrastructure.
3 Exposure to a public limited `Infrastructure investee company' will
be 20% of outstanding equity shares (face value) in case of equity
(or) 20% of equity plus free reserves (excluding revaluation
reserve) plus debentures / bonds taken together, in the case of
debt (or) amount under Regulation 9 (B) (i), whichever is lower.
The 20% mentioned above, can be further increased by an
additional 5%, in case of debt instruments alone, with the prior
approval of Board of Directors. The outstanding tenure of debt
instruments, beyond the exposure prescribed in the above table, in
an infrastructure Investee Company, should not be less than 5
years at the time of investment. In case of Equity investment,
dividend track record as per Sec 27A (I) (I) and 27B (I) (h) of the
Act, in the case of primary issuance of a wholly owned subsidiary
137
Technical Guide
of a Corporate / PSU shall apply to the holding company. However
all investments made in an `infrastructure investee company' shall
be subject to group / promoter group exposure norms.
4 An insurer can, at the time of investing, subject to group / promoter
group exposure norms, invest a maximum of 20% of the project
cost (as decided by a competent body) of an Public Limited
Special Purpose Vehicle (SPV) engaged in infrastructure sector
(or) amount under Regulation 9 (B) (i), whichever is lower, as a
part of Approved Investments provided:
(a) such investment is in Debt
(b) the parent company guarantees the entire debt extended and
the interest payment of SPV
(c) the principal or interest, if in default and if not paid within 90
days of the due date, such debt shall be classified under
other investments.
(d) the latest instrument of the parent company (ies) has (have)
rating of not less than AA
(e) such guarantee of the parent company (ies) should not
exceed 20% of net worth of parent company (ies) including
the existing guarantees, if any, given
(f) the net worth of the parent company (ies), if unlisted, shall
not be less than Rs. 500 crores or where the parent company
(ies) is listed on stock exchanges having nationwide
terminals, the net worth shall not be less than Rs. 250 Crores
Investment Committee should continuously evaluate the risk of
such investments and take necessary corrective actions where the
parent company (ies) is floating more than one SPV
5 Investment in securitized assets [Mortgaged Backed Securities
(MBS) / Asset Backed Securities (ABS) / Security Receipts (SR)
both under approved and other investment category shall not
exceed 10% of Investment Assets in case of Life companies and
5% of Investment Asset in the case of Non-life companies.
Approved Investment in MBS / ABS with underlying Housing or
Infrastructure Assets shall not exceed 10% of investment assets in
the case of life companies and not more than 5% of investment
assets in the case of non-life companies. Any MBS / ABS with
underlying housing or infrastructure assets, if downgraded below
AAA or equivalent, shall be reclassified as Other Investments.
138
Appendix `A'
6 Investment in immovable property covered under Section 27A (I)
(n) of the Act shall not exceed, at the time of investment, 5% of (a)
Investment Assets in the case of general insurer and (b) 5% of
Investment Assets of funds relating to life funds, pension, annuity
and group funds in the case of life insurer
7 Subject to exposure limits mentioned in the table above, an insurer
shall not have investments of more than 5% in aggregate of its
total investments in all companies belonging to the promoters'
groups. Investment made in all companies belonging to the
promoters' group shall not be made by way of private placement
(equity) or in unlisted instruments (equity, debt, certificate of
deposits and fixed deposits (without prejudice to Section 27A (9)
and Section 27B (10) of the Act) held in a Scheduled Commercial
Bank), except for companies formed by Insurers under Sec 27A
(4) or Sec 27B (5) of the Act.
8 The exposure limit for financial and insurance activities (as per
Section K of NIC classification 2008) shall stand at 25% of
investment assets for all insurers.
9 Investment in fixed deposit and certificate of deposit of a
Scheduled Bank shall be made in terms of the provisions of
Section 27A (9) and Section 27B (10) of the Act. Such investments
would not be deemed as exposure to financial and insurance
activities (as per Section K of NIC classification - 2008).
7. Amendment of Regulation 6:
Regulation 6 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000, shall be substituted with the following:-
"10. Returns to be submitted by an Insurer
Every insurer shall submit to the Authority the following returns within
such time, at such intervals duly verified/certified in the manner as
indicated there against.
139
Technical Guide
No Form Description Periodicity Time limit Verified /
of Return for Certified by
submission
1 Form Statement of Quarterly Within 30 Principal
1 Investment days of the Officer / Chief
and Income end of the of
on Investment Quarter (Investments)
/ Chief of
(Finance)
2 Form Statement of Quarterly Within 30 Principal
2 Downgraded days of the Officer /
(Part Investments, end of the Chief of
A, B) Details of Quarter (Investments)
Rated / Chief of
Instruments (Finance)
3 Form Statement of Quarterly Within 30 Principal
3A Investments days of the Officer /
(Part Assets (Life end of the Chief of
A, B, Insurers) Quarter (Investments)
C, / Chief of
D,E) (Finance)
4 Form Statement of Quarterly Within 30 Principal
3B Investment days of the Officer /
(Part Assets end of the Chief of
A, B) (General Quarter (Investments)
Insurance & / Chief of
Re-insurer) (Finance)
5 Form Exposure / Quarterly Within 30 Principal
4 Prudential and days of the Officer, Chief
(Part other end of the of
A) Investment Quarter (Investments)
Norms / Chief of
Compliance (Finance)
Certificate
6 Form Internal / Quarterly Within 30 Internal /
4 Concurrent days of the Concurrent
140
Appendix `A'
No Form Description Periodicity Time limit Verified /
of Return for Certified by
submission
(Part Auditor's end of the Auditor
B) Certificate on Quarter appointed
Investment under this
Risk regulation
Management
Systems -
Implementatio
n Status
7 Form Statement of Quarterly Within 30 Principal
4A Investment days of the Officer / Chief
(Part Subject to end of the of
A, B, Exposure Quarter (Investments)
C) Norms / Chief of
Investee (Finance)
Company,
Group,
Promoter
Group,
Industry
Sector
8 Form Statement of Quarterly Within 30 Principal
5 Investment days of the Officer / Chief
Reconciliation end of the of
Quarter (Investments)
/ Chief of
(Finance)
9 Form Statement of Quarterly Within 30 Principal
5A Investment in days of the Officer / Chief
Mutual Funds end of the of
Quarter (Investments)
/ Chief of
(Finance)
10 Form Certificate Quarterly Within 30 Chairman,
6 under days of the Director 1,
sections 28 end of the Director 2,
(2A), 28 (2B) Quarter Principal
and 28B (3) of Officer
141
Technical Guide
No Form Description Periodicity Time limit Verified /
of Return for Certified by
submission
the Insurance
Act, 1938
11 Form Statement of Quarterly Within 30 Principal
7 Non- days of the Officer / Chief
Performing end of the of
Assets Quarter (Investments)
/ Chief of
(Finance)
Note:
1. The Internal / Concurrent Audit Report of the previous quarter with
comments of Audit Committee of the Board, on `very serious',
`serious' points (as per the Technical Guide on Internal /
Concurrent Audit of Investment functions of Insurance Companies,
issued by the Institute of Chartered Accountants of India) in the
report, and status of implementation of Audit committee
recommendation shall be filed with the Authority along with current
quarter returns
2. All returns for the quarter ending March shall be filed within the
period stipulated above based on provisional figures and later re-
submitted with Audited figures within 15 days of adoption of
accounts by the Board of Directors.
8. Amendment of Regulation 7:
Regulation 7 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000, shall be substituted with the following:-
11. Power to call for additional information.
The authority may, by general or special order, require from the insurers
such other information in such manner, intervals and time limit as may be
specified therein.
9. Amendment of Regulation 8:
Regulation 8 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000, shall be substituted with the following:-
12. Duty to Report extraordinary events affecting the investment
portfolio.
142
Appendix `A'
Every insurer shall report to the Authority forthwith, the effect or the
probable effect of any event coming to his knowledge, which could have
material adverse impact on the investment portfolio and consequently on
the security of policy-holder benefits or expectations.
10. Amendment of Regulation 9:
Regulation 9 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000, shall be substituted with the following:-
"13. Provisions on Investment Management
A. Constitution of Investment Committee
1. Every insurer shall constitute an Investment Committee which
shall consist of a minimum of two non-executive directors of the
Insurer, the Chief Executive Officer, Chief of Finance, Chief of
Investment division, and wherever an appointed actuary is
employed, the Appointed Actuary. The decisions taken by the
Investment Committee shall be recorded and be open to
inspection by the officers of the Authority.
B. Investment Policy
1. Every Insurer shall draw up, an Investment Policy (fund wise IP in
the case of Unit Linked Insurance Business) and place the same
before its Board of Directors for its approval and its annual review.
2. Every insurer shall have a model code of conduct to prevent
insider / personal trading of Officers involved in various levels of
Investment Operations in compliance with SEBI (Prohibition of
Insider Trading) Regulation, 1992 as amended from time to time
and place the same before its Board of Directors for its approval.
3. While framing the Investment Policy, the Board shall ensure
compliance with the following:
(i) Issues relating to liquidity, prudential norms, exposure limits,
stop loss limits including securities trading, management of
all investment risks, management of assets liabilities
mismatch, Scope of Internal or Concurrent audit of
Investments and investment statistics and all other internal
controls of investment operations, the provisions of the
Insurance Act, 1938 and Insurance Regulatory and
Development Authority (Investment) Regulations, 2000,
Guidelines and Circulars made there under.
143
Technical Guide
(ii) Ensuring adequate return on policyholders and shareholders'
funds consistent with the protection, safety and liquidity of
such fund(s).
4. The investment policy of both Life and Non-Life insurers, as
approved by the Board shall be implemented by the investment
committee. The Board shall review on a quarterly basis the
monitoring of fund wise and product wise performance.
5. The Board shall review the investment policy and its
implementation on a half-yearly basis or at such short intervals as
it may decide and make such modification to the investment policy
as is necessary to bring it in line with the investment provisions
laid down in the Act and Regulations made there under, keeping in
mind protection of policyholders' interest and pattern of investment
laid down in these regulations or in terms of the agreement
entered into with the policyholders in the case of unit linked
insurance business.
C. Investment Operations
1. The funds of the insurer shall be invested and continued to be
invested in equity shares, equity related instruments and debt
instruments rated as per Note below Regulations 3 to 8 by a credit
rating agency, registered under SEBI (Credit Rating Agencies)
Regulations, 1999. The Board shall lay down clear norms for
investing in `Other Investments' as specified under sections 27A(2)
and 27B(3) of the Insurance Act, 1938 by the investment
committee, taking into account the safety and liquidity of the
policyholders' funds and protection of their interest.
2. As required under Chapter II, Regulation 7 (c) of IRDA
(Registration of Indian Insurance Companies) Regulations, 2000,
to ensure proper internal control of investment functions and
operations the insurer shall clearly segregate the functions and
operations of front, mid and back office (as provided in the
Technical Guide on Internal / Concurrent Audit of Investment
functions of Insurance Companies issued by the Institute of
Chartered Accountants of India) and no function falling under
Front, Mid and Back Office Investment function(s), shall be
outsourced. Also, the primary data server of the computer
application used for investment management shall remain within
the country.
144
Appendix `A'
D. Processing of Unit Linked Business Applications and
Declaration of NAV
1. All applications received for premium payment, switches,
redemption, surrender, maturity claim etc., should be time
stamped and dated.
2. Applications for "premium payment"
a. for applications received, with local cheques, cash or
demand draft payable at par at the place where the premium
is received, before cut-off time (3.00 pm) on a business
day, the applicable NAV would be the closing NAV of the
same day.
b. for applications received, along with local cheques, cash or
demand draft payable at par at the place where the premium
is received, after cut-off time (3.00 pm) on a business day,
the applicable NAV would be the closing NAV of the next
business day.
c. for premiums received with an outstation cheque or demand
draft, the closing NAV of the day on which the cheque /
Demand Draft is realized shall be applied.
3. Applications for "other than" premium payment
a. for applications received before the cut-off time (3.00 pm)
on a business day, the applicable NAV would be the closing
NAV of the same day.
b. for applications received, after the cut-off time (3.00 pm)
on a business day, the applicable NAV would be the closing
NAV of the next business day.
4. Daily disclosure / reconciliation of Product and Fund
information
a. Every insurer doing Unit linked business shall reconcile,
through the system, the premium received (net of charges
and benefits paid) under each product (Unique Identification
Number UIN) with value of all the segregated fund(s)
(Segregated Fund Identification Number SFIN) net of fund
management charges, held under a single UIN, on a day to
day basis.
b. The insurer shall disclose UIN wise reconciliation (as in
point `a' above) and the value of policy wise units held by
145
Technical Guide
policyholder on the insurers website and fund wise NAV
(SFIN wise) on both the Insurer's website and life council
website on the same day.
c. The internal / concurrent Auditor shall report on the
automated system and process to handle the UIN wise
reconciliation (as in point `a' above) and value of policy wise
units held by policyholder and fund wise NAV, on a quarterly
basis
5. Applicable NAV for the applications received on the last
business day of the Financial Year
a. for applications received on the last business day of the
financial year UP TO 3.00 pm shall be processed with NAV
of the last business day (irrespective if the payment
instrument is local or outstation)
b. for applications received AFTER 3.00 pm on the last
business day, the same shall fall into the next Financial
Year and NAV of the immediate next business day would
be applicable.
c. The insurer shall declare NAV for the last business day of a
Financial Year, even if it is a non business day.
6. For allotment of units, the applicable NAV shall be as per the date
of commencement of policy for new policy contracts and date of
receipt of premium for renewals.
7. All Insurers shall file a certificate, issued by Internal / Concurrent
Auditor for compliance of each of the directions issued at point 5
above, regarding the applicable NAV for applications received on
the last business day. The Statutory Auditors shall also confirm the
same in the Annual Accounts.
Note:
Business day shall mean days other than holidays where stock
exchanges with national wide terminals are open for trade (other than
day on which exchanges are open for testing) or any day declared by the
Authority as business day.
146
Appendix `A'
E. Risk Management Systems and its Review
1. The Board shall implement the Investment Risk Management
Systems and Process, mandated by the Authority. The
implementation shall be certified by a Chartered Accountant firm,
as per the procedure laid down in the "Technical Guide on Review
and Certification of Investment Risk Management Systems and
Process of Insurance Companies", issued by the Institute of
Chartered Accountants of India, as amended from time to time.
2. The Investment Risk Management Systems and Process shall be
reviewed at the beginning of every second financial year or such
shorter frequency as decided by the Board of the Insurer, by a
Chartered Accountant firm and file the certificate issued by such
Chartered Accountant, with the Authority along with the first
quarter returns.
3. The appointment of Chartered Accountant firm to certify
implementation and review of Investment Risk Management
Systems and Process shall be as per the circular issued under
these regulations.
F. Audit and Reporting to Management
1. Every Insurer shall constitute an Audit Committee of the Board.
The Audit Committee shall be headed by a Chartered Accountant,
if he is a member in the Board of the Insurer.
2. The Insurer shall have the investment transactions covering both
Shareholders and Policyholders funds be audited through Internal
or Concurrent Auditor as per the circular issued under this
regulation.
3. The quarterly internal / concurrent audit report, covering
investments of both shareholders as well as policyholders, shall be
as per the "Technical Guide on Internal / Concurrent Audit of
Investment functions of Insurance Companies" issued by the
Institute of Chartered Accountants of India, as amended from time
to time.
4. The Details of Investment Policy, implementation status of
Investment Risk Management Systems and Process or its review
shall be made available to the internal or concurrent auditor. The
auditor shall comment on such review and its impact on the
investment operations, systems and process in their report to be
placed before the Board's Audit Committee.
147
Technical Guide
G. Category of Investments
1. Every Insurer shall invest all his fund(s) only within the exhaustive
category of investments listed in the guidelines issued by the
Authority, as amended from time to time.
H. Others
1. The Authority may call for further information from time to time
from the insurer as it deems necessary and in the interest of
policyholders and issue such directions to the insurers as it thinks
fit.
11. Amendment of Regulation 10:
Regulation 10 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000, shall be substituted with the following:-
14. Miscellaneous.
1. Accounting of Investments shall be as per the Insurance
Regulatory and Development Authority (Preparation of Financial
Statements and Auditor's Report of Insurance Companies)
Regulations, 2000 and Valuation of Assets shall be as per
guidelines issued under these regulations from time to time.
2. The Authority may, by any general or special order, modify or
change the application of sub-regulations (3), (4), (5), (6), (7), (8),
(9) and (10) to any insurer either on its own or on an application
made to it.
12. Amendment of Regulation 11:
Regulation 11 of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000, shall be substituted with the following:-
"15. Dealing in Financial Derivatives
1. Every Insurer carrying on the business of life insurance or general
insurance may deal in financial derivatives only to the extent
permitted and in accordance with the guidelines issued by the
Authority in this regard from time to time.
2. Any margin or unamortized premium paid by any insurer in
connection with the financial derivatives to the extent they are
reflected as asset position in the balance sheet of the insurer in
accordance with the guidelines issued by the Authority, shall be
treated as `Approved Investment' under Schedule I and Schedule
II to these Regulations, only to the extent the derivative position
148
Appendix `A'
constitutes a hedge for the underlying investment or portfolio
which itself is treated as an approved investments under these
regulations. All other margins or unamortized premium paid, to the
extent reflected in the balance sheet of the insurer in accordance
with the guidelines issued by the Authority in this regard from time
to time, shall be treated as `Other Investments"
13. Amendment of Schedule I:
Schedule I of the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000 shall be substituted with the following:-
Schedule I
(See Regulation 3 to 6)
List of Approved Investments for Life Business
`Approved Investments' for the purposes of section 27A of the Act shall
consist of the following:
(a) all investments specified in section 27A of the Act except
(i) clause (b) of sub-section (I) of section 27A of the Act;
(ii) first mortgages on immovable property situated in another
country as stated in clause (m) of sub-section (I) of section
27A of the Act;
(iii) Immovable property situated in another country as stated in
clause (n) of sub-section (I) of section 27A of the Act.
(b) In addition the following investments shall be deemed as approved
investments by the Authority under the powers vested in it vide
clause (s) of sub-section (I) of section 27A of the Act.
(i) All loans secured as required under the Act, rated
debentures (including bonds) and other rated & secured debt
instruments as per Note appended to Regulation 3 to 8.
Equity shares and preference shares and debt instruments
issued by all India Financial Institutions recognized as such
by Reserve Bank of India investments shall be made in
terms of investment policy guidelines, benchmarks and
exposure norms, limits approved by the Board of Directors of
the insurer.
(ii) Bonds or debentures issued by companies rated not less
than AA or its equivalent and P1 or equivalent ratings for
short term bonds, debentures, certificate of deposits and
commercial papers by a credit rating agency, registered
149
Technical Guide
under SEBI (Credit Rating Agencies) Regulations 1999 would
be considered as `Approved Investments'.
(iii) Subject to norms and limits approved by the Board of
Directors of the insurers deposits (including fixed deposits as
per section 27A (9) of Insurance Act, 1938) with banks (e.g.
in current account, call deposits, notice deposits, certificate
of deposits etc.) included for the time being in the Second
Schedule to Reserve Bank of India Act, 1934 (2 of 1934) and
deposits with primary dealers duly recognized by Reserve
Bank of India as such.
(iv) Collateralized Borrowing and Lending Obligations (CBLO)
created by the Clearing Corporation of India Ltd and
recognized by the Reserve Bank of India and exposure to
Gilt, G Sec and liquid mutual fund forming part of Approved
Investments as per Mutual Fund Guidelines issued under
these regulations and money market instrument / investment.
(v) Asset Backed Securities with underlying Housing loans or
having infrastructure assets as underlying as defined under
`infrastructure facility' in clause (h) of regulation 2 of
Insurance Regulatory and Development Authority
(Registration of Indian Insurance Companies) Amendment
Regulations, 2008 as amended from time to time.
(vi) Commercial papers issued by a company or All India
Financial Institution recognized as such by Reserve Bank of
India having a credit rating by a credit rating agency
registered under SEBI (Credit Rating Agencies) Regulations
1999.
(vii) Money Market instruments as defined in Regulation 2(h) of
these Regulation.
Explanation
1. All conditions mentioned in the `note' appended to Regulation 3 to 8 shall
be complied with.
14. Amendment of Schedule II:
Schedule II to the Insurance Regulatory and Development Authority
(Investment) Regulations, 2000 shall be substituted with the following:-
150
Appendix `A'
Schedule II
(See Regulation 7 & 8)
List of Approved Investments for General Business
`Approved Investments' for the purpose of section 27B of the Act shall
consist of the following:
(a) All investments specified in section 27B of the Act except
(i) clause (b) of sub-section (I) of section 27A of the Act;
(ii) Immovable property situated in another country as stated in
clause (n) of sub-section (I) of section 27A of the Act;
(iii) First mortgages on immovable property situated in another
country as stated in clause (i) of sub-section (I) of section
27B of the Act.
(b) In addition the following investments shall be deemed as approved
investments by the Authority under the powers vested in it vide
clause (j) of sub-section (I) of section 27B of the Act:
(i) All loans secured as per the Act, rated debentures (including
bonds) and other rated & secured debt instruments as per
Note appended to Regulations 3 to 8. Equity shares,
preference shares and debt instruments issued by All India
Financial Institutions recognized as such by Reserve Bank of
India investments shall be made in terms of investment
policy guidelines, benchmarks and exposure norms, limits
approved by the Board of Directors of the insurer.
(ii) Bonds or debentures issued by companies rated not less
than AA or its equivalent and P1 or Equivalent ratings for
short term bonds, debentures, certificate of deposits and
commercial papers by a credit rating agency, registered
under SEBI (Credit Rating Agencies) Regulations 1999 would
be considered as `Approved Investments'.
(iii) Subject to norms and limits approved by the Board of
Directors of the insurers deposits (including fixed deposits as
per section 27B (10) of Insurance Act, 1938) with banks (e.g.
in current account, call deposits, notice deposits, certificate
of deposits etc.) included for the time being in the Second
Schedule to Reserve Bank of India Act, 1934 (2 of 1934) and
deposits with primary dealers duly recognized by Reserve
Bank of India as such.
151
Technical Guide
(iv) Collateralized Borrowing & Lending Obligations (CBLO)
created by the Clearing Corporation of India Ltd and
recognized by the Reserve Bank of India and exposure to
Gilt, G Sec and liquid mutual fund forming part of Approved
Investments as per Mutual Fund Guidelines issued under
these regulations and money market instrument / investment.
(v) Asset Backed Securities with underlying Housing loans or
having infrastructure assets as underlying as defined under
`infrastructure facility' in clause (h) of regulation 2 of
Insurance Regulatory and Development Authority
(Registration of Indian Insurance Companies) Amendment
Regulations, 2008 as amended from time to time.
(vi) Commercial papers issued by a company or All India
Financial Institution recognized as such by Reserve Bank of
India having a credit rating by a credit rating agency
registered under SEBI (Credit Rating Agencies) Regulations
1999
(vii) Money Market instruments as defined in Regulation 2(h) of
this Regulation.
Explanation:
1. All conditions mentioned in the `note' appended to Regulation 3 to
8 shall be complied with.
J. HARI NARAYAN, Chairman
[ADVT. III/4/161/12/Exty.]
152
FORM - 1
(Read with Regulation 10)
Name of the Insurer:
Registration Number:
Statement as on: Name of the Fund
Statement of Investment and Income on Investment
Periodicity of Submission: Quarterly Rs Crore
3
Current Quarter Year to Date (current year) Year to Date (previous year)
Category Income on Income on Income on
No. Category of Investment Investment Gross Yield Investment Gross Yield Investment Gross Yield
Code Investment Net Yield (%)² Investment Net Yield (%)² Investment Net Yield (%)²
(Rs.)¹ (%)¹ (Rs.)¹ (%)¹ (Rs.)¹ (%)¹
(Rs.) (Rs.) (Rs.)
153
TOTAL
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Signature
Date: Full Name
Chief of Finance
Note: Category of Investment (COI) shall be as per Guidelines, as amended from time to time
1 Based on daily simple Average of Investments
2 Yield netted for Tax
3 In the previous year column, the figures of the corresponding Year to date of the previous financial year shall be shown
4 FORM-1 shall be prepared in respect of each fund. In case of ULIP FORM 1 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.
Appendix `A'
FORM - 2
(Read with Regulation 10) PART - A
Name of the Insurer:
Registration Number:
Statement as on: Name of Fund
Statement of Down Graded Investments
Periodicity of Submission: Quarterly
Technical Guide
Rs Crore
Date of Date of
No Name of the Security COI Amount Rating Agency Original Grade Current Grade Remarks
Purchase Downgrade
A. During the Quarter ¹
154
B. As on Date ²
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Signature
Date: Full Name and Designation
Note: Chief Finance Officer
1 Provide details of Down Graded Investments during the Quarter.
2 Investments currently upgraded, listed as Down Graded during earlier Quarter shall be deleted from the Cumulative listing.
3 FORM-2 shall be prepared in respect of each fund. In case of ULIP FORM 1 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.
4 Category of Investmet (COI) shall be as per INV/GLN/001/2003-04
FORM - 2 PART - B
(Read with Regulation 10)
Name of the Insurer :
Registration No : Name of the fund
INVESTMENT ASSETS - RATING PROFILE Rs. Cr
Investments in Equity or Equity
AA or lower upto A+ A or lower than A or
Sovereign AAA or Equivalent AA+ or Equivalent Unrated NPA Related Instruments
or Equivalent Equivalent
instruments and other Instruments
Total BV
No Type of Investments
% to Inv. % to Inv. % to Inv. % to Inv. % to Inv. % to Inv. % to Inv. % to Inv.
BV BV BV BV BV BV BV BV
Assets Assets Assets Assets Assets Assets Assets Assets
155
(a) (b) (c) (d) (e) (f) (g) (h) (i)
i Central Govt Securities
State Govt Sec. or Other
ii
Approved Securities
iii (1) Housing Sector
(a) Debt or debt related
instruments
(b) Loans
(c) Others (Specify)
(2) Infrastructure Sector
(a) Debt or debt related
instruments
(b) Equity or equity related
instruments
Appendix `A'
(c) Loans
(d) Others (Specify)
(3) Approved Investments
(a) Debt or debt related
instruments
Technical Guide
(b) Equity or equity related
instruments
(c) Loans
(d) Investment Property -
Immovable
(e) Mutual Fund
(f) Money Market
(g) Net current assets
156
(h) Others (Specify)
iv Other Investments
(a) Debt or debt related
instruments
(b) Equity or equity related
instruments
(c) Loans
(d) Investment Property -
Immovable
(e) Mutual Fund
(f) Others (specify)
Investment Asset
Rs. Cr
Book Value (Life, Penison Fund Market Value (for
Investment in 'Debt' instruments %
and General Insurers) ULIP Funds)
Investments in Sovereign instruments
APPROVED INVESTMENTS
AAA or upto AA or Equivalent
MM, Loans, Others - Approved Invt
OTHER INVESTMENTS
AA-,A, lower than A or Equivalent
Unrated, Loans, Others - Other Invt
157
Total Debt Investments (a to g)
Certified that the information given herein are correct and complete to the best of my knowledge. Also certified that the various investments made and
covered in the return are within the categories provided in Investment Guidelines as amended from time to time.
Signature :
Full Name :
Note: Chief of Finance
1 The figures in Col (i) must match (for each type of investment) with Form 3A (Part A)/Form 3B
2 Non-Perfoming investment assets shall be separately shown irrespective of the rating
3 For Linked business values of Investments shall be at Market Value
4 Equity or Equity related instruments shall be as permitted under the Insurance Act, 1938 or IRDA (Investment) Regulations, 2000 as amended from time to time
5 FORM - 2 (Part B) shall be prepared in respect of each fund. In case of ULIP Form 2 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.
Appendix `A'
Technical Guide
FORM - 2
(Read with Regulation 10)
Name of the Insurer: PART - C
Registration No:
INVESTMENT ASSETS & INFRA INVESTMENTS - RATING PROFILE
Name of the Fund
INVESTMENT ASSETS Rs Crore % to Inv. Assets
Central Govt. Sec + Other Approved Securities
TOTAL (1)
Approved Investments
AAA or upto AA or Equivalent
Equity - Approved Invt
MM, Loans, Others - Approved Invt
TOTAL (2)
Other Investments
AA-, A, lower than A or Equivalent
Equity - Other Invt
Unrated, NPA, Loans, Others - Other Invt
TOTAL (3)
TOTAL FUND (1+2+3)
INFRASTRUCTURE INVESTMENTS
Approved Investments
AAA or upto AA or Equivalent
Equities-Approved
MM, Loans, Others-Approved Invt
TOTAL (1)
Other Investments
AA-,A, lower than A or Equivalent
Equities-Other Investments
Loans, NPAs, Others - Other Invt
TOTAL (2)
Total Infra Investment (1+2)
TOTAL FUND 0
Certification
Certified that the information given herein are correct and complete to the best of my knowledge. Also certified that the various
investments made and covered in the return are within the categories provided in Investment Guidelines as amended from time to
time.
Signature:
Full name:
Chief of Finance
Note:
1. The figures in Col (i) must match (for each type of investment) with Form 3A (Part A)/Form 3B
2. FORM - 2 (Part C) shall be prepared in respect of life fund
158
Appendix `A'
FORM - 3A
(Read with Regulation 10)
Name of the Insurer:
Registration Number: PART - A
Statement as on:
Statement of Investment Assets (Life Insurers)
(Business within India)
Periodicity of Submission: Quarterly Rs. Crore
Section I
Total Application as per Balance Sheet (A) 0 Reconciliation of Investment Assets
Add (B) Total Investment Assets (as per Balance Sheet) 0
Provisions Sch-14 Balance Sheet Value of:
Current Liabilities Sch-13 A. Life Fund
0 B. Pention & General Annuity and Group Business
Less (C ) C. Unit Linked Funds
Debit Balance in P& L A/c 0
Deferred tax asset
Loans Sch-09
Adv & Other Assets Sch-12
Cash & Bank Balance Sch-11
Fixed Assets Sch-10
Misc Exp. Not Written Off Sch-15
Funds available for Investments 0
Section II
NON - LINKED BUSINESS
SH PH
Book Value Market
UL-Non Unit NON Actual % FVC Amount Total Fund
Balance FRSM+ PAR (SH+PH) Value
Res PAR
% as per
A. LIFE FUND
Reg
(f) = (g) = [(f) -
(a) (b) (c) (d) (e) (h) (i)=(a+f+h) (j)
[a+b+c+d+e] (a)]%
Not Less
1 Central Govt. Sec
than 25%
Central Govt Sec, State Govt Sec or Other Approved Not Less
2
Securities (incl (i) above) than 50%
3 Investment subject to Exposure Norms
a. Housing & Infrastructure
Not Less
1. Approved Investments
than 15%
2. Other Investments
b. i) Approved Investments Not
exceeding
ii) Other Investments
35%
TOTAL LIFE FUND 100%
PH
FVC Market
B. PENSION & GENERAL ANNUITY AND GROUP NON Book Value Actual % Total Fund
% as per Reg PAR Amount Value
BUSINESS PAR
(a) (b) (c)= (a+b) (d) (e) (f)=(c+e) (g)
1 Central Govt. Sec Not Less than 20%
Central Govt Sec, State Govt Sec or Other Approved
2 Not Less than 40%
Securities (incl (i) above)
3 Balance in Approved investment Not Exceeding 60%
TOTAL PENSION, GENERAL ANNUITY FUND 100%
LINKED BUSINESS
PH
C. LINKED FUNDS % as per Reg NON Total Fund Actual %
PAR
PAR
1 Approved Investments Not Less than 75% (a) (b) (c)= (a+b) (d)
2 Other Investments Not More than 25%
TOTAL LINKED INSURANCE FUND 100%
CERTIFICATION:
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Signature:
Date: Full name:
Chief of Finance
Note 1 (+) FRSM refers to 'Funds representing Solvency Margin'
2 Funds beyond Solvency Margin shall have a separate Custody Account.
3 Other Investments' are as permitted under Secction 27A(2) of Insurance Act, 1938
4 Pattern of Investment is applicable to both Shareholders funds representing solvency margin and policyholders funds.
5 Exposure Norms shall apply to Funds held beyond Solvency Margin, held in a separate Custody Account
159
Technical Guide
FORM 3A
(Read with Regulation 10)
Unit Linked Insurance Business PART - B
Name of the Insurer:
Registration Number:
Link to Item 'C' of FORM 3A (Part A)
Periodicty of Submission: Quarterly
Statement as on:
PARTICULARS SFIN 1 SFIN 2 SFIN 'n' Total of All Funds
Opening Balance (Market Value)
Add: Inflow during the Quarter
Increase / (Decrease) Value of Inv [Net]
Less: Outflow during the Quarter
TOTAL INVESTIBLE FUNDS (MKT VALUE)
SFIN 1 SFIN 2 SFIN 'n' Total of All Funds
INVESTMENT OF UNIT FUND
Actual Inv. % Actual Actual Inv. % Actual Actual Inv. % Actual Actual Inv. % Actual
Approved Investments (>=75%)
Central Govt Securities
State Governement Securities
Other Approved Securities
Corporate Bonds
Infrastructure Bonds
Equity
Money Market Investments
Mutual funds
Deposit with Banks
Sub Total (A)
Current Assets:
Accrued Interest
Dividend Recievable
Bank Balance
Receivable for Sale of Investments
Other Current Assets (for Investments)
Less: Current Liabilities
Payable for Investments
Fund Mgmt Charges Payable
Other Current Liabilities (for Investments)
Sub Total (B)
Other Investments (<=25%)
Corporate Bonds
Infrastructure Bonds
Equity
Mutual funds
Venture funds
Others
Sub Total (C)
Total (A + B + C)
Fund Carried Forward (as per LB 2)
Signature:
Date : Full name:
Chief of Finance
Note:
1. The aggregate of all the above Segregated Unit-Funds should reconcile with item C of FORM 3A (Part A), for both Par & Non Par Business
2. Details of Item 12 of FORM LB 2 which forms part of IRDA (Acturial Report) Regulation, 2000 shall be reconciled with FORM 3A (Part B).
3. Other Investments' are as permitted under Sec 27A(2)
160
FORM - 3A
(Read with Regulation 10)
Name of the Insurer:
Registration Number: PART - C
Link to FORM 3A (Part B)
Statement for the period:
Periodicity of Submission: Quarterly
Statement of NAV of Segregated Funds
Rs.Crore
Assets Under Highest NAV
Date of NAV as per NAV as on the Previous Qtr 2nd Previous 3rd Previous 4th Previous 3 Year Rolling
No Fund Name SFIN Par/Non Par Management on Return/Yield since
Launch LB 2 above date* NAV Qtr NAV Qtr NAV Qtr NAV CAGR
the above date inception
161
1 Segregated Fund 1
2 Segregated Fund 2
3 Segregated Fund n
Total
CERTIFICATION
Certified that the performance of all segregated funds have been placed and reviewed by the Board. All information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my
knowledge and belief.
DATE : Signature:
Note: Full Name :
1. * NAV should reflect the published NAV on the reporting date Chief of Finance
Appendix `A'
Technical Guide
FORM - 3A
(Read with Regulation 10) PART - D
Name of the Insurer:
Registration Number: Link to FORM 3A (Part A)
Statement as on:
Statement of Accretion of Funds
(Business within India) Rs.Crore
Periodicity of Submission : Quarterly
Opening Net Accretion
% to Total TOTAL % to Total
No Category of Investments POI Balance % to Total (A) for the Qtr.
Accretion (1+2)
(1) (2) (1+2)
A LIFE FUND
Not less than
1 Central Govt. Sec
25%
Not less than
2 Central Govt Sec, State Govt Sec or Other Approved Securities (incl (i) above)
50%
3 Investment subject to Exposure Norms
a. Housing & Infrastructure
Not less than
1. Approved Investments
15%
2. Other Investments
Not
b. (i) Approved Investments exceeding
35%
(ii) Other Investments (Not to exceed 15%)
Total (A)
Opening Net Accretion
% to Total TOTAL % to Total
No Category of Investments POI Balance % to Total (B) for the Qtr.
Accretion (1+2)
(1) (2) (1+2)
B PENSION & GENERAL ANNUNITY AND GROUP BUSINESS
Not less than
1 Central Govt. Sec
20%
Not less than
2 Central Govt Sec, State Govt Sec or Other Approved Securities (incl (i) above)
40%
Not
3 Balance in Approved investment exceeding
60%
Total (B)
Opening Net Accretion
% to Total TOTAL % to Total
No Category of Investments POI Balance % to Total (C) for the Qtr.
Accretion (1+2)
(1) (2) (1+2)
C LINKED FUNDS
Not less than
1 Approved Investment
75%
Not more
2 Other Investments
than 25%
Total (C)
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Date:
Signature:
Full name:
Chief of Finance
162
Appendix `A'
FORM - 3A
(Read with Regulation 10) PART - E
Name of the Insurer:
Registration Number:
Statement as on:
Statement of Investment Details of ULIP Products to Segregated Funds
(Business within India) Rs.Crore
Periodicity of Submission : Quarterly
INVESTMENT DETAILS OF "ULIP" PRODUCTS [UIN]TO SEGREGATED FUNDS [SFIN]
Inflow UIN1 UIN2 UIN n
Premium
Others (Specify)
TOTAL (A)
Outflow
Commission
Charges
Claims
Others
TOTAL (B)
Total C = (A-B)
Policy Funds at "C" above allotted to
SFIN 1
SFIN 2
SFIN n
TOTAL (D)
Difference (if any) E = (C-D)
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Date:
Signature:
Full name:
Chief of Finance
Note:
1. UIN represents the Unique product number as per "file and use' approved under ULIP prodcuts
2. SFIN represents the Segregated Fund Identification Number as approved by the Product Approval Committee
163
Technical Guide
FORM - 3B
(Read with Regulation 10)
Name of the Insurer:
Registration Number:
Statement as on: PART - A
Statement of Investment Assets (General Insurer, Re-insurers)
(Business within India) Rs.Crore
Periodicity of Submission: Quarterly
Section I
No PARTICULARS SCH AMOUNT
1 Investments 8
2 Loans 9
3 Fixed Assets 10
4 Current Assets
a. Cash & Bank Balance 11
b. Advances & Other Assets 12
5 Current Liabilities 13
a. Current Liabilities
b. Provisions 14
c. Misc. Exp not Written Off 15
d. Debit Balance of P&L A/c
Application of Funds as per Balance Sheet (A) 0
Less: Other Assets SCH Amount
1 Loans (if any) 9
2 Fixed Assets (if any) 10
3 Cash & Bank Balance (if any) 11
4 Advances & Other Assets (if any) 12
5 Current Liabilities 13
6 Provisions 14
7 Misc. Exp not Written Off 15
8 Debit Balance of P&L A/c
Total (B) TOTAL (B) 0
'Investment Assets' As per FORM 3B (A-B) 0
Section II
SH
Book Value % FVC
PH Total Market Value
No 'Investment' represented as Reg. % Balance FRSM
+ (SH + PH) Actual Amount
(h)
(a) (b) (c) d = (a+b+c) (e) (f) (g)=(d+f)
Not less than
1 Central Govt. Securities
20%
Central Govt Sec, State Govt Sec or Other Approved Not less than
2
Securities (incl (i) above) 30%
3 Investment subject to Exposure Norms
Not less than
a. Housing & Loans to SG for Housing and FFE
5%
1. Approved Investments
2. Other Investments
Not less than
b. Infrastructure Investments
10%
1. Approved Investments
2. Other Investments
c. Approved Investments
Not exceeding
d. Other Investments 55%
Investment Assets 100%
Certification:
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Date: Signature:
Full name:
Chief of Finance
Note: 1. (+) FRSM refers 'Funds representing Solvency Margin'
2. Other Investments' are as permitted under 27B(3)
3. Pattern of Investment is applicable to both Shareholders funds representing solvency margin and policyholders funds.
4. Exposure Norms shall apply to Funds held beyond Solvency Margin, held in a separate Custody Account
164
FORM - 3B
(Read with Regulation 10)
Name of the Insurer: PART - B
Registration Number:
Statement as on:
Statement of Accretion of Assets Rs. Crore
(Business within India)
Periodicity of Submission : Quarterly
Net
Opening % to Accretion % to Total TOTAL
No Category of Investments COI Balance Opening % to Total
for the Qtr. Accrual
Balance
(A) (B) (A+B)
1 Central Govt. Securities
2 Central Govt Sec, State Govt Sec or Other Approved Securities (incl (i) above)
3 Investment subject to Exposure Norms
165
a. Housing & Loans to SG for Housing and FFE
1. Approved Investments
2. Other Investments
b. Infrastructure Investments
1. Approved Investments
2. Other Investments
c. Approved Investments
d. Other Investments (not exceeding 25%)
Total
Certification:
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Date: Signature:
Note: Full name:
Appendix `A'
1. Total (A+B), fund wise should tally with figures shown in Form 3B (Part A) Chief of Finance
FORM 4
(read with regulation 10)
EXPOSURE / PRUDENTIAL AND OTHER INVESTMENT NORMS COMPLIANCE CERTIFICATE
PART A
Insurer Name and Code:
Date: as at: ................
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
Technical Guide
(Yes / No)
I Investee Company a. Investment in equity, preference shares, convertible debenture:-
Exposure
Exposure at any point of time did not exceed 10% of outstanding
equity shares (face value) or 10% of the amount under point
Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c) considered separately) of
this Regulation, in the case of Life insurers / an amount under
Regulation 9 (A.2) or (A.3) of this Regulation, in the case of General
Insurer / Re-insurer whichever is lower.
166
[In case of Infrastructure Co, the limit of 10% shall be read as 20%.
Where the investment assets of the insurer is Rs. 250000 Crores or
more, the limit of 10% shall be read as 15% of outstanding equity
shares (face value) or where the investment assets of the insurer is
Rs.50000 Crores but less than Rs 250,000 Crores the limit of 10%
shall be read as 12% of outstanding equity shares (face value)]
b. Investment in Debt/ loans and any other permitted Investments as per
Act / Regulation, other than `Equity', Preference Shares, Convertible
Debentures :-
Exposure at any point of time did not exceed 10% of the paid-up
share capital, free reserves (except revaluation reserve) and
debenture / bonds of the investee company or 10% of amount under
point Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c) above considered
separately) of this Regulation, in the case of Life insurers / an amount
under Regulation 9 (A.2) or (A.3) of this Regulation, in the case of
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
General Insurer / Re-insurer whichever is lower.
[In case of Infrastructure Co, the limit of 10% shall be read as 20%.
Where the investment assets of the insurer is Rs. 250000 Crores or
more, the limit of 10% shall be read as 15% of paid up share capital,
free reserves (excluding revaluation reserve) and debenture / bonds
or where the investment assets of the insurer is Rs.50000 Crores but
less than Rs 250,000 Crores the limit of 10% shall be read as 12%
paid up share capital, free reserves (excluding revaluation reserve)
and debenture / bonds)
c. Has the maximum exposure under limit for a single `investee'
company from all investment assets (Equity / Preference Shares /
Convertible Debenture / Debentures/ bonds / CPs / loans and any
other permitted debt Investments as per Act / Regulation), are within
167
the limit prescribed in Regulation 9 (B) (In case of Infrastructure Co,
the limit of 10% shall be read as 20%)?
d. Has debt investments made in infrastructure SPV have complied with
the limits, terms and conditions as mentioned in the Note: 4 of the
Investment Regulation 9?
II Limit for the entire Has total investments made in entire "Group of the Investee Company"
Group of the Investee is the lower of:
Company
a. amount under point Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c)
above considered separately) of this Regulation, in the case of
Life insurers / an amount under Regulation 9 (A.2) or (A.3) of this
Regulation, in the case of General Insurer / Re-insurer (or)
b. 15% of investment Assets in all companies belonging to the
group
Appendix `A'
(In case of Infrastructure company the limit mentioned in point `a'
above shall be read as 20%)
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
III Promoter Group Has total investments made in all "Companies falling under Insurer's
Company Promoter Group":
a. is not more than 5% in aggregate of its total investments in all
Technical Guide
companies belonging to the promoters' groups.
b. not made investments in any companies belonging to the
promoters' group by way of private placement (equity)
c. not made any investment in unlisted instruments [equity & debt
certificate of deposits and fixed deposits (without prejudice to
Section 27A (9) and Section 27B (10) of the Act) held in a
Scheduled Commercial Bank], except for companies formed by
Insurers under Sec 27A (4) or Sec 27B (5) of the Act.
168
IV Industry sector Has investment made by the insurer in any industrial sector [except
Financial and Insurance Activities sector as per National Industrial
Classification (All Economic Activities) - 2008]:
1. not exceeded the lower of:
15% of the amount under Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c)
considered separately) of this regulation in the case of life insurer /
an amount under Regulation 9 (A.2) or (A.3) of this regulation, in the
case of General Insurer / Re-insurer
(or) 15% of investment Asset
2. Has the investment made by the insurer in Financial and Insurance
Activities sector as per National Industrial Classification (All
Economic Activities) - 2008 (excluding Fixed Deposit, Term Deposit
and Certificates of Deposit) not exceeded 25% of its total investment
assets?
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
3. Is the classification of industrial sectors been done on the lines of
National Industrial Classification (All Economic Activities) - 2008 [NIC]
for all sectors, except "infrastructure sector".
4. Has exposure been calculated at Division level from A to R of (NIC
(All Economic Activities) 2008) Classification for all sectors other
than infrastructure sector?
5. Has exposure been calculated for Financial and Insurance
Activities sector at Section level (of NIC (All Economic Activities)
2008)?
V Rating Criteria 1. Are investments under `Approved Investments' made only in rated
169
instruments, if such instruments are capable of being rated?
2. At the time of purchase, are Corporate Bonds rated below AA (A+
with the prior approval of the Board of the Insurer) or its equivalent
and P1 or equivalent (in case of short term instruments) classified
under "Other Investments"?
3. Are instruments downgraded below the minimum rating prescribed
under Note 3 & 4 to Regulation 3 to 8 of the IRDA (Investment)
Regulation, 2000, as amended from time to time, reclassified under
"Other Investments" through the System?
4. Are `Debt' instruments (including Central Govt, State Govt Securities
and Other Approved Securities) - fund wise, in the case life insurer
(including ULIP funds at segregated fund level) and Investment
Assets in the case of general insurer - have a minimum rating of
Appendix `A'
Sovereign, AAA or equivalent rating for long term and Sovereign, P1+
or equivalent for short term instruments, not less than 75% (Life
Insurer) / 65% (General Insurer)?
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
5. Are `Debt' instruments (including Central Government Securities,
State Government Securities and Other approved securities) fund
wise, in the case of life insurer (including ULIP funds at segregated
fund level) and Investment Assets in the case of general insurer
have a rating of A or below or equivalent rating for long term, are not
Technical Guide
more than 5% (8% in the case of Non-Life Insurers)?
VI Others A. CONFIRMATION ON POLICY / SYSTEMS / PROCEDURE
1. Has the software application for Investment Operations, been fully
automated without manual intervention in calculating the exposure
norms of Investee Company, Group, Promoter Group and Industry
Sector, as per the various slabs of `investment assets' provided under
Regulation 9 (B)?
170
2. Is the Constitution of the Investment Committee of the Insurer in full
compliance with the requirements mentioned under Regulation 13 of
Investment Regulation?
3. Was none of the functions of the insurer relating to Investment
Operations falling under Front / Mid / Back Office, (covering both
Shareholders and Policyholders Investments), outsourced (except to
the extent permitted under Point 11 and 12 of Annexure II to Circular
INV/CIR/008/2008-09 Dt. 22nd Aug, 2008 with respect to Outsourcing
of Investment Advice and NAV Calculation)?
4. Is the Audit Committee of the Board, headed by a Chartered
Accountant, provided he is a member of the Board of the Insurer?
5. Have periodical Investment Returns to be filed for the Quarter,
prepared in full compliance with the "Guidance Note on preparation
of Investment Returns" issued by IRDA?
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
6. Have amendments to the Investment Policy, been approved by the
Board of the Insurer?
7. Has the model code of conduct, to prevent insider / personal trading of
officers involved in Investment Operations, including front, mid and
back office as approved by the Board, implemented? If so:
a. Does it cover Officers involved in Investment Operations at
various levels?
b. Does the code of conduct cover each Officer in such level?
c. Has the Board been informed of compliance or otherwise to
model code of conduct during the Quarter?
d. Has the Concurrent Auditor issued his Audit Report of previous
Quarter, without any qualification on aspects of model code of
171
conduct implemented by the Insurer?
e. Where breach of model code of conduct, if any, reported during
the previous Quarter, been dealt properly and appropriate action
as recommended by Audit Committee/ Board been taken?
8. Does the segregation of front, mid and back office are as per
Technical Guide on Internal / Concurrent Audit of Investment functions
of Insurance Companies issued by the Institute of Chartered
Accountants of India?
9. Have all non-compliance reported in the Chartered Accountant's
certificate issued (as per the Technical Guide on Investment Risk
Management Systems & Process of Insurance Companies, by ICAI)
on the `status' of implementation of Investment Risk Management
Systems and Process been implemented as per timelines committed
to IRDA?
Appendix `A'
10. Has the Internal / Concurrent audit Report of the previous Quarter
with the with comments of Audit Committee of the Board, on `very
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
serious', `serious' points (as per the Technical Guide on Internal /
Concurrent Audit of Investment functions of Insurance Companies,
issued by the Institute of Chartered Accountants of India) in the report,
and status of implementation of Audit committee recommendation
been placed before the Board of the Insurer during the current
Technical Guide
quarter?
11. Have the Audit Report of the previous Quarter along with Audit
Committees recommendation and its implementation status filed with
the Authority along with these returns?
12. Have the increase during the quarter, in Shareholders' funds (other
than income from shareholders' investments, maintained in a separate
custody account) held beyond solvency margin requirement, is
172
supported by surplus calculation certified by the Appointed
Actuary? [annex a copy of Appointed Actuary's Certificate to this
return]
13. Has the Board reviewed (both life and non-life Insurers) during the
previous quarter the performance of products [at line of business level
in the case of General Insurers]?
14. Has the Board, during the previous Quarter, reviewed (both life and
non-life insurers) the performance of investments? [the review in the
case of life insurers should cover both Non-Linked and Linked
funds [SFIN] level]
15. Has the life insurer, in the case of ULIP business reconciled, through
the system, the premium received (net of charges and benefits paid)
under each product (Unique Identification Number UIN wise) with
value of all the segregated fund(s) (Segregated Fund Identification
Number SFIN wise) net of fund management charges, held under a
single UIN, on a day to day basis, during the quarter?
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
16. Has the life insurer disclosed UIN wise reconciliation, on the Insurer's
website on the same day?
17. Is there a fully automated system to generate, on a day to day basis,
Form 3A - Part E (Investment Details of ULIP Products to Segregated
Funds)?
18. Has the life insurer disclosed the value of policy wise units held by
policyholder on the Insurer's policyholder portal?
19. Has the life insurer disclosed fund wise NAV (SFIN wise) on the
Insurer's website and life council website on the same day?
20. Has the Standard Operating Procedure (SOP) approved by the
173
Investment Committee of the Insurer?
21. Does the SOP, for each `category of investment' is same across all
fund(s)?
22. Does SOP of the Insurer, for "each" Category of Investment, (as per
Guidelines INV/GLN/001/2003-04, as amended from time to time,
issued by the Authority) provide individual activities to be carried out in
Front, Mid and Back office?
23. Have all investments made (100%) followed the IC approved SOP?
24. Does the Investment made during the Quarter, are within the
exhaustive `Categories of Investments' prescribed under Guidelines
INV/GLN/001/2003-04, as amended from time to time?
Appendix `A'
25. Has the Insurer during the Quarter taken any Derivative position
(including interest rate swap and Credit default swap)? If Yes:
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
a. Has the Derivative Policy been approved by the Board of the
Insurer?
b. Has the insurer taken prior approval of IRDA for such Derivative
policy?
c. If so, is there a process to identify the risk to be hedged [`fund-
wise' in the case of Life Insurers]?
Technical Guide
d. Does such derivative position comply with IRDA Guidelines?
e. Has derivative exposure taken, are clearly identified with the
portfolio risk to be hedged?
f. Has the Insurer filed the regulatory information / returns required
under the Guidelines issued?
26. Are investment made in immovable property covered under Section
27A (1) (n) of the Act shall not exceed, at the time of investment,
within 5% of the Investment Assets [as per FORM 3B (Part A)] in the
174
case of General Insurer / within 5% of Life fund, Pension & General
Annuity Fund, [as per FORM 3A (Part A)] in the case of Life Insurer.
27. Have NO investments in Immovable Properties been made out of
ULIP Funds?
28. Are investments in equity shares through IPO, Mutual fund, Venture
fund, SEBI approved Alternate Investment Funds, Corporate Bond
Reverse Repo, IDF (as per Note 2 to Regulation 9) Perpetual Debt
instruments of Bank's Tier-I Capital and Debt Capital instruments of
Bank's Upper Tier-II Capital, made in compliance with the relevant
circulars issued in this regards from time to time?
29. Are investments in asset backed securities, PTC, SRs both under
Approved and Other investment category, made within 10% of
Investment assets in case of Life Companies and 5% of Investment
assets in case of Non life companies
30. Are any securitized assets with underlying housing or infrastructure
assets, if downgraded below AAA or equivalent reclassified as Other
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
Investments
B. CONFIRMATION ON INVESTMENT OPERATIONS / EXPOSURE
1. Has Shareholders funds been split Funds Representing Solvency
Margin (FRSM) in FORM 3A (Part A)?
2. If funds are split as per point 1 above, between FRSM and Balance,
have the same been maintained in separate custodian account with
identified `scrips' for both Life and General (including Re-insurance)
companies and reconciled with FORM 3A (Part A) / FORM 3B?
3. Do each `Segregated fund' [SFIN] have underlying `Scrips', identified
upto to Custodian level?
175
4. Do each `Segregated Fund' [SFIN] have not less than 75% of
Approved Investments as defined in the Act?
5. Does all investments in assets or instruments which are capable of
being rated (except Fixed Deposits with Scheduled Commercial
Banks) are made based on `instrument' rating and NOT based on
Investee `Company' rating?
6. Have Investments in debt instruments rated AA - (AA minus) or below
classified under Other Investments?
7. Are Investments made in a Public Limited Special Purpose Vehicle
(SPV) engaged in infrastructure sector is within 20% of the project
cost (or) amount under Regulation 9 (B) (i), whichever is lower?
Appendix `A'
8. If answer to point above is `yes', have all the requirements mentioned
under Note 4 to Regulation 9 have been complied?
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
9. Are investments made in Mortgaged Backed Securities [MBS] /
Assets Backed Securities [ABS] complied with the requirements of
Note 5 to Regulation 9?
10. Has `each' purchase and sale of Investments, as mentioned in the
Deal Slip, been identified with respect to `each' fund / `segregated
Technical Guide
fund' in respect of ULIP funds?
11. Are all thinly traded equity (as per SEBI norms) classified as "Other
Investment"?
12. Has inter fund transfer, been done as per circular
IRDA/FA/02/10/2003-04 and any other circular issued from time to
time , between ULIP funds during Market Hours, for Equity and Debt
at the prevailing price and not based on broker quote?
176
13. With respect to `each' Segregated Fund [including Discontinued
Policy Fund (DPF)] in the case of ULIP business, whether
reconciliation of "Units" have been made, between Policy Admin
System (PAS) and Investment Accounting Systems through a fully
automated system using process integrators to ensure seamless
data transfer without manual intervention?
14. Does the Primary Data Server of the Computer Application used for
Investment Management, maintained within the Country?
15. Has the insurer, reconciled investments, fund-wise, with bank and
custodian records on `day-to-day basis for `each' segregated fund?
16. Has the insurer, reconciled investment accounts, for each fund in the
case of Non-ULIP Business and General Insurance Business, with
Custodian records?
17. Has valuation of investments of `each' fund (including ULIP), done as
Are the required
Section Norms Exposure / Other Norms as per Regulation Norms complied? Remarks
(Yes / No)
prescribed in IRDA (Preparation of Financial Statements and Auditors
Report of Insurance Companies) Regulations, 2002?
18. Is there any shortfall/deficit in meeting the Discontinued Policies Fund
(DPF) liabilities?
19. If the answer to above point is `Yes', has the Insurer provided for such
shortfall / deficit on a quarterly basis?
20. Have all the negative deviations reported in FORM 4A (Part A)?
21. Has NAV of each segregated fund [SFIN] been audited before its
declaration by Internal / Concurrent Auditor on a day-to-day basis (on
T+0 basis)?
177
22. Has the Insurer floated any new fund during the quarter?
23. If the answer to point above is `yes', has the directions in respect of
Fund Approval procedure and Guidelines on NAV Process as per
Circular IRDA/F&I/CIR/INV/173/08/2011 Dt. 29th Jul, 2011 complied
with?
24. Has the insurer, apart from the credit rating evaluated by the rating
agencies, carried out their own risk analysis commensurate with the
complexity of the product(s) and the materiality of their holding for
every investment made?
CERTIFICATION
Certified that the information given herein is correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.
Appendix `A'
Signature:............................................. Signature:............................................. Signature:.............................................
Chief Executive Officer Chief of Finance Chief of Investments
Date:
FORM - 4
(Read with Regulation 10) PART B
Name of the Insurer:
Registration Number:
Statement as on:
INTERNAL / CONCURRENT AUDITOR'S CERTIFICATE ON INVESTMENT RISK MANAGEMENT SYSTEMS - IMPLEMENTATION STATUS
Remarks & Comments of Audit
MMM/YYYY Committed by the Proof provided (or)
Committee of the Board on non-
Technical Guide
Severity of Non Action(s) taken for Insurer's Board to IRDA for demonstrated by the Insurer, to
No Annexure Ref Audit Objective Audit Observation compliance of `time frame'
Compliance Compliance complying with the the Auditor to comply with the
communicated to IRDA on
requirement Requirement
implementing Systems & Processes
1 2 3 4 5 6 7 8 9
A ISSUES OF PREVIOUS QUARTER(S)
178
B ISSUES TO BE COMPLIED IN CURRENT QUARTER
CERTIFICATE
We certify that all issues, to be reported to IRDA on implementation of Investment Risk Management Systems and ProcessES, for the Quarter and pending issues of previous Quarter(s) [as committed to IRDA], and as listed in
the Chartered Accountant's Certificate issued, vide Circular INC/CIR/008/2008-09 Dt. 22 nd Aug, 2008, have been covered in the above table.
Place: ------------------------------
Date: Chartered Accountants
(Internal / Concurrent Auditor)
Note:
1. No. (under Col. 1 in above table) shall be as per the Annexure(s) to the Certificate issued by the Chartered Accountant appointed to certify implementation of Investment Risk Management Systems and Process
2. If all the issues have been complied with and no issues to be reported, a NIL statement should be filed
FORM - 4A
(Read with Regulation 10) PART A
Name of the Insurer:
Registration Number:
Statement as on: Total Investment Asset for the quarter as per FORM 3A:
EXPOSURE NORM COMPLIANCE - INVESTEE COMPANY Rs. Crore
% of Deviation with respect to
Equity & Equity related Debt + Others Equity + Debt + Others Deviation Amount
Regulation
Whether
No Investee Company Eligibility Limit Eligibility Limit Eligibility Limit Equity +
(Equity/Debt) (Debt + Equity + Debt (Debt +
as per Actual as per Actual as per Actual Equity Equity Debt +
Others) + Others Others)
Regulation 9* Regulation 9* Regulation 9* Others
179
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Signature:
Date: Full name:
Note: Chief of Finance
1. Above table shall be Complied separately for Life, Pension & General Annuity and Group Business and Individually for each Segregated Fund (SFIN) AND at Assets under Management Level
2. Only (-ve) deviations are to be reported
3. Exposure would be on the basis of Book Value for Non-unit linked funds & on Market Value for Unit linked Funds
Appendix `A'
4. Provisions of Section 27A (8) / Section 28B (9) of The Insurance Act, 1938 has been complied with.
Technical Guide
FORM - 4A
(Read with Regulation 10) PART B
Name of the Insurer:
Registration Number:
Total Investment Asset for the quarter as per FORM 3A:
Statement as on: Rs. Crore
EXPOSURE NORMS COMPLIANCE- PROMOTER GROUP
Eligibility limit of group as Actual Investments % of Deviation with respect
No Name of Group Company Deviation
per Regulation 9 (Cumulative) to regualtion
a b d e f=d-e g
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Signature:
Date: Full name:
Chief of Finance
Note:
1. Above table shall be Complied in aggregate of its total investments
2. Exposure would be on the basis of Book Value for Non-unit linked funds & on Market Value for Unit linked Funds
180
FORM - 4A
(Read with Regulation 10) PART C
Name of the Insurer:
Registration Number:
Statement as on: Rs. Crore
Total Investment Asset as per FORM 3A:
EXPOSURE NORMS COMPLIANCE- GROUP
Eligibility limit of Actual
% of Deviation with
No Name of Group Company group as per Investments Deviation
respect to regualtion
Regulation 9 (Cumulative)
a b c d f=c-d g
181
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Signature:
Date: Full name:
Chief of Finance
Note:
1. Above table shall be Complied separately for Life, Pension & General Anniuty and Group Business and Individually for each
Segregated Fund (SFIN) AND at Assets under Management Level its total investment assets
Appendix `A'
2. Exposure would be on the basis of Book Value for Non-unit linked funds & on Market Value for Unit linked Funds
FORM - 4A
(Read with Regulation 10) PART D
Name of the Insurer:
Registration Number:
Statement as on: Rs.Crore
Total Investment Asset as per FORM 3A:
EXPOSURE TO INDUSTRY SECTOR
Technical Guide
Eligibility limit of Actual % of Deviation with
No Name of Industry Sector (as per Regulations) industry as per Investments Deviation respect to
Regulation 9 (Cumulative) regualtion
a b c d e=d-c f
182
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Signature:
Date: Full name:
Chief of Finance
Note:
1. Above table shall be Complied separately for Life, Pension & General Annuity and Group Business and Individually for each Segregated Fund
(SFIN) AND at Assets under Management Level its total investment assets
2. Exposure would be on the basis of Book Value for Non-unit linked funds & on Market Value for Unit linked Funds
FORM - 5
(Read with Regulation 10)
Name of the Insurer:
Registration Number:
Statement as on:
Statement of Investment Reconciliation Name of the Fund:
(Business within India) Rs.Crore
Periodicity of Submission : Quarterly
Opening Balance Purchase for the Period Sale for the Period Adjustments Closing Balance
No Category of Investments COI % to Total (1+2+3)
Face Value Book Value Face Value Book Value Face Value Book Value Face Value Book Value Face Value Book Value Makret Value
1 Central Govt. Securities
Total (1)
2 Central Govt. Sec, State Govt Sec or Other Approved
S
Total [1+2]
3 Investments subject to Expsoure Norms
(a) Housing & Loans to State Govt for Housing / FFE
1. Approved Investments
2. Other Investments Total [3(a)]
(b) Infrastructure Investments
1. Approved Investments
183
2. Other Investments
Total [3(b)]
(c) Approved Investments
Total [3(c)]
(d) Other Investments
Total (3(d))
Total [3 (a+b+c+d)]
TOTAL Total (1+2+3)
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Also, certified that all Cash Market transactions executed on the Stock Exchange are made only on Delivery basis.
Date: Signature
NOTE: Full Name & Designation
1. Individual Categories under each of the above Major heads should be listed with Category Code Chief of Finance
2. FORM-5 shall be prepared in respect of each fund. In case of ULIP Form 5 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.
3. Each sub-total of FORM-5 shall be linked to its corresponding head in PART-A of FORM-3A / FORM-3B.
4. 'Other Investments' are as permitted under Sec 27A(2) and 27B(3)
Appendix `A'
5. Guidelines on preparation of FORM 5 should be strictly followed.
6. The ' % to Total ' Column, in the case of Non-Linked funds shall be computed on Book Value and in the Case of Linked Funds it shall to Market Value
FORM - 5A
(Read with Regulation 10)
Name of the Insurer:
Registration Number:
Statement as on: Name of the Fund:
Statement of Investment made in Mutual Funds Rs.Crore
Periodicity of Submission : Quarterly
Op. Balance Purchase for the Qtr Sale for the Qtr Cl. Balance
PARTICULARS COI Market Value % to Total Inv.
Units Amount Units Amount Units Cost of Sale Units Book Value
Approved Investments
Technical Guide
MF - Gilt / G Sec / Liquid Schemes EGMF
0 0 0 Total (A) 0 0 0
MF - (under Insurer's Promoter Group) EMPG
0 0 0 Total (B) 0 0 0
Total (A+B)
Other Investments
MF - Debt / Income / Serial / Liquid Funds OMGS
184
0 0 0 Total (C) 0 0 0
MF - (under Insurer's Promoter Group) OMPG
0 0 0 Total (D) 0 0 0
Total (C+D)
Total (A+B+C+D)
CERTIFICATION
Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.
Signature:
Date: Full name:
NOTE Chief of Finance
1. FORM-5A shall be prepared in respect of Life, Pension & General Annuity and Group Business and ULIP funds
2. Each sub-total of FORM-5A shall be linked to its corresponding head in FORM-5.
3. 'Other Investments' are as permitted under Sec 27A(2) and 27B(3) of The Insurance Act,1938
4. Guidelines on preparation of FORM 5 should be strictly followed.
5. Invsetments made in liquid and Gilt mutual funds in excess of norms specified in Circular: INV/CIR/008/2008-09 Dt. 2nd Aug, 2008 under Point:5, shall be reported under 'Other investments'
6. FORM-5A shall be prepared in respect of each fund. In case of ULIP Form 5 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.
FORM - 6
(Read with Regulation 10)
Name of the Insurer:
Registration Number: Name of the Fund:
Statement as on:
Certificate under Section 28(2A) / 28(2B) / 28B(3) of The Insurance Act, 1938 Rs.Crore
Periodicity of Submission : Quarterly
Under the Custody of
No Investment Particulars Bank / Custody (Rs) Self (Rs) Others (Rs) Total (Rs)
Share Holders Policy Holders Share Holders Policy Holders Share Holders Policy Holders SH + PH
1 Central Govt. Security
2 Central Govt Securities, State Govt Securities or Other Approved Securities
3 Investment subject to Exposure Norms
a. Housing & Loans to State Govt. for Housing & FFE
1. Approved Investments
2. Other Investments
b. Infrastructure Investments
1. Approved Investments
2. Other Investments
185
c. Approved Investments
d. Other Investments
TOTAL
CERTIFICATE
We certify that the above mentioned securities are held free of any encumbrance, charge, hypothecation, or lien as on the above date.
Signature: Signature: Signature:
Full name: ___________________________ Full name: Full name:
Chairman ___________________________ Director 1 Director 2
Signature:
Full name:
Principal Officer
Note:
1. Custodian should certify that he is not disqualified under SEBI (Custodian of securities) Regulations, 1996 as amended from time to time.
2. Value of the Securities shall be as per Guidelines
Appendix `A'
3. In the case of Life Insurance Business, FORM-6 shall be prepared in respect of each fund and in aggregate for Segregated Funds
4. The values under certificate should be adjusted for Purchase / Sale of investments purchased and awaiting settlement.
A reconciliation to this effect should be attached to the Certificate.
FORM 7
(Read with Regulation 10)
Name of the Insurer:
Registration No: Name of Fund: Rs.Crore
DETAILS OF NON-PERFORMING ASSETS - QUARTERLY
Bonds / Debentures Loans Other Debt instruments T0TAL
NO PARTICULARS YTD ( As on Prev. FY ( As on YTD ( As on Prev. FY ( As on YTD ( As on Prev. FY ( As on YTD ( As on Prev. FY ( As
date) 31 Mar .....) date) 31 Mar .....) date) 31 Mar .....) date) on 31 Mar .....)
1 Investments Assets (As per Form 3A / 3B - Total Fund)
Technical Guide
2 Gross NPA
3 % of Gross NPA on Investment Assets (2/1)
4 Provision made on NPA
5 Provision as a % of NPA (4/2)
6 Provision on Standard Assets
7 Net Investment Assets (1-4)
8 Net NPA (2-4)
9 % of Net NPA to Net Investment Assets (8/7)
186
10 Write off made during the period
Certification
Certified that the information given herein are correct and complete to the best of my knowledge. Also certified that the various investments made and covered in the return are within the exhaustive categories
provided in Investment Guidelines as amended from time to time.
Signature:
Full name:
Chief of Finance
Note:
1. The above statement, in the case of 'Life' Insurers shall be prepared 'fund-wise' Viz. Life Fund, Pension & General Annuity and Group Business and ULIP Fund
2. Investment Assets should reconcile with figures shown in Schedule 8, 8A, 8B & 9 of the Balance Sheet
3. Gross NPA is investments classified as NPA, before any provisions
4. Provision made on the 'Standard Assets' shall be as per Circular: 32/2/F&A/Circulars/ 169/Jan/2006-07 as amended from time to time.
5. Net Investment assets is net of 'provisions'
6. Net NPA is gross NPAs less provisions
7. Write off as approved by the Board
APPENDIX `B'
Date: 22rd Aug. 2008
Ref.: INV/CIR/008?2008-09.
The CEOs of all Insurers
Dear Sir/Madam
Sub: IRDA (Investment) (Fourth Amendment) Regulations, 2008 -
Reg.
1. As you are aware, a Working Group was set up by the Authority, to
review comprehensively the current regulatory and other provisions on
Investments of Insurance companies and suggest changes considered
necessary in the light of experience gained/ the constraints faced by
Insurance Companies, as well as the developments in Financial Markets.
The Working Group reviewed the statutory provisions on the pattern of
Investment, Operational and Policy issues of Investment Regulations and
suggested amendments that would provide flexibility to the Authority in
the manner of Regulation on Investment of Life and General Insurance
Companies. The Group also looked into the concurrent modifications in
the formats of the prescribed Returns to reflect the changes.
2. The recommendations of the Working Group have been examined
by the Authority in the light of legal provisions and keeping in view the
interests of the stakeholders. The implementation of some of the
proposals requires appropriate changes in Regulations and evolution of
suitable regulatory framework. It was also observed by the Authority
while monitoring compliance with the regulations over a period that some
of the extant instructions/guidelines also needed clarity and consistency.
3. Accordingly, the Authority has initiated action to amend the
provisions of IRDA Investment Regulations, 2000 in order to implement
the recommendations of the Working Group and also to effect such
changes that are considered necessary to clarify the existing regulatory
requirements. A copy of the Gazette notification on the amended
regulations is available at our website www.irdaindia.org. Insurers are
advised to peruse the notifi cation to take the modifications on record for
further compliance. For the sake of convenience a brief summary of the
changes proposed to be effected in the Regulations is furnished in
Annexure I.
Technical Guide
4. Besides the amendment in regulations, it has also been decided to
effect some modifications in the extant Guidelines/ Circulars on
investment portfolio [Annexure - II] and also introduce certain
requirement on the Systems/Process of investment in the context of Risk
Management requirements. The proposals in this regard are outlined in
Annexure III.
5. Insurers are advised to place the Circular before the Board at the
next meeting in order to apprise the Directors of the important changes
brought about in the management of investment portfolio. The Board
should also be advised of the specific time bound action taken to comply
with the requirements on investment systems and process wherever
considered necessary.
6. The changes would be effective from the dates indicated therein.
C. R. MURALIDHARAN
MEMBER
188
Appendix `B'
Annexure I
AMENDMENT TO IRDA (INVESTMENT) REGULATIONS,
2000
Reg. Regulation Implication of Amendment
No.
2 DEFINITIONS
Investment Assets a. Investment Assets of Life
and General Insurance
Companies have been
defined along with valuation
methods.
Group b. Group will include Financial
Institutions for the purpose
of Exposure calculations.
Money Market Instruments c. Money Market Instruments
include rated CDs, CPs,
TDs, Repo, Reverse Repo,
Treasury Bills, Call, Notice,
Term Money, CBLO with
maturity less than one year.
3. RENAMING OF OTHER THAN
APPROVED INVESTMENTS
The Insurance Act,1938 under a. This category of
Sections 27A (2) and 27B (3) Investments will henceforth
refers to investment permitted be referred to as `Other
under these sections as Investments'.
`Otherwise than in an Approved b. All provisions of the Act,
Investments' and the IRDA Regulations, Circulars and
(Investment) Regulations, 2000 Guidelines pertaining to
had interpreted it as 'Other than investments falling under
Approved Investments'. Sections 27A (2) and 27B
(3) of Insurance Act, 1938
shall continue to be
applicable as such.
3. REGULATION OF
INVESTMENTS
Exposure Norms a. It is now proposed that the
Exposure Norms would be
applicable to ULIP
Business also.
Infrastructure Investments b. Infrastructure facility had
been aligned as per the
definition of Reserve Bank
189
Technical Guide
of India.
c. Infrastructure Investments
would be subject to
Investee, Group Exposure.
Mortgage Backed Securities d. Investment in MBS, rated
(MBS) as per Guidelines, will fall
under `Approved
Investments' and will qualify
for investment under
`Housing Sector' for the
purpose of pattern of
Investments.
e. MBS will be subject to
Industry Sector Exposure
Approved Investments and Norms.
Rating Requirement f. It is now proposed to
recognize securities
complying with the following
criteria as `Approved
Investments'.
i. Bonds/Debentures
issued by companies
(including All India
Financial Institutions,
recognized by RBI as
such) shall be rated
not less than AA or its
equivalent and P1 or
Equivalent ratings for
Short term Bonds/
Debentures/ CDs and
CPs.
ii. Tier II Bonds of
Banks, complying
with the above rating
criteria, will be
classified under
Approved
Investments.
g. Assets / Instruments,
downgraded below the
minimum rating prescribed
above, should automatically
be re-classified under
'Other Investments'
category for the purpose of
190
Appendix `B'
pattern of Investments.
h. The above approach will be
reviewed based on
experience after a period of
two years.
i. Rating should not replace
appropriate risk analysis
and management on the
part of the Insurer. The
Insurer should conduct risk
analysis commensurate
with the complexity of the
product(s) and the
materiality of their holding,
or could also refrain from
such investments.
j. The modification will be
effective from August 1,
2008
5. COMPLIANCE TO EXPOSURE The Authority, to remove
NORMS the differential treatment of
IRDA (Investment) Regulations, a.provisions applicable to
2000 requires exposure norms Public Sector and Private
to be calculated based on Sector Insurers, had
Controlled Fund and Total amended the exposure
Assets in the case of Life and norms as follows:
General Insurance Companies b. 10% of Outstanding Shares
respectively. (Face Value) or 10% of
Regulation 3 of IRDA Fund size, whichever is
(Investment) Regulations, 2000, lower, can be invested in
in terms of explanation in Equity Shares of Investee
Section 27A of the Act, had Company.
determined that assets relating c. Sum of 10% of Subscribed
to Pension Business, Annuity Share Capital, Free
Business and Linked Life Reserves and
Insurance. Debentures/Bonds of
Business would not form part of Investee Company or 10%
Controlled Fund for the purpose of Fund size, whichever is
of that section. lower, can be invested in
Debt instruments of
Investee Company.
d. A maximum of 5% of
Investments Assets of
General Insurers or 5% of
Investment Assets of funds
191
Technical Guide
relating to life funds,
pension and general
annuity funds in the case of
life insurer can be invested
in Immovable Property as
per Sec. 27A(1)(n) of
Insurance Act, 1938.
e. A maximum of 25% of
Investment Assets can be
invested in Banking and
Financial Sector
instruments.
f. Not less than 75% of debt
instruments excluding
Government and Other
approved Securities fund
wise, in the case of life
insurer and Investment
assets in the caser of
general insurer shall have
a rating of AAA or
equivalent rating for long
term and P1+ or equivalent
for short term instruments.
This shall also apply to Unit
linked funds(s).
g. FDs, TDs, CDs invested as
per Sec. 27A(9) and
27B(10) of the Act and
subject to Promoter Group
Exposure limits, would not
be deemed as Exposure to
Treatment of Free Reserves
Banking Sector.
h. Free Reserves of the
Investee Company,
recognized in Regulations 5
of IRDA (Investment)
Regulations, 2000 under
Investee Company
Exposure Norms will be
considered under 27A(3),
27A(4), 27B(4) & 27B(5) in
addition to the Subscribed
Share Capital and
Debentures of the Investee
Company.
192
Appendix `B'
i. At any point of time,
exposure to a single
Investee Company under
27A (3) and 27B (4) shall
not exceed 10% of the sum
of Subscribed Share
Capital, Free Reserves and
Debenture/Bonds, taken as
per the previous year
Balance Sheet of the
Investee Company.
6. RETURNS TO BE FURNISHED
Introduction of new periodical a. All forms have been
returns and amendment to amended for the various
existing returns. decisions reached.
b. All returns are required to
be filed on a Quarterly
basis. The period of
submission has been
increased from 21 to 45
days to ensure proper sync
with Actuarial returns.
c. FORM 3C is no more
required to be filed.
d. FORM 7A is introduced to
capture details of Non-
Performing Assets.
9. CONSTITUTION OF a. Chief of Investment (CIO)
INVESTMENT COMMITTEE and Chief of Finance (CFO)
AND INVESTMENT POLICY will be different individuals
Investment Committee in the Investment
Investment Policy and Committee (IC)
Investment b. Investment Policy need not
Department be filed with the Authority.
But is required to be drawn
in respect of each Unit
linked fund.
c. Investment Policy should
address all risks, Scope of
Internal and Concurrent
Audits including investment
Statistics.
d. To ensure internal control
of Investment function, the
Insurer is required to
193
Technical Guide
segregate operations and
functions between Front,
Mid and Back Office.
Further, the Front office will
report through CIO to the
CEO. The Mid and Back
Office, headed by separate
personnel, will report
through CFO to the CEO.
e. Issues relating to Internal
and Concurrent Audit made
clear. Audit is made to
cover Investment
Operations and System &
Process supporting
Investment Operations.
194
Appendix `B'
Annexure II
1. NEED FOR INVESTMENT SYSTEMS
IRDA (Registration of Companies) Regulations, 2000 under
Regulation 7 (c) of Chapter II requires every Insurer to carry on all
functions in respect of the Insurance business including management
of investments within its own organization. In the context of the
increasing volumes of the Unit linked life Insurance business and
consequent market risk being assumed by the policyholders, it is
appropriate to specify the minimum requirements for risk management
systems within the Insurers, with particular reference to the
investment activity (Please see Annexure III enclosed). The
Investment Risk Management Systems & Processes specified, outline
the minimum requirement to be in place. While it is likely that some of
the Insurers have already put in place adequate systems and
processes consistent with the proposals, there may be others who
need to modify the systems to achieve compliance. Hence the
effective date for adoption of the suggested measures by all insurers
shall be not later than December 31, 2008. All Insurance Companies,
seeking registration henceforth shall comply with this guideline, as a
part of the registration process. The Authority advises that a
Chartered Accountants firm, who is not the Statutory or Internal or
Concurrent Auditor of the concerned Insurer and having a minimum of
three to four years audit experience of IT systems, risk management
and process controls of Banks or Mutual Funds or Insurance
Companies, shall certify that the Investment Risk Management
Systems and Processes envisaged by these guidelines are in place
and working effectively. The Insurer shall file with the Authority, the
Chartered Accountants certificate not later than the 1st week of
January, 2009.
2. RENAMING OF OTHER THAN APPROVED INVESTMENTS AS
`OTHER INVESTMENTS'
The Insurance Act, 1938 under Sections 27A (2) and 27B (3) refers to
investment permitted under these sections as `otherwise than in an
approved investment'. IRDA (Investment) Regulations, 2000 refers it
as `other than approved investments'. For simplicity, this category of
investment will henceforth be referred to as `Other Investments'. All
provisions of the Act, Regulations, Circulars and Guidelines pertaining
to investments falling under Sections 27A (2) and 27B (3) of
Insurance Act, 1938 shall continue to be applicable as such.
195
Technical Guide
3. TREATMENT OF FREE RESERVES AND EXPOSURE
The Insurance Act, 1938 under Sections 27A (3), 27A (4), 27B (4) and
27B (5) allows exposure to banking companies, investment
companies and other companies based on the least of Capital
Employed or the specified percentage of `controlled fund' in the case
of Life insurer and `assets' in the case of general insurance
companies. Further, the Insurance Act, 1938 do not recognize `free
reserves' as a part of capital employed, though the same is
recognized in IRDA (Investment) Regulations, 2000 for calculating the
investee company exposure norms. It is now clarified that:
a. In addition to subscribed capital and debentures, `free
Reserves' of the investee company, recognized in Regulations
5 of IRDA (Investment) Regulations, 2000 under investee
company exposure norms, shall be considered in calculating
the exposure under 27A(3), 27A (4), 27B (4) and 27B (5).
b. Also, at any point of time, the exposure to Investee Company
under Sections 27A(3) and 27B(4) shall not exceed 10% of the
sum of paid-up share capital, free reserves and
debenture/bonds, taken as per the audited balance sheet not
more than one year old of the investee company.
c. The effective date for adoption of norm by all insurers shall be
from August 1, 2008.
4. INVESTMENT IN IPOs
The Authority had issued Circular INV/CIR/046/2004-05 Dt: November
8, 2004 on Investment in Initial Public Offer which was further
modified vide Circular INV/CIR/059/2004-05 dated December 28,
2004. As compliance with a few conditions mentioned in the above
circular posed operational difficulties, the guidelines have been
reviewed to effect the following changes:
(i) Equity Shares offered through IPO which comply with the
criteria listed in the circular INV/CIR/046/2004-05 dated
November 8, 2004 for categorization as `Approved
Investments' would henceforth include `Offer for sale' also.
(ii) The criterion on minimum size of the IPO including Offer for
Sale for investment by Insurers would now stand uniform at Rs.
200 Crores in super session of the instructions at item 2 and 3
of our Circular of November 8, 2004 and that contained in
Circular INV/CIR/059/2004-05 dated December 28, 2004.
196
Appendix `B'
(iii) It has now been decided that the details of investments in
Equity Shares through IPOs required to be filed with IRDA vide
Circular dated November 8, 2004 need not be filed with the
Authority with effect from August 1, 2008
(iv) It has also been decided to prescribe the following limits for
investments in IPOs by insurers:
LIMIT FOR INVESTMENT IN `IPO'
In the case of Life Insurance Company, the maximum bid amount (and not
Margin Money) to be invested in IPO shall be the lesser of the following:
(a) 10% of Subscribed Capital (Face Value) of the Investee Company
(including the proposed Equity issue through IPO) or
(b) 10% of the `Fund'.
In the case of General Insurance Company, the maximum bid amount (and
not Margin Money) to be invested in IPO shall be the lesser of the following:
(a) 10% of Subscribed Capital (Face Value) of the Investee Company
(including the proposed Equity issue through IPO) or
(b) 10% on the Investment Assets.
Note: `Fund' shall refer to all investment funds under management put
together.
5. INVESTMENT IN MUTUAL FUNDS
As Gilt, G Sec and Liquid Mutual Funds, predominantly invest in
Government Securities and Money Market instruments, the Authority
has decided to revise the existing guidelines on investment in Mutual
Funds. These investments in Gilt, G Sec and Liquid Mutual Funds
would form part of `Approved Investment' under IRDA (Investment)
(Fourth Amendment) Regulations, 2008 as per guidelines listed
below. However, these investments should not be used as long-term
investments instead of investing directly in Government Securities.
This Guideline shall be effective from August 1, 2008.
Any Investment made in other categories of Mutual Funds, including
those which partly invest in Government Securities and Money Market
instruments, will fall under `Other Investments', which in turn shall be
subject to the limits prescribed in the guidelines issued under IRDA
(Investment) Regulations, 2000 along with the norms mentioned
below.
197
Technical Guide
A. NORMS FOR MUTUAL FUND INVESTMENTS
The investment shall be restricted to schemes of Mutual Funds
comprising of Liquid, Gilt, G Sec or Debt/Income funds and subject to
the following conditions:
i. The Mutual Fund should be registered with SEBI and be
governed by SEBI (Mutual Funds) Regulations, 1996.
ii. Gilt, G Sec, Liquid MFs, Debt/Income shall have the same
meaning as under SEBI Regulations.
iii. The insurer shall ensure proper diversification among various
Mutual Funds to minimize risk.
iv. The Investment Committee of the Insurer shall lay down proper
Guidelines for selection of Mutual Funds and schemes
permissible including exposure norms to a Single Mutual Fund
and to each Scheme of Mutual Fund to avoid concentration.
v. Where the schemes of mutual funds in which such investment
is made by an Insurer, is managed by an Investment Manager
who is under the direct or indirect management or control of the
Insurer or its promoter, the same shall not exceed 3% of Life
Fund and 5% of Unit Linked Fund/Investment Assets.
B. OVERALL INVESTMENT/EXPOSURE LIMIT
i. The investment in Gilt, G Sec, Liquid Mutual Funds at any point
of time, under the Approved Investment category shall be as
under:
Fund size Limit
Above Rs.50000 Crores in 1.5 % of the Fund in the
the case of Life Company and case of Life Company and
above Rs.2000 Crores in the 1.5% of Investment Assets in
case of General Insurance the case of General
Company. Insurance Company
Upto Rs.50000 Crores in the 5% of the Fund in the case
case of Life Company and up of Life Company and 5% of
to Rs.2000 Crores in the case Investment Assets in the
of General Insurance case of General Insurance
Company. Company.
ii. In addition to the above, the maximum investments in Mutual
Funds falling under `Other Investments' Category, shall be as
follows:
198
Appendix `B'
Nature of Private Sector Public Sector
Business
Life Fund ULIP Life Fund ULIP
Life 7.5% 12.5% 3% 5%
Non Life 12.5% 5%
The percentage in the above table refers to in the case of:
Life Companies - to individual Fund Size
General Insurance Companies - to Investment Assets.
iii. Investment in Gilt, G Sec, Liquid Mutual Funds beyond the
percentage mentioned in the table under point B(i), will
automatically fall under the `Other Investments' category in
calculating pattern of investment.
C. VALUATION OF MUTUAL FUND INVESTMENTS
i. The purchase and sale of units shall be calculated at Weighted
Average Cost. Also, the insurer shall report the aggregate
Market Value of such Mutual Funds in FORM 5 and FORM 5A
of IRDA (Investment) Regulations, 2000,
ii. A separate Fair Value Change Account for Mutual Fund
Investments shall be maintained.
iii. The unrealized gains/losses arising due to changes in fair
value of the Mutual Funds shall be taken to `Fair Value Change
Mutual Fund' account. The Profit/Loss on sale of Mutual
Fund units, shall include accumulated changes in the Fair
value previously recognized in Mutual Funds under the heading
"Fair Value Change Mutual Fund" in respect of a particular
Mutual Fund and being recycled to Revenue/Profit and Loss
Account on actual sale of Mutual Fund units.
iv. The Insurer shall assess, on each Balance Sheet date, whether
any diminution in the value has occurred to the Investment. A
diminution in the value of investments shall be recognized as
an expense in Revenue/Profit and Loss Account to the extent
of the difference between the remeasured fair value of the
Investment and its Cost as reduced by any previous diminution
in value of investments is recognized as expenses in Revenue/
Profit and Loss Account. Any reversal of diminution in value of
investments earlier recognized in Revenue/Profit and Loss
199
Technical Guide
Account shall be recognized in Revenue/Profit and Loss
Account.
v. In the case of Unit Linked Business, Mutual Fund units shall be
valued at NAV.
6. INVESTMENT IN ASSET BACKED SECURITIES, PTCs & SRs
The extant Guidelines INV/GLN/001/2004-05 dated January 1, 2004 allow
investment in Pass through Certificates (PTC) under Approved Sectors,
namely `Infrastructure/Social Sector'. The Authority, after considering the
request of Insurers, the significant growth of this market and the suitability of
these instruments to match the long-term liabilities of insurers has decided to
reckon them as `Approved Investments' subject to the following conditions.
Hence, Asset Backed Securities, but only with underlying Housing loans and
infrastructure assets would be reckoned to be part of Approved Investments
subject to exposure norms, under Housing, Infrastructure Sector
Investments for the purpose of Regulation 3 and 4 of IRDA (Investment)
Regulations, 2000 as modified now. This Guideline shall be effective from
August 1, 2008.
The investment in Asset Backed Securities with underlying Housing and/or
Infrastructure assets [as defined under Regulation 2(h) of IRDA (Registration
of Indian Insurance Companies) Regulation, 2000] may be deemed as a part
of "Approved Investments" and Pass Through Certificates (PTCs), Asset
backed Securities (ABS) and Security Receipts (SRs) may be deemed as
part of "Other Investments" for the purpose of Regulation 3 and 4 of IRDA
(Investment) Regulations, 2000 subject to following exposure and prudential
norms:
1. The securitized assets must be rated and shall have highest rating by
a reputed Credit Rating Agency, registered under SEBI (Credit Rating
Agencies) Regulations, 1999.
2. The investment in Asset Backed Securities with underlying Housing
and/or Infrastructure assets shall at `all times' not exceed 10% of
respective fund(s) in the case of Life Insurance Companies and not
more than 5% of Investment Assets in the case of General Insurance
Companies.
3. If the Asset Backed Securities with underlying Housing and/or
Infrastructure assets are downgraded below AAA, or the highest
rating, such investment shall be re-classified as `Other Investments'.
4. In case the cash-flows from such instrument are not received on due
dates, the investment in such assets are to be re-classified as "Other
200
Appendix `B'
Investments" from such date for reporting to the Authority through
FORM 3A (Part A) of IRDA (Investment) Regulations, 2000.
5. The investments in securitized assets, both under Approved and
Other Investments, taken together shall not exceed 10% of fund size
in the case of Life Companies and not more than 5% of Investment
Assets in the case of General Insurers.
6. The Insurer shall lay down internal guidelines for investment in
securitized assets (ABS, PTCs and SRs) to avoid concentration with
regards to issuer, tenor and type of underlying and any other criteria
to achieve diversification.
7. All guidelines of Classification, Income Recognition and Valuation of
Assets issued by the Authority shall be applicable to such
investments.
7. INVESTMENTS IN PERPETUAL DEBT INSTRUMENTS
In terms of the Circular IRDA/INV/CIR/005/2006-07 Dt. April 28, 2006 on
`Investment in Innovative Perpetual Debt Instrument of Bank Tier 1 Capital
and Debt Capital of Banks Upper Tier 2 Capital' within certain limits are
considered under `Approved Investment'. As it is represented that the current
ceiling on maximum investment in the bonds is restrictive, IRDA has
reexamined the issue and has decided to delete the maximum permissible
limit for such instruments by Life and General Insurers prescribed in paras 3
and 4 of the above Circular dated April 28, 2006. The revision will be
effective from August 1, 2008.
8. INVESTMENT IN VENTURE FUNDS
The Authority vide Circular INV/CIR/007/2003-04 dated: December 15, 2003
had listed the conditions and maximum investment that can be made in
Venture Funds. While investment in Venture Funds would continue to be
categorised under `Other Investments' as per IRDA (Investment)
Regulations, 2000 as amended from time to time, the following special
guidelines may be kept in view in respect of Venture Funds:-
1. The decision to invest in the Venture Fund shall remain with the
Investment Committee of the Insurer, and within the approved
Investment Policy of the Insurer, subject to appropriate prudential and
exposure norms and complying with the provisions of IRDA
Regulations concerned.
2. The Venture Fund would invest in Infrastructure Projects as defined
under IRDA (Registration of Indian Companies) Regulations, 2000 as
amended from time to time. [Refer latest amendment to `infrastructure
201
Technical Guide
facility' under Regulation 2 (h) of Insurance Regulatory and
Development Authority (Registration of Indian Insurance Companies)
(Second Amendment) Regulations, 2008 vide GO Gazette notification
dated February 11, 2008.]
3. Investments in Venture Fund(s) shall be subject to the following
exposure norms:
Particulars Overall exposure limits
Limits for Investment Life Insurance Company
in `Venture Fund' 3% of respective Fund (or)
10% of Venture Fund's Size, whichever is
lower.
General Insurance Company
5% of Investment Assets (or)
10% of Venture Fund's Size, whichever is
lower.
The above conditions supersede those issued in the Circular
INV/CIR/007/2003-04 dated: December 15, 2003. The new Guidelines will
be effective from August 1, 2008.
9. APPOINTMENT OF CUSTODIAN
Section 28B(3) of The insurance Act, 1938 requires every insurer to submit,
along with the returns referred to in Sections 28B(1) and 28B(2), a
statement, where any part of the assets are in the custody of a Banking
Company, from that company, and in any other case, from the Chairman,
two directors and the Principal Officer, of the company specifying the assets,
which are subject to a charge and certifying that the other assets are held
free of encumbrance, charge, hypothecation or lien. The Authority, has also
prescribed FORM 6 in the IRDA (Investment) Regulations, 2000 for the
certification. Currently the custodian appointed by the Insurer (which could
be either belonging to the Insurer's promoter group or otherwise) issues a
certificate to the above effect and the Insurer, as required under the Act,
certifies that the Assets held are free from encumbrance, charge,
hypothecation or lien.
Considering the implications of the certification by the Custodian belonging
to the Insurers Promoter Group of the Insurer, it is decided that all insurers
should comply with the following norms:
202
Appendix `B'
A. Appointment of Custodian
(i) The Board of the Insurance Company shall be responsible for
the appointment of Custodian to carry out the custodial service
for its Investments.
(ii) No custodian in which the promoter or its associates hold 50%
or more of the voting rights of the Share Capital of the
custodian or where 50% or more of the Directors of the
Custodian represent the interest of the promoter or its
associates shall act as Custodian for the Insurance Company
constituted by the same promoter or any of its associates or
subsidiary company.
B. Agreement with Custodian
(i) The Insurer shall enter into a custodial agreement with the
Custodian, which shall contain the clauses, which are
necessary for the efficient and orderly conduct of the affairs of
the Custodian.
(ii) The agreement, the services contract, terms and appointment
of the Custodian shall be entered into with the prior approval of
the Board.
Insurers who are not compliant currently with the above conditions shall take
immediate steps to achieve compliance not later than December 31, 2008,
under intimation to the Authority.
10. SEGREGATION OF SHAREHOLDERS & POLICYHOLDERS
FUNDS
The Insurance Act, 1938 under Section 11 (1B) requires `Every insurer to
keep separate accounts relating to funds of shareholders and policyholders'.
Taking note of representations of general insurance companies, as a
measure of practical application, the provisions of Section 11(1B) would be
deemed to have been complied with, in the case of General Insurance
Company, if Investments are `allocated' to the policyholders' funds to the
extent of the Technical reserves in respect of general insurance business
and the specific liabilities of general insurance business and the balance
shown as Shareholders' funds. However, a Life Insurer should continue to
maintain strict segregation of Investments between Shareholders and
Policyholders funds at `Scrip' level for every individual fund under any class
of business without making arbitrary transfer of investments from one fund to
another. Further, both Life and General insurers should make necessary
arrangements (through a separate Custody Account) to facilitate
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Technical Guide
identification of investment out of Shareholders funds that do not support
Solvency Margin and which is not covered by the prescribed pattern of
Investments. This Guideline shall be effective from December 31, 2008.
11. OUTSOURCING OF INVESTMENT ADVICE
The Authority, considering the cost involved in setting up Research and
advisory divisions would permit outsourcing of Investment advice only at the
initial stages and till the insurers attain a Fund Size of Rs.500/- Crores
Assets under Management (AUM) or two years from the commencement of
business, whichever is earlier, subject to the following conditions:
a. The Investment decisions are made within the Company with proper
documentation within the delegated power as provided in the
Investment Policy.
b. Deal placement and execution are done by the Front Office
personnel.
c. Periodic reports to Management and Authority are drawn by the
Company (in-house).
d. The advisory fee to be paid to the Service Provider is on a case-to-
case basis and not on Net Asset Value.
The advisory fee shall:
a. not form part of NAV calculations in the case of ULIP business
b. be paid out of Shareholders funds not representing Solvency Margin.
The Authority may, on an application made to it by an existing insurer,
for valid reasons, grant a further period of time of not more than one
year to comply with the above direction.
12. OUTSOURCING OF `NAV' CALCULATION
The permission to outsource Computation of NAV would be available only up
to attainment of Fund Size of Rs.500/- Crores (Assets under Management)
or two years from the commencement of business, whichever is earlier. Also,
the fees paid to the service provider shall not form part of NAV calculations.
The Authority may, on an application made to it by an existing insurer, for
valid reasons, grant a further period of time of not more than one year to
comply with the above direction.
204
Appendix `B'
Annexure III
INVESTMENT RISK MANAGEMENT SYSTEMS & PROCESSES
A. GENERAL
1. FRONT & BACK OFFICE OPERATIONS
a. Insurer having Assets under Management (AUM) in
excess of Rs.500 Crores shall ensure separate
personnel acting as fund manager and dealer.
b. The Investment System should have separate modules
for Front and Back Office.
c. Transfer of data from Front Office to Back Office should
be electronic without Manual intervention (Real time
basis) i.e., without re-entering data at Back Office.
d. The Insurer may have multiple Data Entry Systems, but
all such Systems should be seamlessly integrated
without manual intervention.
e. The Front Office shall report through the Chief
Investment Officer (CIO) to the Chief Executive Officer
(CEO). The Mid Office and Back Office, to be headed by
separate personnel, shall be under the overall
responsibility of Chief Financial Officer (CFO) who shall
independently report to the CEO.
2. EMPLOYEE DEALING GUIDELINES
a. The Standard Operating Procedure followed by the
Insurer shall clearly specify the Guidelines to be
adhered by the Dealer i.e., the Insurer shall clearly
specify the Trading guidelines for Personal Investments
of the dealer. The compliance of this requirement shall
be commented upon by the Internal/Concurrent Auditor.
3. MAKER CHECKER PROCESS
a. Insurer should have the procedure of Maker/Checker
mapped in their Standard Operating Procedure/
Operations Manual of Investment Operations. The
Internal/Concurrent Auditor shall comment on such
practice in his report.
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Technical Guide
4. AUDIT TRAIL AT DATA ENTRY POINTS
a. The Audit trail should be available for all data entry
points including at the Checker/Authorizer level.
5. BUSINESS CONTINUITY PROCESS
a. To ensure Business continuity, the Insurer should have
a clear Off-site Back-up of Data in a City falling under a
different Seismic Zone, either on his own or through a
Service Provider. Further, the Insurer/service provider (if
outsourced) is required to have the necessary
infrastructure for Mission Critical Systems to address at
least the following:
1. Calculation of daily NAV (Fund wise)
2. Redemption processing.
B. FRONT OFFICE
1. SEGREGATION OF FUND MANAGER/DEALER
a. Investment Department should have documented the
segregation of Fund Managers and Dealers through
Authority Matrix as a part of its `Standard Operating
Procedure'.
b. The Insurer should have documented the Access
Controls and Authorization process for Orders and Deal
execution.
c. The Dealing Room should have a Voice Recorder and
procedure for maintaining the recorded conversation
and their disposal including procedure like no mobile
phone usage in dealing rooms and other best practices.
2. INVESTMENT IN INVESTEE/GROUP COMPANY/INDUSTRY
SECTOR
a. System based checks should be in place for
investments in an Investee Company, Group and
Industry Sector. The system should signal when the
Internal/Regulatory limits are nearly reached PRIOR to
taking such exposure and making actual investment.
206
Appendix `B'
3. INTER FUND TRANSFER
a. The System should handle Inter Fund transfer as per
Circular IRDA-FA-02-10-2003-04. The Investment
Committee may fix the Cut Off time as per Market
practice, for such transfer within the fund. (The inter fund
transfer should be like any other Market deal and the
same needs to be carried out within the Market hours
only.)
C. MID OFFICE
1. MARKET RISK
a. The system should be capable of computing various
portfolio returns.
b. Regular limits monitoring and Exception Reporting. Also
reporting on movement of prices.
2. LIQUIDITY RISK
a. The Insurer should have a Cash Management System to
provide the funds available for Investment considering
the settlement obligations and subscription and
redemption of units etc., to preempt any leveraged
position or liquidity risk.
b. The System should be validated not to accept any
commitment beyond availability of funds.
3. CREDIT RISK
a. The Investment System should capture Instrument
Ratings to enable it to automatically generate FORM 2
(Statement of Downgraded Investments) through the
System.
b. System should automatically monitor various Regulatory
limits on Exposure & Rating.
c. The System should have the ability to track changes in
ratings over a period and generate appropriate alerts,
along with ability to classify investment between
Approved and Other Investments.
d. The Insurer should conduct periodic credit reviews for all
companies in the portfolio. The periodicity should be
clearly mentioned in the Investment Policy.
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Technical Guide
e. The Insurer is required to keep a track of movement of
Securities between Approved and Other Investments
Status, as a part of Audit trail, at individual security level.
4. TRACKING OF REGULATORY LIMITS
a. The System should have key limits preset for ensuring
compliance with all Regulatory requirements and should
be supported by workflow through the System, (Real
time basis) for such approval, if Regulatory limit is close
to be breached.
b. The System should have capability of generating
Exception reports for Audit by Internal/Concurrent
Auditor.
5. REVIEW, MONITORING AND REPORTING
a. System should automatically track and report all internal
limits breaches. All such breaches should be audited by
Internal/Concurrent Auditor.
b. Implementation and Review of Asset & Liability
Matching and other Investment Policy Guidelines.
D. BACK OFFICE
1. DATA INPUT ERROR
a. The system should be validated in such a way, that the
Deal can only be rejected by the Back Offi ce and not
edited.
2. SETTLEMENT RISK
a. The System should be validated to restrict Short Sales
at the time of placing the order.
3. COMPUTATION OF `NAV'
a. The System should be capable of computing NAV and
compare it with the NAV computed by the Service
provider, if outsourced.
b. The Insurer should maintain NAV history (Fund wise) in
his Public Domain from the Start of the Fund to Current
Date.
c. `NAV' error Computation & Compensation
208
Appendix `B'
1. All expenses and incomes accrued up to the
Valuation date shall be considered for
computation of NAV. For this purpose, while
major expenses like management fees and other
periodic expenses should be accrued on a day to
day basis, other minor expenses and income can
be accrued on a weekly basis, provided the non-
accrual does not affect the NAV calculations by
more than 1%.
2. Any changes in Securities and in the number of
Units should be recorded in the books not later
than the first valuation date following the date of
transaction. If this is not possible, the recording
may be delayed upto a period of seven days
following the date of the transaction. Provided,
the non-recording does not affect the NAV
calculations by more than 1%.
3. In case the NAV of a Plan differs by more than
1% due to non-recording of the transactions or
any other errors/mistakes, the investors or fund(s)
as the case may be, shall be paid the difference
in amount as follows:-
(i) If the investors are allotted units at a price higher
than NAV or are given a price lower than NAV at
the time of sale of their Units, they shall be paid
the difference in amount by the plan.
(ii) If the investors are charged lower NAV at the time
of purchase of their units or are given higher NAV
at the time of sale of their units, the Insurer shall
pay the difference in amount to the Plan and shall
be compensated from Shareholders portfolio that
does not support Solvency Margin.
(iii) The Internal/ Concurrent Auditor shall look into
the above issues and specifically report on it and
comment on the Systems in place to take care of
such issues on an ongoing basis.
(iv) A log of NAV errors shall be maintained in the
System and be forwarded to Internal/Concurrent
Auditors.
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Technical Guide
4. ERRORS DURING BROKER EXECUTION LEG
a. All Equity deals should be through STP gateway for all
broker transactions.
5. UPLOADING OF VALUATION PRICE FILES
a. System to have capability to upload Corporate Actions
such as Stock Splits, Dividend, Rights Issue, Buy Back,
Bonus issues etc., for computation of NAV/Portfolio
valuation.
6. RECONCILIATION
a. Fund wise, in the case of Life Insurers, reconciliation
with Investment Accounts, Bank, and Custodian records
should be done on day-to-day basis for all types of
products. In the case of ULIP products, Units
reconciliation with Policy Admin Systems should be
ensured on a day to day basis.
b. In the case of General Insurer/Re-insurer reconciliation
with Investment Accounts, Bank and Custodian records
should be done on a day-to-day basis.
E. INTERNAL/CONCURRENT AUDIT
a. An Insurer having Assets under Management (AUM) not more
than Rs.1000 Crores shall conduct a Quarterly Internal Audit to
cover both Transactionsand related Systems. Insurers having
AUM above Rs.1000 Crores should appoint a Chartered
Accountant firm for Concurrent Audit, to have the transactions
and related Systems audited.
b. The Audit Report shall clearly state the observation at
transaction level and its impact, if any at System level. The
Audit Report shall be based on Exception Reporting.
c. The Auditor shall clearly state that the Insurer had done the
reconciliations as required under point D.6.a. and D.6.b.
d. Segregation of `Shareholders & Policyholders' funds
1. In the case of a Life Insurer, each individual fund, both
falling under Shareholder/Policyholders', under any
class of business, has `scrip' level investments to
comply with the provisions of Section 11(1B) of
Insurance Act, 1938
210
Appendix `B'
2. Furthermore the Shareholders funds beyond Solvency
Margin, to which the pattern of Investment will not apply,
shall have a separate custody account with identified
scrips for both Life and General Insurance Companies.
e. The Insurer is required to place the Audit Report before the
Audit Committee and implement all its recommendations.
f. The Insurer shall, along with Quarterly Investment Returns to
be filed with the Authority, shall confirm in FORM 4, that the
Internal/ Concurrent Audit observations, up to the Quarter
preceding the Quarter to which the Returns are filed, were
placed before the Audit Committee for its recommendation and
action taken.
Note: Points A (5.a.1) and D (3) are specific to ULIP Business.
211
Appendix `C'
Date: 1st April, 2013
REF: IRDA/F&I/CIR/INV/067/04/2013
The CEOs of all Insurers
Dear Sir / Madam,
Sub: IRDA (Investment) (Fifth Amendment) Regulations, 2013 Reg.
As you are aware, based on the experience gained from the earlier
amendments, feedback received through internal/Concurrent Audit report
and periodical returns filed with the Authority, various issues were
discussed with Working Group of professionals drawn from Industry,
experts from SEBI and Department of Financial Service, MoF, Life
Insurance Council, General Insurance Council in evaluating the need for
introducing new instruments/amending existing regulatory framework to
enable Insurers deploy funds more prudently without sacrificing safety,
disclosure and governance requirements, very specific to Insurance
Industry.
The recommendations were analysed for legal and regulatory
consistency, as well as the developments in Financial Markets including
Unit Linked Insurance Policies as one of the product portfolios of life
insurers. Also, the Authority during Investment Inspection observed that
few regulations required clarifications. Thus the Authority initiated the
process for amending the Investment Regulations to address the need of
the Industry. The copy of the Gazette Notification on the amended
regulation is placed at www.irda.gov.in Insurers may take note of the
same for compliance. For the convenience of the Insurers, the brief
details of the important changes brought in the 5th Amendment and
clarification required are provided in Annexure-I. The regulations shall
be effective from 1st April, 2013 and where ever the regulations
demand departure from the effective date, the same are mentioned
therein.
The Insurers are hereby informed to place the Regulations, Circulars and
Guidelines issued before their Board in their next meeting to apprise their
Board of the important changes that have been brought in the 5th
Amendments to IRDA (Investment) Regulations, 2000
R K NAIR
Member (F&I)
Appendix `C'
Annexure 1
KEY CHANGES IN IRDA (INVESTMENT) REGULATIONS, 2000 AS
AMENDED BY IRDA (INVESTMENT) (5TH AMENDMENT)
REGULATIONS, 2013
Reg. REGULATION IMPLICATION OF
No AMENDMENT
2(f) "Group" means: two or more Use of common brand
individuals, association of names shall be looked in
individuals, firms, trusts, conjunction with other
trustees or bodies corporate, parameters of significant
or any combination thereof, influence and / or control,
which exercises, or is whether direct or indirect.
established to be in a position
to exercise, significant
influence and / or control, use
of common brand names,
directly or indirectly, over any
associate as defined in AS 23,
body corporate, firm or trust,
or (ii) Associated persons, as
may be stipulated by the
Authority, from time to time, by
issuance of guidelines under
these regulations
2(g) "Investment Assets" mean all Pattern of Investment will not
investments made out of: be applicable for
(1) in the case of a Life Shareholders' funds held in
Insurer business beyond required
(i) shareholders' funds solvency margin. But such
representing excess shall be:
solvency margin, i. made only after fully
non-unit reserves of complying with
unit linked insurance mandatory investment
business, in Central Government
participating and Securities, State
non-participating Government and Other
funds of Approved Securities and
policyholders at their in Housing &
carrying value Infrastructure
(ii) policyholders' funds Investments from funds
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Technical Guide
Reg. REGULATION IMPLICATION OF
No AMENDMENT
of Pension, Annuity representing solvency
business and Group margin.
business at their ii. such excess of
carrying value Shareholder's funds,
(iii) policyholders' unit held beyond Solvency
reserves of unit Margin requirement, shall
linked insurance be held in a separate
business at their custody account with
market value as per identified scrips
guidelines issued iii. such excess funds shall
under these be determined only after
regulations, from Actuarial Valuation,
time to time certified by Appointed
(2) in the case of a General Actuary and such
Insurer valuation is filed with the
(i) shareholders' funds Authority.
representing iv. such transfer made
solvency margin and between quarters, shall
policyholders funds be certified by the
at their carrying Concurrent Auditor to
value have complied with the
as shown in its balance sheet above mentioned
drawn as per the Insurance requirement
Regulatory and Development Exposure Norms of `investee
Authority (Preparation of company', `group', `promoter
Financial Statements and group' and `industry sector'
Auditors' Report of Insurance shall be applicable to both
Companies) Regulations, 2000, funds representing solvency
but excluding items under the margin [FRSM] and funds held
head `Miscellaneous in excess of required solvency
Expenditure margin.
4 Pattern of Investment: Any investment made in
In the case of Life Insurers, the Central Government
Regulations require total Securities, State Government
Investment in housing and Securities, Other Approved
infrastructure (i.e.,) investment Securities, (provided the
in categories (i), (ii), (iii) and (iv) respective government issues
of Regulation 4, taken together such a security specifically to
214
Appendix `C'
Reg. REGULATION IMPLICATION OF
No AMENDMENT
shall not be less than 15% of meet the needs of any of the
the fund under Regulation 3(a)" sectors specified as
`infrastructure facility') along
with Approved Investments
and Other Investments will
qualify for the mandatory
requirement of not less than
15% to be investment in
Housing and Infrastructure
Investments. But in any
combination the total
investment falling under Other
Investments cannot exceed
15% of fund under Regulation
3(a)
Exposure Norms of `Investee
Company', `Group', and
`Promoter Group' shall apply
to investments made in
housing and infrastructure.
Any investment made in
housing and infrastructure as
per earlier regulations which
are in excess of the limits
specified as per Regulation 9,
as at 31st March, 2013,
Investee company, Group,
Promoter Group wise, as
certified by the Internal /
Concurrent Auditor shall be
filed with IRDA. No further
exposure shall be made in
such companies.
The Insurer shall make all
efforts to re-align the exposure
to be in line with regulations.
In compliance to this direction,
the Insurer shall commit the
time required to the Authority.
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Technical Guide
Reg. REGULATION IMPLICATION OF
No AMENDMENT
6 Unit Linked Insurance
Business:-
Every insurer shall invest and at The insurer shall invest only in
all times keep invested his such investments for which
segregated fund(s)under the day-to-day Valuations are
Regulation 3(c)(with underlying available. No investment can
securities at custodian level) of be made in any Funds of Fund
Unit linked business as per or a fund for which NAV is not
pattern of investment offered to available on a day-to-day
and approved by the policy- basis.
holders where the units are
linked to categories of assets
which are both marketable and
easily realizable. However the
investment in Approved
Investments shall not be less
than 75% of such fund(s) in
each such segregated fund"
7 Pattern of Investment: Any investment made in
In the case of General Insurer, Central Government
the Regulations require Total Securities, State Government
Investment in housing (i.e.,) Securities, Other Approved
investment in categories (i), (ii), Securities, (provided the
(iii) and (iv) of Regulation 7 respective government issues
taken together shall not be less such a security specifically to
than 5% of the Investment meet the needs of any of the
Assets; and sectors specified as `housing'
Total Investment in or `infrastructure facility') along
Infrastructure (i.e.,) investment with Approved Investments
in categories (i), (ii), (iii) and (iv) and Other Investments will
of Regulation 7 taken together qualify for the mandatory
shall not be less than 10% of requirement of not less than
the Investment Assets. 5% and 10% to be investment
in `Housing' and
`Infrastructure' Investments
respectively. But in any
combination, the total
investment falling under Other
Investments cannot exceed
216
Appendix `C'
Reg. REGULATION IMPLICATION OF
No AMENDMENT
25% of Investment Assets
Exposure Norms of `Investee
Company', `Group', and
`Promoter Group' shall apply
to investments made in
housing and infrastructure.
Any investment made in
housing and infrastructure as
per earlier regulations which
are in excess of the limits
specified as per Regulation 9,
as at 31st March, 2013,
Investee company, Group,
Promoter Group wise, as
certified by the Internal /
Concurrent Auditor shall be
filed with IRDA. No further
exposure shall be made in
such companies.
The Insurer shall make all
efforts to re-align the exposure
to be in line with regulations.
In compliance to this direction,
the Insurer shall commit the
time required to the Authority.
3 to 8 Note 7 (a) for the purpose of In calculating the 75% and
Regulation 3 to 8 65% of investment in `Debt'
Not less than 75% of investment instruments in the case of Life
in debt instruments (including and General insurers
Central Government Securities, respectively, the following
State Government Securities or shall not be taken either in the
Other Approved Securities) in numerator or denominator:
the case life insurer and not less 1. Reverse Repo with
than 65% of investment in debt corporate bond
instruments (including Central underlying
Government Securities, State 2. Fixed Deposit
Government Securities or Other 3. Investment in Promoter
Approved Securities) in the case Group Mutual Fund(s)
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Technical Guide
Reg. REGULATION IMPLICATION OF
No AMENDMENT
of general insurer - shall be in and un-rated Mutual
sovereign debt, AAA or funds
equivalent rating for long term
and sovereign debt, P1+ or
equivalent for short term
instruments. This shall apply at
segregated fund(s) in case of
Unit linked business
9 Exposure Norms compliance: In compliance of Regulation 9,
the Insurer shall file a
a. Investee Company statement, as at 31st March,
Exposure 2013, with the
b. Group Company Exposure Authority, certified by
Internal / Concurrent
c. Promoter Group exposure
Auditor, both at fund level
d. Industry Sector exposure
and at Investment Assets
level [as per Regulation
2(g)(1) and 2(g)(2)] providing:
(a) In the case of `Investee
Company', the exposure
details of individual
company exposure which
is in excess of the
prescribed limits
(b) In the case of `Group
Company', the exposure
in respect of `each
group', which are in
excess of prescribed
limits
(c) In respect of `Promoter
Group' the details of
investment in Equity,
Debt, FDs, MFs or any
other Investments made
in Promoter Group
entities, which are in
excess of the prescribed
218
Appendix `C'
Reg. REGULATION IMPLICATION OF
No AMENDMENT
limits.
(d) In respect of `Industry
Sector', the exposure in
respect of `each' sector
(as per National
Industrial Classification
(All Economic
Activities) - 2008 [NIC])
exposure which is in
excess of the prescribed
limits.
The above information shall
be filed with IRDA on or
before 15th April, 2013.
Where ever exposure is in
excess of limits mandated
under Regulation 9 of IRDA
(Investment) (5th Amendment)
Regulations, 2013 no further
or additional exposure shall be
made. The Insurer shall make
all efforts to re-align the
exposure to be in line with
regulations. In compliance to
this direction, the Insurer shall
commit the time required to
the Authority.
9 Fixed Deposit under section a. No investment shall be
27A(9) of Insurance Act, 1938 made in FDs and CDs in
and Certificate of Deposit financial institutions
falling under Promoter
Group.
b. Investment in FDs and
CDs taken together shall
comply with the
provisions of Section
27A(9)
c. Section 27A (9) shall be
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Technical Guide
Reg. REGULATION IMPLICATION OF
No AMENDMENT
monitored at a Controlled
Fund level[Investment
Assets as per Regulation
2(g)(1) level]
10 Filing of Forms In filing returns, the Insurer
Regulation 10 requires all shall:
insurers to file within 30 days a Confirm to procedure
from the end of the Quarter the mentioned in "Guidance
various periodical returns Note on preparation of
prescribed. Also, the Authority Investment Returns" for
to standardise the data filed, each of the form
had issued the "Guidance Note b. As the Insurer will be
on required to amend the
preparation of Investment Systems for preparing
Returns". Investment Returns, the
returns as per Regulation
10 shall be filed with effect
from the Quarter ending
30th September, 2013
c. All returns of Unit Linked
fund(s), prepared based
on "Segregated Fund
Identification Number"
[SFIN], shall be filed at a
consolidated level. But,
Insurer shall maintain the
data at SFIN level in their
system and may
13 B Quarterly review of Product and A Life Insurer shall report to its
(4) Fund performance Board, the following minimum,
in respect of each product:
a. New business scale
planned versus actual at
the end of the period1 to
maturity
b. Expenses projected
versus actual
c. Persistency / renewal
220
Appendix `C'
Reg. REGULATION IMPLICATION OF
No AMENDMENT
premium streams
projected versus actual
d. Claims - projected versus
actual
e. Actual Yield versus
projected yield or returns
f. Action plan and follow up
status
In respect of General Insurers,
the reporting as mentioned
above, to the Board shall be
with respect to each `line of
business'
13 D Daily disclosure of Unique The Insurer shall, with effect
(4) Identification Number (UIN) from 1stOctober, 2013
wise reconciliation of Product disclose the reconciliation as
and Fund information in per Annexure II, in the
insurer's website Insurer's website on a day-
to-day basis.
Till the above reconciliation is
automated, the Insurer shall
disclose such reconciliation, in
their website on a monthly
basis, with effect from April,
2013. The Internal /
Concurrent Auditor shall
confirm such disclosure in his
report to the Audit Committee
of the Board.
Disclosure of value of `policy' The Insurer shall in his
wise `units' held by customer portal disclose the
`policyholder' on the insurers information provided in
customer portal Annexure III . The customer
portal of the insurer shall be
enabled for `every'
policyholder to login and know
the details as per the format in
Annexure III on any given
221
Technical Guide
Reg. REGULATION IMPLICATION OF
No AMENDMENT
date
Disclosure of SFIN wise NAV on The Insurer shall provide the
both the insurers' and Life details in their customer portal
Insurance Council website from 1st October, 2013
The Insurer shall disclose, the
day-to-day, SFIN wise NAV in
both the Insurers' and Life
Insurance Council's website.
13 D For allotment of units, the
(6) applicable NAV shall be as per
the date of commencement of
policy for new policy contracts
and date of receipt of premium
for renewals.
13 E Risk Management Systems and a. The Board shall
Review implement the
Investment Risk
Management Systems
and Process as per the
"Technical Guide on
Review and Certification
of Investment Risk
Management Systems
and Process of
Insurance Companies',
issued by the Institute of
Chartered Accountant of
India.
b. Insurers, who have either
implemented for the 1st
time or have reviewed
their Investment Risk
Management Systems
and Process, during the
year 2012 shall have the
review done from the
quarter April, 2014 and
file the Audit Certificate
222
Appendix `C'
Reg. REGULATION IMPLICATION OF
No AMENDMENT
issued by the Chartered
Accountant with status of
implementation of
recommendations of
Audit Committee of the
Board, on issues of `very
serious' and `serious'
nature, as per the
Technical Guide referred
in point `a' above.
c. Where the Insurers have
not done the review of
Investment Risk
Management Systems
and Process, during the
year 2012, shall have
such review done during
the quarter April, 2013 of
the financial year 2013-
14, and with the
implementation status of
recommendations of the
Audit Committee, on
issues of `very serious'
and `serious' nature, as
per the Technical Guide
referred in point `a'
above, file with the
returns of June, 2013.
d. Subsequent reviews
shall follow Regulations
13 E.
18 (b) IRDA (Linked Insurance
Products) Regulations, 2013
Chapter V Discontinuance
terms
In the case of Unit Linked 1. As the insurer is required
Products, the discontinued to pay a minimum
223
Technical Guide
Reg. REGULATION IMPLICATION OF
No AMENDMENT
policy fund shall be a unit fund guaranteed interest rate of
with the following asset 4% per annum for the
categories: discontinued policy, and
i) Money Market Instruments: Insurers represented that
0% to 40% the asset allocation for
ii) Government Securities: Money Market
60% to 100% Instruments should not be
restricted to 40%, the
Authority had considered
the submissions made
and hereby permits upto
100% to be invested in
Money Market instruments
[as defined in Regulation
2 (h) of IRDA (Investment)
(5th Amendment)
Regulations, 2013
19 (a) Minimum Guaranteed Interest
Rate:
The Minimum guaranteed 2. As the discontinued policy
interest rate applicable to the premium, along with 4%
discontinued fund/ discontinued interest requires to be
policy account shall be at a rate paid back to the
of 4% per annum. Policyholder, the Insurer's
Policy Admin System
(PAS) shall be
`automated' for tracking
`policy-wise', information
of discontinued policies
along with the information
of the particular ULIP fund
to which the same
pertains.
3. The Insurer shall
implement the above
mentioned system
requirement, and the
Internal / Concurrent
224
Appendix `C'
Reg. REGULATION IMPLICATION OF
No AMENDMENT
Auditor shall confirm
the same in their report to
Audit Committee of the
Board, to avail the
dispensation provided
in point 1 above.
225
Technical Guide
Annexure II
Name of the Insurer: Report Date
Registration No:
DAILY RECONCILIATION OF ULIP PORTFOLIO
Unique Name of Segregated Name of the Life / Group Policy Admin System
Identity the Fund Fund Opening Opening Net Amount Net units Closing unit Closing
Number Product Identifiation Unit Capital Units (as of collected or allotted or capital (as units (as at
(UIN) Number (as at the the start of redeemed redeemed for at the end the end of
(SFIN) start of the the day) (net of the day of the day) the day)
day) (Number of charges) for (Number of (Amount in (Number of
(Amount in Units) the day Units) Rs) Units)
Rs) (Amount in
Rs)
(a) (b) (c) (d) (e) = (a) + (f) = (b) +
(c) (d)
X A XYZ Fund Name 1
Y B
Z C
Sub total
L D ABC Fund Name 'n'
M E
Sub total
Appendix `C'
Investment Management System
SFIN Name of Opening Opening Addittional Addittional Investment FMC Closing Closing NAV per
the fund Value units (as at fund Value Units income for charges fund Value Units (as at Unit
Fund (as at the the start of created or created or the day deducted (as at the the end of declared
start of the the day) redeemed redeemed (including for the day end of the the day)
day) (Number of for the day for the day unrealised day) (Number of
Units) gain/loss) units)
(g) (h) (i) (j) (k) (l) (m) = (g) (n) = (h) + (j) (o) = (m) /
+(i)+(k)-(l) (n)
Fund 1
Fund 2
Fund 'n'
Notes:
1. Opening units as per Life / Group Policy Admin System of previous NAV day [refer (b)] shall reconcile with Opening Units as per
Investment Management System [refer (h)]
2 Addittional fund or Units created or redeemed for the day in Investment Management System [refer (i) and (j)] shall reconcile with Net
Amount or Units collected or redeemed as per Life / Group Policy Admin System [refer (c) and (d)]
3 Closing units as per Life / Group Policy Admin System of previous NAV day [refer (f)] shall reconcile with Closing Units as per
Investment Management System [refer (n)]
4 NAV per unit declared [refer (O)] must reconcile with NAV per unit uploaded on Life Insurance council's website
5 The unit movements of day "T" in Life/Group Admin System shall flow into Investment Management System with a maximum time lag
of 1 working day i.e T+1.
227
Annexure III
Insuer Name XYZ Insurance Company
Limited
Registration No:
Login DD/MM/YYY
Policyholder ID
Dt Y
Name of Policyholder
Address:
PART - A
Product UIN Premium Premium Funds Units as Value Product
(Rs) Allocation Allocated per per Value
Charge (Rs) Policy Unit (Rs)
(Rs) Admin (Rs)
System
(PAS)
ZXY [A]
Premium
Plus
PART B Rs.
Particulars SFIN... SFIN...
SFIN
Fund Fund
Name of the Fund Total
X Y
Units (as per Investment Management
System)
Percentage of Allocation (as on Login Dt) % % %
Funds Allocated
Switch In
Switch Out
Withdrawals
Charges
Commission
Switch charge
Policy Administration charge
Mortality charges
Other charges (specify)
Service Tax
Total amount invested in Segregated funds
Current NAV
Fund value as on Login Dt:
[B]
Appendix `C'
PART - C (Product Statistics)
Insurance Cover over the interim reporting period from dd/mm/yyyy
to dd/mm/yyyy
Total Premium Paid from inception
Total Risk premium from inception, for insurance cover
Total Charges and deductions other than Mortality including
Allocation charges till Login Dt. (including Service Charges)
Difference between (B) (C) (unrealised Gain / Loss)
Portfolio value on Net Investment as per Benefit Illustration at the
lower rate as prescribed in the regulations
Portfolio value on Net Investment as per Benefit Illustration at the
upper rate prescribed in the regulations
Note:
1. Product Porfolio value would be aggregate of all fund values in a
product.
2. Product value per unit would be arrived at post dividing aggregate
fund value by initial units
3. Consolidated Product Value would be a derived by aggregating the
product values and divding the same by consolidated initial units
4. Product Value would be in addition to all the existing disclosures and
calculations
5. Current prescribed practices shall continue.
229
Technical Guide
Annexure IV
AUDIT OF INVESTMENT RISK MANAGEMENT SYSTEMS & PROCESS,
INTERNAL / CONCURRENT AUDIT
[Vide Circular INV/CIR/023/2009-10 Dt. 4th Aug, 2009]
The Authority vide notification F.No.IRDA/Reg./16/74/2013 dated 16th Feb,
2013 notified IRDA (Investment) (5th Amendment) Regulations, 2013.
Regulation 13 (E) prescribes as under:
1. The Board shall implement the Investment Risk Management
Systems and Process, mandated by the Authority. The
implementation shall be certified by a Chartered Accountant firm, as
per the procedure laid down in the "Technical Guide on Review and
Certification of Investment Risk Management Systems and Process of
Insurance Companies", issued by the Institute of Chartered
Accountants of India, as amended from time to time.
2. The Investment Risk Management Systems and Process shall be
reviewed at the beginning of every second financial year or such
shorter frequency as decided by the Board of the Insurer, by a
Chartered Accountant firm and file the certificate issued by such
Chartered Accountant, with the Authority along with the first quarter
returns.
3. The appointment of Chartered Accountant firm to certify
implementation and review of Investment Risk Management Systems
and Process shall be as per the circular issued under these
regulations.
Thus, all Insurer shall have their Investment transactions and related
Systems of Investment functions audited on a Quarterly basis through
Internal Audit (either through internal resources or through firms of Chartered
Accountants) and Insurer with AUM of over Rs.1000 Crores shall necessarily
appoint a firm of Chartered Accountants as Concurrent Auditor to have its
Investment transactions and related Systems audited on a concurrent basis.
Where a firm of Chartered Accountant is appointed either as Internal /
Concurrent Auditor, the Audit team engaged for Internal / Concurrent Audit
shall be headed by an Finance professional, preferably a Chartered
Accountant, with a minimum experience of 3 to 5 years in a Senior position
handling Investment Operations, Audit, Accounts of an Insurance Company
or have been engaged by the Authority in Audit of Investment Operations /
Investment Risk Management Systems and Process of the Insurers and is
230
Appendix `C'
fully conversant with IRDA's Accounting and Investment Regulations and
Circulars and Guidelines issued there under.
A. AUDIT OF INVESTMENT RISK MANAGEMENT SYSTEMS AND
PROCESS
i. As per Regulation 13 (E) of IRDA (Investment) (5th Amendment)
Regulations, 2013 a Chartered Accountants firm, which is not the
Statutory or Internal or Concurrent Auditor of the concerned Insurer
shall certify that the Investment Risk Management Systems and
Processes as per the "Technical Guide on Review and Certification of
Investment Risk Management Systems and Process of Insurance
Companies" issued by the Institute of Chartered Accountants of India
(ICAI), in consultation with IRDA, had been implemented.
ii. All companies seeking IRDA registration shall file a certificate issued
by a Chartered Accountant firm, to confirm that the Insurer had
complied with the systems related requirements, as given in the
"Technical Guide on Review and Certification of Investment Risk
Management Systems and Process of Insurance Companies", when
the Insurer seeks registration under R3 of IRDA (Indian Insurance
Companies Registration) Regulations, 2000. It should also indicate
the actions further required to be taken
B. INTERNAL / CONCURRENT AUDIT OF TRANSACTIONS
1. The minimum Scope of Audit for Internal or Concurrent Audit shall be
as detailed in the "Technical Guides on Internal / Concurrent Audit of
Investment Functions of Insurance Companies" issued by ICAI (in
consultation with IRDA), for both Life and Non-Life Insurers. The
Insurer could include additional scope depending upon their need for
control systems. The Internal / Concurrent Audit is expected to cover
100% of transactions of all fund(s) as per the periodicity prescribed.
2. Where the Internal Audit is carried in house, the internal audit report
shall be signed by the Head of Internal Audit.
3. An insurer who gets covered under AUM clause of over Rs. 1000
Crores for the 1st time, for the purpose of applicability of Internal /
Concurrent Audit, will continue to have the Investment functions
concurrently audited, even if the AUM falls below Rs.1000 Crores,
subsequently.
231
Technical Guide
C. APPOINTMENT OF AUDITORS
i. COMMON FOR BOTH "INVESTMENT RISK MANAGEMENT
SYSTEMS & PROCESS", "INTERNAL / CONCURRENT AUDIT"
1. The Chartered Accountant firm shall be a firm, registered with
the Institute of Chartered Accountants of India.
2. The Audit firm should have experience, for at least four years,
in conducting reviews of Risk Management Systems and
Process of either Banks or Mutual Funds or Insurance
Companies or have, on behalf of IRDA conducted Investment
Inspection of Insurance Companies.
3. On the date of appointment as an Auditor for certifying
Investment Risk Management Systems and Process, the
Auditor must not hold more than two audits of Internal,
Concurrent and Risk Management Systems Audit, all taken
together. Hence, the Audit firm, can at the maximum hold not
more than three Audits (i.e., Investment Risk Management
Systems and Process Audit, Internal Audit, Concurrent Audit
all taken together), apart from Statutory Audits at any point of
time. For this purpose, at the time of appointment, the insurer
shall obtain a declaration to this effect from the firm of
Chartered Accountants. The Insurer shall, file with IRDA, the
confirmation obtained from the Chartered Accountant firm,
within 7 days of such appointment. Also, it is clarified that
Investment Risk Management Systems & Process Auditor,
shall not be the Internal / Concurrent Auditor.
4. The Auditor should not have been prohibited/debarred by any
regulating agency including IRDA, RBI, SEBI, ICAI etc.
5. Every Insurer, upon appointing the firm of Chartered
Accountants as Internal or Concurrent or Risk Management
Systems Auditor shall send a communication to IRDA within
seven days of such appointment, confirming such appointment
as per format provided below under point (iv)
ii. AUDIT OF "INVESTMENT RISK MANAGEMENT SYSTEMS &
PROCESS"
1. The Auditor appointed for certifying the Investment Risk
Management Systems and Process, should not have
conducted the following assignments for the same Insurer
232
Appendix `C'
proposing to be appointed as Systems Auditor, for a period of
two years immediately preceding his appointment.
i. Statutory Audit
ii. Any Internal Audit
iii. Any Concurrent Audit
iv. Any consulting assignment, whether or not related to
Audit functions
iii. AUDIT OF "INTERNAL / CONCURRENT AUDIT OF
TRANSACTIONS"
1. The Internal/Concurrent audit term shall be for the financial
year and where the appointment is made during the course of
the financial year, it shall be up to the end of that financial year.
2. The Internal / Concurrent Auditor shall be appointed by the
Audit Committee of the Insurer's Board and the Auditor shall
directly report to the Audit Committee of the Insurer's Board.
Any change in Auditor during the middle of the term, shall be
communicated to IRDA with the reasons for such change. The
new Auditor, for the remaining term, shall be appointed only
with the prior approval of IRDA.
3. The Internal / Concurrent Auditor shall not be eligible for re-
appointment, with the same Insurer after serving three
consecutive years or three years during the preceding five
years.
4. The Internal / Concurrent Auditor appointed for the first time
should not have conducted the following assignments for the
same Insurer proposing to be appointed as Internal or
Concurrent Auditor for Investment functions during a period of
two years immediately preceding his appointment as Internal or
Concurrent auditor.
i. Statutory Audit
ii. Any Internal Audit
iii. Any Concurrent Audit
iv. Any consulting assignment, whether or not related to
Audit functions
v. Reviews or Certification of Investment Risk
Management Systems and Process
233
Technical Guide
iv. CONFIRMATION OF APPOINTMENT OF AUDITOR
IN THE LETTER HEAD OF THE INSURER
Date:.......................
To
The Insurance Regulatory and Development Authority
Parisram Bhavan, 3rd Floor, Basheerbagh
Hyderabad 500 004
Sir
In pursuant of IRDA Circular INV/CIR/008/2008-09 Dt. 22nd Aug, 2008 and
related provisions of IRDA (Investment) (5th Amendment) Regulations, 2013
in respect of Internal (or) Concurrent Audit of Investment functions, we have
appointed the following firm(s) as our Internal / Concurrent Auditor(s) for the
Investment functions for the period starting from:....................... to
..........................
We have taken necessary confirmations in writing from the Chartered
Accountant firm(s)
Yours faithfully
Chief Executive Officer
234
Appendix `D'
Guidance note on
Preparation of Investment Returns
(Version 01)
Issued by:
Insurance Regulatory and Development
Authority in May, 2013
INTRODUCTION
The Authority issued the Investment Regulations, for the first time, in
2000 and had since then amended it from time to time, (the latest having
been notified on 16th Feb, 2013) to keep pace with the changing market
and to have a hold on policyholders funds. The Assets under
Management that were around Rs. 2.91 Lakh Crores in 2000 are around
Rs. 17.83 lakh Crores in 2013. When funds grow in such volumes, the
Systems and Processes too should keep pace. Such systems and
processes put in place should enable the Regulator to watch growth and
channelize the same to the needy sectors without compromising on the
safety aspect.
Such information, to benefit of all stakeholders, including the Regulator,
requires to be taken in the electronic form. In this effort of collating huge
volume of information, it is essential that the information / data is
`standardized' to facilitate proper consolidation and meaningful
comparability within and among Insurers.
In order to ensure compliance with regulations, all Insurers are expected
to put in place a proper system for the preparation of periodical returns to
be filed with the Authority. To help such preparation and to enable the
Investment Committee of the Insurer ensure that the periodical returns
are prepared in compliance with the procedures laid down, the Authority
is coming out with this guidance note. Even though the periodical returns
are signed by the respective officer named in the form, the Chairman of
the Insurer, Chief Executive Officer, Chief Investment Officer, Chief
Financial Officer and Chief Risk Officer of the Insurer, as the case may
be, the Officers shall be collectively responsible for the authenticity of
information / data submitted, filed either in electronic as well as hard
copy.
Technical Guide
All periodical returns are required to be filed with the Authority
within 30 days from the end of the Quarter. In relation to Quarter
ending on the Balance Sheet date, the return shall first be filed based
on `Provisional figures' and shall again be re-filed with Audited figures in
addition to other Returns. On each return the Insurer shall clearly mark
`Provisional' if submitted based on provisional figures. The final returns,
based on Audited figures, shall be clearly marked as `Audited figures'.
All figures shall be reported in Crores, corrected to two decimals.
The Authority, soon after amending the Regulations had worked with the
Industry in bringing out this "Guidance Note on preparation of
Investment Returns". While due care had been taken to prepare the
material, users can point out through Life Insurance Council or General
Insurance Council any inconsistency. The Authority will look into such
issues and will address the same in the subsequent versions.
236
Appendix `D'
FORM 1 STATEMENT OF INVESTMENT AND
INCOME ON INVESTMENT
OBJECTIVE
In order to ascertain the return on the investment assets, all insurers are
required to file FORM-1 listing category of Investment wise (as per the
Guidelines INV/GLN/001/2003-04 - Guidelines Category of Investments
Dt. 1st Jan 2004 as amended from time to time) income and the yield on
such investment at gross and net basis The Form should be prepared in
respect of each fund. In case of ULIP FORM 1 shall be prepared at
Segregated Fund (SFIN) level and also at consolidated level. The
Income on Investments shown in FORM1 should reconcile with Revenue
and Profit & Loss Account figures
A. METHOD OF PREPARATION
a. COI (Category of Investments)
Category of investment shall be as per the IRDA Guidelines
INV/GLN/001/2003-04 - Guidelines Category of Investments
Dt. 1st Jan 2004 as amended from time to time
b. Cat Code (Category Code)
Category code shall be stated as prescribed in Guidelines as
amended from time to time.
DETAILS PERTAINING TO THE CURRENT QUARTER
c. Investments
The insurer shall state the simple average of investments for
(Non-ULIP and General Insurance Business) the quarter at their
Balance Sheet Value and for ULIP Business at the value of
Investment Assets taken for computing NAV. The simple
average investments shall be calculated based on daily closing
balance. In case where any security has been reclassified (when
the Security is moved from Approved to Other Investment
Category or vice versa) to another category then the simple
average balance shall be shown under the first category till the
time such investment was classified under that category and for
the balance period in the reclassified category.
NOTE:
Simple average of investments shall be the sum of daily closing
balance of Investments divided by the number of day(s) such
investments are outstanding. The net investment current assets
of linked funds should be reported as at the period end in the
Current quarter and Year to Date column.
237
Technical Guide
d. Income on Investment
For non-ULIP funds and General insurers, Income on
Investments will include the income taken to Revenue Account &
Profit and Loss account (Interest, profit / (loss) on sale,
accretion of discount, amortization of premium, dividend earned
during the quarter) and taken to financial statements pertaining
to all the securities held under that category during that quarter.
In case of ULIP funds, any incremental un-realized gains / (loss)
arisen for the period on investment shall be included. In case
where any security has been reclassified to another category
then income shall be shown under the first category till the time
such investment was classified under that category and for the
balance period in the reclassified category.
e. Gross yield
The gross yield (absolute) shall be computed by dividing the
income on Investment for the quarter by the simple daily
average investments outstanding for number of days for the
quarter.
f. Net Yield
The net yield shall be computed by giving the effect of tax rate to
the gross yield.
1. DETAILS PERTAINING TO THE INCOME AND YIELD FOR
YEAR TO DATE
Under the head "Year to Date", details of Investments,
Income, Gross Yield and Net Yield shall be shown for the
period April to the end of the quarter for which details are
being furnished. For example for the quarter ended June,
the details from April to June shall be provided and for the
quarter ended September, the details pertaining to April to
September shall be provided.
2. DETAILS PERTAINING TO THE INCOME AND YIELD FOR
PREVIOUS YEAR
Under the head "Year to Date", details of Investments,
Income, Gross Yield and Net Yield for the corresponding
period of the previous year are to be shown.
238
Appendix `D'
FORM 2 STATEMENT OF DOWNGRADED
INVESTMENTS (PART A)
OBJECTIVE
In order to establish the movement of securities from one category to
another especially the movement from Approved Investments to Other
Investments on account of rating downgrades/upgrades on the reporting
date, all insurers are required file FORM 2, listing various instruments
which have been downgraded from its rating at the time of the purchase
(original rating).
A. METHOD OF PREPARATION
The details of all the downgraded debt securities during the quarter shall
be given under `current quarter' and all downgraded securities shall be
shown under "As on date". 'Investments currently upgraded to the
original grade or above, listed as Down Graded during earlier Quarter
shall be deleted from the Cumulative listing.
a. COI (Category of Investments)
Insurers are required to pick up the corresponding Category of
Investment (COI) for every downgraded security, reposition the
same at the appropriate COI as prescribed in the regulation.
b. Amount
The Balance Sheet Value shall be stated in this column.
c. Date of purchase
In this column, the insurer shall state the date of purchase of that
security. In case there are multiple purchases then the date on
which the earliest purchase was made shall be stated.
d. Rating Agency
In this column, the insurer shall state the name of the rating
agency as prescribed in the regulation. If an instrument is rated by
more than one rating agency, the lowest rating must be used as a
matter of conservatism.
e. Original Grade
Original grade is the rating at the time of purchase of the
instrument.
239
Technical Guide
f. Current Grade
Current grade is the rating for the instrument as at the last day of
the quarter.
g. Date of Downgrade
Further the Insurer shall state the date of downgrade along with
remarks, if any. In case of any downgrade of security resulting in
securities being reclassified as "Other Investment", in Pension and
General Annuity fund, the same shall be specifically disclosed in
the Returns.
240
Appendix `D'
FORM 2 INVESTMENT ASSETS RATING PROFILE
(PART B)
OBJECTIVE
To assess the credit quality of the Investment portfolio, Insurers are
required to file FORM 2. This form needs to be linked to FORM 3A/ 3B.
Equity or Equity Related Instruments and other than Debt Instruments
Portfolio are also reported in FORM 2, for the purpose of linking the total
portfolio to FORM 3A / 3B.
A. METHOD OF PREPARATION
1. FORM - 2 shall be prepared in respect of each fund/investment
assets. In case of ULIP Form 2 shall be prepared at Segregated
Fund (SFIN) level and also at consolidated level.
2. For the purpose of asset classification in various rating classes,
the following points may be noted:
a. Debt investments which are capable of being rated and are
not rated shall be shown under "Unrated"
b. In case of loans in housing sector, infrastructure sector,
secured loans appearing in approved investment and
unsecured loans appearing in `Other investments' amount
shall appear in unrated column of the form 2(part B). In this
regard, the unrated loans having security as prescribed by
Insurance Act shall be classified as approved investment.
Unrated & unsecured loans and unrated and in adequately
secured as prescribed in Insurance act shall be classified as
Other Investment.
c. Reverse Repo with underlying corporate bond, Investment in
Mutual Funds including the Promoter Group Mutual Fund,
Bank FDs, CBLO, Net investment current assets, Venture
funds, Derivative instruments, immovable property and any
other non-debt investments as permitted under the
regulations, shall be shown under "Equity or Equity Related
Instruments and other Instruments". No investment shall be
made in "Equity related instruments" unless the same is
specifically permitted by IRDA.
d. In case of Reverse Repo with underlying Government
securities the same shall be classified under 'AAA' or
Equivalent
241
Technical Guide
e. Non-Performing investments assets will be shown separately
irrespective of rating
3. Balance sheet values of the Investments shall be provided. The
figures in Col (i) must match with FORM 3A/B
4. Percentage to Investment Assets shall be computed, in the case of
Non-ULIP funds and General Insurers by dividing the Balance
Sheet value of investments in various rating class by the total
Balance Sheet Value of Investment assets held and in the case of
ULIP funds, by dividing the Market value of investments in various
rating class by the total market value of Investment assets held.
242
Appendix `D'
FORM 2 - INVESTMENT ASSETS & INFRA
INVESTMENTS - RATING PROFILE (PART C)
OBJECTIVE
To assess the amount of infrastructure investments in life funds, Insurers
are required to file FORM 2C. This form needs to be linked to FORM 3A /
3B.
A. METHOD OF PREPARATION
1. FORM 2C shall be prepared in respect of life fund only and
general insurer including reinsurers.
2. The figures under investment assets category must reconcile with
Form 3A / Form 3B
3. The figures under the infrastructure category must reconcile with
Form 3A / Form 3B
243
Technical Guide
FORM 3A STATEMENT OF INVESTMENT ASSETS
(PART A)
OBJECTIVE
The Insurer shall file FORM 3A (Part A) for compliance of fund wise
Pattern of Investments showing Investment assets and other assets and
linking the same with Balance Sheet figures.
A. METHOD OF PREPARATION
1. FORM 3A (Part-A) has two Sections
SECTION-I
Section I provides link to Investment assets reported in the Balance
Sheet with that as reported in FORM 3A (Part A). The investment assets
which are subject to pattern of investments, under each fund of the Life
Insurer as required under Regulation 3, and shown under "funds
available for investments"
(i) Funds available for Investment
To arrive at the "funds available for investments", the amounts
appearing in the non investment schedules and non investment
line items appearing in Balance Sheet under Application of Funds,
are deducted. Similarly any non-investment items, deducted from
Balance Sheet, shown under Application of Funds, shall be added
back in the reconciliation to arrive at the "funds available for
investments". If any Insurer is carrying Loans as a part of
investments, then the same shall not be deducted from the
application of the funds.
The balance so arrived as "funds available for investments" shall
tally with the sum of the values shown in the "Total Fund" column
of all the three funds in FORM 3A (Part A) which shall reconcile
with figures shown in schedule 8, 8A, 8B & 9.
Application Money for investments under `non linked funds' shall
form part of the Schedule 12 and the same shall not form part of
the Schedule 8, 8A, & 9. It shall not form part of the investment
assets till the allotment is complete. In case of `Linked portfolios'
the same shall form part of `Net Current assets' till the allotment is
complete. Also, it shall be reported under Schedule 8B. If
investment application money is paid through ASBA Fixed Deposit
instead of cash, the same shall be treated as application money
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Appendix `D'
(current Assets) and the lien shall be properly disclosed in Form 6
as a note.
SECTION-II
Section II requires the insurer to report the fund wise, pattern of
investments as prescribed under Regulation 4, 5 and 6 of the IRDA
(Investment) Regulations 2000 as amended from time to time.
Separate Custodian account shall be maintained for "balance"
investments of Shareholder's fund that does not form part of the FRSM
(except in case of Securities held with RBI/ CCIL). Shareholders' funds
held beyond the solvency requirements shall not be subject to Pattern of
Investments prescribed under Regulation 4, 5 and 6 and shall be subject
to Prudential / Exposure norms prescribed under Regulation 9, provided
the same are maintained in a separate custody account.
(i) Category of Investments
Investments shall be categorized as per the Regulation or circular
issued there under, such as Central Government Securities, State
Government Securities, Other Approved Securities, Housing and
Infrastructure, Approved Investments and Other Investments.
(ii) % as per Regulation
This specifies the minimum or maximum % of investments under
each category of investments as prescribed in Regulation for
various funds.
(iii) Shareholder's and Policyholder's fund
All the insurers shall maintain portfolios of SH - FRSM, SH
BALANCE (other than fund representing solvency margin), UL
non-unit reserves, Par and Non par. The insurer shall maintain sub
portfolios under these broad portfolios on the basis of various line
of business. The Pattern of Investment, with respect to Life Fund,
shall be complied with respect to the total of Life fund (both
shareholder fund representing solvency and Policyholder funds
taken together). It may be noted that the pattern of Investment
will not apply to Shareholders funds in excess of solvency
requirement, held in a separate custody account. But
exposure norms of `Investee' company, `Group', and `industry
sector' will apply to both shareholders and policyholders
funds.
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Technical Guide
(iv) Book Value (SH+PH)
In case of ULIP Net asset value including net current assets shall
be considered for pattern of investments. Net current assets shall
be considered as `approved investment' for this purpose. All the
securities (both Equity and Debt) shall be marked to market.
In case of `Non-Linked' funds, cost plus amortization value of the
debt securities and acquisition cost in case of Equity, mutual fund
and investment property and other than Debt investments will be
considered for pattern of investments. Net current Assets shall not
be considered for calculation of Pattern of Investments for non
linked portfolio.
(v) Actual %
The actual % of the each category of investments under Non-
linked portfolios shall be calculated as a % to the total book value
of investment assets in the fund. The amounts in the column (f)
shall be used for calculating the Exposure %.
In case of the ULIP, the actual % of each category are calculated
as a % to the `market value' of the assets of the funds including
`net current assets' that is considered for NAV calculation.
(vi) Fair Value Change (FVC) Amount
The insurer shall compute the fair value for equities and units of
mutual fund. The difference between the fair value and the book
value is the Fair Value Change (FVC) and the same shall be
disclosed in the column provided for.
(vii) Total Fund
The amount after adding the fair value amount to the book value
shall be shown under Total Fund Column. The Grand total under
this column shall reconcile with the `Balance Sheet' value of
investments assets shown in Section I
Market Value
The market value of the securities classified under the various
categories of investments shall be shown under Market Value
column. In the case of Equity, the Market Value shall be the lower
of BSE / NSE prices.
246
Appendix `D'
NOTE
a. In case of Life Fund, Pattern of Investment is applicable for Share
holder fund representing solvency margin and Policyholder funds.
Shareholder fund beyond solvency margin is not subject to pattern
of investment.
b. In Form 3A part A, the equation provided under 'Book Value
(SH+PH) shall be read as '(f) = [b+c+d+e],
c. "Other Investments" made from all Categories of Investment
including housing and infrastructure category shall not
exceed 15% of investment assets of Life fund.
d. All the investment assets such as Fixed Deposits, Section 7
deposits by way of investment assets shall form part of the
Schedule, 8, 8A, 8B or 9 with a note in the respective forms.
e. Non-investment assets of the non-linked funds shall be shown in
the respective schedules other than 8, 8A & 9
f. Non investment assets of the Linked portfolios are also shown as
a separate line item in the Schedule 8B
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Technical Guide
FORM 3A STATEMENT OF INVESTMENT ASSETS
(PART B)
OBJECTIVE
The objective of the form is for compliance to the pattern of Investment
under Reg. at the Segregated Fund level of ULIP fund. This Form is
linked to the item C of FORM 3A (Part-A).
A. METHOD OF PREPARATION
Fund 1 to Fund `n`
Details about each Segregated Fund of ULIP and its total shall be
provided in this form. The number of funds shall be the funds as
approved by the File & Use of IRDA.
a. FORM 3A (Part-B) has two sections
SECTION-I
This section shows the movement of funds from the previous quarter to
the reporting quarter on account of the inflow /outflow in the
policyholders funds and increase/decrease in the value of investments
during the quarter.
(i) Opening Balance (Market Value)
The closing fund values i.e. total Assets under Management
(AUM) (at the segregated ULIP fund level) at the end of the
previous quarter shall be brought forward as opening balance of
the linked portfolio(s).
(ii) Inflow during the quarter
Inflow (a positive figure) will represent the funds brought in for
creation of units in each of the Fund(s).
(iii) Outflow During the quarter
Outflow (a negative figure) during the quarter shall represent the
redemption of units for surrender, claims, charges etc.
(iv) Increase / (Decrease) value of Investments
Increase / (decrease) in the value of investments shall include the
realized, unrealized gains/losses and other Investment income that
has accrued to the individual fund during the reporting quarter
248
Appendix `D'
(v) Total Investible Funds (Market Value)
Opening Balance (Market Value) + inflow during the quarter + net
Increase / (Decrease) in the value of Investments outflow during
the quarter of all funds taken together. In the case of Equity, the
Market Value shall be the lower of BSE / NSE prices.
SECTION-II
INVESTMENT OF UNIT FUND
All the Investments under the ULIP each Segregated Fund(s) shall be
shown under two heads namely Approved and Other Investments.
Under the Approved Investment Category, the investments shall be
further divided into Central Govt. Securities, State Govt Securities, Other
Approved Securities, Corporate Bonds, Infrastructure Bonds, Equity,
Money Market investments, Mutual funds, Deposit with Banks. `Net
current assets' shall be classified as `Approved Investment' and its
breakup shall be provided as prescribed in the format.
Under the Other Investment Category, the investments shall be further
divided into between Corporate Bonds, Infrastructure Bonds, Equity,
Mutual funds, and any other investments which can be readily realizable
and marketable. No investment shall be made in the securities which
cannot be marked to market on daily basis. Total funds i.e. aggregate of
Approved and Other Investments shall reconcile with the Total investible
funds as shown in the Section 1 of the FORM 3A (Part B).
NOTE
(a) The aggregate of all the above Segregated Unit-Funds should tally
with item C of FORM 3A (Part A), for both Par & Non Par Business
(b) The details of Item 12 of FORM LB 2 which form part of IRDA
(Actuarial Report) Regulation, 2000 shall be reconciled with FORM
3A (Part B). LB2 being an annual form the reconciliation would be
done only at year end.
(c) Other Investments' are as permitted under Sec 27A(2) and 27B(3)
(d) Market value of the securities considered for NAV calculation shall
be taken for the purpose of applicability of Pattern of Investments
for ULIP
(e) All the assets of linked funds at the segregated level including net
current assets shall be considered in the denominator for limit
monitoring
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FORM 3A STATEMENT OF INVESTMENT ASSETS
(PART - C)
OBJECTIVE
The objective of the form is to compare the performance of funds at
various periods. Further the form establishes the consistency of NAV
considered for accounting and that reported in Actuarial Statement LB2
are the same. Also the form provides the periodical investment returns of
fund(s). This Form is linked to the FORM 3A (Part B).
A. METHOD OF PREPARATION
a. Name of the Segregated fund
Details about each segregated fund of linked fund shall be
provided in this column.
b. SFIN
SFIN for each of the segregated fund shall be provided.
c. Date of Launch
The date of the first unit allotted under the fund needs to be stated
against each segregated fund.
d. Par/Non Par
Details about the fund whether it is Par/Non Par to be provided
e. Assets Under Management on the above date
The total should be equivalent to the Assets under Management
(AUM) of the segregated fund as provided in FORM 3A PART B.
f. NAV as per LB 2
NAV as per FORM LB2, (Regulation 4 of IRDA (Actuarial Report
and Abstract) Regulations 2000 shall be provided in the column.
LB2 being an annual form, the NAV as per LB2 would equal the
published NAV on a quarterly basis.
g. NAV as on the above date
The NAV on the last day of the quarter shall be provided for
calculating the return.
h. NAV of previous quarters
NAV from previous quarter upto the 4th previous quarter shall be
provided. For example for the quarter ended June 2012, the NAV
250
Appendix `D'
on March 31, 2012 shall be provided in Previous Qtr NAV column,
the NAV on December 31, 2011 shall be provided in 2nd Previous
Qtr NAV column, the NAV on September 30, 2011 shall be
provided in 3rd Previous Qtr NAV column and the NAV on June
30, 2011 shall be provided in 4rd Previous Qtr NAV column.
i. Return
The absolute yield should be computed for one year return based
on NAV movement. Absolute return/ yield = Current quarter NAV/
4th Previous Qtr NAV -1. In case the fund inception data is later
than 4th previous quarter NAV date the same must be reported as
NA (Not Applicable).
j. 3 Year rolling CAGR
The formulae for 3 year CAGR is = ((X/Y) ^ (1/3))-1
X = NAV as provided in the as on above date column
Y = NAV of the corresponding date of the 3rd previous year
In case the fund inception data is later than three years from as on
above date of the Form the same must be reported as NA (not
applicable).
k. Highest NAV since inception
Highest NAV of each fund since inception should be provided.
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Technical Guide
FORM 3A STATEMENT OF INVESTMENT ASSETS
(PART - D)
OBJECTIVE
All insurers are required to file FORM 3A (Part D) to provide the details
of investments made under various funds (Life, Pension and Linked) of
the Life Insurer during the quarter. The Form should be prepared
separately for each fund and in aggregate for all segregated linked funds.
The form is intended to bring out the accretion to the insurers
investments (fund wise) while complying with the fund wise pattern of
Investment.
A. METHOD OF PREPARATION
a. Opening balance
The value of investments of the previous quarter as disclosed under
FORM 3A (Part A) shall be reported in the column.
b. % to Total
The opening balance of prescribed category of investments under
various funds divided by total value of investments of the fund expressed
as a percentage.
c. Net Accretion for the Qtr.
Net increase/ (decrease) in the category of investments during the
quarter.
d. Total
Opening balance of the category of investments plus net accretion during
the quarter must be shown in the column. The summation of the column
for the various funds should tally with book value figures shown in FORM
3A (Part A).
252
Appendix `D'
FORM 3A STATEMENT OF INVESTMENTS
(PART - E)
OBJECTIVE
All insurers are required to file FORM 3A (Part E) to provide the details
of investments made under unit linked funds (at a segregated fund level)
of the Life Insurer during the quarter. The Form should be prepared
separately for each fund and in aggregate for all segregated linked funds.
The form is intended to bring out the reconciliation of Investment details
of ULIP products (UIN) to segregated funds (SFIN)
A. METHOD OF PREPARATION
a. This form is to be prepared for all ULIP products at UIN level. UIN
approved by IRDA
b. Premium
a. It represents premium income (including first year premium,
renewal premium, Top up premium and Single premium)
received during the quarter for each UIN
b. Others need to specify type of inflow, other than premium
income, which flows into policy fund.
c. Outflow
a. Details of all charges, policyholders' payouts including
claims, surrender, partial withdrawal, and any other outflows
(need to specify), which gets deducted either from premium
inflow or policy fund (by way of policyholders' payout or
charges) during the quarter.
d. The above information will flow from policy admin system at UIN
level
e. Policy funds
a. Net inflow or outflow as computed above will flow into or
flow out of segregated policy fund (at SFIN level) during the
quarter. This information will reconcile with change in unit
capital and premium reserve at SFIN level in the Investment
management system
f. Difference between net inflows/outflows as per UIN level and Net
inflows/outflows as per SFIN level must be "nil"
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Technical Guide
FORM 3B STATEMENT OF INVESTMENTS
(PART - A)
OBJECTIVE
The Insurer shall file FORM 3B (Part A) for compliance of Pattern of
Investments showing Investment assets and other assets and linking the
same with Balance Sheet figures
A. METHOD OF PREPARATION
(a) FORM 3B has two sections:
Section I
Section I requires the insurer to establish linkage with the
details of investment as shown in the Balance Sheet and the
investment returns. The Insurer shall furnish the figures as
appearing in Schedule 8 to 15 and the debit balance in
Profit & Loss Account. Further, all the items pertaining to
investments disclosed in the investment returns (FORM 5)
which do not form part of schedule 8 need to be shown in
the "less" items of this section. The Investment assets as
appearing in section I shall be reconciled with the
investment assets shown under the head "Total Fund" in
section II.
Section II
In Section II, the insurer is required to comply with the
pattern of investments as prescribed under Regulation 7 of
the IRDA (Investment) Regulations 2000 as amended from
time to time. Separate Custodian account shall be
maintained for "balance" investments of Shareholder's fund
that does not form part of the FRSM (except in case of
Securities held with RBI/ CCIL). Shareholders' funds held
beyond the solvency requirements shall not be subject to
Pattern of Investments prescribed under Regulation 7
(provided such assets are kept in a separate custody
account) but shall be subject to Prudential / Exposure norms
prescribed under Regulation 9, provided the same are
maintained in a separate custody account.
(b) Category of Investments
Investments shall be categorized as per the Regulation,
such as Central Government Securities, State Government
254
Appendix `D'
Securities, Other Approved Securities, Housing and
Infrastructure, Approved Investments and Other
Investments.
(c) % as per Regulation
This specifies the minimum or maximum % of investments
under each category of investments as prescribed in
Regulation for various funds.
(d) Shareholders' Fund (SH) and Policyholders' Fund
All the insurers shall maintain portfolios of SH BALANCE
(other than fund representing solvency margin) and /or
assets representing Solvency Margin. The Pattern of
Investment shall be complied with funds representing
solvency margin (both shareholder fund representing
solvency and Policyholder funds taken together. It may be
noted that the pattern of Investment will not apply to
Shareholders funds in excess of solvency requirement,
held in a separate custody account. But exposure
norms of `Investee', `company', `Group' and `industry
sector' will apply to both shareholders and
policyholders funds.
Any amount shown under the head "Balance" shall clearly
identified (security wise) in a separate custody account.
(e) Book Value (SH + PH)
Investment assets allocated under SH and PH shall be
shown at Book value i.e. all the debt securities shall be at
historical cost subject to amortization. Units of Mutual Fund
and equity and equity related instruments shall be shown at
cost of acquisition. In the investment returns, column d
would be sum of column b and column c.
(f) % Actual
The insurer shall work out the percentage of holding in G
Sec, G Sec or Other Approved Securities (including Govt.
Securities), Housing & Loans to State Government for
Firefighting equipments; Infrastructure Investments,
Approved investments and Other Investments with respect
to Total Investment asset.
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Technical Guide
(g) FVC Amount
The insurer shall compute the fair value for holding in
equities and for units of mutual fund. The difference
between the fair value and the book value is the Fair Value
Change (FVC).
(h) Total
This is the sum of Balance of Shareholders Fund, FRSM,
Policyholders funds and FVC amount. The grand total under
this column should tally with the investments assets shown
in section I.
(i) Market Value
The market value all the securities shall be shown, Category
code wise as provided in the Guidelines issued. In the case
of Equity, the Market Value shall be the lower of BSE / NSE
prices
NOTE
a. "Other Investments" made from all categories of Investment
including Housing and Infrastructure sectors shall not
exceed 25% of the total investment assets.
b. All investment assets such as Fixed Deposit, Section 7
deposit should form part of Schedule 8 in the Balance Sheet
256
Appendix `D'
FORM 3B STATEMENT OF INVESTMENTS
(PART - B)
OBJECTIVE
All insurers are required to file FORM 3B (Part B) to provide the details
of investments during the quarter. The form is intended to bring out the
accretion to the Insurer's investments while complying with the pattern of
Investment.
A. METHOD OF PREPARATION
a. Opening balance
The closing book value of investments of the previous quarter as
disclosed under FORM 3B (Part A) shall be reported in the
column.
b. % to Opening Balance
The opening balance of prescribed category of investments under
various funds divided by total book value of investments of the
fund expressed as a percentage.
c. Net Accretion for the Qtr.
Net increase/ (decrease) in the category of investments during the
quarter is the difference between the opening balance and the
closing balance during the quarter.
d. Total
Opening balance of the pattern of investment assets plus net
accretion during the quarter must be shown in the column. The
summation of the column for the various funds should tally with
book value figures shown in FORM 3B (Part A).
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Technical Guide
FORM 4A EXPOSURE NORMS COMPLIANCE
(PART A, B, C & D)
OBJECTIVE
In order to establish compliance with prudential and exposure norms as
prescribed in Regulation 9 and other circulars issued by the Authority
from time to time, all insurers are required to file FORM 4A (PART A, B,
C & D). Norms for exposure to Investee Company, Investee Company
Group and Industrial Sector have been laid down in Regulation 9 of the
IRDA (Investment) Regulation, 2000 as amended from time to time.
FORM 4A (Part A) requires exception reporting and hence only
deviations from the prescribed regulations are required to be reported.
FORM 4A (Part B) shall be prepared for Promoter Group, FORM 4A (Part
C) shall be prepared for Non Promoter Group and Part D be prepared for
each Industry Sector. FORMs 4A (PART A, B, C & D) shall be prepared
for Life, Pension & General Annuity and for ULIP at Segregated Funds
[SFIN] level.
A. METHOD OF PREPARATION
In Part A of FORM 4A
The insurer is required to submit only the instances of deviation where
there is non-compliance with investee company norms as prescribed in
Regulation.
a. Investee Company
The insurer shall state the full name of the Investee Company.
b. Eligibility limit as per Regulation
The insurer shall state the limit in terms of amount for equity and
debt. The maximum amount (Eligible limit) for investment in equity,
preference shares and convertible debentures shall be the lower of
amount computed as per percentage (prescribed under Regulation
9 of IRDA (Investment) Regulations, 2000 as amended from time
to time) of (1) investee company's outstanding shares or (2)
insurers investment assets/ funds.
In case of debt, loans and other investments the limit shall be the
lower of amount computed as per percentage (prescribed under
Regulation 9 of IRDA (Investment) Regulations, 2000 as amended
from time to time) of (1) Paid-up share capital, free reserves and
Debentures / Bonds or (2) insurers investment assets/ funds.
258
Appendix `D'
Outstanding shares do not include the preference shares.
Investments in preference shares, Convertible debentures / bonds
shall be as per Regulation 9 of IRDA (Investment) Regulations,
2000 as amended from time to time. Further, the total exposure to
any company (equity, debt and all other investments taken
together) shall be capped as prescribed in the regulations.
The insurer shall endeavor to obtain the latest available details.
c. Actual Investment
In this column the insurer shall show, Investee Company wise, the
actual investments at Book Value. The insurer shall show equity
investments and debt investments separately.
d. Deviation Amount
The deviation amount is the difference between the eligible
investment amount and the actual investment made by the insurer.
The deviations shall be given separately for equity and debt
investments. The insurer shall report only those cases where there
are deviations.
In Part B of FORM 4A
a. Name of the Promoter Group Company:
The insurer shall identify Investee Company with the promoter
group to which Investee Company belongs to.. The insurer shall
follow the "Group" definition consistently as prescribed in the
Investment Regulation
b. Eligible limit of the Promoter Group as per Regulation 9
The maximum investments in any company belonging to the
Insurer's promoter Group shall be the percentage (as prescribed in
the Regulations) computed on investment assets at aggregate
level.
c. Actual Investments
In this column the insurer shall show, Investee Company group
wise, the actual investments at Book value
d. Deviation
The deviation amount is the difference between the eligible
investment limit as shown in column `d' and the actual investment
as shown in column `e'.
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Technical Guide
e. % deviation
The insurer shall show the deviation as a % to investment assets.
In Part C of FORM 4A
a. Name of the Group
The insurer shall identify every investee company with the group to
which Investee Company belongs to. The insurer shall follow the
"Group" definition consistently as prescribed in the Investment
Regulation.
b. Eligible limit of the Promoter Group as per Regulation 9
The maximum investments in the investee company belonging to
the Group Company as defined in the Investment Regulation. Shall
be the percentage (as prescribed in the Regulations) computed on
investment asset/ fund. In the case of ULIP funds, the limit shall be
applicable both at Segregated Fund level and at aggregate level.
c. Actual Investments
In this column the insurer shall show, Investee Company group
wise, the actual investments at Book value
d. Deviation
The deviation amount is the difference between the eligible
investment limit as shown in column `c' and the actual investment
as shown in column `d'.
e. % deviation
The insurer shall show the deviation as a % to investment
assets/controlled fund/ULIP fund size.
In Part D of FORM 4A
a. Name of the Industry
The insurer shall state the name of industrial sector. The
classification of any investee company into any industry sector
shall be classified on the lines of National Industrial Classification
(All Economic Activities) 2008 (NIC) for all sectors, except
infrastructure sector. Exposure shall be calculated at Division level
from A to R. For Financial and Insurance Activities sector,
exposure shall be at Sectional level. In case an investee company
is capable of being classified under more than one classification,
then the insurer shall classify such that it reflects same in such a
260
Appendix `D'
way the broad business of the investee company and shall
consistently classify the same under the industrial sector in future.
b. Actual investments
The insurer shall state the total investments made in that industrial
sector at Book value.
c. Deviation
The deviation amount is the difference between the eligible
investment limit as shown in column `c' and the actual investment
as shown in column `d'.
d. % deviation
The insurer shall show the deviation as a % to investment
assets/controlled fund/ULIP fund size.
Lastly, the insurer shall state the % deviation from the limit
prescribed under Regulation 9 of the IRDA (Investment)
Regulation 2000 as amended from time to time.
Further investments in fixed deposits, term deposit and certificate
of deposits would not be deemed as exposure to Financial and
Insurance Activities sector. However, such exposure to the
promoter group is subject to Industrial exposure norms.
Industry sector norms shall not apply for investments made in
`Infrastructure' sector as defined under Regulation 2(h) of IRDA
(Registration of Indian Insurance Companies) Regulations, 2000
as amended from time to time.
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Technical Guide
FORM 5 STATEMENT OF INVESTMENT
RECONCILIATION
OBJECTIVE
In order to understand the movement of instruments as a result of
Purchase and Sale of Investments during the Quarter and in order to link
the same [FORM-5 shall be prepared in respect of each fund. In case of
ULIP Form 5 shall be prepared at Segregated Fund (SFIN) level and also
at consolidated level and Total Investments in the case of General
Insurer] with FORM-3A (Part A) / FORM-3B filed for each Quarter this
report is presented. Listing of various investments made based as per
Guidelines INV/GLN/001/2003-04 - Guidelines Category of Investments
Dt. 1st Jan 2004 as amended from time to time.
A. METHOD OF PREPARATION
The statement shall be prepared as per major categories mentioned
under IRDA (Investment) Regulations, 2000 amended from time to time
and as applicable to Life Insurers, General Insurers namely;
1. Central Government Securities
2. State Government Securities or Other Approved Securities
3. Housing and Loans to State Government for Housing and Fire
Fighting Equipments
4. Infrastructure Investments
5. Approved Investments
6. Other Investments
NOTE
For all securities, falling under the above heads, the respective Category
Code shall be Guidelines INV/GLN/001/2003-04 - Guidelines Category
of Investments Dt. 1st Jan 2004 as amended from time to time.
a. Category Listing Method
The list should follow the category code as prescribed in the
Annexure 1 of IRDA/Reg./5/47/2008 as amended from time to
time.
The Opening Balance of each sub-category shall be the
consolidated entry, shown at the book cost of that particular sub-
category or at the Actual Cost of Purchases after amortization. In
262
Appendix `D'
respect of investment property, equity, mutual fund investment, the
opening balance shall be shown at weighted average cost of
acquisition under respective category of investments. The same
shall be the closing balance of previous quarter.
b. Purchases for the Quarter
All purchases made during the period shall be shown at the
consolidated Weighted Average Value, category code wise (as
provided in Guidelines on Category of Investments), and be listed
in the same sequence as provided in the "Category of
Investments". The Face Value shall be the consolidated Value of
each security purchased during the Quarter.
c. Cost of Sales
In case of equity, cost of sales shall be the Weighted Average
Cost of the investment and in case of debt securities the cost of
sales shall be the amortized cost of investment at the time of sale.
d. Closing Balance
In Closing Balance column, the book value shall be the sum of
Weighted Average Cost of Opening Balance and Purchases made
during the period as reduced by the Cost of Sales for that period
plus adjustments if any. The closing balance, thus arrived at each
sub-category level should be grossed at each category level. The
book value, Market Value of each sub-category of Category of
Investments shall be reconciled with Form 3A/3B.
e. % To Total
For Life Insurance Companies : In case of Non- Linked Funds,
each category code will be calculated with respect to on Book
value and the same will be calculated with respect to Market Value
basis for linked funds. For Non-Life Insurance Companies, It will
be calculated on Book value basis.
f. Adjustments
Any change in value of investments due to cat code
reclassification during the quarter, adjustments in securities on
account of corporate action entitlements and amortization of
premium/ accretion of discount on investments shall be reported
under Adjustments column.
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Technical Guide
NOTE
1. Circular No. 32/2/F&A/Circulars/169/Jan/2006-07 Dt. 24th Jan,
2007 on "Prudential norms for Income Recognition, Asset
Classification and Provisioning and Other related matters" should
strictly be complied with.
2. Refer Annexure 1 of this Guidelines for "Category of Investments
for Life, Linked and General Insurance Business as amended from
time to time"
3. Refer Annexure 2 of this Guidelines for "Market Value Basis for
FORM 3A, FORM 3B"
4. In case of ULIP, FORM 5 shall be prepared at Segregated Fund
(SFIN) level for ULIP funds.
5. All transaction shall comply with IRDA/INV/CIR/062/Jan 2005 on
transaction on stock market to be on cash basis.
264
Appendix `D'
FORM 5A STATEMENT OF INVESTMENT IN MUTUAL
FUNDS
OBJECTIVE
The details of investments in made by the Insurer in Mutual Funds, within
the limits permitted under the Regulations, shall be captured in this Form.
The sum of such investments made in Mutual Funds, as shown in FORM
5A shall be linked to FORM 5 under respective head.
A. METHOD OF PREPARATION
The statement shall be prepared with regard to Approved
Investments and Other Investments.
a. Category Listing Method
The list should follow the category code as prescribed in the
Annexure 1 of IRDA/Reg./5/47/2008 as amended from time to
time.
In respect of Mutual Fund Investments, the Opening Balance shall
be the acquisition cost of the Mutual Fund.
b. Purchases For The Quarter
All purchases in respect of Mutual Fund made during the period
shall be shown at the number of Units purchased and the
Weighted Average Value of NAV of all purchase made during the
quarter for each of the Mutual Fund.
c. Sales For The Quarter
All sales in respect of Mutual Fund during the period shall be
shown at the number of Units sold and the Weighted Average Cost
of all sales made during the quarter for each of the Mutual Fund.
d. Closing Balance
In Closing Balance column, the book value shall be the sum of
Weighted Average Cost of Opening Balance and Purchases made
during the period as reduced by the Cost of Sales for that period
plus adjustments if any, which shall be listed sub-category wise.
The closing balance, thus arrived at each sub-category level
should be grossed at each category level. This shall be the
investment in mutual fund that will be carried forward to the next
period.
265
Technical Guide
e. Market Value
Market value for the units held in respect to Mutual Funds shall be
shown in this column.
f. % To Total
Percentage of Investment in Mutual Funds to the book value of
Fund (as per FORM 3A/3B) of the respective fund shall be
provided in this column.
The Mutual Funds shown in "Approved Investments" shall be
moved to "Other Investments" category in case of exceeding the
limit as provided in the Circular INV/CIR/008/2008-09 as amended
from time to time.
266
Appendix `D'
FORM 6 CERTIFICATE UNDER SECTION 28 OF
INSURANCE ACT, 1938
OBJECTIVE
This is a certificate requires under Section 28 (2A) / (2B) of Insurance
Act, 1938. This form confirms the reconciliation of Investments as per
Investment Returns and the same held free of charge, lien,
hypothecation etc. This form is linked to FORM 3A/3B. This form shall be
signed by Chairman and two Directors and the Principal Officer. The non-
encumbrance shall need to be reported by both insurer and the
custodian.
A. METHOD OF PREPARATION
1. The form is prepared fund-wise and in aggregate for all
segregated linked funds.
2. The Separate Custodian account shall be maintained for balance
investments of Shareholder's fund that does not form part of the
FRSM.
3. The details are furnished at major category code level namely,
investment in Central Government Securities, State Government
Securities, Other Approved Securities, Infrastructure/Housing &
Loans to State Govt. for Housing & FFE, Approved Investment,
Other than Approved Investment.
4. The statement reveals the holding particulars of Banks (Custodian
bank), Self and Others with respect to Shareholder / Policy holder
fund and shall certify the following.
(i) The custodian should certify in the disclosure that he is not
disqualified by SEBI (Custodian of securities) Regulation
every time on annual basis.
(ii) The value should be adjusted for Purchase/Sale of
investments purchased and awaiting settlement.
Reconciliation to this effect should be attached to the
certificate.
(iii) If the custodian belongs to promoter group, the norms of the
promoter group as in the mentioned in INV/CIR/008/2008-09
dated 22nd Aug, 2008 (Annexure II), point 9 shall be
complied with.
267
Technical Guide
5. Investment current assets of linked business to be presented
under the custody of self. CBLO to be presented under the custody
of `Others'. Government Securities and Treasury bills, Reverse
Repo held in SGL account with Reserve Bank of India shall be
classified under `Bank' while for insurers availing CSGL account,
these holdings should be shown under the respective head i.e.
Banks if held with Custodian Bank else under `Others'.
6. Section 7 deposit shall be shown under `Banks if the same is kept
with a Bank
268
Appendix `D'
FORM 7 DETAILS OF NON-PERFORMING ASSETS
OBJECTIVE
This form provides the Non Performing Asset details in the debt
investments of the funds.
A. METHOD OF PREPARATION
1. Investments assets are excluding Central Government Securities
and State Government Securities (SDL), Other Approved
securities and any other equity or equity related instruments. This
form is to be prepared at SFIN level for ULIP fund and at
aggregate fund level for Life Fund, Pension & General Annuity
funds and General Insurers.
2. The absolute amount of Gross NPA as on date (before Provision
of NPA to be provided but after write off)
3. Gross NPA as on date to Investment assets shall be shown by
dividing "Gross NPA" by "Investment Assets"
4. Item No 4 shall be Provisions made for NPAs appearing under
"Gross NPA"
5. Ratio of provisions made on the "NPAs" to "Gross NPA" shall not
include provisions made on Standard Assets
6. Provision made on the 'Standard Assets' shall be as per Circular:
32/2/F&A/Circulars/169/Jan/2006-07 as amended from time to
time.
7. "Net Investment Assets" is to be arrived at by subtracting
provisions (Item no. 4) from Investment Assets (Item no. 1)
8. "Net NPA" is to be arrived at by subtracting provision (Item no. 4)
from the Gross NPA (Item no.2)
9. "% of the net NPA" shall be calculated by dividing "Net NPA" by
"Net Investment Asset"
10. Write off made during the period shall be as approved by the
Board of the Insurer.
269
ANNEXURE-1
CATEGORY OF INVESTMENTS FOR LIFE, LINKED, GENERAL
INSURANCE BUSINESS
The Authority vide Notification F. No. IRDA/Reg./5/47/2008 dated 30th Jul,
2008 published the 4th Amendment of Investment Regulations on 22nd Aug,
2008. With a view of reflecting the specific changes brought about in respect
of Insurers investment in various Categories, had issued Guidelines:
INV/GLN/001/2003-04 dated 1st Jan, 2004, the same had been amended
suitably as under. These are the Category of Investments that are
permissible for Life, Pension and General Annuity, Linked Insurance
Business and General Insurance (including Re Insurance) Business. These
are the exhaustive categories as per the Insurance Regulatory and
Development Authority.
CAT
No INVESTMENT CATEGORY HEADS
CODE
A GOVERNMENT SECURITIES
A01 Central Government Bonds CGSB
A02 Special Deposits CSPD
A03 Deposit under Section 7 of Insurance Act, 1938 CDSS
A04 Treasury Bills CTRB
GOVERNMENT SECURITIES / OTHER APPROVED
B
SECURITIES
B01 Central Government Guaranteed Loans / Bonds CGSL
B02 State Government Bonds SGGB
B03 State Government Guaranteed Loans SGGL
Other Approved Securities (excluding Infrastructure
B04 SGOA
Investments)
B05 Guaranteed Equity SGGE
HOUSING & LOANS TO STATE GOVT. FOR HOUSING AND
C
FIRE FIGHTING EQUIPMENT
C01 Loans to State Government for Housing HLSH
C02 Loans to State Government for Fire Fighting Equipments HLSF
C03 Term Loan - HUDCO / NHB / Institutions accredited by NHB HTLH
C04 Commercial Papers - NHB / Institutions accredited by NHB HTLN
C05 Housing - Securitised Assets HMBS
C06 Debentures / Bonds / CPs / Loans - (Promoter Group) HDPG
TAXABLE BONDS
C07 Bonds / Debentures issued by HUDCO HTHD
Bonds / Debentures issued by NHB / Institutions accredited by
C08 HTDN
NHB
Appendix `D'
Bonds / Debentures issued by Authority constituted under any
C09 Housing / Building Scheme approved by Central / State / any HTDA
Authority or Body constituted by Central / State Act
TAX FREE BONDS
C10 Bonds / Debentures issued by HUDCO HFHD
Bonds / Debentures issued by NHB / Institutions accredited by
C11 HFDN
NHB
Bonds / Debentures issued by Authority constituted under any
C12 Housing / Building Scheme approved by Central / State / any HFDA
Authority or Body constituted by Central / State Act
OTHER INVESTMENTS
C13 Debentures / Bonds / CPs / Loans HODS
C14 Housing - Securitised Assets HOMB
C15 Debentures / Bonds / CPs / Loans - (Promoter Group) HOPG
D INFRASTRUCTURE INVESTMENTS
D01 Infrastructure - Other Approved Securities ISAS
D02 Infrastructure - PSU - Equity shares - Quoted ITPE
D03 Infrastructure - Corporate Securities - Equity shares-Quoted ITCE
D04 Infrastructure - Equity (Promoter Group) IEPG
D05 Infrastructure - Securitised Assets IESA
Infrastructure - Debentures / Bonds / CPs / loans - (Promoter
D06 IDPG
Group)
D07 Infrastructure - Infrastructure Development Fund (IDF) IDDF
TAXABLE BONDS
D08 Infrastructure - PSU - Debentures / Bonds IPTD
D09 Infrastructure - PSU CPs IPCP
Infrastructure - Other Corporate Securities - Debentures/
D10 ICTD
Bonds
D11 Infrastructure - Other Corporate Securities - CPs ICCP
D12 Infrastructure - Term Loans (with Charge) ILWC
TAX FREE BONDS
D13 Infrastructure - PSU - Debentures / Bonds IPFD
Infrastructure - Other Corporate Securities - Debentures/
D14 ICFD
Bonds
OTHER INVESTMENTS
D15 Infrastructure - Equity (including unlisted) IOEQ
D16 Infrastructure - Debentures / Bonds / CPs / loans IODS
D17 Infrastructure - Securitised Assets IOSA
D18 Infrastructure - Equity (Promoter Group) IOPE
Infrastructure - Debentures / Bonds / CPs / loans - (Promoter
D19 IOPD
Group)
APPROVED INVESTMENT SUBJECT TO EXPOSURE
E
NORMS
271
Technical Guide
E01 PSU - Equity shares Quoted EAEQ
E02 Corporate Securities - Equity shares (Ordinary)- Quoted EACE
Equity Shares - Companies incorporated outside India
E03 EFES
(invested prior to IRDA Regulations)
E04 Equity Shares - Promoter Group EEPG
E05 Corporate Securities - Bonds - (Taxable) EPBT
E06 Corporate Securities - Bonds - (Tax Free) EPBF
E07 Corporate Securities - Preference Shares EPNQ
E08 Corporate Securities - Investment in Subsidiaries ECIS
E09 Corporate Securities - Debentures ECOS
Corporate Securities - Debentures / Bonds/ CPs /Loan -
E10 EDPG
(Promoter Group)
E11 Corporate Securities - Derivative Instruments ECDI
E12 Municipal Bonds Rated EMUN
E13 Investment properties - Immovable EINP
E14 Loans - Policy Loans ELPL
Loans - Secured Loans - Mortgage of Property in India (Term
E15 ELMI
Loan)
Loans - Secured Loans - Mortgage of Property outside India
E16 ELMO
(Term Loan)
Deposits - Deposit with Scheduled Banks, FIs (incl. Bank
E17 ECDB
Balance awaiting Investment), CCIL, RBI
E18 Deposits - CDs with Scheduled Banks EDCD
E19 Deposits - Repo / Reverse Repo - Govt Securities ECMR
E20 Deposits - Repo / Reverse Repo - Corporate Securities ECCR
Deposit with Primary Dealers duly recognised by Reserve
E21 EDPD
Bank of India
E22 CCIL CBLO ECBO
E23 Commercial Papers ECCP
E24 Application Money ECAM
Perpetual Debt Instruments of Tier I & II Capital issued by PSU
E25 EUPD
Banks
Perpetual Debt Instruments of Tier I & II Capital issued by Non-
E26 EPPD
PSU Banks
Perpetual Non-Cum. P.Shares & Redeemable Cumulative
E27 EUPS
P.Shares of Tier 1 & 2 Capital issued by PSU Banks
Perpetual Non-Cum. P.Shares & Redeemable Cumulative
E28 EPPS
P.Shares of Tier 1 & 2 Capital issued by Non-PSU Banks
E29 Foreign Debt Securities (invested prior to IRDA Regulations) EFDS
E30 Mutual Funds - Gilt / G Sec / Liquid Schemes EGMF
E31 Mutual Funds - (under Insurer's Promoter Group) EMPG
E32 Net Current Assets (Only in respect of ULIP Business) ENCA
F OTHER INVESTMENTS
272
Appendix `D'
F01 Bonds - PSU Taxable OBPT
F02 Bonds - PSU - Tax Free OBPF
F03 Equity Shares (incl Co-op Societies) OESH
F04 Equity Shares (PSUs & Unlisted) OEPU
F05 Equity Shares - Promoter Group OEPG
F06 Debentures OLDB
F07 Debentures / Bonds/ CPs / Loans etc. - (Promoter Group) ODPG
F08 Municipal Bonds OMUN
F09 Commercial Papers OACP
F10 Preference Shares OPSH
Venture Fund / SEBI approved Alternate Investment Fund
F11 OVNF
(Category I)
F12 Short term Loans (Unsecured Deposits) OSLU
F13 Term Loans (without Charge) OTLW
F14 Mutual Funds - Debt / Income / Serial Plans / Liquid Secemes OMGS
F15 Mutual Funds - (under Insurer's Promoter Group) OMPG
F16 Derivative Instruments OCDI
F17 Securitised Assets OPSA
F18 Investment properties - Immovable OIPI
Note: F. `Other Investments' shall not be applicable to Pension and General
Annuity Funds of Life Insurers.
273
Technical Guide
ANNEXURE-2
MARKET VALUE - BASIS FOR FORM-3A / FORM-3B
The Authority vide Notification F. No. IRDA/Reg./5/47/2008 dated 30th Jul,
2008 published the 4th Amendment of Investment Regulations on 22nd Aug,
2008. With a view of reflecting the specific changes brought about in respect
of Maket Value of Investments for the purpose of FORM 3A, FORM 3B, the
Authority issued Guidelines INV/GLN/003/2003-04 dated 1st Jan, 2004 and
the same has been amended suitably as under. The following shall, without
prejudice to Section 27A, 27B of the Insurance Act, 1938 be the basis for
arriving at the "Market Value" of Investment to be furnished in FORM-3A and
FORM-3B.
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
A Government Securities
A01 Central Government Bonds CGSB Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
A02 Special Deposits CSPD At Cost
A03 Deposit under Section 7 of CDSS Value as per FIMMDA if rated. If
Insurance Act, 1938 not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
A04 Treasury Bills CTRB Valued as per FIMMDA.
B Government Securities /
Other Approved Securities
B01 Central Government CGSL Value as per FIMMDA if rated. If
Guaranteed Loans / Bonds not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
B02 State Government Bonds SGGB Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
B03 State Government Guaranteed SGGL Value as per FIMMDA if rated. If
Loans not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
B04 Other Approved Securities SGOA Value as per FIMMDA if rated. If
(excluding Infrastructure not, valued at applicable Market
Investments) Yield rates published as per
reputed Rating Agency
B05 Guaranteed Equity SGGE Book Value.
274
Appendix `D'
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
C Housing & Loans to State
Govt. for Housing and Fire
Fighting Equipment
C01 Loans to State Government for HLSH At Cost Less Provisions
Housing
C02 Loans to State Government for HLSF At Cost Less Provisions
Fire Fighting Equipments
C03 Term Loan - HUDCO / NHB / HTLH At Cost Less Provisions
Institutions accredited by NHB
C04 Commercial Papers - NHB / HTLN Value as per FIMMDA if rated. If
Institutions accredited by NHB not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
C05 Housing - Securitised Assets HMBS Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
C06 Bonds/Debentures/CPs/Loans HDPG Value as per FIMMDA if rated. If
- Promoter Group not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
TAXABLE BONDS OF
C07 Bonds / Debentures issued by HTHD Value as per FIMMDA if rated. If
HUDCO not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
C08 Bonds / Debentures issued by HTDN Value as per FIMMDA if rated. If
NHB / Institution accredited by not, valued at applicable Market
NHB Yield rates published as per
reputed Rating Agency
C09 Bonds / Debentures issued by HTDA Value as per FIMMDA if rated. If
Authority constituted under not, valued at applicable Market
any Housing / Building Yield rates published as per
Scheme approved by Central / reputed Rating Agency
State / any Authority or Body
constituted by Central / State
Act
TAX FREE BONDS
C10 Bonds / Debentures issued by HFHD Value as per FIMMDA if rated. If
HUDCO not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
C11 Bonds / Debentures issued by HFDN Value as per FIMMDA if rated. If
NHB / Institution accredited by not, valued at applicable Market
NHB Yield rates published as per
reputed Rating Agency
275
Technical Guide
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
C12 Bonds / Debentures issued by HFDA Value as per FIMMDA if rated. If
Authority constituted under not, valued at applicable Market
any Housing / Building Yield rates published as per
Scheme approved by Central / reputed Rating Agency
State / any Authority or Body
constituted by Central / State
Act
OTHER INVESTMENTS
C12 Debentures / Bonds / CPs / HODS Value as per FIMMDA if rated. If
Loans not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
C13 Housing - Securitised Assets HOMB Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
C14 Debentures / Bonds / CPs / HOPG Value as per FIMMDA if rated. If
Loans - (Promoter Group) not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
D INFRASTRUCTURE
INVESTMENTS
D01 Infrastructure - Other ISAS Value as per FIMMDA if rated. If
Approved Securities not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
D02 Infrastructure - PSU - Equity ITPE If quoted, valued at Market
shares Quoted Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
D03 Infrastructure - Corporate ITCE If quoted, valued at Market
Securities - Equity shares- Value (last Quoted price should
Quoted not be later than 30 days). If
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
276
Appendix `D'
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
at the beginning of the year, the
same shall be reduced from the
Book Value)
D04 Infrastructure - Equity IEPG If quoted, valued at Market
(Promoter Group) Value (last Quoted price should
not be later than 30 days). If
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
D05 Infrastructure - Securitised IESA Value as per FIMMDA if rated. If
Assets not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
D06 Infrastructure - Debentures / IDPG Value as per FIMMDA if rated. If
Bonds / CPs / loans - not, valued at applicable Market
Promoter Group Yield rates published as per
reputed Rating Agency and in
case of loans at cost
D07 Infrastructure - Infrastructure IDDF At NAV (if available) or at cost
Development Fund (IDF) less Provision for diminution
TAXABLE BONDS OF
D08 Infrastructure - PSU - IPTD Value as per FIMMDA if rated. If
Debentures / Bonds not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
D09 Infrastructure - PSU CPs IPCP Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
D10 Infrastructure - Other ICTD Value as per FIMMDA if rated. If
Corporate Securities - not, valued at applicable Market
Debentures/ Bonds Yield rates published as per
reputed Rating Agency
D11 Infrastructure - Other ICCP Value as per FIMMDA if rated. If
Corporate Securities CPs not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
D12 Infrastructure - Term Loans ILWC At Cost less opening Provisions
(with Charge)
TAX FREE BONDS
277
Technical Guide
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
D13 Infrastructure - PSU - IPFD Value as per FIMMDA if rated. If
Debentures / Bonds not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
D14 Infrastructure - Other ICFD Value as per FIMMDA if rated. If
Corporate Securities - not, valued at applicable Market
Debentures/ Bonds Yield rates published as per
reputed Rating Agency
OTHER INVESTMENTS
D15 Infrastructure - Equity IOEQ If quoted, valued at Market
(including unlisted) Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
D16 Infrastructure - Debentures / IODS Value as per FIMMDA if rated. If
Bonds / CPs / loans not, valued at applicable Market
Yield rates published as per
reputed Rating Agency and in
case of loans at cost
D17 Infrastructure - Securitised IOSA Value as per FIMMDA if rated. If
Assets not, valued at applicable Market
Yield rates published as per
reputed Rating Agency and in
case of loans at cost
D18 Infrastructure - Equity IOPE If quoted, valued at Market
(Promoter Group) Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
D19 Infrastructure - Debentures / IOPD Value as per FIMMDA if rated. If
Bonds / CPs / loans - not, valued at applicable Market
(Promoter Group) Yield rates published as per
reputed Rating Agency and in
278
Appendix `D'
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
case of loans at cost
E APPROVED INVESTMENT
SUBJECT TO EXPOSURE
NORMS
E01 PSU - Equity shares - quoted EAEQ Market Value
E02 Corporate Securities - Equity EACE Market Value
shares (Ordinary)-quoted
E03 Equity Share - Companies EFES If quoted, valued at Market
incorporated outside India Value (last Quoted price should
(invested prior to IRDA not be later than 30 days). In
Regulations) unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
E04 Equity Shares - Promoter EEPG If quoted, valued at Market
Group Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
E05 Corporate Securities - Bonds - EPBT Value as per FIMMDA if rated. If
(Taxable) not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
E06 Corporate Securities - Bonds - EPBF Value as per FIMMDA if rated. If
(Tax Free) not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
E07 Corporate Securities - EPNQ If quoted, valued at Market
Preference Shares Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
279
Technical Guide
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
E08 Corporate Securities - ECIS At Cost less Provision for
Investment in Subsidiaries diminution
E09 Corporate Securities ECOS Value as per FIMMDA if rated. If
Debentures not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
E10 Corporate Securities - EDPG Value as per FIMMDA if rated. If
Debentures / Bonds/ CPs not, valued at applicable Market
/Loan - Promoter Group Yield rates published as per
reputed Rating Agency and in
case of loans at cost
E11 Corporate Securities - ECDI Marked to Market
Derivative Instruments
E12 Municipal Bonds - Rated EMUN Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency and in
case of loans at cost
E13 Investment properties EINP At Cost
Immovable
E14 Loans - Policy Loans ELPL At Cost
E15 Loans - Secured Loans - ELMI At Cost Less Provisions
Mortgage of Property in India
(Term Loan)
E16 Loans - Secured Loans - ELMO At Cost Less Provisions
Mortgage of Property outside
India (Term Loan)
E17 Deposits - Deposit with ECDB At Carrying Cost
Scheduled Banks, FIs (incl.
Bank Balance awaiting
Investment), CCIL, RBI
E18 Deposits - CDs with EDCD At Carrying Cost
Scheduled Banks
E19 Deposits - Repo / Reverse ECMR At Cost
Repo- Govt Securities
E20 Deposits - Repo / Reverse ECCR At Cost
Repo- Corporate Securities
E21 Deposit with Primary Dealers EDPD At Cost
duly recognised by Reserve
Bank of India
280
Appendix `D'
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
E22 CCIL CBLO ECBO At Carrying Cost
E23 Commercial Papers ECCP Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
E24 Application Money ECAM At Cost
E25 Perpetual Debt Instruments of EUPD Value as per FIMMDA if rated. If
Tier I & II Capital issued by not, valued at applicable Market
PSU Banks Yield rates published as per
reputed Rating Agency
E26 Perpetual Debt Instruments of EPPD Value as per FIMMDA if rated. If
Tier I & II Capital issued by not, valued at applicable Market
Non-PSU Banks Yield rates published as per
reputed Rating Agency
E27 Perpetual Non-Cum. P.Shares EUPS Value as per FIMMDA if rated. If
& Redeemable Cumulative not, valued at applicable Market
P.Shares of Tier 1 & 2 Capital Yield rates published as per
issued by PSU Banks reputed Rating Agency
E28 Perpetual Non-Cum. P.Shares EPPS Value as per FIMMDA if rated. If
& Redeemable Cumulative not, valued at applicable Market
P.Shares of Tier 1 & 2 Capital Yield rates published as per
issued by Non-PSU Banks reputed Rating Agency
E29 Foreign Debt Securities EFDS At Carrying Cost
(invested prior to IRDA
Regulations)
E30 Mutual Funds - Gilt / G Sec / EGMF At NAV as on the reporting date
Liquid Schemes
E31 Mutual Funds - (under EMPG At NAV as on the reporting date
Insurer's Promoter Group)
E32 Net Current Assets (Only in ENCA At book value
respect of ULIP Business)
F OTHER INVESTMENTS
F01 Bonds - PSU Taxable OBPT Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
F02 Bonds - PSU - Tax Free OBPF Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
F03 Equity Shares (incl Co-op OESH If quoted, valued at Market
Societies) Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
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Technical Guide
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
F04 Equity Shares (PSUs & OEPU If quoted, valued at Market
Unlisted) Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
F05 Equity Shares - Promoter OEPG If quoted, valued at Market
Group Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
F06 Debentures OLDB Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency
F07 Debentures / Bonds/ CPs / ODPG Value as per FIMMDA if rated. If
Loans etc. - Promoter Group not, valued at applicable Market
Yield rates published as per
reputed Rating Agency and in
case of loans at cost
F08 Municipal Bonds OMUN Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency and in
case of loans at cost
F09 Commercial Papers OACP Value as per FIMMDA if rated. If
not, valued at applicable Market
282
Appendix `D'
S.No Particulars Cat Market value basis for
code Form-3A, Form-3B
Yield rates published as per
reputed Rating Agency
F10 Preference Shares OPSH If quoted, valued at Market
Value (last Quoted price should
not be later than 30 days). In
unquoted, Book Value Less
Provisions (Provisions shall be
made at the end of the Year.
For the purpose of Quarterly
Returns, if there exist any
Provision for any Equity Share
at the beginning of the year, the
same shall be reduced from the
Book Value)
F11 Venture Fund / SEBI approved OVNF At NAV (if available) or at cost
Alternate Investment Fund less Provision for diminution
(Category I)
F12 Short term Loans (Unsecured OSLU At Cost Less Provisions
Deposits)
F13 Term Loans (without Charge) OTLW At Cost Less Provisions
F14 Mutual Funds - Debt / Income OMGS At NAV as on the reporting date
/ Serial Plans
F15 Mutual Funds (under Insurer's OMPG At NAV as on the reporting date
Promoter Group)
F16 Derivative Instruments OCDI Marked to Market
F17 Securitised Assets OPSA Value as per FIMMDA if rated. If
not, valued at applicable Market
Yield rates published as per
reputed Rating Agency. If NAV
is available, at applicable NAV.
F18 Investment properties OIPI At Cost
Immovable
283
Appendix 'E'
Format of Engagement Letter to be sent to the
Appointing Authority of the Insurance Company for
Internal/Concurrent Audit of Investment Functions
To the Board of Directors (or the appropriate representative of senior
management).
[The objective and the scope of the audit]
This has reference to your letter No. ................ dated ....... whereby
you have offered us to carry out the Internal /Concurrent Audit of the
Investment transactions covering investment of both shareholders and
policyholders funds for the period from ................ to ...............as
stipulated in Regulation 13 (F) of IRDA (Investment) (Fifth Amendment)
Regulations, 2013 notified by the Insurance Regulatory and Development
Authority (IRDA) and issue a report thereon.
[The responsibility of theAuditor]
We are pleased to confirm our acceptance for the aforementioned
assignment through the letter of acceptance attached herewith subject to
the following:
1. We shall conduct our Internal/Concurrent audit as per the
"Technical Guide on Internal/Concurrent Audit of Investment
Functions of Insurance Companies" issued by the Institute of
Chartered Accountants of India("ICAI"), as amended from time to
time.
2. We are neither related to the officials of the insurernor have any
interest in the management of the insurer.
3. An Internal/Concurrent audit of the investment transactions
includes examining evidence supporting the management's
compliance during the period from ................. to ............... with
the Regulations, Guidelines and Circulars of IRDA and also
evaluating whether Investment Policy, Standard Operating
Procedures and Investment Risk Management Systems and
Processes provide effective control over the investment functions
of the Insurer. The procedures selected for examination depend
onour judgment.We shall take into cognizance of the internal
control relevant to the compliance of regulations issued by IRDA
on Investment Policy, Standard Operating Procedures and
Investment and Risk Management Systems and Processes in
order to obtain evidencethat is appropriate in the circumstances,
but not for the purpose of expressing an opinion on the
Appendix `E'
effectiveness of the entity's overall internal control. However, we
will communicate to you in writing concerning any significant
deficiencies in internal control relevant to the compliance of
conditions of Investment Functions.
[The responsibility of Management]
Our assignment will be conducted on the basis that the management
and, where appropriate, those charged with governanceacknowledge and
understand that they have responsibility:
· For design, implementation and maintenance of the Investment
Policy, Standard Operating Procedures (SOPs) and Investment
Risk Management Systems and Processes in accordance with the
IRDA Regulations, Guidelines, Circulars and other applicable Laws
and Regulations and compliance
· For making judgments and estimates those are reasonable and
prudent for compliance of IRDA regulations and guidelines on
Investment Policy, Standard operating Procedures and Investment
Risk Management System and Processes; and
To provide us with:
(i) Access, at all times, to all information, including the books of
accounts, vouchers and other records and documentation relevant
for the Investment Policy, Standard operating Procedures and
Investment Risk Management System and Processes.
(ii) Additional information that we may request from the Chief
Executive Officer/ Chief Investment Officer/ Chief Technology
Officer/ Chief Information Officer /Other Officers of the company
for the purpose of internal/concurrent audit; and
(iii) Unrestricted access to persons within the entity from whom we
determine it necessary to obtain evidence for examination. This
includes our entitlement to require from the officers of the branch
or head officesuch information and explanations as we may think
necessary for the purpose of Internal/Concurrent Audit Report on
Investment Functions.
As part of our assignment, we will request from themanagement and
where appropriate, those in charge of governance, written confirmation
concerning representations made to us in connection with Investment
Policy, Standard operating Procedures and Investment Risk Management
System and Processes as may be considered necessary by us for the
purpose of our assignment.
It may also be noted that non provision of any information/ confirmation
requested by us from the management and where appropriate, those in
charge of governance, may result in limitation on the scope of our
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Technical Guide
assignment.
We also wish to invite your attention to the fact that our examination is
subject to 'peer review' under The Chartered Accountants Act, 1949 to be
conducted by an Independent reviewer. The reviewer may inspect,
examine or take abstract of our working papers during the course of the
peer review, as required The Chartered Accountants Act, 1949 as
amended from time to time and the same need not be construed as
breach of confidentiality agreement entered with you.
We look forward to full cooperation from your staff during our
examination.
[Other relevant information]
[Insert other information, such as fee arrangement, billings and other
specific terms as appropriate.]
[Reporting]
[Insert appropriate reference to the expected form and content of report]
The form and content of our report may need to be amended in the light
of findings of our examination.
Please sign and return the attached copy of this letter to indicate your
acknowledgement of, and agreement with, the arrangement for our
aforementioned assignment/s including our respective responsibilities.
Kindly also mark a copy of such acknowledgement to the concerned
official/s of the respective managements.
XYZ & Co.
Chartered Accountants
..............................
(Signature)
Date : (Name of the Member)
Place : (Designation1)
Acknowledged on behalf of Insurance Company by
..........................
(Signature)
Name and Designation
Date
Attached: Letter of Acceptance duly signed by us.
1 Partner or proprietor, as the case may be.
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