IRDA CIRCULAR: Authority vide Circular No. IRDA/F&A/CIR/49/Mar-09 dated March 24, 2009 had relaxed the requirement of Section 64(1)(ii)(b) of the Act for computation of Reserve for Unexpired Risk for Health segment for the year 2008-09 and had permitted to compute Reserve for Unexpired Risk on 1/365 days method basis. The said relaxation was extended to the financial year 2009-10 vide Circular No. IRDA/F&I/CIR/F&A/081/12/2009 dated 17th December, 2009. The Authority has examined the representations from non-life insurers for extension of the above said relaxation for a further period of 3 years. Taking into account the unique nature of the health segment and in order to promote the health insurance, Authority hereby extends the said relaxation to the non life insurers with respect to the health segment for a further period of three financial years starting from 2010-11 provided that the following conditions are complied with:-
a) Insurer must comply with the item 2, 3 & 4 of the Circular No. IRDA/F&A/CIR/49/Mar-09 dated March 24,2009.
b) Insurer must ensure to make adequate provision for incurred claims, outstanding claims and IBNR/IBNER in the books of accounts for the respective year itself.
c) The operating profit, net of tax, generated on account of the difference between the reserve created on the basis of 1/365 method and URR as would have been created based on Section 64V(1)(ii)(b) of the Act shall be transferred to a “Contingency Reserve for Unexpired Risks†as stated in Para 3 of Circular No.IRDA/F&A/CIR/49/Mar-09 dated March 24, 2009.
Such reserve may be transferred to General Reserve in the succeeding financial year provided that
i) It will be shown separately as an addition to the General Reserve;
ii) A disclosure to this effect will be made in the notes to the accounts.
d) In the Notes to the Accounts, the following disclosures shall be made:-
“The Company has created the Reserve for Unexpired Risk as at the end of the Accounting period based on the 1/365 method in the health segment as per IRDA Circular No.IRDA/F&I/CIR/015/02/2011 dated February 02, 2011. The difference between the reserve on the basis of 1/365 method and URR as would have been created based on Section 64V(1)(ii)(b) of the Act has been transferred to “Contingency Reserve for Unexpired Risks†and the same will be transferred to the General Reserve in the succeeding year.Â
e) The relaxation given above will be applicable for the financial years 2010-11, 2011-12 and 2012-13 only.
(R. K. Nair)
Member (F&I), IRDA
