1. ON-SITE INSPECTIONS OF INVESTMENT PORTFOLIO OF INSURERS A CASE STUDY OF IRDA 15 th NOV, 2005 INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY S N JAYASIMHAN & ARUP CHATTERJEE

2. REQUIREMENTS INSURANCE ACT, 1938 Total Assets - Investment Asset - Investment Asset - Non-Investment Asset - Non-Investment Asset Should be free from Encumbrances, Lien & Charges IRDA (INV) REG. 2000 Compliance as to Pattern of Investment Exposure Norms Prudential Norms STATIC REPORTS DYNAMIC STATUS

3. PERIODICITY OF REQUIREMENTS INSURANCE ACT, 1938 Quarterly: Statement of Assets Assets are free from encumbrance Changes in Investments Annual: Investment of Assets IRDA (INV) REGULATIONS Quarterly: Downgraded Investments Total Assets Stmt. of Exceptional Investment Details of Non Performing Assets Annual: Investment & Inv. Income Certificate on Exposure Compliance. Details of Inv. Subject to Exposure

4. PERIODICAL RETURNS 1. Investment Regulations prescribe Quarterly / Annual Returns 2. Received within 21 days after the end of the Quarter. 3. Brings the Accretion position of Investment of Assets. 4. Filed based on provisional figures. 5. Annual returns are also submitted, within 21 days from the end of March, based on provisional figures. 6. Annual returns are resubmitted based on Audited figures. 7. Investments are grouped based on Category of Investments, as provided in Guidelines. Exhaustive Categories of Investments had been specified. 8. Total Investment is required to be linked to Balance Sheet on Balance Sheet date.

5. METHODOLOGY OF INFORMATION CONSOLIDATION AT IRDA

6. New India NationalUnitedOriental GIC Pvt. Gen. Insurer LIC Pvt. Life Insurers Common Investment Systems - General Insurers Common Investment Systems - Life Insurers MIS Application @ IRDA INVESTMENT MONITORING METHODOLOGY AT IRDA A B GENERAL INSURERSLIFE INSURERS Directions to Insurers Data thro Returns C Regulate Input Data - done by Notification Quarterly / Annual Returns FORM 1, FORM 2, FORM 3A / 3B (Part A & B) FORM 4A, FORM 5, FORM 5A, FORM 6, FORM 7 of IRDA Investment Regulations

7. OLD INSURERS EXISTING / REQUIRED SYSTEMS

8. Operating / Branch Office (Ope. SW) Controlling / DO (Operating) Office [Ope. SW] Regional Office [Ope & Accounts SW] HO Accounts [Ope & Accounts SW] Surplus Fund Transfer to Inv. Department Generate Trial Balance 1 A B OLD INSURERS – OPERATION & ACCOUNTING SYSTEM Hi Value Cheques Thro Chq / Transfer Transfer to Operations

9. A Funds from HO (Operations) Stock Holding Statement Money Market Bank / RBI Prepare Inv. Placemen t Note Approved as per Matrix ? [Ref. Anx. 1] Check with Exposure Status Generate Investment Regulatory Returns of IRDA / Exceptions / MIS Reports 2 B Returns checked for Compliance Returns Filed with IRDA END Inv. Accounting Generate Trial Balance 1 OLD INSURERS - INVESTMENT SYSTEM NOTE : In the absence of proper systems all reports (Marked RED) are generated using Spreadsheets Yes No

11. Data Base Manual Documents Electronic Spreadsheets Text file Generated Manual Entry from Documents Re-formatting Of Excel Data Multiple Spreadsheets Linked to Compile Investment Returns STAGE - 1STAGE - 2STAGE - 3 Filed with IRDA DISCONNECT BETWEEN SPREADSHEET RETURNS & DATABASE BLUE BOXES INDICATE, INFORMATION MAINTAINED IN SPREADSHEETS Adj. Entries

12. OLD INSURERS CURRENT METHOD OF COMPILING INFORMATION FOR INVESTMENT RETURNS

13. Op. Bal as at Apr 03 Pur & Sales Apr 03 to Jun 03 Pur & Sales Apr 03 to Sep 03 Pur & Sales Apr 03 to Dec 03 Pur & Sales Apr 03 to Mar 04 FORM 5 Stmt Of Inv Recln Existing Investment & Accounting Software Total Assets as at Mar 04 QTLY. RETURNS – HOW PREPARED & FILED ? THROUGH SPREADSHEETS REGULATORY REQUIREMENTACTS REQUIREMENT FORM 3B Stmt Of Total Assets THROUGH SYSTEM

14. DRAWBACKS Group & Industry Sector Exposure not tracked as required by Regulations. No system to monitor the Investments Market Value of Investments not tracked. Clear segregation of Front and Back Office Operations not possible in Spreadsheet environment. Regulatory requirement, handled by Spreadsheets Inv. Reconciliation, done after closing the Accounts, at the end of the year. Purchase & Sale, reported Cumulatively, in Quarterly reporting on provisional basis, without linking to Balance Sheet. Static Reports (Non-Inv. Assets) generated only at the end of the year. Independent Trial Balance not available for Investment Operations.

15. TO MOVE FORWARD - WHAT IS REQUIRED Long Range Planning for IT issues. Creation of Investment IT Department to Maintain the System / Documentation of Changes. Clear Work Scope of Internal / Concurrent Audit to cover the entire Investment Operations. Standard Security Classification Procedure (To cover all Investments which are subject to Exposure Norms) Risk Management Department to be created. Segregation of Front / Mid / Back Office Operations. A common Time Target to all Insurers to migrate from Spreadsheets to a an Integrated Information System. Independent Trial Balance for Investment Operations. Qtly. consolidation of Non-Investment Assets.

16. TO MOVE FORWARD - WHAT IS REQUIRED Direct insurers to follow clearly documented Systems & Procedures to cover ALL Investment Operations till filing of periodical Investment Returns with the Authority. Conduct ANNUAL Systems Audit to confirm the existence of proper procedures in drawing up the periodical returns in ensuring Compliance. IDENTIFY Insurers based on adherence to Systems, in Complying with Act and Regulations. Based on the above, decide PERIODICITY of Compliance Audit to confirm that the Information submitted, corroborates with Books / Records maintained by the Insurer.

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