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ICICI Lombard General Insurance Company Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 51371.10 Cr. P/BV 9.51 Book Value (₹) 118.85
52 Week High/Low (₹) 1174/639 FV/ML 10/1 P/E(X) 48.96
Bookclosure 30/10/2018 EPS (₹) 23.09 Div Yield (%) 0.53
Year End :2018-03 

1 Background

I CICI Lombard General Insurance Company Limited (‘the Company’) was incorporated on October 30, 2000 as a joint venture between ICICI Bank Limited and Fairfax Financial Holdings Limited. The joint-venture agreement dated October 4, 2000 (as amended/restated from time to time) entered among Fairfax Financial Holdings and ICICI Bank was terminated pursuant to a termination agreement executed on July 3, 2017.

The Company obtained Regulatory approval to undertake General Insurance business on August 3, 2001 from the Insurance Regulatory and Development Authority of India (‘IRDAI’) and holds a valid certificate of registration.

During the year, the Company completed its Initial Public Offering (IPO) by way of an offer for sale of 86,247,187 equity shares of Rs.10 each at a price of Rs.661 per equity share, by ICICI Bank Limited, the Promoter Selling Shareholder and FAL Corporation, the Investor Selling Shareholder aggregating to Rs.57,009,391 thousand. The equity shares of the Company are listed on BSE Limited and National Stock Exchange from September 27, 2017.

2 Basis of preparation of financial statements

The financial statements have been prepared and presented under the historical cost convention, unless otherwise specifically stated, on the accrual basis of accounting, and comply with the applicable accounting standards referred to in section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, and in accordance with the provisions of the Insurance Act, 1938, Insurance Laws (Amendment) Act, 2015 (to the extent notified), Insurance Regulatory and Development Authority Act, 1999, the Insurance Regulatory and Development Authority of India (Preparation of Financial Statements and Auditor’s Report of Insurance Companies Regulations), 2002 (‘the Regulations’) and orders/directions prescribed by the IRDAI in this behalf, the provisions of the Companies Act, 2013 (to the extent applicable) in the manner so required and current practices prevailing within the insurance industry in India.

3 Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the balance sheet date, reported amounts of revenues and expenses for the year ended and disclosure of contingent liabilities as of the balance sheet date. The estimates and assumptions used in these financial statements are based upon management’s evaluation of the relevant facts and circumstances as on the date of the financial statements. Actual results may differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

4. Notes to accounts

4.1 Statutory disclosures as required by IRDAI

4.1.1 Contingent liabilities

Note: (1) The Company has disputed the demand raised by Income Tax Authorities of Rs.227,099 thousand (previous year: Rs.230,184 thousand), the appeals of which are pending before the appropriate Authorities. This excludes Income Tax demand related to Assessment Year 2003-04, 2005-06, 2006-07, 2008-09 & 2010-11 in respect of which the Company has received favorable appellate order, which is pending for effect to be given by the Assessing Authority.

(2) (i) The Company has disputed the demand raised by Service Tax Authorities of Rs.72,763 thousand (previous year: Rs.72,553 thousand), the appeals of which are pending before the appropriate Authorities.

(ii) The Company has received order from Goods & Service Tax Authority wherein demand (including interest and penalty) of Rs.3,866,686 thousand (previous year: Rs. NIL) has been raised on disallowance of certain input tax credits. The Company is contesting the disputed tax liability and is in the process of filing an appeal before the appropriate Authorities.

(3) The Company has received a demand of Rs.45,900 thousand from Government of Uttar Pradesh seeking refund of premium on policies issued under the RSBY scheme. The company holds outstanding claim reserves of Rs.41,400 thousands against these RSBY Policies. The company has filed an appeal with National Grievance Redressal Committee (NGRC)

(4) During the previous year, the Company has disputed the demand raised by Comprehensive Health Insurance Agency Kerala (CHIAK) of Rs.90,772 thousand, the appeal of which was pending before National Grievance Redressal Committee (NGRC). NGRC has decided the appeal against the company. Though the company has decided to contest the order, the liability on this account has been fully provided for during the year.

(5) Unclaimed amounts of Policyholder’s outstanding for a period of more than 10 years as on September 30, 2017 of Rs.153,329 thousand (Including interest thereon of Rs.19,651 thousand) (Previous year: Rs. NIL) has been transferred by the Company to the Senior Citizen’s welfare fund and shown as contingent liability in terms of IRDAI circular no. IRDA/F&A/ CIR/MISC/20/02/2018 dated February 6, 2018.

4.1.2 The assets of the Company are free from all encumbrances except for a fixed deposit of Rs.540,100 thousand (previous year: Rs. NIL) placed with Yes Bank Limited (Included in short term deposit account in Schedule - 11) for issuing bank guarantee in favour of BSE Limited as part of listing obligation.

4.1.3 Estimated amount of commitment pertaining to contracts remaining to be executed in respect of fixed assets (net of advances) is Rs.250,056 thousand (previous year: Rs.169,917 thousand).

4.1.4 Commitment in respect of loans is Rs. NIL (previous year: Rs. NIL) and investments is Rs.909,308 thousand (previous year: Rs.401,808 thousand).

4.1.5 Claims

Claims, less reinsurance paid to claimants in/outside India are as under:

Claims settled and remaining unpaid for more than six months is Rs. NIL (previous year: Rs. NIL).

Claims where the claim payment period exceeds four years:

As per circular F&A/CIR/017/May-04, the claims made in respect of contracts where claims payment period exceeds four years, are required to be recognised on actuarial basis. Accordingly, the Appointed Actuary has certified the fairness of the liability assessment, assuming ‘Nil’ discount rate.

In this context, the following claims have been valued on the basis of a contractually defined benefit amount payable in monthly installments.

4.1.8 (A) Investments

Value of contracts in relation to investments for:

- Purchases where deliveries are pending Rs. NIL(previous year: Rs. NIL); and

- Sales where payments are overdue Rs. NIL (previous year: Rs. NIL).

Historical cost of investments that are valued on fair value basis is Rs.25,063,263 thousand (previous year: Rs.24,860,129 thousand).

All investments are made in accordance with Insurance Act, 1938 and Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016 and are performing investments.

(B) Allocation of investment income

Investment income which is directly identifiable is allocated on actuals to revenue account(s) and profit and loss account as applicable. Investment income which is not directly identifiable has been allocated on the basis of the ratio of average policyholder’s investments to average shareholder’s investments, average being the balance at the beginning of the year and at the end of the reporting year.

Further, investment income across segments within the revenue account(s) has also been allocated on the basis of segment-wise policyholders funds.

1.1.9 Allocation of expenses

During the year, the Company has reviewed and revised its Board approved methodology on the allocation and apportionment of expenses as required by IRDAI (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2016 as set out below:

Allocation/apportionment of Operating Expenses is based on the Organisational Structure of the Company comprising off Business, Service and Support Groups. Business comprises of Wholesale Business Group, Retail Business Group (including Sub Groups) and Government Business Group. Expenses incurred by Business Group are direct in nature. Service Group comprises of Customer Service Group which consists of Underwriting and Claims Group, created based on product segments. Support Group consists of Investments, Operations, Legal, Finance and Accounts, Reinsurance, Technology etc. Expenses incurred by Service and Support Groups are indirect in nature.

Operating expenses relating to insurance business are allocated to specific classes of business on the following basis:

- Direct expenses pertaining to Business Group that are directly identifiable to a product segment are allocated on actuals and other direct expenses are apportioned in proportion to the net written premium of the product within the Business Group. However, in case of retail business group, the other expenses of its sub group are apportioned based on the net written premium contributed by the respective sub group;

- Expenses pertaining to Service Group are apportioned directly to the product to which it pertains. In case of multiple products, expenses are apportioned in proportion to the net written premium of the multiple products;

- Expenses pertaining to Support Group and any other expenses, which are not directly allocable, are apportioned on the basis of net written premium in each business class; and

In accordance with the IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2016, operating expenses in excess of segmental limits are to be borne by the shareholder’s. During the current financial year expenses of management for all segments are within the prescribed segmental limits (previous year: Rs.427,891 thousand was in excess for the motor segment and was borne by the shareholders).

Had the Company followed the earlier methodology, Operating expense of Rs.885,300 thousand would have been in excess of segmental limits pertaining to Motor segment and same would have reduced proportionately from each expenditure head and borne by shareholders.

1.1.10 Employee Benefit Plans

(A) Defined contribution plan

(B) Defined benefit plan Gratuity

The Company has a defined gratuity benefit plan payable to every employee on separation from employment. The Company makes the contribution to an approved gratuity fund which is maintained and managed by ICICI Prudential Life Insurance Company Limited.

Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits of the Company is given below:

Accrued Leave

The Company has a scheme for accrual of leave for employees, the liability for which is determined on the basis of Actuarial Valuation carried out at the year end. Assumptions stated above are applicable for accrued leaves also.

Long Term Performance Pay

The Company has schemes for Long Term Performance incentive plan. The plan is a discretionary deferred compensation plan with a vesting period of three years. The Company has determined the liability on the basis of Actuarial valuation.

1.1.11 Remuneration to Managerial and Key Management Persons

(A) The details of remuneration of MD & CEO and two Wholetime Directors’ as per the terms of appointment are as under:

Managerial remuneration in excess of Rs.15,000 thousand, for each Managerial personnel has been charged to profit and loss account.

(B) The details of remuneration of Key Management Persons as per guidelines issued by IRDAI vide Ref. no. IRDA/F&A/GDL/CG/100/05/2016 dated May 18, 2016 and as per the terms of appointment of Company are as under:

Note: Provision towards gratuity, leave accrued and Long Term Performance Pay are determined actuarially on an overall basis and accordingly have not been considered for the above disclosures.

1.1.12 (A) Share Capital

During the year the Company has allotted 2,797,618 equity shares (previous year: 3,612,240 equity shares) under ESOP raising Rs.359,347 thousand (previous year: Rs.368,468 thousand).

During the year the Company has not made any preferential allotment (previous year Rs. NIL).

(B) Share Application

At March 31, 2018 the Company had not received any share application money (previous year: Rs.12,755 thousand) against which shares are yet to be allotted.

1.1.16 Ratio Analysis:

(A) For ratios at March 31, 2018 refer Annexure 1a and 1b and for March 31, 2017 refer Annexure 2a and 2b

(B) Solvency Margin

1.1.17 Employee Stock Option Scheme (ESOS)

The Company instituted the ESOS Scheme pursuant to the resolutions passed by our Board and Shareholders on April 26, 2005 and July 22, 2005, respectively. The Company had granted Stock options to employees in compliance with the Securities and Exchange Board of India (Employee stock option scheme and employee stock purchase scheme) guidelines, 1999. Pursuant to the ESOS Scheme, no eligible employee could, in aggregate be granted in a financial year, options greater than 0.1% of the issued equity share capital of the Company and the aggregate of options granted to the eligible employees under the ESOS Scheme was capped at 5% of the issued capital of our Company as on the date of such grants. ESOS Scheme was further amended pursuant to the resolutions passed by the Board and Shareholders on June 9, 2017 and July 10, 2017, respectively, to approve the amendment in the ESOS Scheme for, inter alia, aligning it with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. Further, the exercise price was finalised by the Board Nomination and Remuneration Committee in concurrence with the Board based on an independent valuer’s report. No fresh grant has been made under the ESOS after April 25, 2011.

The estimated fair value is computed on the basis of binomial tree pricing model, of each stock option granted for Founder ESOPs and Performance ESOPs.

Nil options are vested during the year ended March 31, 2018 and Rs.359,347 thousand was realised by exercise of options. During the year ended March 31, 2018 the Company has recognised a compensation cost of Rs. NIL (previous year: Rs. NIL) as the intrinsic value of the options. Had the company followed fair value method for valuing its options, no additional cost would have been charged in Revenue and Profit and Loss account and hence no change in Profit after tax, Basic EPS and Diluted EPS for year ended March 31, 2018 and previous year ended March 31, 2017.

The weighted average price of options exercised during the year ended March 31, 2018 is Rs.130.1 (previous year: Rs.101.8).

1.2 Other disclosures

1.2.1 Basis used by the Actuary for determining provision required for IBNR/IBNER

IBNR (including IBNER) liability for all lines of business has been estimated by the Appointed Actuary in compliance with the guidelines issued by IRDAI from time to time and the applicable provisions of the Guidance Note 21 issued by the Institute of Actuaries of India.

Pursuant to IRDAI regulation of Asset, Liabilities, and Solvency margin of General Insurance Business Regulations 2016 (IRDAI/Reg/7/119/2016 dated April 7, 2016); claim reserves are determined as the aggregate amount of Outstanding Claim Reserve and Incurred but Not Reported (IBNR) claim reserve for 28 stipulated lines of business.

Pursuant to Actuarial Practice Standard (APS) 33 issued by Institute of Actuaries of India (IAI) which is mandatory and effective from December 1, 2017, the peer review of statutory valuation of liabilities for March 31, 2018 has been carried out by an independent actuary.

1.2.2 Provision for Free Look period

The provision for Free Look period is duly certified by the Appointed Actuary.

1.2.3 Contribution to Terrorism Pool

The Company in accordance with the requirements of IRDAI has participated in contributing to the Terrorism Pool. This pool is managed by the General Insurance Corporation of India (‘GIC’). Amounts collected as terrorism premium are ceded at 100% of the terrorism premium collected to the Terrorism Pool, subject to conditions and an overall limit of Rs.20 billion.

In accordance with the terms of the agreement, GIC retrocedes, to the Company, terrorism premium to the extent of the Company’s share in the risk, which is recorded as reinsurance accepted. Such reinsurance accepted is recorded based on intimation/confirmation received from GIC. Accordingly, reinsurance accepted, on account of the terrorism pool has been recorded only up to December 31, 2017 (previous year: December 31, 2016) as per the last confirmation received.

1.2.4 India Nuclear Insurance Pool

In view of the passage of the Civil Liability for Nuclear Damage Act, 2010, GIC Re as Indian Reinsurer initiated the formation of the India Nuclear Insurance Pool (INIP) along with other domestic non-life insurance companies by pooling the capacity to provide insurance covers for nuclear risks. INIP is an unregistered reinsurance arrangement among its members i.e. capacity providers without any legal entity. GIC Re and 11 other non-life insurance companies are Founder Members with their collective capacity of Rs.15,000,000 thousand. GIC Re is also appointed as the Pool Manager of the INIP The business underwritten by the INIP will be retroceded to all the Member Companies including GIC Re in proportion of their capacity collated. Out of the total capacity of Rs.15,000,000 thousand of the INIP the capacity provided by the Company is Rs.1,000,000 thousand. The Company has not received any statement of accounts during the year from INIP Administrator.

1.2.5 Interest, Rent and Dividend income

Interest, Dividend & Rent income is net of interest expense of Rs.1,755 thousand (previous year: Rs.24,262 thousand) on account of REPO transactions.

1.2.6 Re-insurance inward

The results of reinsurance inward are accounted as per last available statement of accounts/confirmation from reinsurers.

1.2.7 Contribution to Solatium fund

In accordance with the requirements of the IRDAI circular dated March 18, 2003 and based on recommendations made at General Insurance Council meeting held on February 4, 2005 and as per letter no. HO/MTD/Solatium Fund/2010/482 dated July 26, 2010 from The New India Assurance Co. Ltd. (Scheme administrator), the Company has provided 0.1% of the total Motor TP premium of the Company towards solatium fund.

1.2.8 Environment Relief Fund

An amount of Rs.1,265 thousand is outstanding (Previous year: Rs.919 thousand) towards Environment Relief fund (ERF) under Public Liability policies.

1.2.9 Leases

In respect of premises taken on operating lease, the lease agreements are generally mutually renewable/ cancelable by the lessor/lessee.

Non Cancelable operating lease

The detail of future rentals payable are given below:

An amount of Rs.3,083 thousand (previous year: Rs.2,588 thousand) towards said lease payments has been recognised in the statement of revenue account.

1.2.10 Micro and Small scale business entities

There is no Micro, Small & Medium enterprise to which the Company owes dues, which are outstanding for more than 45 days as at March 31, 2018 (previous year: Rs. NIL). This information as required to be disclosed under Micro, Small and Medium Enterprises Development Act 2006, has been determined to the extent such parties have been identified on the basis of information available with the Company.

1.2.11 Segmental reporting Primary reportable segments

The Company’s primary reportable segments are business segments, which have been identified in accordance with AS 17 - Segment Reporting read with the Regulations. The income and expenses attributable to the business segments are allocated as mentioned in paragraph 5.1.8 & 5.1.9 above. Segment revenue & results have been disclosed in the Revenue accounts.

During the financial year ended March 31, 2018, pursuant to the IRDAI (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2016 the Company has reviewed and revised its policy of allocation of expenses compared to that followed until the year ended March 31, 2017. Consequently, the segmental results for the year ended March 31, 2017 and March 31, 2018 are not comparable.

Secondary reportable segments

There are no reportable geographical segments since the Company provides services only to customers in the Indian market or Indian interests abroad and does not distinguish any reportable regions within India.

1.2.12 Related party

Party where control exists

ICICI Bank Limited (Holding Company)

Other related parties with whom transactions have taken place during the year: Fellow Subsidiaries/Associates/Other related entities:

1.2.17 During the year ended March 31, 2018 the Company has incurred expenditure towards CSR activities which are as below;

(a) Gross amount required to be spent by the company during the year was Rs.148,824 thousand (previous year: Rs.123,988 thousand).

(b) Amount spent during the year is Rs.149,645 thousand (previous year: Rs.125,164 thousand).

(C) Debenture Redemption Reserve

Pursuant to IRDAI circular no. IRDA/F&A/OFC/01/2014-15/115 dated August 4, 2017, and as required by Companies (Share Capital and Debentures) Rules, 2014, Company has started creating Debenture Redemption Reserve (DRR) from July 1, 2017 on a straight-line basis over the balance tenure. The appropriation for the period ended March 31, 2018 on this account is Rs.103,929 thousand.

1.2.19 Disclosures on other work given to auditors

Pursuant to Corporate Governance Guidelines issued by IRDAI on May 18, 2016, the additional work entrusted to the statutory auditor is given below:

In accordance with SEBI rules, the remuneration disclosed above has been reimbursed by the selling shareholders and hence does not reflect as charge in Company’s Profit and Loss Account

1.2.20 As at March 31, 2018 there are no (previous year: Rs. NIL) outstanding forward exchange contracts.

1.2.21 The Company’s pending litigations comprise of claims against the Company and proceedings pending with Tax Authorities. The Company has reviewed all its pending litigations and proceedings and has made adequate provisions, wherever required and disclosed the contingent liabilities, wherever applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a material impact on its financial position. (Refer Note no. 5.1.1 for details on contingent liabilities)

1.2.22 (A) The Company periodically reviews all its long term contracts to assess for any material foreseeable losses. Based on such review, the Company has made adequate provisions for these long term contracts in the books of account as required under any applicable law/accounting standard.

(B) As at March 31, 2018, the Company did not have any outstanding long term derivative contracts (previous year: Rs. NIL).

1.2.23 For the year ended March 31, 2018, the company is not required to transfer any amount into the Investor Education & Protection Fund (previous year: Rs. NIL).

1.2.24 Dividend

Interim dividend appropriation for the year ended March 31, 2018 amounted to Rs.818,418 thousand (Previous year Rs.1,890,828 thousand) including dividend distribution tax of Rs.138,430 thousand (Previous year Rs.319,820 thousand).

The Board of directors have also proposed a final dividend of Rs.1,134,871 thousand (Previous year: Rs. NIL) subject to requisite approvals. Dividend distribution tax on the same amounts to Rs.233,276 thousand (Previous year: Rs. NIL).

The Central Government in consultation with National Advisory Committee on Accounting Standards has amended Companies (Accounting Standards) Rules, 2006 (‘principal rules’), vide notification issued by Ministry of Corporate Affairs dated March 30, 2016. The Companies (Accounting Standards) Rules, 2016 is effective March 30, 2016. According to the amended rules, the above mentioned proposed dividend and Dividend distribution tax is not recorded as a liability at March 31, 2018.

1.2.25 Previous year figures have been regrouped, reclassified in the respective schedule and notes wherever necessary, to conform to current year classifications. The details of changes are as under:

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