Indian Accounting Standard (Ind AS) 104 Summary
Indian Accounting Standard (Ind AS) 104, Insurance Contracts describes an insurance contract as a contract that transfers significant insurance risk. Insurance risk is ‘significant’ if an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding those that lack commercial substance.
A financial instrument that does not meet the definition of an insurance contract (including investments held to back insurance liabilities) is accounted for under the general recognition and measurement requirements for financial instruments specified in Ind AS 109, Financial Instruments.
Financial instruments that include discretionary participation features are in the scope of the standard-i.e. existing accounting policies may be applied, although these are subject to the general financial instrument disclosures.
Generally, entities that issue insurance contracts are required to continue their existing accounting policies with respect to insurance contracts except when the standard requires or permits changes in accounting policies.
Changes in existing accounting policies for insurance contracts are permitted only if the new policy or a combination of new policies, results in information that is more relevant or reliable, or both, without reducing either relevance or reliability.
The recognition of catastrophe and equalisation provisions is prohibited for contracts not in existence at the reporting date.
A liability adequacy test is required to ensure that the measurement of the entity’s insurance liabilities considers all contractual cash flows, using current estimates.
The application of ‘shadow accounting’ for insurance liabilities is permitted for consistency with the treatment of unrealised gains or losses on assets.
An expanded presentation of the fair value of insurance contracts acquired in a business combination or portfolio transfer is permitted.
Significant disclosures are required of the terms, conditions and risks related to insurance contracts, consistent in principle with those required for financial assets and financial liabilities.