Technical Guide 31 5 13 On Internal Concurrent Audit Of Investment Functions Insurance Companies 2013

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Technical Guide on Internal/Concurrent

Audit of Investment Functions of

Insurance Companies (2013)

Committee on Banking, Insurance and Pension

The Institute of Chartered Accountants of India

(Set up by an Act of Parliament)

New Delhi

retrieval system, or transmitted, in any form, or by any means, electronic

mechanical, photocopying, recording, or otherwise, without prior permission,

in writing, from the publisher.

Edition : May, 2013

Committee/Department : Committee on Banking, Insurance and Pension

E-mail : cobip@icai.in

Website : www.icai.org

Price : ` /- (including CD)

ISBN : 978-81-8441-243-7

Published by : The Publication Department on behalf of the

Institute of Chartered Accountants of India,

ICAI Bhawan, Post Box No. 7100, Indraprastha

Marg, New Delhi - 110 002.

Printed by :

Foreword

Internal/Concurrent Audit of investment functions of an insurer is an essential

part of management process to ensure effective controls and in short, a

comprehensive compliance checking mechanism. This audit is essential for

ensuring sound internal accounting functions and effective controls and

setting tone for a vigilant internal audit to preclude the incidence of serious

errors and fraudulent manipulations. It attempts to shorten the interval

between the occurrence of a transaction and its examination by an

independent person not involved in its documentation.

The Insurance Regulatory and Development Authority (IRDA) has mandated

the insurers to have their investment functions verified through internal or

concurrent audit (depending on the AUM of insurers), either through internal

resources or by an independent audit firm. This is to be done in order to

ensure that the transactions/decisions are within the policy parameters laid

down by the Investment Committee of the insurers and are in compliance

with the terms and conditions for exercise of delegated authority and not

violating the Guidelines and Regulations of IRDA and the provisions of

Insurance Act and other applicable Laws.

Recently, to keep pace with the dynamics of the economic landscape of the

nation as well as insurance industry, the IRDA has amended its Investment

Regulations for insurance companies. Consequent to the amendments to

the Investment Regulations, it is imperative that the Technical Guide on

Internal/Concurrent Audit of investment Functions of Insurance Companies

issued by the Committee on Banking, Insurance and Pension (COBIP) in

2009 be revised so as to cover the requirements of the amended

Regulations. The Technical Guide has been revised thoroughly for providing

guidance to the members on conducting internal/concurrent audit of

investment functions of insurers.

I take this opportunity to thank the IRDA for reposing confidence in ICAI and

its fraternity by not only making it mandatory that the Internal / Concurrent

Audit of insurers shall be conducted by the Chartered Accountants, but also

stipulating that the audit shall be done as per the Technical Guide issued by

ICAI in this regard.

I appreciate the efforts put in by my fellow colleague in the Central Council of

ICAI, CA. J. Venkateswarlu, Chairman, COBIP, members and special

invitees of the Committee and the other professionals who were involved in

revising this Technical Guide. I also wish to place my appreciation to the

Chairman IRDA and his dynamic team for guiding ICAI in the revision

process.

CA. Subodh Kumar Agrawal

President, ICAI

New Delhi

30th May 2013

Preface

One of the major functions of an insurer is investment of its funds and with

the ever growing fund size of investments, safeguarding and protection of the

same has acquired enormous significance. Insurance Regulatory and

Development Authority (IRDA), the regulator, has put in place a tight

framework for regulating this important function of insurers. The IRDA has

devised two tier system for effective management and control of investment

functions of insurers whereby the investment department of insurance

companies manage investments and an independent Chartered Accountant

firm (subject to quantum of fund size) is engaged to conduct the internal /

concurrent audit of the same to ensure compliance with the Investment

Regulations.

As per the latest amended investment regulations notified vide IRDA

(Investment) (5th Amendment) Regulations, 2013, the IRDA has mandated

the insurers having Assets Under Management (AUM) of not more than

Rs.1000 Crores to have its investment functions audited on a quarterly basis

through independent Internal Audit (either through internal resources or

through firms of Chartered Accountants) and insurer with AUM of over Rs.

1000 Crores to appoint an independent firm of Chartered Accountants as

Concurrent Auditor to have its Investment transactions and related Systems

audited on concurrent basis. It has further mandated that the internal /

concurrent audit shall be conducted as per the Technical Guide on

Internal/Concurrent Audit of Investment Functions of Insurance Companies

issued by the ICAI. The Guide provides framework and guidance on the

manner of conduct of internal/concurrent audit of investment functions of

insurance companies, as mandated by the IRDA.

In the light of release of the IRDA (Investment) (5th Amendment) Regulations

2013, to help the members in providing value added service to the insurers

and to comply with the amended investment regulations of IRDA, the

Committee on Banking, Insurance & Pension (COBIP) has revised the

Technical Guide on Internal / Concurrent Audit of Investment Functions of

Insurance Companies, which was originally issued in 2009. The revised

guide covers all the relevant areas in the internal / concurrent audit of

investment functions as mandated by IRDA.

I place on record my sincere gratitude to CA S N Jayasimhan, Joint Director,

IRDA; Shri Sanjeev Kumar Jain, Joint Director, IRDA, Shri. R Kumar, Deputy

Director, IRDA; Shri Suresh Nair, Sr Assistant Director, IRDA; Ms Uma

Maheswari, Sr Assistant Director, IRDA, Shri Rakesh Sarodey, IRDA, CA D

Subramanian; CA N. Venkatakrishnan; CA V Manickam; Shri. R

Chandrasekar; CA Abhirajan Gupta, Shri K S Gopalakrishnan for their

guidance and advice in revising the Guide. I am highly thankful to CA. P.S.

Prabhakar for preparing the basic draft of this Technical Guide. I am happy

to acknowledge the contribution of CA Vijay Kumar; CA Ketan Vikemsey;

CA Viraj Londhe; CA Ramandeep Sahni; CA Pradipta Roy; CA Sanjay

Agarwal; Shri Saroj Kumar Pati; CA Pradeep Mahapatro; CA Anand Desai;

Shri. Bharat Kalsi; CA Vittal Raj and CA Amit Kataria for their advice and

guidance.

I am thankful to the President of ICAI, CA Subodh Kumar Agrawal, and Vice

President of ICAI, CA. K. Raghu for their support and encouragement. I am

grateful to CA. Shriniwas Yeshwant Joshi, Vice Chairman of COBIP, CA. Jay

Chhaira, CA. Prafulla Premsukh Chhajed, CA. Tarun Jamnadas Ghia, CA. V.

Murali, CA. Vijay Kumar Garg, CA. Mukesh Singh Kushwah, CA. Naveen

N.D. Gupta, CA. Vijay Kumar Gupta, CA. Charanjot Singh Nanda, Shri Manoj

Kumar, CA. D.K. Singla, CA. S. V. Sunder Krishnan, CA. M. H. Singhal and

CA. Patni Dilip Kumar, members of COBIP for their valuable guidance and

cooperation in revising this Technical Guide. I appreciate the efforts put in

by the officials of Secretariat of the Committee in timely release of this

Technical Guide.

CA. J. Venkateswarlu

New Delhi Chairman

29th May 2013 Committee on Banking Insurance and Pension of ICAI

Contents

Foreword iii

Preface v

1 Framework of Internal/Concurrent Audit for Insurance

Companies

2. Investment Functions of Insurer – Internal/Concurrent Audit

Scope

3. Internal/Concurrent Audit Checklist Life & General Insurers 14

4. Internal/Concurrent Audit Additional Checklist – Life & ULIP

Business

5. Format of Internal/Concurrent Audit Report on Investment

Functions of Insurance Companies

ANNEXURES

‘A’ Standard Operating Procedure (SOP) 65

‘B’ Permitted Assets Category 71

‘C’ Pattern of Investments 75

‘D’ Investment Policy 82

‘E’ Investment Deals Testing 83

‘F’ Investment of Ulip 84

‘G’ Project/Term Loans 86

‘H’ Segregation of Duties (SOD) – Front Office/Mid Office/Back

Office

‘I’ Exposure /Prudential Norms 97

‘J’ NAV Process 112

‘K’ Returns to be submitted by an Insurer 120

APPENDICES

‘A’ Insurance Regulatory and Development Authority

(Investment) (Fifth Amendment) Regulations, 2013

125

viii

‘B’ IRDA CIRCULAR NO. INV/CIR/008/2008-09 DATED

22.08.2008 Issued by IRDA to Insurers

187

‘C’ IRDA Letter No. IRDA/F&I/CIR/INV/067/04/2013

dt.1st April, 2013

212

‘D’ Guidance Note on Preparation of Investment Returns

(Version-01) issued by IRDA in May, 2013

235

‘E’ Format of Engagement Letter 284

Framework of Internal / Concurrent

Audit for Insurance Companies

1. Introduction

One of the major functions of an insurance company is investment of funds

and with the ever growing fund size of insurers’ investments, safeguarding

and protection of the investments has acquired enormous significance. IRDA,

the regulator of insurance industry, has put in a tight framework for regulating

this all-important function of insurers. As the investment department of

insurance companies manages investments of insurance companies

comprising of both “Shareholders” and “Policyholders” funds, it is essential

that a periodic review be carried out through Internal Audit (or) Concurrent

Audit in order to ensure ‘safety’ of Policyholders’ funds and support a good

quality Investment portfolio towards ‘Solvency Margin’. Towards achieving

such objectives, IRDA notified the IRDA (Investment) Regulations, 2000 on

16th Aug, 2000 in the Gazette of India and, to keep pace with the dynamics of

the economic landscape of the Nation as well as the insurance industry,

periodically amended these Regulations in 2001, 2002, 2004, 2008 and the

latest in Feb, 2013. The regulations, as amended, holistically cover:

1. Proactive and dynamic investment management.

2. Synchronous and asynchronous interfaces with other domains

(Accounting and Actuarial).

3. Real-time and integrated IT System Management and Security

management.

An effective management is a three stage process of Measurement,

Monitoring and Management. Mere measurement will not amount to

monitoring. Similarly, mere monitoring does not mean management. Hence,

proactive and dynamic investment management system envisages

monitoring the Investment Operations to assist in management’s decision

making and measurement to support monitoring. Thus, it is further two

stages beyond measurement i.e. purposeful monitoring and effective

management.

Technical Guide

Synchronous and asynchronous interfacing of investment domain with other

domains is essential not only for the present system but also because it is

flexible enough to incorporate future changes in regulation for both

investment and other domains. Also, real-time and integrated IT systems and

security management are essential to ensure data integrity, audit trail at data

entry points, review of system with due monitoring and reporting on the

compliance aspects etc.

2. Internal/Concurrent Audit

(a) Internal / Concurrent Audit of investment functions of an insurer is

essentially part of management process to ensure effective controls and in

short, a comprehensive compliance check mechanism. Such audits should,

by reporting on the controls and processes, passively aid the investment

departments to ensure that the transactions / decisions are within the policy

parameters laid down by the “Investment Committee” formed by the Board,

and are in compliance with the terms and conditions for exercise of

delegated authority and do not violate the guidelines of IRDA and the

Insurance Act. The Audit is expected to cover all the transactions, recorded

during the period covered in the Audit Report.

(b) The internal / concurrent audit requirement flows from the Investment

Regulations. IRDA has issued guidelines through its Circular No.

INV/CIR/023/2009-10 dated 4th Aug, 2009 directing all insurers having Assets

Under Management (AUM) (both Shareholders’ Funds and Policyholders’

funds taken together) not over Rs. 1000 Crores to have the investment

functions audited on a Quarterly basis through internal audit (either through

internal sources or by appointing an external firm of Chartered Accountants)

and those insurers having AUM over Rs. 1000 Crores to have the investment

functions audited on a Quarterly basis through concurrent audit by appointing

an external firm of Chartered Accountants. The appointment of the auditor

will be done by the Audit Committee of the Board. The internal audit

requirement will get converted to Concurrent Audit requirement from the

quarter following the quarter in which the AUM exceeds Rs. 1000 Crores for

the first time. An insurer who gets covered under Concurrent Audit for the

first time, will continue to have the Investment functions concurrently audited,

even if the AUM falls subsequently below Rs.1,000 Crores. The scope

remains unchanged whether it is done through Internal Source or through an

external Chartered Accountant firm. If the Audit of Investment Operations, as

per the AUM criteria, fall under Internal Audit, and if the Internal Auditor is an

Framework of Internal/Concurrent Audit for Insurance Companies

employee of the Insurer, the Internal Auditor shall be a Chartered

Accountant. While the scope of the audit is detailed in the following chapter,

the Technical Guide provides comprehensive Check List, which is as good as

a functional Audit Programme for an Auditor.

Board, taking into consideration the responses of the Investment

Committee (IC).

(d) Compliance to “Implementation of Investment Risk Management

Systems & Process”, as committed by the Insurers’ Board shall be confirmed

by the Internal/Concurrent Auditor for its implementation. Also, the Audit is

expected to confirm that the Audit Committee’s Recommendations, along

with the implementation details of the previous Quarter, are placed before

the Insurer’s Board, and are a part of its Agenda.

3. Broad Scope of the Audit

As mentioned earlier, the scope of the Internal /Concurrent audit is detailed

in the following Chapter. The broad scope of this audit is envisaged on -

(a) Confirming the implementation of Investment Risk Management

Systems and Process, as committed by Insurers Board, listing the

proof based on which such confirmation is made.

(b) Confirming the implementation of Audit Committee’s (of the Board)

recommendations of Previous Quarter.

supporting the investment process. (Refer Annexure ‘A’)

[The scope shall cover the investment policy and SOP of the insurer

for compliance with IRDA guidelines.]

(d) Review of investment related transactions and operations.

(i) The scope shall cover extensively the Front Office, Mid Office &

Back Office functions, the Investment domain requirement and

Systems and Process supporting the Investment transactions.

(ii) The review shall include follow-up of all previous pending audit

observations.

Technical Guide

(iii) The review shall cover ALL categories of Investments

permissible, falling under both Shareholders’ and Policyholders’

funds. [Annexure ‘B’]

(iv) The Audit shall cover ALL transactions/operations and have the

same periodicity as that at which such transactions are

recorded.

(e) Audit Report & Certification.

4. Frequency of Audit

The frequency of audit shall be Daily / Weekly / Monthly, commensurate with

the volume of transactions of the insurer. Monthly checklists should be

prepared and sent to CIO and CFO of the Company to enable corrective

actions in time. However, a consolidated report shall be prepared once in

every quarter and submitted to the company.

5. Reporting

The Internal / Concurrent Auditor has to issue his audit Certificate for every

quarter end along with the Annexures thereto in the format prescribed (refer

Chapter 5 of this Technical Guide).

The internal / concurrent auditor has to discuss all the audit observations

with the CIO / CFO to obtain the feedback / replies and take them into

consideration before issuing the Certificate to the Audit Committee.

The IRDA (Investment) (5th Amendment) Regulations, 2013 also requires the

Internal /Concurrent Auditor’s certification in Form 4 (Part B). It has to be

noted that the Regulations mandate that all the Returns mentioned in

Regulation No. 10 are to be submitted by an insurer within 30 days from the

end of each quarter. As this requirement is also for Form 4 (Part B), it is

imperative for the Auditor to take due care to verify and certify the Form-4 in

time.

Investment Functions of Insurer-

Internal / Concurrent Audit Scope

Internal/Concurrent Audit is an examination of financial transactions and is

contemporaneous with the occurrence of transactions or is to be carried out

almost simultaneously. It attempts to shorten the interval between the

occurrence of a transaction and its examination by an independent person

not involved in its documentation. There is emphasis in substantive checking

in key areas rather than test checking. This audit is essentially a

management process integral to the establishment of sound internal

accounting functions and in effect, controls, and sets the tone for a vigilant

audit to preclude the incidence of serious errors and fraudulent

manipulations. Such an Audit is expected to cover all the transactions,

without any exception, recorded during the period covered in the Audit

Report.

An internal/concurrent auditor may not sit in judgment on the decisions taken

by the authorized official. However, the auditor will necessarily have to see

that the transactions or decisions are within the policy parameters laid down

by the Board / Investment Committee; that they do not violate the

instructions / prescriptions of IRDA and Insurance Act, 1938, and that they

are within the delegated authority and in compliance with the terms and

conditions for exercise of delegated authority.

If the Auditor finds any deviation in the operations of the Investment

department from the Board/IC approved policies, those deviations with their

observation shall be brought the notice of the Audit Committee of the

Company. The Auditor shall also Report the serious observations instantly to

the management to take immediate steps to prevent the recurrence of such

incidents.

Two detailed checklists, one applicable to Life and Non-Life Insurance

business, and the other covering the additional points applicable to Life &

Linked business (ULIP) have been given separately in the succeeding

chapters and the Internal/Concurrent Auditors may find them as an extant

audit programme itself. While every effort has been taken to map the

Technical Guide

checklists in accordance with the regulatory requirement in respect of such

Audits and to the information already being submitted by the Insurer to the

IRDA in various forms, nothing precludes the Auditor to travel beyond such

checklists in case he needs to derive additional comfort in any transaction(s).

In fact, in view of the heavy reliance placed on the auditors by the Regulator,

it is indeed imperative for the auditor to ensure that his certification and

report on the important function of Internal/Concurrent audit is never short on

facts but never long on clerical errors that do not impact materially. As most

insurers have systematised their Investment functions, it would be better for

the Internal / Concurrent Auditor to get familiarised with the system and even

learn to input dummy data and take out dummy reports. This will enable him

to derive comfort on the system and data integrity. He may even take a call

on sampling and test checking of transactions of same type once he checks

and verifies the system integrity in certain modules.

It is in this background that a well defined scope is necessary to even plan

an audit of the nature expected of an Internal/Concurrent Auditor. The

Auditor, while making an audit plan based on the Scope, would do well to

first understand the broad structure under which the Investment functions are

designed in an insurance company, under the paradigm of the laws and

regulations in force.

The broad structure revolves around the following, about each of which the

Internal / Concurrent Auditor has to be completely familiar with:

1. Pattern of investments - Shareholders funds / Policyholders Funds

2. Pattern of investments - as applicable to LIFE/PENSION/ULIP/NON-

LIFE (Annexure ‘C’)

3. Prudential and Exposure norms (Annexure ‘I’)

4. Rating Requirements

5. Sub limits prescribed in the circulars on various investments*

6. Broad category of Investments

7. Valuation of Investments

8. Fund Accounting and NAV process on ULIP funds

9. Investment Policy (Annexure ‘D’)

10. Standard Operating Procedure (Annexure ‘A’)

Investment Functions of Insurer-Internal / Concurrent Audit Scope

11. Financial Authority

12. Model Code of Conduct

13. Outsourcing

14. Systems requirements

15. Definition of Infrastructure compliance

16. Issues pertaining to Other Regulators

17. Quarterly & other Investment Returns to the Regulator (Annexure ‘K’)

18. Remarks of Concurrent Auditor /Systems auditor of Previous quarter

19. Placement before the Audit Committee of the Board

*Sub limits have been specified in the Regulations and circulars for various

types of investments for:

(i) Mutual Funds

(ii) Venture Funds (Alternate Investment Funds) only Cat I is permitted

(iii) SRs/PTC/ABS

(iv) Tier II capital of Bank Bonds

(v) Derivatives

(vi) Repo and Reverse Repo on Corporate Bonds

(vii) Credit Default Swaps

(viii) Infrastructure Debt Funds

(ix) SPVs of Infrastructure

(x) Fixed Deposits

(xi) Immovable Properties

(xii) Loans/ Project Loans – Creation of Securities

Scope of Audit

Taking into consideration the foregoing, the minimum Internal/Concurrent

Audit Scope of an Insurer, as per the requirements of Insurance Regulatory

and Development Authority, shall include the following:

Technical Guide

1. Review of Standard Operating Procedure (SOP) -(Annexure ‘A’)

(a) To be approved by the Investment Committee

(b) Amendments, if any, to be approved by the Investment Committee

2. Investment Policy (IP) – (Annexure ‘D’)

(a) Approval by Board of Directors

(b) In framing the policy, the Board will be guided by the guidelines given

in Regulation 13 (1) of IRDA (Investment) (5th Amendment)

Regulations 2013. The main areas to be covered are:

(i) Liquidity

(ii) Prudential Norms – broadly, separately covering norms for

various industries, i.e. Manufacturing, Banking & Financial

Institutions, Infrastructure, etc.

(iii) Exposure Limits

(iv) Stop Loss Limits in securities trading

(v) Management of all Investment, fund wise performance

measurement, Credit and market risks

(vi) Management of assets and liabilities mismatch

(vii) Investment audits and Investment Statistics

(d) Submitting to Investment Committee / Board , the status of

Compliance / Operationalising of Investment Policy

3. Investment Committee (IC)

(a) Members

(b) Meetings

(d) Recommendations

(Whether IC includes representatives of Mid Office / Back Office in addition

to CFO)

Investment Functions of Insurer-Internal / Concurrent Audit Scope

4. Delegation of Authority to IC

(a) To be approved by the Board

(b) Amendments if any, to be approved by Board

5. Front Office – Mid Office – Back Office – segregation of duties

(Annexure ‘H’)

(Including deployment of requisite skilled manpower, investment system and

infrastructure to Mid office and Back Office commensurate to Front Office)

6. Maintenance of voice recorder for transactions done

7. Custodian Controls

(a) Arrangements

(b) Reconciliation

8. Appointment of Brokers (by Back office)

(a) Procedures / Criteria (as stipulated in Investment Policy / SOP) for

Ceiling per broker (as stipulated in Investment Policy / SOP)

(b) Execution of Legal Agreement with Brokers for empanelment covering

terms and conditions of brokerage business (in a standard format).

Review / monitoring by Mid-Office

(d) Business to be routed through them,

9. Exposure / Prudential / Other Norms – Company / Group / Sector/

Industry [both Regulatory (IRDA Regulations & Insurance Act) and

Internal Norms (as per Investment Policy)]. (Annexure ‘I’)

10. Non performing investments (Annexure ‘J’)

(a) Classification

(b) Income recognition

Technical Guide

11. Categories of Investments

(a) Central Government Securities, Approved Securities, Housing and

Infrastructure Investments and other Approved Investments

(b) Prescribed percentages

(d) Ongoing monitoring

12. Inter- fund transfers

(a) Permitted areas

(b) Rates

13. Rating of Securities

(a) Rating Criteria

(b) Whether the Investments which are not in rated securities, capable of

being rated

14. Controls & Compliance with Regulations for different types of

Investments

(a) Investment in equity shares through IPOs

(b) Investment in Mutual Funds, Asset Backed Securities, PTCs And SRs

Debt capital instruments of upper Tier-II capital

(d) Investment in Venture Funds

(e) Investment in any other instruments approved by IRDA including but

not limited to CDS, Reverse Repo in Corporate Securities etc.

15. Investment Deals Testing: (Annexure ‘E’)

(a) Daily transaction register

(b) Journal vouchers

(d) Counter party confirmations

Investment Functions of Insurer-Internal / Concurrent Audit Scope

(e) Contract notes from brokers

(f) Deal tickets

16. Sanction of Loans: (Annexure ‘G’)

(a) Scrutiny of request in the form of detailed proposal

(b) Promoter Assessment and Financial Assessment

(d) Automatic re-classification of loans as ‘Other Investments’, which are

not covered with adequate ‘security’, as required by the Act.

(e) Whether the company has uniform policy to charge ‘Up-front Fees /

Processing Charges’? In case of waiver of such charges, whether

necessary internal approval has been sought?

(f) Where pre-commitment and pre-disbursement conditions have been

stipulated, whether the same have been duly complied with?

(g) Whether Financing documents and Security documents have been

executed and the security clause as stipulated in Security document

has been created in favour of the company along with registration of

charge in the O/o ROC.?

(h) Post Sanction review and monitoring: To verify whether the borrower is

complying with the interest and principal obligations in time. Whether

any visit / review of physical and financial progress is done on

periodical basis, say quarterly, and review report in standard format is

submitted to IC.

(i) Whether Escrow and Trust & Retention Account (TRA) Agreement or

equivalent arrangement is in place for tracking the cash-flows of the

borrower company and working smoothly.

17. Investment in Debt Instruments

(a) Whether Debt Investment is supported by documents like Information

Memorandum (IM)/ subscription Agreement, Term Sheet, Latest Credit

Rating rationale and taking into account the amount for which rating is

given etc.

Technical Guide

(b) Whether security stipulated under IM / Subscription agreement has

been created in favour of lender or Trustee. If not, whether any penal

charges have been stipulated as per the policy of the Company.

other documents are available for internal/ concurrent audit and kept in

safe custody.

(d) Wherever Security Trustee has been appointed for ensuring the

creation of security, whether necessary due diligence has been done

and security is created.

18. Investible Surplus:

Determination of the Investible surplus (premium income minus expenses

minus policyholder’s payments)

19. Compliance to IRDA Accounting Regulations:

(a) Compliance with general accounting standards

(b) Adherence to accounting policies of the insurer

20. Minimum Risk management System & Process - The minimum risk

management systems and processes prescribed by the IRDA are to be

complied with by the Insurer all the time

21 Segregation between shareholder and policy holder funds:

(a) Bifurcation of Income and Investment assets

(b) Whether bifurcation of investments done at entry level

22 NAV: (Annexure ‘J’)

(a) Calculation

(b) System

(d) Process

23 Employee dealing guidelines :

(a) Implementation

(b) Monitoring

24 Deposit U/s 7 of Insurance Act 1938:

(a) Sufficiency

Investment Functions of Insurer-Internal / Concurrent Audit Scope

(b) Certification from banks

25 Investment in promoter groups:

(a) Identification of companies

(b) Maintenance and updation of list of promoter group companies

(d) Whether within the prescribed limits

26 Investment returns to IRDA (Annexure ‘K’)

(a) Timely submission

(b) Accuracy of the data

27 Amortisation of debt securities and valuation of investment

portfolio at periodic intervals – Whether as per IRDA guidelines

28 Outsourcing of Investment functions:

(a) Permissions from IRDA

(b) As per norms.

29 Banking:

(a) Tracking of transactions

(b) Reconciliations

30 Generation of exception reports and their scrutiny should be

submitted to IC.

31 Placement of IRDA circulars before Audit Committee of the Board/

32 Inspection by IRDA – Follow-up on the observations from the

previous reports.

33 Follow up for recovery of overdues

34 Follow up on open items in the Previous Concurrent Audit Report

and the Systems audit report

Internal / Concurrent Audit Checklist–

Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

1 INVESTMENT POLICY

1.1 Whether the Investment

Policy is approved by the

Board of Directors and the

same is in accordance with

IRDA Investment

Regulations?

Low Annually

1.2 Does the Investment Policy

cover all the areas as

provided in the IRDA

Investment Regulations?

Low Quarterly

1.3 Whether the Investment

Policy is being reviewed half

yearly by the management?

Low Half-Yearly

1.4 Have amendments to the

Investment Policy, if any,

been approved by the Board

of the Insurer?

Medium For every

amendment

1.5 Has the Standard Operating

Procedure (SOP) been

approved by the Investment

Committee of the Insurer?

Low Annually

1.6 Whether the SOP, for each

‘category of investment’ is the

same for all fund(s)?

Medium Quarterly

1.7 Does SOP of the Insurer, for

“each” Category of

High For every

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

Investment, (as per

Guidelines

INV/GLN/001/2003-04, as

amended from time to time,

issued by the IRDA) provide

individual activities to be

carried out in Front, Mid and

Back office?

amendment

1.8 Whether the IC approved

SOP has been followed for

100% of the investments?

High For each

Investment

1.9 Has the model code of

conduct, to prevent insider /

personal trading of officers

involved in Investment

Operations, including front,

mid and back office as

approved by the Board, is

implemented? If so:

High Annually

a. Does it cover Officers

involved in Investment

Operations at various

levels?

Low Annually

b. Does it cover all Officers

of such level as

prescribed by the Board?

Low Annually

c. Has the Board been

informed of compliance

or otherwise to model

code of conduct during

the Quarter?

Low Quarterly

d. Has the Concurrent

Auditor issued their Audit

Report of previous

Quarter, with any

qualification on aspects

High Quarterly

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

of model code of conduct

implemented by the

Insurer?

e. Has breach of model

code of conduct, if any,

reported during the

previous Quarter, been

dealt properly and

appropriate action as

recommended by Audit

Committee/ Board been

taken?

High Quarterly

2 INVESTMENT COMMITTEE

2.1 Is the Constitution of the

Investment Committee of the

Insurer in full compliance with

the requirements mentioned

under Regulation 13 of

Investment Regulations?

Low Annually

2.2 Whether the exceptions to

investments policy/SOP been

adequately reported to

Board/IC and action has been

taken.

High Quarterly

3 MONITORING OF INVESTMENTS & SETTLEMENT

3.1. Investee Company

Exposure

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

3.1.1

Investment in equity,

preference shares,

convertible debenture:

Did the exposure at any point

of time exceed the limits set

in Regulation 9 (A.1.(a) or

A.1.(b) or A.1.(c) considered

separately) of this Regulation,

in the case of Life insurers /

an amount under Regulation

9 (A.2) or (A.3) of this

Regulation, in the case of

General Insurer / Re-insurer,

whichever is lower?

High For every

transaction

3.1.2 Investment in Debt/ loans and

any other permitted

Investments as per Act /

Regulation, other than

‘Equity’, Preference Shares,

Convertible Debentures:

Did the exposure at any point

of time exceeded the limits

set in Regulation 9 (A.1.(a) or

A.1.(b) or A.1.(c) above

considered separately) of this

Regulation, in the case of Life

insurers / an amount under

Regulation 9 (A.2) or (A.3) of

this Regulation, in the case of

General Insurer / Re-insurer

whichever is lower?

High For every

transcation

3.1.3 Is the maximum exposure

under limit for a single

‘investee’ company from all

High For every

transaction

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

investment assets (Equity /

Preference Shares /

Convertible Debenture /

Debentures/ bonds / CPs /

loans and any other permitted

debt Investments as per Act /

Regulation), within the limit

prescribed in Regulation 9 (B)?

3.1.4 Are the debt investments

made in infrastructure SPVs

in compliance with the limits,

terms and conditions as

mentioned in Note: 4 of the

Investment Regulations?

High For every

transaction

3.2 Limit for the entire Group of

the Investee Company

3.2.1 Are the total investments

made in the entire “Group of

the Investee Company” within

the limits set out in

Regulation 9(A.1.(a) or

A.1.(b) orA.1.(c) in the case

of Life insurers / under

Regulation 9 (A.2) or (A.3) of

this Regulation, in the case of

General Insurer / Re-insurer,

or 15% of investment Assets

in all companies belonging to

the group ?

High For every

transaction

3.3 Promoter Group Company

3.3.1 Are the total investments

made in all “Companies

falling under Insurer’s

Promoter Group”:

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

a. not more than 5% in

aggregate of its total

investments in all companies

belonging to the promoters’

groups;

High For every

transaction

b. not made investments in

any companies belonging to

the promoters’ group by way

of private placement (equity);

High For every

transaction

c. Not made investment in

unlisted instruments [equity &

debt certificate of deposits

and fixed deposits (without

prejudice to Section 27A (9)

and Section 27B (10) of the

Act) held in a Scheduled

Commercial Bank], except for

companies formed by

Insurers under Sec 27A (4) or

Sec 27B (5) of the Act?

High For every

transaction

3.4 Industry sector

3.4.1 Are the investments made by

the insurer in any industrial

sector [except Financial and

Insurance Activities sector as

per National Industrial

Classification (All Economic

Activities) - 2008]: not in

excess of the lower of:

15% of the amount under

Regulation 9 (A.1.(a) or

A.1.(b) or A.1.(c) considered

separately) of this regulation

in the case of life insurer / an

amount under Regulation 9

High For every

transaction

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

(A.2) or (A.3) of this

regulation, in the case of

General Insurer / Re-insurer

(or) 15% of Investment

Asset?

3.4.2 Are the investments made by

the insurer in Financial and

Insurance Activities sector as

per National Industrial

Classification (All Economic

Activities) - 2008 (excluding

Fixed Deposit, Term Deposit

and Certificates of Deposit)

not in excess of 25% of its

total investment assets?

High For every

transaction

3.4.3 Are the classification of

industrial sectors done on the

lines of National Industrial

Classification (All Economic

Activities) - 2008 [NIC] for all

sectors, except “infrastructure

sector”?

High For every

transaction

3.4.4 Has exposure been

calculated for Financial and

Insurance Activities sector at

Section level (of NIC (All

Economic Activities) – 2008)?

High For every

transaction

3..5 Are no further exposures

made in Housing &

Infrastructure in excess of the

limits reported to the

Authority as at 31st March

2013?

Medium

Daily /

Monthly

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

Note: Any investment made in

housing and infrastructure as

per earlier regulations which

are in excess of the limits

specified as per Regulation 9,

as at 31st March, 2013,

Investee company, Group,

Promoter Group wise, as

certified by the Internal /

Concurrent Auditor shall be

filed with IRDA

3.6

Whether exposure norms

have been adhered to both

funds representing solvency

margin [FRSM] and funds

held in excess of required

solvency margin.

High At any point

of time

4 Rating Criteria

4.1 Are investments under

‘Approved Investments’ made

only in rated instruments, if

such instruments are capable

of being rated?

High For every

transaction

4.2 At the time of purchase, are

Corporate Bonds rated below

AA (A+ with the prior approval

of the Board of the Insurer) or

its equivalent and P1 or

equivalent (in case of short

term instruments) classified

under “Other Investments”?

High For every

transaction

4.3 Are instruments downgraded

below the minimum rating

prescribed under Note 3 & 4

High Quarterly

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

to Regulation 3 to 8 of the

IRDA (Investment)

Regulation, 2000, as

amended from time to time,

reclassified under “Other

Investments” through the

System?

4.4 Are ‘Debt’ instruments

(including Central Govt, State

Govt Securities and Other

Approved Securities) - fund

wise, in the case of life

insurer (including ULIP funds

at segregated fund level) and

Investment Assets in the case

of general insurer - have a

minimum rating of Sovereign,

AAA or equivalent rating for

long term and Sovereign, P1+

or equivalent for short term

instruments, not less than

75% (Life Insurer) / 65%

(General Insurer)?

Note : For the purpose of

calculating the 75%/65% of

the investment in debt

instruments the following

shall not be taken either in

the numerator or

denominator:

1. Reverse Repo with

corporate bond

underlying

2. Fixed Deposit

High At required

periodicity

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

3. Investment in

Promoter Group

Mutual Fund(s) and

un-rated Mutual funds

4.5 Are ‘Debt’ instruments

(including Central

Government Securities, State

Government Securities and

Other approved securities) –

fund wise, in the case of life

insurer (including ULIP funds

at segregated fund level) and

Investment Assets in the case

of general insurer – having a

rating of A or below or

equivalent rating for long

term, not more than 5% (8%

in the case of Non-Life

Insurers)?

High At required

periodicity

4.6 Has the insurer, apart from

the credit rating evaluated by

the rating agencies, carried

out their own risk analysis

commensurate with the

complexity of the product(s)

and the materiality of their

holding for every investment

made?

High At required

periodicity

4.7 Are all investments in assets

or instruments which are

capable of being rated

(except Fixed Deposits with

Scheduled Commercial

Banks) made based on

Medium For every

transaction

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

‘instrument’ rating and NOT

based on Investee ‘Company’

rating?

4.8 Have Investments in debt

instruments rated AA minus

or below {A Plus or below in

case of Debt instruments

issued by All India Financial

Institutions} been classified

under Other Investments?

Medium For every

transaction

5 Exposure verification and

Sec. 7 Deposit

5.1 Has the Exposure been

verified through the System

and is within the SOP /

Regulatory limits?

High Quarterly

5.2 Does the System have the

capability of providing alerts

at transaction level BEFORE

taking exposure?

High Quarterly

5.3 Has the Insurer maintained

deposits under Section 7 of

Insurance Act, 1938 and

circulars issued thereunder?

High Quarterly

6 Investment Management

6.1 Whether any of the functions

of the insurer relating to

Investment Operations falling

under Front / Mid / Back

Office, (covering both

Shareholders and

Policyholders Investments),

are outsourced (except to the

extent permitted under Point

High On going

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

11 and 12 of Annexure II to

Circular INV/CIR/008/2008-09

Dt. 22nd Aug, 2008 with

respect to Outsourcing of

Investment Advice and NAV

Calculation).

6.2 Is the segregation of front,

mid and back office, as per

Technical Guide on Internal /

Concurrent Audit of

Investment functions of

Insurance Companies issued

by the Institute of Chartered

Accountants of India?

Medium On going

6.3 Is the increase during the

quarter, in Shareholders’

funds (other than income

from shareholders’

investments, maintained in a

separate custody account)

held beyond solvency margin

requirement, supported by

surplus calculation certified

by the Appointed Actuary?

6.4 Are the investments made

during the Quarter, within the

exhaustive ‘Categories of

Investments’ prescribed

under Guidelines

INV/GLN/001/2003-04, as

amended from time to time?

High Quarterly

6.5 Has the Insurer, during the

Quarter, taken any Derivative

position (including interest

Medium Quarterly

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

rate swap and Credit default

swap)? If Yes:

a. Has the Derivative Policy

been approved by the

Board of the Insurer?

High Quarterly

b. Has the insurer taken prior

approval of IRDA for such

Derivative policy?

High Quarterly

c. Is there a process to

identify the risk to be

hedged [‘fund-wise’ in the

case of Life Insurers]?

High Quarterly

d. Does such derivative

position comply with IRDA

Guidelines?

High Quarterly

e. Is the derivative exposure

taken clearly identified

with the portfolio risk to be

hedged?

High Quarterly

f. Has the Insurer filed the

regulatory information /

returns required under the

Guidelines issued?

Medium Quarterly

6.6 Whether investments made in

immovable property covered

under Section 27A (1) (n) of

the Act exceeded at the time

of investment, 5% of the

Investment Assets [as per

FORM 3B (Part A)] in the

case of General Insurer /

within 5% of Life fund,

Pension & General Annuity

Fund, [as per FORM 3A (Part

A)] in the case of Life Insurer.

High Quarterly

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

6.7 Are investments in equity

shares through IPO, Mutual

fund, Venture fund, SEBI

approved Alternate

Investment Funds, Corporate

Bond Reverse Repo, IDF (as

per Note 2 to Regulation 9)

Perpetual Debt instruments of

Bank’s Tier-I Capital and

Debt Capital instruments of

Bank’s Upper Tier-II Capital,

made in compliance with the

relevant circulars issued in

this regard from time to time

and SOP?

High Quarterly

6.8 Are investments in asset

backed securities, PTC, SRs

both under Approved and

Other investment category,

made within 10% of

Investment assets in case of

Life Companies and 5% of

Investment assets in case of

Non – life companies?

High Quarterly

6.9 Are any securitized assets

with underlying housing or

infrastructure assets, if

downgraded below AAA or

equivalent, reclassified as

Other Investments?

Medium Quarterly

6.10 Has Shareholders funds been

split into Funds Representing

Solvency Margin (FRSM) in

FORM 3A (Part A) and

balance?

Medium Quarterly

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

6.11 If funds are split as above,

between FRSM and Balance,

have the same been

maintained in separate

custodian accounts with

identified ‘scrips’ for both Life

and General (including Re-

insurance) companies and

reconciled with that in FORM

3A (Part A)?

Medium Quarterly

6.12 Are Investments made in a

Public Limited Special

Purpose Vehicle (SPV)

engaged in infrastructure

sector within 20% of the

project cost (or) amount

under Regulation 9 (B) (i),

whichever is lower?

Medium For every

transaction

6.13 If answer to point above is

‘yes’, have all the

requirements mentioned

under Note 4 to Regulation 9

been complied with?

Medium For every

transaction

6.14 Do investments made in

Mortgaged Backed Securities

[MBS] / Assets Backed

Securities [ABS] comply with

the requirements of Note 5 to

Regulation 9?

Medium For every

transaction

6.15 Has ‘each’ purchase and sale

of Investments, as mentioned

in the Deal Slip, been

identified with respect to

‘each’ fund / ‘segregated

fund’ in respect of ULIP

funds?

High For every

transaction

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

6.16 Are all thinly traded equity (as

per SEBI norms) classified as

“Other Investments”?

Medium Quarterly

6.17 If any instruments are dealt

with in physical form, whether

adequate controls with regard

to storage and accounting of

such instruments maintained?

Medium Quarterly

6.18 Whether broker appointment

is as per norms defined by

the insurer in SOP?

Medium For every

appointment

6.19 In the case of securities,

whether aggregating all deals

done through broker and

comparison thereof with the

aggregate buy/sell deals on a

periodical basis as prescribed

in the SOP of the insurer (this

is required to monitor

transaction volume limits

through each broker) is taking

place?

Medium Quarterly

6.20 Whether brokerages paid are

within the internal guidelines

of the insurer?

Medium Quarterly

6.21 Is the appointment of

custodian made with requisite

approvals?

Medium Quarterly

6.22 Are periodic audits of the

custodian, to ascertain that

adequate controls are in

place, conducted?

Medium Quarterly

6.23 Whether Escalation Matrix is

available and followed for

Medium

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

resolving any discrepancies

with the custodian.

7 SYSTEMS / PROCEDURE

7.1 Is the software application for

Investment Operations fully

automated without manual

intervention in calculating the

exposure norms of Investee

Company, Group, Promoter

Group and Industry Sector,

as per the various slabs of

‘investment assets’ provided

under Regulation 9 (B)?

Medium Quarterly

7.2 Have all non-compliances

reported in the Chartered

Accountant’s certificate

issued (as per the Technical

Guide on Investment Risk

Management Systems &

Process of Insurance

Companies, by ICAI) on the

‘status’ of implementation of

Investment Risk Management

Systems and Process been

rectified as per timelines

committed to IRDA?

High Quarterly

7.3 Is the Primary Data Server of

the Computer Application

used for Investment

Management maintained /

situated within the Country?

High On going

8 INVESTMENT ACCOUNTING

& SETTLEMENT

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

8.1 Has the insurer, reconciled

investments, fund-wise, with

bank and custodian records

on ‘day-to-day basis for ‘each’

segregated fund?

Medium On going

8.2 Has the insurer, reconciled

investment accounts, for each

fund in the case of Non-ULIP

Business and General

Insurance Business, with

Custodians records?

Medium

8.3 Has valuation of investments

of ‘each’ fund (including

ULIP) is done as prescribed

in IRDA (Preparation of

Financial Statements and

Auditors Report of Insurance

Companies) Regulations,

2002?

Medium Quarterly

8.4 Is the Investible Surplus

determined as per procedure

laid down in SOP?

Medium Daily

8.5 Are there adequate controls

in place to ensure accuracy of

Investible Surplus?

Medium Monthly

8.6 Whether there is proper

internal control in place to

ensure that the investments

do not exceed the available

cash position in the

respective portfolios.

Medium Monthly

8.7 Whether the failed deals are

reported to appropriate

authorities, stating the reason

Medium Quarterly

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

8.8 Whether all the deals placed

by the front office are settled

and accounted by the Back

office.

Medium On going

8.9 Whether the settlement date

is tracked properly.

Medium On going

8.10 Whether the exception report

is generated along with the

reasons for failure of

settlement.

Medium Monthly

8.11 Whether management has

taken corrective actions for

the exceptions.

Medium On going

8.12 Whether the funds are

transferred as per the

settlement date and traced in

the bank statement.

Medium On going

8.13 Whether demat statement is

being received on a daily

basis from the custodian.

Medium Daily

8.14 Whether the settlement bank

reconciliation statement is

prepared on a daily basis and

is signed by the preparer and

reviewer.

Medium Daily

8.15 Whether the settlement

bank’s reconciliation

statement been reviewed.

Medium Monthly

8.16 Whether the custodian’s

reconciliation is prepared on

a daily basis and is signed by

the preparer and reviewer.

Medium Daily

8.17 Whether the custodian

reconciling items are followed

up on a timely basis.

Medium On going

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

8.18 Whether the accounting

entries passed to record

purchase / sale of

investments are appropriate

Medium On going

8.19 Whether amount received

against security sold is

properly recorded.

Medium On going

8.20 Has all interest and dividend

income been accounted on

accrual basis?

Medium On going

8.21 Whether Income is accounted

as per the Accounting

Standards and other

regulations specified by IRDA

and the accounting policies of

the insurer.

Medium Monthly

8.22 Whether the Investments are

accounted and disclosed as

per the Accounting Standards

and other regulations as

applicable and specified by

IRDA.

Medium Monthly

8.23 Are there controls to ensure

that all Corporate actions are

acknowledged and recorded?

Medium Quarterly

8.24 Check for corporate actions

during the audit period and

verify that these have been

correctly recorded and

accounted.

Medium Quarterly

8.25 Is there a procedure for

exercise of voting rights and

seeking representation on

Board of companies?

Medium Quarterly

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

8.26 Are the procedures and

decisions taken by the

insurance companies

adhered to during the period

under review?

Medium Quarterly

8.27 Whether accounting and

recording for Investment

Reclassification as NPA and

downgrading done?

Medium Monthly

8.28 Whether the deals are

instantly put into the system

for verification, confirmation

and settlement by the Mid –

Office and Back Office?

Medium On going

9 REPORTING

9.1 Are periodical Investment

Returns to be filed for the

Quarter prepared in full

compliance with the

“Guidance Note on

preparation of Investment

Returns” issued by IRDA?

High Quarterly

9.2 Has the Internal / Concurrent

audit Report of the previous

Quarter with the with

comments of Audit

Committee of the Board, on

‘very serious’, ‘serious’ points

(as per the Technical Guide

on Internal / Concurrent Audit

of Investment functions of

Insurance Companies, issued

by the Institute of Chartered

Accountants of India) in the

report, and status of

High Quarterly

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

implementation of Audit

committee recommendation

been placed before the Board

of the Insurer during the

current quarter?

9.3 Has the Audit Report of the

previous Quarter along with

Audit Committee’s

recommendation and its

implementation status filed

with the Authority along with

these returns?

High Quarterly

9.4 Has the Board, during the

previous Quarter, reviewed

the performance of

investments? [the review in

the case of life insurers

should cover both Non-Linked

and Linked funds [SFIN]

level].

Medium Quarterly

9.5 Have all the negative

deviations reported in FORM

4A (Part A)?

Medium Quarterly

9.6 Whether there has been any

change in investment limits

during the period under

review which is likely to result

in non compliance. If yes,

whether the same has been

correctly effected in the

system.

Medium Quarterly

9.7 Is the list of day end reports

generated as per SOP and

verified by back office?

Medium Daily

9.8 Whether the following

minimum has been reported

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

to the board on quarterly

basis product wise by Life

Insurers & Line of business

wise by General Insurers:

(i) New business scale

planned versus actual

at the end of the

period1 to maturity

(ii) Expenses projected

versus actual

(iii) Persistency / renewal

premium streams

projected versus actual

(iv) Claims - projected

versus actual

(v) Actual Yield versus

projected yield or

returns

(vi) Action plan and follow

up status

Medium Quarterly

9.9 Transfer of share holders’

funds in excess of

Solvency Margin:

(i) Whether transfer is made

only after fully complying

with mandatory

investment in Central

Government Securities,

State Government and

Other Approved

Securities and in Housing

& Infrastructure

High Quarterly

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

Investments from funds

representing solvency

margin.

(ii) Whether such transfer

made between quarters

has been duly certified

by the Concurrent

Auditor.

10 DEALS / PROPOSALS

DEAL TESTING

10.1 Whether Delegation of

Authority is approved by the

board/IC and implemented as

defined in the SOP of the

Insurer.

Medium On going

10.2 Whether the transactions

executed are approved by the

appropriate authority as

defined in the SOP and

whether they are within the

eligible limits for

authorisation.

Medium On going

10.3 Are there amendments if any,

to the delegation of authority

approved by Board / IC?

Medium On going

10.4 Is there a record (Audit Trail)

of all deals that have been

done?

Medium On going

10.5 Are all deal slips serially

numbered and available?

Check if there are any

missing deal slips.

High On going

10.6 Is there a record of approvals

for each deal?

Medium On going

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

10.7 Verify that each deal has a

deal slip with appropriate

details viz., security name,

quantity, amount, broker

name etc.

Medium On going

10.8 Whether intimation for the

trades sent to custodian is

with proper documentation

(such as amount, quantity,

value, description etc.).

Medium On going

10.9 Whether equity deals are

settled through STP dump.

Medium On going

10.10 Whether deals are authorized

and matched with the

underlying documents such

as counterparty confirmation

etc.

Medium On going

10.11 Whether calculation of

profit/loss is happening on

trade upon deal entry.

Medium On going

10.12 Verify that all trades

executed/investments made

are classified correctly and

appropriately reported to

IRDA, as per the guidelines

on category of Investments.

Medium On going

10.13 Verify that there is adequate

segregation of duties

between people booking,

confirming and accounting

trade.

Medium On going

10.14 Whether the Dealers have

been strictly following the

dealing guidelines during the

investments.

Medium On going

Internal / Concurrent Audit Checklist–Life & General Insurers

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

11 Project / Term Loans

11.1 Whether Scrutiny of request

in the form of detailed

proposal.

High On going

11.2 Is Promoter Assessment and

Financial Assessment carried

out?

High On going

11.3 Has repaying capacity, on

promoters’ strength

assessed?

High On going

11.4 Has re-classification of loans

as ‘Other Investments’, which

are not covered with

adequate ‘security’, as

required by Act been done

through the system?

High On going

11.5 Whether the company has

uniform policy to charge ‘Up-

front Fees / Processing

Charges’. In case of waiver of

such charges, whether

necessary internal approvals

have been sought.

High On going

11.6 Where pre-commitment and

pre-disbursement conditions

have been stipulated, have

the same been duly complied

with?

High

11.7 Whether Financing

Documents and Security

Documents have been

executed and the security

clause as stipulated in

Security document has been

created in favour of the

company along with

registration of charge of it.

High On going

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity of

Verification

Auditor’s

Comments

11.8 Post Sanction review and

monitoring – Whether the

borrower is making the

interest and principal

obligations in time? Whether

any visit / review of physical

and financial progress is done

on periodical basis say on

quarterly basis etc. and

review report in standard

format is submitted to IC.

High On going

11.9 Whether Escrow and Trust &

Retention Account (TRA)

Agreement or equivalent

arrangement is in place for

tracking the cash-flows of the

borrower company and

whether it is working

smoothly.

High On going

Internal / Concurrent Audit Additional

Checklist – Life & ULIP Business

No. Particulars Suggested

Business

Impact

Periodicity

Verification

Auditor’s

Comments

1 UNIT LINKED (Annexure

‘F’)

1.1 Has inter-fund transfer been

done as per circular

IRDA/FA/02/10/2003-04 and

any other circular issued

from time to time, between

ULIP funds during Market

Hours, for Equity and Debt

at the prevailing price and

not based on broker quote?

High Ongoing

1.2 Whether every ULIP plan

has a separate D-mat

account and all securities

held in all funds are in

segregated D-mat accounts.

Medium Monthly

1.3 Does each ‘Segregated

fund’ [SFIN] have underlying

‘Scrips’, identified up to to

Custodian level?

Medium Monthly

1.4 Does each ‘Segregated

Fund’ [SFIN] have not less

than 75% of Approved

Investments as specified in

the Regulation?

Medium Ongoing

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity

Verification

Auditor’s

Comments

1.5 With respect to ‘each’

Segregated Fund [including

Discontinued Policy Fund

(DPF)] in the case of ULIP

business, whether

reconciliation of “Units” has

been made between Policy

Admin System (PAS) and

Investment Accounting

Systems through a fully

automated system using

process integrators to ensure

seamless data transfer without

manual intervention.

Medium Ongoing

1.6 Has the life insurer in the case

of ULIP business reconciled

through the system the

premium received (net of

charges and benefits paid)

under each product (Unique

Identification Number – UIN

wise) with value of all the

segregated fund(s)

(Segregated Fund

Identification Number – SFIN

wise) net of fund management

charges, held under a single

UIN, on a day to day basis,

during the quarter?

High Daily

1.7 Has the life insurer disclosed

UIN wise reconciliation on the

Insurer’s website on the same

day?

Medium Daily

1.8 Is there a fully automated

system to generate, on a day

to day basis, Form 3A - Part E

(Investment Details of ULIP

Products to Segregated

Funds)?

Medium Daily / At

required

periodicity

Internal / Concurrent Audit Checklist Life & ULIP Business

No. Particulars Suggested

Business

Impact

Periodicity

Verification

Auditor’s

Comments

1.9 Whether the Insurer’s Policy

Admin System (PAS) is

`automated’ for tracking

`policy-wise’, information of

discontinued policies along

with the information of the

particular ULIP fund to which

the same pertains.

Medium Monthly /

Quarterly

1.10 Has the life insurer disclosed

the value of policy wise units

held by policyholder on the

Insurer’s policyholder portal as

per the format prescribed

under Annexure III of

IRDA/F&I/CIR/INV/067/04/2013

Dt. 1st Apr, 2013 w.e.f 1st

October 2013?

Medium Monthly

1.11 Whether any investments in

Immovable Properties been

made out of ULIP Funds.

High Monthly

1.12 Has the Insurer floated any

new fund during the quarter?

Medium Quarterly

1.13 If the answer to point above is

‘yes’, have the directions in

respect of Fund Approval

procedure and Guidelines on

NAV Process as per Circular

IRDA/F&I/CIR/INV/173/08/2011

Dt. 29th Jul, 2011 been

complied with?

Medium Quarterly

1.14 Investments of Unit Linked

funds:

(i) Whether insurer invests

only in investments

wherein day-to-day

valuations are available.

High

Daily /

Monthly

Technical Guide

No. Particulars Suggested

Business

Impact

Periodicity

Verification

Auditor’s

Comments

(ii) Has it been ensured that

no investments are made

in any Funds of Fund or

a fund for which NAV is

not available on a day-to-

day basis?

2 NAV COMPUTATION,

ACCOUNTING &

RECONCILIATION

2.1 Has the life insurer disclosed

fund wise NAV (SFIN wise) on

the Insurer’s website and life

council website on the same

day?

High Daily / At

required

periodicity

2.2 Has NAV of each segregated

fund [SFIN] been audited

before its declaration by

Internal / Concurrent Auditor

on a day-to-day basis (on T+0

basis)?

High Daily / At

required

periodicity

2.3 NAV for last business day of

Financial Year:

(i) Whether applications

received on the last

business day up to 3 PM

are processed with NAV

of the last business day.

(ii) Whether applications

received after 3.00 PM of

the last business day are

processed with NAV of the

immediate next business

day and fall into the next

financial year.

Medium Yearly

Internal / Concurrent Audit Checklist Life & ULIP Business

No Particulars Suggested

business

impact

Periodicity

verification

Auditors

comments

2.4 Verify investment valuation

of various securities and

check whether it is in

accordance with IRDA

regulations.

High Monthly

2.5 Check whether the

Company uses appropriate

sources for deriving market

value / fair value of the

investment.

Medium Monthly

2.6 Check holding

reconciliation.

Medium Daily / At

required

periodicity

2.7

MERGER / SPLIT OF

EXISTING FUND

2.7.1 Verify the basis of split of

investment where the funds

are split.

High Monthly

2.7.2 Approval by Investment

Committee post split

relating to D-mat accounts

of both the schemes.

Medium Monthly

2.7.3 Approval by Investment

Committee post merger

relating to D-mat accounts

of both the schemes.

Medium Monthly

2.8

UNIT CAPITAL

ACCOUNTING ENTRY

MEDIUM MONTHLY

2.8.1 Verify whether unit capital

accounting is carried out at

face value.

Medium Monthly

2.8.2 Verify whether the

accounting of unit capital and

the difference between NAV

and Unit Capital is accounted

as per the accounting policy

laid down.

Medium Monthly

Technical Guide

No Particulars Suggested

business

impact

Periodicity

verification

Auditors

comments

3 NAV AUDIT

3.1 Check whether NAV

Process as prescribed is

carried out.

High Daily / At

required

periodicity

3.2 CHECK AND VERIFY

3.2.1 Whether there is an internal

process existing to ensure

that units are daily

reconciled as per the policy

service system with

Investment accounting

system.

High Daily

3.2.2 Whether the Units created

or redeemed bring in or

take out correct money of

the fund to ensure the

interests of all the

policyholders are protected.

(If there is any difference

the same shall be

compensated).

High Daily / At

required

periodicity

3.2.3 Whether Investments

including bidding through

IPO or other

primary/secondary offers

are allocated to the

different portfolios at the

inception.

High Daily / At

required

periodicity

3.2.4 Whether Inter-scheme

transfers are done within

the market hour. and to

save the expenses it shall

not be done to enrich one

portfolio at the cost of the

other.

High Daily / At

required

periodicity

Internal / Concurrent Audit Checklist Life & ULIP Business

No Particulars Suggested

business

impact

Periodicity

verification

Auditors

comments

3.2.5 Whether the investments of

the schemes strictly follow

the pattern of investment,

prudential norms and the

limits mentioned in the

product feature.

Medium Daily / At

required

periodicity

3.2.6 Whether the Valuations of

the investments are

adequate and as per the

accounting policy. The

deviation shall be disclosed

and shall be more

appropriate.

Medium Daily / At

required

periodicity

3.2.7 Whether the NAVs declared

are correct and tally with

the system.

High Daily / At

required

periodicity

3.2.8 If there is change in NAV

due to an error, the same

shall be compensated to

the policyholders or fund as

per the IRDA guidelines.

High Daily / At

required

periodicity

4 OTHERS

4.1 Is there any shortfall/deficit

in meeting the Discontinued

Policies Fund (DPF)

liabilities?

Low Monthly

4.2 If the answer to above point

is ‘Yes’, has the Insurer

provided for such shortfall /

deficit on a quarterly basis?

Low Monthly

5 IRDA RETURNS

Technical Guide

No Particulars Suggested

business

impact

Periodicity

verification

Auditors

comments

5.1 Whether the IRDA returns

are prima-facie correct and

prepared with due diligence

High Quarterly

5.2 Whether the Company

maintains a record of the

communication with the

IRDA and the Company

submits the data as

required within the

stipulated time

Medium Monthly

5.3 Whether there is a System

put in place by the Insurer

to ensure that the IRDA

Investment periodical

Returns are prepared as

per the Guidelines issued

by IRDA for preparing

Investment Returns.

High Monthly

Format of Internal / Concurrent Audit

Report on Investment Functions of

Insurance Companies

Internal/Concurrent Audit Report on Investment

Functions

The Audit Committee of the Board of Directors

------------------------------------------------------

We have conducted the internal/concurrent audit of the Investment Functions

of M/s ------------------------------------------------ (the ‘Insurer’/’the Company’) for

the quarter ended----------, as stipulated in Regulation 13.F of IRDA

(Investment) (Fifth Amendment) Regulations, 2013 notified by the Insurance

Regulatory and Development Authority (‘IRDA’) on the 16th February, 2013,

as amended from time to time.

The management of the Insurer is responsible for design, implementation

and maintenance of the Investment Policy, Standard Operating Procedures

(SOPs) and Risk Management Systems and Processes in accordance with

the IRDA Regulations, Guidelines, Circulars and other applicable Laws and

Regulations and compliance thereto. Our responsibility is to examine the

compliance of the insurer with the aforesaid, and also evaluate how far such

Investment Policy, SOPs and Investment Risk Management Systems and

Processes provide effective control over the investment functions of the

Insurer.

Technical Guide

We conducted our internal/concurrent audit as per the Technical Guide on

Internal/Concurrent Audit of Investment Functions of Insurance Companies

issued by the Institute of Chartered Accountants of India. Our engagement

was planned and performed to obtain reasonable assurance whether:

(i) The investment policy and SOPs of the insurer are in compliance with

the minimum requirements of IRDA and other applicable statutory and

regulatory requirements

(ii) The investment Policy, SOPs and Risk Management Systems &

Processes provide adequate control over investment functions of the

insurer

(iii) The Insurer, in respect of its investment transactions, has complied

with the applicable IRDA Regulations, Guidelines and Circulars ; the

Investment policy approved by its Board of Directors and the SOPs as

approved by its Investment Committee.

We also confirm that the Audit Committee’s Recommendations, along with

the implementation details of the previous Quarter, were placed before the

Insurer’s Board as a part of its Agenda.

We have examined the relevant records and information systems of the

Insurer and have obtained all information, explanations and representations

from the Chief Executive Officer /Chief Investment Officer/ Chief Technology

Officer/Chief Information Officer, which to the best of our knowledge and

belief were necessary for the purpose of our examination.

Based on our examination, in our opinion and to the best of our information

and according to the explanations given to us, subject to the following

serious non-compliances:

1. ----------------------------------------------------------------------

2. ----------------------------------------------------------------------

We report that:

1. The Insurer has complied with the applicable IRDA Regulations,

Guidelines and Circulars and the Insurer’s Investment Policy

Format of Internal/Concurrent Audit Report on Investment…

2. All investment transactions of the insurer are in compliance with the

procedure laid down in the SOP approved by the Investment

Committee, covering Front, Mid and Back Offices.

3. The Insurer’s Board of Directors:

(a) has approved and implemented a Model Code of Conduct, for

preventing insider / personal trading, complying the minimum

requirement mandated under SEBI (Prohibition of Insider

Trading) Regulations, 1992, as amended from time to time for

Officers involved in Investment Operations at various levels,

including Front, Mid and Back Office to whom the code of

conduct applies.

(b) during the quarter under audit, has been informed by the

Investment Committee of its compliance with the Model Code of

Conduct and has taken action as recommended by the Audit

Committee.

for Purchase / Sale of investments and acted upon all the

unmatched open items. We also confirm that there are no longer

open items pending for more than 15 days.

(d) has valued the debt investment portfolio based on the valuation

matrix provided by a SEBI approved Rating Agency, as

approved by its Investment Committee. We also confirm that

there is no change in the valuation matrix adopted during the

quarter from that of the previous quarter.

(e) has taken cognizance of, addressed and resolved all issues of

non-compliance, reported in FORM 4 (Part - B) on Status of

Implementation of Investment Risk Management Systems and

the issues reported by the Internal/Concurrent auditors in the

previous periods, subject to ……………………..(report if any

unresolved issues remain)

4. The key areas of non-mitigated/residual risk resulting from deficient

compliance with a risk management implication as identified by us are

given in Annexure I appended to this Report. Further, we have given

the list of non-conformities / non-confirmations to the stated audit

Technical Guide

objectives with appropriate classification of the nature of non-

conformance and our recommendations thereon in Annexure II

appended to this Report.

This report is issued solely for use of the Insurer for submission to IRDA

pursuant to IRDA (Investment)(Fifth Amendment) Regulations, 2013.

For…………………………………………

Chartered Accountants

(Firm Registration No. ………………..)

Place:

Date: Partner

[ICAI membership number]

Encl: As above

Format of Internal/Concurrent Audit Report on Investment…

Annexure - I

Please include current audit findings and unresolved prior audit issues in

the table below.

Nature of

Observation

Business

Impact

Risk

Weight

Overall

Rating

Description

of Risk

Rating

From report

A. INVESTMENT IMPACT IS RATED AS UNDER

High Impact (Value 3) – Any observation that is

1. Non-compliance with the provisions of the Insurance Act, IRDA

Investment Regulations and guidelines & circulars issued thereunder

2. Non-compliance to implementation of model code of conduct, as

approved by Insurer’s Board, for preventing insider / personal trading,

of Officers involved in Investment Operations at various levels,

including Front, Mid and Back Office

3. Any other issue that the Auditors may decide to be of high impact on

business operations

Medium Impact (Value 2) - Any other issue that the Auditor’s may decide to

be of Medium impact on business operations

SAMPLE INSTANCES

1. Non compliance to SOP / Investment Policies of the insurer

2. Non Compliance to any other statutory Act other than IRDA and

Insurance Act

3. Any other observation which an auditor is of the opinion causes

medium impact on Business Operations

Technical Guide

Low Impact (Value 1) - Any other issue that the Auditor’s may decide to be

of low impact on business operations

SAMPLE INSTANCES

1. Procedural level non compliance to SOP / Investment Policies of the

insurer

2. Subject to internal ratifications and approvals (and where such

ratifications/approval has since been obtained)

3. Any observation that has been rectified during the audit and that does

not involve an issue relating to a high or medium classification

mentioned above

B. RISK WEIGHT MATRIX

Procedure/ Control is

available Procedure/ Control is

adhered to Risk Weight

Y Y 1

N Y 2

Y N 3

N N 4

Overall Rating = Investment Impact X Risk Weight

C. DESCRIPTION OF RISK RATING

Overall Rating Description

1-3 No Need to Report to IRDA

4-5 Procedural Non Compliance

6-9 Serious Non Compliance

10-12 Very Serious Non Compliance

Format of Internal/Concurrent Audit Report on Investment…

Annexure – II

Audit Report / Confirmations

The Auditor shall report on Insurer’s compliance to EACH of the

following points WITHOUT EXCEPTION. If there is no observation for

any of the below-mentioned points, the Auditor shall clearly record a

‘NIL’ statement to that effect.

Part A Transactions during the Quarter NOT covered by SOP

Part B Transaction with different SOP, but falling under the same / single

Category (as per IRDA guidelines on Category of Investment), or under

different fund(s)

Part C Issues having impact on Systems or Process NOT covered by SOP

along with procedure for handling such issues in Front, Mid and Back Office

Part D Transactions which have breached

1. Internal Norms (including transactions that have breached insider /

personal trading guidelines issued by the Insurer’s Board)

2. Regulatory Norms (including Circulars & Guidelines issued from time

to time)

3. Act (Violations)

Part E Issues having impact on the Systems or Process, currently

COVERED by SOP but requires amendment (along with suggested

amendment to the SOP covering Front, Mid and Back Office)

Part F Issues identified and resolved having NO impact on Systems or

Process

Part G CONFIRMATIONS ON:

A. POLICY / SYSTEMS / PROCEDURE

1. Has the Insurer, having not less than Rs. 500 Crores of Assets Under

Management (both Shareholders and Policyholders funds, under ALL funds)

complied with Regulation 13 (C) (2) of IRDA (Investment) (5th Amendment)

Regulations, 2013 and Point 11 and 12 of Annexure II to Circular

Technical Guide

INV/CIR/008/2008-09 Dt. 22nd Aug, 2008 with respect to Outsourcing of

Investment Advice and NAV Calculation?

2. Has the primary data server of the Investment Management

Application within the Country?

3. Has the Insurer implemented an automated system to comply with

exposure norms as certified by the CEO, CIO and CFO under Section I, II, III

and IV of FORM 4? If the Insurer had not established such automated

Systems, the Internal / Concurrent Auditor shall attach a separate note to

the Audit Report explaining how exposure norms are monitored by the

Insurer on a day to day basis.

4. Has the Investment Policy (IP) (fund wise in the case of Unit linked

business) been approved by the Insurer’s Board and has addressed all

issues required under IRDA (Investment) Regulations, 2000, as amended

from time to time?

5. Has the Insurer classified various Risks for Investment impact

reporting? Has the same been approved by Audit Committee of or Risk

Management Committee?

6. Has the Insurer, taken any Derivative position in the Quarter under

audit? If yes;

a. Has the Derivative Policy been approved by the Board of the Insurer?

b. If yes, is there a process for identifying the risk to be ‘hedged’ [‘fund-

wise’ in the case of Life Insurers]

c. Has the derivative position taken clearly identified with the portfolio

risk to be hedged?

7. Has the IP been periodically reviewed, as required under IRDA

(Investment) Regulations, 2000, as amended from time to time?

8. Has the Board reviewed (both life and non-life Insurers) during the

previous quarter the performance of products [at line of business level in

the case of General Insurers]?

9. Has the life insurer, in the case of ULIP business, reconciled through

the system the premium received (net of charges and benefits paid) under

each product (Unique Identification Number – UIN wise) with value of all the

segregated fund(s) [Segregated Fund Identification Number – SFIN wise] net

Format of Internal/Concurrent Audit Report on Investment…

of fund management charges, held under a single UIN, on a day to day

basis, during the quarter?

10. Has the life insurer disclosed UIN wise reconciliation, on the Insurer’s

website on the same day?

11. Is there a fully automated system to generate, on a day to day basis,

Form 3A - Part E (Investment Details of ULIP Products to Segregated

Funds)?

12. Has the life insurer, for his Unit linked Policyholders, implemented a

System through his Policyholder Portal, to disclose “value” of “policy-

wise (UIN)” “units” held alongside the benefits as per “benefit illustration”

provided to such Policyholder?

13. Has the life insurer established a System to disclose fund wise (SFIN

wise) NAV on the Insurer’s website and Life Insurance Council website on

the same day?

14. Have the amendments, if any, made to the IP comply with IRDA

(Investment) Regulations, 2000 amended from time to time, Circulars and

Guidelines issued thereunder and provisions of Insurance Act, 1938?

15. Is there an automated System to classify investments as per the IRDA

Category of Investments as per Guidelines: INV/GLN/001/2003-04, as

amended from time to time?

16. In the case of Life Insurers, with respect to ULIP business, is the

Investment Trial Balance, in respect of each ‘Segregated Fund’ [with clear

link to Segregated Fund Identification Number (SFIN)] generated through

the system?

17. With respect to Discontinued Policy Fund (DPF) and for ‘each’

Segregated Fund in the case of ULIP business, has reconciliation of “Units”

been made, between Policy Admin System (PAS) and Investment Accounting

Systems through a fully automated System using process integrators to

ensure seamless data transfer without manual intervention?

18. Is there a clear segregation of functions and activities of Investment

operations between Front, Mid and Back Office, as provided in the

Technical Guide on Internal / Concurrent Audit of Investment functions

of Insurance Companies, issued by ICAI?

Technical Guide

19. Does the Chief Investment Officer (CIO) and Chief Financial Officer

(CFO) report independently to the Chief Executive Officer (CEO)?

20. Had the Insurer disclosed the reconciliation as required under

Annexure II of IRDA/F&I/CIR/INV/067/04/2013 Dt. 1st Apr, 2013 on Insurer’s

website on a day-to-day basis w.e.f 1st October, 2013? And has such

reconciliation been disclosed on a monthly basis till such automation?

21. Is the Insurer’s Policy Admin System (PAS) `automated’ for tracking

`policy-wise’, information of discontinued policies along with the information

of the particular ULIP fund to which the same pertains?

B. CONFIRMATION ON PROVISIONS OF ACT / REGULATIONS

1. Has all investment been made in compliance with Section 27C of

Insurance Act, 1938?

2. Are Money Market Investments classified as per Regulation 2(h) of

IRDA (Investment) Regulations, 2000 as amended from time to time?

3. Does the policyholders’ fund under the ‘Life Fund’ include “Non-unit”

reserve of ULIP Business?

4. Has the Insurer reported material adverse impact, if any on the

investment portfolio as required under Regulation 8 of IRDA (Investment)

Regulations, 2000?

5. Does each ‘Segregated fund’ [SFIN] have identifiable ‘Scrips’ in

compliance of Circular: INV/CIR/020/2008-09, Dated: 11th Nov, 2008 – Anx

6. Has the same been identified at custodian level, by separate sub code,

for such ‘Segregated Fund’ (Ref: INV/CIR/008/2008-09 Dt. 22nd Aug, 2008)?

7. Has the Insurer complied fully with the directions of circular:

IRDA/CIR/INV/062/JAN/05 dated 17th Jan, 2005?

8. Has the insurer complied with ALL the Guidelines/circular issued from

time to time by IRDA?

9. Has the total investments made in ALL “Companies falling under the

Promoter Group of the Insurer” is:

(a) less than 5% in aggregate of its total investments (all funds taken

together in the case of Life Insurer)?

Format of Internal/Concurrent Audit Report on Investment…

(b) Not been made by way of Private Placement?

10. Does the Insurer comply with the provisions of Section 29(1) of

Insurance Act 1938?

11. Does the insurer comply with the NPA norms as prescribed vide CIR

No: 32/2/F&A/CIR/169/Jan/2006-07 as amended from time to time?

12. Has ‘every’ write-off arising out of NPAs been approved by the Board

of the Insurer?

13. Has the insurer complied with the norms of ‘Approved Investments’

under Schedule I / (Schedule 2 for General Insurers) read along with

Regulation 3 and 4 of IRDA (Investment) (4th Amendment) Regulations,

2008, as amended from time to time?

14. Has the insurer complied with ALL the norms mentioned under Note to

Regulation 5 of IRDA (Investment) (4th Amendment) Regulations, 2008, as

amended from time to time?

15. Are all investments in ‘infrastructure’ fully covered by the definition of

‘infrastructure facility’ vide Section 2(h) of IRDA (Registration of Indian

Insurance Companies) Regulations, 2000, as amended from time to time?

C. CONFIRMATION ON INVESTMENT OPERATIONS / EXPOSURE

1. Has the Insurer implemented a System to ensure that the Investment

Returns to be filed with IRDA are prepared as per the “Guidance Note on

preparation of Investment Returns” issued by IRDA? [The Internal /

Concurrent Auditor shall make a specific comment on this point]

2. Has the insurer, under Shareholders funds, clearly split Funds

Representing Solvency Margin (FRSM) in FORM 3A (Part A)?

3. Has the insurer, reconciled investment accounts, fund-wise, with bank

and custodian records on a ‘day-to-day basis for ‘each’ segregated fund?

4. Has the Insurer reconciled Govt. Securities and CBLO holding,

operated through a common account and allocated between various

segregated fund wise [SFIN] at the inception?

5. In connection with the model code of conduct, as approved by the

Board of the Insurer, implemented to prevent Insider / personal trading:

Technical Guide

(a) Were there any instances of violation of the model code of conduct

during the Quarter under Audit?

(b) Have the details of violations, if any, during the previous quarter(s),

been reported to the Audit Committee and Board of the Insurer?

implemented?

6. Whether the following minimum has been reported to the board during

the Quarter product wise by Life Insurers & Line of business wise by General

Insurers:

(a) New business scale planned versus actual at the end of the period1 to

maturity

(b) Expenses projected versus actual

(d) Claims - projected versus actual

(e) Actual Yield versus projected yield or returns

(f) Action plan and follow up status

7. Has the insurer, reconciled investment accounts, for each fund in the

case of Non-ULIP Business and General Insurance Business with Custodian

Books?

8. Has inter-fund transfer been done as per circular IRDA/FA/02/10/2003-

04, between ULIP funds, during Market Hours, for Equity and Debt at the

prevailing price and not on the basis of broker quote?

9. If funds are split as per point 3 above between FRSM and Balance,

have the same been maintained in separate custodian accounts with

identified ‘scrips’ for both Life and General (including Re-insurance)

companies and reconciled with FORM 3A (Part A) / FORM 3B?

10. If funds are split as per point 8 above, do such funds, representing

solvency margin, follow the pattern of Investments as prescribed under

Regulations?

11. Is there any shortfall / deficit in meeting the Discontinued Policies

Fund (DPF) liabilities?

Format of Internal/Concurrent Audit Report on Investment…

12. Has the Write-Off of NPA, if any, shown in FORM 7 of IRDA

(Investment) Regulations, 2000 as amended from time to time, been

approved by the Insurer’s Board?

13. Has the Insurer provided for such shortfall / deficit and earmarked

Assets for such shortfall from revenue account on a quarterly basis?

ANNEXURES

Annexure ‘A’

STANDARD OPERATING PROCEDURE (SOP)

(The following are the minimum requirements to be adhered to as per IRDA

directive)

(LIFE INSURERS)

(Periodicity of Verification - Quarterly)

A. GENERAL FRAME WORK

1. Investment policy Governance framework

2. Delegation of Authority – at different levels

3. Accounting conventions and standards

4. Valuation and Unit pricing frameworks

5. Internal & Regulatory reporting

6. Risk management practices

7. Classification of Risks, for Investment Impact Reporting, between High,

Medium and Low

B. REGULATORY FRAMEWORK

1. Insurance Act, 1938

2. IRDA Regulations, Circulars and Guidelines made there under.

C. INTERNAL ADMINISTRATION

1. Committee(s) formed to monitor / manage the following key areas of

Investment Operations

a. Liability and Asset Management

b. Operational Risk Management

c. Market Risk Management

d. Credit Risk Management

e. Technology Management

Technical Guide

2. Structure – Front, Mid and Back Office segregation of functions (Minimum

segregation shall be as provided in Annexure H of this Technical Guide

under “Segregation of Duties in Front / Mid and Back Office”)

3. Counter Party Management

4. Broker Management

5. Model Code of Conduct to prevent insider / personal trading (in

compliance with SEBI (Prohibition of Insider Trading) Regulation, 1992 as

amended from time)

6. Custodial Services Management

7. MIS including frequency

D. INTERNAL CONTROL

1. Chief Investment Officer (CIO), Chief Financial Officer (CFO) and

reporting matrix

2. Segregation of responsibilities

3. Limit Management

4. Procedure for making Investment (for each Category of Investment – as

per IRDA Guidelines, along with activities carried out in Front, Mid & Back

Office) The procedure or its subsequent amendment shall be approved by

the Investment Committee of the Insurer.

5. Deal execution controls

6. Periodic credit review

E. TECHNOLOGY MANAGEMENT

1. Information security policy including application and database security

policies

2. Historical and Transactional data management

3. System support

a. Deal execution including STP

b. Limit and alert management

c. Risk management

d. Internal controls

Annexure ‘A’

e. Blocking/Locking transactions

4. Access and Process control management

5. Disaster recovery strategy and Business Continuity plan

F. SOP MANAGEMENT

1. Employee education: Training and Cross training

2. Controlling procedural drift

(System to monitor SOP regularly by tracking the opportunities which

require SOP to be tweaked for appropriate modification in it)

3. Evaluation and review system

Technical Guide

STANDARD OPERATING PROCEDURE (SOP)

(The following are the minimum requirements to be adhered to as per IRDA

directive)

NON LIFE INSURERS

(Periodicity of Verification - Quarterly)

A. GENERAL FRAME WORK

1. Investment policy Governance framework

2. Delegation of Authority – at different levels

3. Accounting conventions and standards

4. Internal & Regulatory reporting

5. Risk management practices

6. Classification of Risks, for Investment Impact Reporting, between High,

Medium and Low

B. REGULATORY FRAMEWORK

1. Insurance Act, 1938

2. IRDA Regulations, circulars and guidelines made there under.

C. INTERNAL ADMINISTRATION

1. Committee(s) shall be formed to monitor / manage the following key areas

of Investment Operations

a. Liability and Asset Management

b. Operational Risk Management

c. Market Risk Management

d. Credit Risk Management

e. Technology Management

2. Structure – Front, Mid and Back Office segregation of functions (Minimum

segregation shall be as provided in Annexure H of this Technical Guide

under “Segregation of Duties in Front / Mid and Back Office”)

Annexure ‘A’

3. Counter Party Management

4. Broker Management

5. Model Code of Conduct to prevent insider / personal trading (in

compliance with SEBI (Prohibition of Insider Trading) Regulation, 1992 as

amended from time)

6. Custodial Services Management

7. MIS including frequency

D. INTERNAL CONTROL

1. Chief Investment Officer (CIO), Chief Financial Officer (CFO) and

reporting matrix

2. Segregation of responsibilities

3. Limit management

4. Procedure for making Investment (for each Category of Investment – as

per IRDA Guidelines, along with activities carried out in Front, Mid & Back

Office) The procedure or its subsequent amendment shall be approved by

the Investment Committee of the Insurer.

5. Deal execution controls

6. Periodic credit review

E. TECHNOLOGY MANAGEMENT

1. Information security policy including application and database security

policies

2. Historical and Transactional data management

3. System support

a. Deal execution including STP

b. Limit and alert management

c. Risk management

d. Internal controls

e. Blocking/Locking transactions

4. Access and Process control management

Technical Guide

5. Disaster recovery strategy and Business Continuity plan

F. SOP MANAGEMENT

1. Employee education: Training and Cross training

2. Controlling procedural drift

(System to monitor SOP regularly by tracking the opportunities which require

SOP to be tweaked for appropriate modification in it)

3. Evaluation and review system

Annexure ‘B’

PERMITTED ASSETS CATEGORY

Schedule I

(See Regulation 3 to 6)

List of Approved Investments for Life Business

‘Approved Investments’ for the purposes of section 27A of the Act shall consist of

the following:

(a) all investments specified in section 27A of the Act except

(i) clause (b) of sub-section (1) of section 27A of the Act;

(ii) first mortgages on immovable property situated in another country

as stated in clause (m) of sub-section (1) of section 27A of the Act;

(iii) Immovable property situated in another country as stated in clause

(n) of sub-section (1) of section 27A of the Act.

(b) In addition the following investments shall be deemed as approved

investments by the Authority under the powers vested in it vide clause (s) of sub-

section (1) of section 27A of the Act.

(i) All loans secured as required under the Act, rated debentures

(including bonds) and other rated & secured debt instruments as

per Note appended to Regulation 3 to 8. Equity shares and

preference shares and debt instruments issued by all India

Financial Institutions recognized as such by Reserve Bank of India

– investments shall be made in terms of investment policy

guidelines, benchmarks and exposure norms, limits approved by

the Board of Directors of the insurer.

(ii) Bonds or debentures issued by companies rated not less than AA

or its equivalent and P1 or equivalent ratings for short term bonds,

debentures, certificate of deposits and commercial papers by a

credit rating agency, registered under SEBI (Credit Rating

Agencies) Regulations 1999 would be considered as ‘Approved

Investments’.

(iii) Subject to norms and limits approved by the Board of Directors of

the insurers deposits (including fixed deposits as per section 27A

Technical Guide

(9) of Insurance Act, 1938) with banks (e.g. in current account, call

deposits, notice deposits, certificate of deposits etc.) included for

the time being in the Second Schedule to Reserve Bank of India

Act, 1934 (2 of 1934) and deposits with primary dealers duly

recognized by Reserve Bank of India as such.

(iv) Collateralized Borrowing and Lending Obligations (CBLO) created

by the Clearing Corporation of India Ltd and recognized by the

Reserve Bank of India and exposure to Gilt, G Sec and liquid

mutual fund forming part of Approved Investments as per Mutual

Fund Guidelines issued under these regulations and money market

instrument / investment.

(v) Asset Backed Securities with underlying Housing loans or having

infrastructure assets as underlying as defined under ‘infrastructure

facility’ in clause (h) of regulation 2 of Insurance Regulatory and

Development Authority (Registration of Indian Insurance

Companies) Amendment Regulations, 2008 as amended from time

to time.

(vi) Commercial papers issued by a company or All India Financial

Institution recognized as such by Reserve Bank of India having a

credit rating by a credit rating agency registered under SEBI

(Credit Rating Agencies) Regulations 1999.

(vii) Money Market instruments as defined in Regulation 2(h) of these

Regulation.

Explanation

1. All conditions mentioned in the ‘note’ appended to Regulation 3 to 8 shall

be complied with.

Annexure ‘B’

Schedule II

(See Regulation 7 & 8)

List of Approved Investments for General Business

‘Approved Investments’ for the purpose of section 27B of the Act shall consist of

the following:

(a) All investments specified in section 27B of the Act except

(i) clause (b) of sub-section (1) of section 27A of the Act;

(ii) Immovable property situated in another country as stated in clause

(n) of sub-section (1) of section 27A of the Act;

(iii) First mortgages on immovable property situated in another country

as stated in clause (i) of sub-section (1) of section 27B of the Act.

(b) In addition the following investments shall be deemed as approved

investments by the Authority under the powers vested in it vide clause (j) of sub-

section (1) of section 27B of the Act:

(i) All loans secured as per the Act, rated debentures (including

bonds) and other rated & secured debt instruments as per Note

appended to Regulations 3 to 8. Equity shares, preference shares

and debt instruments issued by All India Financial Institutions

recognized as such by Reserve Bank of India – investments shall

be made in terms of investment policy guidelines, benchmarks and

exposure norms, limits approved by the Board of Directors of the

insurer.

(ii) Bonds or debentures issued by companies rated not less than AA

or its equivalent and P1 or Equivalent ratings for short term bonds,

debentures, certificate of deposits and commercial papers by a

credit rating agency, registered under SEBI (Credit Rating

Agencies) Regulations 1999 would be considered as ‘Approved

Investments’.

(iii) Subject to norms and limits approved by the Board of Directors of

the insurers deposits (including fixed deposits as per section 27B

(10) of Insurance Act, 1938) with banks (e.g. in current account,

call deposits, notice deposits, certificate of deposits etc.) included

for the time being in the Second Schedule to Reserve Bank of India

Act, 1934 (2 of 1934) and deposits with primary dealers duly

recognized by Reserve Bank of India as such.

Technical Guide

(iv) Collateralized Borrowing & Lending Obligations (CBLO) created by

the Clearing Corporation of India Ltd and recognized by the

Reserve Bank of India and exposure to Gilt, G Sec and liquid

mutual fund forming part of Approved Investments as per Mutual

Fund Guidelines issued under these regulations and money market

instrument / investment.

(v) Asset Backed Securities with underlying Housing loans or having

infrastructure assets as underlying as defined under ‘infrastructure

facility’ in clause (h) of regulation 2 of Insurance Regulatory and

Development Authority (Registration of Indian Insurance

Companies) Amendment Regulations, 2008 as amended from time

to time.

(vi) Commercial papers issued by a company or All India Financial

Institution recognized as such by Reserve Bank of India having a

credit rating by a credit rating agency registered under SEBI (Credit

Rating Agencies) Regulations 1999

(vii) Money Market instruments as defined in Regulation 2(h) of this

Regulation.

Explanation:

1. All conditions mentioned in the ‘note’ appended to Regulation 3 to 8 shall

be complied with.

Note:

1. Investments covered under Section 27A and 27B and Approved

Investments under Schedule I & II of IRDA (Inv) Regulations, are

summarised and ‘Grouped’ into various Categories in the Guidelines

provided by IRDA with Category codes.

2. The asset categories are “exhaustive” as per IRDA Guidelines. No new

asset category can be included, unless it is permitted by IRDA.

Annexure ‘C’

PATTERN OF INVESTMENTS

(Periodicity of Verification – For every transaction)

LIFE INSURANCE

Regulation of Investments

3. A life insurer, for the purpose of these Regulations, shall invest and at all

times keep invested, the Investment Assets forming part of the Controlled Fund

as defined in Section 27A of the Act as under:

a. all funds of Life insurance business and One Year Renewable pure

Group Term Assurance Business (OYRGTA), and non-unit reserves of all

categories of Unit linked life insurance business, as per Regulation 4

b. all funds of Pension, Annuity and Group Business [as defined under

Regulation 2 (d) of IRDA (Actuarial Report and Abstract) Regulations,

2000] as per Regulation 5; and

c. the unit reserves portion of all categories of Unit linked funds, as per

Regulation 6

4. Without prejudice to Sections 27 or 27A of the Act, every insurer carrying

on the business of Life Insurance, shall invest and at all times keep invested his

Investment Assets as defined in Regulation 3 (a) (other than funds relating to

Pension & General Annuity and Group Business and unit reserves of all

categories of Unit Linked Business) in the following manner:

No Type of Investment Percentage to

funds as under

Regulation 3(a)

(i) Central Government Securities Not less than

25%

(ii) Central Government Securities, State Government

Securities or Other Approved Securities

Not less than

50%

(incl (i) above)

(iii)

Approved Investments as specified in Section 27A

of the Act and Other Investments as specified in

Not exceeding

50%

Technical Guide

No Type of Investment Percentage to

funds as under

Regulation 3(a)

(iv)

Section 27A(2) of the Act and Schedule I to these

Regulations, (all taken together) subject to

Exposure / Prudential Norms as specified in

Regulation 9:

Other Investments as specified under Section 27A

(2) of the Act, subject to Exposure / Prudential

Norms as specified in Regulation 9:

Not exceeding

15%

(v) Investment in housing and infrastructure by way of

subscription or purchase of:

A. Investment in Housing

(a) Bonds / debentures of HUDCO and National

Housing Bank

(b) Bonds / debentures of Housing Finance

Companies either duly accredited by National

Housing Banks, for house building activities,

or duly guaranteed by Government or

carrying current rating of not less than ‘AA’

by a credit rating agency registered under

SEBI (Credit Rating Agencies) Regulations,

1999

housing loans, satisfying the norms specified

in the guidelines issued under these

regulations from time to time.

B. Investment in Infrastructure

(Explanation: Subscription or purchase of Bonds /

Debentures, Equity and Asset Backed Securities

with underlying infrastructure assets would qualify

for the purpose of this requirement.

‘Infrastructure facility’ shall have the meaning as

given in clause (h) of regulation 2 of Insurance

Regulatory and Development Authority (Registration

of Indian Insurance Companies) Amendment

Regulations, 2008 as amended from time to time

Total Investment

in housing and

infrastructure

(i.e.,) investment

in categories (i),

(ii), (iii) and (iv)

above taken

together shall not

be less than 15%

of the fund under

Regulation 3(a)

Annexure ‘C’

No Type of Investment Percentage to

funds as under

Regulation 3(a)

Note: Investments made under category (i) and (ii)

above may be considered as investment in housing

and infrastructure, provided the respective

government issues such a security specifically to

meet the needs of any of the sectors specified as

‘infrastructure facility’

5. Without prejudice to Sections 27 or 27A of the Act, every insurer carrying

on Pension, Annuity and Group Business [as defined under Regulation 2 (d) of

IRDA (Actuarial Report and Abstract) Regulations, 2000] shall invest and at all

times keep invested his Investment Assets of Pension, Annuity and Group

business in the following manner:

No Type of Investment Percentage to

funds under

Regulation 3(b)

(i) Central Government Securities Not less than

20%

(ii) Central Government Securities, State Government

Securities or Other Approved Securities

Not less than

40%

(incl (i) above)

(iii) Balance to be invested in Approved Investments, as

specified in Schedule I, subject to Exposure /

Prudential norms as specified in Regulation 9.

Not exceeding

60%

Note: For the purposes of this regulation no investment falling under ‘Other

Investments’ as specified under 27A (2) of the Act shall be made”

6. Unit Linked Insurance Business: - Every insurer shall invest and at all

times keep invested his segregated fund(s) under Regulation 3(c) (with

underlying securities at custodian level) of Unit linked business as per pattern of

investment offered to and approved by the policy-holders where the units are

linked to categories of assets which are both marketable and easily realizable.

However the investment in Approved Investments shall not be less than 75% of

such fund(s) in each such segregated fund”

Technical Guide

GENERAL INSURANCE (INCLUDING RE-INSURERS)

Regulation of Investments

7. General Insurance Business – without prejudice section 27B of the Act,

every General insurer (including Health insurer) shall invest and at all times keep

invested his investment assets in the manner set out below:

No Type of Investment Percentage of

Investment

Assets

(i) Central Government Securities

Not less than

20%

(ii) Central Government Securities, State Government

Securities or Other Approved Securities

Not less than

30%

(incl (i) above)

(iii)

(iv)

Approved Investments as specified in Section 27B of

the Act and Other Investment as specified in Section

27B(3) of the Act and Schedule II to these

Regulations, (all taken together) subject to Exposure

/ Prudential Norms as specified in Regulation 9:

Other investments as specified under Section 27B

(3) of the Act, subject to Exposure / Prudential

Norms as specified in Regulation 9:

Not exceeding

70%

Not more than

25%

(v)

Housing and loans to State Government for Housing

and Fire Fighting equipment, by way of subscription

or purchase of:

A. Investments in Housing

(a) Bonds / Debentures issued by HUDCO,

National Housing Bank

(b) Bonds / debentures of Housing Finance

Companies either duly accredited by National

Housing Banks, for house building activities,

or duly guaranteed by Government or carrying

current rating of not less than ‘AA’ by a credit

rating agency registered under SEBI (Credit

Rating Agencies) Regulations, 1999

Total Investment

in housing (i.e.,)

investment in

categories (i), (ii),

(iii) and (iv) above

taken together

shall not be less

than 5% of the

Investment

Assets.

Annexure ‘C’

No Type of Investment Percentage of

Investment

Assets

Housing loans, satisfying the norms specified

in the Guidelines issued under these

regulations from time to time.

B. Investment in Infrastructure

(Explanation: Subscription or purchase of Bonds/

Debentures, Equity and Asset Backed Securities

with underlying infrastructure assets would qualify for

the purpose of this requirement.

‘Infrastructure facility’ shall have the meaning as

given in clause (h) of regulation 2 of Insurance

Regulatory and Development Authority (Registration

of Indian Insurance Companies) (Amendment)

Regulations, 2008 as amended from time to time.

Note: Investments made under category (i) and (ii)

above may be considered as investment in housing

or infrastructure, as the case may be, provided the

respective government issues such a security

specifically to meet the needs of any of the sectors

specified as ‘infrastructure facility’

Total Investment

in Infrastructure

(i.e.,) investment

in categories (i),

(ii), (iii) and (iv)

above taken

together shall not

be less than 10%

of the Investment

Assets.

8. Reinsurance Business – Every re-insurer carrying on re-insurance

business in India shall invest and at all times keep invested his investment

assets in the same manner as set out in Regulation 7

Note – For the purpose of Regulations 3 to 8:

1. All investment in assets or instruments, which are capable of being rated

as per market practice, shall be made on the basis of credit rating of such assets

or instruments. No approved investment shall be made in instruments, if such

instruments are capable of being rated, but are not rated

2. The rating should be done by a credit rating agency registered under SEBI

(Credit Rating Agencies) Regulations, 1999

3. Corporate bonds or debentures rated not less than AA or its equivalent

and P1 or equivalent ratings for short term bonds, debentures, certificate of

deposit and commercial paper, by a credit rating agency, registered under SEBI

Technical Guide

(Credit Rating Agencies) Regulations, 1999 would be considered as ‘Approved

Investments’

4. The rating of a debt instrument issued by All India Financial Institutions

recognized as such by RBI shall be of ‘AA’ or equivalent rating. In case

investments of this grade are not available to meet the requirements of the

investing insurance company, and Investment Committee of the investing

insurance company is fully satisfied about the same, then, for the reasons to be

recorded in the Investment Committee’s minutes, the Investment Committee may

approve investments in instruments carrying current rating of not less than ‘A+’

or equivalent as rated by a credit rating agency, registered under SEBI (Credit

Rating Agencies) Regulations, 1999, would be considered as ‘Approved

Investments’

5. Approved Investments under regulations 4, 5, 6, 7 and 8 which are

downgraded below the minimum rating prescribed should be automatically re-

classified under ‘Other Investments’ category for the purpose of pattern of

investment

6. Investments in equity shares listed on a registered stock exchange should be

made in actively traded and liquid instruments viz., equity shares other than

those defined as thinly traded as per SEBI Regulations and guidelines governing

mutual funds issued by SEBI from time to time

7 (a) Not less than 75% of investment in debt instruments (including Central

Government Securities, State Government Securities or Other Approved

Securities) in the case life insurer and not less than 65% of investment in debt

instruments (including Central Government Securities, State Government

Securities or Other Approved Securities) in the case of general insurer - shall be

in sovereign debt, AAA or equivalent rating for long term and sovereign debt,

P1+ or equivalent for short term instruments. This shall apply at segregated

fund(s) in case of Unit linked business.

(b) Not more than 5% of funds under Regulation 3 (a) and Regulation 3 (c) in

debt instruments (including Central Government Securities, State Government

Securities or Other Approved Securities) in the case of life insurer and not more

than 8% of investment in debt instruments (including Central Government

Securities, State Government Securities or Other Approved Securities) in the

case of general insurer – shall have a rating of A or below or equivalent rating for

long term

Regulation 3 (b)

Annexure ‘C’

(d) Investments in debt instruments rated AA - (AA minus) or below shall form

part of Other Investments

8 Notwithstanding the above, it is emphasized that rating should not replace

appropriate risk analysis and management on the part of the Insurer. The Insurer

should conduct risk analysis commensurate with the complexity of the product(s)

and the materiality of their holding, or could also refrain from such investments

Instruction to Internal / Concurrent Auditors:

1. Pattern of investments and exposure norms in the case of Unit Linked

funds (ULIPs) shall be calculated for each segregated fund (Segregated fund

identification number SFIN wise) and net current assets shall form part of

‘Approved investments’ for the purpose of pattern of Investments

2. Bank FDs, Mutual Funds, CBLO, Reverse Repo, Net investment current

assets, Venture funds, Derivative instruments, immovable property and any other

non-debt investments shall not be considered either in numerator or denominator

in calculating 75%/65% of investments in debt instruments (including Central

Government Securities, State Government Securities or Other Approved

Securities) to be in AAA rated investments.

Annexure ‘D’

INVESTMENT POLICY

(Periodicity of Verification – Annually)

1. INTRODUCTION

(a) The Investment Policy (IP) of the insurer shall be approved by the Board.

The IP requires to be reviewed at least half-yearly.

(b) The investment performance at SFIN level and product performance

requires to be reviewed by the Board

investment objectives & the planning for day-to-day investment

management, delegation of power to Investment Committee with respect

to ‘Operational’ matter on Investments.

(d) It should contain both the short-term and the long-term perspectives.

2. MINIMUM CONTENT OF INVESTMENT POLICY

(a) The insurer’s vision (investment related)

(b) Organizational structure of Investment Department

(d) Regulatory / Internal requirements (Hard and Soft Limits)

(e) Investment objectives (Fund wise)

(f) Preferable asset mix (within statutory patterns)

(g) Quarterly performance evaluation parameters

(h) Acceptable risk tolerance level

(i) Risk Management (Identification, Assessment, Measurement, Mitigation,

Monitoring and reporting)

(j) Valuation of all asset classes

(k) Internal Controls and Audit

(l) Quarterly Reporting parameters to Board both on Fund and Product

performance

Annexure ‘E’

INVESTMENT DEALS TESTING

(Periodicity of Verification – Every Deal)

A. INVESTMENT CUT OFF TESTING

1. Daily transaction register (DTR) for trades up to the end of quarter.

2. Daily trades file from Investment Accounting System

3. Confirmation from the custodians for trades done on last business day.

4. Deal tickets for the trades done on last business day.

B. INVESTMENT DEAL DATA CONTROL TESTING

1. Daily transaction register (‘DTR’) for the period from beginning of the

quarter to end of the quarter of buy and sell of equity, debt, G-Secs, derivatives,

Repos /Reverse Repos etc..

2. A complete transaction report of all the inter-scheme trades (involving all

types of securities) done during the audit period.

3. Deal tickets for the above trades.

4. Contract notes from brokers for the above trades.

5. Negotiated Dealer System (‘NDS’) output for the GOI trades.

6. Counter party confirmations for corporate debt deals other than inter-

scheme deals

7. Investment ledgers of the scrip involved in the trades.

8. Journal vouchers for identification of profit/loss booked from the

transaction.

Annexure ‘F’

INVESTMENT OF ULIP

(Periodicity of Verification – Every Investment)

PARTICULARS REMARKS

1. Obtain a copy of various ULIP products issued by the

Company during the life cycle of the Company

2. Obtain an understanding of process followed by the

Company for ULIP funds.

3. Obtain the product brochures and verify for any new unit

linked products launched by the Company

The auditor shall :

1. Review efficacy of the System & Process in place

2. Verify that the conversion charges including risk

premium are as per offer document

3. Verify reconciliation of Units & provide instant resolution

for differences, if any

4. Management of fund schemes is as per Investment

Objective of portfolio

5. Verify prompt allotment of deals to respective schemes

Inter-Scheme Transfer

The auditor shall:

1. check that the transfer is only between approved ULIP

schemes

2. check that there is no undue benefit to any portfolio

Verify the following based on Company Policy:

1. Allocation

2. Creation of units

3. Redemptions of units

4. calculation of NAV

5. Fund Management Fees Policy/Administration Charges

General procedures related to computation of NAV:

1. Verify whether investments are made within the

investment objective (defined in terms of asset

Annexure ‘F’

PARTICULARS REMARKS

allocation, strategy etc) for each scheme of the ULIP

business as defined in the Investment Policy

2. Verify that all investments are made within the provision

of IRDA and rules made thereunder

3. Verify whether unit reconciliation is carried out on daily

basis

4. Verify whether inter scheme transfer of investments is

made within the IRDA guidelines prescribed from time to

time.

5. Verify the process of computation of NAV.

6. Verify the following items leading to the computation of

NAV:

(a) Creation/redemption of units

(b) Accounting for investments

(d) Income recognition

(e) Reconciliation of Bank, Stock & units

(f) Valuation of investments

7. Verify that the investments are accounted on the trade

date basis and the accrual incomes are calculated from

the settlement basis.

8. Verify that the valuations are carried out as per the IRDA

guidelines.

9. Verify that the insurer does not invests in any security

those are readily realizable and marketable.

10. Verify that the valuation of unquoted and illiquid

investments is as per the valuation norms.

Annexure ‘G’

PROJECT / TERM LOANS

(Periodicity of Verification – Every Loan)

G. PRE – SANCTION

1. Scrutiny of request in the form of detailed proposal

2. Aggregate Credit Exposure to promoters, borrowers and industry

3. Integrity and reputation of borrowers or counterparties

4. Repayment history and repayment ability

5. Purpose of Loan and repayment plan

6. Technical, economic viability of the project

7. Projections and repaying capacity – ratios

8. Negotiations done for rates, if any

9. Justification by the sanctioning authority that the interest rate spread

available in the proposal is adequate to the risk associated in the

proposal.

10. Automatic re-classification of loans as ‘Other Investments’, which are not

covered with adequate ‘security’, as required by the Act.

11. Security Coverage (Movable & Immovable properties). If land is given as

security, then a Valuation Report (by an independent valuer) and a Legal

Report (by a lawyer) shall be insisted upon.

12. Documents obtained and whether these are vetted by Law Officer / Legal

Department.

13. Terms and conditions of credits including covenants or collateral to limit

changes in the future risk profile of borrowers.

14. Other details such as Cost of materials – Turnover, Audit report, IT

Returns.,

15. Existence of Internal approvals of the company for raising the loan (such

as board approval etc)

16. Promoter track record

Annexure ‘G’

17. Percentage of Promoter holding and percentage of promoter shares

already pledged

18. Put/Call options

19. Report from the bankers of the borrower

20. Third party guarantees and due diligence of guarantors

21. Approvals if the instrument is proposed to be listed

22. Credit Agency grading of borrowing, issue

H. POST – SANCTION

(a) Appropriateness of Holiday period to be given

(b) Minimum Capital Requirements - for major risks namely Credit Risk,

Market Risk and Operational Risk.

borrower to assess and monitor its capital adequacy and risk

management, as well as taking supervisory actions in an appropriate and

timely manner.

(d) Market Discipline

(e) Independent and on going credit review with accurate credit grading

appropriate amount and scope, and reporting to allow monitoring of risk

management.

(f) A well defined policy detailing the exposure norms, assessment of working

capital, the deployment ceiling for various industrial sectors, tenor specific,

project specific etc to avoid concentration risk.

(g) Listing requirements if the loan is proposed to be listed

I. POST – DISBURSAL PROCEDURE

(a) Repayment as per the plan

(b) Application of penalty interest

(d) Changes to Borrowing grading

(e) Filing of the periodical returns/information as agreed upon.

(f) Changes in constitution/structure of Board

Annexure ‘H’

SEGREGATION OF DUTIES (SOD)

FRONT OFFICE / MID OFFICE / BACK OFFICE

(Periodicity of Verification - Ongoing)

A. GENERAL

1. Front & Back Office Operations

(a) Insurer having Assets under Management (AUM) in excess of Rs.500

crores shall ensure separate personnel acting as fund manager and

dealer.

(b) The Investment System should have separate modules for Front and

Back Office.

without Manual intervention (Real time basis) i.e., without the need for

re-entering data at Back Office.

(d) The Insurer may have multiple Data Entry Systems, but all such

Systems should be seamlessly integrated without manual intervention.

(e) The Front Office shall report through the Chief Investment Officer

(CIO) to the Chief Executive Officer (CEO). The Mid Office and Back

Office, to be headed by separate personnel, shall be the overall

responsibility of Chief Financial Officer (CFO) who shall independently

report to the CEO.

2. Employee Dealing Guidelines

The Standard Operating Procedure followed by the Insurer shall clearly

specify the Guidelines to be adhered to by the Dealer That is the Insurer

shall clearly specify the Trading guidelines for Personal Investments of the

dealer. The compliance of this requirement shall be commented upon by the

Internal / Concurrent Auditor.

3. Maker Checker Process

Insurer should have the procedure of Maker / Checker mapped in their

Standard Operating Procedure / Operations Manual of Investment

Annexure ‘H’

Operations. The Internal / Concurrent Auditor shall comment on such

practice in his report.

4. Audit Trail At Data Entry Points

The Audit trail should be available for all data entry points including at the

Checker / Authorizer level.

5. Business Continuity Process

To ensure Business continuity, the Insurer should have a clear Off-site back-

up of data in a city falling under a different Seismic Zone, either on his own

or through a Service Provider. Further, the Insurer / service provider (if

outsourced) is required to have the necessary infrastructure for Mission

Critical Systems to address at least the following:

1. Calculation of daily NAV (Fund wise)

2. Redemption processing.

B. FRONT OFFICE

1. Segregation Of Fund Manager / Dealer

(a) Investment Department should have documented the segregation of

Fund Managers and Dealers through Authority Matrix as a part of its

‘Standard Operating Procedure’.

(b) The Insurer should have documented the Access Controls and

Authorization process for Orders and Deal execution.

maintaining the recorded conversation and their disposal including

procedure like no mobile phone usage in dealing rooms and other best

practices.

2. Investment In Investee / Group Company / Industry Sector

System based checks should be in place for investments in an Investee

Company, Group and Industry Sector. The system should signal when the

Internal / Regulatory limits are nearly reached PRIOR to taking such

exposure and making actual investment.

3. Inter Fund Transfer

The System should handle Inter Fund transfer as per Circulars issued by

IRDA from time to time. The Investment Committee may fix the Cut Off time

as per Market practice, for such transfer within the fund. (The inter fund

Technical Guide

transfer should be like any other Market deal and the same needs to be

carried out with in the Market hours only)

C. MID OFFICE

1. Market Risk

(a) The system should be capable of computing various portfolio returns.

(b) Regular limits monitoring and Exception Reporting. Also reporting on

movement of prices.

2. Liquidity Risk

(a) The Insurer should have a Cash Management System to provide the

funds available for Investment considering the settlement obligations

and subscription and redemption of units etc, to preempt any

leveraged position or liquidity risk.

(b) The System should be validated not to accept any commitment beyond

availability of funds.

3. Credit Risk

(a) The Investment System should capture Instrument Ratings to enable it

to automatically generate FORM 2 (Statement of Downgraded

Investments) through the System.

(b) System should automatically monitor various Regulatory limits on

Exposure & Rating.

period, and generate appropriate alerts, along with ability to classify

investments between Approved and Other Investments.

(d) The Insurer should conduct periodic credit reviews for all companies in

the portfolio. The periodicity should be clearly mentioned in the

Investment Policy.

(e) The Insurer is required to keep a track of movement of Securities

between Approved and Other Investments Status, as a part of Audit

trail, at individual security level.

4. Tracking Of Regulatory Limits

(a) The System should have key limits preset for ensuring compliance

with all Regulatory requirements and should be supported by workflow

Annexure ‘H’

through the System, (Real time basis) for such approval, if Regulatory

limit is close to being breached.

(b) The System should have capability of generating Exception reports for

Audit by Internal / Concurrent Auditor.

5. Review, Monitoring And Reporting

(a) The System should automatically track and report all internal limits

breaches. All such breaches should be audited by Internal /

Concurrent Auditor.

(b) Implementation and Review of Asset & Liability Matching and other

Investment Policy Guidelines.

D. BACK OFFICE

1. Data Input Error

The system should be validated in such a way, that the Deal can only be

rejected by the Back Office and not edited.

2. Settlement Risk

The System should be validated to restrict Short Sales at the time of placing

the order.

3. Computation of ‘NAV’

(a) The System should be capable of computing NAV and compare it with

the NAV computed by the Service provider, if outsourced.

(b) The Insurer should maintain NAV history (Fund wise) in his Public

Domain from the Start of the Fund to current date.

1. All expenses and incomes accrued up to the Valuation date

shall be considered for computation of NAV.

2. In case the NAV of a Plan differs by more than 1% due to non -

recording of the transactions or any other errors / mistakes, the

investors or fund(s) as the case may be, shall be paid the

difference in amount as follows:-

(i) If the investors are allotted units at a price higher than

NAV or are given a price lower than NAV at the time of

Technical Guide

sale of their Units, they shall be paid the difference in

amount by the plan.

(ii) If the investors are charged lower NAV at the time of

purchase of their units or are given higher NAV at the

time of sale of their units, the Insurer shall pay the

difference in amount to the Plan and shall be

compensated by non unit reserve of the ULIP funds.

(iii) The Internal / Concurrent Auditor shall look into the above

issues and specifically report on it and comment on the

Systems in place to take care of such issues on an

ongoing basis.

(iv) A log of NAV errors and the management action taken on

those errors shall be maintained in the System and be

forwarded to Internal / Concurrent Auditors.

4. Errors During Broker Execution Leg

All equity deals should be through STP gateway for all broker transactions.

5. Uploading Of Valuation Price Files

System to have capability to upload Corporate Actions such as Stock Splits,

Dividend, Rights Issue, Buy Back, Bonus issues etc., for computation of NAV

/ Portfolio valuation.

6. Reconciliation

(a) Fund wise, in the case of Life Insurers, reconciliation with Investment

Accounts, Bank, and Custodian records should be done on day-to-day

basis for all types of products. In the case of ULIP products, Units

reconciliation with Policy Admin Systems should be ensured on a day

to day basis.

(b) In the case of General Insurer / Re-insurer reconciliation with

Investment Accounts, Bank and Custodian records should be done on

a day-to-day basis.

MACRO FLOW OF INVESTMENT FUNCTIONS IN FRONT / MID / BACK OFFICE

MINIMUM SEGREGATION OF INVESTMENT FUNCTIONS

No PARTICULARS FRONT OFFICE (FO) MID OFFICE (MO) BACK OFFICE (BO)

1 Treasury

operation

a. Dealing in Primary G–

Sec, Secondary G–Sec

Bonds, FDs, Bonds, Mutual

Fund, Money market

instruments (Reverse Repos,

FD, CoD, CP, TB, CBLO etc)

etc as per the fund

objectives and ALM

requirement

a. Monitoring Exposure limits

analyzing credit and ALM

requirement of non linked

portfolios.

a. Disbursement of sanctions and

Settlements.

2 Corporate Debt

& Company

Matters

a. Investment decisions

and sanctions for

subscription to NCDs,

Bonds.

b. Participation in Rights,

Preferential Issues etc. IPO/

FBO, Buy back etc

a. Credit appraisal of

proposals related to Corporate

Debt/ Bonds IPO/ FBO Analysis

b. Research view on Rights,

Open Offer, Buy back, reduction

of interest rates/ prepayment of

NCDs

c. Matters relating to

Preferential Issues etc

a. IPO/ FBO/ Rights/ Preferential

issue – submission of application,

b. Execution of Agreements,

Creation Securities disbursement of

sanctions etc

3 Equity a. (Dealing) Buying and a. Price scanning and a. Broker settlement,

Technical Guide

No PARTICULARS FRONT OFFICE (FO) MID OFFICE (MO) BACK OFFICE (BO)

operations Selling including large

quantities, Strategies,

b. Mandate preparation &

approval from Competent

Authority (for Traditional and

ULIP funds)

c. Equity Research

confirmation. Broker Monitoring.

b. Revision of limits b. Daily business statements,

c. Matter related to SEBI, Press

release etc. Broker empanelment &

related matters

d. Set up of Buying and Selling

limits Sale of unquoted/ written down

stocks

4 All project

proposals of

Corporate,

Venture capital,

Securitization

etc)

a. Investment decisions

and sanctions for project

financial assistance, Venture

capital securitization etc

a. Appraisal of Project and

recommendation on sanction/

rejection including waiver of

financial and non–financial

conditions precedent

a. Execution of Agreement,

settlement, Security creation etc

5 Financial

assistance to

Govt. / Local

Authorities

a. Investment decisions

and sanctions for Financial

assistance to Govt. / Local

authorities

a. Credit appraisal of

proposals related to Govt. /

Local authorities Processing of

recall/ refinancing, Merger/

demerger/ acquisition etc

a. Execution of agreement, Security

creation, disbursement of sanctions etc

6 Restructuring

OTS, NPA and

follow–up with

a. Processing of

restructuring/ OTS proposals,

CDR issues and matters related

a. Follow–up with companies

regarding AGM, EGM, CGM etc.

Nominee Director matters etc

Annexure ‘H’

No PARTICULARS FRONT OFFICE (FO) MID OFFICE (MO) BACK OFFICE (BO)

corporate to corporate financial

assistance. Merger/ demerger,

acquisition etc

7 Accounting and

Establishment

a. IRDA Compliance,

submission of returns etc

General accounts, dividend accounting

(Including refunds), corporate actions,

Custodian reconciliation, valuation, Trial

Balance, Schedule preparation

submission of Final accounts Audit &

Inspection matters and Parliamentary

queries. All establishment matters

8 Risk

Management

a. Exposure norms, MIS

preparation, Investment policies

preparation/ review, concept

notes, Board notes employees

declaration etc

a. IC matters

9 Daily cash flow

statements and

investible funds

a. Assessment of

Investible funds

a. Cash flow statements for the next

day

10 Legal a. All matters concerning Legal

aspects of Investment and RTI Act

including settlement of legal expenses.

ppointment of Nominee/

Technical Guide

No PARTICULARS FRONT OFFICE (FO) MID OFFICE (MO) BACK OFFICE (BO)

Directors

11 Performance

Review

a. Reviewing the fund

performance vis-à-vis

Benchmarks and Peer group

selected for each fund

Reviewing the traditional fund

investments are as per Liability

Vs Assets Management

requirement and best suited

based on the movement of

interest rate and index

movement.

Annexure ‘I’

EXPOSURE / PRUDENTIAL NORMS

(Periodicity of Verification – Daily / Periodic intervals of time)

Without prejudice to anything contained in Sections 27A and 27B of the

Act every insurer shall limit his investment as per the following exposure

norms:

A. Exposure norms for investment assets of:

1. (a) all funds of Life insurance business and One Year

Renewable pure Group Term Assurance Business

(OYRGTA), and non-unit reserves of all categories of Unit

linked life insurance business

(b) all funds of Pension, Annuity and Group Business [as

defined under Regulation 2 (d) of IRDA (Actuarial Report

and Abstract) Regulations, 2000]

funds, as per Regulation 6” Life, Pension, Annuity and

Group business and each segregated fund within Unit

Linked Insurance business (except for promoter group

exposure)

2. General Insurance business,

3. Re-insurance Business

for both Approved Investments as per the Act, Schedule I and Schedule

II of these Regulations, and Other Investments as permitted under

27A(2) and 27B(3) of the Act shall be as under.

B. The maximum exposure limit for a single ‘investee’ company

(equity, debt and other investments taken together) from all investment

assets under point (A.1.a, A.1.b, A.1.c all taken together), (A.2) and (A.3)

mentioned above, shall not exceed the lower of the following;

(i) an amount of 10% of investment assets as under Regulation 2 (g)

(1), Regulation 2 (g) (2)

(ii) an aggregate of amount calculated under point (a) and (b) of the

following table

Technical Guide

Type of

Investment

(1)

Limit for

‘Investee’

Company

(2)

Limit for the

entire Group

of the Investee

Company

(3)

Limit for Industry

Sector to which

Investee

Company belongs

(4)

Investment in

‘Equity’,

Preference

Shares,

Convertible

Debentures

10%* of

Outstanding

Equity Shares

(Face Value)

10% of the

amount under

point A.1.(a) or

A.1.(b) or

A.1.(c) above

considered

separately in

the case of Life

insurers /

amount under

A.2 or A.3 in

the case of

General Insurer

/ Re-insurer

whichever is

lower

Not more than

15% of the

amount under

point A.1.(a) or

A.1.(b) or

A.1.(c) or A.2

or A.3 or 15%

of investment

Assets in all

companies

belonging to

the group,

whichever is

lower

Exposure to

Investments

made in

companies

belonging to

Promoter

Group shall be

made as per

Point 7 under

notes to

Regulation 9

Investment by the

insurer in any

industrial sector

should not exceed

15% of the

amount under

point A.1.(a) or

.1.

(

)

or A.1.

(

)

or A.2 or A.3 or or

15% of investment

Asset, whichever

is lower

Note: Industrial

Sector shall be

classified in the

lines of National

Industrial

Classification (All

Economic

Activities) - 2008

[NIC] for all

sectors, except

infrastructure

sector. Exposure

shall be calculated

at Division level

from A to R. For

Financial and

Insurance

Activities sector

exposure shall be

at Section level.

Exposure to

‘infrastructure’

Investment in

Debt / Loans

and any other

permitted

Investments

as per Act /

Regulation

other than

item ‘a’

above.

10%* of the

Paid-up Share

capital, Free

reserves

(excluding

revaluation

reserve) and

Debentures /

Bonds of the

‘Investee’

company

Annexure ‘I’

Type of

Investment

(1)

Limit for

‘Investee’

Company

(2)

Limit for the

entire Group

of the Investee

Company

(3)

Limit for Industry

Sector to which

Investee

Company belongs

(4)

10% amount

under point

A.1.(a) or

A.1.(b) or

A.1.(c) above

considered

separately in

the case of Life

insurers. An

amount under

A.2 or A.3 in

the case of

General Insurer

/ Re-insurer

whichever is

lower.

investments are

subject to Note: 1,

2, 3 and 4

mentioned below

*In the case of insurers having investment assets within the meaning of

Regulation 2 (g) (1) and Regulation 2 (g) (2) of the under mentioned size,

the (*) marked limit in the above table for investment in equity,

preference shares, convertible debentures, debt, loans or any other

permitted investment under the Act / Regulations, shall stand substituted

as under:

Investment assets Limit for ‘investee’ company

Equity Debt

Rs 250000 Crores or

15% of outstanding

equity shares (face

value)

15% of paid up share

capital, free reserves

(excluding revaluation

reserve) & debentures

/ bonds

Rs. 50000 Crores but

less than Rs. 250000

Crores

12% of outstanding

equity shares (face

value)

12% of paid up share

capital, free reserves

(excluding revaluation

Technical Guide

100

Investment assets Limit for ‘investee’ company

Equity Debt

reserve) & debentures

/ bonds

Less than Rs. 50000

Crores

10% of outstanding

equity shares (face

value)

10% of paid up share

capital, free reserves

(excluding revaluation

reserve) & debentures

/ bonds

Note:

1 Industry sector norms shall not apply for investments made in

‘Infrastructure facility’ sector as defined under Regulation 2(h) of

IRDA (Registration of Indian Insurance Companies) Regulations,

2000 as amended from time to time. NIC classification shall not

apply to investments made in ‘Infrastructure facility’

2 Investments in Infrastructure Debt Fund (IDF), backed by Central

Government as approved by the Authority, on a case to case basis

shall be reckoned for investments in Infrastructure.

3 Exposure to a public limited ‘Infrastructure investee company’ will

be 20% of outstanding equity shares (face value) in case of equity

(or) 20% of equity plus free reserves (excluding revaluation

reserve) plus debentures / bonds taken together, in the case of

debt (or) amount under Regulation 9 (B) (i), whichever is lower.

The 20% mentioned above, can be further increased by an

additional 5%, in case of debt instruments alone, with the prior

approval of Board of Directors. The outstanding tenure of debt

instruments, beyond the exposure prescribed in the above table, in

an infrastructure Investee Company, should not be less than 5

years at the time of investment. In case of Equity investment,

dividend track record as per Sec 27A (1) (l) and 27B (1) (h) of the

Act, in the case of primary issuance of a wholly owned subsidiary

of a Corporate / PSU shall apply to the holding company. However

all investments made in an ‘infrastructure investee company’ shall

be subject to group / promoter group exposure norms.

4 An insurer can, at the time of investing, subject to group / promoter

group exposure norms, invest a maximum of 20% of the project

cost (as decided by a competent body) of an Public Limited

Special Purpose Vehicle (SPV) engaged in infrastructure sector

(or) amount under Regulation 9 (B) (i), whichever is lower, as a

part of Approved Investments provided:

Annexure ‘I’

101

a. such investment is in Debt

b. the parent company guarantees the entire debt extended

and the interest payment of SPV

c. the principal or interest, if in default and if not paid within 90

days of the due date, such debt shall be classified under

other investments.

d. the latest instrument of the parent company (ies) has (have)

rating of not less than AA

e. such guarantee of the parent company (ies) should not

exceed 20% of net worth of parent company (ies) including

the existing guarantees, if any, given

f. the net worth of the parent company (ies), if unlisted, shall

not be less than Rs. 500 crores or where the parent

company (ies) is listed on stock exchanges having

nationwide terminals, the net worth shall not be less than

Rs. 250 Crores

Investment Committee should continuously evaluate the risk of

such investments and take necessary corrective actions where the

parent company (ies) is floating more than one SPV

5 Investment in securitized assets [Mortgaged Backed Securities

(MBS) / Asset Backed Securities (ABS) / Security Receipts (SR)

both under approved and other investment category shall not

exceed 10% of Investment Assets in case of Life companies and

5% of Investment Asset in the case of Non-life companies.

Approved Investment in MBS / ABS with underlying Housing or

Infrastructure Assets shall not exceed 10% of investment assets in

the case of life companies and not more than 5% of investment

assets in the case of non-life companies. Any MBS / ABS with

underlying housing or infrastructure assets, if downgraded below

AAA or equivalent, shall be reclassified as Other Investments.

6 Investment in immovable property covered under Section 27A (1)

(n) of the Act shall not exceed, at the time of investment, 5% of (a)

Investment Assets in the case of general insurer and (b) 5% of

Investment Assets of funds relating to life funds, pension, annuity

and group funds in the case of life insurer

7 Subject to exposure limits mentioned in the table above, an insurer

shall not have investments of more than 5% in aggregate of its

total investments in all companies belonging to the promoters’

groups. Investment made in all companies belonging to the

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102

promoters’ group shall not be made by way of private placement

(equity) or in unlisted instruments (equity, debt, certificate of

deposits and fixed deposits (without prejudice to Section 27A (9)

and Section 27B (10) of the Act) held in a Scheduled Commercial

Bank), except for companies formed by Insurers under Sec 27A

(4) or Sec 27B (5) of the Act.

8 The exposure limit for financial and insurance activities (as per

Section K of NIC classification – 2008) shall stand at 25% of

investment assets for all insurers.

9 Investment in fixed deposit and certificate of deposit of a

Scheduled Bank shall be made in terms of the provisions of

Section 27A (9) and Section 27B (10) of the Act. Such investments

would not be deemed as exposure to financial and insurance

activities (as per Section K of NIC classification - 2008).

FORM 4 – COMPLIANCE

I. Investee Company Exposure:

(a) Investment in equity, preference shares, convertible debenture:-

Exposure at any point of time did not exceed 10% of outstanding equity

shares (face value) or 10% of the amount under point Regulation 9

(A.1.(a) or A.1.(b) or A.1.(c) considered separately) of this Regulation, in

the case of Life insurers / an amount under Regulation 9 (A.2) or (A.3) of

this Regulation, in the case of General Insurer / Re-insurer whichever is

lower.

[In case of Infrastructure Co, the limit of 10% shall be read as 20%.

Where the investment assets of the insurer is Rs. 250000 Crores or

more, the limit of 10% shall be read as 15% of outstanding equity shares

(face value) or where the investment assets of the insurer is Rs.50000

Crores but less than Rs 250,000 Crores the limit of 10% shall be read as

12% of outstanding equity shares (face value)]

(b) Investment in Debt/ loans and any other permitted Investments as

per Act / Regulation, other than ‘Equity’, Preference Shares, Convertible

Debentures :-

Exposure at any point of time did not exceed 10% of the paid-up share

capital, free reserves (except revaluation reserve) and debenture / bonds

of the investee company or 10% of amount under point Regulation 9

(A.1.(a) or A.1.(b) or A.1.(c) above considered separately) of this

Regulation, in the case of Life insurers / an amount under Regulation 9

(A.2) or (A.3) of this Regulation, in the case of General Insurer / Re-

insurer whichever is lower.

Annexure ‘I’

103

[In case of Infrastructure Co, the limit of 10% shall be read as 20%.

Where the investment assets of the insurer is Rs. 250000 Crores or

more, the limit of 10% shall be read as 15% of paid up share capital, free

reserves (excluding revaluation reserve) and debenture / bonds or where

the investment assets of the insurer is Rs.50000 Crores but less than Rs

250,000 Crores the limit of 10% shall be read as 12% paid up share

capital, free reserves (excluding revaluation reserve) and debenture /

bonds]

company from all investment assets (Equity / Preference Shares /

Convertible Debenture / Debentures/ bonds / CPs / loans and any other

permitted debt Investments as per Act / Regulation), are within the limit

prescribed in Regulation 9 (B) (In case of Infrastructure Co, the limit of

10% shall be read as 20%)?

(d) Has debt investments made in infrastructure SPV have complied

with the limits, terms and conditions as mentioned in the Note: 4 of the

Investment Regulation 9?

(e) Investment in equity, preference shares, convertible debenture:-

Exposure at any point of time did not exceed 10% of outstanding equity

shares (face value) or 10% of the amount under point Regulation 9

(A.1.(a) or A.1.(b) or A.1.(c) considered separately) of this Regulation, in

the case of Life insurers / an amount under Regulation 9 (A.2) or (A.3) of

this Regulation, in the case of General Insurer / Re-insurer whichever is

lower.

[In case of Infrastructure Co, the limit of 10% shall be read as 20%.

Where the investment assets of the insurer is Rs. 250000 Crores or

more, the limit of 10% shall be read as 15% of outstanding equity shares

(face value) or where the investment assets of the insurer is Rs.50000

Crores but less than Rs 250,000 Crores the limit of 10% shall be read as

12% of outstanding equity shares (face value)]

(f) Investment in Debt/ loans and any other permitted Investments as

per Act / Regulation, other than ‘Equity’, Preference Shares, Convertible

Debentures :-

Exposure at any point of time did not exceed 10% of the paid-up share

capital, free reserves (except revaluation reserve) and debenture / bonds

of the investee company or 10% of amount under point Regulation 9

(A.1.(a) or A.1.(b) or A.1.(c) above considered separately) of this

Regulation, in the case of Life insurers / an amount under Regulation 9

(A.2) or (A.3) of this Regulation, in the case of General Insurer / Re-

insurer whichever is lower.

Technical Guide

104

[In case of Infrastructure Co, the limit of 10% shall be read as 20%.

Where the investment assets of the insurer is Rs. 250000 Crores or

more, the limit of 10% shall be read as 15% of paid up share capital, free

reserves (excluding revaluation reserve) and debenture / bonds or where

the investment assets of the insurer is Rs.50000 Crores but less than Rs

250,000 Crores the limit of 10% shall be read as 12% paid up share

capital, free reserves (excluding revaluation reserve) and debenture /

bonds)

(g) Has the maximum exposure under limit for a single ‘investee’

company from all investment assets (Equity / Preference Shares /

Convertible Debenture / Debentures/ bonds / CPs / loans and any other

permitted debt Investments as per Act / Regulation), are within the limit

prescribed in Regulation 9 (B) (In case of Infrastructure Co, the limit of

10% shall be read as 20%)?

(h) Has debt investments made in infrastructure SPV have complied

with the limits, terms and conditions as mentioned in the Note: 4 of the

Investment Regulation 9?

II. Limit for the entire Group of the Investee Company

Has total investments made in entire “Group of the Investee Company”

is the lower of:

(a) amount under point Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c)

above considered separately) of this Regulation, in the case of Life

insurers / an amount under Regulation 9 (A.2) or (A.3) of this Regulation,

in the case of General Insurer / Re-insurer (or)

(b) 15% of investment Assets in all companies belonging to the group

(In case of Infrastructure company the limit mentioned in point ‘a’ above

shall be read as 20%)

III. Promoter Group Company

Has total investments made in all “Companies falling under Insurer’s

Promoter Group”:

(a) is not more than 5% in aggregate of its total investments in all

companies belonging to the promoters’ groups.

(b) not made investments in any companies belonging to the

promoters’ group by way of private placement (equity)

certificate of deposits and fixed deposits (without prejudice to

Section 27A (9) and Section 27B (10) of the Act) held in a

Annexure ‘I’

105

Scheduled Commercial Bank], except for companies formed by

Insurers under Sec 27A (4) or Sec 27B (5) of the Act.

IV. Industry sector

Has investment made by the insurer in any industrial sector [except

Financial and Insurance Activities sector as per National Industrial

Classification (All Economic Activities) - 2008]:

(a) not exceeded the lower of:

15% of the amount under Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c)

considered separately) of this regulation in the case of life

insurer / an amount under Regulation 9 (A.2) or (A.3) of this

regulation, in the case of General Insurer / Re-insurer

(or) 15% of investment Asset

(b) Has the investment made by the insurer in Financial and

Insurance Activities sector as per National Industrial

Classification (All Economic Activities) - 2008 (excluding Fixed

Deposit, Term Deposit and Certificates of Deposit) not exceeded

25% of its total investment assets?

National Industrial Classification (All Economic Activities) - 2008

[NIC] for all sectors, except “infrastructure sector”.

(d) Has exposure been calculated at Division level from A to R of

(NIC (All Economic Activities) – 2008) Classification for all sectors

other than infrastructure sector?

(e) Has exposure been calculated for Financial and Insurance

Activities sector at Section level (of NIC (All Economic Activities)

– 2008)?

V. Rating Criteria

1. Are investments under ‘Approved Investments’ made only in rated

instruments, if such instruments are capable of being rated?

2. At the time of purchase, are Corporate Bonds rated below AA (A+

with the prior approval of the Board of the Insurer) or its equivalent and

P1 or equivalent (in case of short term instruments) classified under

“Other Investments”?

3. Are instruments downgraded below the minimum rating

prescribed under Note 3 & 4 to Regulation 3 to 8 of the IRDA

(Investment) Regulation, 2000, as amended from time to time,

reclassified under “Other Investments” through the System?

Technical Guide

106

4. Are ‘Debt’ instruments (including Central Govt, State Govt

Securities and Other Approved Securities) - fund wise, in the case life

insurer (including ULIP funds at segregated fund level) and Investment

Assets in the case of general insurer - have a minimum rating of

Sovereign, AAA or equivalent rating for long term and Sovereign, P1+ or

equivalent for short term instruments, not less than 75% (Life Insurer) /

65% (General Insurer)?

5. Are ‘Debt’ instruments (including Central Government Securities,

State Government Securities and Other approved securities) – fund wise,

in the case of life insurer (including ULIP funds at segregated fund level)

and Investment Assets in the case of general insurer – have a rating of A

or below or equivalent rating for long term, are not more than 5% (8% in

the case of Non-Life Insurers)?

VI. Others

D. CONFIRMATION ON POLICY / SYSTEMS / PROCEDURE

1. Has the software application for Investment Operations, been fully

automated without manual intervention in calculating the exposure norms

of Investee Company, Group, Promoter Group and Industry Sector, as

per the various slabs of ‘investment assets’ provided under Regulation 9

(B)?

2. Is the Constitution of the Investment Committee of the Insurer in full

compliance with the requirements mentioned under Regulation 13 of

Investment Regulation?

3. Was none of the functions of the insurer relating to Investment

Operations falling under Front / Mid / Back Office, (covering both

Shareholders and Policyholders Investments), outsourced (except to the

extent permitted under Point 11 and 12 of Annexure II to Circular

INV/CIR/008/2008-09 Dt. 22nd Aug, 2008 with respect to Outsourcing of

Investment Advice and NAV Calculation)?

4. Is the Audit Committee of the Board, headed by a Chartered

Accountant, provided he is a member of the Board of the Insurer?

5. Have periodical Investment Returns to be filed for the Quarter,

prepared in full compliance with the “Guidance Note on preparation of

Investment Returns” issued by IRDA?

6. Have amendments to the Investment Policy, been approved by the

Board of the Insurer?

7. Has the model code of conduct, to prevent insider / personal trading

of officers involved in Investment Operations, including front, mid and

back office as approved by the Board, implemented? If so:

Annexure ‘I’

107

(f) Does it cover Officers involved in Investment Operations at various

levels?

(g) Does the code of conduct cover each Officer in such level?

(h) Has the Board been informed of compliance or otherwise to model

code of conduct during the Quarter?

(i) Has the Concurrent Auditor issued his Audit Report of previous

Quarter, without any qualification on aspects of model code of

conduct implemented by the Insurer?

(j) Where breach of model code of conduct, if any, reported during

the previous Quarter, been dealt properly and appropriate action

as recommended by Audit Committee/ Board been taken?

8. Does the segregation of front, mid and back office – are as per

Technical Guide on Internal / Concurrent Audit of Investment functions of

Insurance Companies issued by the Institute of Chartered Accountants of

India?

9. Have all non-compliance reported in the Chartered Accountant’s

certificate issued (as per the Technical Guide on Investment Risk

Management Systems & Process of Insurance Companies, by ICAI) on

the ‘status’ of implementation of Investment Risk Management Systems

and Process been implemented as per timelines committed to IRDA?

10. Has the Internal / Concurrent audit Report of the previous

Quarter with the with comments of Audit Committee of the Board, on

‘very serious’, ‘serious’ points (as per the Technical Guide on Internal /

Concurrent Audit of Investment functions of Insurance Companies,

issued by the Institute of Chartered Accountants of India) in the report,

and status of implementation of Audit committee recommendation been

placed before the Board of the Insurer during the current quarter?

11. Have the Audit Report of the previous Quarter along with Audit

Committees recommendation and its implementation status filed with the

Authority along with these returns?

12. Have the increase during the quarter, in Shareholders’ funds

(other than income from shareholders’ investments, maintained in a

separate custody account) held beyond solvency margin requirement, is

supported by surplus calculation certified by the Appointed Actuary?

[annex a copy of Appointed Actuary’s Certificate to this return]

13. Has the Board reviewed (both life and non-life Insurers) during the

previous quarter the performance of products [at line of business level in

the case of General Insurers]?

Technical Guide

108

14. Has the Board, during the previous Quarter, reviewed (both life

and non-life insurers) the performance of investments? [the review in

the case of life insurers should cover both Non-Linked and Linked

funds [SFIN] level]

15. Has the life insurer, in the case of ULIP business reconciled,

through the system, the premium received (net of charges and benefits

paid) under each product (Unique Identification Number – UIN wise) with

value of all the segregated fund(s) (Segregated Fund Identification

Number – SFIN wise) net of fund management charges, held under a

single UIN, on a day to day basis, during the quarter?

16. Has the life insurer disclosed UIN wise reconciliation, on the

Insurer’s website on the same day?

17. Is there a fully automated system to generate, on a day to day

basis, Form 3A - Part E (Investment Details of ULIP Products to

Segregated Funds)?

18. Has the life insurer disclosed the value of policy wise units held by

policyholder on the Insurer’s policyholder portal?

19. Has the life insurer disclosed fund wise NAV (SFIN wise) on the

Insurer’s website and life council website on the same day?

20. Has the Standard Operating Procedure (SOP) approved by the

Investment Committee of the Insurer?

21. Does the SOP, for each ‘category of investment’ is same across

all fund(s)?

22. Does SOP of the Insurer, for “each” Category of Investment, (as

per Guidelines INV/GLN/001/2003-04, as amended from time to time,

issued by the Authority) provide individual activities to be carried out in

Front, Mid and Back office?

23. Have all investments made (100%) followed the IC approved

SOP?

24. Does the Investment made during the Quarter, are within the

exhaustive ‘Categories of Investments’ prescribed under Guidelines

INV/GLN/001/2003-04, as amended from time to time?

25. Has the Insurer during the Quarter taken any Derivative position

(including interest rate swap and Credit default swap)? If Yes:

a. Has the Derivative Policy been approved by the Board of the

Insurer?

Annexure ‘I’

109

b. Has the insurer taken prior approval of IRDA for such Derivative

policy?

c. If so, is there a process to identify the risk to be hedged [‘fund-

wise’ in the case of Life Insurers]?

d. Does such derivative position comply with IRDA Guidelines?

e. Has derivative exposure taken, are clearly identified with the

portfolio risk to be hedged?

f. Has the Insurer filed the regulatory information / returns required

under the Guidelines issued?

26. Are investment made in immovable property covered under

Section 27A (1) (n) of the Act shall not exceed, at the time of investment,

within 5% of the Investment Assets [as per FORM 3B (Part A)] in the

case of General Insurer / within 5% of Life fund, Pension & General

Annuity Fund, [as per FORM 3A (Part A)] in the case of Life Insurer.

27. Have NO investments in Immovable Properties been made out of

ULIP Funds?

28. Are investments in equity shares through IPO, Mutual fund,

Venture fund, SEBI approved Alternate Investment Funds, Corporate

Bond Reverse Repo, IDF (as per Note 2 to Regulation 9) Perpetual Debt

instruments of Bank’s Tier-I Capital and Debt Capital instruments of

Bank’s Upper Tier-II Capital, made in compliance with the relevant

circulars issued in this regards from time to time?

29. Are investments in asset backed securities, PTC, SRs both under

Approved and Other investment category, made within 10% of

Investment assets in case of Life Companies and 5% of Investment

assets in case of Non – life companies

30. Are any securitized assets with underlying housing or

infrastructure assets, if downgraded below AAA or equivalent reclassified

as Other Investments

E. CONFIRMATION ON INVESTMENT OPERATIONS / EXPOSURE

1. Has Shareholders funds been split Funds Representing Solvency

Margin (FRSM) in FORM 3A (Part A)?

2. If funds are split as per point 1 above, between FRSM and

Balance, have the same been maintained in separate custodian account

with identified ‘scrips’ for both Life and General (including Re-insurance)

companies and reconciled with FORM 3A (Part A) / FORM 3B?

Technical Guide

110

3. Do each ‘Segregated fund’ [SFIN] have underlying ‘Scrips’,

identified upto to Custodian level?

4. Do each ‘Segregated Fund’ [SFIN] have not less than 75% of

Approved Investments as defined in the Act?

5. Does all investments in assets or instruments which are capable of

being rated (except Fixed Deposits with Scheduled Commercial Banks)

are made based on ‘instrument’ rating and NOT based on Investee

‘Company’ rating?

6. Have Investments in debt instruments rated AA - (AA minus) or

below classified under Other Investments?

7. Are Investments made in a Public Limited Special Purpose

Vehicle (SPV) engaged in infrastructure sector is within 20% of the

project cost (or) amount under Regulation 9 (B) (i), whichever is lower?

8. If answer to point above is ‘yes’, have all the requirements

mentioned under Note 4 to Regulation 9 have been complied?

9. Are investments made in Mortgaged Backed Securities [MBS] /

Assets Backed Securities [ABS] complied with the requirements of Note

5 to Regulation 9?

10. Has ‘each’ purchase and sale of Investments, as mentioned in

the Deal Slip, been identified with respect to ‘each’ fund / ‘segregated

fund’ in respect of ULIP funds?

11. Are all thinly traded equity (as per SEBI norms) classified as

“Other Investment”?

12. Has inter fund transfer, been done as per circular

IRDA/FA/02/10/2003-04 and any other circular issued from time to time ,

between ULIP funds during Market Hours, for Equity and Debt at the

prevailing price and not based on broker quote?

13. With respect to ‘each’ Segregated Fund [including Discontinued

Policy Fund (DPF)] in the case of ULIP business, whether reconciliation

of “Units” have been made, between Policy Admin System (PAS) and

Investment Accounting Systems through a fully automated system

using process integrators to ensure seamless data transfer without

manual intervention?

14. Does the Primary Data Server of the Computer Application used

for Investment Management, maintained within the Country?

15. Has the insurer, reconciled investments, fund-wise, with bank and

custodian records on ‘day-to-day basis for ‘each’ segregated fund?

Annexure ‘I’

111

16. Has the insurer, reconciled investment accounts, for each fund in

the case of Non-ULIP Business and General Insurance Business, with

Custodian records?

17. Has valuation of investments of ‘each’ fund (including ULIP), done

as prescribed in IRDA (Preparation of Financial Statements and Auditors

Report of Insurance Companies) Regulations, 2002?

18. Is there any shortfall/deficit in meeting the Discontinued Policies

Fund (DPF) liabilities?

19. If the answer to above point is ‘Yes’, has the Insurer provided for

such shortfall / deficit on a quarterly basis?

20. Have all the negative deviations reported in FORM 4A (Part A)?

21. Has NAV of each segregated fund [SFIN] been audited before its

declaration by Internal / Concurrent Auditor on a day-to-day basis (on

T+0 basis)?

22. Has the Insurer floated any new fund during the quarter?

23. If the answer to point above is ‘yes’, has the directions in respect

of Fund Approval procedure and Guidelines on NAV Process as per

Circular IRDA/F&I/CIR/INV/173/08/2011 Dt. 29th Jul, 2011 complied with?

24. Has the insurer, apart from the credit rating evaluated by the rating

agencies, carried out their own risk analysis commensurate with the

complexity of the product(s) and the materiality of their holding for every

investment made?

Annexure ‘J’

NAV PROCESS

(Periodicity of Verification – Daily / Periodic Intervals)

A. Settlement entries

B. Bank entries

C. Primary market deals/IPO

D. Security master creation

E. Units creation/liquidation

F. Corporate actions

G. Secondary market debt/equity deal authorization

H. Valuation process

A. SETTLEMENT ENTRIES

1. Equity (Sale) T+2:

Bank settlement (trade receivables) entries passed for trades settling on

current day.

2. Equity (Purchase) T+1:

Bank settlement (trade payables) entries passed for trades settling on

current day. It may also be settled on T+2 basis, if the company had

deposited margin money with the exchanges as required for equity

settlement.

3. Debt (purchase/Sale) T+1:

Bank settlement (trade payables/receivables) entries passed for trades

settling on current day. Corporate Debt deals dealt on T+O basis shall be

settled on T+O basis.

4. Money market transactions & Non-SLR T+1:

Bank settlement (trade payables/receivables) entries passed for trades

settling on current day. Money market transactions excluding treasury

bills s could also be dealt and settled on T+O basis.

5. Reverse Repo withdrawal:

Reverse Repo maturities posted in bank accounts

6. Brokerage Payments:

Brokerage Payment settled in Bank

Annexure ‘J’

113

B. BANK ENTRIES

1. Coupon Payments for Debt Investments:

Interest receipt entries passed in Bank (Reconciled with Custody

Corporate Actions report)

2. Redemptions/Maturities for Debt Investments:

Redemptions/Maturity receipt entries passed in bank account

(Reconciled with Custody Corporate Actions report).

3. Dividend Receipts for Equity Investments:

Dividend receivables received in bank on the receipt date (Reconciled

with Custody Corporate Actions report)

4. Management Fees, Custodian Fees & CCIL Charges:

Payment entries pertaining to Management transfer to Non-Linked

Funds, Custodian Fees and CCIL fees passed in Bank accounts on

respective payment dates.

5. Booking of Application Money:

Application Money booked in current asset account on the date of

payment of application money towards prospective investments. Applied

quantity shall be allocated to the intended portfolios on the date of

application. In case of application for equity through IPO, FPO and other

primary options, if the insurer pays the amount in advance through cash

or FD in lieu of cash under ASBA, the same shall be considered as

current asset.

C. PRIMARY MARKET DEALS/IPO

1. Booking of Primary market Deals - Debt:

Primary market applications shall be booked in Investment account on

the date of application and allotment of such debt instruments shall be

made on the same proportionate basis as the application was made.

2. Booking of Equity IPO:

Equity Investments accounted on the date of allotments of the IPO Issue.

However, the application money shall be booked under the respective

portfolios on the date of application.

D. SECURITY MASTER CREATION

1. Equity Investments:

Based on the inputs from treasury & investment mid-office functions the

security masters are created in the system (linked via NSE/BSE codes).

Technical Guide

114

The procedure includes documentation of supporting & supervisory sign

off.

2. Debt Investments :

Security masters for debt Instruments are prepared on the basis of

Information memorandum and deals in case of primary and secondary

market deals respectively. The procedure includes documentation of

supporting and supervisory sign off.

E. UNITS CREATION / LIQUIDATION

1. Unit capital movement is an integral part of NAV calculation. It

keeps track of the capital movement (subscription and redemption) in the

funds and requires the following:

2. Reconciliation with Policy Admin system:

The unit report is reconciled with the Policy Admin System Trial Balance

before booking the entries in the system.

3. Reconciliation with operating system :

Unit Report is reconciled with the system’s (operating system)

Creation/Liquidation Report post booking of unit capital entries.

F. CORPORATE ACTIONS

1. Reconciliation of Custodian report with Third party service

Provider:

The Custodian report for equity ex-dates is reconciled with Global

corporate actions report on NSE/BSE of Third Party Service Provider for

Dividend, Bonus, split, mergers, de-mergers, amalgamations, capital

reduction, and follow-on issues.

2. For Government Securities and other SLR securities, RBI-NDS

gives the corporate actions and is considered for valuation.

G. SECONDARY MARKET DEBT /EQUITY DEAL AUTHORIZATION

1. Equity Deals :

(a) STP (Straight Through Process) Reconciliation:

Equity deals received from various brokerage houses are reconciled with

the STP system & cross checked with operating system for Scrip code,

quantity, rate, STT, brokerage & consideration.

(b) Authorization in Operating System:

Post verification the deals are authorized in operating system.

Annexure ‘J’

115

Post STP reconciliation the equity trade files ISO files are sent to

custodian & broker houses via STP.

2. Equity Deals –NIFTY Basket (purchase/sale):

The NIFTY Basket (trade file) is consolidated for all the brokers &

uploaded in operating system. Post upload are reconciled with the source

file and subsequently authorized.

H. VALUATION PROCESS

1. Equity:

NSE and BSE closing price files are uploaded in operating system

.Subsequently the system global price is checked with the source files.

Equity investments are to be valued at lower of closing price NSE or

BSE.

2. Debt:

(a) Debentures & Bonds:

Valuations for all debentures & bonds are arrived at using yield matrix

provided by a Bond Valuer approved by the Investment Committee. The

valuations report giving prices for each such securities is generated by

Bond Valuer and subsequently uploaded in operating system. Debenture

& Bonds could also be valued consistently using the yield matrix and

bond valuer of FIMMDA or any other independent agencies.

(b) G-Sec:

The G-sec prices provided by FIMMDA or any other rating agency is

directly uploaded in the operating system for valuation consistently.

State Government securities shall be valued by adding the minimum

spreads, as recommended by the FIMMDA or any other independent

agency, to the base G-sec yield curve of the same maturity.

(d) Reverse Repos:

Valued at cost plus interest accrued on reverse repo rate

(e) Collateralised Borrowing and Lending Obligation (CBLO):

Valued at accreted cost on Straight line till the beginning of the day plus

the difference between the redemption value and the cost spread

uniformly (straight line method) over the remaining maturity period of the

instruments. The income shall be recognized as discount accrued. The

Insurers may also use YTM basis of amortisation for amortising the

discount on purchase of certificate of Deposits.

Technical Guide

116

(f) Treasury Bills:

Valued at accreted cost on Straight line till the beginning of the day plus

the difference between the redemption value and the cost spread

uniformly (straight line method) over the remaining maturity period of the

instruments. The income shall be recognized as discount accrued. The

Insurers may also use YTM basis of amortisation for amortising the

discount on purchase of Treasury Bills.

(g) Commercial Papers:

Valued at accreted cost on Straight line method till the beginning of the

day plus the difference between the redemption value and the cost

spread uniformly (straight line method) over the remaining maturity

period of the instruments. The income shall be recognized as discount

accrued. The Insurers may also use IRR/YTM basis of amortisation for

amortising the discount on purchase of commercial papers.

(h) Certificate of Deposit:

Valued at accreted cost on Straight line method till the beginning of the

day plus the difference between the redemption value and the cost

spread uniformly (straight line method) over the remaining maturity

period of the instruments. The income shall be recognized as discount

accrued. The Insurers may also use IRR/YTM basis of amortisation for

amortising the discount on purchase of certificate of Deposits.

(i) Fixed Deposits:

Valued at cost till the date of maturity

(j) Non-Convertible debentures (NCD):

Maturity >182 days

Valued on YTM basis by using spread over benchmark rates (matrix

released by CRISIL on daily basis) to arrive at the yield for pricing the

security. The benchmark spreads are incorporated in the IC approved

Bond valuer on daily basis and accordingly the instruments are valued on

yield to maturity basis depending upon its maturity buckets &

corresponding ratings.

Maturity <182 days

Securities purchased with residual maturity of upto182 days are to be

valued at cost plus the difference between the redemption value and cost

spread uniformly over the remaining maturity period of the instrument. In

case of securities with maturity >182 days at the time of purchase, the

last available valuation price should be used. Depending upon the

Annexure ‘J’

117

premium or discount at the time of purchase ,the price will be subject to

amortization/accretion

(k) Call option:

The securities with call option shall be valued (by IC approved Bond

Valuer) at the lower of the value as obtained by valuing the security to

final maturity and valuing the security to call option. In case there are

multiple call options, the lowest value obtained by valuing to the various

call dates and valuing to the maturity date is to be taken as the value of

the instrument.

(l) Put option:

The securities with put option shall be valued (by IC approved BOND

VALUER) at the higher of the value as obtained by valuing the security to

final maturity and valuing the security to put option In case there are

multiple put options, the highest value obtained by valuing to the various

put dates and valuing to the maturity date is to be taken as the value of

the instruments.

(m) Put & call option on the same day:

The securities with both Put and Call option on the same day would be

deemed to mature on the Put/Call day and would be valued accordingly

(by IC approved BOND VALUER).

(n) Annually compounding coupon:

Securities having annual compounding coupons shall be valued on YTM

basis by using spread over benchmark rates (matrix released by IC

approved Bond Valuer on daily basis) to arrive at the yield for pricing the

security. The gross/dirty price so arrived shall be reduced by the coupon

calculated from last interest payment date or allotment date whichever is

earlier to arrive at the clean price. Such reduction shall take into account

the compounding coupon calculations wherever applicable.

(o) Coupon reset Paper:

6 monthly benchmark coupon reset paper/Floater are to be valued at

cost plus the difference between the redemption value and cost spread

uniformly over the remaining maturity period of the instrument.

Depending upon the premium or discount at the time of purchase, the

price will be amortized/accreted respectively. On the date of reset such

accretion/amortization shall be also reset for pricing.

(p) NSE MIBOR Paper:

NSE MIBOR instruments including those with daily put call options shall

be valued at cost till the date of maturity.

Technical Guide

118

(q) PTC/Asset backed securities/structured papers:

Maturity >182 days:

Valued on YTM basis by using spread over benchmark rates (matrix

released by IC approved Bond Valuer on daily basis) to arrive at the yield

for pricing the security. The benchmark spreads are incorporated in the

IC approved Bond valuer on daily basis and accordingly the instruments

are valued on yield to maturity basis depending upon its maturity buckets

& corresponding ratings. However such instruments are valued on

gross/dirty price (i.e. including accrued interest). The periodic cash flows

shall be updated in IC approved Bond Valuer as per specified intervals

and valued accordingly.

Maturity < 182 days:

Valued on the basis of amortization/accretion (cost plus accrued interest

till the beginning of the day plus the difference between the redemption

value and the cost spread uniformly over the remaining maturity period of

the instruments) Depending upon the premium or discount at the time of

purchase, the price will be subject to amortization/accretion respectively.

(r) Zero coupon bonds:

Valued on YTM basis by using spread over benchmark rates (matrix

released by daily basis) to arrive at the yield for pricing the security. The

benchmark spreads are incorporated in IC approved Bond valuer on daily

basis and accordingly the instruments are valued on yield to maturity

basis depending upon its maturity buckets and corresponding ratings.

Further, for those with maturity <182 days, valuations norms NCD shall

be applicable.

3. Mutual Fund :

The scheme NAVs received from various fund houses is reconciled with

AMFI website. Subsequently, they are uploaded in operating system for

portfolio valuations.

4. Venture Fund:

Investments in the units of the Venture fund can be made from ULIP

funds, only if the values of those units are available on day to day basis.

5. Security Receipts:

Security receipts shall be valued at market value on day to basis. No

investment shall be made in Security Receipts, if the value is not

available on a day-to-day basis.

Annexure ‘J’

119

6. Special Bonds:

Special bond / Oil Bond issued by government of India shall be valued on

daily basis.

7. Global Portfolio Price Check:

Post Upload all the prices for all asset classes are cross checked with

source files

Annexure ‘K’

RETURNS TO BE SUBMITTED BY AN INSURER

(Periodicity of Verification - Quarterly)

Every insurer shall submit to the Authority the following returns within

such time, at such intervals duly verified/certified in the manner as

indicated there against.

No Form Description Periodicity

of Return

Time limit

for

submission

Verified /

Certified by

1 Form

Statement of

Investment

and Income on

Investment

Quarterly Within 30

days of the

end of the

Quarter

Principal Officer

/ Chief of

(Investments)/

Chief of

(Finance)

2 Form

(Part

A, B)

Statement of

Downgraded

Investments,

Details of

Rated

Instruments

Quarterly Within 30

days of the

end of the

Quarter

Principal Officer

/ Chief of

(Investments)/

Chief of

(Finance)

3 Form

(Part

A, B,

D,E)

Statement of

Investments

Assets (Life

Insurers)

Quarterly Within 30

days of the

end of the

Quarter

Principal Officer

/ Chief of

(Investments)/

Chief of

(Finance)

4 Form

(Part

A, B)

Statement of

Investment

Assets

(General

Insurance &

Re-insurer)

Quarterly Within 30

days of the

end of the

Quarter

Principal Officer

/ Chief of

(Investments)/

Chief of

(Finance)

5 Form

(Part

Exposure /

Prudential and

other

Investment

Norms –

Compliance

Certificate

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer, Chief of

(Investments),

Chief of

(Finance)

Annexure ‘K’

121

No Form Description Periodicity

of Return

Time limit

for

submission

Verified /

Certified by

6 Form

(Part

Internal /

Concurrent

Auditor's

Certificate on

Investment

Risk

Management

Systems -

Implementatio

n Status

Quarterly Within 30

days of the

end of the

Quarter

Internal /

Concurrent

Auditor

appointed under

this regulation

7 Form

(Part

A, B,

Statement of

Investment

Subject to

Exposure

Norms –

Investee

Company,

Group,

Promoter

Group,

Industry Sector

Quarterly Within 30

days of the

end of the

Quarter

Principal Officer

/ Chief of

(Investments)/

Chief of

(Finance)

8 Form

Statement of

Investment

Reconciliation

Quarterly Within 30

days of the

end of the

Quarter

Principal Officer

/ Chief of

(Investments)/

Chief of

(Finance)

9 Form

Statement of

Investment in

Mutual Funds

Quarterly Within 30

days of the

end of the

Quarter

Principal Officer

/ Chief of

(Investments)/

Chief of

(Finance)

10 Form

Certificate

under sections

28 (2A), 28

(2B) and 28B

(3) of the

Insurance Act,

1938

Quarterly Within 30

days of the

end of the

Quarter

Chairman,

Director 1,

Director 2,

Principal Officer

Technical Guide

122

No Form Description Periodicity

of Return

Time limit

for

submission

Verified /

Certified by

11 Form

Statement of

Non-

Performing

Assets

Quarterly Within 30

days of the

end of the

Quarter

Principal Officer

/ Chief of

(Investments)

/Chief of

(Finance)

Note:

1. The Internal / Concurrent Audit Report of the previous quarter with

comments of Audit Committee of the Board, on ‘very serious’, ‘serious’

points (as per the Technical Guide on Internal / Concurrent Audit of

Investment functions of Insurance Companies, issued by the Institute of

Chartered Accountants of India) in the report, and status of

implementation of Audit committee recommendation shall be filed with

the Authority along with current quarter returns

2. All returns for the quarter ending March shall be filed within the period

stipulated above based on provisional figures and later re-submitted with

Audited figures within 15 days of adoption of accounts by the Board of

Directors.

APPENDICES

Appendix ‘A’

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

NOTIFICATION

Hyderabad, the 16th February, 2013

Insurance Regulatory and Development Authority

(Investment) (Fifth Amendment) Regulations, 2013

F. No. IRDA/Reg./16/74/2013– In exercise of the powers conferred by

Sections 27A, 27B, 27D and 114A of the Insurance Act, 1938 (4 of

1938), the Authority, in consultation with the Insurance Advisory

Committee, hereby makes the following regulations to further amend the

Insurance Regulatory and Development Authority (Investment)

Regulations, 2000, notified on 16th August, 2000 in the Gazette of India

and amended on 31st May 2001 in the Gazette of India, further amended

on 2nd April, 2002 in the Gazette of India and further amended on 5th

January 2004 and further amended on 31st Jul, 2008 and further

amended on 8th Feb, 2013 namely:-

1. Short title and commencement:

1. (1) These regulations may be called the Insurance Regulatory

and Development Authority (Investment) (Fifth Amendment)

Regulations, 2013

(2) They shall come into force on the date of their publication in

the Official Gazette

2. Amendment to Regulation 2:

Regulation 2 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000 shall be substituted with the following:-

“Definitions

2. In these regulations, unless the context otherwise requires,—

(a) “Act” means the Insurance Act, 1938 (4 of 1938)

(b) “Accretion of funds” means investment income, gains on

sale/redemption of existing investment and operating surplus

recommended by the Institute of Chartered Accountants of India and

Technical Guide

126

notified by the Central Government under the Companies Act, 1956 or

any successor enactment thereunder

(d) “Authority” means the Insurance Regulatory and Development

Authority established under sub-section (1) of section 3 of the Insurance

Regulatory and Development Authority Act, 1999 (41 of 1999)

(e) “Financial Derivatives” means a derivative as defined under

clause (aa) of section 2 of the Securities Contracts (Regulation) Act,

1956, and includes a contract which derives its value from interest rates

of underlying debt securities and such other derivative contracts as may

be stipulated by the Authority, from time to time

(f) “Group” means: two or more individuals, association of

individuals, firms, trusts, trustees or bodies corporate, or any

combination thereof, which exercises, or is established to be in a position

to exercise, significant influence and / or control, use of common brand

names, directly or indirectly, over any associate as defined in AS 23,

body corporate, firm or trust, or (ii) Associated persons, as may be

stipulated by the Authority, from time to time, by issuance of guidelines

under these regulations.

(g) “Investment Assets” mean all investments made out of:

(1) in the case of a Life Insurer

(a) shareholders’ funds representing solvency margin,

non-unit reserves of unit linked insurance business,

participating and non-participating funds of

policyholders at their carrying value

(b) policyholders’ funds of Pension, Annuity business and

Group business at their carrying value

business at their market value as per guidelines

issued under these regulations, from time to time

(2) in the case of a General Insurer

(a) shareholders’ funds representing solvency margin

and policyholders funds at their carrying value

as shown in its balance sheet drawn as per the Insurance Regulatory

and Development Authority (Preparation of Financial Statements and

Auditors’ Report of Insurance Companies) Regulations, 2000, but

excluding items under the head ‘Miscellaneous Expenditure’

Appendix ‘A’

127

(h) Money Market Instruments

Money Market Instruments shall comprise of Short term funds with

maturity not more than one year comprising of the following instruments:

1. Certificate of deposit rated by a credit rating agency registered

under SEBI (Credit Rating Agencies) Regulations, 1999

2. Commercial paper rated by a credit rating agency registered under

SEBI (Credit Rating Agencies) Regulations, 1999

3. Repos, Reverse Repo

4. Treasury Bills

5. Call, Notice, Term Money

6. CBLO as per Schedules I and II of these Regulations.

7. Any other instrument as may be prescribed by the Authority

(i) “Promoter” means a promoter as defined under Regulation 2 (m)

of IRDA (Issuance of Capital by Life Insurance Companies) Regulations,

2011

(j) “Principal Officer” means any person connected with the

management of an insurer or any other person upon whom the Authority

has served notice of its intention of treating him as the principal officer

thereof.

(k) All words and expressions used herein and not defined but defined

in the Insurance Act, 1938 (4 of 1938), or in the Insurance Regulatory

and Development Act, 1999 (41 of 1999), or in any Rules or Regulations

made thereunder, shall have the meanings respectively assigned to them

in those Acts or Rules or Regulations”

3. Amendment of Regulation 3:

Regulation 3 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000 shall be substituted with the following:-

“Regulation of Investments

3. A life insurer, for the purpose of these Regulations, shall invest

and at all times keep invested, the Investment Assets forming part of the

Controlled Fund as defined in Section 27A of the Act as under:

a. all funds of Life insurance business and One Year Renewable pure

Group Term Assurance Business (OYRGTA), and non-unit reserves

of all categories of Unit linked life insurance business, as per

Regulation 4

Technical Guide

128

b. all funds of Pension, Annuity and Group Business [as defined

under Regulation 2 (d) of IRDA (Actuarial Report and Abstract)

Regulations, 2000] as per Regulation 5; and

c. the unit reserves portion of all categories of Unit linked funds, as

per Regulation 6”

4. Insert New Regulation 4:

Insert the following New Regulation 4 to the Insurance Regulatory and

Development Authority (Investment) Regulations, 2000:-

“4. Without prejudice to Sections 27 or 27A of the Act, every insurer

carrying on the business of Life Insurance, shall invest and at all times

keep invested his Investment Assets as defined in Regulation 3 (a) (other

than funds relating to Pension & General Annuity and Group Business

and unit reserves of all categories of Unit Linked Business) in the

following manner:

No Type of Investment Percentage to

funds as under

Regulation 3(a)

(i) Central Government Securities Not less than

25%

(ii) Central Government Securities, State

Government Securities or Other Approved

Securities

Not less than

50% (incl (i)

above)

(iii)

Approved Investments as specified in Section

27A of the Act and Other Investments as

specified in Section 27A(2) of the Act and

Schedule I to these Regulations, (all taken

together) subject to Exposure / Prudential

Norms as specified in Regulation 9:

Not exceeding

50%

(iv) Other Investments as specified under Section

27A (2) of the Act, subject to Exposure /

Prudential Norms as specified in Regulation 9:

Not exceeding

15%

(v) Investment in housing and infrastructure by

way of subscription or purchase of:

A. Investment in Housing

(d) Bonds / debentures of HUDCO and

National Housing Bank

(e) Bonds / debentures of Housing Finance

Companies either duly accredited by

Total

Investment in

housing and

infrastructure

(i.e.,)

Appendix ‘A’

129

No Type of Investment Percentage to

funds as under

Regulation 3(a)

National Housing Banks, for house

building activities, or duly guaranteed by

Government or carrying current rating of

not less than ‘AA’ by a credit rating

agency registered under SEBI (Credit

Rating Agencies) Regulations, 1999

(f) Asset Backed Securities with underlying

housing loans, satisfying the norms

specified in the guidelines issued under

these regulations from time to time.

B. Investment in Infrastructure

(Explanation: Subscription or purchase of

Bonds / Debentures, Equity and Asset Backed

Securities with underlying infrastructure assets

would qualify for the purpose of this

requirement.

‘Infrastructure facility’ shall have the meaning

as given in clause (h) of regulation 2 of

Insurance Regulatory and Development

Authority (Registration of Indian Insurance

Companies) Amendment Regulations, 2008 as

amended from time to time

Note: Investments made under category (i)

and (ii) above may be considered as

investment in housing and

infrastructure, provided the respective

government issues such a security

specifically to meet the needs of any of

the sectors specified as ‘infrastructure

facility’

investment in

categories (i),

(ii), (iii) and (iv)

above taken

together shall

not be less than

15% of the fund

under

Regulation 3(a)

5. Insert New Regulation 5:

Insert the following New Regulation 5 to the Insurance Regulatory and

Development Authority (Investment) Regulations, 2000:-

“5. Without prejudice to Sections 27 or 27A of the Act, every insurer

carrying on Pension, Annuity and Group Business [as defined under

Regulation 2 (d) of IRDA (Actuarial Report and Abstract) Regulations,

Technical Guide

130

2000] shall invest and at all times keep invested his Investment Assets of

Pension, Annuity and Group business in the following manner:

No Type of Investment Percentage to

funds under

Regulation 3(b)

(i) Central Government Securities Not less than

20%

(ii) Central Government Securities, State

Government Securities or Other Approved

Securities

Not less than

40%

(incl (i) above)

(iii) Balance to be invested in Approved

Investments, as specified in Schedule I,

subject to Exposure / Prudential norms as

specified in Regulation 9.

Not exceeding

60%

Note: For the purposes of this regulation no investment falling under

‘Other Investments’ as specified under 27A (2) of the Act shall be made”

6. Insert New Regulation 6:

Insert the following New Regulation 6 to the Insurance Regulatory and

Development Authority (Investment) Regulations, 2000:-

“6. Unit Linked Insurance Business: - Every insurer shall invest and at all

times keep invested his segregated fund(s) under Regulation 3(c) (with

underlying securities at custodian level) of Unit linked business as per

pattern of investment offered to and approved by the policy-holders

where the units are linked to categories of assets which are both

marketable and easily realizable. However the investment in Approved

Investments shall not be less than 75% of such fund(s) in each such

segregated fund”

7. Amendment to Regulation 4:

Regulation 4 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000, shall be substituted with the following:-

“Regulation of Investments

7. General Insurance Business – without prejudice section 27B of the

Act, every General insurer (including Health insurer) shall invest

and at all times keep invested his investment assets in the manner

set out below:

Appendix ‘A’

131

No Type of Investment Percentage of

Investment

Assets

(i) Central Government Securities

Not less than

20%

(ii) Central Government Securities, State

Government Securities or Other Approved

Securities

Not less than

30%

(incl (i) above)

(iii)

Approved Investments as specified in Section

27B of the Act and Other Investment as

specified in Section 27B(3) of the Act and

Schedule II to these Regulations, (all taken

together) subject to Exposure / Prudential

Norms as specified in Regulation 9:

Not exceeding

70%

(iv)

Other investments as specified under Section

27B (3) of the Act, subject to Exposure /

Prudential Norms as specified in Regulation 9:

Not more than

25%

(v)

Housing and loans to State Government for

Housing and Fire Fighting equipment, by way of

subscription or purchase of:

A. Investments in Housing

(d) Bonds / Debentures issued by HUDCO,

National Housing Bank

(e) Bonds / debentures of Housing Finance

Companies either duly accredited by

National Housing Banks, for house building

activities, or duly guaranteed by

Government or carrying current rating of

not less than ‘AA’ by a credit rating agency

registered under SEBI (Credit Rating

Agencies) Regulations, 1999

(f) Asset Backed Securities with underlying

Housing loans, satisfying the norms

specified in the Guidelines issued under

these regulations from time to time.

B. Investment in Infrastructure

(Explanation: Subscription or purchase of

Bonds/ Debentures, Equity and Asset Backed

Securities with underlying infrastructure assets

Total Investment

in housing (i.e.,)

investment in

categories (i),

(ii), (iii) and (iv)

above taken

together shall

not be less than

5% of the

Investment

Assets.

Total Investment

in Infrastructure

(i.e.,)

investment in

Technical Guide

132

No Type of Investment Percentage of

Investment

Assets

would qualify for the purpose of this

requirement.

‘Infrastructure facility’ shall have the meaning

as given in clause (h) of regulation 2 of

Insurance Regulatory and Development

Authority (Registration of Indian Insurance

Companies) (Amendment) Regulations, 2008

as amended from time to time.

Note: Investments made under category (i) and

(ii) above may be considered as

investment in housing or infrastructure,

as the case may be, provided the

respective government issues such a

security specifically to meet the needs of

any of the sectors specified as

‘infrastructure facility’

categories (i),

(ii), (iii) and (iv)

above taken

together shall

not be less than

10% of the

Investment

Assets.

8. Insert New Regulation 8:

Insert the following New Regulation 8 to the Insurance Regulatory and

Development Authority (Investment) Regulations, 2000:-

8. Reinsurance Business – Every re-insurer carrying on re-insurance

business in India shall invest and at all times keep invested his

investment assets in the same manner as set out in Regulation 7

9. Amendment of Note appended at the end of Regulation 4:

Note appended at the end of Regulation 4 of the Insurance Regulatory

and Development Authority (Investment) Regulations, 2000, shall be

substituted with the following:-

“Note – For the purpose of Regulations 3 to 8:

1. All investment in assets or instruments, which are capable of being

rated as per market practice, shall be made on the basis of credit

rating of such assets or instruments. No approved investment shall

be made in instruments, if such instruments are capable of being

rated, but are not rated.

2. The rating should be done by a credit rating agency registered

under SEBI (Credit Rating Agencies) Regulations, 199.

Appendix ‘A’

133

3. Corporate bonds or debentures rated not less than AA or its

equivalent and P1 or equivalent ratings for short term bonds,

debentures, certificate of deposit and commercial paper, by a

credit rating agency, registered under SEBI (Credit Rating

Agencies) Regulations, 1999 would be considered as ‘Approved

Investments’.

4. The rating of a debt instrument issued by All India Financial

Institutions recognized as such by RBI shall be of ‘AA’ or

equivalent rating. In case investments of this grade are not

available to meet the requirements of the investing insurance

company, and Investment Committee of the investing insurance

company is fully satisfied about the same, then, for the reasons to

be recorded in the Investment Committee’s minutes, the

Investment Committee may approve investments in instruments

carrying current rating of not less than ‘A+’ or equivalent as rated

by a credit rating agency, registered under SEBI (Credit Rating

Agencies) Regulations, 1999, would be considered as ‘Approved

Investments’.

5. Approved Investments under regulations 4, 5, 6, 7 and 8 which are

downgraded below the minimum rating prescribed should be

automatically re-classified under ‘Other Investments’ category for

the purpose of pattern of investment.

6. Investments in equity shares listed on a registered stock exchange

should be made in actively traded and liquid instruments viz.,

equity shares other than those defined as thinly traded as per

SEBI Regulations and guidelines governing mutual funds issued

by SEBI from time to time.

7 (a) Not less than 75% of investment in debt instruments

(including Central Government Securities, State Government

Securities or Other Approved Securities) in the case life

insurer and not less than 65% of investment in debt

instruments (including Central Government Securities, State

Government Securities or Other Approved Securities) in the

case of general insurer - shall be in sovereign debt, AAA or

equivalent rating for long term and sovereign debt, P1+ or

equivalent for short term instruments. This shall apply at

segregated fund(s) in case of Unit linked business.

(b) Not more than 5% of funds under Regulation 3 (a) and

Regulation 3 (c) in debt instruments (including Central

Government Securities, State Government Securities or

Technical Guide

134

Other Approved Securities) in the case of life insurer and not

more than 8% of investment in debt instruments (including

Central Government Securities, State Government Securities

or Other Approved Securities) in the case of general insurer

– shall have a rating of A or below or equivalent rating for

long term.

under Regulation 3 (b).

(d) Investments in debt instruments rated AA - (AA minus) or

below shall form part of Other Investments.

8 Notwithstanding the above, it is emphasized that rating should not

replace appropriate risk analysis and management on the part of

the Insurer. The Insurer should conduct risk analysis

commensurate with the complexity of the product(s) and the

materiality of their holding, or could also refrain from such

investments.

10. Amendment of Regulation 5:

Regulation 5 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000, shall be substituted with the following:-

9. Exposure / Prudential Norms

Without prejudice to anything contained in Sections 27A and 27B of the

Act every insurer shall limit his investment as per the following exposure

norms:

A. Exposure norms for investment assets of:

1. (a) all funds of Life insurance business and One Year

Renewable pure Group Term Assurance Business

(OYRGTA), and non-unit reserves of all categories of Unit

linked life insurance business.

(b) all funds of Pension, Annuity and Group Business [as

defined under Regulation 2 (d) of IRDA (Actuarial Report

and Abstract) Regulations, 2000].

funds, as per Regulation 6” Life, Pension, Annuity and

Group business and each segregated fund within Unit

Linked Insurance business (except for promoter group

exposure).

2. General Insurance business,

3. Re-insurance Business

Appendix ‘A’

135

for both Approved Investments as per the Act, Schedule I and Schedule

II of these Regulations, and Other Investments as permitted under

27A(2) and 27B(3) of the Act shall be as under.

B. The maximum exposure limit for a single ‘investee’ company

(equity, debt and other investments taken together) from all investment

assets under point (A.1.a, A.1.b, A.1.c all taken together), (A.2) and (A.3)

mentioned above, shall not exceed the lower of the following;

(i) an amount of 10% of investment assets as under Regulation 2 (g)

(1), Regulation 2 (g) (2)

(ii) an aggregate of amount calculated under point (a) and (b) of the

following table

Type of

Investment

(1)

Limit for

‘Investee’

Company

(2)

Limit for the

entire Group

of the Investee

Company

(3)

Limit for Industry

Sector to which

Investee

Company belongs

(4)

a. Investment

in ‘Equity’,

Preference

Shares,

Convertible

Debentures

10%* of

Outstanding

Equity Shares

(Face Value)

10% of the

amount under

point A.1.(a) or

A.1.(b) or

A.1.(c) above

considered

separately in

the case of Life

insurers /

amount under

A.2 or A.3 in

the case of

General Insurer

/ Re-insurer

whichever is

lower

Not more than

15% of the

amount under

point A.1.(a) or

A.1.(b) or

A.1.(c) or A.2

or A.3 or 15%

of investment

Assets in all

companies

belonging to

the group,

whichever is

lower

Exposure to

Investments

made in

companies

belonging to

Promoter

Group shall be

made as per

Investment by the

insurer in any

industrial sector

should not exceed

15% of the

amount under

point A.1.(a) or

A.1.(b) or A.1.(c)

or A.2 or A.3 or or

15% of investment

Asset, whichever

is lower

Note: Industrial

Sector shall be

classified in the

lines of National

Industrial

Classification (All

Economic

Activities) - 2008

[NIC] for all

sectors, except

b. Investment 10%* of the

Technical Guide

136

Type of

Investment

(1)

Limit for

‘Investee’

Company

(2)

Limit for the

entire Group

of the Investee

Company

(3)

Limit for Industry

Sector to which

Investee

Company belongs

(4)

in Debt /

Loans and

any other

permitted

Investments

as per Act /

Regulation

other than

item ‘a’

above.

Paid-up Share

capital, Free

reserves

(excluding

revaluation

reserve) and

Debentures /

Bonds of the

‘Investee’

company

10% amount

under point

A.1.(a) or

A.1.(b) or

A.1.(c) above

considered

separately in

the case of Life

insurers. An

amount under

A.2 or A.3 in

the case of

General Insurer

/ Re-insurer

whichever is

lower.

Point 7 under

notes to

Regulation 9

infrastructure

sector. Exposure

shall be

calculated at

Division level

from A to R. For

Financial and

Insurance

Activities sector

exposure shall be

at Section level.

Exposure to

‘infrastructure’

investments are

subject to Note: 1,

2, 3 and 4

mentioned below

* In the case of insurers having investment assets within the meaning of

Regulation 2 (g) (1) and Regulation 2 (g) (2) of the under mentioned size,

the (*) marked limit in the above table for investment in equity,

preference shares, convertible debentures, debt, loans or any other

permitted investment under the Act / Regulations, shall stand substituted

as under:

Appendix ‘A’

137

Investment assets Limit for ‘investee’ company

Equity Debt

Rs 250000 Crores

or more 15% of outstanding

equity shares (face

value)

15% of paid up share

capital, free reserves

(excluding revaluation

reserve) & debentures /

bonds

Rs. 50000 Crores

but less than Rs.

250000 Crores

12% of outstanding

equity shares (face

value)

12% of paid up share

capital, free reserves

(excluding revaluation

reserve) & debentures /

bonds

Less than Rs.

50000 Crores 10% of outstanding

equity shares (face

value)

10% of paid up share

capital, free reserves

(excluding revaluation

reserve) & debentures /

bonds

Note:

1 Industry sector norms shall not apply for investments made in

‘Infrastructure facility’ sector as defined under Regulation 2(h) of

IRDA (Registration of Indian Insurance Companies) Regulations,

2000 as amended from time to time. NIC classification shall not

apply to investments made in ‘Infrastructure facility’

2 Investments in Infrastructure Debt Fund (IDF), backed by Central

Government as approved by the Authority, on a case to case basis

shall be reckoned for investments in Infrastructure.

3 Exposure to a public limited ‘Infrastructure investee company’ will

be 20% of outstanding equity shares (face value) in case of equity

(or) 20% of equity plus free reserves (excluding revaluation

reserve) plus debentures / bonds taken together, in the case of

debt (or) amount under Regulation 9 (B) (i), whichever is lower.

The 20% mentioned above, can be further increased by an

additional 5%, in case of debt instruments alone, with the prior

approval of Board of Directors. The outstanding tenure of debt

instruments, beyond the exposure prescribed in the above table, in

an infrastructure Investee Company, should not be less than 5

years at the time of investment. In case of Equity investment,

dividend track record as per Sec 27A (I) (I) and 27B (I) (h) of the

Act, in the case of primary issuance of a wholly owned subsidiary

Technical Guide

138

of a Corporate / PSU shall apply to the holding company. However

all investments made in an ‘infrastructure investee company’ shall

be subject to group / promoter group exposure norms.

4 An insurer can, at the time of investing, subject to group / promoter

group exposure norms, invest a maximum of 20% of the project

cost (as decided by a competent body) of an Public Limited

Special Purpose Vehicle (SPV) engaged in infrastructure sector

(or) amount under Regulation 9 (B) (i), whichever is lower, as a

part of Approved Investments provided:

(a) such investment is in Debt

(b) the parent company guarantees the entire debt extended and

the interest payment of SPV

days of the due date, such debt shall be classified under

other investments.

(d) the latest instrument of the parent company (ies) has (have)

rating of not less than AA

(e) such guarantee of the parent company (ies) should not

exceed 20% of net worth of parent company (ies) including

the existing guarantees, if any, given

(f) the net worth of the parent company (ies), if unlisted, shall

not be less than Rs. 500 crores or where the parent company

(ies) is listed on stock exchanges having nationwide

terminals, the net worth shall not be less than Rs. 250 Crores

Investment Committee should continuously evaluate the risk of

such investments and take necessary corrective actions where the

parent company (ies) is floating more than one SPV

5 Investment in securitized assets [Mortgaged Backed Securities

(MBS) / Asset Backed Securities (ABS) / Security Receipts (SR)

both under approved and other investment category shall not

exceed 10% of Investment Assets in case of Life companies and

5% of Investment Asset in the case of Non-life companies.

Approved Investment in MBS / ABS with underlying Housing or

Infrastructure Assets shall not exceed 10% of investment assets in

the case of life companies and not more than 5% of investment

assets in the case of non-life companies. Any MBS / ABS with

underlying housing or infrastructure assets, if downgraded below

AAA or equivalent, shall be reclassified as Other Investments.

Appendix ‘A’

139

6 Investment in immovable property covered under Section 27A (I)

(n) of the Act shall not exceed, at the time of investment, 5% of (a)

Investment Assets in the case of general insurer and (b) 5% of

Investment Assets of funds relating to life funds, pension, annuity

and group funds in the case of life insurer

7 Subject to exposure limits mentioned in the table above, an insurer

shall not have investments of more than 5% in aggregate of its

total investments in all companies belonging to the promoters’

groups. Investment made in all companies belonging to the

promoters’ group shall not be made by way of private placement

(equity) or in unlisted instruments (equity, debt, certificate of

deposits and fixed deposits (without prejudice to Section 27A (9)

and Section 27B (10) of the Act) held in a Scheduled Commercial

Bank), except for companies formed by Insurers under Sec 27A

(4) or Sec 27B (5) of the Act.

8 The exposure limit for financial and insurance activities (as per

Section K of NIC classification – 2008) shall stand at 25% of

investment assets for all insurers.

9 Investment in fixed deposit and certificate of deposit of a

Scheduled Bank shall be made in terms of the provisions of

Section 27A (9) and Section 27B (10) of the Act. Such investments

would not be deemed as exposure to financial and insurance

activities (as per Section K of NIC classification - 2008).

7. Amendment of Regulation 6:

Regulation 6 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000, shall be substituted with the following:-

“10. Returns to be submitted by an Insurer

Every insurer shall submit to the Authority the following returns within

such time, at such intervals duly verified/certified in the manner as

indicated there against.

Technical Guide

140

No Form Description Periodicity

of Return Time limit

for

submission

Verified /

Certified by

1 Form

1 Statement of

Investment

and Income

on Investment

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer / Chief

(Investments)

/ Chief of

(Finance)

2 Form

(Part

A, B)

Statement of

Downgraded

Investments,

Details of

Rated

Instruments

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer /

Chief of

(Investments)

/ Chief of

(Finance)

3 Form

(Part

A, B,

D,E)

Statement of

Investments

Assets (Life

Insurers)

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer /

Chief of

(Investments)

/ Chief of

(Finance)

4 Form

(Part

A, B)

Statement of

Investment

Assets

(General

Insurance &

Re-insurer)

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer /

Chief of

(Investments)

/ Chief of

(Finance)

5 Form

(Part

Exposure /

Prudential and

other

Investment

Norms –

Compliance

Certificate

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer, Chief

(Investments)

/ Chief of

(Finance)

6 Form

4 Internal /

Concurrent Quarterly Within 30

days of the Internal /

Concurrent

Appendix ‘A’

141

No Form Description Periodicity

of Return Time limit

for

submission

Verified /

Certified by

(Part

B) Auditor's

Certificate on

Investment

Risk

Management

Systems -

Implementatio

n Status

end of the

Quarter Auditor

appointed

under this

regulation

7 Form

(Part

A, B,

Statement of

Investment

Subject to

Exposure

Norms –

Investee

Company,

Group,

Promoter

Group,

Industry

Sector

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer / Chief

(Investments)

/ Chief of

(Finance)

8 Form

5 Statement of

Investment

Reconciliation

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer / Chief

(Investments)

/ Chief of

(Finance)

9 Form

5A Statement of

Investment in

Mutual Funds

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer / Chief

(Investments)

/ Chief of

(Finance)

10 Form

6 Certificate

under

sections 28

(2A), 28 (2B)

and 28B (3) of

Quarterly Within 30

days of the

end of the

Quarter

Chairman,

Director 1,

Director 2,

Principal

Officer

Technical Guide

142

No Form Description Periodicity

of Return Time limit

for

submission

Verified /

Certified by

the Insurance

Act, 1938

11 Form

7 Statement of

Non-

Performing

Assets

Quarterly Within 30

days of the

end of the

Quarter

Principal

Officer / Chief

(Investments)

/ Chief of

(Finance)

Note:

1. The Internal / Concurrent Audit Report of the previous quarter with

comments of Audit Committee of the Board, on ‘very serious’,

‘serious’ points (as per the Technical Guide on Internal /

Concurrent Audit of Investment functions of Insurance Companies,

issued by the Institute of Chartered Accountants of India) in the

report, and status of implementation of Audit committee

recommendation shall be filed with the Authority along with current

quarter returns

2. All returns for the quarter ending March shall be filed within the

period stipulated above based on provisional figures and later re-

submitted with Audited figures within 15 days of adoption of

accounts by the Board of Directors.

8. Amendment of Regulation 7:

Regulation 7 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000, shall be substituted with the following:-

11. Power to call for additional information.

The authority may, by general or special order, require from the insurers

such other information in such manner, intervals and time limit as may be

specified therein.

9. Amendment of Regulation 8:

Regulation 8 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000, shall be substituted with the following:-

12. Duty to Report extraordinary events affecting the investment

portfolio.

Appendix ‘A’

143

Every insurer shall report to the Authority forthwith, the effect or the

probable effect of any event coming to his knowledge, which could have

material adverse impact on the investment portfolio and consequently on

the security of policy-holder benefits or expectations.

10. Amendment of Regulation 9:

Regulation 9 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000, shall be substituted with the following:-

“13. Provisions on Investment Management

A. Constitution of Investment Committee

1. Every insurer shall constitute an Investment Committee which

shall consist of a minimum of two non-executive directors of the

Insurer, the Chief Executive Officer, Chief of Finance, Chief of

Investment division, and wherever an appointed actuary is

employed, the Appointed Actuary. The decisions taken by the

Investment Committee shall be recorded and be open to

inspection by the officers of the Authority.

B. Investment Policy

1. Every Insurer shall draw up, an Investment Policy (fund wise IP in

the case of Unit Linked Insurance Business) and place the same

before its Board of Directors for its approval and its annual review.

2. Every insurer shall have a model code of conduct to prevent

insider / personal trading of Officers involved in various levels of

Investment Operations in compliance with SEBI (Prohibition of

Insider Trading) Regulation, 1992 as amended from time to time

and place the same before its Board of Directors for its approval.

3. While framing the Investment Policy, the Board shall ensure

compliance with the following:

(i) Issues relating to liquidity, prudential norms, exposure limits,

stop loss limits including securities trading, management of

all investment risks, management of assets liabilities

mismatch, Scope of Internal or Concurrent audit of

Investments and investment statistics and all other internal

controls of investment operations, the provisions of the

Insurance Act, 1938 and Insurance Regulatory and

Development Authority (Investment) Regulations, 2000,

Guidelines and Circulars made there under.

Technical Guide

144

(ii) Ensuring adequate return on policyholders and shareholders’

funds consistent with the protection, safety and liquidity of

such fund(s).

4. The investment policy of both Life and Non-Life insurers, as

approved by the Board shall be implemented by the investment

committee. The Board shall review on a quarterly basis the

monitoring of fund wise and product wise performance.

5. The Board shall review the investment policy and its

implementation on a half-yearly basis or at such short intervals as

it may decide and make such modification to the investment policy

as is necessary to bring it in line with the investment provisions

laid down in the Act and Regulations made there under, keeping in

mind protection of policyholders’ interest and pattern of investment

laid down in these regulations or in terms of the agreement

entered into with the policyholders in the case of unit linked

insurance business.

C. Investment Operations

1. The funds of the insurer shall be invested and continued to be

invested in equity shares, equity related instruments and debt

instruments rated as per Note below Regulations 3 to 8 by a credit

rating agency, registered under SEBI (Credit Rating Agencies)

Regulations, 1999. The Board shall lay down clear norms for

investing in ‘Other Investments’ as specified under sections 27A(2)

and 27B(3) of the Insurance Act, 1938 by the investment

committee, taking into account the safety and liquidity of the

policyholders’ funds and protection of their interest.

2. As required under Chapter II, Regulation 7 (c) of IRDA

(Registration of Indian Insurance Companies) Regulations, 2000,

to ensure proper internal control of investment functions and

operations the insurer shall clearly segregate the functions and

operations of front, mid and back office (as provided in the

Technical Guide on Internal / Concurrent Audit of Investment

functions of Insurance Companies issued by the Institute of

Chartered Accountants of India) and no function falling under

Front, Mid and Back Office Investment function(s), shall be

outsourced. Also, the primary data server of the computer

application used for investment management shall remain within

the country.

Appendix ‘A’

145

D. Processing of Unit Linked Business Applications and

Declaration of NAV

1. All applications received for premium payment, switches,

redemption, surrender, maturity claim etc., should be time

stamped and dated.

2. Applications for “premium payment”

a. for applications received, with local cheques, cash or

demand draft payable at par at the place where the premium

is received, before cut-off time (3.00 pm) on a business

day, the applicable NAV would be the closing NAV of the

same day.

b. for applications received, along with local cheques, cash or

demand draft payable at par at the place where the premium

is received, after cut-off time (3.00 pm) on a business day,

the applicable NAV would be the closing NAV of the next

business day.

c. for premiums received with an outstation cheque or demand

draft, the closing NAV of the day on which the cheque /

Demand Draft is realized shall be applied.

3. Applications for “other than” premium payment

a. for applications received before the cut-off time (3.00 pm)

on a business day, the applicable NAV would be the closing

NAV of the same day.

b. for applications received, after the cut-off time (3.00 pm)

on a business day, the applicable NAV would be the closing

NAV of the next business day.

4. Daily disclosure / reconciliation of Product and Fund

information

a. Every insurer doing Unit linked business shall reconcile,

through the system, the premium received (net of charges

and benefits paid) under each product (Unique Identification

Number – UIN) with value of all the segregated fund(s)

(Segregated Fund Identification Number – SFIN) net of fund

management charges, held under a single UIN, on a day to

day basis.

b. The insurer shall disclose UIN wise reconciliation (as in

point ‘a’ above) and the value of policy wise units held by

Technical Guide

146

policyholder on the insurers website and fund wise NAV

(SFIN wise) on both the Insurer’s website and life council

website on the same day.

c. The internal / concurrent Auditor shall report on the

automated system and process to handle the UIN wise

reconciliation (as in point ‘a’ above) and value of policy wise

units held by policyholder and fund wise NAV, on a quarterly

basis

5. Applicable NAV for the applications received on the last

business day of the Financial Year

a. for applications received on the last business day of the

financial year UP TO 3.00 pm shall be processed with NAV

of the last business day (irrespective if the payment

instrument is local or outstation)

b. for applications received AFTER 3.00 pm on the last

business day, the same shall fall into the next Financial

Year and NAV of the immediate next business day would

be applicable.

c. The insurer shall declare NAV for the last business day of a

Financial Year, even if it is a non business day.

6. For allotment of units, the applicable NAV shall be as per the date

of commencement of policy for new policy contracts and date of

receipt of premium for renewals.

7. All Insurers shall file a certificate, issued by Internal / Concurrent

Auditor for compliance of each of the directions issued at point 5

above, regarding the applicable NAV for applications received on

the last business day. The Statutory Auditors shall also confirm the

same in the Annual Accounts.

Note:

Business day shall mean days other than holidays where stock

exchanges with national wide terminals are open for trade (other than

day on which exchanges are open for testing) or any day declared by the

Authority as business day.

Appendix ‘A’

147

E. Risk Management Systems and its Review

1. The Board shall implement the Investment Risk Management

Systems and Process, mandated by the Authority. The

implementation shall be certified by a Chartered Accountant firm,

as per the procedure laid down in the “Technical Guide on Review

and Certification of Investment Risk Management Systems and

Process of Insurance Companies”, issued by the Institute of

Chartered Accountants of India, as amended from time to time.

2. The Investment Risk Management Systems and Process shall be

reviewed at the beginning of every second financial year or such

shorter frequency as decided by the Board of the Insurer, by a

Chartered Accountant firm and file the certificate issued by such

Chartered Accountant, with the Authority along with the first

quarter returns.

3. The appointment of Chartered Accountant firm to certify

implementation and review of Investment Risk Management

Systems and Process shall be as per the circular issued under

these regulations.

F. Audit and Reporting to Management

1. Every Insurer shall constitute an Audit Committee of the Board.

The Audit Committee shall be headed by a Chartered Accountant,

if he is a member in the Board of the Insurer.

2. The Insurer shall have the investment transactions covering both

Shareholders and Policyholders funds be audited through Internal

or Concurrent Auditor as per the circular issued under this

regulation.

3. The quarterly internal / concurrent audit report, covering

investments of both shareholders as well as policyholders, shall be

as per the “Technical Guide on Internal / Concurrent Audit of

Investment functions of Insurance Companies” issued by the

Institute of Chartered Accountants of India, as amended from time

to time.

4. The Details of Investment Policy, implementation status of

Investment Risk Management Systems and Process or its review

shall be made available to the internal or concurrent auditor. The

auditor shall comment on such review and its impact on the

investment operations, systems and process in their report to be

placed before the Board’s Audit Committee.

Technical Guide

148

G. Category of Investments

1. Every Insurer shall invest all his fund(s) only within the exhaustive

category of investments listed in the guidelines issued by the

Authority, as amended from time to time.

H. Others

1. The Authority may call for further information from time to time

from the insurer as it deems necessary and in the interest of

policyholders and issue such directions to the insurers as it thinks

fit.

11. Amendment of Regulation 10:

Regulation 10 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000, shall be substituted with the following:-

14. Miscellaneous.

1. Accounting of Investments shall be as per the Insurance

Regulatory and Development Authority (Preparation of Financial

Statements and Auditor’s Report of Insurance Companies)

Regulations, 2000 and Valuation of Assets shall be as per

guidelines issued under these regulations from time to time.

2. The Authority may, by any general or special order, modify or

change the application of sub-regulations (3), (4), (5), (6), (7), (8),

(9) and (10) to any insurer either on its own or on an application

made to it.

12. Amendment of Regulation 11:

Regulation 11 of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000, shall be substituted with the following:-

“15. Dealing in Financial Derivatives

1. Every Insurer carrying on the business of life insurance or general

insurance may deal in financial derivatives only to the extent

permitted and in accordance with the guidelines issued by the

Authority in this regard from time to time.

2. Any margin or unamortized premium paid by any insurer in

connection with the financial derivatives to the extent they are

reflected as asset position in the balance sheet of the insurer in

accordance with the guidelines issued by the Authority, shall be

treated as ‘Approved Investment’ under Schedule I and Schedule

II to these Regulations, only to the extent the derivative position

Appendix ‘A’

149

constitutes a hedge for the underlying investment or portfolio

which itself is treated as an approved investments under these

regulations. All other margins or unamortized premium paid, to the

extent reflected in the balance sheet of the insurer in accordance

with the guidelines issued by the Authority in this regard from time

to time, shall be treated as ‘Other Investments”

13. Amendment of Schedule I:

Schedule I of the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000 shall be substituted with the following:-

Schedule I

(See Regulation 3 to 6)

List of Approved Investments for Life Business

‘Approved Investments’ for the purposes of section 27A of the Act shall

consist of the following:

(a) all investments specified in section 27A of the Act except

(i) clause (b) of sub-section (I) of section 27A of the Act;

(ii) first mortgages on immovable property situated in another

country as stated in clause (m) of sub-section (I) of section

27A of the Act;

(iii) Immovable property situated in another country as stated in

clause (n) of sub-section (I) of section 27A of the Act.

(b) In addition the following investments shall be deemed as approved

investments by the Authority under the powers vested in it vide

clause (s) of sub-section (I) of section 27A of the Act.

(i) All loans secured as required under the Act, rated

debentures (including bonds) and other rated & secured debt

instruments as per Note appended to Regulation 3 to 8.

Equity shares and preference shares and debt instruments

issued by all India Financial Institutions recognized as such

by Reserve Bank of India – investments shall be made in

terms of investment policy guidelines, benchmarks and

exposure norms, limits approved by the Board of Directors of

the insurer.

(ii) Bonds or debentures issued by companies rated not less

than AA or its equivalent and P1 or equivalent ratings for

short term bonds, debentures, certificate of deposits and

commercial papers by a credit rating agency, registered

Technical Guide

150

under SEBI (Credit Rating Agencies) Regulations 1999 would

be considered as ‘Approved Investments’.

(iii) Subject to norms and limits approved by the Board of

Directors of the insurers deposits (including fixed deposits as

per section 27A (9) of Insurance Act, 1938) with banks (e.g.

in current account, call deposits, notice deposits, certificate

of deposits etc.) included for the time being in the Second

Schedule to Reserve Bank of India Act, 1934 (2 of 1934) and

deposits with primary dealers duly recognized by Reserve

Bank of India as such.

(iv) Collateralized Borrowing and Lending Obligations (CBLO)

created by the Clearing Corporation of India Ltd and

recognized by the Reserve Bank of India and exposure to

Gilt, G Sec and liquid mutual fund forming part of Approved

Investments as per Mutual Fund Guidelines issued under

these regulations and money market instrument / investment.

(v) Asset Backed Securities with underlying Housing loans or

having infrastructure assets as underlying as defined under

‘infrastructure facility’ in clause (h) of regulation 2 of

Insurance Regulatory and Development Authority

(Registration of Indian Insurance Companies) Amendment

Regulations, 2008 as amended from time to time.

(vi) Commercial papers issued by a company or All India

Financial Institution recognized as such by Reserve Bank of

India having a credit rating by a credit rating agency

registered under SEBI (Credit Rating Agencies) Regulations

1999.

(vii) Money Market instruments as defined in Regulation 2(h) of

these Regulation.

Explanation –

1. All conditions mentioned in the ‘note’ appended to Regulation 3 to 8 shall

be complied with.

14. Amendment of Schedule II:

Schedule II to the Insurance Regulatory and Development Authority

(Investment) Regulations, 2000 shall be substituted with the following:-

Appendix ‘A’

151

Schedule II

(See Regulation 7 & 8)

List of Approved Investments for General Business

‘Approved Investments’ for the purpose of section 27B of the Act shall

consist of the following:

(a) All investments specified in section 27B of the Act except

(i) clause (b) of sub-section (I) of section 27A of the Act;

(ii) Immovable property situated in another country as stated in

clause (n) of sub-section (I) of section 27A of the Act;

(iii) First mortgages on immovable property situated in another

country as stated in clause (i) of sub-section (I) of section

27B of the Act.

(b) In addition the following investments shall be deemed as approved

investments by the Authority under the powers vested in it vide

clause (j) of sub-section (I) of section 27B of the Act:

(i) All loans secured as per the Act, rated debentures (including

bonds) and other rated & secured debt instruments as per

Note appended to Regulations 3 to 8. Equity shares,

preference shares and debt instruments issued by All India

Financial Institutions recognized as such by Reserve Bank of

India – investments shall be made in terms of investment

policy guidelines, benchmarks and exposure norms, limits

approved by the Board of Directors of the insurer.

(ii) Bonds or debentures issued by companies rated not less

than AA or its equivalent and P1 or Equivalent ratings for

short term bonds, debentures, certificate of deposits and

commercial papers by a credit rating agency, registered

under SEBI (Credit Rating Agencies) Regulations 1999 would

be considered as ‘Approved Investments’.

(iii) Subject to norms and limits approved by the Board of

Directors of the insurers deposits (including fixed deposits as

per section 27B (10) of Insurance Act, 1938) with banks (e.g.

in current account, call deposits, notice deposits, certificate

of deposits etc.) included for the time being in the Second

Schedule to Reserve Bank of India Act, 1934 (2 of 1934) and

deposits with primary dealers duly recognized by Reserve

Bank of India as such.

Technical Guide

152

(iv) Collateralized Borrowing & Lending Obligations (CBLO)

created by the Clearing Corporation of India Ltd and

recognized by the Reserve Bank of India and exposure to

Gilt, G Sec and liquid mutual fund forming part of Approved

Investments as per Mutual Fund Guidelines issued under

these regulations and money market instrument / investment.

(v) Asset Backed Securities with underlying Housing loans or

having infrastructure assets as underlying as defined under

‘infrastructure facility’ in clause (h) of regulation 2 of

Insurance Regulatory and Development Authority

(Registration of Indian Insurance Companies) Amendment

Regulations, 2008 as amended from time to time.

(vi) Commercial papers issued by a company or All India

Financial Institution recognized as such by Reserve Bank of

India having a credit rating by a credit rating agency

registered under SEBI (Credit Rating Agencies) Regulations

1999

(vii) Money Market instruments as defined in Regulation 2(h) of

this Regulation.

Explanation:

1. All conditions mentioned in the ‘note’ appended to Regulation 3 to

8 shall be complied with.

J. HARI NARAYAN, Chairman

[ADVT. III/4/161/12/Exty.]

Appendix ‘A’

153

Name of the Insurer:

Registration Number:

Statement as on: Name of the Fund

Periodicity of Submission: Quarterly Rs Crore

Investment

(Rs.)¹

Income on

Investment

(Rs.)

Gross Yield

(%)¹ Net Yield (%)² Investment

(Rs.)¹

Income on

Investment

(Rs.)

Gross Yield

(%)¹ Net Yield (%)² Investment

(Rs.)¹

Income on

Investment

(Rs.)

Gross Yield

(%)¹ Net Yield (%)²

TOTAL

CERTIFICATION

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Signature

Date: Full Name

Chief of Finance

Note:

2Yield netted for Tax

3In the previous year column, the figures of the corresponding Year to date of the previous financial year shall be shown

4FORM-1 shall be prepared in respect of each fund. In case of ULIP FORM 1 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.

FORM - 1

(Read with Regulation 10)

Statement of Investment and Income on Investment

Year to Date (previous year)

Based on daily simple Average of Investments

No.

Current Quarter Year to Date (current year)

Category

Code

Category of Investment

Category of Investment (COI) shall be as per Guidelines, as amended from time to time

Technical Guide

154

PART - A

Name of the Insurer:

Registration Number:

Statement as on: Name of Fund

Rs Crore

No Name of the Security COI Amount Date of

Purchase Rating Agency Original Grade Current Grade Date of

Downgrade Remarks

A. During the Quarter ¹

B. As on Date ²

CERTIFICATION

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Signature

Date: Full Name and Designation

Note: Chief Finance Officer

1Provide details of Down Graded Investments during the Quarter.

2Investments currently upgraded, listed as Down Graded during earlier Quarter shall be deleted from the Cumulative listing.

3FORM-2 shall be prepared in respect of each fund. In case of ULIP FORM 1 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.

4Category of Investmet (COI) shall be as per INV/GLN/001/2003-04

Periodicity of Submission: Quarterly

FORM - 2

(Read with Regulation 10)

Statement of Down Graded Investments

Appendix ‘A’

155

FORM - 2 PART - B

Registration No : Name of the fund

INVESTMENT ASSETS - RATING PROFILE Rs. Cr

BV % to Inv.

Assets BV % to Inv.

Assets

(i)

i Central Govt Securities

ii State Govt Sec. or Other

Approved Securities

iii (1) Housing Sector

(a) Debt or debt related

instruments

(b) Loans

(2) Infrastructure Sector

(a) Debt or debt related

instruments

(b) Equity or equity related

instruments

(Read with Regulation 10)

Total BV

(a)

AA+ or Equivalent

(d)

Unrated

(h)

A or lower upto A+

or Equivalent

or lower than A or

Equivalent

Equity or Equity

Related Instruments

and other Instruments

(f) (g)(c)

Name of the Insurer :

No Type of Investments

Investments in

Sovereign

instruments AAA or Equivalent NPA

(b) (e)

Technical Guide

156

(d) Others (Specify)

(3) Approved Investments

(a) Debt or debt related

instruments

(b) Equity or equity related

instruments

(d) Investment Property -

Immovable

(e) Mutual Fund

(f) Money Market

(g) Net current assets

(h) Others (Specify)

iv Other Investments

(a) Debt or debt related

instruments

(b) Equity or equity related

instruments

(d) Investment Property -

Immovable

(e) Mutual Fund

(f) Others (specify)

Investment Asset

Appendix ‘A’

157

Rs. Cr

Note: Chief of Finance

1 The figures in Col (i) must match (for each type of investment) with Form 3A (Part A)/Form 3B

2 Non-Perfoming investment assets shall be separately shown irrespective of the rating

3 For Linked business values of Investments shall be at Market Value

4 Equity or Equity related instruments shall be as permitted under the Insurance Act, 1938 or IRDA (Investment) Regulations, 2000 as amended from time to time

5 FORM - 2 (Part B) shall be prepared in respect of each fund. In case of ULIP Form 2 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.

Investment in 'Debt' instruments

APPROVED INVESTMENTS

Book Value (Life, Penison Fund

and General Insurers)

Investments in Sovereign instruments

AAA or upto AA or Equivalent

Market Value (for

ULIP Funds)

Full Name :

covered in the return are within the categories provided in Investment Guidelines as amended from time to time.

Signature :

Total Debt Investments (a to g)

Unrated, Loans, Others - Other Invt

AA-,A, lower than A or Equivalent

MM, Loans, Others - Approved Invt

Certified that the information given herein are correct and complete to the best of my knowledge. Also certified that the various investments made and

OTHER INVESTMENTS

Technical Guide

158

Name of the Insurer: PART - C

Registration No:

Name of the Fund

INVESTMENT ASSETS Rs Crore % to Inv. Assets

Central Govt. Sec + Other Approved Securities

TOTAL (1)

Approved Investments

AAA or upto AA or Equivalent

Equity - Approved Invt

MM, Loans, Others - Approved Invt

TOTAL (2)

Other Investments

AA-, A, lower than A or Equivalent

Equity - Other Invt

Unrated, NPA, Loans, Others - Other Invt

TOTAL (3)

TOTAL FUND (1+2+3)

INFRASTRUCTURE INVESTMENTS

Approved Investments

AAA or upto AA or Equivalent

Equities-Approved

MM, Loans, Others-Approved Invt

TOTAL (1)

Other Investments

AA-,A, lower than A or Equivalent

Equities-Other Investments

Loans, NPAs, Others - Other Invt

TOTAL (2)

Total Infra Investment (1+2)

TOTAL FUND 0

Signature:

Full name:

Chief of Finance

Note:

1. The figures in Col (i) must match (for each type of investment) with Form 3A (Part A)/Form 3B

2. FORM - 2 (Part C) shall be prepared in respect of life fund

Certification

Certified that the information given herein are correct and complete to the best of my knowledge. Also certified that the various

investments made and covered in the return are within the categories provided in Investment Guidelines as amended from time to

time.

FORM - 2

(Read with Regulation 10)

INVESTMENT ASSETS & INFRA INVESTMENTS - RATING PROFILE

Appendix ‘A’

159

Name of the Insurer:

Registration Number: PART - A

Statement as on:

Rs. Crore

Section I

Total Application as per Balance Sheet (A) 0 Reconciliation of Investment Assets

Add (B) Total Investment Assets (as per Balance Sheet) 0

Provisions Sch-14 Balance Sheet Value of:

Current Liabilities Sch-13 A. Life Fund

0B. Pention & General Annuity and Group Business

Less (C ) C. Unit Linked Funds

Debit Balance in P& L A/c 0

Deferred tax asset

Loans Sch-09

Adv & Other Assets Sch-12

Cash & Bank Balance Sch-11

Fixed Assets Sch-10

Misc Exp. Not Written Off Sch-15

Funds available for Investments 0

Section II

NON - LINKED BUSINESS

Balance FRSM+UL-Non Unit

Res PAR NON

(a) (b) (c) (d) (e) (f) =

[a+b+c+d+e] (g) = [(f) -

(a)]% (h) (i)=(a+f+h) (j)

1 Central Govt. Sec Not Less

than 25%

2Not Less

than 50%

3Investment subject to Exposure Norms

a. Housing & Infrastructure

1. Approved Investments

2. Other Investments

b. i) Approved Investments

ii) Other Investments

TOTAL LIFE FUND 100%

PAR NON

(a) (b) (c)= (a+b) (d) (e) (f)=(c+e) (g)

1 Central Govt. Sec

3 Balance in Approved investment

LINKED BUSINESS

PAR NON

1 Approved Investments (a) (b) (c)= (a+b) (d)

2 Other Investments

CERTIFICATION:

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Signature:

Date: Full name:

Chief of Finance

Note 1 (+) FRSM refers to 'Funds representing Solvency Margin'

2 Funds beyond Solvency Margin shall have a separate Custody Account.

3 Other Investments' are as permitted under Secction 27A(2) of Insurance Act, 1938

4 Pattern of Investment is applicable to both Shareholders funds representing solvency margin and policyholders funds.

5 Exposure Norms shall apply to Funds held beyond Solvency Margin, held in a separate Custody Account

FORM - 3A

(Read with Regulation 10)

Statement of Investment Assets (Life Insurers)

(Business within India)

Periodicity of Submission: Quarterly

Actual %

Not Less than 75%

Not More than 25%

TOTAL LINKED INSURANCE FUND 100%

Total Fund

TOTAL PENSION, GENERAL ANNUITY FUND 100%

C. LINKED FUNDS % as per Reg PH

Not Exceeding 60%

Market

Value

Central Govt Sec, State Govt Sec or Other Approved

Securities

(

incl

(

)

above

)

Not Less

than 15%

Not

exceeding

35%

B. PENSION & GENERAL ANNUITY AND GROUP

BUSINESS % as per Reg

PH Book Value Actual % FVC

Amount Total Fund Market

Value

Not Less than 20%

Central Govt Sec, State Govt Sec or Other Approved

Securities (incl (i) above) Not Less than 40%

Actual % FVC Amount Total Fund

A. LIFE FUND % as per

Reg

SH PH Book Value

(SH+PH)

Technical Guide

160

PART - B

Name of the Insurer:

Registration Number:

Link to Item 'C' of FORM 3A (Part A)

Periodicty of Submission: Quarterly

Statement as on:

PARTICULARS

Opening Balance (Market Value)

Add: Inflow during the Quarter

Increase / (Decrease) Value of Inv [Net]

Less: Outflow during the Quarter

TOTAL INVESTIBLE FUNDS (MKT VALUE)

Actual Inv. % Actual Actual Inv. % Actual Actual Inv. % Actual Actual Inv. % Actual

Approved Investments (>=75%)

Central Govt Securities

State Governement Securities

Other Approved Securities

Corporate Bonds

Infrastructure Bonds

Equity

Money Market Investments

Mutual funds

Deposit with Banks

Sub Total (A)

Current Assets:

Accrued Interest

Dividend Recievable

Bank Balance

Receivable for Sale of Investments

Other Current Assets (for Investments)

Less: Current Liabilities

Payable for Investments

Fund Mgmt Charges Payable

Other Current Liabilities (for Investments)

Sub Total (B)

Other Investments (<=25%)

Corporate Bonds

Infrastructure Bonds

Equity

Mutual funds

Venture funds

Others

Sub Total (C)

Total (A + B + C)

Fund Carried Forward (as per LB 2)

Signature:

Date : Full name:

Chief of Finance

Note:

1. The aggregate of all the above Segregated Unit-Funds should reconcile with item C of FORM 3A (Part A), for both Par & Non Par Business

2. Details of Item 12 of FORM LB 2 which forms part of IRDA (Acturial Report) Regulation, 2000 shall be reconciled with FORM 3A (Part B).

3. Other Investments' are as permitted under Sec 27A(2)

FORM 3A

(Read with Regulation 10)

Unit Linked Insurance Business

INVESTMENT OF UNIT FUND SFIN 1 SFIN 2 SFIN 'n' Total of All Funds

SFIN 1 SFIN 2 SFIN 'n' Total of All Funds

Appendix ‘A’

161

Name of the Insurer:

Registration Number: PART - C

Link to FORM 3A (Part B)

Statement for the period:

Periodicity of Submission: Quarterly

Rs.Crore

1 Segregated Fund 1

2 Segregated Fund 2

3 Segregated Fund n

Total

CERTIFICATION

Certified that the performance of all segregated funds have been placed and reviewed by the Board. All information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my

knowledge and belief.

DATE : Signature:

Note: Full Name :

Chief of Finance

1. * NAV should reflect the published NAV on the reporting date

2nd Previous

Qtr NAV 3rd Previous

Qtr NAV 4th Previous

Qtr NAV Return/Yield

No Fund Name SFIN Date of

Launch Par/Non Par Assets Under

Management on

the above date

NAV as per

LB 2 NAV as on the

above date* Previous Qtr

NAV

FORM - 3A

(Read with Regulation 10)

Statement of NAV of Segregated Funds

3 Year Rolling

CAGR

Highest NAV

since

inception

Technical Guide

162

PART - D

Name of the Insurer:

Registration Number: Link to FORM 3A (Part A)

Statement as on:

Statement of Accretion of Funds

(Business within India) Rs.Crore

Periodicity of Submission : Quarterly

Opening

Balance

Net Accretion

for the Qtr. TOTAL

(1) (2) (1+2)

A LIFE FUND

1 Central Govt. Sec Not less than

25%

2 Central Govt Sec, State Govt Sec or Other Approved Securities (incl (i) above) Not less than

50%

3Investment subject to Exposure Norms

a. Housing & Infrastructure

1. Approved Investments

2. Other Investments

b. (i) Approved Investments

Not

exceeding

35%

(ii) Other Investments (Not to exceed 15%)

Total (A)

Opening

Balance

Net Accretion

for the Qtr. TOTAL

(1) (2) (1+2)

B PENSION & GENERAL ANNUNITY AND GROUP BUSINESS

1 Central Govt. Sec Not less than

20%

2 Central Govt Sec, State Govt Sec or Other Approved Securities (incl (i) above) Not less than

40%

3 Balance in Approved investment

Not

exceeding

60%

Total (B)

Opening

Balance

Net Accretion

for the Qtr. TOTAL

(1) (2) (1+2)

C LINKED FUNDS

1 Approved Investment Not less than

75%

2 Other Investments Not more

than 25%

Total (C)

CERTIFICATION

Date:

Signature:

Full name:

Chief of Finance

FORM - 3A

(Read with Regulation 10)

% to Total

(1+2)

% to Total

(1+2)

Not less than

15%

No Category of Investments POI % to Total (B) % to Total

Accretion

% to Total

(1+2)

No Category of Investments POI % to Total (C) % to Total

Accretion

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

No Category of Investments POI % to Total (A) % to Total

Accretion

Appendix ‘A’

163

PART - E

Name of the Insurer:

Registration Number:

Statement as on:

Statement of Investment Details of ULIP Products to Segregated Funds

(Business within India) Rs.Crore

Periodicity of Submission : Quarterly

Inflow UIN1 UIN2 UIN n

Premium

Others (Specify)

TOTAL (A)

Outflow

Commission

Charges

Claims

Others

TOTAL (B)

Total C = (A-B)

Policy Funds at "C" above allotted to

SFIN 1

SFIN 2

SFIN n

TOTAL (D)

Difference (if any) E = (C-D)

CERTIFICATION

Date:

Signature:

Full name:

Chief of Finance

Note:

1. UIN represents the Unique product number as per "file and use' approved under ULIP prodcuts

2. SFIN represents the Segregated Fund Identification Number as approved by the Product Approval Committee

INVESTMENT DETAILS OF "ULIP" PRODUCTS [UIN]TO SEGREGATED FUNDS [SFIN]

FORM - 3A

(Read with Regulation 10)

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Technical Guide

164

Name of the Insurer:

Registration Number:

Statement as on: PART - A

Statement of Investment Assets (General Insurer, Re-insurers)

(Business within India) Rs.Crore

Periodicity of Submission: Quarterly

Section I

No PARTICULARS SCH AMOUNT

1 Investments 8

2 Loans 9

3 Fixed Assets 10

4 Current Assets

a. Cash & Bank Balance 11

b. Advances & Other Assets 12

5 Current Liabilities 13

a. Current Liabilities

b. Provisions 14

c. Misc. Exp not Written Off 15

d. Debit Balance of P&L A/c

Application of Funds as per Balance Sheet (A) 0

Less: Other Assets SCH Amount

1 Loans (if any) 9

2 Fixed Assets (if any) 10

3 Cash & Bank Balance (if any) 11

4 Advances & Other Assets (if any) 12

5 Current Liabilities 13

6 Provisions 14

7 Misc. Exp not Written Off 15

8 Debit Balance of P&L A/c

Total (B) TOTAL (B) 0

'Investment Assets' As per FORM 3B (A-B) 0

Section II

Balance FRSM+

(a) (b) (c) d = (a+b+c) (e) (f) (g)=(d+f)

1 Central Govt. Securities Not less than

20%

2Central Govt Sec, State Govt Sec or Other Approved

Securities (incl (i) above)

Not less than

30%

3Investment subject to Exposure Norms

a. Housing & Loans to SG for Housing and FFE Not less than

1. Approved Investments

2. Other Investments

b. Infrastructure Investments Not less than

10%

1. Approved Investments

2. Other Investments

c. Approved Investments

d. Other Investments

Investment Assets 100%

Certification:

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Date: Signature:

Full name:

Chief of Finance

Note: 1. (+) FRSM refers 'Funds representing Solvency Margin'

2. Other Investments' are as permitted under 27B(3)

3. Pattern of Investment is applicable to both Shareholders funds representing solvency margin and policyholders funds.

4. Exposure Norms shall apply to Funds held beyond Solvency Margin, held in a separate Custody Account

Not exceeding

55%

FORM - 3B

(Read with Regulation 10)

No 'Investment' represented as Reg. %

SH PH Book Value

(SH + PH) %

Actual FVC

Amount Total Market Value

(h)

Appendix ‘A’

165

FORM - 3B

(Read with Regulation 10)

Name of the Insurer: PART - B

Registration Number:

Statement as on:

Statement of Accretion of Assets Rs. Crore

(Business within India)

Periodicity of Submission : Quarterly

Opening

Balance

Net

Accretion

for the Qtr.

TOTAL

(A) (B) (A+B)

1 Central Govt. Securities

2 Central Govt Sec, State Govt Sec or Other Approved Securities (incl (i) above)

3Investment subject to Exposure Norms

a. Housing & Loans to SG for Housing and FFE

1. Approved Investments

2. Other Investments

b. Infrastructure Investments

1. Approved Investments

2. Other Investments

c. Approved Investments

d. Other Investments (not exceeding 25%)

Total

Certification:

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Date: Signature:

Note: Full name:

1. Total (A+B), fund wise should tally with figures shown in Form 3B (Part A) Chief of Finance

% to Total No Category of Investments COI

% to

Opening

Balance

% to Total

Accrual

Technical Guide

166

FORM 4

(read with regulation 10)

EXPOSURE / PRUDENTIAL AND OTHER INVESTMENT NORMS – COMPLIANCE CERTIFICATE PART A

Insurer Name and Code:

Date: as at: ................

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

I Investee Company

Exposure

a. Investment in equity, preference shares, convertible debenture:-

Exposure at any point of time did not exceed 10% of outstanding

equity shares (face value) or 10% of the amount under point

Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c) considered separately) of

this Regulation, in the case of Life insurers / an amount under

Regulation 9 (A.2) or (A.3) of this Regulation, in the case of General

Insurer / Re-insurer whichever is lower.

[In case of Infrastructure Co, the limit of 10% shall be read as 20%.

Where the investment assets of the insurer is Rs. 250000 Crores or

more, the limit of 10% shall be read as 15% of outstanding equity

shares (face value) or where the investment assets of the insurer is

Rs.50000 Crores but less than Rs 250,000 Crores the limit of 10%

shall be read as 12% of outstanding equity shares (face value)]

b. Investment in Debt/ loans and any other permitted Investments as per

Act / Regulation, other than ‘Equity’, Preference Shares, Convertible

Debentures :-

Exposure at any point of time did not exceed 10% of the paid-up

share capital, free reserves (except revaluation reserve) and

debenture / bonds of the investee company or 10% of amount under

point Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c) above considered

separately) of this Regulation, in the case of Life insurers / an amount

under Regulation 9 (A.2) or (A.3) of this Regulation, in the case of

Appendix ‘A’

167

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

General Insurer / Re-insurer whichever is lower.

[In case of Infrastructure Co, the limit of 10% shall be read as 20%.

Where the investment assets of the insurer is Rs. 250000 Crores or

more, the limit of 10% shall be read as 15% of paid up share capital,

free reserves (excluding revaluation reserve) and debenture / bonds

or where the investment assets of the insurer is Rs.50000 Crores but

less than Rs 250,000 Crores the limit of 10% shall be read as 12%

paid up share capital, free reserves (excluding revaluation reserve)

and debenture / bonds)

c. Has the maximum exposure under limit for a single ‘investee’

company from all investment assets (Equity / Preference Shares /

Convertible Debenture / Debentures/ bonds / CPs / loans and any

other permitted debt Investments as per Act / Regulation), are within

the limit prescribed in Regulation 9 (B) (In case of Infrastructure Co,

the limit of 10% shall be read as 20%)?

d. Has debt investments made in infrastructure SPV have complied with

the limits, terms and conditions as mentioned in the Note: 4 of the

Investment Regulation 9?

II Limit for the entire

Group of the Investee

Company

Has total investments made in entire “Group of the Investee Company”

is the lower of:

a. amount under point Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c)

above considered separately) of this Regulation, in the case of

Life insurers / an amount under Regulation 9 (A.2) or (A.3) of this

Regulation, in the case of General Insurer / Re-insurer (or)

b. 15% of investment Assets in all companies belonging to the

group

(In case of Infrastructure company the limit mentioned in point ‘a’

above shall be read as 20%)

Technical Guide

168

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

III Promoter Group

Company

Has total investments made in all “Companies falling under Insurer’s

Promoter Group”:

a. is not more than 5% in aggregate of its total investments in all

companies belonging to the promoters’ groups.

b. not made investments in any companies belonging to the

promoters’ group by way of private placement (equity)

c. not made any investment in unlisted instruments [equity & debt

certificate of deposits and fixed deposits (without prejudice to

Section 27A (9) and Section 27B (10) of the Act) held in a

Scheduled Commercial Bank], except for companies formed by

Insurers under Sec 27A (4) or Sec 27B (5) of the Act.

IV Industry sector

Has investment made by the insurer in any industrial sector [except

Financial and Insurance Activities sector as per National Industrial

Classification (All Economic Activities) - 2008]:

1. not exceeded the lower of:

15% of the amount under Regulation 9 (A.1.(a) or A.1.(b) or A.1.(c)

considered separately) of this regulation in the case of life insurer /

an amount under Regulation 9 (A.2) or (A.3) of this regulation, in the

case of General Insurer / Re-insurer

(or) 15% of investment Asset

2. Has the investment made by the insurer in Financial and Insurance

Activities sector as per National Industrial Classification (All

Economic Activities) - 2008 (excluding Fixed Deposit, Term Deposit

and Certificates of Deposit) not exceeded 25% of its total investment

assets?

Appendix ‘A’

169

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

3. Is the classification of industrial sectors been done on the lines of

National Industrial Classification (All Economic Activities) - 2008 [NIC]

for all sectors, except “infrastructure sector”.

4. Has exposure been calculated at Division level from A to R of (NIC

(All Economic Activities) – 2008) Classification for all sectors other

than infrastructure sector?

5. Has exposure been calculated for Financial and Insurance

Activities sector at Section level (of NIC (All Economic Activities) –

2008)?

V Rating Criteria 1. Are investments under ‘Approved Investments’ made only in rated

instruments, if such instruments are capable of being rated?

2. At the time of purchase, are Corporate Bonds rated below AA (A+

with the prior approval of the Board of the Insurer) or its equivalent

and P1 or equivalent (in case of short term instruments) classified

under “Other Investments”?

3. Are instruments downgraded below the minimum rating prescribed

under Note 3 & 4 to Regulation 3 to 8 of the IRDA (Investment)

Regulation, 2000, as amended from time to time, reclassified under

“Other Investments” through the System?

4. Are ‘Debt’ instruments (including Central Govt, State Govt Securities

and Other Approved Securities) - fund wise, in the case life insurer

(including ULIP funds at segregated fund level) and Investment

Assets in the case of general insurer - have a minimum rating of

Sovereign, AAA or equivalent rating for long term and Sovereign, P1+

or equivalent for short term instruments, not less than 75% (Life

Insurer) / 65% (General Insurer)?

Technical Guide

170

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

5. Are ‘Debt’ instruments (including Central Government Securities,

State Government Securities and Other approved securities) – fund

wise, in the case of life insurer (including ULIP funds at segregated

fund level) and Investment Assets in the case of general insurer –

have a rating of A or below or equivalent rating for long term, are not

more than 5% (8% in the case of Non-Life Insurers)?

VI Others A. CONFIRMATION ON POLICY / SYSTEMS / PROCEDURE

1. Has the software application for Investment Operations, been fully

automated without manual intervention in calculating the exposure

norms of Investee Company, Group, Promoter Group and Industry

Sector, as per the various slabs of ‘investment assets’ provided under

Regulation 9 (B)?

2. Is the Constitution of the Investment Committee of the Insurer in full

compliance with the requirements mentioned under Regulation 13 of

Investment Regulation?

3. Was none of the functions of the insurer relating to Investment

Operations falling under Front / Mid / Back Office, (covering both

Shareholders and Policyholders Investments), outsourced (except to

the extent permitted under Point 11 and 12 of Annexure II to Circular

INV/CIR/008/2008-09 Dt. 22nd Aug, 2008 with respect to Outsourcing

of Investment Advice and NAV Calculation)?

4. Is the Audit Committee of the Board, headed by a Chartered

Accountant, provided he is a member of the Board of the Insurer?

5. Have periodical Investment Returns to be filed for the Quarter,

prepared in full compliance with the “Guidance Note on preparation

of Investment Returns” issued by IRDA?

Appendix ‘A’

171

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

6. Have amendments to the Investment Policy, been approved by the

Board of the Insurer?

7. Has the model code of conduct, to prevent insider / personal trading of

officers involved in Investment Operations, including front, mid and

back office as approved by the Board, implemented? If so:

a. Does it cover Officers involved in Investment Operations at

various levels?

b. Does the code of conduct cover each Officer in such level?

c. Has the Board been informed of compliance or otherwise to

model code of conduct during the Quarter?

d. Has the Concurrent Auditor issued his Audit Report of previous

Quarter, without any qualification on aspects of model code of

conduct implemented by the Insurer?

e. Where breach of model code of conduct, if any, reported during

the previous Quarter, been dealt properly and appropriate action

as recommended by Audit Committee/ Board been taken?

8. Does the segregation of front, mid and back office – are as per

Technical Guide on Internal / Concurrent Audit of Investment functions

of Insurance Companies issued by the Institute of Chartered

Accountants of India?

9. Have all non-compliance reported in the Chartered Accountant’s

certificate issued (as per the Technical Guide on Investment Risk

Management Systems & Process of Insurance Companies, by ICAI)

on the ‘status’ of implementation of Investment Risk Management

Systems and Process been implemented as per timelines committed

to IRDA?

10. Has the Internal / Concurrent audit Report of the previous Quarter

with the with comments of Audit Committee of the Board, on ‘very

Technical Guide

172

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

serious’, ‘serious’ points (as per the Technical Guide on Internal /

Concurrent Audit of Investment functions of Insurance Companies,

issued by the Institute of Chartered Accountants of India) in the report,

and status of implementation of Audit committee recommendation

been placed before the Board of the Insurer during the current

quarter?

11. Have the Audit Report of the previous Quarter along with Audit

Committees recommendation and its implementation status filed with

the Authority along with these returns?

12. Have the increase during the quarter, in Shareholders’ funds (other

than income from shareholders’ investments, maintained in a separate

custody account) held beyond solvency margin requirement, is

supported by surplus calculation certified by the Appointed

Actuary? [annex a copy of Appointed Actuary’s Certificate to this

return]

13. Has the Board reviewed (both life and non-life Insurers) during the

previous quarter the performance of products [at line of business level

in the case of General Insurers]?

14. Has the Board, during the previous Quarter, reviewed (both life and

non-life insurers) the performance of investments? [the review in the

case of life insurers should cover both Non-Linked and Linked

funds [SFIN] level]

15. Has the life insurer, in the case of ULIP business reconciled, through

the system, the premium received (net of charges and benefits paid)

under each product (Unique Identification Number – UIN wise) with

value of all the segregated fund(s) (Segregated Fund Identification

Number – SFIN wise) net of fund management charges, held under a

single UIN, on a day to day basis, during the quarter?

Appendix ‘A’

173

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

16. Has the life insurer disclosed UIN wise reconciliation, on the Insurer’s

website on the same day?

17. Is there a fully automated system to generate, on a day to day basis,

Form 3A - Part E (Investment Details of ULIP Products to Segregated

Funds)?

18. Has the life insurer disclosed the value of policy wise units held by

policyholder on the Insurer’s policyholder portal?

19. Has the life insurer disclosed fund wise NAV (SFIN wise) on the

Insurer’s website and life council website on the same day?

20. Has the Standard Operating Procedure (SOP) approved by the

Investment Committee of the Insurer?

21. Does the SOP, for each ‘category of investment’ is same across all

fund(s)?

22. Does SOP of the Insurer, for “each” Category of Investment, (as per

Guidelines INV/GLN/001/2003-04, as amended from time to time,

issued by the Authority) provide individual activities to be carried out in

Front, Mid and Back office?

23. Have all investments made (100%) followed the IC approved SOP?

24. Does the Investment made during the Quarter, are within the

exhaustive ‘Categories of Investments’ prescribed under Guidelines

INV/GLN/001/2003-04, as amended from time to time?

25. Has the Insurer during the Quarter taken any Derivative position

(including interest rate swap and Credit default swap)? If Yes:

Technical Guide

174

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

a. Has the Derivative Policy been approved by the Board of the

Insurer?

b. Has the insurer taken prior approval of IRDA for such Derivative

policy?

c. If so, is there a process to identify the risk to be hedged [‘fund-

wise’ in the case of Life Insurers]?

d. Does such derivative position comply with IRDA Guidelines?

e. Has derivative exposure taken, are clearly identified with the

portfolio risk to be hedged?

f. Has the Insurer filed the regulatory information / returns required

under the Guidelines issued?

26. Are investment made in immovable property covered under Section

27A (1) (n) of the Act shall not exceed, at the time of investment,

within 5% of the Investment Assets [as per FORM 3B (Part A)] in the

case of General Insurer / within 5% of Life fund, Pension & General

Annuity Fund, [as per FORM 3A (Part A)] in the case of Life Insurer.

27. Have NO investments in Immovable Properties been made out of

ULIP Funds?

28. Are investments in equity shares through IPO, Mutual fund, Venture

fund, SEBI approved Alternate Investment Funds, Corporate Bond

Reverse Repo, IDF (as per Note 2 to Regulation 9) Perpetual Debt

instruments of Bank’s Tier-I Capital and Debt Capital instruments of

Bank’s Upper Tier-II Capital, made in compliance with the relevant

circulars issued in this regards from time to time?

29. Are investments in asset backed securities, PTC, SRs both under

Approved and Other investment category, made within 10% of

Investment assets in case of Life Companies and 5% of Investment

assets in case of Non – life companies

30. Are any securitized assets with underlying housing or infrastructure

assets, if downgraded below AAA or equivalent reclassified as Other

Appendix ‘A’

175

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

Investments

B. CONFIRMATION ON INVESTMENT OPERATIONS / EXPOSURE

1. Has Shareholders funds been split Funds Representing Solvency

Margin (FRSM) in FORM 3A (Part A)?

2. If funds are split as per point 1 above, between FRSM and Balance,

have the same been maintained in separate custodian account with

identified ‘scrips’ for both Life and General (including Re-insurance)

companies and reconciled with FORM 3A (Part A) / FORM 3B?

3. Do each ‘Segregated fund’ [SFIN] have underlying ‘Scrips’, identified

upto to Custodian level?

4. Do each ‘Segregated Fund’ [SFIN] have not less than 75% of

Approved Investments as defined in the Act?

5. Does all investments in assets or instruments which are capable of

being rated (except Fixed Deposits with Scheduled Commercial

Banks) are made based on ‘instrument’ rating and NOT based on

Investee ‘Company’ rating?

6. Have Investments in debt instruments rated AA - (AA minus) or below

classified under Other Investments?

7. Are Investments made in a Public Limited Special Purpose Vehicle

(SPV) engaged in infrastructure sector is within 20% of the project

cost (or) amount under Regulation 9 (B) (i), whichever is lower?

8. If answer to point above is ‘yes’, have all the requirements mentioned

under Note 4 to Regulation 9 have been complied?

Technical Guide

176

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

9. Are investments made in Mortgaged Backed Securities [MBS] /

Assets Backed Securities [ABS] complied with the requirements of

Note 5 to Regulation 9?

10. Has ‘each’ purchase and sale of Investments, as mentioned in the

Deal Slip, been identified with respect to ‘each’ fund / ‘segregated

fund’ in respect of ULIP funds?

11. Are all thinly traded equity (as per SEBI norms) classified as “Other

Investment”?

12. Has inter fund transfer, been done as per circular

IRDA/FA/02/10/2003-04 and any other circular issued from time to

time , between ULIP funds during Market Hours, for Equity and Debt

at the prevailing price and not based on broker quote?

13. With respect to ‘each’ Segregated Fund [including Discontinued

Policy Fund (DPF)] in the case of ULIP business, whether

reconciliation of “Units” have been made, between Policy Admin

System (PAS) and Investment Accounting Systems through a fully

automated system using process integrators to ensure seamless

data transfer without manual intervention?

14. Does the Primary Data Server of the Computer Application used for

Investment Management, maintained within the Country?

15. Has the insurer, reconciled investments, fund-wise, with bank and

custodian records on ‘day-to-day basis for ‘each’ segregated fund?

16. Has the insurer, reconciled investment accounts, for each fund in the

case of Non-ULIP Business and General Insurance Business, with

Custodian records?

17. Has valuation of investments of ‘each’ fund (including ULIP), done as

Appendix ‘A’

177

Section Norms Exposure / Other Norms as per Regulation Are the required

Norms complied?

(Yes / No) Remarks

prescribed in IRDA (Preparation of Financial Statements and Auditors

Report of Insurance Companies) Regulations, 2002?

18. Is there any shortfall/deficit in meeting the Discontinued Policies Fund

(DPF) liabilities?

19. If the answer to above point is ‘Yes’, has the Insurer provided for such

shortfall / deficit on a quarterly basis?

20. Have all the negative deviations reported in FORM 4A (Part A)?

21. Has NAV of each segregated fund [SFIN] been audited before its

declaration by Internal / Concurrent Auditor on a day-to-day basis (on

T+0 basis)?

22. Has the Insurer floated any new fund during the quarter?

23. If the answer to point above is ‘yes’, has the directions in respect of

Fund Approval procedure and Guidelines on NAV Process as per

Circular IRDA/F&I/CIR/INV/173/08/2011 Dt. 29th Jul, 2011 complied

with?

24. Has the insurer, apart from the credit rating evaluated by the rating

agencies, carried out their own risk analysis commensurate with the

complexity of the product(s) and the materiality of their holding for

every investment made?

CERTIFICATION

Certified that the information given herein is correct and complete to the best of my knowledge and belief and nothing has been concealed or suppressed.

Signature:……………………………………… Signature:……………………………………… Signature:………………………………………

Chief Executive Officer Chief of Finance Chief of Investments

Date:

Technical Guide

178

FORM - 4

(Read with Regulation 10) PART B

Name of the Insurer:

Registration Number:

Statement as on:

No Annexure Ref Audit Objective Audit Observation Severity of Non

Compliance

Action(s) taken for

Compliance

MMM/YYYY Committed by the

Insurer’s Board to IRDA for

complying with the

requirement

Proof provided (or)

demonstrated by the Insurer, to

the Auditor to comply with the

Requirement

Remarks & Comments of Audit

Committee of the Board on non-

compliance of ‘time frame’

communicated to IRDA on

implementing Systems & Processes

12 3 4 5 6 7 8 9

Place: ------------------------------

Date: Chartered Accountants

(Internal / Concurrent Auditor)

Note:

INTERNAL / CONCURRENT AUDITOR'S CERTIFICATE ON INVESTMENT RISK MANAGEMENT SYSTEMS - IMPLEMENTATION STATUS

2. If all the issues have been complied with and no issues to be reported, a NIL statement should be filed

1. No. (under Col. 1 in above table) shall be as per the Annexure(s) to the Certificate issued by the Chartered Accountant appointed to certify implementation of Investment Risk Management Systems and Process

ISSUES OF PREVIOUS QUARTER(S)

ISSUES TO BE COMPLIED IN CURRENT QUARTER

CERTIFICATE

We certify that all issues, to be reported to IRDA on implementation of Investment Risk Management Systems and ProcessES, for the Quarter and pending issues of previous Quarter(s) [as committed to IRDA], and as listed in

the Chartered Accountant’s Certificate issued, vide Circular INC/CIR/008/2008-09 Dt. 22nd Aug, 2008, have been covered in the above table.

Appendix ‘A’

179

FORM - 4A

(Read with Regulation 10) PART A

Name of the Insurer:

Registration Number:

Statement as on: Total Investment Asset for the quarter as per FORM 3A:

Rs. Crore

Eligibility Limit

as per

Regulation 9*

Actual

Eligibility Limit

as per

Regulation 9*

Actual

Eligibility Limit

as per

Regulation 9*

Actual Equity (Debt +

Others)

Equity + Debt

+ Others Equity (Debt +

Others)

Equity +

Debt +

Others

CERTIFICATION

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Signature:

Date: Full name:

Note: Chief of Finance

1. Above table shall be Complied separately for Life, Pension & General Annuity and Group Business and Individually for each Segregated Fund (SFIN) AND at Assets under Management Level

2. Only (-ve) deviations are to be reported

3. Exposure would be on the basis of Book Value for Non-unit linked funds & on Market Value for Unit linked Funds

4. Provisions of Section 27A (8) / Section 28B (9) of The Insurance Act, 1938 has been complied with.

% of Deviation with respect to

Regulation

EXPOSURE NORM COMPLIANCE - INVESTEE COMPANY

No Investee Company Whether

(Equity/Debt)

Equity & Equity related Debt + Others Equity + Debt + Others Deviation Amount

Technical Guide

180

FORM - 4A

(Read with Regulation 10) PART B

Name of the Insurer:

Registration Number:

Total Investment Asset for the quarter as per FORM 3A:

Statement as on: Rs. Crore

a b d e f=d-e g

CERTIFICATION

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Signature:

Date: Full name:

Chief of Finance

Note:

1. Above table shall be Complied in aggregate of its total investments

2. Exposure would be on the basis of Book Value for Non-unit linked funds & on Market Value for Unit linked Funds

EXPOSURE NORMS COMPLIANCE- PROMOTER GROUP

No Name of Group Company Eligibility limit of group as

per Regulation 9

Actual Investments

(Cumulative) Deviation % of Deviation with respect

to regualtion

Appendix ‘A’

181

FORM - 4A

(Read with Regulation 10) PART C

Name of the Insurer:

Registration Number:

Statement as on: Rs. Crore

Total Investment Asset as per FORM 3A:

a b c d f=c-d g

CERTIFICATION

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Signature:

Date: Full name:

Chief of Finance

Note:

1. Above table shall be Complied separately for Life, Pension & General Anniuty and Group Business and Individually for each

Segregated Fund (SFIN) AND at Assets under Management Level its total investment assets

2. Exposure would be on the basis of Book Value for Non-unit linked funds & on Market Value for Unit linked Funds

EXPOSURE NORMS COMPLIANCE- GROUP

No Name of Group Company

Eligibility limit of

group as per

Regulation 9

Actual

Investments

(Cumulative)

Deviation % of Deviation with

respect to regualtion

Technical Guide

182

FORM - 4A

(Read with Regulation 10) PART D

Name of the Insurer:

Registration Number:

Statement as on: Rs.Crore

Total Investment Asset as per FORM 3A:

a b c d e=d-c f

CERTIFICATION

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Signature:

Date: Full name:

Chief of Finance

Note:

1. Above table shall be Complied separately for Life, Pension & General Annuity and Group Business and Individually for each Segregated Fund

(

SFIN

)

AND at Assets under Mana

ement Level its total investment asset

2. Exposure would be on the basis of Book Value for Non-unit linked funds & on Market Value for Unit linked Funds

EXPOSURE TO INDUSTRY SECTOR

No Name of Industry Sector (as per Regulations)

Eligibility limit of

industry as per

Regulation 9

Actual

Investments

(Cumulative)

Deviation

% of Deviation with

respect to

regualtion

Appendix ‘A’

183

FORM - 5

(Read with Regulation 10)

Name of the Insurer:

Registration Number:

Statement as on:

Statement of Investment Reconciliation Name of the Fund:

(Business within India) Rs.Crore

Periodicity of Submission : Quarterly

Face Value Book Value Face Value Book Value Face Value Book Value Face Value Book Value Face Value Book Value Makret Value

1 Central Govt. Securities

Total (1)

2Central Govt. Sec, State Govt Sec or Other Approved

Total [1+2]

3Investments subject to Expsoure Norms

(a) Housing & Loans to State Govt for Housing / FFE

1. Approved Investments

2. Other Investments Total [3(a)]

(b) Infrastructure Investments

1. Approved Investments

2. Other Investments

Total [3(b)]

Total [3(c)]

(d) Other Investments

Total (3(d))

TOTAL

CERTIFICATION

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Also, certified that all Cash Market transactions executed on the Stock Exchange are made only on Delivery basis.

Date: Signature

NOTE: Full Name & Designation

1. Individual Categories under each of the above Major heads should be listed with Category Code Chief of Finance

2. FORM-5 shall be prepared in respect of each fund. In case of ULIP Form 5 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.

3. Each sub-total of FORM-5 shall be linked to its corresponding head in PART-A of FORM-3A / FORM-3B.

4. 'Other Investments' are as permitted under Sec 27A(2) and 27B(3)

5. Guidelines on preparation of FORM 5 should be strictly followed.

6. The '% to Total' Column, in the case of Non-Linked funds shall be computed on Book Value and in the Case of Linked Funds it shall to Market Value

% to Total (1+2+3)

Purchase for the Period Sale for the Period Adjustments Closing Balance

Total (1+2+3)

No Category of Investments COI Opening Balance

Total [3 (a+b+c+d)]

Technical Guide

184

FORM - 5A

(Read with Regulation 10)

Name of the Insurer:

Registration Number:

Statement as on: Name of the Fund:

Statement of Investment made in Mutual Funds Rs.Crore

Periodicity of Submission : Quarterly

Units Amount Units Amount Units Cost of Sale Units Book Value

Approved Investments

MF - Gilt / G Sec / Liquid Schemes EGMF

0 0 0 Total (A) 0 0 0

MF - (under Insurer's Promoter Group) EMPG

0 0 0 Total (B) 0 0 0

Total (A+B)

Other Investments

MF - Debt / Income / Serial / Liquid Funds OMGS

0 0 0 Total (C) 0 0 0

MF - (under Insurer's Promoter Group) OMPG

0 0 0 Total (D) 0 0 0

Total (C+D)

CERTIFICATION

Certified that the information given herein are correct, complete and nothing has been concealed or suppressed, to the best of my knowledge and belief.

Signature:

Date: Full name:

NOTE Chief of Finance

1. FORM-5A shall be prepared in respect of Life, Pension & General Annuity and Group Business and ULIP funds

2. Each sub-total of FORM-5A shall be linked to its corresponding head in FORM-5.

3. 'Other Investments' are as permitted under Sec 27A(2) and 27B(3) of The Insurance Act,1938

4. Guidelines on preparation of FORM 5 should be strictly followed.

5. Invsetments made in liquid and Gilt mutual funds in excess of norms specified in Circular: INV/CIR/008/2008-09 Dt. 2nd Aug, 2008 under Point:5, shall be reported under 'Other investments'

6. FORM-5A shall be prepared in respect of each fund. In case of ULIP Form 5 shall be prepared at Segregated Fund (SFIN) level and also at consolidated level.

Total (A+B+C+D)

% to Total Inv.PARTICULARS COI Market Value

Op. Balance Purchase for the Qtr Sale for the Qtr Cl. Balance

Appendix ‘A’

185

FORM - 6

(Read with Regulation 10)

Name of the Insurer:

Registration Number: Name of the Fund:

Statement as on:

Certificate under Section 28(2A) / 28(2B) / 28B(3) of The Insurance Act, 1938 Rs.Crore

Periodicity of Submission : Quarterly

Total (Rs)

Share Holders Policy Holders Share Holders Policy Holders Share Holders Policy Holders SH + PH

1 Central Govt. Security

2 Central Govt Securities, State Govt Securities or Other Approved Securities

3 Investment subject to Exposure Norms

a. Housing & Loans to State Govt. for Housing & FFE

1. Approved Investments

2. Other Investments

b. Infrastructure Investments

1. Approved Investments

2. Other Investments

c. Approved Investments

d. Other Investments

TOTAL

CERTIFICATE

We certify that the above mentioned securities are held free of any encumbrance, charge, hypothecation, or lien as on the above date.

Signature: Signature: Signature:

Full name: ___________________________ Full name: Full name:

Chairman ___________________________ Director 1 Director 2

Signature:

Full name:

Principal Officer

Note:

1. Custodian should certify that he is not disqualified under SEBI (Custodian of securities) Regulations, 1996 as amended from time to time.

2. Value of the Securities shall be as per Guidelines

3. In the case of Life Insurance Business, FORM-6 shall be prepared in respect of each fund and in aggregate for Segregated Funds

4. The values under certificate should be adjusted for Purchase / Sale of investments purchased and awaiting settlement.

A reconciliation to this effect should be attached to the Certificate.

Investment ParticularsNo

Under the Custody of

Bank / Custody (Rs) Self (Rs) Others (Rs)

Technical Guide

186

FORM 7

(Read with Regulation 10)

Name of the Insurer:

Registration No: Name of Fund: Rs.Crore

YTD ( As on

date)

Prev. FY ( As on

31 Mar …..)

YTD ( As on

date)

Prev. FY ( As on

31 Mar …..)

YTD ( As on

date)

Prev. FY ( As on

31 Mar …..)

YTD ( As on

date)

Prev. FY ( As

on 31 Mar …..)

1 Investments Assets (As per Form 3A / 3B - Total Fund)

2 Gross NPA

3 % of Gross NPA on Investment Assets (2/1)

4 Provision made on NPA

5 Provision as a % of NPA (4/2)

6 Provision on Standard Assets

7 Net Investment Assets (1-4)

8 Net NPA (2-4)

9 % of Net NPA to Net Investment Assets (8/7)

10 Write off made during the period

Certification

Signature:

Full name:

Chief of Finance

Note:

1. The above statement, in the case of 'Life' Insurers shall be prepared 'fund-wise' Viz. Life Fund, Pension & General Annuity and Group Business and ULIP Fund

2. Investment Assets should reconcile with figures shown in Schedule 8, 8A, 8B & 9 of the Balance Sheet

3. Gross NPA is investments classified as NPA, before any provisions

4. Provision made on the 'Standard Assets' shall be as per Circular: 32/2/F&A/Circulars/ 169/Jan/2006-07 as amended from time to time.

5. Net Investment assets is net of 'provisions'

6. Net NPA is gross NPAs less provisions

7. Write off as approved by the Board

Certified that the informationgiven herein are correct and complete to the best of my knowledge. Also certified that the various investments made and covered in the return are within the exhaustive categories

provided in Investment Guidelines as amended from time to time.

T0TALOther Debt instruments

DETAILS OF NON-PERFORMING ASSETS - QUARTERLY

NO PARTICULARS

Bonds / Debentures Loans

APPENDIX ‘B’

Date: 22rd Aug. 2008

Ref.: INV/CIR/008?2008-09.

The CEOs of all Insurers

Dear Sir/Madam

Sub: IRDA (Investment) (Fourth Amendment) Regulations, 2008 -

Reg.

1. As you are aware, a Working Group was set up by the Authority, to

review comprehensively the current regulatory and other provisions on

Investments of Insurance companies and suggest changes considered

necessary in the light of experience gained/ the constraints faced by

Insurance Companies, as well as the developments in Financial Markets.

The Working Group reviewed the statutory provisions on the pattern of

Investment, Operational and Policy issues of Investment Regulations and

suggested amendments that would provide flexibility to the Authority in

the manner of Regulation on Investment of Life and General Insurance

Companies. The Group also looked into the concurrent modifications in

the formats of the prescribed Returns to reflect the changes.

2. The recommendations of the Working Group have been examined

by the Authority in the light of legal provisions and keeping in view the

interests of the stakeholders. The implementation of some of the

proposals requires appropriate changes in Regulations and evolution of

suitable regulatory framework. It was also observed by the Authority

while monitoring compliance with the regulations over a period that some

of the extant instructions/guidelines also needed clarity and consistency.

3. Accordingly, the Authority has initiated action to amend the

provisions of IRDA Investment Regulations, 2000 in order to implement

the recommendations of the Working Group and also to effect such

changes that are considered necessary to clarify the existing regulatory

requirements. A copy of the Gazette notification on the amended

regulations is available at our website www.irdaindia.org. Insurers are

advised to peruse the notifi cation to take the modifications on record for

further compliance. For the sake of convenience a brief summary of the

changes proposed to be effected in the Regulations is furnished in

Annexure – I.

Technical Guide

188

4. Besides the amendment in regulations, it has also been decided to

effect some modifications in the extant Guidelines/ Circulars on

investment portfolio [Annexure - II] and also introduce certain

requirement on the Systems/Process of investment in the context of Risk

Management requirements. The proposals in this regard are outlined in

Annexure – III.

5. Insurers are advised to place the Circular before the Board at the

next meeting in order to apprise the Directors of the important changes

brought about in the management of investment portfolio. The Board

should also be advised of the specific time bound action taken to comply

with the requirements on investment systems and process wherever

considered necessary.

6. The changes would be effective from the dates indicated therein.

C. R. MURALIDHARAN

MEMBER

Appendix ‘B’

189

Annexure I

AMENDMENT TO IRDA (INVESTMENT) REGULATIONS,

2000

Reg.

No.

Regulation Implication of Amendment

2 DEFINITIONS

Investment Assets

a. Investment Assets of Life

and General Insurance

Companies have been

defined along with valuation

methods.

Group b. Group will include Financial

Institutions for the purpose

of Exposure calculations.

Money Market Instruments c. Money Market Instruments

include rated CDs, CPs,

TDs, Repo, Reverse Repo,

Treasury Bills, Call, Notice,

Term Money, CBLO with

maturity less than one year.

3. RENAMING OF OTHER THAN

APPROVED INVESTMENTS

The Insurance Act,1938 under

Sections 27A (2) and 27B (3)

refers to investment permitted

under these sections as

‘Otherwise than in an Approved

Investments’ and the IRDA

(Investment) Regulations, 2000

had interpreted it as ’Other than

Approved Investments’.

a. This category of

Investments will henceforth

be referred to as ‘Other

Investments’.

b. All provisions of the Act,

Regulations, Circulars and

Guidelines pertaining to

investments falling under

Sections 27A (2) and 27B

(3) of Insurance Act, 1938

shall continue to be

applicable as such.

3. REGULATION OF

INVESTMENTS

Exposure Norms

Infrastructure Investments

a. It is now proposed that the

Exposure Norms would be

applicable to ULIP

Business also.

b. Infrastructure facility had

been aligned as per the

definition of Reserve Bank

Technical Guide

190

Mortgage Backed Securities

(MBS)

Approved Investments and

Rating Requirement

of India.

c. Infrastructure Investments

would be subject to

Investee, Group Exposure.

d. Investment in MBS, rated

as per Guidelines, will fall

under ‘Approved

Investments’ and will qualify

for investment under

‘Housing Sector’ for the

purpose of pattern of

Investments.

e. MBS will be subject to

Industry Sector Exposure

Norms.

f. It is now proposed to

recognize securities

complying with the following

criteria as ‘Approved

Investments’.

i. Bonds/Debentures

issued by companies

(including All India

Financial Institutions,

recognized by RBI as

such) shall be rated

not less than AA or its

equivalent and P1 or

Equivalent ratings for

Short term Bonds/

Debentures/ CDs and

CPs.

ii. Tier II Bonds of

Banks, complying

with the above rating

criteria, will be

classified under

Approved

Investments.

g. Assets / Instruments,

downgraded below the

minimum rating prescribed

above, should automatically

be re-classified under

’Other Investments’

category for the purpose of

Appendix ‘B’

191

pattern of Investments.

h. The above approach will be

reviewed based on

experience after a period of

two years.

i. Rating should not replace

appropriate risk analysis

and management on the

part of the Insurer. The

Insurer should conduct risk

analysis commensurate

with the complexity of the

product(s) and the

materiality of their holding,

or could also refrain from

such investments.

j. The modification will be

effective from August 1,

2008

5. COMPLIANCE TO EXPOSURE

NORMS

IRDA (Investment) Regulations,

2000 requires exposure norms

to be calculated based on

Controlled Fund and Total

Assets in the case of Life and

General Insurance Companies

respectively.

Regulation 3 of IRDA

(Investment) Regulations, 2000,

in terms of explanation in

Section 27A of the Act, had

determined that assets relating

to Pension Business, Annuity

Business and Linked Life

Insurance.

Business would not form part of

Controlled Fund for the purpose

of that section.

The Authority, to remove

the differential treatment of

a.provisions applicable to

Public Sector and Private

Sector Insurers, had

amended the exposure

norms as follows:

b. 10% of Outstanding Shares

(Face Value) or 10% of

Fund size, whichever is

lower, can be invested in

Equity Shares of Investee

Company.

c. Sum of 10% of Subscribed

Share Capital, Free

Reserves and

Debentures/Bonds of

Investee Company or 10%

of Fund size, whichever is

lower, can be invested in

Debt instruments of

Investee Company.

d. A maximum of 5% of

Investments Assets of

General Insurers or 5% of

Investment Assets of funds

Technical Guide

192

Treatment of Free Reserves

relating to life funds,

pension and general

annuity funds in the case of

life insurer can be invested

in Immovable Property as

per Sec. 27A(1)(n) of

Insurance Act, 1938.

e. A maximum of 25% of

Investment Assets can be

invested in Banking and

Financial Sector

instruments.

f. Not less than 75% of debt

instruments excluding

Government and Other

approved Securities – fund

wise, in the case of life

insurer and Investment

assets in the caser of

general insurer – shall have

a rating of AAA or

equivalent rating for long

term and P1+ or equivalent

for short term instruments.

This shall also apply to Unit

linked funds(s).

g. FDs, TDs, CDs invested as

per Sec. 27A(9) and

27B(10) of the Act and

subject to Promoter Group

Exposure limits, would not

be deemed as Exposure to

Banking Sector.

h. Free Reserves of the

Investee Company,

recognized in Regulations 5

of IRDA (Investment)

Regulations, 2000 under

Investee Company

Exposure Norms will be

considered under 27A(3),

27A(4), 27B(4) & 27B(5) in

addition to the Subscribed

Share Capital and

Debentures of the Investee

Company.

Appendix ‘B’

193

i. At any point of time,

exposure to a single

Investee Company under

27A (3) and 27B (4) shall

not exceed 10% of the sum

of Subscribed Share

Capital, Free Reserves and

Debenture/Bonds, taken as

per the previous year

Balance Sheet of the

Investee Company.

6. RETURNS TO BE FURNISHED

Introduction of new periodical

returns and amendment to

existing returns.

a. All forms have been

amended for the various

decisions reached.

b. All returns are required to

be filed on a Quarterly

basis. The period of

submission has been

increased from 21 to 45

days to ensure proper sync

with Actuarial returns.

c. FORM 3C is no more

required to be filed.

d. FORM 7A is introduced to

capture details of Non-

Performing Assets.

9. CONSTITUTION OF

INVESTMENT COMMITTEE

AND INVESTMENT POLICY

Investment Committee

Investment Policy and

Investment

Department

a. Chief of Investment (CIO)

and Chief of Finance (CFO)

will be different individuals

in the Investment

Committee (IC)

b. Investment Policy need not

be filed with the Authority.

But is required to be drawn

in respect of each Unit

linked fund.

c. Investment Policy should

address all risks, Scope of

Internal and Concurrent

Audits including investment

Statistics.

d. To ensure internal control

of Investment function, the

Insurer is required to

Technical Guide

194

segregate operations and

functions between Front,

Mid and Back Office.

Further, the Front office will

report through CIO to the

CEO. The Mid and Back

Office, headed by separate

personnel, will report

through CFO to the CEO.

e. Issues relating to Internal

and Concurrent Audit made

clear. Audit is made to

cover Investment

Operations and System &

Process supporting

Investment Operations.

Appendix ‘B’

195

Annexure II

1. NEED FOR INVESTMENT SYSTEMS

IRDA (Registration of Companies) Regulations, 2000 under

Regulation 7 (c) of Chapter II requires every Insurer to carry on all

functions in respect of the Insurance business including management

of investments within its own organization. In the context of the

increasing volumes of the Unit linked life Insurance business and

consequent market risk being assumed by the policyholders, it is

appropriate to specify the minimum requirements for risk management

systems within the Insurers, with particular reference to the

investment activity (Please see Annexure – III enclosed). The

Investment Risk Management Systems & Processes specified, outline

the minimum requirement to be in place. While it is likely that some of

the Insurers have already put in place adequate systems and

processes consistent with the proposals, there may be others who

need to modify the systems to achieve compliance. Hence the

effective date for adoption of the suggested measures by all insurers

shall be not later than December 31, 2008. All Insurance Companies,

seeking registration henceforth shall comply with this guideline, as a

part of the registration process. The Authority advises that a

Chartered Accountants firm, who is not the Statutory or Internal or

Concurrent Auditor of the concerned Insurer and having a minimum of

three to four years audit experience of IT systems, risk management

and process controls of Banks or Mutual Funds or Insurance

Companies, shall certify that the Investment Risk Management

Systems and Processes envisaged by these guidelines are in place

and working effectively. The Insurer shall file with the Authority, the

Chartered Accountants certificate not later than the 1st week of

January, 2009.

2. RENAMING OF OTHER THAN APPROVED INVESTMENTS AS

‘OTHER INVESTMENTS’

The Insurance Act, 1938 under Sections 27A (2) and 27B (3) refers to

investment permitted under these sections as ‘otherwise than in an

approved investment’. IRDA (Investment) Regulations, 2000 refers it

as ‘other than approved investments’. For simplicity, this category of

investment will henceforth be referred to as ‘Other Investments’. All

provisions of the Act, Regulations, Circulars and Guidelines pertaining

to investments falling under Sections 27A (2) and 27B (3) of

Insurance Act, 1938 shall continue to be applicable as such.

Technical Guide

196

3. TREATMENT OF FREE RESERVES AND EXPOSURE

The Insurance Act, 1938 under Sections 27A (3), 27A (4), 27B (4) and

27B (5) allows exposure to banking companies, investment

companies and other companies based on the least of Capital

Employed or the specified percentage of ‘controlled fund’ in the case

of Life insurer and ‘assets’ in the case of general insurance

companies. Further, the Insurance Act, 1938 do not recognize ‘free

reserves’ as a part of capital employed, though the same is

recognized in IRDA (Investment) Regulations, 2000 for calculating the

investee company exposure norms. It is now clarified that:

a. In addition to subscribed capital and debentures, ‘free

Reserves’ of the investee company, recognized in Regulations

5 of IRDA (Investment) Regulations, 2000 under investee

company exposure norms, shall be considered in calculating

the exposure under 27A(3), 27A (4), 27B (4) and 27B (5).

b. Also, at any point of time, the exposure to Investee Company

under Sections 27A(3) and 27B(4) shall not exceed 10% of the

sum of paid-up share capital, free reserves and

debenture/bonds, taken as per the audited balance sheet not

more than one year old of the investee company.

c. The effective date for adoption of norm by all insurers shall be

from August 1, 2008.

4. INVESTMENT IN IPOs

The Authority had issued Circular INV/CIR/046/2004-05 Dt: November

8, 2004 on Investment in Initial Public Offer which was further

modified vide Circular INV/CIR/059/2004-05 dated December 28,

2004. As compliance with a few conditions mentioned in the above

circular posed operational difficulties, the guidelines have been

reviewed to effect the following changes:

(i) Equity Shares offered through IPO which comply with the

criteria listed in the circular INV/CIR/046/2004-05 dated

November 8, 2004 for categorization as ‘Approved

Investments’ would henceforth include ‘Offer for sale’ also.

(ii) The criterion on minimum size of the IPO including Offer for

Sale for investment by Insurers would now stand uniform at Rs.

200 Crores in super session of the instructions at item 2 and 3

of our Circular of November 8, 2004 and that contained in

Circular INV/CIR/059/2004-05 dated December 28, 2004.

Appendix ‘B’

197

(iii) It has now been decided that the details of investments in

Equity Shares through IPOs required to be filed with IRDA vide

Circular dated November 8, 2004 need not be filed with the

Authority with effect from August 1, 2008

(iv) It has also been decided to prescribe the following limits for

investments in IPOs by insurers:

LIMIT FOR INVESTMENT IN ‘IPO’

In the case of Life Insurance Company, the maximum bid amount (and not

Margin Money) to be invested in IPO shall be the lesser of the following:

(a) 10% of Subscribed Capital (Face Value) of the Investee Company

(including the proposed Equity issue through IPO) or

(b) 10% of the ‘Fund’.

In the case of General Insurance Company, the maximum bid amount (and

not Margin Money) to be invested in IPO shall be the lesser of the following:

(a) 10% of Subscribed Capital (Face Value) of the Investee Company

(including the proposed Equity issue through IPO) or

(b) 10% on the Investment Assets.

Note: ‘Fund’ shall refer to all investment funds under management put

together.

5. INVESTMENT IN MUTUAL FUNDS

As Gilt, G Sec and Liquid Mutual Funds, predominantly invest in

Government Securities and Money Market instruments, the Authority

has decided to revise the existing guidelines on investment in Mutual

Funds. These investments in Gilt, G Sec and Liquid Mutual Funds

would form part of ‘Approved Investment’ under IRDA (Investment)

(Fourth Amendment) Regulations, 2008 as per guidelines listed

below. However, these investments should not be used as long-term

investments instead of investing directly in Government Securities.

This Guideline shall be effective from August 1, 2008.

Any Investment made in other categories of Mutual Funds, including

those which partly invest in Government Securities and Money Market

instruments, will fall under ‘Other Investments’, which in turn shall be

subject to the limits prescribed in the guidelines issued under IRDA

(Investment) Regulations, 2000 along with the norms mentioned

below.

Technical Guide

198

A. NORMS FOR MUTUAL FUND INVESTMENTS

The investment shall be restricted to schemes of Mutual Funds

comprising of Liquid, Gilt, G Sec or Debt/Income funds and subject to

the following conditions:

i. The Mutual Fund should be registered with SEBI and be

governed by SEBI (Mutual Funds) Regulations, 1996.

ii. Gilt, G Sec, Liquid MFs, Debt/Income shall have the same

meaning as under SEBI Regulations.

iii. The insurer shall ensure proper diversification among various

Mutual Funds to minimize risk.

iv. The Investment Committee of the Insurer shall lay down proper

Guidelines for selection of Mutual Funds and schemes

permissible including exposure norms to a Single Mutual Fund

and to each Scheme of Mutual Fund to avoid concentration.

v. Where the schemes of mutual funds in which such investment

is made by an Insurer, is managed by an Investment Manager

who is under the direct or indirect management or control of the

Insurer or its promoter, the same shall not exceed 3% of Life

Fund and 5% of Unit Linked Fund/Investment Assets.

B. OVERALL INVESTMENT/EXPOSURE LIMIT

i. The investment in Gilt, G Sec, Liquid Mutual Funds at any point

of time, under the Approved Investment category shall be as

under:

Fund size Limit

Above Rs.50000 Crores in

the case of Life Company and

above Rs.2000 Crores in the

case of General Insurance

Company.

1.5 % of the Fund in the

case of Life Company and

1.5% of Investment Assets in

the case of General

Insurance Company

Upto Rs.50000 Crores in the

case of Life Company and up

to Rs.2000 Crores in the case

of General Insurance

Company.

5% of the Fund in the case

of Life Company and 5% of

Investment Assets in the

case of General Insurance

Company.

ii. In addition to the above, the maximum investments in Mutual

Funds falling under ‘Other Investments’ Category, shall be as

follows:

Appendix ‘B’

199

Nature of

Business Private Sector Public Sector

Life Fund ULIP Life Fund ULIP

Life 7.5% 12.5% 3% 5%

Non Life 12.5% 5%

The percentage in the above table refers to in the case of:

Life Companies - to individual Fund Size

General Insurance Companies - to Investment Assets.

iii. Investment in Gilt, G Sec, Liquid Mutual Funds beyond the

percentage mentioned in the table under point B(i), will

automatically fall under the ‘Other Investments’ category in

calculating pattern of investment.

C. VALUATION OF MUTUAL FUND INVESTMENTS

i. The purchase and sale of units shall be calculated at Weighted

Average Cost. Also, the insurer shall report the aggregate

Market Value of such Mutual Funds in FORM 5 and FORM 5A

of IRDA (Investment) Regulations, 2000,

ii. A separate Fair Value Change Account for Mutual Fund

Investments shall be maintained.

iii. The unrealized gains/losses arising due to changes in fair

value of the Mutual Funds shall be taken to ‘Fair Value Change

– Mutual Fund’ account. The Profit/Loss on sale of Mutual

Fund units, shall include accumulated changes in the Fair

value previously recognized in Mutual Funds under the heading

“Fair Value Change – Mutual Fund” in respect of a particular

Mutual Fund and being recycled to Revenue/Profit and Loss

Account on actual sale of Mutual Fund units.

iv. The Insurer shall assess, on each Balance Sheet date, whether

any diminution in the value has occurred to the Investment. A

diminution in the value of investments shall be recognized as

an expense in Revenue/Profit and Loss Account to the extent

of the difference between the remeasured fair value of the

Investment and its Cost as reduced by any previous diminution

in value of investments is recognized as expenses in Revenue/

Profit and Loss Account. Any reversal of diminution in value of

investments earlier recognized in Revenue/Profit and Loss

Technical Guide

200

Account shall be recognized in Revenue/Profit and Loss

Account.

v. In the case of Unit Linked Business, Mutual Fund units shall be

valued at NAV.

6. INVESTMENT IN ASSET BACKED SECURITIES, PTCs & SRs

The extant Guidelines INV/GLN/001/2004-05 dated January 1, 2004 allow

investment in Pass through Certificates (PTC) under Approved Sectors,

namely ‘Infrastructure/Social Sector’. The Authority, after considering the

request of Insurers, the significant growth of this market and the suitability of

these instruments to match the long-term liabilities of insurers has decided to

reckon them as ‘Approved Investments’ subject to the following conditions.

Hence, Asset Backed Securities, but only with underlying Housing loans and

infrastructure assets would be reckoned to be part of Approved Investments

subject to exposure norms, under Housing, Infrastructure Sector

Investments for the purpose of Regulation 3 and 4 of IRDA (Investment)

Regulations, 2000 as modified now. This Guideline shall be effective from

August 1, 2008.

The investment in Asset Backed Securities with underlying Housing and/or

Infrastructure assets [as defined under Regulation 2(h) of IRDA (Registration

of Indian Insurance Companies) Regulation, 2000] may be deemed as a part

of “Approved Investments” and Pass Through Certificates (PTCs), Asset

backed Securities (ABS) and Security Receipts (SRs) may be deemed as

part of “Other Investments” for the purpose of Regulation 3 and 4 of IRDA

(Investment) Regulations, 2000 subject to following exposure and prudential

norms:

1. The securitized assets must be rated and shall have highest rating by

a reputed Credit Rating Agency, registered under SEBI (Credit Rating

Agencies) Regulations, 1999.

2. The investment in Asset Backed Securities with underlying Housing

and/or Infrastructure assets shall at ‘all times’ not exceed 10% of

respective fund(s) in the case of Life Insurance Companies and not

more than 5% of Investment Assets in the case of General Insurance

Companies.

3. If the Asset Backed Securities with underlying Housing and/or

Infrastructure assets are downgraded below AAA, or the highest

rating, such investment shall be re-classified as ‘Other Investments’.

4. In case the cash-flows from such instrument are not received on due

dates, the investment in such assets are to be re-classified as “Other

Appendix ‘B’

201

Investments” from such date for reporting to the Authority through

FORM 3A (Part A) of IRDA (Investment) Regulations, 2000.

5. The investments in securitized assets, both under Approved and

Other Investments, taken together shall not exceed 10% of fund size

in the case of Life Companies and not more than 5% of Investment

Assets in the case of General Insurers.

6. The Insurer shall lay down internal guidelines for investment in

securitized assets (ABS, PTCs and SRs) to avoid concentration with

regards to issuer, tenor and type of underlying and any other criteria

to achieve diversification.

7. All guidelines of Classification, Income Recognition and Valuation of

Assets issued by the Authority shall be applicable to such

investments.

7. INVESTMENTS IN PERPETUAL DEBT INSTRUMENTS

In terms of the Circular IRDA/INV/CIR/005/2006-07 Dt. April 28, 2006 on

‘Investment in Innovative Perpetual Debt Instrument of Bank Tier 1 Capital

and Debt Capital of Banks Upper Tier 2 Capital’ within certain limits are

considered under ‘Approved Investment’. As it is represented that the current

ceiling on maximum investment in the bonds is restrictive, IRDA has

reexamined the issue and has decided to delete the maximum permissible

limit for such instruments by Life and General Insurers prescribed in paras 3

and 4 of the above Circular dated April 28, 2006. The revision will be

effective from August 1, 2008.

8. INVESTMENT IN VENTURE FUNDS

The Authority vide Circular INV/CIR/007/2003-04 dated: December 15, 2003

had listed the conditions and maximum investment that can be made in

Venture Funds. While investment in Venture Funds would continue to be

categorised under ‘Other Investments’ as per IRDA (Investment)

Regulations, 2000 as amended from time to time, the following special

guidelines may be kept in view in respect of Venture Funds:-

1. The decision to invest in the Venture Fund shall remain with the

Investment Committee of the Insurer, and within the approved

Investment Policy of the Insurer, subject to appropriate prudential and

exposure norms and complying with the provisions of IRDA

Regulations concerned.

2. The Venture Fund would invest in Infrastructure Projects as defined

under IRDA (Registration of Indian Companies) Regulations, 2000 as

amended from time to time. [Refer latest amendment to ‘infrastructure

Technical Guide

202

facility’ under Regulation 2 (h) of Insurance Regulatory and

Development Authority (Registration of Indian Insurance Companies)

(Second Amendment) Regulations, 2008 vide GO Gazette notification

dated February 11, 2008.]

3. Investments in Venture Fund(s) shall be subject to the following

exposure norms:

Particulars Overall exposure limits

Limits for Investment

in ‘Venture Fund’

Life Insurance Company

3% of respective Fund (or)

10% of Venture Fund’s Size, whichever is

lower.

General Insurance Company

5% of Investment Assets (or)

10% of Venture Fund’s Size, whichever is

lower.

The above conditions supersede those issued in the Circular

INV/CIR/007/2003-04 dated: December 15, 2003. The new Guidelines will

be effective from August 1, 2008.

9. APPOINTMENT OF CUSTODIAN

Section 28B(3) of The insurance Act, 1938 requires every insurer to submit,

along with the returns referred to in Sections 28B(1) and 28B(2), a

statement, where any part of the assets are in the custody of a Banking

Company, from that company, and in any other case, from the Chairman,

two directors and the Principal Officer, of the company specifying the assets,

which are subject to a charge and certifying that the other assets are held

free of encumbrance, charge, hypothecation or lien. The Authority, has also

prescribed FORM 6 in the IRDA (Investment) Regulations, 2000 for the

certification. Currently the custodian appointed by the Insurer (which could

be either belonging to the Insurer’s promoter group or otherwise) issues a

certificate to the above effect and the Insurer, as required under the Act,

certifies that the Assets held are free from encumbrance, charge,

hypothecation or lien.

Considering the implications of the certification by the Custodian belonging

to the Insurers Promoter Group of the Insurer, it is decided that all insurers

should comply with the following norms:

Appendix ‘B’

203

A. Appointment of Custodian

(i) The Board of the Insurance Company shall be responsible for

the appointment of Custodian to carry out the custodial service

for its Investments.

(ii) No custodian in which the promoter or its associates hold 50%

or more of the voting rights of the Share Capital of the

custodian or where 50% or more of the Directors of the

Custodian represent the interest of the promoter or its

associates shall act as Custodian for the Insurance Company

constituted by the same promoter or any of its associates or

subsidiary company.

B. Agreement with Custodian

(i) The Insurer shall enter into a custodial agreement with the

Custodian, which shall contain the clauses, which are

necessary for the efficient and orderly conduct of the affairs of

the Custodian.

(ii) The agreement, the services contract, terms and appointment

of the Custodian shall be entered into with the prior approval of

the Board.

Insurers who are not compliant currently with the above conditions shall take

immediate steps to achieve compliance not later than December 31, 2008,

under intimation to the Authority.

10. SEGREGATION OF SHAREHOLDERS & POLICYHOLDERS

FUNDS

The Insurance Act, 1938 under Section 11 (1B) requires ‘Every insurer to

keep separate accounts relating to funds of shareholders and policyholders’.

Taking note of representations of general insurance companies, as a

measure of practical application, the provisions of Section 11(1B) would be

deemed to have been complied with, in the case of General Insurance

Company, if Investments are ‘allocated’ to the policyholders’ funds to the

extent of the Technical reserves in respect of general insurance business

and the specific liabilities of general insurance business and the balance

shown as Shareholders’ funds. However, a Life Insurer should continue to

maintain strict segregation of Investments between Shareholders and

Policyholders funds at ‘Scrip’ level for every individual fund under any class

of business without making arbitrary transfer of investments from one fund to

another. Further, both Life and General insurers should make necessary

arrangements (through a separate Custody Account) to facilitate

Technical Guide

204

identification of investment out of Shareholders funds that do not support

Solvency Margin and which is not covered by the prescribed pattern of

Investments. This Guideline shall be effective from December 31, 2008.

11. OUTSOURCING OF INVESTMENT ADVICE

The Authority, considering the cost involved in setting up Research and

advisory divisions would permit outsourcing of Investment advice only at the

initial stages and till the insurers attain a Fund Size of Rs.500/- Crores

Assets under Management (AUM) or two years from the commencement of

business, whichever is earlier, subject to the following conditions:

a. The Investment decisions are made within the Company with proper

documentation within the delegated power as provided in the

Investment Policy.

b. Deal placement and execution are done by the Front Office

personnel.

c. Periodic reports to Management and Authority are drawn by the

Company (in-house).

d. The advisory fee to be paid to the Service Provider is on a case-to-

case basis and not on Net Asset Value.

The advisory fee shall:

a. not form part of NAV calculations in the case of ULIP business

b. be paid out of Shareholders funds not representing Solvency Margin.

The Authority may, on an application made to it by an existing insurer,

for valid reasons, grant a further period of time of not more than one

year to comply with the above direction.

12. OUTSOURCING OF ‘NAV’ CALCULATION

The permission to outsource Computation of NAV would be available only up

to attainment of Fund Size of Rs.500/- Crores (Assets under Management)

or two years from the commencement of business, whichever is earlier. Also,

the fees paid to the service provider shall not form part of NAV calculations.

The Authority may, on an application made to it by an existing insurer, for

valid reasons, grant a further period of time of not more than one year to

comply with the above direction.

Appendix ‘B’

205

Annexure III

INVESTMENT RISK MANAGEMENT SYSTEMS & PROCESSES

A. GENERAL

1. FRONT & BACK OFFICE OPERATIONS

a. Insurer having Assets under Management (AUM) in

excess of Rs.500 Crores shall ensure separate

personnel acting as fund manager and dealer.

b. The Investment System should have separate modules

for Front and Back Office.

c. Transfer of data from Front Office to Back Office should

be electronic without Manual intervention (Real time

basis) i.e., without re-entering data at Back Office.

d. The Insurer may have multiple Data Entry Systems, but

all such Systems should be seamlessly integrated

without manual intervention.

e. The Front Office shall report through the Chief

Investment Officer (CIO) to the Chief Executive Officer

(CEO). The Mid Office and Back Office, to be headed by

separate personnel, shall be under the overall

responsibility of Chief Financial Officer (CFO) who shall

independently report to the CEO.

2. EMPLOYEE DEALING GUIDELINES

a. The Standard Operating Procedure followed by the

Insurer shall clearly specify the Guidelines to be

adhered by the Dealer i.e., the Insurer shall clearly

specify the Trading guidelines for Personal Investments

of the dealer. The compliance of this requirement shall

be commented upon by the Internal/Concurrent Auditor.

3. MAKER CHECKER PROCESS

a. Insurer should have the procedure of Maker/Checker

mapped in their Standard Operating Procedure/

Operations Manual of Investment Operations. The

Internal/Concurrent Auditor shall comment on such

practice in his report.

Technical Guide

206

4. AUDIT TRAIL AT DATA ENTRY POINTS

a. The Audit trail should be available for all data entry

points including at the Checker/Authorizer level.

5. BUSINESS CONTINUITY PROCESS

a. To ensure Business continuity, the Insurer should have

a clear Off-site Back-up of Data in a City falling under a

different Seismic Zone, either on his own or through a

Service Provider. Further, the Insurer/service provider (if

outsourced) is required to have the necessary

infrastructure for Mission Critical Systems to address at

least the following:

1. Calculation of daily NAV (Fund wise)

2. Redemption processing.

B. FRONT OFFICE

1. SEGREGATION OF FUND MANAGER/DEALER

a. Investment Department should have documented the

segregation of Fund Managers and Dealers through

Authority Matrix as a part of its ‘Standard Operating

Procedure’.

b. The Insurer should have documented the Access

Controls and Authorization process for Orders and Deal

execution.

c. The Dealing Room should have a Voice Recorder and

procedure for maintaining the recorded conversation

and their disposal including procedure like no mobile

phone usage in dealing rooms and other best practices.

2. INVESTMENT IN INVESTEE/GROUP COMPANY/INDUSTRY

SECTOR

a. System based checks should be in place for

investments in an Investee Company, Group and

Industry Sector. The system should signal when the

Internal/Regulatory limits are nearly reached PRIOR to

taking such exposure and making actual investment.

Appendix ‘B’

207

3. INTER FUND TRANSFER

a. The System should handle Inter Fund transfer as per

Circular IRDA-FA-02-10-2003-04. The Investment

Committee may fix the Cut Off time as per Market

practice, for such transfer within the fund. (The inter fund

transfer should be like any other Market deal and the

same needs to be carried out within the Market hours

only.)

C. MID OFFICE

1. MARKET RISK

a. The system should be capable of computing various

portfolio returns.

b. Regular limits monitoring and Exception Reporting. Also

reporting on movement of prices.

2. LIQUIDITY RISK

a. The Insurer should have a Cash Management System to

provide the funds available for Investment considering

the settlement obligations and subscription and

redemption of units etc., to preempt any leveraged

position or liquidity risk.

b. The System should be validated not to accept any

commitment beyond availability of funds.

3. CREDIT RISK

a. The Investment System should capture Instrument

Ratings to enable it to automatically generate FORM 2

(Statement of Downgraded Investments) through the

System.

b. System should automatically monitor various Regulatory

limits on Exposure & Rating.

c. The System should have the ability to track changes in

ratings over a period and generate appropriate alerts,

along with ability to classify investment between

Approved and Other Investments.

d. The Insurer should conduct periodic credit reviews for all

companies in the portfolio. The periodicity should be

clearly mentioned in the Investment Policy.

Technical Guide

208

e. The Insurer is required to keep a track of movement of

Securities between Approved and Other Investments

Status, as a part of Audit trail, at individual security level.

4. TRACKING OF REGULATORY LIMITS

a. The System should have key limits preset for ensuring

compliance with all Regulatory requirements and should

be supported by workflow through the System, (Real

time basis) for such approval, if Regulatory limit is close

to be breached.

b. The System should have capability of generating

Exception reports for Audit by Internal/Concurrent

Auditor.

5. REVIEW, MONITORING AND REPORTING

a. System should automatically track and report all internal

limits breaches. All such breaches should be audited by

Internal/Concurrent Auditor.

b. Implementation and Review of Asset & Liability

Matching and other Investment Policy Guidelines.

D. BACK OFFICE

1. DATA INPUT ERROR

a. The system should be validated in such a way, that the

Deal can only be rejected by the Back Offi ce and not

edited.

2. SETTLEMENT RISK

a. The System should be validated to restrict Short Sales

at the time of placing the order.

3. COMPUTATION OF ‘NAV’

a. The System should be capable of computing NAV and

compare it with the NAV computed by the Service

provider, if outsourced.

b. The Insurer should maintain NAV history (Fund wise) in

his Public Domain from the Start of the Fund to Current

Date.

c. ‘NAV’ error – Computation & Compensation

Appendix ‘B’

209

1. All expenses and incomes accrued up to the

Valuation date shall be considered for

computation of NAV. For this purpose, while

major expenses like management fees and other

periodic expenses should be accrued on a day to

day basis, other minor expenses and income can

be accrued on a weekly basis, provided the non-

accrual does not affect the NAV calculations by

more than 1%.

2. Any changes in Securities and in the number of

Units should be recorded in the books not later

than the first valuation date following the date of

transaction. If this is not possible, the recording

may be delayed upto a period of seven days

following the date of the transaction. Provided,

the non-recording does not affect the NAV

calculations by more than 1%.

3. In case the NAV of a Plan differs by more than

1% due to non-recording of the transactions or

any other errors/mistakes, the investors or fund(s)

as the case may be, shall be paid the difference

in amount as follows:-

(i) If the investors are allotted units at a price higher

than NAV or are given a price lower than NAV at

the time of sale of their Units, they shall be paid

the difference in amount by the plan.

(ii) If the investors are charged lower NAV at the time

of purchase of their units or are given higher NAV

at the time of sale of their units, the Insurer shall

pay the difference in amount to the Plan and shall

be compensated from Shareholders portfolio that

does not support Solvency Margin.

(iii) The Internal/ Concurrent Auditor shall look into

the above issues and specifically report on it and

comment on the Systems in place to take care of

such issues on an ongoing basis.

(iv) A log of NAV errors shall be maintained in the

System and be forwarded to Internal/Concurrent

Auditors.

Technical Guide

210

4. ERRORS DURING BROKER EXECUTION LEG

a. All Equity deals should be through STP gateway for all

broker transactions.

5. UPLOADING OF VALUATION PRICE FILES

a. System to have capability to upload Corporate Actions

such as Stock Splits, Dividend, Rights Issue, Buy Back,

Bonus issues etc., for computation of NAV/Portfolio

valuation.

6. RECONCILIATION

a. Fund wise, in the case of Life Insurers, reconciliation

with Investment Accounts, Bank, and Custodian records

should be done on day-to-day basis for all types of

products. In the case of ULIP products, Units

reconciliation with Policy Admin Systems should be

ensured on a day to day basis.

b. In the case of General Insurer/Re-insurer reconciliation

with Investment Accounts, Bank and Custodian records

should be done on a day-to-day basis.

E. INTERNAL/CONCURRENT AUDIT

a. An Insurer having Assets under Management (AUM) not more

than Rs.1000 Crores shall conduct a Quarterly Internal Audit to

cover both Transactionsand related Systems. Insurers having

AUM above Rs.1000 Crores should appoint a Chartered

Accountant firm for Concurrent Audit, to have the transactions

and related Systems audited.

b. The Audit Report shall clearly state the observation at

transaction level and its impact, if any at System level. The

Audit Report shall be based on Exception Reporting.

c. The Auditor shall clearly state that the Insurer had done the

reconciliations as required under point D.6.a. and D.6.b.

d. Segregation of ‘Shareholders & Policyholders’ funds

1. In the case of a Life Insurer, each individual fund, both

falling under Shareholder/Policyholders’, under any

class of business, has ‘scrip’ level investments to

comply with the provisions of Section 11(1B) of

Insurance Act, 1938

Appendix ‘B’

211

2. Furthermore the Shareholders funds beyond Solvency

Margin, to which the pattern of Investment will not apply,

shall have a separate custody account with identified

scrips for both Life and General Insurance Companies.

e. The Insurer is required to place the Audit Report before the

Audit Committee and implement all its recommendations.

f. The Insurer shall, along with Quarterly Investment Returns to

be filed with the Authority, shall confirm in FORM 4, that the

Internal/ Concurrent Audit observations, up to the Quarter

preceding the Quarter to which the Returns are filed, were

placed before the Audit Committee for its recommendation and

action taken.

Note: Points A (5.a.1) and D (3) are specific to ULIP Business.

Appendix ‘C’

Date: 1st April, 2013

REF: IRDA/F&I/CIR/INV/067/04/2013

The CEOs of all Insurers

Dear Sir / Madam,

Sub: IRDA (Investment) (Fifth Amendment) Regulations, 2013 – Reg.

As you are aware, based on the experience gained from the earlier

amendments, feedback received through internal/Concurrent Audit report

and periodical returns filed with the Authority, various issues were

discussed with Working Group of professionals drawn from Industry,

experts from SEBI and Department of Financial Service, MoF, Life

Insurance Council, General Insurance Council in evaluating the need for

introducing new instruments/amending existing regulatory framework to

enable Insurers deploy funds more prudently without sacrificing safety,

disclosure and governance requirements, very specific to Insurance

Industry.

The recommendations were analysed for legal and regulatory

consistency, as well as the developments in Financial Markets including

Unit Linked Insurance Policies as one of the product portfolios of life

insurers. Also, the Authority during Investment Inspection observed that

few regulations required clarifications. Thus the Authority initiated the

process for amending the Investment Regulations to address the need of

the Industry. The copy of the Gazette Notification on the amended

regulation is placed at www.irda.gov.in Insurers may take note of the

same for compliance. For the convenience of the Insurers, the brief

details of the important changes brought in the 5th Amendment and

clarification required are provided in Annexure-I. The regulations shall

be effective from 1st April, 2013 and where ever the regulations

demand departure from the effective date, the same are mentioned

therein.

The Insurers are hereby informed to place the Regulations, Circulars and

Guidelines issued before their Board in their next meeting to apprise their

Board of the important changes that have been brought in the 5th

Amendments to IRDA (Investment) Regulations, 2000

R K NAIR

Member (F&I)

Appendix ‘C’

213

Annexure – 1

KEY CHANGES IN IRDA (INVESTMENT) REGULATIONS, 2000 AS

AMENDED BY IRDA (INVESTMENT) (5TH AMENDMENT)

REGULATIONS, 2013

Reg.

REGULATION IMPLICATION OF

AMENDMENT

2(f) “Group” means: two or more

individuals, association of

individuals, firms, trusts,

trustees or bodies corporate,

or any combination thereof,

which exercises, or is

established to be in a position

to exercise, significant

influence and / or control, use

of common brand names,

directly or indirectly, over any

associate as defined in AS 23,

body corporate, firm or trust,

or (ii) Associated persons, as

may be stipulated by the

Authority, from time to time, by

issuance of guidelines under

these regulations

Use of common brand

names shall be looked in

conjunction with other

parameters of significant

influence and / or control,

whether direct or indirect.

2(g) “Investment Assets” mean all

investments made out of:

(1) in the case of a Life

Insurer

(i) shareholders’ funds

representing

solvency margin,

non-unit reserves of

unit linked insurance

business,

participating and

non-participating

funds of

policyholders at their

carrying value

(ii) policyholders’ funds

Pattern of Investment will not

be applicable for

Shareholders’ funds held in

business beyond required

solvency margin. But such

excess shall be:

i. made only after fully

complying with

mandatory investment

in Central Government

Securities, State

Government and Other

Approved Securities and

in Housing &

Infrastructure

Investments from funds

Technical Guide

214

Reg.

REGULATION IMPLICATION OF

AMENDMENT

of Pension, Annuity

business and Group

business at their

carrying value

(iii) policyholders’ unit

reserves of unit

linked insurance

business at their

market value as per

guidelines issued

under these

regulations, from

time to time

(2) in the case of a General

Insurer

(i) shareholders’ funds

representing

solvency margin and

policyholders funds

at their carrying

value

as shown in its balance sheet

drawn as per the Insurance

Regulatory and Development

Authority (Preparation of

Financial Statements and

Auditors’ Report of Insurance

Companies) Regulations, 2000,

but excluding items under the

head ‘Miscellaneous

Expenditure

representing solvency

margin.

ii. such excess of

Shareholder’s funds,

held beyond Solvency

Margin requirement, shall

be held in a separate

custody account with

identified scrips

iii. such excess funds shall

be determined only after

Actuarial Valuation,

certified by Appointed

Actuary and such

valuation is filed with the

Authority.

iv. such transfer made

between quarters, shall

be certified by the

Concurrent Auditor to

have complied with the

above mentioned

requirement

Exposure Norms of ‘investee

company’, ‘group’, ‘promoter

group’ and ‘industry sector’

shall be applicable to both

funds representing solvency

margin [FRSM] and funds held

in excess of required solvency

margin.

4 Pattern of Investment:

In the case of Life Insurers, the

Regulations require total

Investment in housing and

infrastructure (i.e.,) investment

in categories (i), (ii), (iii) and (iv)

of Regulation 4, taken together

Any investment made in

Central Government

Securities, State Government

Securities, Other Approved

Securities, (provided the

respective government issues

such a security specifically to

Appendix ‘C’

215

Reg.

REGULATION IMPLICATION OF

AMENDMENT

shall not be less than 15% of

the fund under Regulation 3(a)”

meet the needs of any of the

sectors specified as

‘infrastructure facility’) along

with Approved Investments

and Other Investments will

qualify for the mandatory

requirement of not less than

15% to be investment in

Housing and Infrastructure

Investments. But in any

combination the total

investment falling under Other

Investments cannot exceed

15% of fund under Regulation

3(a)

Exposure Norms of ‘Investee

Company’, ‘Group’, and

‘Promoter Group’ shall apply

to investments made in

housing and infrastructure.

Any investment made in

housing and infrastructure as

per earlier regulations which

are in excess of the limits

specified as per Regulation 9,

as at 31st March, 2013,

Investee company, Group,

Promoter Group wise, as

certified by the Internal /

Concurrent Auditor shall be

filed with IRDA. No further

exposure shall be made in

such companies.

The Insurer shall make all

efforts to re-align the exposure

to be in line with regulations.

In compliance to this direction,

the Insurer shall commit the

time required to the Authority.

Technical Guide

216

Reg.

REGULATION IMPLICATION OF

AMENDMENT

6 Unit Linked Insurance

Business:-

Every insurer shall invest and at

all times keep invested his

segregated fund(s)under

Regulation 3(c)(with underlying

securities at custodian level) of

Unit linked business as per

pattern of investment offered to

and approved by the policy-

holders where the units are

linked to categories of assets

which are both marketable and

easily realizable. However the

investment in Approved

Investments shall not be less

than 75% of such fund(s) in

each such segregated fund”

The insurer shall invest only in

such investments for which

the day-to-day Valuations are

available. No investment can

be made in any Funds of Fund

or a fund for which NAV is not

available on a day-to-day

basis.

7 Pattern of Investment:

In the case of General Insurer,

the Regulations require Total

Investment in housing (i.e.,)

investment in categories (i), (ii),

(iii) and (iv) of Regulation 7

taken together shall not be less

than 5% of the Investment

Assets; and

Total Investment in

Infrastructure (i.e.,) investment

in categories (i), (ii), (iii) and (iv)

of Regulation 7 taken together

shall not be less than 10% of

the Investment Assets.

Any investment made in

Central Government

Securities, State Government

Securities, Other Approved

Securities, (provided the

respective government issues

such a security specifically to

meet the needs of any of the

sectors specified as ‘housing’

or ‘infrastructure facility’) along

with Approved Investments

and Other Investments will

qualify for the mandatory

requirement of not less than

5% and 10% to be investment

in ‘Housing’ and

‘Infrastructure’ Investments

respectively. But in any

combination, the total

investment falling under Other

Investments cannot exceed

Appendix ‘C’

217

Reg.

REGULATION IMPLICATION OF

AMENDMENT

25% of Investment Assets

Exposure Norms of ‘Investee

Company’, ‘Group’, and

‘Promoter Group’ shall apply

to investments made in

housing and infrastructure.

Any investment made in

housing and infrastructure as

per earlier regulations which

are in excess of the limits

specified as per Regulation 9,

as at 31st March, 2013,

Investee company, Group,

Promoter Group wise, as

certified by the Internal /

Concurrent Auditor shall be

filed with IRDA. No further

exposure shall be made in

such companies.

The Insurer shall make all

efforts to re-align the exposure

to be in line with regulations.

In compliance to this direction,

the Insurer shall commit the

time required to the Authority.

3 to 8

Note 7 (a) for the purpose of

Regulation 3 to 8

Not less than 75% of investment

in debt instruments (including

Central Government Securities,

State Government Securities or

Other Approved Securities) in

the case life insurer and not less

than 65% of investment in debt

instruments (including Central

Government Securities, State

Government Securities or Other

Approved Securities) in the case

In calculating the 75% and

65% of investment in ‘Debt’

instruments in the case of Life

and General insurers

respectively, the following

shall not be taken either in the

numerator or denominator:

1. Reverse Repo with

corporate bond

underlying

2. Fixed Deposit

3. Investment in Promoter

Group Mutual Fund(s)

Technical Guide

218

Reg.

REGULATION IMPLICATION OF

AMENDMENT

of general insurer - shall be in

sovereign debt, AAA or

equivalent rating for long term

and sovereign debt, P1+ or

equivalent for short term

instruments. This shall apply at

segregated fund(s) in case of

Unit linked business

and un-rated Mutual

funds

9 Exposure Norms compliance:

a. Investee Company

Exposure

b. Group Company Exposure

c. Promoter Group exposure

d. Industry Sector exposure

In compliance of Regulation 9,

the Insurer shall file a

statement, as at 31st March,

2013, with the

Authority, certified by

Internal / Concurrent

Auditor, both at fund level

and at Investment Assets

level [as per Regulation

2(g)(1) and 2(g)(2)] providing:

(a) In the case of ‘Investee

Company’, the exposure

details of individual

company exposure which

is in excess of the

prescribed limits

(b) In the case of ‘Group

Company’, the exposure

in respect of ‘each

group’, which are in

excess of prescribed

limits

Group’ the details of

investment in Equity,

Debt, FDs, MFs or any

other Investments made

in Promoter Group

entities, which are in

excess of the prescribed

Appendix ‘C’

219

Reg.

REGULATION IMPLICATION OF

AMENDMENT

limits.

(d) In respect of ‘Industry

Sector’, the exposure in

respect of ‘each’ sector

(as per National

Industrial Classification

(All Economic

Activities) - 2008 [NIC])

exposure which is in

excess of the prescribed

limits.

The above information shall

be filed with IRDA on or

before 15th April, 2013.

Where ever exposure is in

excess of limits mandated

under Regulation 9 of IRDA

(Investment) (5th Amendment)

Regulations, 2013 no further

or additional exposure shall be

made. The Insurer shall make

all efforts to re-align the

exposure to be in line with

regulations. In compliance to

this direction, the Insurer shall

commit the time required to

the Authority.

9 Fixed Deposit under section

27A(9) of Insurance Act, 1938

and Certificate of Deposit

a. No investment shall be

made in FDs and CDs in

financial institutions

falling under Promoter

Group.

b. Investment in FDs and

CDs taken together shall

comply with the

provisions of Section

27A(9)

c. Section 27A (9) shall be

Technical Guide

220

Reg.

REGULATION IMPLICATION OF

AMENDMENT

monitored at a Controlled

Fund level[Investment

Assets as per Regulation

2(g)(1) level]

Filing of Forms

Regulation 10 requires all

insurers to file within 30 days

from the end of the Quarter the

various periodical returns

prescribed. Also, the Authority

to standardise the data filed,

had issued the “Guidance Note

preparation of Investment

Returns”.

In filing returns, the Insurer

shall:

a Confirm to procedure

mentioned in “Guidance

Note on preparation of

Investment Returns” for

each of the form

b. As the Insurer will be

required to amend the

Systems for preparing

Investment Returns, the

returns as per Regulation

10 shall be filed with effect

from the Quarter ending

30th September, 2013

c. All returns of Unit Linked

fund(s), prepared based

on “Segregated Fund

Identification Number”

[SFIN], shall be filed at a

consolidated level. But,

Insurer shall maintain the

data at SFIN level in their

system and may

13 B

(4)

Quarterly review of Product and

Fund performance

A Life Insurer shall report to its

Board, the following minimum,

in respect of each product:

a. New business scale

planned versus actual at

the end of the period1 to

maturity

b. Expenses projected

versus actual

c. Persistency / renewal

Appendix ‘C’

221

Reg.

REGULATION IMPLICATION OF

AMENDMENT

premium streams

projected versus actual

d. Claims - projected versus

actual

e. Actual Yield versus

projected yield or returns

f. Action plan and follow up

status

In respect of General Insurers,

the reporting as mentioned

above, to the Board shall be

with respect to each ‘line of

business’

13 D

(4)

Daily disclosure of Unique

Identification Number (UIN)

wise reconciliation of Product

and Fund information in

insurer’s website

Disclosure of value of ‘policy’

wise ‘units’ held by

‘policyholder’ on the insurers

customer portal

The Insurer shall, with effect

from 1stOctober, 2013

disclose the reconciliation as

per Annexure II, in the

Insurer’s website on a day-

to-day basis.

Till the above reconciliation is

automated, the Insurer shall

disclose such reconciliation, in

their website on a monthly

basis, with effect from April,

2013. The Internal /

Concurrent Auditor shall

confirm such disclosure in his

report to the Audit Committee

of the Board.

The Insurer shall in his

customer portal disclose the

information provided in

Annexure III. The customer

portal of the insurer shall be

enabled for ‘every’

policyholder to login and know

the details as per the format in

Annexure III on any given

Technical Guide

222

Reg.

REGULATION IMPLICATION OF

AMENDMENT

Disclosure of SFIN wise NAV on

both the insurers’ and Life

Insurance Council website

date

The Insurer shall provide the

details in their customer portal

from 1st October, 2013

The Insurer shall disclose, the

day-to-day, SFIN wise NAV in

both the Insurers’ and Life

Insurance Council’s website.

13 D

(6)

For allotment of units, the

applicable NAV shall be as per

the date of commencement of

policy for new policy contracts

and date of receipt of premium

for renewals.

13 E

Risk Management Systems and

Review

a. The Board shall

implement the

Investment Risk

Management Systems

and Process as per the

“Technical Guide on

Review and Certification

of Investment Risk

Management Systems

and Process of

Insurance Companies’,

issued by the Institute of

Chartered Accountant of

India.

b. Insurers, who have either

implemented for the 1st

time or have reviewed

their Investment Risk

Management Systems

and Process, during the

year 2012 shall have the

review done from the

quarter April, 2014 and

file the Audit Certificate

Appendix ‘C’

223

Reg.

REGULATION IMPLICATION OF

AMENDMENT

issued by the Chartered

Accountant with status of

implementation of

recommendations of

Audit Committee of the

Board, on issues of ‘very

serious’ and ‘serious’

nature, as per the

Technical Guide referred

in point ‘a’ above.

c. Where the Insurers have

not done the review of

Investment Risk

Management Systems

and Process, during the

year 2012, shall have

such review done during

the quarter April, 2013 of

the financial year 2013-

14, and with the

implementation status of

recommendations of the

Audit Committee, on

issues of ‘very serious’

and ‘serious’ nature, as

per the Technical Guide

referred in point ‘a’

above, file with the

returns of June, 2013.

d. Subsequent reviews

shall follow Regulations

13 E.

18 (b)

IRDA (Linked Insurance

Products) Regulations, 2013

Chapter V – Discontinuance

terms

In the case of Unit Linked

Products, the discontinued

1. As the insurer is required

to pay a minimum

Technical Guide

224

Reg.

REGULATION IMPLICATION OF

AMENDMENT

policy fund shall be a unit fund

with the following asset

categories:

i) Money Market Instruments:

0% to 40%

ii) Government Securities:

60% to 100%

guaranteed interest rate of

4% per annum for the

discontinued policy, and

Insurers represented that

the asset allocation for

Money Market

Instruments should not be

restricted to 40%, the

Authority had considered

the submissions made

and hereby permits upto

100% to be invested in

Money Market instruments

[as defined in Regulation

2 (h) of IRDA (Investment)

(5th Amendment)

Regulations, 2013

19 (a)

Minimum Guaranteed Interest

Rate:

The Minimum guaranteed

interest rate applicable to the

discontinued fund/ discontinued

policy account shall be at a rate

of 4% per annum.

2. As the discontinued policy

premium, along with 4%

interest requires to be

paid back to the

Policyholder, the Insurer’s

Policy Admin System

(PAS) shall be

`automated’ for tracking

`policy-wise’, information

of discontinued policies

along with the information

of the particular ULIP fund

to which the same

pertains.

3. The Insurer shall

implement the above

mentioned system

requirement, and the

Internal / Concurrent

Appendix ‘C’

225

Reg.

REGULATION IMPLICATION OF

AMENDMENT

Auditor shall confirm

the same in their report to

Audit Committee of the

Board, to avail the

dispensation provided

in point 1 above.

Technical Guide

Annexure II

Name of the Insurer: Report Date

Registration No:

DAILY RECONCILIATION OF ULIP PORTFOLIO

Unique

Identity

Number

(UIN)

Name of

the

Product

Segregated

Fund

Identifiation

Number

(SFIN)

Name of the

Fund

Life / Group Policy Admin System

Opening

Unit Capital

(as at the

start of the

day)

(Amount in

Rs)

Opening

Units (as of

the start of

the day)

(Number of

Units)

Net Amount

collected or

redeemed

(net of

charges) for

the day

(Amount in

Rs)

Net units

allotted or

redeemed for

the day

(Number of

Units)

Closing unit

capital (as

at the end

of the day)

(Amount in

Rs)

Closing

units (as at

the end of

the day)

(Number of

Units)

(a) (b) (c) (d) (e) = (a) +

(c)

(f) = (b) +

(d)

X A XYZ Fund Name 1

Y B

Z C

Sub total

L D ABC Fund Name 'n'

M E

Sub total

Appendix ‘C’

227

Investment Management System

SFIN Name of

the

Fund

Opening

fund Value

(as at the

start of the

day)

Opening

units (as at

the start of

the day)

(Number of

Units)

Addittional

fund Value

created or

redeemed

for the day

Addittional

Units

created or

redeemed

for the day

Investment

income for

the day

(including

unrealised

gain/loss)

FMC

charges

deducted

for the day

Closing

fund Value

(as at the

end of the

day)

Closing

Units (as at

the end of

the day)

(Number of

units)

NAV per

Unit

declared

(g) (h) (i) (j) (k) (l) (m) = (g)

(

)

(

)

(

)

(n) = (h) + (j) (o) = (m) /

(

)

Fund 1

Fund 2

Fund 'n'

Notes:

1. Opening units as per Life / Group Policy Admin System of previous NAV day [refer (b)] shall reconcile with Opening Units as per

Investment Management System [refer (h)]

2 Addittional fund or Units created or redeemed for the day in Investment Management System [refer (i) and (j)] shall reconcile with Net

Amount or Units collected or redeemed as per Life / Group Policy Admin System [refer (c) and (d)]

3 Closing units as per Life / Group Policy Admin System of previous NAV day [refer (f)] shall reconcile with Closing Units as per

Investment Management System [refer (n)]

4 NAV per unit declared [refer (O)] must reconcile with NAV per unit uploaded on Life Insurance council's website

5 The unit movements of day "T" in Life/Group Admin System shall flow into Investment Management System with a maximum time lag

of 1 working day i.e T+1.

Annexure III

Insuer Name XYZ Insurance Company

Limited

Registration No:

Policyholder ID Login

Dt DD/MM/YYY

Name of Policyholder

Address:

PART - A

Product UIN Premium

(Rs)

Premium

Allocation

Charge

(Rs)

Funds

Allocated

(Rs)

Units as

per

Policy

Admin

System

(PAS)

Value

per

Unit

(Rs)

Product

Value

(Rs)

ZXY

Premium

Plus

[A]

PART – B Rs.

Particulars SFIN… SFIN…

SFIN

Name of the Fund Fund

Fund

Y Total

Units (as per Investment Management

System)

Percentage of Allocation (as on Login Dt) % % %

Funds Allocated

Switch In

Switch Out

Withdrawals

Charges

Commission

Switch charge

Policy Administration charge

Mortality charges

Other charges (specify)

Service Tax

Total amount invested in Segregated funds

Current NAV

Fund value as on Login Dt:

[B]

Appendix ‘C’

229

PART - C (Product Statistics)

Insurance Cover over the interim reporting period from dd/mm/yyyy

to dd/mm/yyyy

Total Premium Paid from inception

Total Risk premium from inception, for insurance cover

Total Charges and deductions other than Mortality including

Allocation charges till Login Dt. (including Service Charges)

Difference between (B) (C) (unrealised Gain / Loss)

Portfolio value on Net Investment as per Benefit Illustration at the

lower rate as prescribed in the regulations

Portfolio value on Net Investment as per Benefit Illustration at the

upper rate prescribed in the regulations

Note:

1. Product Porfolio value would be aggregate of all fund values in a

product.

2. Product value per unit would be arrived at post dividing aggregate

fund value by initial units

3. Consolidated Product Value would be a derived by aggregating the

product values and divding the same by consolidated initial units

4. Product Value would be in addition to all the existing disclosures and

calculations

5. Current prescribed practices shall continue.

Technical Guide

230

Annexure IV

AUDIT OF INVESTMENT RISK MANAGEMENT SYSTEMS & PROCESS,

INTERNAL / CONCURRENT AUDIT

[Vide Circular INV/CIR/023/2009-10 Dt. 4th Aug, 2009]

The Authority vide notification F.No.IRDA/Reg./16/74/2013 dated 16th Feb,

2013 notified IRDA (Investment) (5th Amendment) Regulations, 2013.

Regulation 13 (E) prescribes as under:

1. The Board shall implement the Investment Risk Management

Systems and Process, mandated by the Authority. The

implementation shall be certified by a Chartered Accountant firm, as

per the procedure laid down in the “Technical Guide on Review and

Certification of Investment Risk Management Systems and Process of

Insurance Companies”, issued by the Institute of Chartered

Accountants of India, as amended from time to time.

2. The Investment Risk Management Systems and Process shall be

reviewed at the beginning of every second financial year or such

shorter frequency as decided by the Board of the Insurer, by a

Chartered Accountant firm and file the certificate issued by such

Chartered Accountant, with the Authority along with the first quarter

returns.

3. The appointment of Chartered Accountant firm to certify

implementation and review of Investment Risk Management Systems

and Process shall be as per the circular issued under these

regulations.

Thus, all Insurer shall have their Investment transactions and related

Systems of Investment functions audited on a Quarterly basis through

Internal Audit (either through internal resources or through firms of Chartered

Accountants) and Insurer with AUM of over Rs.1000 Crores shall necessarily

appoint a firm of Chartered Accountants as Concurrent Auditor to have its

Investment transactions and related Systems audited on a concurrent basis.

Where a firm of Chartered Accountant is appointed either as Internal /

Concurrent Auditor, the Audit team engaged for Internal / Concurrent Audit

shall be headed by an Finance professional, preferably a Chartered

Accountant, with a minimum experience of 3 to 5 years in a Senior position

handling Investment Operations, Audit, Accounts of an Insurance Company

or have been engaged by the Authority in Audit of Investment Operations /

Investment Risk Management Systems and Process of the Insurers and is

Appendix ‘C’

231

fully conversant with IRDA’s Accounting and Investment Regulations and

Circulars and Guidelines issued there under.

A. AUDIT OF INVESTMENT RISK MANAGEMENT SYSTEMS AND

PROCESS

i. As per Regulation 13 (E) of IRDA (Investment) (5th Amendment)

Regulations, 2013 a Chartered Accountants firm, which is not the

Statutory or Internal or Concurrent Auditor of the concerned Insurer

shall certify that the Investment Risk Management Systems and

Processes as per the “Technical Guide on Review and Certification of

Investment Risk Management Systems and Process of Insurance

Companies” issued by the Institute of Chartered Accountants of India

(ICAI), in consultation with IRDA, had been implemented.

ii. All companies seeking IRDA registration shall file a certificate issued

by a Chartered Accountant firm, to confirm that the Insurer had

complied with the systems related requirements, as given in the

“Technical Guide on Review and Certification of Investment Risk

Management Systems and Process of Insurance Companies”, when

the Insurer seeks registration under R3 of IRDA (Indian Insurance

Companies Registration) Regulations, 2000. It should also indicate

the actions further required to be taken

B. INTERNAL / CONCURRENT AUDIT OF TRANSACTIONS

1. The minimum Scope of Audit for Internal or Concurrent Audit shall be

as detailed in the “Technical Guides on Internal / Concurrent Audit of

Investment Functions of Insurance Companies” issued by ICAI (in

consultation with IRDA), for both Life and Non-Life Insurers. The

Insurer could include additional scope depending upon their need for

control systems. The Internal / Concurrent Audit is expected to cover

100% of transactions of all fund(s) as per the periodicity prescribed.

2. Where the Internal Audit is carried in house, the internal audit report

shall be signed by the Head of Internal Audit.

3. An insurer who gets covered under AUM clause of over Rs. 1000

Crores for the 1st time, for the purpose of applicability of Internal /

Concurrent Audit, will continue to have the Investment functions

concurrently audited, even if the AUM falls below Rs.1000 Crores,

subsequently.

Technical Guide

232

C. APPOINTMENT OF AUDITORS

i. COMMON FOR BOTH “INVESTMENT RISK MANAGEMENT

SYSTEMS & PROCESS”, “INTERNAL / CONCURRENT AUDIT”

1. The Chartered Accountant firm shall be a firm, registered with

the Institute of Chartered Accountants of India.

2. The Audit firm should have experience, for at least four years,

in conducting reviews of Risk Management Systems and

Process of either Banks or Mutual Funds or Insurance

Companies or have, on behalf of IRDA conducted Investment

Inspection of Insurance Companies.

3. On the date of appointment as an Auditor for certifying

Investment Risk Management Systems and Process, the

Auditor must not hold more than two audits of Internal,

Concurrent and Risk Management Systems Audit, all taken

together. Hence, the Audit firm, can at the maximum hold not

more than three Audits (i.e., Investment Risk Management

Systems and Process Audit, Internal Audit, Concurrent Audit –

all taken together), apart from Statutory Audits at any point of

time. For this purpose, at the time of appointment, the insurer

shall obtain a declaration to this effect from the firm of

Chartered Accountants. The Insurer shall, file with IRDA, the

confirmation obtained from the Chartered Accountant firm,

within 7 days of such appointment. Also, it is clarified that

Investment Risk Management Systems & Process Auditor,

shall not be the Internal / Concurrent Auditor.

4. The Auditor should not have been prohibited/debarred by any

regulating agency including IRDA, RBI, SEBI, ICAI etc.

5. Every Insurer, upon appointing the firm of Chartered

Accountants as Internal or Concurrent or Risk Management

Systems Auditor shall send a communication to IRDA within

seven days of such appointment, confirming such appointment

as per format provided below under point (iv)

ii. AUDIT OF “INVESTMENT RISK MANAGEMENT SYSTEMS &

PROCESS”

1. The Auditor appointed for certifying the Investment Risk

Management Systems and Process, should not have

conducted the following assignments for the same Insurer

Appendix ‘C’

233

proposing to be appointed as Systems Auditor, for a period of

two years immediately preceding his appointment.

i. Statutory Audit

ii. Any Internal Audit

iii. Any Concurrent Audit

iv. Any consulting assignment, whether or not related to

Audit functions

iii. AUDIT OF “INTERNAL / CONCURRENT AUDIT OF

TRANSACTIONS”

1. The Internal/Concurrent audit term shall be for the financial

year and where the appointment is made during the course of

the financial year, it shall be up to the end of that financial year.

2. The Internal / Concurrent Auditor shall be appointed by the

Audit Committee of the Insurer’s Board and the Auditor shall

directly report to the Audit Committee of the Insurer’s Board.

Any change in Auditor during the middle of the term, shall be

communicated to IRDA with the reasons for such change. The

new Auditor, for the remaining term, shall be appointed only

with the prior approval of IRDA.

3. The Internal / Concurrent Auditor shall not be eligible for re-

appointment, with the same Insurer after serving three

consecutive years or three years during the preceding five

years.

4. The Internal / Concurrent Auditor appointed for the first time

should not have conducted the following assignments for the

same Insurer proposing to be appointed as Internal or

Concurrent Auditor for Investment functions during a period of

two years immediately preceding his appointment as Internal or

Concurrent auditor.

i. Statutory Audit

ii. Any Internal Audit

iii. Any Concurrent Audit

iv. Any consulting assignment, whether or not related to

Audit functions

v. Reviews or Certification of Investment Risk

Management Systems and Process

Technical Guide

234

iv. CONFIRMATION OF APPOINTMENT OF AUDITOR

IN THE LETTER HEAD OF THE INSURER

Date:…………………..

The Insurance Regulatory and Development Authority

Parisram Bhavan, 3rd Floor, Basheerbagh

Hyderabad – 500 004

Sir

In pursuant of IRDA Circular INV/CIR/008/2008-09 Dt. 22nd Aug, 2008 and

related provisions of IRDA (Investment) (5th Amendment) Regulations, 2013

in respect of Internal (or) Concurrent Audit of Investment functions, we have

appointed the following firm(s) as our Internal / Concurrent Auditor(s) for the

Investment functions for the period starting from:………………….. to

……………………..

We have taken necessary confirmations in writing from the Chartered

Accountant firm(s)

Yours faithfully

Chief Executive Officer

Appendix ‘D’

Guidance note on

Preparation of Investment Returns

(Version – 01)

Issued by:

Insurance Regulatory and Development

Authority in May, 2013

INTRODUCTION

The Authority issued the Investment Regulations, for the first time, in

2000 and had since then amended it from time to time, (the latest having

been notified on 16th Feb, 2013) to keep pace with the changing market

and to have a hold on policyholders funds. The Assets under

Management that were around Rs. 2.91 Lakh Crores in 2000 are around

Rs. 17.83 lakh Crores in 2013. When funds grow in such volumes, the

Systems and Processes too should keep pace. Such systems and

processes put in place should enable the Regulator to watch growth and

channelize the same to the needy sectors without compromising on the

safety aspect.

Such information, to benefit of all stakeholders, including the Regulator,

requires to be taken in the electronic form. In this effort of collating huge

volume of information, it is essential that the information / data is

‘standardized’ to facilitate proper consolidation and meaningful

comparability within and among Insurers.

In order to ensure compliance with regulations, all Insurers are expected

to put in place a proper system for the preparation of periodical returns to

be filed with the Authority. To help such preparation and to enable the

Investment Committee of the Insurer ensure that the periodical returns

are prepared in compliance with the procedures laid down, the Authority

is coming out with this guidance note. Even though the periodical returns

are signed by the respective officer named in the form, the Chairman of

the Insurer, Chief Executive Officer, Chief Investment Officer, Chief

Financial Officer and Chief Risk Officer of the Insurer, as the case may

be, the Officers shall be collectively responsible for the authenticity of

information / data submitted, filed either in electronic as well as hard

copy.

Technical Guide

236

All periodical returns are required to be filed with the Authority

within 30 days from the end of the Quarter. In relation to Quarter

ending on the Balance Sheet date, the return shall first be filed based

on ‘Provisional figures’ and shall again be re-filed with Audited figures in

addition to other Returns. On each return the Insurer shall clearly mark

‘Provisional’ if submitted based on provisional figures. The final returns,

based on Audited figures, shall be clearly marked as ‘Audited figures’.

All figures shall be reported in Crores, corrected to two decimals.

The Authority, soon after amending the Regulations had worked with the

Industry in bringing out this “Guidance Note on preparation of

Investment Returns”. While due care had been taken to prepare the

material, users can point out through Life Insurance Council or General

Insurance Council any inconsistency. The Authority will look into such

issues and will address the same in the subsequent versions.

Appendix ‘D’

237

FORM 1 – STATEMENT OF INVESTMENT AND

INCOME ON INVESTMENT

OBJECTIVE

In order to ascertain the return on the investment assets, all insurers are

required to file FORM-1 listing category of Investment wise (as per the

Guidelines INV/GLN/001/2003-04 - Guidelines – Category of Investments

Dt. 1st Jan 2004 as amended from time to time) income and the yield on

such investment at gross and net basis The Form should be prepared in

respect of each fund. In case of ULIP FORM 1 shall be prepared at

Segregated Fund (SFIN) level and also at consolidated level. The

Income on Investments shown in FORM1 should reconcile with Revenue

and Profit & Loss Account figures

A. METHOD OF PREPARATION

a. COI (Category of Investments)

Category of investment shall be as per the IRDA Guidelines

INV/GLN/001/2003-04 - Guidelines – Category of Investments

Dt. 1st Jan 2004 as amended from time to time

b. Cat Code (Category Code)

Category code shall be stated as prescribed in Guidelines as

amended from time to time.

DETAILS PERTAINING TO THE CURRENT QUARTER

c. Investments

The insurer shall state the simple average of investments for

(Non-ULIP and General Insurance Business) the quarter at their

Balance Sheet Value and for ULIP Business at the value of

Investment Assets taken for computing NAV. The simple

average investments shall be calculated based on daily closing

balance. In case where any security has been reclassified (when

the Security is moved from Approved to Other Investment

Category or vice versa) to another category then the simple

average balance shall be shown under the first category till the

time such investment was classified under that category and for

the balance period in the reclassified category.

NOTE:

Simple average of investments shall be the sum of daily closing

balance of Investments divided by the number of day(s) such

investments are outstanding. The net investment current assets

of linked funds should be reported as at the period end in the

Current quarter and Year to Date column.

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d. Income on Investment

For non-ULIP funds and General insurers, Income on

Investments will include the income taken to Revenue Account &

Profit and Loss account (Interest, profit / (loss) on sale,

accretion of discount, amortization of premium, dividend earned

during the quarter) and taken to financial statements pertaining

to all the securities held under that category during that quarter.

In case of ULIP funds, any incremental un-realized gains / (loss)

arisen for the period on investment shall be included. In case

where any security has been reclassified to another category

then income shall be shown under the first category till the time

such investment was classified under that category and for the

balance period in the reclassified category.

e. Gross yield

The gross yield (absolute) shall be computed by dividing the

income on Investment for the quarter by the simple daily

average investments outstanding for number of days for the

quarter.

f. Net Yield

The net yield shall be computed by giving the effect of tax rate to

the gross yield.

1. DETAILS PERTAINING TO THE INCOME AND YIELD FOR

YEAR TO DATE

Under the head “Year to Date”, details of Investments,

Income, Gross Yield and Net Yield shall be shown for the

period April to the end of the quarter for which details are

being furnished. For example for the quarter ended June,

the details from April to June shall be provided and for the

quarter ended September, the details pertaining to April to

September shall be provided.

2. DETAILS PERTAINING TO THE INCOME AND YIELD FOR

PREVIOUS YEAR

Under the head “Year to Date”, details of Investments,

Income, Gross Yield and Net Yield for the corresponding

period of the previous year are to be shown.

Appendix ‘D’

239

FORM 2 – STATEMENT OF DOWNGRADED

INVESTMENTS (PART – A)

OBJECTIVE

In order to establish the movement of securities from one category to

another especially the movement from Approved Investments to Other

Investments on account of rating downgrades/upgrades on the reporting

date, all insurers are required file FORM 2, listing various instruments

which have been downgraded from its rating at the time of the purchase

(original rating).

A. METHOD OF PREPARATION

The details of all the downgraded debt securities during the quarter shall

be given under ‘current quarter’ and all downgraded securities shall be

shown under “As on date”. 'Investments currently upgraded to the

original grade or above, listed as Down Graded during earlier Quarter

shall be deleted from the Cumulative listing.

a. COI (Category of Investments)

Insurers are required to pick up the corresponding Category of

Investment (COI) for every downgraded security, reposition the

same at the appropriate COI as prescribed in the regulation.

b. Amount

The Balance Sheet Value shall be stated in this column.

c. Date of purchase

In this column, the insurer shall state the date of purchase of that

security. In case there are multiple purchases then the date on

which the earliest purchase was made shall be stated.

d. Rating Agency

In this column, the insurer shall state the name of the rating

agency as prescribed in the regulation. If an instrument is rated by

more than one rating agency, the lowest rating must be used as a

matter of conservatism.

e. Original Grade

Original grade is the rating at the time of purchase of the

instrument.

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f. Current Grade

Current grade is the rating for the instrument as at the last day of

the quarter.

g. Date of Downgrade

Further the Insurer shall state the date of downgrade along with

remarks, if any. In case of any downgrade of security resulting in

securities being reclassified as “Other Investment”, in Pension and

General Annuity fund, the same shall be specifically disclosed in

the Returns.

Appendix ‘D’

241

FORM 2 – INVESTMENT ASSETS – RATING PROFILE

(PART – B)

OBJECTIVE

To assess the credit quality of the Investment portfolio, Insurers are

required to file FORM 2. This form needs to be linked to FORM 3A/ 3B.

Equity or Equity Related Instruments and other than Debt Instruments

Portfolio are also reported in FORM 2, for the purpose of linking the total

portfolio to FORM 3A / 3B.

A. METHOD OF PREPARATION

1. FORM - 2 shall be prepared in respect of each fund/investment

assets. In case of ULIP Form 2 shall be prepared at Segregated

Fund (SFIN) level and also at consolidated level.

2. For the purpose of asset classification in various rating classes,

the following points may be noted:

a. Debt investments which are capable of being rated and are

not rated shall be shown under "Unrated"

b. In case of loans in housing sector, infrastructure sector,

secured loans appearing in approved investment and

unsecured loans appearing in ‘Other investments’ amount

shall appear in unrated column of the form 2(part B). In this

regard, the unrated loans having security as prescribed by

Insurance Act shall be classified as approved investment.

Unrated & unsecured loans and unrated and in adequately

secured as prescribed in Insurance act shall be classified as

Other Investment.

c. Reverse Repo with underlying corporate bond, Investment in

Mutual Funds including the Promoter Group Mutual Fund,

Bank FDs, CBLO, Net investment current assets, Venture

funds, Derivative instruments, immovable property and any

other non-debt investments as permitted under the

regulations, shall be shown under “Equity or Equity Related

Instruments and other Instruments”. No investment shall be

made in “Equity related instruments” unless the same is

specifically permitted by IRDA.

d. In case of Reverse Repo with underlying Government

securities the same shall be classified under 'AAA' or

Equivalent

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e. Non-Performing investments assets will be shown separately

irrespective of rating

3. Balance sheet values of the Investments shall be provided. The

figures in Col (i) must match with FORM 3A/B

4. Percentage to Investment Assets shall be computed, in the case of

Non-ULIP funds and General Insurers by dividing the Balance

Sheet value of investments in various rating class by the total

Balance Sheet Value of Investment assets held and in the case of

ULIP funds, by dividing the Market value of investments in various

rating class by the total market value of Investment assets held.

Appendix ‘D’

243

FORM 2 - INVESTMENT ASSETS & INFRA

INVESTMENTS - RATING PROFILE (PART – C)

OBJECTIVE

To assess the amount of infrastructure investments in life funds, Insurers

are required to file FORM 2C. This form needs to be linked to FORM 3A /

3B.

A. METHOD OF PREPARATION

1. FORM – 2C shall be prepared in respect of life fund only and

general insurer including reinsurers.

2. The figures under investment assets category must reconcile with

Form 3A / Form 3B

3. The figures under the infrastructure category must reconcile with

Form 3A / Form 3B

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FORM 3A – STATEMENT OF INVESTMENT ASSETS

(PART – A)

OBJECTIVE

The Insurer shall file FORM 3A (Part A) for compliance of fund wise

Pattern of Investments showing Investment assets and other assets and

linking the same with Balance Sheet figures.

A. METHOD OF PREPARATION

1. FORM 3A (Part-A) has two Sections

SECTION-I

Section I provides link to Investment assets reported in the Balance

Sheet with that as reported in FORM 3A (Part A). The investment assets

which are subject to pattern of investments, under each fund of the Life

Insurer as required under Regulation 3, and shown under “funds

available for investments”

(i) Funds available for Investment

To arrive at the “funds available for investments”, the amounts

appearing in the non investment schedules and non investment

line items appearing in Balance Sheet under Application of Funds,

are deducted. Similarly any non-investment items, deducted from

Balance Sheet, shown under Application of Funds, shall be added

back in the reconciliation to arrive at the “funds available for

investments”. If any Insurer is carrying Loans as a part of

investments, then the same shall not be deducted from the

application of the funds.

The balance so arrived as “funds available for investments” shall

tally with the sum of the values shown in the “Total Fund” column

of all the three funds in FORM 3A (Part A) which shall reconcile

with figures shown in schedule 8, 8A, 8B & 9.

Application Money for investments under ‘non linked funds’ shall

form part of the Schedule 12 and the same shall not form part of

the Schedule 8, 8A, & 9. It shall not form part of the investment

assets till the allotment is complete. In case of ‘Linked portfolios’

the same shall form part of ‘Net Current assets’ till the allotment is

complete. Also, it shall be reported under Schedule 8B. If

investment application money is paid through ASBA Fixed Deposit

instead of cash, the same shall be treated as application money

Appendix ‘D’

245

(current Assets) and the lien shall be properly disclosed in Form 6

as a note.

SECTION-II

Section II requires the insurer to report the fund wise, pattern of

investments as prescribed under Regulation 4, 5 and 6 of the IRDA

(Investment) Regulations 2000 as amended from time to time.

Separate Custodian account shall be maintained for “balance”

investments of Shareholder’s fund that does not form part of the FRSM

(except in case of Securities held with RBI/ CCIL). Shareholders’ funds

held beyond the solvency requirements shall not be subject to Pattern of

Investments prescribed under Regulation 4, 5 and 6 and shall be subject

to Prudential / Exposure norms prescribed under Regulation 9, provided

the same are maintained in a separate custody account.

(i) Category of Investments

Investments shall be categorized as per the Regulation or circular

issued there under, such as Central Government Securities, State

Government Securities, Other Approved Securities, Housing and

Infrastructure, Approved Investments and Other Investments.

(ii) % as per Regulation

This specifies the minimum or maximum % of investments under

each category of investments as prescribed in Regulation for

various funds.

(iii) Shareholder’s and Policyholder’s fund

All the insurers shall maintain portfolios of SH - FRSM, SH

BALANCE (other than fund representing solvency margin), UL

non-unit reserves, Par and Non par. The insurer shall maintain sub

portfolios under these broad portfolios on the basis of various line

of business. The Pattern of Investment, with respect to Life Fund,

shall be complied with respect to the total of Life fund (both

shareholder fund representing solvency and Policyholder funds

taken together). It may be noted that the pattern of Investment

will not apply to Shareholders funds in excess of solvency

requirement, held in a separate custody account. But

exposure norms of ‘Investee’ company, ‘Group’, and ‘industry

sector’ will apply to both shareholders and policyholders

funds.

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(iv) Book Value (SH+PH)

In case of ULIP Net asset value including net current assets shall

be considered for pattern of investments. Net current assets shall

be considered as ‘approved investment’ for this purpose. All the

securities (both Equity and Debt) shall be marked to market.

In case of ‘Non-Linked’ funds, cost plus amortization value of the

debt securities and acquisition cost in case of Equity, mutual fund

and investment property and other than Debt investments will be

considered for pattern of investments. Net current Assets shall not

be considered for calculation of Pattern of Investments for non

linked portfolio.

(v) Actual %

The actual % of the each category of investments under Non-

linked portfolios shall be calculated as a % to the total book value

of investment assets in the fund. The amounts in the column (f)

shall be used for calculating the Exposure %.

In case of the ULIP, the actual % of each category are calculated

as a % to the ‘market value’ of the assets of the funds including

‘net current assets’ that is considered for NAV calculation.

(vi) Fair Value Change (FVC) Amount

The insurer shall compute the fair value for equities and units of

mutual fund. The difference between the fair value and the book

value is the Fair Value Change (FVC) and the same shall be

disclosed in the column provided for.

(vii) Total Fund

The amount after adding the fair value amount to the book value

shall be shown under Total Fund Column. The Grand total under

this column shall reconcile with the ‘Balance Sheet’ value of

investments assets shown in Section I

Market Value

The market value of the securities classified under the various

categories of investments shall be shown under Market Value

column. In the case of Equity, the Market Value shall be the lower

of BSE / NSE prices.

Appendix ‘D’

247

NOTE

a. In case of Life Fund, Pattern of Investment is applicable for Share

holder fund representing solvency margin and Policyholder funds.

Shareholder fund beyond solvency margin is not subject to pattern

of investment.

b. In Form 3A part A, the equation provided under 'Book Value

(SH+PH) shall be read as '(f) = [b+c+d+e],

c. “Other Investments” made from all Categories of Investment

including housing and infrastructure category shall not

exceed 15% of investment assets of Life fund.

d. All the investment assets such as Fixed Deposits, Section 7

deposits by way of investment assets shall form part of the

Schedule, 8, 8A, 8B or 9 with a note in the respective forms.

e. Non-investment assets of the non-linked funds shall be shown in

the respective schedules other than 8, 8A & 9

f. Non investment assets of the Linked portfolios are also shown as

a separate line item in the Schedule 8B

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FORM 3A – STATEMENT OF INVESTMENT ASSETS

(PART – B)

OBJECTIVE

The objective of the form is for compliance to the pattern of Investment

under Reg. at the Segregated Fund level of ULIP fund. This Form is

linked to the item C of FORM 3A (Part-A).

A. METHOD OF PREPARATION

Fund 1 to Fund `n`

Details about each Segregated Fund of ULIP and its total shall be

provided in this form. The number of funds shall be the funds as

approved by the File & Use of IRDA.

a. FORM 3A (Part-B) has two sections

SECTION-I

This section shows the movement of funds from the previous quarter to

the reporting quarter on account of the inflow /outflow in the

policyholders funds and increase/decrease in the value of investments

during the quarter.

(i) Opening Balance (Market Value)

The closing fund values i.e. total Assets under Management

(AUM) (at the segregated ULIP fund level) at the end of the

previous quarter shall be brought forward as opening balance of

the linked portfolio(s).

(ii) Inflow during the quarter

Inflow (a positive figure) will represent the funds brought in for

creation of units in each of the Fund(s).

(iii) Outflow During the quarter

Outflow (a negative figure) during the quarter shall represent the

redemption of units for surrender, claims, charges etc.

(iv) Increase / (Decrease) value of Investments

Increase / (decrease) in the value of investments shall include the

realized, unrealized gains/losses and other Investment income that

has accrued to the individual fund during the reporting quarter

Appendix ‘D’

249

(v) Total Investible Funds (Market Value)

Opening Balance (Market Value) + inflow during the quarter + net

Increase / (Decrease) in the value of Investments – outflow during

the quarter of all funds taken together. In the case of Equity, the

Market Value shall be the lower of BSE / NSE prices.

SECTION-II

INVESTMENT OF UNIT FUND

All the Investments under the ULIP each Segregated Fund(s) shall be

shown under two heads namely Approved and Other Investments.

Under the Approved Investment Category, the investments shall be

further divided into Central Govt. Securities, State Govt Securities, Other

Approved Securities, Corporate Bonds, Infrastructure Bonds, Equity,

Money Market investments, Mutual funds, Deposit with Banks. ‘Net

current assets’ shall be classified as ‘Approved Investment’ and its

breakup shall be provided as prescribed in the format.

Under the Other Investment Category, the investments shall be further

divided into between Corporate Bonds, Infrastructure Bonds, Equity,

Mutual funds, and any other investments which can be readily realizable

and marketable. No investment shall be made in the securities which

cannot be marked to market on daily basis. Total funds i.e. aggregate of

Approved and Other Investments shall reconcile with the Total investible

funds as shown in the Section 1 of the FORM 3A (Part B).

NOTE

(a) The aggregate of all the above Segregated Unit-Funds should tally

with item C of FORM 3A (Part A), for both Par & Non Par Business

(b) The details of Item 12 of FORM LB 2 which form part of IRDA

(Actuarial Report) Regulation, 2000 shall be reconciled with FORM

3A (Part B). LB2 being an annual form the reconciliation would be

done only at year end.

(d) Market value of the securities considered for NAV calculation shall

be taken for the purpose of applicability of Pattern of Investments

for ULIP

(e) All the assets of linked funds at the segregated level including net

current assets shall be considered in the denominator for limit

monitoring

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FORM 3A – STATEMENT OF INVESTMENT ASSETS

(PART - C)

OBJECTIVE

The objective of the form is to compare the performance of funds at

various periods. Further the form establishes the consistency of NAV

considered for accounting and that reported in Actuarial Statement LB2

are the same. Also the form provides the periodical investment returns of

fund(s). This Form is linked to the FORM 3A (Part B).

A. METHOD OF PREPARATION

a. Name of the Segregated fund

Details about each segregated fund of linked fund shall be

provided in this column.

b. SFIN

SFIN for each of the segregated fund shall be provided.

c. Date of Launch

The date of the first unit allotted under the fund needs to be stated

against each segregated fund.

d. Par/Non Par

Details about the fund whether it is Par/Non Par to be provided

e. Assets Under Management on the above date

The total should be equivalent to the Assets under Management

(AUM) of the segregated fund as provided in FORM 3A PART B.

f. NAV as per LB 2

NAV as per FORM LB2, (Regulation 4 of IRDA (Actuarial Report

and Abstract) Regulations 2000 shall be provided in the column.

LB2 being an annual form, the NAV as per LB2 would equal the

published NAV on a quarterly basis.

g. NAV as on the above date

The NAV on the last day of the quarter shall be provided for

calculating the return.

h. NAV of previous quarters

NAV from previous quarter upto the 4th previous quarter shall be

provided. For example for the quarter ended June 2012, the NAV

Appendix ‘D’

251

on March 31, 2012 shall be provided in Previous Qtr NAV column,

the NAV on December 31, 2011 shall be provided in 2nd Previous

Qtr NAV column, the NAV on September 30, 2011 shall be

provided in 3rd Previous Qtr NAV column and the NAV on June

30, 2011 shall be provided in 4rd Previous Qtr NAV column.

i. Return

The absolute yield should be computed for one year return based

on NAV movement. Absolute return/ yield = Current quarter NAV/

4th Previous Qtr NAV -1. In case the fund inception data is later

than 4th previous quarter NAV date the same must be reported as

NA (Not Applicable).

j. 3 Year rolling CAGR

The formulae for 3 year CAGR is = ((X/Y) ^ (1/3))-1

X = NAV as provided in the as on above date column

Y = NAV of the corresponding date of the 3rd previous year

In case the fund inception data is later than three years from as on

above date of the Form the same must be reported as NA (not

applicable).

k. Highest NAV since inception

Highest NAV of each fund since inception should be provided.

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FORM 3A – STATEMENT OF INVESTMENT ASSETS

(PART - D)

OBJECTIVE

All insurers are required to file FORM 3A (Part – D) to provide the details

of investments made under various funds (Life, Pension and Linked) of

the Life Insurer during the quarter. The Form should be prepared

separately for each fund and in aggregate for all segregated linked funds.

The form is intended to bring out the accretion to the insurers

investments (fund wise) while complying with the fund wise pattern of

Investment.

A. METHOD OF PREPARATION

a. Opening balance

The value of investments of the previous quarter as disclosed under

FORM 3A (Part A) shall be reported in the column.

b. % to Total

The opening balance of prescribed category of investments under

various funds divided by total value of investments of the fund expressed

as a percentage.

c. Net Accretion for the Qtr.

Net increase/ (decrease) in the category of investments during the

quarter.

d. Total

Opening balance of the category of investments plus net accretion during

the quarter must be shown in the column. The summation of the column

for the various funds should tally with book value figures shown in FORM

3A (Part A).

Appendix ‘D’

253

FORM 3A – STATEMENT OF INVESTMENTS

(PART - E)

OBJECTIVE

All insurers are required to file FORM 3A (Part – E) to provide the details

of investments made under unit linked funds (at a segregated fund level)

of the Life Insurer during the quarter. The Form should be prepared

separately for each fund and in aggregate for all segregated linked funds.

The form is intended to bring out the reconciliation of Investment details

of ULIP products (UIN) to segregated funds (SFIN)

A. METHOD OF PREPARATION

a. This form is to be prepared for all ULIP products at UIN level. UIN

approved by IRDA

b. Premium

a. It represents premium income (including first year premium,

renewal premium, Top up premium and Single premium)

received during the quarter for each UIN

b. Others – need to specify type of inflow, other than premium

income, which flows into policy fund.

c. Outflow

a. Details of all charges, policyholders’ payouts including

claims, surrender, partial withdrawal, and any other outflows

(need to specify), which gets deducted either from premium

inflow or policy fund (by way of policyholders’ payout or

charges) during the quarter.

d. The above information will flow from policy admin system at UIN

level

e. Policy funds

a. Net inflow or outflow as computed above will flow into or

flow out of segregated policy fund (at SFIN level) during the

quarter. This information will reconcile with change in unit

capital and premium reserve at SFIN level in the Investment

management system

f. Difference between net inflows/outflows as per UIN level and Net

inflows/outflows as per SFIN level must be “nil”

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FORM 3B – STATEMENT OF INVESTMENTS

(PART - A)

OBJECTIVE

The Insurer shall file FORM 3B (Part A) for compliance of Pattern of

Investments showing Investment assets and other assets and linking the

same with Balance Sheet figures

A. METHOD OF PREPARATION

(a) FORM 3B has two sections:

Section I

Section I requires the insurer to establish linkage with the

details of investment as shown in the Balance Sheet and the

investment returns. The Insurer shall furnish the figures as

appearing in Schedule 8 to 15 and the debit balance in

Profit & Loss Account. Further, all the items pertaining to

investments disclosed in the investment returns (FORM 5)

which do not form part of schedule 8 need to be shown in

the “less” items of this section. The Investment assets as

appearing in section I shall be reconciled with the

investment assets shown under the head “Total Fund” in

section II.

Section II

In Section II, the insurer is required to comply with the

pattern of investments as prescribed under Regulation 7 of

the IRDA (Investment) Regulations 2000 as amended from

time to time. Separate Custodian account shall be

maintained for “balance” investments of Shareholder’s fund

that does not form part of the FRSM (except in case of

Securities held with RBI/ CCIL). Shareholders’ funds held

beyond the solvency requirements shall not be subject to

Pattern of Investments prescribed under Regulation 7

(provided such assets are kept in a separate custody

account) but shall be subject to Prudential / Exposure norms

prescribed under Regulation 9, provided the same are

maintained in a separate custody account.

(b) Category of Investments

Investments shall be categorized as per the Regulation,

such as Central Government Securities, State Government

Appendix ‘D’

255

Securities, Other Approved Securities, Housing and

Infrastructure, Approved Investments and Other

Investments.

This specifies the minimum or maximum % of investments

under each category of investments as prescribed in

Regulation for various funds.

(d) Shareholders’ Fund (SH) and Policyholders’ Fund

All the insurers shall maintain portfolios of SH BALANCE

(other than fund representing solvency margin) and /or

assets representing Solvency Margin. The Pattern of

Investment shall be complied with funds representing

solvency margin (both shareholder fund representing

solvency and Policyholder funds taken together. It may be

noted that the pattern of Investment will not apply to

Shareholders funds in excess of solvency requirement,

held in a separate custody account. But exposure

norms of ‘Investee’, ‘company’, ‘Group’ and ‘industry

sector’ will apply to both shareholders and

policyholders funds.

Any amount shown under the head “Balance” shall clearly

identified (security wise) in a separate custody account.

(e) Book Value (SH + PH)

Investment assets allocated under SH and PH shall be

shown at Book value i.e. all the debt securities shall be at

historical cost subject to amortization. Units of Mutual Fund

and equity and equity related instruments shall be shown at

cost of acquisition. In the investment returns, column d

would be sum of column b and column c.

(f) % Actual

The insurer shall work out the percentage of holding in G

Sec, G Sec or Other Approved Securities (including Govt.

Securities), Housing & Loans to State Government for

Firefighting equipments; Infrastructure Investments,

Approved investments and Other Investments with respect

to Total Investment asset.

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(g) FVC Amount

The insurer shall compute the fair value for holding in

equities and for units of mutual fund. The difference

between the fair value and the book value is the Fair Value

Change (FVC).

(h) Total

This is the sum of Balance of Shareholders Fund, FRSM,

Policyholders funds and FVC amount. The grand total under

this column should tally with the investments assets shown

in section I.

(i) Market Value

The market value all the securities shall be shown, Category

code wise as provided in the Guidelines issued. In the case

of Equity, the Market Value shall be the lower of BSE / NSE

prices

NOTE

a. “Other Investments” made from all categories of Investment

including Housing and Infrastructure sectors shall not

exceed 25% of the total investment assets.

b. All investment assets such as Fixed Deposit, Section 7

deposit should form part of Schedule 8 in the Balance Sheet

Appendix ‘D’

257

FORM 3B – STATEMENT OF INVESTMENTS

(PART - B)

OBJECTIVE

All insurers are required to file FORM 3B (Part – B) to provide the details

of investments during the quarter. The form is intended to bring out the

accretion to the Insurer’s investments while complying with the pattern of

Investment.

A. METHOD OF PREPARATION

a. Opening balance

The closing book value of investments of the previous quarter as

disclosed under FORM 3B (Part A) shall be reported in the

column.

b. % to Opening Balance

The opening balance of prescribed category of investments under

various funds divided by total book value of investments of the

fund expressed as a percentage.

c. Net Accretion for the Qtr.

Net increase/ (decrease) in the category of investments during the

quarter is the difference between the opening balance and the

closing balance during the quarter.

d. Total

Opening balance of the pattern of investment assets plus net

accretion during the quarter must be shown in the column. The

summation of the column for the various funds should tally with

book value figures shown in FORM 3B (Part A).

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FORM 4A – EXPOSURE NORMS COMPLIANCE

(PART A, B, C & D)

OBJECTIVE

In order to establish compliance with prudential and exposure norms as

prescribed in Regulation 9 and other circulars issued by the Authority

from time to time, all insurers are required to file FORM 4A (PART A, B,

C & D). Norms for exposure to Investee Company, Investee Company

Group and Industrial Sector have been laid down in Regulation 9 of the

IRDA (Investment) Regulation, 2000 as amended from time to time.

FORM 4A (Part A) requires exception reporting and hence only

deviations from the prescribed regulations are required to be reported.

FORM 4A (Part B) shall be prepared for Promoter Group, FORM 4A (Part

C) shall be prepared for Non Promoter Group and Part D be prepared for

each Industry Sector. FORMs 4A (PART A, B, C & D) shall be prepared

for Life, Pension & General Annuity and for ULIP at Segregated Funds

[SFIN] level.

A. METHOD OF PREPARATION

In Part A of FORM 4A

The insurer is required to submit only the instances of deviation where

there is non-compliance with investee company norms as prescribed in

Regulation.

a. Investee Company

The insurer shall state the full name of the Investee Company.

b. Eligibility limit as per Regulation

The insurer shall state the limit in terms of amount for equity and

debt. The maximum amount (Eligible limit) for investment in equity,

preference shares and convertible debentures shall be the lower of

amount computed as per percentage (prescribed under Regulation

9 of IRDA (Investment) Regulations, 2000 as amended from time

to time) of (1) investee company’s outstanding shares or (2)

insurers investment assets/ funds.

In case of debt, loans and other investments the limit shall be the

lower of amount computed as per percentage (prescribed under

Regulation 9 of IRDA (Investment) Regulations, 2000 as amended

from time to time) of (1) Paid-up share capital, free reserves and

Debentures / Bonds or (2) insurers investment assets/ funds.

Appendix ‘D’

259

Outstanding shares do not include the preference shares.

Investments in preference shares, Convertible debentures / bonds

shall be as per Regulation 9 of IRDA (Investment) Regulations,

2000 as amended from time to time. Further, the total exposure to

any company (equity, debt and all other investments taken

together) shall be capped as prescribed in the regulations.

The insurer shall endeavor to obtain the latest available details.

c. Actual Investment

In this column the insurer shall show, Investee Company wise, the

actual investments at Book Value. The insurer shall show equity

investments and debt investments separately.

d. Deviation Amount

The deviation amount is the difference between the eligible

investment amount and the actual investment made by the insurer.

The deviations shall be given separately for equity and debt

investments. The insurer shall report only those cases where there

are deviations.

In Part B of FORM 4A

a. Name of the Promoter Group Company:

The insurer shall identify Investee Company with the promoter

group to which Investee Company belongs to.. The insurer shall

follow the “Group” definition consistently as prescribed in the

Investment Regulation

b. Eligible limit of the Promoter Group as per Regulation 9

The maximum investments in any company belonging to the

Insurer’s promoter Group shall be the percentage (as prescribed in

the Regulations) computed on investment assets at aggregate

level.

c. Actual Investments

In this column the insurer shall show, Investee Company group

wise, the actual investments at Book value

d. Deviation

The deviation amount is the difference between the eligible

investment limit as shown in column ‘d’ and the actual investment

as shown in column ‘e’.

Technical Guide

260

e. % deviation

The insurer shall show the deviation as a % to investment assets.

In Part C of FORM 4A

a. Name of the Group

The insurer shall identify every investee company with the group to

which Investee Company belongs to. The insurer shall follow the

“Group” definition consistently as prescribed in the Investment

Regulation.

b. Eligible limit of the Promoter Group as per Regulation 9

The maximum investments in the investee company belonging to

the Group Company as defined in the Investment Regulation. Shall

be the percentage (as prescribed in the Regulations) computed on

investment asset/ fund. In the case of ULIP funds, the limit shall be

applicable both at Segregated Fund level and at aggregate level.

c. Actual Investments

In this column the insurer shall show, Investee Company group

wise, the actual investments at Book value

d. Deviation

The deviation amount is the difference between the eligible

investment limit as shown in column ‘c’ and the actual investment

as shown in column ‘d’.

e. % deviation

The insurer shall show the deviation as a % to investment

assets/controlled fund/ULIP fund size.

In Part D of FORM 4A

a. Name of the Industry

The insurer shall state the name of industrial sector. The

classification of any investee company into any industry sector

shall be classified on the lines of National Industrial Classification

(All Economic Activities) – 2008 (NIC) for all sectors, except

infrastructure sector. Exposure shall be calculated at Division level

from A to R. For Financial and Insurance Activities sector,

exposure shall be at Sectional level. In case an investee company

is capable of being classified under more than one classification,

then the insurer shall classify such that it reflects same in such a

Appendix ‘D’

261

way the broad business of the investee company and shall

consistently classify the same under the industrial sector in future.

b. Actual investments

The insurer shall state the total investments made in that industrial

sector at Book value.

c. Deviation

The deviation amount is the difference between the eligible

investment limit as shown in column ‘c’ and the actual investment

as shown in column ‘d’.

d. % deviation

The insurer shall show the deviation as a % to investment

assets/controlled fund/ULIP fund size.

Lastly, the insurer shall state the % deviation from the limit

prescribed under Regulation 9 of the IRDA (Investment)

Regulation 2000 as amended from time to time.

Further investments in fixed deposits, term deposit and certificate

of deposits would not be deemed as exposure to Financial and

Insurance Activities sector. However, such exposure to the

promoter group is subject to Industrial exposure norms.

Industry sector norms shall not apply for investments made in

‘Infrastructure’ sector as defined under Regulation 2(h) of IRDA

(Registration of Indian Insurance Companies) Regulations, 2000

as amended from time to time.

Technical Guide

262

FORM 5 – STATEMENT OF INVESTMENT

RECONCILIATION

OBJECTIVE

In order to understand the movement of instruments as a result of

Purchase and Sale of Investments during the Quarter and in order to link

the same [FORM-5 shall be prepared in respect of each fund. In case of

ULIP Form 5 shall be prepared at Segregated Fund (SFIN) level and also

at consolidated level and Total Investments in the case of General

Insurer] with FORM-3A (Part A) / FORM-3B filed for each Quarter this

report is presented. Listing of various investments made based as per

Guidelines INV/GLN/001/2003-04 - Guidelines – Category of Investments

Dt. 1st Jan 2004 as amended from time to time.

A. METHOD OF PREPARATION

The statement shall be prepared as per major categories mentioned

under IRDA (Investment) Regulations, 2000 amended from time to time

and as applicable to Life Insurers, General Insurers namely;

1. Central Government Securities

2. State Government Securities or Other Approved Securities

3. Housing and Loans to State Government for Housing and Fire

Fighting Equipments

4. Infrastructure Investments

5. Approved Investments

6. Other Investments

NOTE

For all securities, falling under the above heads, the respective Category

Code shall be Guidelines INV/GLN/001/2003-04 - Guidelines – Category

of Investments Dt. 1st Jan 2004 as amended from time to time.

a. Category Listing Method

The list should follow the category code as prescribed in the

Annexure – 1 of IRDA/Reg./5/47/2008 as amended from time to

time.

The Opening Balance of each sub-category shall be the

consolidated entry, shown at the book cost of that particular sub-

category or at the Actual Cost of Purchases after amortization. In

Appendix ‘D’

263

respect of investment property, equity, mutual fund investment, the

opening balance shall be shown at weighted average cost of

acquisition under respective category of investments. The same

shall be the closing balance of previous quarter.

b. Purchases for the Quarter

All purchases made during the period shall be shown at the

consolidated Weighted Average Value, category code wise (as

provided in Guidelines on Category of Investments), and be listed

in the same sequence as provided in the “Category of

Investments”. The Face Value shall be the consolidated Value of

each security purchased during the Quarter.

c. Cost of Sales

In case of equity, cost of sales shall be the Weighted Average

Cost of the investment and in case of debt securities the cost of

sales shall be the amortized cost of investment at the time of sale.

d. Closing Balance

In Closing Balance column, the book value shall be the sum of

Weighted Average Cost of Opening Balance and Purchases made

during the period as reduced by the Cost of Sales for that period

plus adjustments if any. The closing balance, thus arrived at each

sub-category level should be grossed at each category level. The

book value, Market Value of each sub-category of Category of

Investments shall be reconciled with Form 3A/3B.

e. % To Total

For Life Insurance Companies : In case of Non- Linked Funds,

each category code will be calculated with respect to on Book

value and the same will be calculated with respect to Market Value

basis for linked funds. For Non-Life Insurance Companies, It will

be calculated on Book value basis.

f. Adjustments

Any change in value of investments due to cat code

reclassification during the quarter, adjustments in securities on

account of corporate action entitlements and amortization of

premium/ accretion of discount on investments shall be reported

under Adjustments column.

Technical Guide

264

NOTE

1. Circular No. 32/2/F&A/Circulars/169/Jan/2006-07 Dt. 24th Jan,

2007 on “Prudential norms for Income Recognition, Asset

Classification and Provisioning and Other related matters” should

strictly be complied with.

2. Refer Annexure – 1 of this Guidelines for “Category of Investments

for Life, Linked and General Insurance Business as amended from

time to time”

3. Refer Annexure – 2 of this Guidelines for “Market Value – Basis for

FORM 3A, FORM 3B”

4. In case of ULIP, FORM 5 shall be prepared at Segregated Fund

(SFIN) level for ULIP funds.

5. All transaction shall comply with IRDA/INV/CIR/062/Jan 2005 on

transaction on stock market to be on cash basis.

Appendix ‘D’

265

FORM 5A – STATEMENT OF INVESTMENT IN MUTUAL

FUNDS

OBJECTIVE

The details of investments in made by the Insurer in Mutual Funds, within

the limits permitted under the Regulations, shall be captured in this Form.

The sum of such investments made in Mutual Funds, as shown in FORM

5A shall be linked to FORM 5 under respective head.

A. METHOD OF PREPARATION

The statement shall be prepared with regard to Approved

Investments and Other Investments.

a. Category Listing Method

The list should follow the category code as prescribed in the

Annexure – 1 of IRDA/Reg./5/47/2008 as amended from time to

time.

In respect of Mutual Fund Investments, the Opening Balance shall

be the acquisition cost of the Mutual Fund.

b. Purchases For The Quarter

All purchases in respect of Mutual Fund made during the period

shall be shown at the number of Units purchased and the

Weighted Average Value of NAV of all purchase made during the

quarter for each of the Mutual Fund.

c. Sales For The Quarter

All sales in respect of Mutual Fund during the period shall be

shown at the number of Units sold and the Weighted Average Cost

of all sales made during the quarter for each of the Mutual Fund.

d. Closing Balance

In Closing Balance column, the book value shall be the sum of

Weighted Average Cost of Opening Balance and Purchases made

during the period as reduced by the Cost of Sales for that period

plus adjustments if any, which shall be listed sub-category wise.

The closing balance, thus arrived at each sub-category level

should be grossed at each category level. This shall be the

investment in mutual fund that will be carried forward to the next

period.

Technical Guide

266

e. Market Value

Market value for the units held in respect to Mutual Funds shall be

shown in this column.

f. % To Total

Percentage of Investment in Mutual Funds to the book value of

Fund (as per FORM 3A/3B) of the respective fund shall be

provided in this column.

The Mutual Funds shown in “Approved Investments” shall be

moved to “Other Investments” category in case of exceeding the

limit as provided in the Circular INV/CIR/008/2008-09 as amended

from time to time.

Appendix ‘D’

267

FORM 6 – CERTIFICATE UNDER SECTION 28 OF

INSURANCE ACT, 1938

OBJECTIVE

This is a certificate requires under Section 28 (2A) / (2B) of Insurance

Act, 1938. This form confirms the reconciliation of Investments as per

Investment Returns and the same held free of charge, lien,

hypothecation etc. This form is linked to FORM 3A/3B. This form shall be

signed by Chairman and two Directors and the Principal Officer. The non-

encumbrance shall need to be reported by both insurer and the

custodian.

A. METHOD OF PREPARATION

1. The form is prepared fund-wise and in aggregate for all

segregated linked funds.

2. The Separate Custodian account shall be maintained for balance

investments of Shareholder’s fund that does not form part of the

FRSM.

3. The details are furnished at major category code level namely,

investment in Central Government Securities, State Government

Securities, Other Approved Securities, Infrastructure/Housing &

Loans to State Govt. for Housing & FFE, Approved Investment,

Other than Approved Investment.

4. The statement reveals the holding particulars of Banks (Custodian

bank), Self and Others with respect to Shareholder / Policy holder

fund and shall certify the following.

(i) The custodian should certify in the disclosure that he is not

disqualified by SEBI (Custodian of securities) Regulation

every time on annual basis.

(ii) The value should be adjusted for Purchase/Sale of

investments purchased and awaiting settlement.

Reconciliation to this effect should be attached to the

certificate.

(iii) If the custodian belongs to promoter group, the norms of the

promoter group as in the mentioned in INV/CIR/008/2008-09

dated 22nd Aug, 2008 (Annexure II), point 9 shall be

complied with.

Technical Guide

268

5. Investment current assets of linked business to be presented

under the custody of self. CBLO to be presented under the custody

of ‘Others’. Government Securities and Treasury bills, Reverse

Repo held in SGL account with Reserve Bank of India shall be

classified under ‘Bank’ while for insurers availing CSGL account,

these holdings should be shown under the respective head i.e.

Banks if held with Custodian Bank else under ‘Others’.

6. Section 7 deposit shall be shown under ‘Banks if the same is kept

with a Bank

Appendix ‘D’

269

FORM 7 – DETAILS OF NON-PERFORMING ASSETS

OBJECTIVE

This form provides the Non Performing Asset details in the debt

investments of the funds.

A. METHOD OF PREPARATION

1. Investments assets are excluding Central Government Securities

and State Government Securities (SDL), Other Approved

securities and any other equity or equity related instruments. This

form is to be prepared at SFIN level for ULIP fund and at

aggregate fund level for Life Fund, Pension & General Annuity

funds and General Insurers.

2. The absolute amount of Gross NPA as on date (before Provision

of NPA to be provided but after write off)

3. Gross NPA as on date to Investment assets shall be shown by

dividing “Gross NPA” by “Investment Assets”

4. Item No 4 shall be Provisions made for NPAs appearing under

“Gross NPA”

5. Ratio of provisions made on the “NPAs” to “Gross NPA” shall not

include provisions made on Standard Assets

6. Provision made on the 'Standard Assets' shall be as per Circular:

32/2/F&A/Circulars/169/Jan/2006-07 as amended from time to

time.

7. “Net Investment Assets” is to be arrived at by subtracting

provisions (Item no. 4) from Investment Assets (Item no. 1)

8. “Net NPA” is to be arrived at by subtracting provision (Item no. 4)

from the Gross NPA (Item no.2)

9. “% of the net NPA” shall be calculated by dividing “Net NPA” by

“Net Investment Asset”

10. Write off made during the period shall be as approved by the

Board of the Insurer.

ANNEXURE-1

CATEGORY OF INVESTMENTS FOR LIFE, LINKED, GENERAL

INSURANCE BUSINESS

The Authority vide Notification F. No. IRDA/Reg./5/47/2008 dated 30th Jul,

2008 published the 4th Amendment of Investment Regulations on 22nd Aug,

2008. With a view of reflecting the specific changes brought about in respect

of Insurers investment in various Categories, had issued Guidelines:

INV/GLN/001/2003-04 dated 1st Jan, 2004, the same had been amended

suitably as under. These are the Category of Investments that are

permissible for Life, Pension and General Annuity, Linked Insurance

Business and General Insurance (including Re Insurance) Business. These

are the exhaustive categories as per the Insurance Regulatory and

Development Authority.

No INVESTMENT CATEGORY HEADS CAT

CODE

A GOVERNMENT SECURITIES

A01 Central Government Bonds CGSB

A02 Special Deposits CSPD

A03 Deposit under Section 7 of Insurance Act, 1938 CDSS

A04 Treasury Bills CTRB

B GOVERNMENT SECURITIES / OTHER APPROVED

SECURITIES

B01 Central Government Guaranteed Loans / Bonds CGSL

B02 State Government Bonds SGGB

B03 State Government Guaranteed Loans SGGL

B04 Other Approved Securities (excluding Infrastructure

Investments) SGOA

B05 Guaranteed Equity SGGE

C HOUSING & LOANS TO STATE GOVT. FOR HOUSING AND

FIRE FIGHTING EQUIPMENT

C01 Loans to State Government for Housing HLSH

C02 Loans to State Government for Fire Fighting Equipments HLSF

C03 Term Loan - HUDCO / NHB / Institutions accredited by NHB HTLH

C04 Commercial Papers - NHB / Institutions accredited by NHB HTLN

C05 Housing - Securitised Assets HMBS

C06 Debentures / Bonds / CPs / Loans - (Promoter Group) HDPG

TAXABLE BONDS

C07 Bonds / Debentures issued by HUDCO HTHD

C08 Bonds / Debentures issued by NHB / Institutions accredited by

NHB HTDN

Appendix ‘D’

271

C09 Bonds / Debentures issued by Authority constituted under any

Housing / Building Scheme approved by Central / State / any

Authority or Body constituted by Central / State Act HTDA

TAX FREE BONDS

C10 Bonds / Debentures issued by HUDCO HFHD

C11 Bonds / Debentures issued by NHB / Institutions accredited by

NHB HFDN

C12 Bonds / Debentures issued by Authority constituted under any

Housing / Building Scheme approved by Central / State / any

Authority or Body constituted by Central / State Act HFDA

OTHER INVESTMENTS

C13 Debentures / Bonds / CPs / Loans HODS

C14 Housing - Securitised Assets HOMB

C15 Debentures / Bonds / CPs / Loans - (Promoter Group) HOPG

D INFRASTRUCTURE INVESTMENTS

D01 Infrastructure - Other Approved Securities ISAS

D02 Infrastructure - PSU - Equity shares - Quoted ITPE

D03 Infrastructure - Corporate Securities - Equity shares-Quoted ITCE

D04 Infrastructure - Equity (Promoter Group) IEPG

D05 Infrastructure - Securitised Assets IESA

D06 Infrastructure - Debentures / Bonds / CPs / loans - (Promoter

Group) IDPG

D07 Infrastructure - Infrastructure Development Fund (IDF) IDDF

TAXABLE BONDS

D08 Infrastructure - PSU - Debentures / Bonds IPTD

D09 Infrastructure - PSU – CPs IPCP

D10 Infrastructure - Other Corporate Securities - Debentures/

Bonds ICTD

D11 Infrastructure - Other Corporate Securities - CPs ICCP

D12 Infrastructure - Term Loans (with Charge) ILWC

TAX FREE BONDS

D13 Infrastructure - PSU - Debentures / Bonds IPFD

D14 Infrastructure - Other Corporate Securities - Debentures/

Bonds ICFD

OTHER INVESTMENTS

D15 Infrastructure - Equity (including unlisted) IOEQ

D16 Infrastructure - Debentures / Bonds / CPs / loans IODS

D17 Infrastructure - Securitised Assets IOSA

D18 Infrastructure - Equity (Promoter Group) IOPE

D19 Infrastructure - Debentures / Bonds / CPs / loans - (Promoter

Group) IOPD

E APPROVED INVESTMENT SUBJECT TO EXPOSURE

NORMS

Technical Guide

272

E01 PSU - Equity shares – Quoted EAEQ

E02 Corporate Securities - Equity shares (Ordinary)- Quoted EACE

E03 Equity Shares - Companies incorporated outside India

(invested prior to IRDA Regulations) EFES

E04 Equity Shares - Promoter Group EEPG

E05 Corporate Securities - Bonds - (Taxable) EPBT

E06 Corporate Securities - Bonds - (Tax Free) EPBF

E07 Corporate Securities - Preference Shares EPNQ

E08 Corporate Securities - Investment in Subsidiaries ECIS

E09 Corporate Securities - Debentures ECOS

E10 Corporate Securities - Debentures / Bonds/ CPs /Loan -

(Promoter Group) EDPG

E11 Corporate Securities - Derivative Instruments ECDI

E12 Municipal Bonds – Rated EMUN

E13 Investment properties - Immovable EINP

E14 Loans - Policy Loans ELPL

E15 Loans - Secured Loans - Mortgage of Property in India (Term

Loan) ELMI

E16 Loans - Secured Loans - Mortgage of Property outside India

(Term Loan) ELMO

E17 Deposits - Deposit with Scheduled Banks, FIs (incl. Bank

Balance awaiting Investment), CCIL, RBI ECDB

E18 Deposits - CDs with Scheduled Banks EDCD

E19 Deposits - Repo / Reverse Repo - Govt Securities ECMR

E20 Deposits - Repo / Reverse Repo - Corporate Securities ECCR

E21 Deposit with Primary Dealers duly recognised by Reserve

Bank of India EDPD

E22 CCIL – CBLO ECBO

E23 Commercial Papers ECCP

E24 Application Money ECAM

E25 Perpetual Debt Instruments of Tier I & II Capital issued by PSU

Banks EUPD

E26 Perpetual Debt Instruments of Tier I & II Capital issued by Non-

PSU Banks EPPD

E27 Perpetual Non-Cum. P.Shares & Redeemable Cumulative

P.Shares of Tier 1 & 2 Capital issued by PSU Banks EUPS

E28 Perpetual Non-Cum. P.Shares & Redeemable Cumulative

P.Shares of Tier 1 & 2 Capital issued by Non-PSU Banks EPPS

E29 Foreign Debt Securities (invested prior to IRDA Regulations) EFDS

E30 Mutual Funds - Gilt / G Sec / Liquid Schemes EGMF

E31 Mutual Funds - (under Insurer's Promoter Group) EMPG

E32 Net Current Assets (Only in respect of ULIP Business) ENCA

F OTHER INVESTMENTS

Appendix ‘D’

273

F01 Bonds - PSU – Taxable OBPT

F02 Bonds - PSU - Tax Free OBPF

F03 Equity Shares (incl Co-op Societies) OESH

F04 Equity Shares (PSUs & Unlisted) OEPU

F05 Equity Shares - Promoter Group OEPG

F06 Debentures OLDB

F07 Debentures / Bonds/ CPs / Loans etc. - (Promoter Group) ODPG

F08 Municipal Bonds OMUN

F09 Commercial Papers OACP

F10 Preference Shares OPSH

F11 Venture Fund / SEBI approved Alternate Investment Fund

(Category I) OVNF

F12 Short term Loans (Unsecured Deposits) OSLU

F13 Term Loans (without Charge) OTLW

F14 Mutual Funds - Debt / Income / Serial Plans / Liquid Secemes OMGS

F15 Mutual Funds - (under Insurer's Promoter Group) OMPG

F16 Derivative Instruments OCDI

F17 Securitised Assets OPSA

F18 Investment properties - Immovable OIPI

Note: F. ‘Other Investments’ shall not be applicable to Pension and General

Annuity Funds of Life Insurers.

Technical Guide

274

ANNEXURE-2

MARKET VALUE - BASIS FOR FORM-3A / FORM-3B

The Authority vide Notification F. No. IRDA/Reg./5/47/2008 dated 30th Jul,

2008 published the 4th Amendment of Investment Regulations on 22nd Aug,

2008. With a view of reflecting the specific changes brought about in respect

of Maket Value of Investments for the purpose of FORM 3A, FORM 3B, the

Authority issued Guidelines INV/GLN/003/2003-04 dated 1st Jan, 2004 and

the same has been amended suitably as under. The following shall, without

prejudice to Section 27A, 27B of the Insurance Act, 1938 be the basis for

arriving at the "Market Value" of Investment to be furnished in FORM-3A and

FORM-3B.

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

A Government Securities

A01 Central Government Bonds CGSB Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

A02 Special Deposits CSPD At Cost

A03 Deposit under Section 7 of

Insurance Act, 1938 CDSS Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

A04 Treasury Bills CTRB Valued as per FIMMDA.

B Government Securities /

Other Approved Securities

B01 Central Government

Guaranteed Loans / Bonds CGSL Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

B02 State Government Bonds SGGB Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

B03 State Government Guaranteed

Loans SGGL Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

B04 Other Approved Securities

(excluding Infrastructure

Investments)

SGOA Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

B05 Guaranteed Equity SGGE Book Value.

Appendix ‘D’

275

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

C Housing & Loans to State

Govt. for Housing and Fire

Fighting Equipment

C01 Loans to State Government for

Housing HLSH At Cost Less Provisions

C02 Loans to State Government for

Fire Fighting Equipments HLSF At Cost Less Provisions

C03 Term Loan - HUDCO / NHB /

Institutions accredited by NHB HTLH At Cost Less Provisions

C04 Commercial Papers - NHB /

Institutions accredited by NHB HTLN Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

C05 Housing - Securitised Assets HMBS Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

C06 Bonds/Debentures/CPs/Loans

- Promoter Group HDPG Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

TAXABLE BONDS OF

C07 Bonds / Debentures issued by

HUDCO HTHD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

C08 Bonds / Debentures issued by

NHB / Institution accredited by

NHB

HTDN Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

C09 Bonds / Debentures issued by

Authority constituted under

any Housing / Building

Scheme approved by Central /

State / any Authority or Body

constituted by Central / State

Act

HTDA Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

TAX FREE BONDS

C10 Bonds / Debentures issued by

HUDCO HFHD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

C11 Bonds / Debentures issued by

NHB / Institution accredited by

NHB

HFDN Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

Technical Guide

276

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

C12 Bonds / Debentures issued by

Authority constituted under

any Housing / Building

Scheme approved by Central /

State / any Authority or Body

constituted by Central / State

Act

HFDA Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

OTHER INVESTMENTS

C12 Debentures / Bonds / CPs /

Loans HODS Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

C13 Housing - Securitised Assets HOMB Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

C14 Debentures / Bonds / CPs /

Loans - (Promoter Group) HOPG Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

D INFRASTRUCTURE

INVESTMENTS

D01 Infrastructure - Other

Approved Securities ISAS Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

D02 Infrastructure - PSU - Equity

shares – Quoted ITPE If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

D03 Infrastructure - Corporate

Securities - Equity shares-

Quoted

ITCE If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). If

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

Appendix ‘D’

277

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

at the beginning of the year, the

same shall be reduced from the

Book Value)

D04 Infrastructure - Equity

(Promoter Group) IEPG If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). If

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

D05 Infrastructure - Securitised

Assets IESA Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

D06 Infrastructure - Debentures /

Bonds / CPs / loans -

Promoter Group

IDPG Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency and in

case of loans at cost

D07 Infrastructure - Infrastructure

Development Fund (IDF) IDDF At NAV (if available) or at cost

less Provision for diminution

TAXABLE BONDS OF

D08 Infrastructure - PSU -

Debentures / Bonds IPTD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

D09 Infrastructure - PSU – CPs IPCP Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

D10 Infrastructure - Other

Corporate Securities -

Debentures/ Bonds

ICTD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

D11 Infrastructure - Other

Corporate Securities – CPs ICCP Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

D12 Infrastructure - Term Loans

(with Charge) ILWC At Cost less opening Provisions

TAX FREE BONDS

Technical Guide

278

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

D13 Infrastructure - PSU -

Debentures / Bonds IPFD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

D14 Infrastructure - Other

Corporate Securities -

Debentures/ Bonds

ICFD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

OTHER INVESTMENTS

D15 Infrastructure - Equity

(including unlisted) IOEQ If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

D16 Infrastructure - Debentures /

Bonds / CPs / loans IODS Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency and in

case of loans at cost

D17 Infrastructure - Securitised

Assets IOSA Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency and in

case of loans at cost

D18 Infrastructure - Equity

(Promoter Group) IOPE If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

D19 Infrastructure - Debentures /

Bonds / CPs / loans -

(Promoter Group)

IOPD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency and in

Appendix ‘D’

279

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

case of loans at cost

E APPROVED INVESTMENT

SUBJECT TO EXPOSURE

NORMS

E01 PSU - Equity shares - quoted EAEQ Market Value

E02 Corporate Securities - Equity

shares (Ordinary)-quoted EACE Market Value

E03 Equity Share - Companies

incorporated outside India

(invested prior to IRDA

Regulations)

EFES If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

E04 Equity Shares - Promoter

Group EEPG If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

E05 Corporate Securities - Bonds -

(Taxable) EPBT Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

E06 Corporate Securities - Bonds -

(Tax Free) EPBF Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

E07 Corporate Securities -

Preference Shares EPNQ If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Technical Guide

280

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

E08 Corporate Securities -

Investment in Subsidiaries ECIS At Cost less Provision for

diminution

E09 Corporate Securities –

Debentures ECOS Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

E10 Corporate Securities -

Debentures / Bonds/ CPs

/Loan - Promoter Group

EDPG Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency and in

case of loans at cost

E11 Corporate Securities -

Derivative Instruments ECDI Marked to Market

E12 Municipal Bonds - Rated EMUN Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency and in

case of loans at cost

E13 Investment properties –

Immovable EINP At Cost

E14 Loans - Policy Loans ELPL At Cost

E15 Loans - Secured Loans -

Mortgage of Property in India

(Term Loan)

ELMI At Cost Less Provisions

E16 Loans - Secured Loans -

Mortgage of Property outside

India (Term Loan)

ELMO At Cost Less Provisions

E17 Deposits - Deposit with

Scheduled Banks, FIs (incl.

Bank Balance awaiting

Investment), CCIL, RBI

ECDB At Carrying Cost

E18 Deposits - CDs with

Scheduled Banks EDCD At Carrying Cost

E19 Deposits - Repo / Reverse

Repo- Govt Securities ECMR At Cost

E20 Deposits - Repo / Reverse

Repo- Corporate Securities ECCR At Cost

E21 Deposit with Primary Dealers

duly recognised by Reserve

Bank of India

EDPD At Cost

Appendix ‘D’

281

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

E22 CCIL – CBLO ECBO At Carrying Cost

E23 Commercial Papers ECCP Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

E24 Application Money ECAM At Cost

E25 Perpetual Debt Instruments of

Tier I & II Capital issued by

PSU Banks

EUPD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

E26 Perpetual Debt Instruments of

Tier I & II Capital issued by

Non-PSU Banks

EPPD Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

E27 Perpetual Non-Cum. P.Shares

& Redeemable Cumulative

P.Shares of Tier 1 & 2 Capital

issued by PSU Banks

EUPS Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

E28 Perpetual Non-Cum. P.Shares

& Redeemable Cumulative

P.Shares of Tier 1 & 2 Capital

issued by Non-PSU Banks

EPPS Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

E29 Foreign Debt Securities

(invested prior to IRDA

Regulations)

EFDS At Carrying Cost

E30 Mutual Funds - Gilt / G Sec /

Liquid Schemes EGMF At NAV as on the reporting date

E31 Mutual Funds - (under

Insurer's Promoter Group) EMPG At NAV as on the reporting date

E32 Net Current Assets (Only in

respect of ULIP Business) ENCA At book value

F OTHER INVESTMENTS

F01 Bonds - PSU – Taxable OBPT Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

F02 Bonds - PSU - Tax Free OBPF Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

F03 Equity Shares (incl Co-op

Societies) OESH If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

Technical Guide

282

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

F04 Equity Shares (PSUs &

Unlisted) OEPU If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

F05 Equity Shares - Promoter

Group OEPG If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

F06 Debentures OLDB Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency

F07 Debentures / Bonds/ CPs /

Loans etc. - Promoter Group ODPG Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency and in

case of loans at cost

F08 Municipal Bonds OMUN Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency and in

case of loans at cost

F09 Commercial Papers OACP Value as per FIMMDA if rated. If

not, valued at applicable Market

Appendix ‘D’

283

S.No Particulars Cat

code

Market value – basis for

Form-3A, Form-3B

Yield rates published as per

reputed Rating Agency

F10 Preference Shares OPSH If quoted, valued at Market

Value (last Quoted price should

not be later than 30 days). In

unquoted, Book Value Less

Provisions (Provisions shall be

made at the end of the Year.

For the purpose of Quarterly

Returns, if there exist any

Provision for any Equity Share

at the beginning of the year, the

same shall be reduced from the

Book Value)

F11 Venture Fund / SEBI approved

Alternate Investment Fund

(Category I)

OVNF At NAV (if available) or at cost

less Provision for diminution

F12 Short term Loans (Unsecured

Deposits) OSLU At Cost Less Provisions

F13 Term Loans (without Charge) OTLW At Cost Less Provisions

F14 Mutual Funds - Debt / Income

/ Serial Plans OMGS At NAV as on the reporting date

F15 Mutual Funds (under Insurer's

Promoter Group) OMPG At NAV as on the reporting date

F16 Derivative Instruments OCDI Marked to Market

F17 Securitised Assets OPSA Value as per FIMMDA if rated. If

not, valued at applicable Market

Yield rates published as per

reputed Rating Agency. If NAV

is available, at applicable NAV.

F18 Investment properties –

Immovable OIPI At Cost

Appendix 'E’

Format of Engagement Letter to be sent to the

Appointing Authority of the Insurance Company for

Internal/Concurrent Audit of Investment Functions

To the Board of Directors (or the appropriate representative of senior

management).

[The objective and the scope of the audit]

This has reference to your letter No. ……………. dated ……. whereby

you have offered us to carry out the Internal /Concurrent Audit of the

Investment transactions covering investment of both shareholders and

policyholders funds for the period from ……………. to ……………as

stipulated in Regulation 13 (F) of IRDA (Investment) (Fifth Amendment)

Regulations, 2013 notified by the Insurance Regulatory and Development

Authority (IRDA) and issue a report thereon.

[The responsibility of theAuditor]

We are pleased to confirm our acceptance for the aforementioned

assignment through the letter of acceptance attached herewith subject to

the following:

1. We shall conduct our Internal/Concurrent audit as per the

“Technical Guide on Internal/Concurrent Audit of Investment

Functions of Insurance Companies” issued by the Institute of

Chartered Accountants of India(“ICAI”), as amended from time to

time.

2. We are neither related to the officials of the insurernor have any

interest in the management of the insurer.

3. An Internal/Concurrent audit of the investment transactions

includes examining evidence supporting the management’s

compliance during the period from …………….. to …………… with

the Regulations, Guidelines and Circulars of IRDA and also

evaluating whether Investment Policy, Standard Operating

Procedures and Investment Risk Management Systems and

Processes provide effective control over the investment functions

of the Insurer. The procedures selected for examination depend

onour judgment.We shall take into cognizance of the internal

control relevant to the compliance of regulations issued by IRDA

on Investment Policy, Standard Operating Procedures and

Investment and Risk Management Systems and Processes in

order to obtain evidencethat is appropriate in the circumstances,

but not for the purpose of expressing an opinion on the

Appendix ‘E’

285

effectiveness of the entity’s overall internal control. However, we

will communicate to you in writing concerning any significant

deficiencies in internal control relevant to the compliance of

conditions of Investment Functions.

[The responsibility of Management]

Our assignment will be conducted on the basis that the management

and, where appropriate, those charged with governanceacknowledge and

understand that they have responsibility:

• For design, implementation and maintenance of the Investment

Policy, Standard Operating Procedures (SOPs) and Investment

Risk Management Systems and Processes in accordance with the

IRDA Regulations, Guidelines, Circulars and other applicable Laws

and Regulations and compliance

• For making judgments and estimates those are reasonable and

prudent for compliance of IRDA regulations and guidelines on

Investment Policy, Standard operating Procedures and Investment

Risk Management System and Processes; and

To provide us with:

(i) Access, at all times, to all information, including the books of

accounts, vouchers and other records and documentation relevant

for the Investment Policy, Standard operating Procedures and

Investment Risk Management System and Processes.

(ii) Additional information that we may request from the Chief

Executive Officer/ Chief Investment Officer/ Chief Technology

Officer/ Chief Information Officer /Other Officers of the company

for the purpose of internal/concurrent audit; and

(iii) Unrestricted access to persons within the entity from whom we

determine it necessary to obtain evidence for examination. This

includes our entitlement to require from the officers of the branch

or head officesuch information and explanations as we may think

necessary for the purpose of Internal/Concurrent Audit Report on

Investment Functions.

As part of our assignment, we will request from themanagement and

where appropriate, those in charge of governance, written confirmation

concerning representations made to us in connection with Investment

Policy, Standard operating Procedures and Investment Risk Management

System and Processes as may be considered necessary by us for the

purpose of our assignment.

It may also be noted that non provision of any information/ confirmation

requested by us from the management and where appropriate, those in

charge of governance, may result in limitation on the scope of our

Technical Guide

286

assignment.

We also wish to invite your attention to the fact that our examination is

subject to 'peer review' under The Chartered Accountants Act, 1949 to be

conducted by an Independent reviewer. The reviewer may inspect,

examine or take abstract of our working papers during the course of the

peer review, as required The Chartered Accountants Act, 1949 as

amended from time to time and the same need not be construed as

breach of confidentiality agreement entered with you.

We look forward to full cooperation from your staff during our

examination.

[Other relevant information]

[Insert other information, such as fee arrangement, billings and other

specific terms as appropriate.]

[Reporting]

[Insert appropriate reference to the expected form and content of report]

The form and content of our report may need to be amended in the light

of findings of our examination.

Please sign and return the attached copy of this letter to indicate your

acknowledgement of, and agreement with, the arrangement for our

aforementioned assignment/s including our respective responsibilities.

Kindly also mark a copy of such acknowledgement to the concerned

official/s of the respective managements.

XYZ & Co.

Chartered Accountants

…………………………

(Signature)

Date : (Name of the Member)

Place : (Designation1)

Acknowledged on behalf of Insurance Company by

……………………..

(Signature)

Name and Designation

Date

Attached: Letter of Acceptance duly signed by us.

1 Partner or proprietor, as the case may be.

Technical Guide 31 5 13 On Internal Concurrent Audit Of Investment Functions Insurance Companies 2013

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