Accounting Standards for Life Insurers: AS, Ind AS 104 and Ind AS 117
Which standards govern a life insurer's accounts, and what changes as Ind AS 117 replaces them.
Two questions sit behind this chapter. First, which accounting rules does an Indian life insurer follow when it prepares its accounts? Second, why do analysts look at other measures, such as embedded value, to judge what a life insurer is really worth?
The regulation text in the IC-26 sources answers the first. IRDA's financial statement regulations, notified on 14 August 2000 under section 114A of the Insurance Act, 1938, tell a life insurer to follow the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI), to the extent they apply to life insurers, with a few insurance-specific changes. This framework is often called Indian GAAP (IGAAP).
That is changing. IRDAI's 2026 regulations move every insurer to Indian Accounting Standards (Ind AS), including Ind AS 117 for insurance contracts, from 1 April 2026. The IC-26 course (2023 edition) is built on the older framework, so learn both: the IGAAP rules below, and how Ind AS 117 differs.
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How the 2000 Regulations Are Organised
| Part | Applies to |
|---|---|
| Regulation 3(1), Schedule A | Life insurers |
| Regulation 3(2), Schedule B | General insurers (and reinsurers, mutatis mutandis, until separate regulations are made) |
| Regulation 3(3), Schedule C | The auditors' report |
| Regulation 3(4) | Lets the Authority issue guidelines on appointing, continuing and removing auditors (qualifications, experience, rotation, period) |
Schedule A: The Life Insurer's Accounting Principles
Schedule A Part I, "Accounting principles for preparation of financial statements", applies the ICAI standards to the Balance Sheet, Revenue Account (Policyholders' Account), Receipts and Payments Account (Cash Flow statement) and Profit and Loss Account (Shareholders' Account), with these rules:
- check_circleException 1: AS 3 (Cash Flow Statements) must be prepared only under the Direct Method.
- check_circleException 2: AS 17 (Segment Reporting) applies whether or not the insurer's securities are publicly traded.
- check_circlePremium is recognised as income when due. For linked business, the due date may be taken as the date the associated units are created.
- check_circleA premium deficiency is recognised if expected claim costs, related expenses and maintenance costs exceed the related unearned premiums.
- check_circleAcquisition costs (costs that vary with and mainly relate to acquiring new and renewal contracts) are expensed in the period in which they are incurred. The test is an obligatory link between the cost and the start of risk.
- check_circleThe liability for life policies in force is determined by the appointed actuary after the annual investigation of the life business. Actuarial assumptions are disclosed in notes to the accounts.
- check_circleInvestment property is held at historical cost, revalued at least once every three years, with changes taken to a Revaluation Reserve. Nothing from that reserve may go to shareholders; the Authority may direct how much is released for policyholder bonus.
- check_circleAn impairment loss is expensed immediately in the Revenue or Profit and Loss Account, unless the asset is carried at a revalued amount, in which case it is first treated as a revaluation decrease.
ICAI Standards Commonly Cited for Insurers
AS 3 and AS 17 are named in the regulations. The other numbers are as given in third-party IC-26 practice material, so treat them as commonly cited rather than confirmed from the regulation text.
AS 3
Subject
Cash Flow Statements
Insurance angle
Direct Method only for insurers. LIC's policy, for example, prepares its Receipts and Payments Account this way.
AS 9
Subject
Revenue Recognition
Insurance angle
Premium recognised when due
AS 13
Subject
Accounting for Investments
Insurance angle
IRDAI rules lay down specific valuation methods for insurers
AS 15
Subject
Employee Benefits
Insurance angle
Gratuity on actuarial valuation. SBI Life's policy, for example, uses AS 15 (Revised) and the projected unit credit method.
AS 17
Subject
Segment Reporting
Insurance angle
Applies even to unlisted insurers. LIC, for example, reports segments separately for shareholders and policyholders.
AS 22
Subject
Accounting for Taxes on Income
Insurance angle
Tax provision in the Profit and Loss Account
AS 28
Subject
Impairment of Assets
Insurance angle
Loss recognised when carrying amount exceeds recoverable amount
| Standard | Subject | Insurance angle |
|---|---|---|
| AS 3 | Cash Flow Statements | Direct Method only for insurers. LIC's policy, for example, prepares its Receipts and Payments Account this way. |
| AS 9 | Revenue Recognition | Premium recognised when due |
| AS 13 | Accounting for Investments | IRDAI rules lay down specific valuation methods for insurers |
| AS 15 | Employee Benefits | Gratuity on actuarial valuation. SBI Life's policy, for example, uses AS 15 (Revised) and the projected unit credit method. |
| AS 17 | Segment Reporting | Applies even to unlisted insurers. LIC, for example, reports segments separately for shareholders and policyholders. |
| AS 22 | Accounting for Taxes on Income | Tax provision in the Profit and Loss Account |
| AS 28 | Impairment of Assets | Loss recognised when carrying amount exceeds recoverable amount |
Ind AS 117 and Ind AS 109
Ind AS 117 Insurance Contracts is the Indian version of the international standard IFRS 17, and it replaces Ind AS 104. It applies to any entity that issues or holds insurance contracts, including reinsurance and investment contracts with discretionary participation features. Transition is retrospective unless that is impracticable.
It measures contracts under one of three models: the General Measurement Model (GMM); the Premium Allocation Approach (PAA), a simpler method for certain short-duration contracts; and the Variable Fee Approach (VFA), for contracts with direct participation features.
IFRS 17 and Ind AS 117 are the same standard in two jurisdictions. The International Accounting Standards Board issued IFRS 17 in 2017, replacing IFRS 4, and it became mandatory for annual periods beginning on or after 1 January 2023. India's Ministry of Corporate Affairs notified Ind AS 117 on 12 August 2024, effective from 1 April 2024, but for insurers the start date is set by IRDAI (see below).
Ind AS 109 changes how investments are classified and impaired. Financial assets fall into amortised cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL), and the IGAAP incurred-loss approach gives way to a forward-looking Expected Credit Loss (ECL) model, which needs probability of default (PD), loss given default (LGD) and exposure at default (EAD) models.
Ind AS 104 vs Ind AS 117
Ind AS 104 is the Indian counterpart of IFRS 4; Ind AS 117 is the counterpart of IFRS 17. The ICAI describes Ind AS 104 as an interim standard that Ind AS 117 supersedes.
International standard
Ind AS 104 (IFRS 4)
IFRS 4, issued 2004 as an interim solution
Ind AS 117 (IFRS 17)
IFRS 17, issued 2017, amended 2020, mandatory from 1 January 2023
Approach
Ind AS 104 (IFRS 4)
Let insurers carry on with their national accounting practices
Ind AS 117 (IFRS 17)
One principles-based framework for recognising, measuring, presenting and disclosing insurance contracts
Measuring the liability
Ind AS 104 (IFRS 4)
Whatever the local practice was, so insurers in different countries measured it differently
Ind AS 117 (IFRS 17)
Current measurement: expected future cash flows, discounted at current rates, plus a risk adjustment for non-financial risk, revised every reporting date
Profit on a contract
Ind AS 104 (IFRS 4)
No Contractual Service Margin
Ind AS 117 (IFRS 17)
Unearned profit held as the Contractual Service Margin and released over the coverage period
Loss-making contracts
Ind AS 104 (IFRS 4)
No separate rule
Ind AS 117 (IFRS 17)
Onerous contracts grouped separately; the loss goes to profit or loss at once
Measurement models
Ind AS 104 (IFRS 4)
None prescribed
Ind AS 117 (IFRS 17)
General Measurement Model, Premium Allocation Approach, Variable Fee Approach
Status in India
Ind AS 104 (IFRS 4)
Superseded. Under MCA's rules of 28 September 2024, an insurer may still use it only to report to an Ind AS parent or investor for consolidation, until IRDAI notifies Ind AS 117
Ind AS 117 (IFRS 17)
Notified by MCA on 12 August 2024 for periods from 1 April 2024; mandatory for insurers from 1 April 2026 under IRDAI's 2026 regulations
| Point | Ind AS 104 (IFRS 4) | Ind AS 117 (IFRS 17) |
|---|---|---|
| International standard | IFRS 4, issued 2004 as an interim solution | IFRS 17, issued 2017, amended 2020, mandatory from 1 January 2023 |
| Approach | Let insurers carry on with their national accounting practices | One principles-based framework for recognising, measuring, presenting and disclosing insurance contracts |
| Measuring the liability | Whatever the local practice was, so insurers in different countries measured it differently | Current measurement: expected future cash flows, discounted at current rates, plus a risk adjustment for non-financial risk, revised every reporting date |
| Profit on a contract | No Contractual Service Margin | Unearned profit held as the Contractual Service Margin and released over the coverage period |
| Loss-making contracts | No separate rule | Onerous contracts grouped separately; the loss goes to profit or loss at once |
| Measurement models | None prescribed | General Measurement Model, Premium Allocation Approach, Variable Fee Approach |
| Status in India | Superseded. Under MCA's rules of 28 September 2024, an insurer may still use it only to report to an Ind AS parent or investor for consolidation, until IRDAI notifies Ind AS 117 | Notified by MCA on 12 August 2024 for periods from 1 April 2024; mandatory for insurers from 1 April 2026 under IRDAI's 2026 regulations |
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Indian Insurers Skip Ind AS 104
Ind AS was rolled out for Indian companies other than banks and insurers. Insurers kept preparing their statutory accounts under Indian GAAP and IRDAI's forms. So an Indian life insurer never reported under Ind AS 104 in its own accounts (only, at most, in figures sent to an Ind AS parent). Its real switch is from Indian GAAP straight to Ind AS 117 and Ind AS 109.
Indian GAAP vs Ind AS for an Insurer
IRDAI's consultation paper of 3 March 2026 sets out what changes.
Revenue
Indian GAAP (IRDAI regulations)
Premium-based
Ind AS (Ind AS 117 and 109)
Service-based: revenue as insurance service is provided
Insurance liabilities
Indian GAAP (IRDAI regulations)
Actuarial valuation as per IRDAI regulations
Ind AS (Ind AS 117 and 109)
Market-consistent valuation as per Ind AS 117
Investments
Indian GAAP (IRDAI regulations)
Valuation prescribed by IRDAI regulations
Ind AS (Ind AS 117 and 109)
Classified and measured under Ind AS 109
Investment impairment
Indian GAAP (IRDAI regulations)
Incurred loss basis
Ind AS (Ind AS 117 and 109)
Expected credit loss
Onerous contracts
Indian GAAP (IRDAI regulations)
Not explicitly identified
Ind AS (Ind AS 117 and 109)
Loss recognised immediately
Acquisition costs
Indian GAAP (IRDAI regulations)
Expensed immediately
Ind AS (Ind AS 117 and 109)
Amortised over the coverage period
Reinsurance
Indian GAAP (IRDAI regulations)
Netted against insurance liabilities
Ind AS (Ind AS 117 and 109)
Insurance and reinsurance presented separately
| Aspect | Indian GAAP (IRDAI regulations) | Ind AS (Ind AS 117 and 109) |
|---|---|---|
| Revenue | Premium-based | Service-based: revenue as insurance service is provided |
| Insurance liabilities | Actuarial valuation as per IRDAI regulations | Market-consistent valuation as per Ind AS 117 |
| Investments | Valuation prescribed by IRDAI regulations | Classified and measured under Ind AS 109 |
| Investment impairment | Incurred loss basis | Expected credit loss |
| Onerous contracts | Not explicitly identified | Loss recognised immediately |
| Acquisition costs | Expensed immediately | Amortised over the coverage period |
| Reinsurance | Netted against insurance liabilities | Insurance and reinsurance presented separately |
Ind AS 117 Terms
- Fulfilment cash flows (FCF)
- Probability-weighted, discounted estimates of future premiums, claims, expenses and acquisition costs, with an explicit risk adjustment for non-financial risk. Updated at every reporting date.
- Contractual Service Margin (CSM)
- Premium (consideration) less fulfilment cash flows: the unearned profit the insurer expects to earn. Ind AS 104 had no such concept.
- Release of CSM
- The CSM cannot be recognised immediately. It is released over the coverage period as service is given, and is worked out for groups of contracts.
- Onerous contracts
- Under IFRS 17 the CSM cannot be negative, so the loss on an unprofitable group hits profit or loss at once. Onerous contracts are grouped separately.
- Insurance service result
- Insurance revenue less insurance service expenses, shown separately from insurance finance income or expense.
When Ind AS 117 Starts for Indian Insurers
From 1 April 2026, so FY 2026-27 is the first Ind AS year. IRDAI notified the IRDAI (Actuarial, Finance and Investment Functions of Insurers) (Amendment) Regulations, 2026 on 30 March 2026. They came into force on publication in the Gazette or on 1 April 2026, whichever was later, and they apply to every insurer: life, general, health and reinsurers.
There is one escape hatch. IRDAI may grant forbearance for one year to an insurer that cannot yet prepare Ind AS statements, if it asked by 30 April 2026. Such an insurer keeps preparing its accounts under the old Schedule II for that year, but must file a Board-approved transition plan, send quarterly Ind AS financial information and monthly progress reports, and reach full Ind AS compliance within the year. LIC, for one, says in its FY 2025-26 Annual Report that it applied and was granted forbearance.
What IRDAI's Ind AS Rules Require
The 2026 regulations insert Schedule IIA, "Ind AS Finance Functions", into the 2024 regulations. Its main positions:
- check_circleInd AS statements: Balance Sheet, Statement of Changes in Equity, Statement of Profit and Loss (with other comprehensive income), Receipts and Payments Account, Revenue Account, and notes.
- check_circleThe main statements are prepared at entity level, plus a separate Revenue Account for the policyholder fund, because section 11 of the Insurance Act, 1938 still requires policyholder and shareholder funds to be kept and shown separately.
- check_circleInsurers must follow Ind AS 117's annual cohort requirement, including for participating contracts.
- check_circleBonus and shareholder transfers are still decided by the actuarial surplus under section 49 of the Insurance Act. Profit under Ind AS 117 is accounting profit only and is not distributable surplus; insurers must disclose a reconciliation between the two.
- check_circleFor the first two years, insurers also furnish financial information on the old Schedule II basis and publish it on their websites, so both versions run in parallel.
Embedded Value: The Other Way to Read a Life Insurer
Statutory reserving is prudent and defers profit, so a new life insurer can look loss-making while it builds a valuable book. Embedded value (EV) was developed in the UK in the 1980s because the accounting standards of the time were poorly equipped for life insurance. It measures the value of the shareholders' interest in the business. The gap between statutory profit and EV profit is mostly timing, not the final amount.
EV has two parts: adjusted net worth (ANW), the shareholders' net assets including free surplus and required capital; and value of in-force business (VIF), the discounted future distributable profits from policies already in force. EV ignores future new business. Add the value of future new business (akin to goodwill), and any control premium, and you get appraisal value, which is used for mergers, sales and listings.
Traditional, European, Market-Consistent and Indian EV
Traditional EV (TEV)
Origin
Early deterministic method
Key feature
One subjective risk discount rate (risk-free or portfolio return plus a margin) carries the cost of options, guarantees and risk; options and guarantees are only implicit
European EV (EEV)
Origin
CFO Forum principles, 2004
Key feature
More standardised; cost of holding required capital is mandatory; top-down or bottom-up discounting allowed
Market Consistent EV (MCEV)
Origin
CFO Forum principles, 2008
Key feature
Market-consistent valuation mandatory; bottom-up discounting; stochastic time value of options and guarantees; cost of capital split into frictional cost and cost of residual non-hedgeable risks
Indian EV (IEV)
Origin
Institute of Actuaries of India, APS10, 2013
Key feature
Draws on MCEV ("MCEV+"): no credit for future productivity gains, a Board-set materiality limit, data audit, and many sensitivity disclosures. Minimum disclosures for life insurers seeking an IPO
| Method | Origin | Key feature |
|---|---|---|
| Traditional EV (TEV) | Early deterministic method | One subjective risk discount rate (risk-free or portfolio return plus a margin) carries the cost of options, guarantees and risk; options and guarantees are only implicit |
| European EV (EEV) | CFO Forum principles, 2004 | More standardised; cost of holding required capital is mandatory; top-down or bottom-up discounting allowed |
| Market Consistent EV (MCEV) | CFO Forum principles, 2008 | Market-consistent valuation mandatory; bottom-up discounting; stochastic time value of options and guarantees; cost of capital split into frictional cost and cost of residual non-hedgeable risks |
| Indian EV (IEV) | Institute of Actuaries of India, APS10, 2013 | Draws on MCEV ("MCEV+"): no credit for future productivity gains, a Board-set materiality limit, data audit, and many sensitivity disclosures. Minimum disclosures for life insurers seeking an IPO |
Exam Traps in This Chapter
Cash flow statement: Direct Method, never indirect. Premium is income when due, not when received. Acquisition costs are expensed as incurred, not deferred. The appointed actuary, not the auditor or CFO, determines the policy liability. Investment property is revalued at least every three years. Schedule A is life, Schedule B general, Schedule C the auditors' report. CSM and onerous contracts are Ind AS 117 / IFRS 17 ideas, not IGAAP. Ind AS 117 replaces Ind AS 104 (IFRS 4), and insurers apply it from 1 April 2026; Ind AS 117 profit is not the surplus that pays bonus. Appraisal value includes future new business; embedded value does not.
FAQs
Which accounting standards do Indian life insurers follow?expand_more
Under IRDA's 2000 financial statement regulations quoted in the IC-26 sources, the Accounting Standards issued by the ICAI, to the extent applicable to life insurers, with two exceptions: AS 3 cash flows by the Direct Method only, and AS 17 segment reporting even if the insurer is unlisted.
What does Ind AS 117 replace?expand_more
Ind AS 104. Ind AS 117 is the Indian counterpart of IFRS 17 and introduces the Contractual Service Margin and three measurement models (GMM, PAA and VFA).
When is Ind AS 117 applicable to Indian insurers?expand_more
From 1 April 2026, under IRDAI's (Actuarial, Finance and Investment Functions of Insurers) (Amendment) Regulations, 2026, notified on 30 March 2026. An insurer that applied by 30 April 2026 may be granted one year's forbearance, and must then be fully compliant within that year.
What is the difference between Ind AS 104 and Ind AS 117?expand_more
Ind AS 104 (the Indian IFRS 4) was an interim standard that let insurers keep their existing accounting practices. Ind AS 117 (the Indian IFRS 17) replaces it with one framework: current measurement of fulfilment cash flows, a risk adjustment, and a Contractual Service Margin released as service is given.
Is Ind AS 117 the same as IFRS 17?expand_more
Yes, Ind AS 117 is India's converged version of IFRS 17 Insurance Contracts. IFRS 17 has applied internationally since 1 January 2023; MCA notified Ind AS 117 on 12 August 2024.
Did Indian insurers ever use Ind AS 104?expand_more
Not in their own statutory accounts, which stayed on Indian GAAP. MCA's rules let an insurer use Ind AS 104 only for figures it reports to an Ind AS parent or investor for consolidation, until IRDAI brings in Ind AS 117.
Can an insurer pay bonus out of Ind AS 117 profit?expand_more
No. IRDAI's 2026 regulations keep the actuarial surplus under section 49 of the Insurance Act as the basis for distributing surplus. Ind AS 117 profit is for financial reporting only.
What is the Contractual Service Margin?expand_more
The unearned profit in a group of insurance contracts: premium less fulfilment cash flows. It is released to profit over the coverage period, never all at once.
What is the difference between embedded value and appraisal value?expand_more
Embedded value is adjusted net worth plus the value of in-force business, and excludes future new business. Appraisal value adds the value of future new business (goodwill) and any control premium.
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