Ind AS 104: Legacy Insurance Accounting and the 2026 Transition

Position checked on 24 October 2026: Ind AS 104 explains the legacy insurance-contract model. It is no longer accurate to say that India has not notified Ind AS 117. Read the 2024 MCA notifications together with IRDAI's April and July 2026 directions, including insurer-specific forbearance and the limited continuation of Ind AS 104 for group consolidation.

Published by Finin2min · Updated 24 October 2026. The FY2024–25 company examples below are historical report figures, with their original reporting basis retained.

1. Legacy standard and the current transition

Ind AS 104 was an interim standard. It allowed considerable continuation of existing insurance-contract accounting policies, subject to safeguards such as liability adequacy testing and reinsurance-asset impairment. It did not impose the comprehensive measurement model now found in Ind AS 117.

MCA's Companies (Indian Accounting Standards) Second Amendment Rules, 2024, notified Ind AS 117. The Third Amendment Rules of 28 September 2024 inserted a proviso in rule 5 allowing an insurer to provide Ind AS 104 financial statements for consolidation by its parent, investor or venturer until IRDAI notified Ind AS 117. The scheduled Ind AS 104 text accompanying that notification is the source for the legacy requirements explained here.

IRDAI's circular of 1 April 2026 states that the amended insurance regulations provide for Ind AS implementation from 1 April 2026. For implementing insurers, Schedule IIA financial statements form the financial-reporting basis, alongside Schedule II financial information for the prescribed parallel-reporting period of two years or another specified period. This is a regulatory transition, not an automatic consequence of a stock-exchange listing.

One-year forbearance requires a grant by IRDAI; an application or an industry-wide assumption is insufficient. The 14 July 2026 circular, paragraph 4.2, confirms that insurers granted forbearance until 31 March 2027 may continue Ind AS 104 statements for consolidation by their parent, investor or venturer during that period. Check the particular insurer's disclosed position before treating its current statements as Ind AS 104, Ind AS 117 or the prescribed regulatory accounts.

2. What makes a contract an insurance contract?

The definition requires the transfer of significant insurance risk: the insurer agrees to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. Significant additional benefits in a scenario with commercial substance matter; a product's name, premium size or investment element alone does not settle classification.

A term-life contract can transfer significant mortality risk. A bank deposit ordinarily transfers financial risk rather than insurance risk. A unit-linked policy may contain significant insurance risk, so it cannot be classified as an investment contract merely because it has units and a quoted fund value. Assess the actual guarantees, death benefits, surrender terms and other contractual obligations.

3. Scope of the legacy requirements

Ind AS 104 covers insurance contracts issued, reinsurance contracts held, and financial instruments issued with a discretionary participation feature. It does not generally govern policyholders' own accounting. Product warranties issued directly by a manufacturer, dealer or retailer, employer employee-benefit obligations and other expressly excluded contracts follow the relevant standards. Financial guarantee contracts require the specific scope and election analysis; they should not be assigned to Ind AS 104 solely because a guarantee is involved.

Its policy-continuation relief has limits. Paragraph 14 prohibits recognising catastrophe or equalisation provisions for possible future claims under contracts that do not exist at the reporting date, requires a liability adequacy test, restricts derecognition and offsetting, and requires assessment of reinsurance-asset impairment. This is not permission to preserve any historic practice without testing those limits.

4. Unbundling depends on the contract

Paragraph 10 requires unbundling where the deposit component can be measured separately and the insurer's existing accounting policies do not otherwise require recognition of all obligations and rights arising from it. Where separate measurement is possible but those policies already recognise all such obligations and rights, unbundling is permitted rather than automatically required. It is prohibited if the component cannot be measured separately.

Consequently, a statement that every ULIP must be divided into an Ind AS 104 insurance portion, an Ind AS 109 unit liability and Ind AS 115 fees is too broad. Identify the component, test the conditions and document the applicable standard. The contract's investment account value and mortality charge are useful inputs to that analysis, not a substitute for it.

5. Discretionary participation features

A discretionary participation feature is a contractual right to additional benefits meeting the definition in the standard, including the required connection to a specified pool or contract performance, investment returns or the issuer's profit or loss. An expected bonus is not automatically such a feature merely because management uses the word “discretionary”.

Under paragraph 34, the guaranteed element is classified as a liability. If a discretionary participation feature is recognised separately, its classification as a liability or a separate component of equity follows the standard and the insurer's adopted accounting policy. The complete feature must not disappear into an unclassified intermediate category. For participating contracts, distinguish the contractual guaranteed benefits, vested bonuses, future discretionary benefits and the actual presentation policy; do not infer an equity balance from the existence of undeclared bonuses alone.

6. Liability adequacy test: deficiency is an expense

At each reporting date, paragraph 15 requires assessment of recognised insurance liabilities using current estimates of future cash flows. Compare the relevant insurance liabilities, less related deferred acquisition costs and intangible assets, with the required current cash-flow assessment. A test satisfying paragraph 16 considers all contractual cash flows, related claims-handling costs and cash flows from embedded options and guarantees. An inadequacy is recognised entirely in profit or loss.

Illustration: insurance liabilities of ₹100 crore, less related deferred acquisition costs of ₹3 crore, give a carrying amount of ₹97 crore. If the properly determined liability requirement is ₹103 crore, the ₹6 crore deficiency is recognised in profit or loss. If that requirement is ₹95 crore, passing the test does not itself authorise recognition of a ₹2 crore surplus gain. The separate recognition and measurement requirements still apply.

Where an existing test does not meet paragraph 16's minimum requirements, apply paragraph 17's prescribed comparison with the amount that would be required under Ind AS 37. Reinsurance assets are assessed separately. Do not describe an insurer's IBNR increase or pandemic-year loss as a proven Ind AS 104 LAT charge without the relevant report note.

7. Reinsurance: separate balances and impairment

Paragraph 14(d) prohibits offsetting reinsurance assets against related insurance liabilities, and income or expense from reinsurance contracts against expense or income from the related insurance contracts. This requirement should not be explained as permission to net a ceded premium against a recoverable simply by selecting an accounting policy.

Under paragraph 20, a reinsurance asset is impaired when objective evidence from an event after initial recognition indicates that the cedant may not receive all amounts due and the event has a reliably measurable effect. Recognise the impairment loss in profit or loss. The credit assessment, contractual recoverable, gross insurance liability and any impairment need separate support.

8. Three real FY2024–25 report examples

9. Reporting, solvency and validation are different tests

The April 2026 circular preserves the separate legal bases for actuarial investigation, distribution of surplus and solvency. Ind AS adoption does not itself replace those bases. For an implementing insurer, reconcile Schedule IIA financial statements with Schedule II financial information. For an insurer granted forbearance, paragraph 4 reverses the reporting roles: Schedule II statements remain the reporting basis, with Schedule IIA pro-forma information submitted to IRDAI.

The July 2026 clarification says that, during forbearance, Schedule IIA financial information need not be published on the insurer's website. Its independent-validation requirements concern the implementation process, governance, controls and documentation. The circular expressly distinguishes that validation from an audit of financial statements, an actuarial opinion on policy liabilities or assurance on the accuracy of the financial statements. A website article or a calculator cannot provide any of those opinions.

10. Questions answered