Ind AS 104 Insurance explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Ind AS 104 is an interim standard for entities that issue insurance contracts. It broadly permits insurers to continue their existing accounting policies, prohibits certain practices such as catastrophe provisions and offsetting, and mandates a liability adequacy test and specified disclosures.
Overview
Ind AS 104, Insurance Contracts, notified under the Companies (Indian Accounting Standards) Rules, 2015, was designed as a stepping stone. Rather than overhaul insurance accounting immediately, it allowed insurers to retain much of their existing practice while introducing discipline through prohibitions, a liability adequacy test and enhanced disclosure, pending the comprehensive Ind AS 117.
Scope and Definition
The standard applies to insurance contracts an entity issues and reinsurance contracts it holds, plus financial instruments it issues with a discretionary participation feature. The key concept is significant insurance risk: a contract is an insurance contract only if the issuer accepts significant risk that a specified uncertain future event will adversely affect the policyholder. It does not apply to product warranties, employers' assets and liabilities under employee benefit plans, or financial guarantees within Ind AS 109's scope.
Recognition and Measurement
Ind AS 104 exempts insurers from applying some general Ind AS requirements to insurance contracts, permitting continuity of existing policies. However, it imposes specific requirements:
| Requirement | Effect |
|---|---|
| Liability adequacy test | Recognise deficiency if liabilities inadequate |
| Prohibition on offsetting | No netting of reinsurance assets against liabilities |
| No catastrophe provisions | No provisions for claims under future contracts |
| Impairment of reinsurance assets | Reduce carrying amount if impaired |
Liability Adequacy Test
At each reporting date, an insurer assesses whether its recognised insurance liabilities are adequate using current estimates of future contractual cash flows. If the assessment shows that the carrying amount of insurance liabilities is inadequate, the entire deficiency is recognised in profit or loss. This prevents insurers from understating obligations by relying on outdated assumptions.
Worked Example
An insurer carries insurance liabilities of ₹10,00,00,000. A liability adequacy test using current estimates of future claims and expenses indicates that expected obligations are ₹11,20,00,000. The deficiency of ₹1,20,00,000 is recognised immediately in profit or loss, increasing the recognised liability. Conversely, the insurer cannot set up a ₹50,00,000 catastrophe provision for possible future events under contracts not yet issued, as such provisions are prohibited.
Presentation and Disclosure
Ind AS 104 requires disclosures that identify and explain amounts arising from insurance contracts — accounting policies, recognised assets, liabilities, income and expense, and the process used to determine significant assumptions. It also requires information about insurance risk, including sensitivity analysis, concentrations of risk and claims development. These disclosures give users insight into the risks even while measurement practice remains varied.
Transition to Ind AS 117
Because Ind AS 104 permitted diverse practices, comparability across insurers was limited. Ind AS 117, Insurance Contracts, replaces it with a single, current-value measurement model, standardising how insurance liabilities are recognised and measured and significantly improving comparability.