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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. (₹) 59113.39 Cr. P/BV 10.95 Book Value (₹) 118.83
52 Week High/Low (₹) 1440/805 FV/ML 10/1 P/E(X) 49.52
Bookclosure 01/11/2019 EPS (₹) 26.27 Div Yield (%) 0.27
Year End :2019-03 

1 Background

ICICI Lombard General Insurance Company Limited ('the Company') was incorporated on October 30, 2000.

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.

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 on a going concern basis in accordance with Generally Accepted Accounting Principles followed in India 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.

The management evaluates, all recently issued or revised accounting pronouncements, on an ongoing basis. The Financial Statements are presented in Indian rupees rounded off to the nearest thousand.

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 period 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.227,099 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 in respect of which the Company has received favorable appellate order, which is pending for effect to be given by the Assessing Authority.

(2) Includes demand (including interest and penalty) of Rs.4,078,677 thousand (previous year:Rs.3,939,449 thousand) from Service Tax Authorities/Goods & Service Tax Authorities, the appeals of which are pending before the appropriate Authorities.

(3) The Company has received a demand of Rs.45,955 thousand (previous year: 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.44,071 thousand (previous year: Rs.41,400 thousand) against these RSBY Policies. The company has filed an appeal with National Grievance Redressal Committee (NGRC).

(4) I n terms of IRDAI circular no. IRDA/F&A/CIR/MISC/105/07/2018 dated July 11, 2018, Master circular no. IRDA/F&A/ CIR/MISC/20/02/2018 dated February 6, 2018 stands withdrawn and accordingly, the Company need not disclose the amount transferred to the Senior Citizens' Welfare Fund (SCWF) as Contingent liability as part of financial statement from financial year 2018-19 onwards. In the previous year the Company has shown Rs.153,329 thousand (Including interest thereon of Rs.19,651 thousand) transferred to the Senior Citizen's welfare fund as contingent liability.

4.1.2 The assets of the Company are free from all encumbrances except for fixed deposits of Rs.541,100 thousand (previous year: Rs.540,100 thousand) (Included in short term deposit account in Schedule - 11) for issuing bank guarantees.

4.1.3 Estimated amount of commitment pertaining to contracts remaining to be executed in respect of fixed assets (net of advances) is Rs.306,972 thousand (previous year: Rs.250,056 thousand).

4.1.4 Commitment in respect of loans is Rs. NIL (previous year: Rs. NIL) and investments is Rs. 6,932,036 thousand (previous year: Rs. 909,308 thousand).

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.

Product Name: Personal protect

4.1.6 Premium

(A) All premiums net of Re-insurance are written and received in India.

(B) No premium income is recognized on varying risk pattern.

4.1.7 (A) Investments

Value of contracts in relation to investments for:

- Purchases where deliveries are pending Rs. 81,944 thousand (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.21,651,683 thousand (previous year: Rs.25,063,263 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. (Refer note no. 5.2.24)

(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.

4.1.8 Allocation of expenses

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.

In accordance with the IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2016, operating expenses of Rs.241,920 thousand in excess of segmental limits pertaining to Miscellaneous- Retail segment are reduced proportionately from each expenditure head and are borne by the shareholders.

4.1.9 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.

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.

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.

Managerial remuneration in excess of Rs.15,000 thousand, for each Managerial personnel has been charged to profit and loss account. Additionally, the Directors are granted options pursuant to Company's Employees Stock Option Scheme and ICICI Bank's Employees Stock Option Scheme.

(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. Additionally, the KMP's based on entitlements are granted options pursuant to Company's Employees Stock Option Scheme and ICICI Bank's Employees Stock Option Scheme.

4.1.10 (A) Share Capital

During the year the Company has allotted 361,640 equity shares (previous year: 2,797,618 equity shares) under ESOP raising Rs.37,081 thousand (previous year: Rs.359,347 thousand).

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

(B) Share Application

At March 31, 2019 the Company had not received any share application money (previous year: Rs. NIL) against which shares are yet to be allotted.

4.1.11 Outsourcing, business development and marketing support expenses

Expenses relating to outsourcing, business development and marketing support are:

4.1.12 Ratio Analysis:

(A) For ratios at March 31, 2019 refer Annexure 1a and 1b and for March 31, 2018 refer Annexure 2a and 2b

(B) Solvency Margin

4.1.13 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 finalized by the Board Nomination and Remuneration Committee in concurrence with the Board based on an independent valuer's report. During the year ended March 31, 2019, the Company has granted options under the ESOS scheme in compliance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and is set out below.

The estimated fair value is computed on the basis of Black- Scholes option for Performance ESOP (2018) and Special ESOP (2018) issued during the year ended March 31, 2019. No options are vested during the year ended March 31, 2019 and Rs.37,081 thousand (previous year: Rs.359,347 thousand) was realised by exercise of options.

The company follows intrinsic value method and hence there was no charge in the Revenue Accounts and Profit and Loss Account. Had the Company followed the fair value method for valuing its options for the year ended, the charge to the Revenue Accounts and Profit and Loss Account would have been higher by Rs.176,244 thousand (Previous year Rs. NIL) and profit after tax would have been lower by Rs.115,686 thousand (Previous year Rs. NIL). Consequently, the Company's basic and diluted earnings per share would have been Rs.22.85 and Rs.22.81 respectively.

The weighted average price of options exercised during the year ended March 31, 2019 is Rs.102.5 (previous year: Rs.130.1).

5.1 Other disclosures

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

IBNR (including IBNER) liability as at March 31, 2019 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 (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, 2019 has been carried out by an independent actuary.

5.2.2 Provision for Free Look period

The provision for Free Look period Rs.336 thousand (previous year: Rs.127 thousand) is duly certified by the Appointed Actuary.

5.2.3 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, 2018 (previous year: December 31, 2017) as per the last confirmation received.

5.2.4 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 for the period subsequent to April 1, 2018. The proportionate share on income for the period from the pool has been accounted on an estimated basis.

5.2.5 Interest, Rent and Dividend income

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

5.2.6 Re-insurance inward

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

5.2.7 Contribution to Solatium fund

I n 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.

5.2.8 Environment Relief Fund

During the year, an amount of Rs.3,871 thousand (Previous year Rs.4,056 thousand) was collected towards Environment Relief Fund for public liability policies and an amount of Rs.4,915 thousand (Previous year Rs.3,711 thousand) has been transferred to "United India Insurance Company Limited, Environment Fund Account” as per Notification of Environment Relief Fund (ERF) scheme under the public liability Insurance Act, 1991 as amended. The balance amount of Rs.221 thousand (Previous year Rs.1,265 thousand) has been disclosed under the head current liabilities in schedule 13.

5.2.9 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.1,770 thousand (previous year: Rs.3,083 thousand) towards said lease payments has been recognised in the statement of revenue account.

5.2.10 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, 2019 (previous year: ' 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.

5.2.11 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 5.1.9 & 5.1.10 above. Segment revenue & results have been disclosed in the Revenue accounts.

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.

5.2.12 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:

(b) Premium refundable to beneficiaries/government in the case of Crop/Weather Insurance is considered for transfer to 'Unclaimed Amount of Policyholders Account' only on final determination of sown insured area and the consequential refund computation is duly confirmed by concerned government agencies.

5.2.13 During the year ended March 31, 2019 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.181,534 thousand (previous year: Rs.148,824 thousand).

(b) Amount spent during the year is Rs.183,691 thousand (previous year: Rs.149,645 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 as on March 31, 2019 on this account is Rs.242,501 thousand.

5.2.14 As at March 31, 2019 there are no (previous year: Rs. NIL) outstanding forward exchange contracts.

5.2.15 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)

5.2.16 (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, 2019, the Company did not have any outstanding long term derivative contracts (previous year: Rs. NIL).

5.2.17 For the year ended March 31, 2019, the company has transferred Rs.1 thousand (previous year: Rs. NIL) to the Investor Education & Protection Fund.

5.2.18 Dividend

Interim dividend appropriation for the year ended March 31, 2019 amounted to Rs.1,601,812 thousand (Previous year Rs. 818,418 thousand) including dividend distribution tax of Rs.466,626 thousand (Previous year Rs.138,430 thousand).

The Board of directors have also proposed a final dividend of Rs.1,135,775 thousand (Previous year: Rs.1,134,871 thousand) subject to requisite approvals. Dividend distribution tax on the same amounts to Rs.274,724 thousand (Previous year: Rs.233,276 thousand).

5.2.19 The Company had invested Rs.3,250,000 thousand in non-convertible debentures (NCD) of M/s Tata Sons Limited prior to year ended March 31, 2018. There had been a change in the legal status of M/s Tata Sons Limited to M/s Tata Sons Private Limited effective from August 6, 2018. The Insurance Act, 1938 as amended by the Insurance Laws (Amendment) Act, 2015, specifies that an insurer cannot invest or keep invested in any private limited company.

The company has continued to value and classify these investments as Long-term under the "Approved Investments” category and allocated this investment to shareholders funds from date of change of legal status.

During the last quarter, the Company has sold NCD's amounting to Rs.2,250,000 thousand. As at 31st March, 2019 the Company's investment in the said NCD's aggregated Rs.1,000,000 thousand. Subsequent to the Balance Sheet date, the Company has disposed of the remaining investment in the NCD's of Tata Sons Private Limited.

5.2.20 (a) The Company had dues recoverable to the extent of Rs.1,027,565 thousand from certain foreign reinsurers against which the company held a provision for doubtful debts aggregating to Rs.1,002,393 thousand as of March 31, 2019. During the year ended March 31, 2019, the Company has made recovery of Rs.566,826 thousand consequent to final settlement with one of the foreign reinsurers and the balance dues amounting to Rs.460,738 thousand has been written off and the related provision has been reversed.

(b) Further the Company has made provision of Rs.402,387 thousand during the year ended March 31, 2019 on account of Mass Health receivables.

5.2.21 Other income (non-operating results) includes interest on tax refund of Rs.139,069 thousand (previous year: Rs. 80,176 thousand) awarded during the year.

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

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