Some important dimensions of Investments by Indian Non-life Insurers

Abstract

Non-life Insurance is a financial service, which in the process of offering protection to the assets and incomes of the customers, generates and manages huge amount of funds. The article highlights the importance of effective and efficient management of these funds. It also analyses and presents some distinguishing features of these funds and the income generated there from. In the later part it brings out the differing practices as reflected in the accounting policies of the Indian insurers and attempts to argue for uniformity in the practices followed by insurers. 

 

1. Introduction

Sustained success of an organisation can only be a result of constant stream of operational revenues which in turn are the results of its competitive strengths, efficient working, satisfied customer base and intelligent pricing. Apart from operational revenues, role of an additional revenue stream generated in a financial organisation from effective management of financial resources at its disposal can hardly be ignored. In fact the predominance of the financial resources in its working, clearly distinguishes a financial organisation from other organisations. Such revenue stream plays a crucial role in absorbing and smoothening the working from the volatilities of operational revenues which are quite natural in an uncertain competitive economic environment. Therefore right policies designed to manage such financial resources play a crucial role in the continued success of an organisation. While such additional revenue stream has helped the organisation to sail smoothly during periods of rough weather, at times it is observed that it has camaflouged the operational inefficiency and blurred the management’s vision leading to  adverse consequences.

The narrative described in the preceding para, aptly fits the working of the Indian Insurance Industry during last 3 decades.

The primary function of an insurer is to offer protection against the diverse risks to which the customers are exposed. Such protection takes the form of a financial relief to the affected customers. This protection mechanism is such that in the process, it generates and leaves sizeable amount of funds in the custody of the insurers.  Two factors contribute to this fund generation. First, the collection of premium in advance, supported in India, by Section 64 VB (which prohibits assumption of risks before the collection of premium) of The Insurance Act 1938. Second, the time element involved in assumption of risks and the the occurence of events giving rise to claims further accentuated by the additional time involved in settlement (payment) of claims.  Ideally claims should be settled as soon as the losses occur. But practically it takes time, particularly in case of liability claims (Non-life Insurance) which take very long time before being settled.

 

B. Effective and Efficient Investment Management Critical for Insurer’s Performance

Indian Insurane Industry has long forgotten the term underwriting profits. For the first time underwriting profits at industry level disappeared in the year 1988-89 and except for one year (1993-94) such profits are nowhere to be seen. All attempts by the insurers to regain underwriting profits have not yielded the desired results. Instead, year after year insurers are left with the unpleasant task of finding reasons for the underwriting losses. The reasons seem to be simple and obvious, – increasing Third Party Liability losses, and subsequently with the entry of private players, the competitive  pressures on the premium rates.  With every rupee lost by insurers from underwriting, every rupee earned by the investment activity becomes important. The investment income has been the saviour of the Indian insurers performance for more than three decades. However the consequent serious dent in the solvency could not be avoided.

With the growth of Indian economy, the Non-life insurance industry too grew tremendously, though the general insurance penetration in the country continues to be low. 1044 times increase since 1973.  On an average the amount of funds with the insurers is two times their annual premium. March 2020 was the period in which Market had crashed. Simultaneously the funds under the custody of insurers too have grown more than 1100 times. The Table I above clearly highlights the role of investment income and investment activities in the performance of Indian Insurance Sector. For last thirty years the mounting underwriting losses have been made up by the the investment income of the insurers.  The table also throws light on the over dependence of the industry on the investment income. It also highlights/underlines  the need for a greater focus on the investment activities, under the circumstances of increasing losses and falling yields. The yields have fallen from their high of about 12% in 1990s to 7% in 2020. The story presented by  Table I  is retold by Table II in its companywise analysis of data for 2019-20.

C. Objectives (Goals) of Insurers’ Investment Management

The insurer has four primary aims/goals in managing these investments.

First, the safety of funds so that they will not have any difficulty in meeting their obligations to the policyholders.

Second maximisation of returns which can cushion the adverse underwriting results of    bad years and also for ensuring good returns to the shareholders.

Third, liquidity, (and ALM) the funds are available as and when required, and

The fourth, compliance with regulatory requirements.

There is likely to be a conflict between the goal of liquidity and goal of profitability.  Insurers are expected to strike a balance between them. The processes and systems of insurers should be robust enough to take care of achieving the above goals and also striking of balance between liquidity and profitability.

 

D. Regulator’s Responsibilities

Apart from the goals mentioned in (c) above, the Regulator has an additional responsibility of directing the investments into socially desirable sectors. Investment Regulations attempt to take care of such regulators responsibilities. The focus of the regulator is the safety of Policyholders funds (Refer point E below).  Therefore Investment of Indian policyholders funds outside India is barred. Regulatory norms (prudential and exposure) prescribe investments of insurers money into safer avenues, and leaves smaller liberty (increased from 25% to 55%) for insurers in managing these investments of policyholder funds. There is greater liberty with respect to shareholders funds. The prescribed systems and procedures are devised to take care of the goals of regulator.

 

E. Classification and Segregation of Funds and the income earned thereon.

There are two significant streams of inflows which contribute to funds in the custody of insurers. One from the policyholders and another from the shareholders. There can be a third stream, flowing from creditors which is most likely, not so significant. As stated above the funds of the policyholders is the primary concern of the regulator. Hence it is expected that the insurers keep these funds and the income there on, separately from other funds. However for historical and practical reasons the separation as expected seems to be missing in most of the cases. Alternatively the separation is done based on certain acceptable criteria. This also necessitates apportionment of investment income based on similar or some criteria. This criteria of separation as well as apportionment normally gets explained in the accounting policies of each insurer. These policies of Indian Non-life Insurers extracted from Annual Reports of 2019-20 are reproduced in the Annexure A.

 

F. Uneven Operational Cash flows

An important distinguishing feature of cash flows in insurance business is its uneven-ness. Hence cash flow management is the first priority of their investment function Ice employ gainfully the surplus inflows and realise funds when needed during times of deficit flows. In this process of cash flow management they stand to make some capital gains. But at the same time, they are exposed to risk of losses due to adverse developments in the market. Apart from the cash flow management they do get adequate funds for long term investments for earning regular income in the form of interest, dividend and rent. Hence a need for sound and robust investment set-up.

 

G. Components of Investment Income

There are two distinct components of insurers investment income. Constantly flowing regular income of interest, dividend and rent and not so regular and constantly (intermittently) flowing income of capital gains. Apart from the capital gains or losses as a result of cash flow management, insurers with proper skills can take advantage of market fluctuations to make some additional income by trading in the market. Market fluctuations do offer opportunities. However realization of accumulated appreciation in the values of investments has to be distinguished from the gains arising from the trading. It can be observed from Table II that the share of capital gains vary widely (share of capital gains being 0.01 to 0.55 times of the total investment income) among st Indian insurers. Insurers with required skills and resources, may within their available liberty, trade and take advantage of market movements to improve their performance.

 

H. Industry Practices on Segregation of Funds and Apportionment of investments and Investment Income.

As stated above the regulator is more concerned about the safety of policyholders’ funds. Therefore for monitoring the such funds, their investments and the income flowing therefrom, it is necessary to separate them from other funds. As stated above again, for historical reasons and for practical purposes the policy holders funds and other funds are not actually segregated by many insurers. To meet the regulatory requirements, such insurers notionally separate the funds, the corresponding investments and the investment income. The summary of the practices as reflected in their Accounting policies are reviewed and summarised below. The relevant extract of the accounting policoies are reproduced in  Annexure A

The amounts of the funds keep on changing regulary. Market values of investments relating to these funds do keep changing. Thiese changes add to the complication of precise segregation and apportionment.

The accounting policies present the following scenarios on segregation of policyholders’ and shareholders’ funds.

A. Insurers have actually kept funds separate

B1. Some companies clearly define the constitution and composition of these funds

B2  Some companies do not define these funds

B3 Some define only policyholder funds and balance constitute the shareholder funds.

B4 While some use the balances at the beginning of the year, others use balances at the end of the year. And some use the average

Though there are differences in the practice of notional apportionment of investments followed by different companies, by and large the notional separation has been satisfactory without any material distortion. Yet it may be a better practice to have  uniformity in the process of apportionment. Simultaneously the possibility of actual separation of funds needs to be seriously explored.

Similar to the segregation of funds, the apportionment of Investment Income and Gain too differs in practice. The apportionment of investment income has an additional dimension of apportioning the income to revenue accounts for performance assessment of different business segments. Practices do differ on this count.

1. Some allocate on actuals
2. Some allocate partly on actuals partly apportion on notional basis
3. The basis of apportionment too differs. While some apportion on the basis of ratio of shareholder and policyholder funds (either balance at the beginning of the year, or at the end of the year or average), others apportion on the basis of Even amongst those who use the basis of premium, some use Gross Premium and others use Net Premium as the basis.

Uniformirty in the practices is desired and should be attempted to the extent practicable.

In addition the Accounting Policies of few companies are silent on some aspects of segregation of funds or apportionment of investment income. An explicit policy is always better than silence as silence gives scope for interpretation.

 

Conclusion

Thus it is clear that the insurers’ and regulator’s focus on investments is not a luxury or matter of choice, but an absolute necessity.  Standardisation of practice will only go a long way in improving the information available to the satake holders, enabling them to make more informed and objective assessment and facilitate better decision making.

Annexure A

Accounting Policy on Sharholder and Policyholder Funds and Apportionment of Investment Income – Annual Reports 2019-20

 

1. ACKO General Insurance Limited:

Investments are segregated at Shareholders’ level and Policyholders’ level notionally based on Sharholders’ Funds and Policyholders’ Funds at the end of the period on the basis prescribed by IRDAI.

Investment Income is apportioned between Revenue Account and Profit and Loss Account in the ratio of average Shareholders’ Funds and Policyholders’ Funds.

2. Aditya Birla Health Insurance Company Limited

Investments are allocated separately to policyholders and shareholders as applicable.

Investment income is allocated on actuals basis between Revenue Account and Profit and Loss Account.

3. Bajaj Allianz General Insurance Company Limited

Income earned from investments and gains or loss on sale of investments is allocated to Revenue Account and Profit and Loss Account on the basis of actual holding of the investments of the Policyholders and Shareholders as bifurctaed according to the IRDAI Circular No. IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016. The income earned from investments, gains or loss on sale of investments and other income are further allocated to the lines of business in proportion of net premium.

The investment funds are segregated into Policyholders’ and Shareholders’ fund on security level basis in compliance with IRDAI Circular No. IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016.  Subsequently IRDAI issued Circular IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017 to bifurcate the Policyholders and Shareholders Funds at the end of each quarter at the fund level on “notional basis”. The Company continues to follow the practice of segregating investments into Policyholders’ and Sharholders’ funds at security level on quarterly basis in compliance with Circular No. IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016. The said practice has been communicated to IRDAI.

4. Chola MS General Insurance Company Limited

Segregation of invested assets is done by notionally allocating the closing Technical Reserves (Aggregate of Net Claims Outstanding and Reserve for Unexpired Risks and other related items) to policyholders funds balance being reflected as Shareholders’ funds.

Investment Income where directly identifiable with specific segment is credited to that business segment and in all other cases is allocated to the respective Revenue Account and Profit and Loss Account based on ratio of T’echnical Funds’ and ‘Shareholders’ Funds’ respectively.

5. Edelweis General Insurance Company Limited

Shareholders’ and Policyholders’ Fund are segregated on a notional basis of IRDAI Circular No. IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016 and IRDAI Circular IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017 and on the basis of such segregation the investments are allocated to shareholders’ and policyholders’ on security level basis.

Investment income is directly allocated on actuals to Revenue Account(s) and Profit and Loss Account as applicable. Further investment income across segments within the revenue account(s) has also been allocated on the basis of segmentwise policyholders’ funds.

6. Future Generali India Insurance Company Limited

Income earned from investments is allocated to the revenue accounts and the profit and loss account on the basis of ratio of average policyholders’ funds to average shareholders’ funds and are further allocated to the lines of business in proportion of their respective gross written premium. Other income related to insurance business which are directly identifiable to the business segments are allocated on actual basis and the balance are apportioned on net written premium basis.

7.Go Digit General Insurance Limited

Investment funds are segregated into policyholders’ funds and shareholders’ funds at the security level in compliance with circular no IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016.

Policyholders’ fund is the sum of a) Outstanding claims including IBNR&IBNER b)Unexpired premium reserve c)Premium deficiency, if any d) Catastrophe reserve, if any e) Other liabilities net of other assets. Other liabilities comprised of premium received in advance unallocated premium, balance due to other insurance companies due to the other members of the motor  third party pool and due to policyholders. Other assets comprise of outstanding premium, dues from other entities carrying on insurance business (including reinsurers) balance with terrorism pool and balance with motor third party pool, if any.

Shareholders’ funds comprise of share capital, including reserves and surplus, less accumulated losses, if any preliminary expenses and miscellaneous expenditure to the extent not written off or adjusted.

Investment income earned on investment identified out of shareholders’ funds is credited to profit and loss account.

Investment income earned on investment identified out of policy holders’ funds has been allocated to the various segments on the basis of the average reserves for unexpired risks and outstanding claims of the respective segments.

8.HDFC Ergo General Insurance Company Limited 

Pursuant to the provisions of IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016 and IRDAI Circular IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017, the investment made by the company and, investment income and fairvalue change account are bifurcated into policyholders’ and shareholders’ funds on notional basis.

Policyholders’ fund is the sum of a) Outstanding claims including IBNR&IBNER b)Unexpired premium reserve c)Premium deficiency, if any d) Catastrophe reserve, if any e) Other liabilities net of other assets. Other liabilities comprised of premium receive in avance unallocated premium, balance due to other insurance companies due to the other members of the motor  third party pool and due to policyholders. Other assets comprise of outstanding premium, dues from other entities carrying on insurance business (including reinsurers) balance with terrorism pool and balance with motor third party pool, if any.

Shareholders’ funds comprise of share capital, including reserves and surplus, less accumulated losses, if any preliminary expenses and miscellaneous expenditure to the extent not written off or adjusted.

9. ICICI Lombard General Insurance Company Limited

Investments that are earmarked are allocated separately to policyholder’s or shareholder’s as applicable: Balance investments are segregated at Sharholders’ level and Policyholders’ level notionally based on policyholders’ funds and shareholders funds at the end of the period as prescribed by IRDAI.

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 ratio of average policyholders’ investments to average shareholders’ 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 accounts has also been allocated on the basis of segmentwise policyholder funds.

10. IFFCO Tokio General Insurance Company Limited

Investment income is apportioned to Profit and Loss Account and Revenue Accounts in the ratio of average shareholders’ Funds and Policyholders’ Funds standing in each class of business at the end of each month.

11. KOTAK  MAHINDRA General Insurance Company Limited

In accordance with Circular No.  IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017 issued by IRDAI on segregation of Policyholder’s fund and Shareholder’s Fund, investment income for the period has been allocated to Revenue Account and Profit and Loass Account on basis of the ratio of average balance of policyholder’s funds to avergae balance of shareholder’s funds as at the close of each reporting period. Within the Revenue Account, the investment income shall be further allocated among the lines of business in proportion to average policyholder funds (comprising of reserve for unexpired risks, IBNR, IBNER and outstanding claims) to average shareholders fund.

12.Liberty General Insurance Limited

Investment income is allocated to the revenue accounts and the profit and loss account on the basis of investment in policyholders’ funds and sharholders’ funds and are further allocated to the lines of business in proportion to their respective gross written premium.

Pursuant to provisions of IRDAI circular no.  IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017, the investment made by the Company, investment income and fairvalue change account are bifurcated into policyholder and shareholder funds on notional basis.

13. Magma HDI General Insurance Company Limited

Investment income has been allocated between revenue accounts and the profit and loss account on the basis of ratio of average policyholder’s investment assets to average shareholder’s investment assets, average being the balance at the beginning of the year and balance at the end of the reporting year.

Investment assets are bifurcated into policyhoders’ and shareholders’ funds on notional basis as per IRDAI circular No.IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016 and IRDAI Circular IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017. Polichyholders funds represent amount equivalent to sum of Outstanding Claims including IBNR and IBNER , Unexpired Risk Reserves, Premium Deficiency, Catastrophe Reserve and Other Liabilities net off Other Assets as specified by the authority and the balance being disclosed as Shareholders Funds.

14. National Insurance Company Limited

Interest, dividend and rent income net of expenses and profit on sale or realisation of investments are apportioned between respective Revenus Accounts (Policyholders’ Account) and Profit and Loss Account (Shareholders’ Account) in the ratio of policyholders’ fund and shareholders’ fund at the beginning of the year.

Policyholders’ and Shareholders’ funds are computed based on IRDA Directives. Investment assets and fairvalue change account are bifurcated between shareholders and policyholders at fund level on notional basisas per IRDAI guidelines.

15. Navi General Insurance Limited

Investments that are earmaked are identified separately to policyholders’ and shareholders’ as applicable.

Investment income which is directly identifiable is recognised on acuals to revenue accounts or the profit and loss account as applicable.

Further, investment income across segments within the revenue account(s) are allocated on the basis of segmentwise policyholder funds. Policyholder Funds are the aggregate of outstanding claims estimates of  IBNR and IBNER, PDR, and reserve for unexpired risks.

16. The New India Assurance Company Limited

Investment Assets includes Policyholders’ as well as Shareholders’. Investments assets are bifurcated at the end of each quarter between shareholders’ and policyholders’ at ‘fund’ level on notional basis in accordance with IRDAI guidelines.

Investment income (net of expenses) is apportioned between shareholders’ fund and policyholders’ fund in proportion to the balance of these funds at the beginning of the year.

Investment income (net of expenses) belonging to policy holders is further apportioned to Fire, Marine and Miscellaneous segments in proportion to respective technical reserves balance at the beginning of the year.

Policyholders’ fund for this purpose consist of estimated liability for outstanding claims including IBNR and IBNER, Unexpired Risk Reserves, Premium Deficiency (if any) and Catastrophe Reserves (if any) and Other liabilities net of other assets (relating to policyholders) as per the guidelines of IRDA. The residual consist of shareholder funds.

 

17.Oriental Insurance Company Limited

The Shareholders’ Fund comprises of Share Capital, General Reserve and General Reserve. The Policyholders’ Fund comprise of  estimated liability for outstanding claims including IBNR and IBNER, Unexpired Risk Reserves, Premium Deficiency (if any) and Catastrophe Reserves (if any) and Other liabilities net of other assets.

Investment income (net of expenses) is apportioned between Shareholders’ fund and Policyholders’ fund in proportion to the balance of these funds at the end of the year.

Investment income (net of expenses) belonging to policy holders is further apportioned to Fire, Marine and Miscellaneous segments in proportion to respective technical reserves balance at the end of the year.

Policyholders’ fund for this purpose consist of estimated liability for outstanding claims including IBNR and IBNER, Unexpired Risk Reserves, Premium Deficiency (if any) and Catastrophe Reserves (if any) and Other liabilities net of other assets (relating to policyholders) as per the guidelines of IRDA. The residual consist of shareholder funds.

The investments pertaining to Shareholders’ and Policyholders’ are segregated as on the balance sheet date as per IRDA regulations (Circular No.  IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016

18. Raheja QBE General Insurance Company Limited

Income earned on investments is allocated to revenue accounts and profit and loss account on the basis of funds available from policyholders and sharholders and are further allocated to the lines of business in proportion to their respective gross written premium.

Investments pertaining to policyholders and shareholders funds are segrgated on notional basis as per IRDAI Circular No. IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017.

19.Reliance General Insurance Company Limited

Investment assets are bifurcated into Poicyholders’ and shareholders’ funds  on notional basis as prescribed by the authority. Policyholders’s fund represent amount equivalent to sum of Outstanding Claims (including IBNR and IBNER), Unexpired Risk Reserves, Premium Deficiency, Catastrophe Reserve and Other liabilities net off other assets as specified by the authority and the balance being disclosed as shareholders funds.

Investment income has been allocated between revenue accounts and profit and loss account in the ratio, an investment asset bifurcated between policyholders and shareholder funds.   Further, investment income between policyholder’s is allocated on the basis of the ratio of average policyholder’s funds comprising reserves for unexpired risks, IBNR, IBNER and Outstanding Claims.

20. Royal Sundaram General Insurance Company Limited

Investments though not so separately classified in the accounts, are identified on aggregate basis  with the Policyholder’s and Sharholders’ Funds on the same lines as investment income  as stated in item 7 herein below.

Investment income other than that from pool accounts (including profit or loss on sale of investments) is allocated to respective Revenue Accounts and Profit and Loss Account based on the ratio of average Policyholders’ Funds and Shareholders’ Funds respectively. (average of funds at the beginning and at the end of the year)

Policyholders’ Funds are the aggregate of outstanding claims, estimates for IBNR (including IBNER), reserve for unexpired risk, premium deficiency, catastrophe reserve and other liabilities net of other assets excluding the technical funds relating to pool accounts. Shareholders’ Funds are aggregate of funds available to the Company’s Shareholders i.e Share Capital and Reserves & Surplus.

Investment income arising from pool accounts is allocated directly to respective Revenue Accounts.

 

21. Shriram General Insurance Company Limited

In terms of IRDAI Circular No. IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016, income earned from investments, deposits with banks and gain or loss on sale of investments is allocated to the revenue account and profit and loss account on the basis of actual holding of the investments for polciholders and shareholders and are further allocated to the lines of business in proportion of gross written premium.

The Company has segregated investments into Shareholders’ Funds and Policyholders’ Funds at the security level in compliance with Circular No.  IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016.

22. Star Health and Allied Insurance Company Limited

Investments that are earmarked, are allocated separately for policyholder’s  or shareholder’s as applicable: Balance investments are segregated at Shareholder’s and Policyholder’s level notionally based on policyholder’s funds and shareholder’s funds at the end of the period as prescribed by IRDAI.

Investment income has been allocated on the basis of the ratio of average policyholders investments to average shareholders investments, average being average of balance at the end of the year and at the beginning of the year.

23. Tata AIG General Insurance Company Limited

Pursuant to the provisions of the IRDA circular No IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016 and  IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017 the Company has segregated the investments and Fair Vlaue Change Account into Sharholders’ fund and Policyholders’ fund on notional basis for the financial statements as at 31^st March, 2020. Investments made out of Shareholders fund is disclosed under Schedule 8 – Investmenmts Shareholders’ and investments made out of Policyholders’ funds are disclosed under Schedule 8A- Investments Policyholders’.

Investments made by the Company and the Fair Value Change Account are recognised and segregated between Policyholders’ funds and Shareholders’ funds respectively in compliance to the circular.

24. United India Insurance Company Limited

Shareholders’ Funds consists of Share Capital plus all Reserves and Surplus (except Revaluation Reserve and Fair Value Change Account) net of accumulated losses and Miscellaneous Expenditure to the extent not written off as at the balance sheet date.

Policyholders’ Funds consists of

a) Outstanding claim including IBNR and IBNER

b) Unearned Premium Reserves

c) Premium Deficiency Reserve, if any

d) Catastrophe Reserve, if any and

e) Other Liabilities net of Other Assets

Other liabilities in point e) above comprised of premium received in advance, unallocated premium, Blance due to other insurance companies, due to other members of a pool such as third party pool terrorism pool etc. Sundry creditors due to policyholders.

Other Assets in point e) above comprise of outstanding premium due from other insurance entities carrying on insurance business, balance with pool such as motor third party pool and terrorism pool etc.

Investment income, profit or loss on sale of or realisation of invesrtments expenditure relating to investments amortisation of premium on investments, amounts written off or written down in respect of depreciated investments provision for non performing investments diminution in value are apportioned to Revenue Accounts and Profit and Loss Account on the basis of Policyholders’ funds and Shareholders’ funds as on the balance sheet date as per IRDAI Circular No.  IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016.

Investments made out of Policyholders’ Funds are segregated and disclosed separately as on balance sheet date as per IRDAI Circular No.  IRDA/F&A/CIR/CPM/056/03/2016 dated 4^th April, 2016.

25. Universal Sompo General Insurance Company Limited

Pursuant to the provisions of the IRDA circular No IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017 investments assets have been bifurcated on notional basis between Shareholders’ funds and Policyholders’ funds  based on shareholders’ funds and policyholders’ funds, and disclosed accordingly under Schedule 8 and Schedule  8A. Respectively.

Investments made by the Company and the Fair Value Change Account are recognised and segregated between Policyholders’ funds and Shareholders’ funds respectively in compliance to the circular.

Iunvestment income has been allocated between Revenue Accounts and Profit and Loss Account on Policyholders’ fund and Shareholder’s fund in accordance with IRDAI Circular No.  IRDA/F&A/CIR/CPM/010/01/2017 dated 12^th January, 2017.

Further Investment income across segments within the revenue account(s) has been allocated on the basis of the ratio of average technical reserves of policyholders’ funds.

Investment income arising from pool accounts is allocated directly to respective Revenue Accounts.

26. GIC Re

As per the requirements of IRDAI, the income from interest, dividends and rent is apportioned between profit and loss account and Revenue Accounts in the ratio of Sharholders’ Fund and Policyholders’ Fund respectively at the end of the year. The same is further apportioned amongst the revenue accounts on the basis of the respective policyholder’s Fund at the end of the year. Shareholders Funds consist of Shar Capital and Free Reserves. Policyholders’ Fund consist of provision for outstanding claims and reserve for unexpired risks and premium deficiency reserve.