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HDFC Life Insurance Company Limited

BSE: 540777|NSE: HDFCLIFE|ISIN: INE795G01014|SECTOR: Miscellaneous
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Notes to Accounts Year End : Mar '19

Corporate Information

HDFC Life Insurance Company Limited (‘HDFC Life’ or ‘The Company’) (Formerly HDFC Standard Life Insurance Company Limited), is formed as a joint venture between Housing Development Finance Corporation Limited (‘HDFC Limited’) and Standard Life Aberdeen plc.

The Company was incorporated at Mumbai on August 14, 2000 as a public limited company under the Companies Act, 1956. The Company obtained a certificate of commencement of business on October 12, 2000 and a certificate of registration from the Insurance Regulatory and Development Authority of India (‘IRDAI’) on October 23, 2000 for carrying on the business of life insurance. The Company offers a range of individual and group insurance solutions. The portfolio comprises of various insurance and investment products such as Protection, Pension, Savings, Investment, Annuity and Health.

The Shares of the Company are listed on National Stock Exchange of India Limited (NSE) and BSE Limited (BSE).

During the year ended March 31, 2019, the name of the Company has been changed from HDFC Standard Life Insurance Company Limited to “HDFC Life Insurance Company Limited” upon receipt of fresh Certificate of Incorporation dated January 17, 2019 pursuant change of name, issued by the office of Registrar of Companies, Mumbai.

B. Notes forming part of accounts

1. Contingent liabilities

The Company is in the process of evaluating the impact of the recent Supreme Court Judgment in case of “Vivekananda Vidyamandir And Others Vs The Regional Provident Fund Commissioner (II) West Bengal” and the related circular (Circular No. C-I/1(33)2019/Vivekananda Vidya Mandir/284) dated March 20, 2019 issued by the Employees’ Provident Fund Organisation in relation to non-exclusion of certain allowances from the definition of “basic wages” of the relevant employees for the purposes of determining contribution to provident fund under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952. In the assessment of the management which is supported by legal advice, the aforesaid matter is not likely to have a material impact for the year ended March 31, 2019 and accordingly, no provision has been made in these Financial Statements.

2. Pending litigations

The Company’s pending litigations other than those arising in the ordinary course of insurance business comprise of claims against the Company primarily on account of proceedings pending with Tax authorities. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed the contingent liabilities as applicable, in note 1 above.

3. Actuarial assumptions

The policyholders’ actuarial liabilities are determined based on assumptions as to the future experience of the policies. The principal assumptions are related to interest, expenses, mortality, morbidity, persistency and additionally in the case of participating policies, bonuses and tax. The assumptions are based on prudent estimates of the future experience and hence include margins for adverse deviations over and above the best estimate assumptions. A brief of the assumptions used by the Appointed Actuary in actuarial valuation is as below:

a) Interest rate assumptions:

The valuation rate of interest is determined based on the expected return on existing assets, current asset mix, expected investment return on the future investment taking into consideration the asset classes mix and expected future asset mix. The interest rates used for the valuation vary according to the type and term of the product & status of policy and are presented in the table below.

b) Expense assumptions:

The expense assumptions are set on the basis of the expense analysis. These are fixed renewal expenses (prescribed below) and investment expenses are charged as a % of fund.

Claim expenses assumption is Rs. 126 per maturity/ surrender claim and Rs. 2,275 for death claim. The renewal and claim expenses are increased at an inflation rate of 6.5% p.a.

c) Mortality assumptions:

Mortality assumptions are set in accordance with Clause 5(2) of Schedule II of the IRDAI (Assets, Liabilities and Solvency Margin of Life Insurance Business) Regulations, 2016, in reference to the published Indian Assured Lives Mortality table (2006-08) and are based on the latest experience analysis of the business.

In the case of annuity benefits, mortality assumption is based on the LIC Annuitants (1996-1998) table.

d) Morbidity assumptions:

Morbidity assumptions are set in accordance with Clause 5(3) of Schedule II of the IRDAI (Assets, Liabilities and Solvency Margin of Life Insurance Business) Regulations, 2016, in reference to the published CIBT 93 Table and are based on the latest experience analysis of the business.

e) Persistency assumptions:

The persistency assumptions are also based on the most recent experience of the Company and vary according to the premium frequency and type of the product.

f) Provision for free-look period:

If a policy which is in force as at the valuation date is subsequently cancelled in the free-look period, then there could be a strain in the policyholder fund on account of the amount payable on free-look cancellation, to the extent the amount is higher than reserves held for that policy. In order to avoid the future valuation strain as a result of the free-look cancellations, reserves on account of the above are held. The free-look reserve is calculated as total strain for all policies that are eligible for free-look cancellations at the valuation date, multiplied by a factor, representing the expected assumptions for free-look cancellations.

g) Bonus rates:

The bonus rates for the participating business as required to be declared in the future is based on the interest expected to be earned as per the valuation assumptions.

h) Tax:

The tax rate as applicable to insurance companies carrying on insurance business is 14.56 % p.a. (For the year ended March 31, 2018 14.42% p.a.)

4. Employee benefits

A) Defined contribution plans:

During the year, the Company has recognised below amount in the Revenue Account under defined contributions plans.

B) Defined benefit plans:

I. Gratuity:

a) General description of defined benefit plan

This is a funded defined benefit plan for qualifying employees under which the Company makes a contribution to the HDFC Life Insurance

Company Limited Employees Gratuity Trust (Trust). The plan provides for a lump sum payment as determined in the manner specified under The Payment of Gratuity Act, 1972, to the vested employees either at retirement or on death while in employment or on termination of employment. The benefit vests after five years of continuous service. Defined benefit obligations are actuarially determined at each quarterly Balance Sheet date using the projected unit credit method as required under Accounting Standard (AS) 15 (Revised), “Employee benefits” Actuarial gains or losses are recognised in the Revenue Account.

b) The following tables sets out the status of the Gratuity plan as at March 31, 2019:

The Company has recognised following amounts in the Balance Sheet:

e) Actual return on plan assets of the Gratuity plan is a gain of Rs. 28,253 thousands (Previous year ended March 31, 2018 gain of Rs. 21,147 thousands).

f) The Company expects to fund Rs. 110,086 thousands (Previous year ended March 31, 2018 Rs. 37,858 thousands) towards the Company’s Gratuity plan during FY 2020.

II. Basis used to determine the overall expected return:

Expected rate of return on investments of the Gratuity plan is determined based on the assessment made by the Company (Trust) at the beginning of the year on the return expected on its existing portfolio, along with the return on estimated incremental investments to be made during the year. Yield on the portfolio is calculated based on suitable mark-up over benchmark Government Securities of similar maturities.

C) Other long term employee benefits:

I. Long term compensated absences: This is an unfunded employee benefit. The liability for accumulated long term absences is determined by actuarial valuation using projected unit credit method. The assumptions used for valuation are as given below:

5. Employee Stock Option Scheme (ESOS)

(i) The Company has granted options to employees under the ESOS 2005, ESOS 2010, ESOS 2011 and ESOS 2012 and ESOS (Trust) 2017 schemes. These schemes are administered by the HDFC Life Employees Stock Option Trust. The Trust had subscribed to the capital of the Company and also acquired shares of the Company from Housing Development Finance Corporation Limited, the holding company. The options are granted to the employees from these tranches of shares. For all the grants, the mode of settlement is through equity shares. All the grants have graded vesting. The exercise price of ESOS 2005 is based on the holding cost of the shares in the books of the Trust and that of ESOS 2010, ESOS 2011 and ESOS 2012 is based on the fair market value as determined by the Category I Merchant Banker registered with SEBI. The exercise price, of the options granted under ESOS (Trust) 2017 is based on the market price of the shares of the Company, as defined in the ESOS (Trust) 2017 scheme.

(ii) The Company has also granted options to its employees under the ESOS 2014 scheme, ESOS 2015 scheme, ESOS 2016 scheme, ESOS 2017 and ESOS 2018 scheme. The said schemes are directly administered by the Company. For all the grants, the mode of settlement is through equity shares. All the grants have graded vesting. The exercise price of ESOS 2014, ESOS 2015 and of ESOS 2016 schemes is based on the fair market value as determined by the Category I Merchant Banker registered with SEBI. The exercise price, of the options granted under ESOS 2017 and ESOS 2018 is based on the market price of the shares of the Company, as defined in the respective ESOS scheme.

(iii) The Company follows the intrinsic value method of accounting for stock options granted to employees. The intrinsic value of the options issued under the above referred schemes is ‘Nil’ as the exercise price of the option is the same as fair value of the underlying share on the grant date and accordingly, no expenses are recognised in the books. Had the Company followed the fair value method for valuing its options, the charge to the Revenue Account/Profit & Loss Account for the year would have been aggregated to Rs. 279,466 thousands (Previous year ended March 31, 2018 Rs. 144,712 thousands) and the profit after tax would have been lower by Rs. 174,116 thousands (Previous year ended March 31, 2018 Rs. 77,997 thousands). Consequently, Company’s basic and diluted earnings per share would have been Rs. 6.25 and Rs. 6.24 respectively (Previous year: Rs. 5.49 and Rs. 5.46 respectively).

(iv) Exercise Period under the various ESOS:

The Company’s shares were listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) on November 17, 2017. Prior to listing, for all grants issued under the ESOS 2010, ESOS 2011, ESOS 2012, ESOS 2014, ESOS 2015 and ESOS 2016 schemes, the vested options were required to be exercised by the employees within five years from the date of vesting or the date of an Initial Public Offering (IPO) whichever is later subject to the norms prescribed by the Nomination & Remuneration Committee. Under ESOS 2005, the vested options were required to be exercised by the employees within three years from the date of vesting subject to the norms prescribed by the Nomination & Remuneration Committee. Post listing of the Company’s shares, vested options under all ESOS schemes are required to be exercised by the employees within five years from the date of vesting subject to the norms prescribed by the Nomination & Remuneration Committee.

Salient features of all the existing grants under the ten schemes are as stated below:

A) ESoS 2005

There are seven grants upto March 31, 2019 which are those issued on September 1, 2005 (two grants), November 8, 2006, August 3, 2007, July 15, 2008, August 16, 2009 and December 3, 2009. Total number of options granted upto March 31, 2019 are 9,964,650 (Previous year ended March 31, 2018: 9,964,650).

There are no options outstanding and exercisable for ESOS 2005 in the year ended March 31, 2019 and in the year ended March 31, 2018.

B) ESoS 2010

There are two grants issued upto March 31, 2019 which are those issued on June 30, 2010 and October 1, 2010. The total number of options granted upto March 31, 2019 are 5,158,000 (Previous year ended March 31, 2018: 5,158,000). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is Nil. Due to the exercise period of the options being variable prior to listing (Refer Note 5 (iv)), it is not possible to provide a comparative number for the weighted average remaining contractual life of the options outstanding as at March 31, 2018.

A summary of status of ESOS 2010 in terms of options granted, forfeited, exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

C) ESoS 2011

There are one grant upto March 31, 2019 which was issued on October 1, 2011. The total number of options granted upto March 31, 2019 are 4,753,000 (Previous year ended March 31, 2018: 4,753,000). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is Nil. Due to the exercise period of the options being variable prior to listing (Refer Note 5 (iv)), it is not possible to provide a comparative number for the weighted average remaining contractual life of the options outstanding as at March 31, 2018.

A summary of status of ESOS 2011 in terms of options granted, forfeited, exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

D) Esos 2012

There are two grants issued upto March 31, 2019 which were on October 1, 2012 and October 1, 2013. The total number of options granted upto March 31, 2019 are 14,275,310 (Previous year ended March 31, 2018: 14,275,310). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is 2.51 years. Due to the exercise period of the options being variable prior to listing (Refer Note 5 (iv)), it is not possible to provide a comparative number for the weighted average remaining contractual life of the options outstanding as at March 31, 2018.

A summary of status of ESOS 2012 in terms of options granted, forfeited, exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

E) ESOS 2014

There are two grants issued upto March 31, 2019 which were on December 1, 2014 and February 1, 2015. The total number of options granted upto March 31, 2019 are 15,034,250 (Previous year ended March 31, 2018: 15,034,250). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is 3.25 years. Due to the exercise period of the options being variable prior to listing (Refer Note 5 (iv)), it is not possible to provide a comparative number for the weighted average remaining contractual life of the options outstanding as at March 31, 2018.

A summary of status of ESOS 2014 in terms of options granted, forfeited, exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

F) esos 2015

There are two grants issued as of March 31, 2019 which were on October 1, 2015 and November 1, 2015. Total number of options granted till March 31, 2019 are 9,733,300 (Previous year ended March 31, 2018: 9,733,300). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is 4.32 years. Due to the exercise period of the options being variable prior to listing (Refer Note 5 (iv)), it is not possible to provide a comparative number for the weighted average remaining contractual life of the options outstanding as at March 31, 2018.

A summary of status of ESOS 2015 in terms of options granted, forfeited and exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

G) ESoS 2016

There are two grants issued as of March 31, 2019 which were on October 1, 2016 and November 1, 2016. Total number of options granted till March 31, 2019 are 3,836,850 (Previous year ended March 31, 2018: 3,836,850). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is 5.30 years. Due to the exercise period of the options being variable prior to listing (Refer Note 5 (iv)), it is not possible to provide a comparative number for the weighted average remaining contractual life of the options outstanding as at March 31, 2018.

A summary of status of ESOS 2016 in terms of options granted, forfeited and exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

H) ESoS 2017

There is one grant issued as of March 31, 2019 which was on March 14, 2018. Total number of options granted till March 31, 2019 are 3,069,206 (Previous year ended March 31, 2018: 3,069,206). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is 6.06 years. (Previous year ended March 31, 2018: 7.06 years).

A summary of status of ESOS 2017 in terms of options granted, forfeited and exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

I) ESoS (Trust) 2017

There is one grant issued as of March 31, 2019 was on March 14, 2018. Total number of options granted till March 31, 2019 are 536,394 (Previous year ended March 31, 2018: 536,394). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is 6.06 years. (Previous year ended March 31, 2018: 7.06 years).

A summary of status of ESOS (Trust) 2017 in terms of options granted, forfeited and exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

J) ESOS 2018

There is one grant issued as of March 31, 2019 which was on October 1, 2018. Total number of options granted till March 31, 2019 are 1,873,353 (Previous year ended March 31, 2018: Nil). The weighted average remaining contractual life of the options outstanding as at March 31, 2019 is 6.61 years. (Previous year ended March 31, 2018: Nil).

A summary of status of ESOS 2018 in terms of options granted, forfeited and exercised, outstanding and exercisable along with the weighted average exercise price is as given below:

Method of computation of fair value of options:

The fair value of options has been calculated using the Black-Scholes model. The key assumptions used in Black-Scholes model for calculating fair value of options as on the date of grant are as follows:

6. Managerial remuneration

The appointment and remuneration of managerial personnel is in accordance with the requirements of Section 34A of the Insurance Act, 1938 as amended from time to time including the amendment brought by the Insurance Laws (Amendment) Act, 2015 and has been approved by the IRDAI.

The managerial remuneration mentioned above does not include the perquisite value as per Income Tax Act, 1961 of employee stock options exercised and the actuarially valued employee benefits that are accounted as per Accounting Standard (AS) 15 (Revised), “Employee Benefits”, that are determined on an overall Company basis. Managerial remuneration in excess of the prescribed limits by IRDAI has been charged to the Shareholder’s Profit and Loss Account.

7. Remuneration payable/paid to non-whole time independent directors Rs. 8,000 thousands (Previous year ended March 31, 2018 Rs. 6,000 thousands) is included under Schedule 3A under the head “Directors Commission”.

8. As prescribed by IRDAI vide its letter Ref: 75/ IRDA/Life/HSLIC dated March 13, 2015, details of options granted to and exercised by Key Managerial Personnel as defined under the Companies Act, 2013, are as follows:

9. Operating expenses

Details of expenses incurred under the following heads as required by the IRDAI vide the Master Circular are as given below:

10. Leases

In accordance with the Accounting Standard (AS) 19, “Leases”, the following disclosures are made in respect of operating leases:

a) The Company has hired motor vehicles on cancellable operating lease for a term of up to five years. In respect of these operating leases, the lease rentals debited to the Revenue Account are Rs. 74 thousands (Previous year ended March 31, 2018: Rs. 2,410 thousands).

The terms of the lease agreements do not contain any exceptional/restrictive covenants which will have significant detrimental impact on the Company’s financials nor are there any options given to the Company to purchase the motor vehicles. The agreements provide for predecided increase in lease rentals over the lease period and for change in the rentals if the taxes leviable on such rentals are revised.

b) The Company has taken properties under operating lease. In respect of these operating leases, the lease rentals debited to rent under the head Rent, rates and taxes in the Revenue Account are Rs. 5,99,347 thousands (Previous year ended March 31, 2018: Rs. 5,86,450 thousands).

The minimum future lease rentals payable under non-cancellable operating leases for specified duration in respect of such leases amount to the following:

The lease arrangements contain provisions for renewal and escalation. The terms of the lease agreements do not contain any exceptional/ restrictive covenants which will have significant detrimental impact on the Company’s financials.

c) The Company has taken furniture and generators under cancellable operating lease. In respect of these operating leases, the lease rentals debited to rent under the head Rent, rates and taxes in the Revenue Account are Rs. 13,358 thousands (Previous year ended March 31, 2018: Rs. 18,756 thousands).

d) The company has taken cloud services, networking equipment etc under operating lease. In respect of these operating leases, the lease rentals debited to rent under the head Rent, rates and taxes in the Revenue Account are Rs. 59,985 thousands (Previous year ended March 31, 2018: Rs. 40,840 thousands).

11. Provision for tax

During the year, the Company has made provision for taxation in accordance with the Income tax Act, 1961 and Rules and Regulations there under as applicable to the Company.

12. Foreign exchange gain/(loss)

The amount of net foreign exchange gain/(loss) debited to Revenue Account which included in Schedule 3 - Operating expenses related to insurance business is as follows:

13. Corporate Social Responsibility (CSR)

As per section 135 of the Companies Act, 2013, the gross amount suggested to be spent by the Company during the year ended March 31, 2019 is Rs. 1,13,498 thousands (Previous year ended March 31, 2018 Rs. 94,883 thousands). The Company has spent Rs. 1,91,760 thousands (Previous year ended March 31, 2018: Rs. 98,009 thousands) on various CSR initiatives.

Amounts of related party transactions pertaining to CSR related activities for the year ended March 31, 2019 was Rs. Nil (previous year ended March 31, 2018 Rs. Nil)

14. Encumbrances

The assets of the Company are free from any encumbrances at March 31, 2019, except for Fixed Deposits and Government Securities, mentioned below, kept as margin against bank guarantees with exchange and collateral securities issued:

15. Investment property

As mandated under IRDAI circular IRDAI/CIR/F&I/INV/056/03/2016-17 investment in Real Estate Investment Trusts (REIT’s) of Rs. 464,640 thousands (Previous year ended March 31, 2018 Rs. Nil) has been disclosed as part of the Investment Property.

16. Claims outstanding

As at March 31, 2019, there were 2773 claims amounting to Rs. 145,924 thousands (Previous year ended March 31, 2018 622 claims amounting to Rs. 69,315 thousands) settled and remaining unpaid for a period of more than six months. These claims remain unpaid awaiting receipt of duly executed discharge documents from the claimants. All claims are to be paid to claimants in India.

17. Provision for NPA (non standard assets) for debt portfolio

Provision for doubtful debts is made in line with the ‘Guidelines on Prudential norms for income recognition, Asset classification, Provisioning and other related matters in respect of Debt portfolio’ as specified by IRDAI vide the Master Circular dated December 11, 2013 and has been recognised in the Revenue Account as per below table:

During the year ended March 31, 2019 the Company had classified its investment in IL&FS Ltd. as NPA, owing to the default of interest payment on one of the Non-Convertible Debentures (NCD’s) held in Unit Linked Funds by the issuer IL&FS Ltd. Provision of Rs. 1,62,500 thousands at 25% of Face Value (Rs. 6,50,000 thousands) and interest accrued till date of downgrade to “D” Default rating category of Rs. 34,958 thousands has been recognized in the Revenue account in addition to the Mark to Market (MTM) impact of Rs. 1,53,810 thousands in lines with the IRDAI valuation norms which is recognized as Fair Value Change.

18. Segmental reporting

As per Accounting Standard (AS) 17, “Segment Reporting”, read with the IRDAI Financial Statements Regulations, Segmental Accounts are disclosed in Annexure 1.

19. Shareholders’ contribution

Shareholders’ contribution of Rs. 3,089,502 thousands to the Policyholders’ account for the current year (Previous year ended March 31, 2018 Rs. 1,566,482 thousands), subject to approval by shareholders at the Annual General Meeting is irreversible in nature and will not be recouped to the Shareholders.

Shareholders’ contribution of Rs. 1,566,482 thousands to the Policyholders’ account for the year ended March 31, 2018 has been approved by shareholders at the Annual General Meeting held on July 20, 2018.

20. Unit Linked Funds

The Company has presented the financial statements of the unit linked funds in Annexure 2 and 3 as required by the Master Circular.

21. The Micro, Small and Medium Enterprises Development Act, 2006

According to information available with the management, on the basis of intimation received from suppliers, regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), the details of amounts due to Micro and Small Enterprises under the said Act as on March 31, 2019 are as follows:

21. Earnings per equity share

Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of equity shares outstanding during the year are adjusted for effects of all dilutive equity shares.

22. Subsidiaries

The Company has two subsidiaries, for which information is given as under:

i. HDFC Pension Management Company Limited (“HDFC Pension”) is a wholly owned subsidiary of HDFC Life Insurance Company Limited and has been a licensed pension fund manager since 2013. Since then, HDFC Pension has been a preferred pension fund manager and the asset under its management have grown to over Rs. 5,165 Crs. HDFC Pension was granted Certificate of Registration dated February 13, 2019 (Registration code: POP246022019) by the PFRDA for acting as Point of Presence (PoP) under National Pension System, to provide PoP - NPS - Distribution and Servicing services for public at large.

ii. ”HDFC International Life and Re Company Limited (“HDFC International Life & Re”) is a wholly owned foreign subsidiary incorporated in the Dubai International Financial Centre (“DIFC”) on January 10, 2016 under the Companies Law, DIFC Law No.2 of 2009 under registration number 2067. HDFC International Life & Re is regulated by the Dubai Financial Services Authority (“DFSA”) and is licensed to undertake life reinsurance business. It provides risk-transfer solutions, prudent underwriting solutions and value added services, among others, across individual life, group life and group credit life lines of business. HDFC International Life & Re currently offers reinsurance solutions in the Gulf Cooperation Council (“GCC”) and Middle East & North Africa (“MENA”) regions. In December 2018, HDFC International Life & Re has been assigned a long-term insurer financial strength rating of “BBB” with a stable outlook by S&P Global Ratings.

23. Interim Dividend

During the year ended March 31, 2019, the Board of Directors of the Company have approved at the Board Meeting held on March 7, 2019 an interim dividend @16.3% (Previous year ended March 31, 2018 @ 13.6%) on equity share of the face value of Rs. 10 i.e. @ Rs. 1.63 (Previous year ended March 31, 2018 @ Rs. 1.36) per equity share, amounting to Rs. 3,964,202 thousands (including dividend distribution tax), (Previous year ended March 31, 2018 Rs. 3,288,426 thousands including dividend distribution tax).

24. During the year ended March 31, 2019, the Company had transactions with related parties, which have been identified by the management as per the requirements of the Accounting Standard (AS) 18, “Related Party Disclosures”. Details of these related parties, nature of the relationship, transactions entered into with them and the balances in related party accounts at year end are as mentioned below:

The transactions between the Company and its related parties are as given below. As per the requirement of Corporate Governance guidelines for Insurers in India, 2016, issued by IRDAI, payments made to group entities from the Policyholders’ Funds are included in the below disclosures:

25. Regroupings or reclassification

During the year ended March 31, 2019, there are no regroupings or reclassification of the figures reported in previous year financial statement.

26. Disclosure on other work given to auditors

Pursuant to clause 7.1 of Corporate Governance Guidelines for insurers in India, 2016 issued by IRDAI applicable from FY 2017, the remuneration paid to statutory auditors/internal auditor or its associates for services other than statutory/internal audit are disclosed below:

27. Share application money received pending allotment of shares amounting to Rs. 3,929 thousands (Previous year Rs. 8,874 thousands) disclosed in the Balance Sheet as on March 31, 2019 relates to the application money received towards Employee Stock Option Plans under Company’s Employee Stock Options Scheme(s).

28. The Company claims credit of Goods and Services Tax (‘GST’) on input services, which is set off against GST on output services. The unutilised credits towards GST on input services are carried forward under ‘Schedule 12 -Advances and Other Assets’ in the Balance Sheet.

29. HDFC Life had invested across segments in Tata Sons Ltd. NCD’s since 2010. Tata Sons converted to a Private Ltd. Company from Public Ltd. Company in August 2018. As per IRDAI Act 27A (4) Insurance companies are prohibited from investing in Private Limited Companies. After the conversion to a Private Limited Co. HDFC Life had to sell its investments in securities issued by Tata Sons to ensure compliance with the regulation. The sale in these NCD’s resulted in realized loss of Rs. 333,263 thousands in Non-Par Individual and Group Life, Rs. 12,116 thousands in Par Individual Life and Rs. 114,822 thousands loss in Unit Linked Funds.

B. Additional disclosures

1. Performing and non-performing investments

The company did not hold any non-performing Investments during the year except as mentioned below:

During the year ended March 31, 2019 the Company had classified its investment in IL&FS Ltd. as NPA, owing to the default of interest payment on one of the Non-Convertible Debentures (NCD’s) held in Unit Linked Funds by the issuer IL&FS Ltd. Provision of Rs. 1,62,500 thousands at 25% of Face Value (Rs. 6,50,000 thousands) and interest accrued till date of downgrade to “D” Default rating category of Rs. 34,958 thousands has been recognized in the Revenue account in addition to the Mark to Market (MTM) impact of Rs. 1,53,810 thousands in lines with the IRDAI valuation norms which is recognized as Fair Value Change.

2. Deposits made under local laws

The Company has no deposit (For the year ended March 31, 2018: Rs. Nil) made under local laws or otherwise encumbered in or outside India as of March 31, 2019, except investments and deposits detailed in Note 14 of Schedule 16(B).

3. business for social and rural sector as required under IRDAI (obligations of insurers to Rural and Social Sectors) Regulations, 2015, issued by IRDAI

4. Allocation of investments and investment income

The underlying investments held on behalf of the shareholders and the policyholders are included in Schedules 8, 8A and 8B. The investment income arising from the investments held on behalf of shareholders has been taken to the Profit and Loss Account and those held on behalf of policyholders to the Revenue Account.

5. Percentage of risks retained and risk reinsured as certified by the Appointed Actuary

a. The persistency ratios have been calculated in accordance with the IRDAI circular no. IRDA/ACT/CIR/ MISC/035/01/2014 dated January 23, 2014 and hence are with a lag of one month

b. The persistency ratios have been calculated for the policies issued in the March to February period of the relevant years. For eg: the 13th month persistency for current year is calculated for the policies issued from March 2017 to February 2018

c. Group business, where persistency is measurable, has been included in the calculations. The previous year numbers have also been restated to include Group business

d. Rural business is excluded in the calculation of the persistency ratios

Solvency ratio has been stated on the basis of computation certified by Appointed Actuary and it excludes inadmissible assets as required by the IRDA (Assets, Liabilities and Solvency Margin of Insurers) regulations, 2016 and directions received from IRDAI from time to time.

6. Impairment of investments

In accordance with the Financial Statements Regulations, Schedule A Part I on Accounting Principle for Preparation of Financial Statements on procedure to determine the value of investment and the relevant circular, the impairment in value of investments other than temporary diminution has been assessed as at March 31, 2019 and accordingly impairment provisions have been provided as below.

Listed equity shares

A provision/(reversal) for impairment loss has been recognised in Revenue Account and Profit and Loss Account under the head “Provision for diminution in the value of investments” and corresspondingly, Policyholders’ and Shareholders’ Fair Value Change Account under Policyholders’ and Shareholders’ Funds respectively in the Balance Sheet have been adjusted for such (reversal)/provision of impairment loss, the details of which are given below:

Security Receipts and Venture Fund

A provision/(reversal) for impairment loss has been recognised in Revenue Account and Profit and Loss Account under the head “Provision for diminution in the value of investments” and corresspondingly, Short Term Other than Approved Investments under Schedule 8A (Policyholders’ Investments) and Schedule 8 (Shareholders’ Investments) respectively have been adjusted for such diminuton, the details of which are been given below:

7. Following is the disclosure related to Participation of Insurers in Repo\Reverse Repo transactions in Governments Corporate Debt Securities in pursuant to IRDAI notification ref IRDA/F&I/CIR/INV/250/12/2012 dated December 4, 2012

8. In accordance with the IRDAI (Investment) Regulations 2016 and IRDAI circular IRDA/F&I/INV/CIR/062/03/2013 dated March 26, 2013, the Company has declared March 31, 2019 as a business day. NAV for all unit linked segments were declared on March 31, 2019. All applications received till 3 PM on March 31, 2019, were processed with NAV of March 31, 2019. Applications received after this cut-off for unit linked funds are taken into the next financial year.

9. On August 8, 2016, the Board of Directors of HDFC Life Insurance Company Limited (“HDFC Life”), Max Life Insurance Company Limited (“Max Life”), Max Financial Services Limited (“Max Financial”) and Max India Limited (“Max India”) at their respective board meetings, approved entering into definitive agreements for the amalgamation of the businesses between the above entities through a composite Scheme of Arrangement (“Scheme”). This transaction was mutually terminated on July 31, 2017 since the parties did not receive the requisite regulatory approvals.

Consequently, provisions no longer required were written back during the year ended March 31, 2019 under the expense head ‘Employee’s remuneration and welfare benefits’ amounting to Rs. Nil (Previous year ended March 31, 2018 Rs. 311,000 thousands) in Schedule 3 - Operating Expenses and expense head ‘Legal & professional charges’ amounting to Rs. 32,862 thousands (Previous year ended March 31, 2018 Rs. 175,525 thousands) and ‘Auditors fees, expenses etc’ amounting to Rs. Nil (Previous year ended March 31, 2018 Rs. 3857 thousands) in Schedule 3A - Shareholder Expenses.

10. Long term contracts

The Company has a process whereby periodically all long term contracts are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provisions as required under any law/ accounting standard for material foreseeable losses on such long term contracts including derivative contracts has been made in the financial statements.

For insurance contracts, actuarial valuation of liabilities for policies in force is done by the Appointed Actuary of the Company. The assumptions used in valuation of liabilities for policies in force are in accordance with the guidelines and norms issued by the IRDAI and the Institute of Actuaries of India in concurrence with the IRDAI.

11. As per IRDAI Master Circular on Unclaimed Amounts of Policyholders IRDA/F&A/CIR/Misc/173/07/2017 dated July 25, 2017, the unclaimed amount of policyholders outstanding for a period of more than 10 years as on September 30, every year has been transferred to Senior Citizen’s Welfare Fund.

Source : Dion Global Solutions Limited
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