ICICI Lombard General Insurance Company Limited
REPORT ON THE AUDIT OF THE FINANCIALSTATEMENTS
Opinion
We have audited the accompanying financial statements of ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED
(“the Company"), which comprise the Balance Sheet as at March 31, 2024, the Revenue accounts of fire, marine and miscellaneous insurance (collectively known as the ‘Revenue accounts'), the Profit and Loss account and the Receipts and Payments account for the year then ended, the schedules annexed there to, a summary of the 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 financial statements, give the information required in accordance with the Insurance Act, 1938 as amended, (the “Insurance Act"), the Insurance Regulatory and Development Authority of India Act, 1999 (the “IRDAI Act") the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations, 2002 (the “IRDAI Financial Statements Regulations"), the circulars/orders/ directions issued by Insurance Regulatory and Development Authority of India (“IRDAI") and the Companies Act, 2013 (the “Act") in the manner so required and give a true and fair view in conformity with the Accounting Standards specified under section 133 of the Act read with the Companies (Accounting Standards) Rule, 2021, as amended (“Accounting Standards") and other accounting principles generally accepted in India which are not inconsistent with the accounting principles as prescribed in the IRDAI Financial Statements Regulations:
a. in the case of Balance Sheet, of the state affairs of the Company as at March 31, 2024;
b. in the case of Revenue accounts, of the operating profit in the Fire, Marine and Miscellaneous business for year ended on that date;
c. in the case of Profit and Loss account, of the profit for the year ended on that date; and
d. in the case of Receipts and Payments account, of the receipts and payments for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (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 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 financial statements under the provisions of the Act and the Rules made 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:
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated:
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Sr. No. Key Audit Matters
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How our Audit addressed this Key Matter
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1. Information Technology Systems and Controls
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Our key audit procedures included, but were not limited to
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(IT Controls) related to financial reporting:
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the following:
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The Company is highly dependent on its complex IT
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We involved our IT specialists to perform procedures which
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architecture comprising hardware, software, multiple applications, automated interfaces and controls in
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included, but were not limited to the following:
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systems for recording, storing and reporting financial
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• Obtained an understanding of the Company's IT related
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transactions.
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control environment, IT applications and databases. Furthermore, we conducted a risk assessment and
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A number of independent and inter-dependent IT
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identified IT applications, databases that are relevant
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systems are used by the Company for processing and recording the large volume of transactions on
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for the Company's financial reporting.
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daily basis as part of its operations, which impacts
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• For the IT systems relevant to reporting of financial
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key financial accounting and reporting items such as
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information, we have tested design and operative
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premium income, claims, commission expenses and
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effectiveness of key IT general controls over the key
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investments amongst others.
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IT systems that are critical to financial reporting. This included evaluation of entity's controls to ensure
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There exists a risk that, gaps in the IT control
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segregation of duties and access rights being provisioned
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environment could result in the financial accounting
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/ modified based on duly approved requests, access
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and reporting records being materially misstated.
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for exit cases being revoked in a timely manner and access of all users being re-certified during the period of
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The controls implemented by the Company in its
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audit. Further, controls related to program change were
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IT environment determine the integrity, accuracy,
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evaluated to verify whether the changes were approved,
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completeness, and the validity of the data that is
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tested in an environment that was segregated from
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processed by the applications and is ultimately used
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production and moved to production by appropriate users.
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for financial reporting. These controls contribute to
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Where deficiencies were identified, tested compensating
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mitigating risk of potential misstatements caused by
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controls and/or performed additional substantive audit
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fraud or errors.
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procedures as required to mitigate any risk of material misstatement with respect to related financial statement
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Our audit approach relies on automated controls and therefore, procedures are designed to test controls
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line item.
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over IT systems, segregation of duties, interface
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• Evaluated the design and tested the operating
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and system application controls over key financial
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effectiveness of critical and key automated controls
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accounting and reporting systems.
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within various business processes around the software systems. This included testing the integrity of system
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Due to, complexity and pervasive impact of the IT
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interfaces, report logic for system generated reports
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systems and related control environment on the
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relevant to the audit of premium income, commission
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Company's financial statements, we have identified
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expense, claims and investments, for evaluating
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testing of such IT systems and related control environment as a key audit matter for the current
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completeness and accuracy.
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year audit
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• Reviewed the Information System Audit Reports and Key audit findings of Internal Audit to assess the impact of observations and management's response if any on financial reporting.
• Obtained written representations from management on whether IT general controls and automated IT controls are designed and were operating effectively during the year.
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Sr. No. Key Audit Matters
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How our Audit addressed this Key Matter
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2. Investments (Refer Schedule 8 and 8A of the
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Our audit procedures on Investments included the following:
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financial statements and refer schedule 16 note 4.8 on accounting policy)
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•
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Understood Company's process and controls to ensure
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The Company's investment portfolio consists of Policyholders investments and Shareholders
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•
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proper investments valuation and impairment process. Tested the design, implementation, management
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investments. Total investment portfolio represents
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oversight and operating effectiveness of key controls
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77% of the assets as at March 31, 2024 which are
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over the valuation process of investments including
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valued in accordance with accounting policy framed
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impairment.
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as per the extant regulatory guidelines.
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•
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Obtained independent external confirmations for
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The valuation of all investments is as per the
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investments as at balance sheet date from the
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investment policy framed by the Company as per the
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Custodians and Depository Participants appointed by
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requirements contained in with IRDAI (Investment)
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the Company to confirm the units of securities for the
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Regulations, 2016, and the IRDA Preparation of
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purpose of valuation re-computation.
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Financial Statement Regulations. The valuation methodology specified in these aforesaid regulations
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•
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On a test check basis, recomputed valuation of different
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is applied by the Company for each class of
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class of investments to assess appropriateness of
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investment which includes various measurement
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the valuation methodologies with reference to IRDAI
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techniques such as amortised cost, fair value etc as
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Investment Regulations along with Company's own
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further described in note 4.8 to the accompanying
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investment policy.
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financial statements.
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Examined movement and appropriateness of accounting
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The Company has a policy framework for Valuation
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in Fair Value Change account for specific investments.
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and impairment of Investments. The Company performs an impairment review of its investments at
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•
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Reviewed the Company's impairment policy and
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each balance sheet date and recognizes impairment
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assessed the adequacy of its impairment charge on
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charge when the investments meet the trigger/s for
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investments outstanding at the year end.
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impairment provision as per the criteria set out in the investment policy of the Company. Such assessment
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•
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Examined the rating downgrades by credit rating
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of impairment involves significant management
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agencies and assessed the adequacy of impairments to
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judgment.
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various investments.
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The valuation of these investments was considered
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Evaluated appropriateness and reasonableness of
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one of the matters of material significance in the
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methodology, assumptions and judgements used
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financial statements due to the materiality of the total
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by management with reference to the Company's
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value of investments to the financial statements and
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investment valuation and impairment assessment as
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thereby identified as a key audit matter for current
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per policy.
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year audit.
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Obtained written representations from management
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on compliance of valuation of investments with the regulations and adequacy of impairment recorded for the year.
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INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITOR’S REPORT THEREON:
The Company's Board of Directors are responsible for the preparation of other information. The other information comprises the information included in the Directors Report and Management Discussion and Analysis but does not include the financial statements and our auditor's report thereon.
Our opinion on the 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 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 during the course of our audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement of the other information. 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 confirm that we have nothing material to report, add or draw attention to in this regard.
RESPONSIBILITIES OF THE MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS:
The Company's Board of Directors are responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act") with respect to the preparation of these financial statements that give a true and fair view of the financial position, underwriting results, financial performance and cash flows of the Company in accordance with the Accounting standards specified under Section 133 of the Act and other accounting principles generally accepted in India which are not inconsistent with the accounting principles as prescribed IRDA Financial Statements Regulations, the IRDA Act and the circulars/orders/directions issued by the IRDAI in this regard. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding 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 statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the financial statements the management and board of directors are 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.
The Board of Directors are also responsible for overseeing the Company's financial reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
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 assurance, but it is not a guarantee that an audit conducted in accordance with 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 aggregate, that 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 SAs specified under section 143(10) of the Act, we exercise professional judgment and maintain professional skepticism 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 financial controls 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 an adequate internal financial controls system 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 and Board of Directors 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 ability of the Company 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.
OTHER MATTERS
1. The actuarial valuation of liabilities in respect of Incurred But Not Reported (the “IBNR"), Incurred But Not Enough Reported (the “IBNER") and Premium Deficiency Reserve (the “PDR") is the responsibility of the Company's Appointed Actuary (the “Appointed Actuary"). The actuarial valuation of these liabilities, that are estimated using statistical methods as at March 31, 2024 has been duly certified by the Appointed Actuary and in his opinion, the assumptions considered by him for such valuation are in accordance with the guidelines and norms issued by the IRDAI and the Institute of Actuaries of India in concurrence with the IRDAI. We have relied upon the Appointed Actuary's certificate in this regard for forming our opinion on the valuation of liabilities for outstanding claims reserves and the PDR contained in the financial statements of the Company.
2. The financial statements of the Company for the year ended March 31, 2023 were audited by PKF Sridhar & Santhanam LLP (FRN: 003990SS/200018), one of the current joint auditors of the Company, jointly with
Chaturvedi & Co (FRN: 302137E), who have jointly expressed unmodified opinion vide their audit report dated April 18, 2023, whose reports have been furnished to and relied upon by Walker Chandiok & Co LLP for the purpose of their audit of the financial statements.
Our opinion is not modified with respect to these matters.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
1. As required by the IRDAI Financial Statements Regulations, we have issued a separate certificate dated 17 April 2024 certifying the matters specified in paragraphs 3 and 4 of Schedule C to the IRDAI Financial Statement Regulations.
2. As required by the paragraph 2 of Schedule C to the IRDAI Financial Statement Regulations read with Section 143(3) of the Act, in our opinion and according to the information and explanations give to us, we report to the extent applicable 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 of the accompanying financial statements;
b) 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 except for the matters stated in the paragraph 2 (j) (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014;
c) As the Company's financial accounting system is centralized, 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 accounts, the Profit and Loss account and the Receipts and Payments account dealt with by this report are in agreement with the books of account;
e) The aforesaid financial statements comply with the applicable Accounting Standards specified under Section 133 of the Act, and other accounting principles generally accepted in India which are not inconsistent with the accounting principles prescribed in the IRDA Financial Statements Regulations, the Insurance Act, the IRDA Act and circulars/orders/ directions issued by the IRDAI in this regard;
f) Investments have been valued in accordance with the provisions of the Insurance Act, the IRDA Financial
Statements Regulations and/or orders/directions issued by IRDAI in this regard;
g) On the basis of the written representations received from the directors as on March 31, 2024 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2024 from being appointed as a director in terms of Section 164 (2) of the Act.
h) The observation relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2 (b) above on reporting under Section 143(3)(b) of the Act and paragraph 2 (j) (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
i) With respect to the adequacy of the internal financial controls with reference to the financial statements of the Company as on 31 March 2024 and 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 Note no. 5.1.1 and 5.2.22 to the financial statements;
ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts. The Company did not have any outstanding long term derivative contracts - Refer Note no. 5.2.23 to the financial statements and “Other Matter" para above;
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company - Refer Note no. 5.2.24 to the financial statements.
iv. (a) The Management has represented that,
to the best of its knowledge and belief, as detailed in note 5.2.19 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;
(b) The Management has represented, that, to the best of its knowledge and belief, as detailed in note 5.2.19 no funds have been received by the Company from any person(s) or entity(ies), including foreign entity (“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; and
(c) Based on the audit procedures that have been 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 (i) and (ii) of Rule 11(e), as provided under (a) and (b) above, contain any material misstatement.
v. As stated in Note 5.2.26 to the financial
statements
a) The final dividend proposed in the previous year, declared and paid by the Company during the year is in accordance with Section 123 of the Act, as applicable.
b) The interim dividend declared and paid by the Company during the year and until the date of this report is in compliance with Section 123 of the Act.
c) The Board of Directors of the Company have proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The amount of dividend proposed is in accordance with section 123 of the Act, as applicable.
vi. As stated in Note 5.2.30 to the financial statements and based on our examination which included test checks on the software applications, except for instances mentioned below, the Company, in respect of financial year commencing on 1 April 2023, has used software applications for maintaining its books of account
which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all relevant transactions recorded in the respective software applications. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with.
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Instance of accounting software for maintaining books of account which did not have a feature of recording audit trail (edit log) facility
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In case of one of the policy and claim administration applications, discontinued w.e.f. 31 October 2023, used for maintaining policy and claim records related to the insurance business demerged from Bharti Axa General Insurance Company Limited and forming part of the Company's business, we are unable to test whether the audit trail feature was enabled or tampered with.
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Instances of accounting software for maintaining books of account for which the feature of recording audit trail (edit log) facility was not operated throughout the year for all relevant transactions recorded in the software
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The audit trail feature was not enabled up to March 15, 2024, at the database level for accounting software used for maintenance of commission and reinsurance records by the Company to log any direct database level changes.
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3. With respect to the other matters to be included in the Auditor's report, in terms of the requirements of Section 197(16) of the Act, we report that managerial remuneration payable to the Company's Directors is governed by the provisions of Section 34A of the Insurance Act, 1938 and is approved by IRDAI. Accordingly, the managerial remuneration limits specified under Section 197 of the Act do not apply.
For Walker Chandiok & Co LLP For PKF Sridhar & Santhanam LLP
Chartered Accountants Chartered Accountants
Firm Registration Number: Firm Registration Number:
001076N/N500013 003990S/S200018
Khushroo B. Panthaky Dhiraj Kumar Birla
Partner Partner
Membership No. 042423 Membership No. 131178
UDIN: 24042423BKCMLV5301 UDIN: 24131178BKFIXY3323
Place: Mumbai Date: 17 April 2024
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