To the Members of HDFC LIFE INSURANCE COMPANY LIMITED
Report on the audit of the Standalone FinancialStatementsOpinion
1. We have audited the standalone financial statements of HDFC Life Insurance Company Limited ("the Company"), which comprise the balance sheet as at March 31, 2023, and the related Revenue Account (also called the "Policyholders' Account" or the "Technical Account"), the Profit and Loss Account (also called the "Shareholders' Account" or "Non-Technical Account") and the Receipts and Payments Account for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements are prepared in accordance with the requirements of the Insurance Act, 1938 (the "Insurance Act"), Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002 (the "Regulations") including orders/directions/circulars issued by the Insurance Regulatory and Development Authority of India ("IRDAI") and the Companies Act, 2013 ("the Act") to the extent applicable and in the manner so required, and give a true and fair view in conformity with the accounting principles generally accepted in India, as applicable to insurance companies:
(a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2023;
(b) in the case of the Revenue Account, of the net surplus for the year ended on that date;
(c) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and
(d) in the case of the Receipts and Payments Account, of the receipts and payments for the year ended on that date.
Basis for opinion
2. We conducted our audit in accordance with the Standards on Auditing (the "SAs") specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditor's Responsibilities for the Audit of the standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the standalone financial statements under the Insurance Act, the IRDA Act, the Regulations, the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
3. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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Key Audit Matter
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How our audit addressed the key audit matter
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Appropriateness of the Timing of Revenue Recognition in the proper period
Refer Schedule 1 and Schedule 16A (2) of the standalone financial statement.
During the year, the Company has recognised premium revenue of ' 29,085 crore towards new business (first year premium and single premium). Out of the total revenue recognised, ' 10,372 crore was recognised during the last quarter.
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Our procedures included the following:
• Understood and evaluated the design and tested the operating effectiveness of process and controls relating to recognition of revenue (including testing of key controls for verifying that the revenue has been accrued in the correct accounting period).
• Tested on a sample basis the policies at the year end to confirm if related procedural compliances with regard to acceptability of the terms of policy were completed before or after the year end to verify appropriate accounting of revenue.
• Tested on a sample basis to verify that policy sales of the next financial year are not accounted for in the current period.
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Key Audit Matter
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How our audit addressed the key audit matter
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This area was considered a key audit matter because of
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Tested on a sample basis, the unallocated premium
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the significant concentration of revenue during the last
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to corroborate that there were no policies where risk
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quarter of financial year (including cut-off at the Balance
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commenced prior to balance sheet but revenue was
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sheet date). Due to the nature of the industry, revenue is
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not recognized.
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skewed towards the balance sheet date. Hence, there is
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Tested the manual accounting journal entries relating
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possibility that policy sales of the next financial year are
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to revenue on a sample basis so as to identify unusual
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accounted in the current period.
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or irregular items. We agreed the journal entries
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tested to supporting evidence.
Tested on a sample basis cheques receipt with the
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time stamp in case of products like Unit Linked Insurance Plan to confirm the recognition of the revenue in correct accounting period.
Based on the work carried out, we did not come across
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any material exception which suggests that the revenue
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recognition is not accounted in the correct period.
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Appropriateness of the classification and valuation
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Our
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procedures included the following:
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of Investments
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Understood Management's process and controls
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Refer Schedule 8, 8A and 8B of the Financial Statement.
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to ensure proper classification and valuation/
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For accounting policy, refer Schedule 16A (6) to the
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impairment of Investment
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financial statements
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Evaluated the design and tested operating
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The Company holds investments against policy holders'
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effectiveness of the related controls implemented by the management
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liabilities, linked liabilities and shareholders' funds. A
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Testing of key controls over investment classification
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significant portion of the assets of the Company is in the
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and valuation/ impairment
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form of investments (total investments as at March 31, 2023 is ' 238,782 crore).
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Tested on a sample basis, the correct recording of
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As prescribed by Insurance Regulatory and Development
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investments (including derivative instruments), classification and compliance with Investment
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Authority of India (the "IRDAI"), all investments including
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Regulations and policies approved by the Board of
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derivative instruments, should be made and managed
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Directors
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in accordance with the Insurance Regulatory and
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Tested on a sample basis the valuation of securities
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Development Authority of India (Investment) Regulations,
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which have been valued in accordance with
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2016 (the "Investment Regulations") and policies approved
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the Investment Regulations and the Company's
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by Board of Directors of the Company.
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accounting policies. We verified the calculations made
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Further, investments including derivative instruments
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by management to assess the value of derivative instruments by involving auditor's independent
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(which involves complex calculations to value such
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experts.
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instruments) should be valued as prescribed in the
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Tested on a sample basis impairment of securities
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Investment Regulations which state the valuation
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(including reversal of impairment) which have
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methodology to be used for each class of investment.
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been impaired / impairment recognised earlier has
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This area was considered as a key audit matter as the
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been (reversed) in accordance with the Investment
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valuation of unlisted or not frequently traded investment
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Regulations and Company's impairment policies.
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involves management judgement. Also, due to events
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For unlisted and not frequently traded investments,
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affecting the investee company's rating, there could be
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we evaluated management's valuation model and
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a need to reclassify investment and assess its valuation
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assumptions and corroborated these with regulatory
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/ impairment per the requirements of the Investment
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requirements and the Company's internal policies
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Regulations and/ or Company's internal policies.
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including impairment.
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For an event specific reclassification and valuation,
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we corroborated management's assessment with the regulatory requirements and the Company's internal policies.
Based on the work carried out, we did not come across any
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material exception which suggests that the investments
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were not properly classified or valued.
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Emphasis of Matter
4. We draw your attention to Note 29 of Schedule 16B to the Standalone Financial Statements in respect of Scheme of Amalgamation between the Company and its wholly owned subsidiary namely Exide Life Insurance Company Limited (the "Transferor"), from the appointed date of April 1, 2022, as approved by National Company Law Tribunal (NCLT) vide its order dated September 16, 2022 and subsequently approved by IRDAI on October 13, 2022, which has been given effect to in the accompanying standalone financial statements as set out in the aforesaid note. Our opinion is not modified in respect of this matter.
Other Matter
5. The actuarial valuation of liabilities for life policies in-force and policies where premium is discontinued but liability exists as at March 31, 2023 and actuarial assumption is the responsibility of the Company's Appointed Actuary (the "Appointed Actuary"), which has been certified by the Appointed Actuary in accordance with the regulations, as mentioned in paragraph 9 below. Accordingly, we have relied upon the Appointed Actuary's certificate for forming our opinion on the standalone financial statements of the Company. Our opinion is not modified in respect of this matter.
Other Information
6. The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Management Discussion and Analysis, Directors' Report including Annexures to Directors' Report and Management Report but does not include the financial statements and our auditor's report thereon.
This other information is expected to be made available to us after the date of this auditor's report.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
When we read the Management Discussion and Analysis, Directors' Report including Annexures to the Directors' Report, and Management Report report, if we conclude that there is material missatement therein, we are required to communicate the matter to those charge with governance and take approrite action as applicable under the relevant laws and regulations.
Responsibilities of Management for the Standalone Financial Statements
7. The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance, and receipts and payments of the Company in accordance with the requirements of the Insurance Act read with the IRDA Act, the Regulations, order/ directions issued by the IRDAI in this regard and in accordance with the accounting principles generally accepted in India including the Accounting Standards specified under section 133 of the Act to the extent applicable and in the manner so required. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditors' responsibilities for the audit of the Standalone Financial Statements
8. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with the SAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
> Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
> Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
> Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
> Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
> Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
9. The actuarial valuation of liabilities for life policies in-force and for policies where premium has been discontinued but liability exists as at March 31, 2023 has been duly certified by the Appointed Actuary. The Appointed Actuary has also certified that, in his opinion, the assumptions for such valuation are in accordance with the generally accepted actuarial principles and practices, requirements of the Insurance Act, regulations notified by the IRDAI and Actuarial Practice Standards issued by the Institute of Actuaries of India in concurrence with the IRDAI;
10. As required by the Regulations, we have issued a separate certificate dated April 26, 2023, certifying the matters specified in paragraphs 3 and 4 of Schedule C to the Regulations.
11. Further, to our comments in the Certificate referred to in paragraph 10 above, as required under the Regulations, read with Section 143 (3) of the Act, we report that:
a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
b) In our opinion and to the best of our information and according to the explanations given to us, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.
c) As the Company's financial accounting system is centralized at Head Office, no returns for the purposes of our audit are prepared at the branches and other offices of the Company.
d) The Balance Sheet, the Revenue Account, the Profit and Loss Account, and the Receipts and Payments Account dealt with by this Report are in agreement with the books of accounts.
e) In our opinion and to the best of our information and according to the explanations given to us, investments have been valued in accordance with the provisions of the Insurance Act and the Regulations and orders/directions issued by the IRDAI in this behalf.
f) In our opinion and to the best of our information and according to the explanations given to us, the accounting policies selected by the Company are appropriate and are in compliance with the Accounting Standards referred to in Section 133 of the Act, to the extent they are not inconsistent with the accounting principles prescribed in the Regulations and orders/directions issued by the IRDAI in this behalf.
g) In our opinion and to the best of our information and according to the explanations given to us, the Balance Sheet, the Revenue Account, the Profit and Loss Account and the Receipts and Payments Account dealt with by this report comply with the Accounting Standards referred to in Section 133 of the Act, to the extent they are not inconsistent with the accounting principles prescribed in the Regulations and orders/directions issued by IRDAI in this regard.
h) On the basis of the written representations received from the directors as on March 31, 2023, taken on record by the Board of Directors, none of the directors are disqualified as on March 31, 2023, from being appointed as a director in terms of Section 164 (2) of the Act.
i) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in "Annexure A".
j) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Schedule 16B(1) and Schedule 16B(2) to the standalone financial statements;
ii. The Company has made provision as at March 31, 2023, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Schedule 16B(15) and Schedule 16C(18) to the standalone financial statements.
iii. There are no amounts which are required to be transferred to the Investor Education and Protection Fund by the Company for the year ended March 31, 2023.
iv. a. The management has represented
that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any
manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries (Refer Schedule 16C(21) to the financial statements);
b. The management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries (Refer Schedule 16C(21) to the financial statements); and
c. Based on such audit procedures that we considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (a) and (b) contain any material misstatement.
v. The dividend declared and paid during the year by the Company is in compliance with the provision of section 123 of the Act.
vi. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 (as amended), which provides for books of account to have the feature of audit trail, edit log and related matters in the accounting software used by the Company, is applicable to the Company only with effect from financial year beginning April 1, 2023, the reporting under clause (g) of Rule 11 of the Companies (Audit and Auditors) Rules, 2014 (as amended), is currently not applicable.
12. The Company has paid/ provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of Section 197 of the Act and Section 34A of the Insurance Act.
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