New India Assurance Company Ltd Directors Report.

To the Members of

The New India Assurance Company Limited

Report on the Audit of the Standalone Financial Statements

I. Qualified Opinion

We have audited the standalone financial statements of The New India Assurance Company Limited ("the Company"), which comprise the Balance sheet as at 31st March 2019, the Revenue Accounts of Fire, Marine and Miscellaneous Insurance Business (collectively known as ‘Revenue Accounts’), Profit and Loss Account and the Receipts and Payments Accounts for the year then ended, and notes to the standalone financial statements, including a summary of 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, except for the effects of the matter described in the Basis for Qualified Opinion section of our report, the aforesaid standalone financial statements give the information required in accordance with the Insurance Act, 1938 as amended by the Insurance Laws (Amendment) Act, 2015 (‘the Insurance Act’), the Insurance Regulatory and Development Authority Act, 1999 (‘the IRDA Act’), the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002 (‘the IRDA Financial Statements Regulations’), orders/ directions issued by the Insurance Regulatory and Development Authority of India (‘the IRDAI’), the Companies Act (‘the Act’)including the accounting Standards specified under section 133 of the Companies Act, 2013 read with rule 7 of the Companies (Accounts) Rules, 2014 (‘the Accounting Standards’), to the extent applicable in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2019, the Revenue Accounts, Profit and Loss Account and the

Receipts and Payments Accounts for the year ended on that date.

II. Basis for Qualified Opinion

(a) Balances due to/from persons or bodies carrying on Insurance Business including reinsurers and the balances related to Co-insurance accounts are subject to confirmations and reconciliation, the ageing of these balances and records relating to old balances are being compiled by the company. (Refer Note 11(a) and

(b) of Schedule 16B);

(b) Balances of Inter office accounts, control accounts, few Bank accounts including those related to Pradhan Mantri Fasal Bima Yojna (PMFBY), balances pertaining to service tax, certain loans and other accounts at certain offices are also pending for reconciliation/ confirmation and consequential adjustments, effect of which, if any, is not ascertainable and cannot be commented upon. (Refer Note 11(c) and (d)of Schedule 16B).

(c) The impact on account of reconciliation relating to various accounts and balances under confirmation with respect to compliance of provisions relating to TDS, service tax and GST which may arise out of such reconciliation (Refer Note 11(e)ofSchedule 16B).

Overall impact of the above and the consequential effects on Revenue Accounts, Profit and Loss Account and Balance Sheet as on March 31,2019 are not ascertainable and cannot be commented upon.

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Standalone 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 standalone financial statements under the provisions of the Companies Act, 2013 and the Rules there under, 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 qualified opinion.

III. Emphasis of Matter

Without qualifying our report in respect of the following, we draw attention to:

i. Note No. 1 of Schedule 16B regarding recognition of reserve for unexpired risk by 1/365 method as per the approval of IRDAI in case of foreign business. During the year, the Company has implemented the systems and procedures to compute the same in case of foreign business in accordance with 1/365 method and the revenue for the current year is lower by ? 17572.40 lakhs due to change in accounting policy pertaining to this in case offoreign business.

ii. Note No.4 (a) and (b) of Schedule 16B regarding Un-amortized Gratuity and Pension Liability as per IRDA Circular.

iii. Note No. 4(c)of Schedule 16B Notification no. S.O. 1627 (E) dated 23rd April 2019 on General Insurance (Employees) Pension Amendment Scheme, 2019. The Company has started the process of compilation of databases of all the employee to whom the scheme has given an option for opting for pension scheme. The obligation of the Company in respect of such employees would be determined on the basis of the number of employees who opt for the scheme within the specified period and would be accounted for accordingly.

iv. Note No. 10(f)of Schedule 16B regarding exposure (both direct and indirect) of the Company for investments in securities of IL&FS and its Group

Companies, appropriate provision as considered by the management.

v. Note No. 12 of Schedule 16B regarding outstanding dues receivable from the agent amounting to 2933.28 lakhs in case of Curacao branch for which the branch auditor have not been able to assess the repayment capacity of the agent, management has made provision of580.87 lakhs and the balance will be recovered as per management.

vi. Note No. 13 of Schedule 16B regarding3698.15 lakhs which has been withheld / deducted by Government of Rajasthan under Bhamashah Health Insurance Scheme towards rejection of claims under the scheme and related matters, since in the opinion of the management the same will be recovered no provision has been made.

vii. Note No. 18 of Schedule 16B regarding disclosure in respect of total future minimum lease payable under operating leases required as per AS - 19 ‘Lease’ has not been made in the financial statement due to limitation on management part to compile this information from all the office.

viii. Note No. 25 of Schedule 16B regarding management is currently in process of identifying enterprises which have been providing goods and services to the Company which qualify under the definition of medium and small enterprise as defined under Micro, Small and Medium Enterprise Development Act, 2006 and disclosure in respect of amount payable to such Micro, Small and Medium Enterprise as at 31st March 2019 has not been made in the financial statement.

ix. Note No. 27 of Schedule 16B regarding strengthening of Internal Control System and Internal Audit specially in area of data input and validation in softwares, Reinsurance accounts, PMFBY and other Government sponsored Health schemes requires strengthening.

Our opinion is not modified in respect of these matters.

IV. Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the standalone 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 in our report.

Sr.

No.

Key Audit Matters Auditor’s Response
1. Claim Provisionina-

Insurance Claim is the major area of expense for the insurance company. The estimation of insurance contract liabilities involves a significant degree of judgement, where management estimate is involved based on the surveyor’s report /feedback. The estimate of the claim is complex as it involves high degree of judgement. With regard to the claims provision, the claim department will make provision for claims upon claim intimation and subsequently revised basis the surveyor’s immediate

The audit matters for verification of claims provisioning is handled at the regional and divisional office of the Company. The component auditors while auditing the claim provision based on the operational guidelines of the Company relating to claim processing, have performed test of controls, test of details and analytical review procedures on the outstanding claims. Verified the claim provision with the surveyor’s claim estimate and the company’s feedback on the same. It may be noted that for all old outstanding large claims, fresh estimates from surveyors were called for and the claim provisions were revised accordingly.
loss assessment report. The estimates are revised again based on further information from surveyor.

A range of methods are used to determine these liabilities. Underlying these methods are a number of assumptions relating to expected settlement amount and settlement pattern of claims.

For the claim cases which has been incurred but not reported and cases in which claim has been reported but not enough reported these cases have been captured by the actuary appointed by the Company. The actuarial valuation of liability in respect of Claims Incurred but Not Reported (IBNR) and those Incurred but Not Enough Reported (IBNER) as at 31st March 2019, is as certified by the Company’s Appointed Actuary and we had verified the amounts and the related liability, based on such report.
2. Outstandina dues receivable from the aaent in case of Curacao branch -

Outstanding dues receivable from the agent amounting to 2933.28 lakhs in case of Curacao branch for which the branch auditors have not been able to assess the repayment capacity of the agent, management has made provision of580.87 lakhs and the balance will be recovered as per management.

We had verified the auditor report of Curacao branch which has been audited by other firm of auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report ofsuch branch auditors. The auditor of the branch had concern on limitation on his part to assess the repayment capacity of the agent. In view of which the management of the Company has made provision of 580.87 lakhs which is doubtful for recovery.
3. Strenathenina of Internal Control Svstem reauired -

On the basis of selective checks carried out during the course of our audit and according to the information and explanation given to us, internal control weaknesses of material nature have been identified as at March 31,2019 with respect to:

We had designed our audit procedures to access the Company’s control risk. We had conducted control test to test the effectiveness of a control used by the Company to prevent or detect material misstatements. Based on the control test control weakness were identified in areas of reconciliation of various receivable/payable balances, in area ofdata input and validation in various software, manual processing of PMFBY claims, etc.
a) Confirmation and reconciliation of various balances relating to co insurers, reinsurers, few bank accounts, balances pertaining to service tax, inter office accounts and other control accounts are pending and are at various stages; The Company is advised to strengthen the Internal Audit specially in area of data input and validation in software, Reinsurance accounts, PMFBY and other Government sponsored Health schemes as the entire revenue accounting is dependent on systems of the Company. The impact of pending reconciliation, if
b) Inadequate controls are observed with regard to ageing of insurance receivables; any on the financial statements is unascertainable. Hence these areas are highlighted in paragraph of opinion and emphasis of matter in the audit report.
c) Manual processing of claims for PMFBY, system module of claims is not utilized for processing the same;
d) The Company’s internal control systems especially in area of data input and validation in various software and recording of intimated claims at the offices of the company.

V. Information other than the financial statements and Auditor’s report thereon

The Company’s Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the standalone financial statements and our auditor’s report thereon. The Annual report is expected to be made available to us after the date ofthis auditor’s report.

Our opinion on the standalone 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 standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

When we read the other information included in the above reports, if we conclude that there is material misstatement therein, we are required to communicate the matter to those charged with governance and determine the actions under the applicable laws and regulations.

VI. Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these standalone financial statements that give a true and fairview of the financial position, financial performance and receipts and payments of the Company, in accordance with the accounting principles generally accepted in India, including the accounting Standards specified under section 133 of the Act, the requirements of the Insurance Act, the IRDAI Financial Statements Regulations and the orders /directions and circulars issued by the IRDAI in this regard, to the extent applicable and in the manner so required.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgements 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 standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone financial statements, management is 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.

VII. Auditor’s Responsibilities for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone 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 of assurance but 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 the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

i. Identify and assess the risks of material misstatement of the Standalone 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.

ii. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.

iii. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

iv. Conclude on the appropriateness of management’s 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 Company’s ability 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.

v. 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.

Materiality is the magnitude of misstatements in the financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.

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.

VIII. Other Matters

i. We did not audit the financial statements of Forty-Three Regional offices (including 9 LCBO’s), Four hundred and seventy-three Divisional offices, Nine Foreign Branches and Seven Foreign Agency offices, included in the standalone financial statements of the Company whose financial statements reflect total assets of ? 2010056.32 lakhs as on 31st March 2019 and total revenues of ? 2592235.68 lakhs for the year ended on that date, as considered in the standalone financial statements. The financial statements / information of these offices have been audited by the other firm of auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these offices, is based solely on the report of such component auditors.

ii. We have relied on the financial statements of Two Foreign Run off offices and one Foreign representative office included in the standalone financial statements of the Company whose financial statements reflect total assets of 228.77 lakhs as on 31st March 2019 and total revenues of 0.12 lakhs for the year ended on that date, as considered in the standalone financial statements which have been furnished to us by the management and our audit report in so far as it relates to the amounts included in respect of the said foreign branches is solely based on the financial statements furnished by the management which has not been subject to audit in their respective countries.

iii. The actuarial valuation of liability in respect of Claims Incurred but Not Reported (IBNR) and those Incurred but Not Enough Reported (IBNER) as at 31st March 2019, is as certified by the Company’s Appointed Actuary and our opinion in so far as it relates to the amounts and disclosures related to such liability, is based solely on such report.

IX. Report on Other Legal and Regulatory Requirements

As required by Section 143 (3) of the Companies Act 2013 and Insurance Regulatory and Development Authority (Preparation of financial Statements and Auditors’ Report of Insurance Companies) Regulations, 2002 and orders or direction issued by the Insurance Regulatory and Development Authority, we report that:

a) We have sought and except for the matters described in the Basis for Qualified Opinion paragraph, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, proper books of accounts have been maintained by the Company, so far as it appears from our examination of those books and proper returns both audited and unaudited from Regional offices, Divisional Offices, branches and other offices, not visited by us, have been received.

c) The reports of the Regional Auditors consolidating the Divisional Auditors report, Reports offoreign branches and foreign agency offices, audited under section 143(8) of the Act by the component auditors have been sent to us and have been properly dealt with by us in preparing this report in the manner considered necessary by us.

d) The Balance Sheet, the Revenue Account, Profit and Loss Account, and the Receipt and Payment Account dealt with by this Report are in agreement with the books of account and with the returns received from offices not visited by us.

e) In our opinion, the aforesaid standalone financial statements have been prepared in accordance with the requirements of the Insurance Act, 1938 (4 of 1938), the Insurance Regulatory and Development Act, 1999 (41 of 1999) and the Companies Act, 2013 to the extent applicable and in the manner so required.

f) Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, in our opinion, the aforesaid Standalone Financial Statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 ofthe Companies (Accounts) Rules, 2014.

g) On the basis of the written representations received from the directors as on 31st March, 2019 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2019 from being appointed as a director in terms of Section 164 (2) of the Act.

h) The accounting policies adopted by the company are appropriate and in compliance with the applicable Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 and with the Accounting Principles as prescribed in the Insurance Regulatory and Development Authority (Preparation of financial Statements and Auditors’ Report of Insurance Companies) Regulations, 2002 and orders or direction issued by the Insurance Regulatory and Development Authority.

i) The actuarial valuation of liability in respect of claims Incurred but Not Reported (IBNR) and those Incurred but Not Enough Reported (IBNER) as at 31st March 2019, have been duly certified by the Company’s Appointed Actuary and relied upon by us. The Appointed Actuary has also certified that the assumptions considered by him for such valuations are in accordance with guidelines and norms prescribed by the Insurance Regulatory and Development Authority of India (IRDAI) and the Actuarial Society of India in concurrence with the IRDAI.

j) As per the information and explanations provided to us, the investments have been valued in accordance with the provisions ofthe Insurance Act, the regulations and orders/directions issued by IRDAI in this regard.

k) Further on the basis of our examination of books and records of the company and according to the information and explanation given to us and to the best of our knowledge and belief, we certify that:

i) We have reviewed the management report attached with the Financial Statements and there are no apparent mistakes or material inconsistencies between the management report and the standalone financial statements;

ii) Based on the management representation by officer of the company charged with compliance, nothing has come to our attention which causes us to believe that the company has not complied with the terms and conditions of registration as stipulated by IRDAI; and

iii) No part of the assets of the policyholders’ funds has been directly or indirectly applied in contravention of the provisions of the Insurance Act, 1938 (4 of 1938) relating to the application and investments of the policyholders’ funds.

l) 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 Schedule 16C (1) 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 including derivative contracts - The liability for Insurance Contracts, is determined by the Company’s Appointed Actuary and is covered by the Appointed Actuary’s certificate, referred to Other Matter paragraph above, on which we have placed reliance; and the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses;

iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

m) With respect to the other matters to be included in the Auditors’ Report in accordance with the requirement of section 197(16) of the Companies Act 2013, as amended, we report that the provisions of section 197 of the Act are not applicable to the company vide notification No. GSSR 463(E) dated 5th June 2015. Hence reporting u/s 197(16) of the Act is not required.

n) With respect to the adequacy of the Internal Financial Controls Over Financial Reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure A".

o) As required under section 143(5) of the Companies Act, 2013, based on our audit as aforesaid, we enclose herewith, as per "Annexure B", the directions including additional directions issued by the Comptroller and Auditor General of India, action taken thereon and the financial impact on the accounts and financial statements of the Company.

For NBS & Co For Mukund M. Chitale & Co
Chartered Accountants Chartered Accountants
Firm Reg. No. 110100W Firm Reg. No. 106655W
Devdas Bhat Abhay. V. Kamat
Partner Partner
M. No. - 048094 M. No. - 039585
Place: Mumbai
Date: May 13th2019.

Annexure A to the Independent Auditors’ Report of even date on the Financial Statements of The New India Assurance Company Limited

(Referred to in paragraph IX (m) of our Report on Other Legal and Regulatory Requirements forming part of the Independent Auditors’ Reportdated May 13, 2019)

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013

We have audited the Internal Financial Controls Over Financial Reporting of THE NEW INDIA ASSURANCE CO LTD. ("the Company") as of March 31, 2019 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date. These financial statements incorporated returns received:

a) From Forty-Three Regional offices (including 9 LCBOs), Four Hundred and Seventy-Three Divisional offices audited by the other firms of Auditors appointed by the Comptroller and Auditor General of India under section 139 of the Companies Act,2013;

b) From Nine Foreign Branches and Seven Foreign Agency offices audited by local auditors appointed by the company; and

c) From Two Foreign Run off offices and One Foreign representative office which are unaudited, prepared and furnished to us by the management.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internal financial controls based on "the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India ("the Guidance Note"). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation ofreliable financial information, as required under the Companies Act, 2013.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company’s Internal Financial Controls Over Financial Reporting based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate Internal Financial Controls Over Financial Reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of Internal Financial Controls Over Financial Reporting included obtaining an understanding of Internal Financial Controls Over Financial Reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion on the Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of Internal Financial Controls Over Financial Reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the Internal Financial Controls Over Financial Reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Other Matter

The actuarial valuation of Policy Liabilities as at March 31, 2019 has been duly certified by the Appointed Actuary of the Company and has been relied upon by us as mentioned in para VIII of our Audit Report on the financial statements for the year ended March 31,2019. Accordingly, our opinion on the Internal Financial Controls Over Financial Reporting does not include reporting on the adequacy and operative effectiveness of the internal controls over the valuation and accuracy of the aforesaid actuarial liabilities.

Qualified Opinion

On the basis of selective checks carried out during the course of our audit and according to the information and explanation given to us and based on the report of external consultant appointed to assess the internal financial control framework in the Company, the following internal control weaknesses of material nature have been identified as at March 31,2019:

a. Confirmation and reconciliation ofvarious balances relating to co insurers, reinsurers, few bank accounts, balances pertaining to service tax, inter office accounts and other control accounts are pending and are atvarious stages;

b. Inadequate controls are observed with regard to ageing of insurance receivables;

c. Manual processing of claims for PMFBY, system module of claims is not utilized for processing the same;

d. The Company’s internal control systems especially in

area of data input and validation in various software and recording of intimated claims at the offices of the company including internal audit require strengthening.

A ‘material weakness’ is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s financial statement will not be prevented or detected on a timely basis.

In our opinion, except for the possible effects of the internal control weaknesses described above on the achievements of the objectives of the control criterion, the company has maintained, in all material respects, adequate internal financial control over financial reporting and such internal financial controls over financial reporting were operating effectively as of March 31, 2019, based on "the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note issued by the Institute of Chartered Accountants of India".

We have considered the material weaknesses identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the March 31,2019 Standalone Financial Statements of the Company, and these material weaknesses do not affect our opinion on the Standalone Financial Statements of the Company except to the extent of our qualification as contained in our separate report on the Standalone Financial Statements of the company.

For NBS& Co For Mukund M. Chitale & Co
Chartered Accountants Chartered Accountants
Firm Reg. No. 110100W Firm Reg. No. 106655W
Devdas Bhat Abhay. V. Kamat
Partner Partner
M. No. - 048094 M. No. - 039585
Place: Mumbai
Date: May 13th 2019.

ANNEXURE "B" REFERRED TO IN PARA IX (n) IN REPORT ON OTHER LEGAL AND REGULATORY MATTERS REFERRED TO IN OUR STATUTORY AUDIT REPORT OF EVEN DATE FOR THE YEAR 2018-19 ON THE ACCOUNTS OF THE NEW INDIA ASSURANCE COMPANY LIMITED

Sr. No. Directions under Section 143(5) of Companies Act 2013 Action taken and Financial Impact
1 Whether the company has system in place to process all the accounting transactions through IT system? If yes, The Company has system in place to process all the accounting transactions through IT systems except for -
the implications of processing of accounting transactions outside IT system on the integrity of the accounts along with the financial implications, if any, may be stated. 1) Facultative Inward business where it is understood that the process of generating through system is under way. Though manual controls are available, they may not suffice and Facultative Inward are also required to be routed through system.
2) Pradhan Mantri Fasal Bima Yojana where it is understood that though the systems are in place the claims related to the Pradhan Mantri Fasal Bima Yojana are processed manually.
2 Whether there is any restructuring of an existing loan or cases of waiver/write off of debts /loans/interest etc. made by a lender to the company due to the company’s inability to repay the loan? If yes, the financial impact may be stated. Not Applicable.
3 Whether funds received/receivable for specific schemes from central/ state agencies were properly accounted for/ utilized as per its term and conditions? List the cases of deviation. The Company received part of subsidy relating to PMFBY/RSBY scheme from central and state agencies. Funds received/receivable under PMFBY/RSBY scheme from Central/State agencies were accounted for/utilised as per its terms and conditions and no deviation is observed.

Additional directions issued by C&AG of India as applicable to The New India Assurance Company Limited for the year 2018-19

1 Number of titles of ownership in respect of CGS/ SGS/Bonds/Debentures etc. available in physical/ demat form and out of these, number of cases which are not in agreement with the respective amounts shown in the Company’s books of accounts may be verified and discrepancy found may be suitably reported. The Central Government/State Government securities balances are tallied as per the books of accounts. In case of Bonds/Debenture/ Equities/Preference Shares, there are 5 Numbers of Scrips of Bonds/debentures having face value of ? 4838000/-, and 8 scrips of equity shares having book value of ? 991358 which are in shortage as per the records of custodian vis-a-vis books of accounts of the Company. The Company fully provided these amounts which are short as per records of custodian. The company has not received the interest/dividend on these investments.
1 scrip in preference share of face value ? 3600 which are in excess quantity as per custodian records vis-a-vis books of the Company. The Company is in the process of taking adequate steps for reconciliation and adjustment wherever required. The dividend received on such excess shares is shown as liability and taken to income after 3 years.
2 Whether stop loss limits have been prescribed in respect of the investments. If yes, whether or not the limit was adhered to. If no, details may be given. The investments of the Company are long term in nature and therefore Stop loss policy is not applicable for the long-term investments. As and when the Company proposes to have a trading portfolio, it will frame stop loss policy for trading portfolio at that time.

3 Whether Company has carried out reconciliation exercise for inter-company balances reflected in their financial statements with other PSU insurers and whether confirmation has been obtained from other PSU insurers for balances due from them?

Reconciliation and settlement of Coinsurance balances were carried out across all offices throughout the year which resulted in settlement and reduction of balances. However, some of the auditors for regional offices reported about non availability ofconfirmations from Co-insurers.

During the year, settlement of? 573290.94 lakhs (received and paid) excluding PMFBY was made with other companies on transactions of 18-19 as well as for earlier years which is shown below. Out of the above, the settlement with PSU insurers was around 71% of settlements. The age wise details are given below: -

Fig (? in Lakhs)

Particulars 2018-19 2017-18 2016-17 Prior to 2016-17 Total
Year-wise settlement 355573.54 86373.10 44990.71 86353.59 573290.94

The net amount receivable from PSU insurers as on 31st March, 2019 is? 26437.88 lakhs, (excluding PMFBY)

The ageing of Coinsurance balance as on 31st March, 2019 excluding PMFBY is as under

Fig (? in Lakhs)

Ageing PSU Private Total
Less than 90 days 15936.73 (2783.82) 13152.91
90 days to One year 15787.56 (2688.36) 13099.20
1 year to 3 years 1929.12 5425.65 7354.77
More than 3 years (7215.53) 1858.34 (5357.19)
Total 26437.88 1811.81 28249.69

 

During the year, PMFBY balance to the tune of? 175289.16 lakhs is settled and PMFBY net balance as on 31.3.2019 is ? 1919.69 lakhs (Dr.)
According to the plans prepared by the management, the Reconciliation and settlement of remaining balances will be continued during 2019-20.
Balance appearing in the amount due to/ due from persons or bodies carrying on insurance business including reinsurance business except terrorism Pool and Nuclear Pool with GIC Re are subject to confirmation/ reconciliation and consequential adjustments if any. These balances include ? 309630.36 lakhs (Net) Dr. comprising of debit balances of 564950.44 lakhs and credit balances of 255320.08 lakhs in connection with the reinsurance business. Where the balances due from PSU insurers is ? 270445.01 lakhs (Net). As against these amounts the company is maintaining a provision of? 10414.56 lakhs (PY ? 10414.56 lakhs) up to March 31st, 2019 towards doubtful debts as a prudent measure. The Company has not received balance confirmation relating to the reinsurance business.
Precise gross debit and gross credit balances against each of such parties and age-wise analysis of these balances are also being compiled. These balances include old cases including migration differences for which supporting records are being identified and necessary action is being taken. The Impact of the above, if any on the financial statements are unascertainable.
4(a) Whether the method of accounting of premium and reported claims are as per conditions of agreement/ scheme relating to Pradhan Mantri Fasal Bima Yojana In the F.Y.2018-19, the company is implementing Pradhan Mantri Fasal Bima Yojana (PMFBY/ Restructured Weather Based Crop Insurance Scheme (RWBCIS) in the following 4 states:
1. Tamil Nadu (PMFBY)- Kharif 2018 & Rabi 2018-19

2. Uttar Pradesh (PMFBY)- Kharif2018 & Rabi 2018-19

3. Karnataka (PMFBY)- Kharif2018 & Rabi 2018-19

4. Maharashtra (RWBCIS)- Kharif2018 & Rabi 2018-19

The Company’s net share of Premium accounted under Crop insurance portfolio for the year 2018-19is? 1209.67 crores.
The company’s net share of claims paid during the year 2018-19 is ? 1290.01 crores. These claim disbursements pertain to the years 2016-17, 2017-18 and 2018-19 on part claims approved till date.

The major data for claims for the year 2018-19 is yet to be received from the respective state governments.

In case of Pradhan Mantri Fasal Bima Yojana, enrolment data and premium data as per Banks/CSC/ Online is to be reconciled with data as per the "National Crop Insurance Portal" (NCIP) of GOI/ State Government Portal in case of Karnataka. Accounting of premium as well as reinsurance accounts has been done based on portal data after giving effect of reconcilable items. Since majority of claims for 2018-19 have not been reported and majority of the actual yield data is yet to be received from the state governments, provision for outstanding claims have been made based on IBNR claims as assessed by the actuary. Necessary adjustments relating to the above data are to be carried out in due course. The company is in the process of strengthening internal controls and internal audit in the area of PMFBY to ensure the compliance of laid down operational guidelines issued by Ministry of Agriculture, GOI.
4(b) Whether the method of accounting of premium and reported claims are as per conditions of agreement/ scheme relating to Rashtriya Swasthya Bima Yojana In the F.Y. 2018-19 the Company has implemented the RSBY Schemes in the 6 states while accounting the Gross Direct Premium of?4912 lakhs. Claims paid during F.Y. 2018-19 under RSBY Schemes are ? 6484 lakhs and that of Outstanding Claims are of 1807 lakhs. The accounting for the same has been done as per the agreement/scheme.
4(c) Whether the method of accounting of premium and reported claims are as per conditions of agreement/ scheme relating to Pradhan Mantri Jan Aarogya Yojana In the F.Y. 2018-19, the company has not undertaken any business under the Pradhan Mantri Jan Arogya Yojana.
5 Whether the Company has complied with IRDAI circular (No. IRDA/F&A/CIR/ Pradhan Mantri Fasal Bima Yojana on direct business is exempted from GST. The same is Re-Insurance driven product and the industry represented to GST Council for exemption of GST on the ceded premium also.
MISC/052/03/2018 dated 27 March 2018) regarding exemption of re-insurance scheme of specified While pricing the product, the GST on ceding premium has not been factored by the company. Therefore, since the premium has not been loaded for GST on the ceded amount, passing on the benefit to the customer/government does not arise.
insurance schemes such as Pradhan Mantri Fasal Bima Yojana, Pradhan Mantri Similarly in the case of Bhamashah Premium with Government of Rajasthan, there has been no factoring of GST on ceding premium in the pricing of the product and therefore passing on the benefit to the customers/government does not arise.
Suraksha Bima Yojana etc. from the purview of GST and passed on the insured/ Government the benefit of reduction in premium. In case of other Government schemes like Pradhan Mantri Suraksha Bima Yojana etc, the Company has not entered into any re-insurance arrangement.

 

For NBS & Co For Mukund M. Chitale & Co
Chartered Accountants Chartered Accountants
Firm Reg. No. 110100W Firm Reg. No. 106655W
Devdas Bhat Abhay. V. Kamat
Partner Partner
M. No. - 048094 M. No. - 039585
Place: Mumbai
Date: 13th May, 2019.

COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 143(6) (b) OF THE COMPANIES ACT, 2013 ON THE FINANCIAL STATEMENTS OF THE NEW INDIA ASSURANCE COMPANY LIMITED FOR THE YEAR ENDED 31 MARCH 2019.

The preparation of financial statements of The New India Assurance Company Limited for the year ended 31 March 2019 in accordance with the financial reporting framework prescribed under the Insurance Act, 1938 read with the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002 and the Companies Act, 2013 (Act) is the responsibility of the management of the company. The statutory auditors appointed by the Comptroller and Auditor General of India under section 139(5) of the Act are responsible for expressing opinion on the financial statements under section 143 of the Act based on independent audit in accordance with the standards on auditing prescribed under section143(10) ofthe Act. This is stated to have been done by them vide their Audit Report dated 13 May 2019.

I, on be half of the Comptroller and Auditor General of India, have conducted a supplementary audit of the financial statements of The New India Assurance Company Limited for the year ended 31 March 2019 under section 143(6) (a) of the Act. This supplementary audit has been carried out independently without access to the working papers of the statutory auditors and is limited primarily to inquiries of the statutory auditors and company personnel and a selective examination ofsome ofthe accounting records.

Based on my supplementary audit, I would like to highlight the following significant matter under section 143(6)(b) of the Act which have come to my attention and which in my view are necessary for enabling a better understanding of the financial statements and the related audit report.

Balance Sheet - Application of Funds

Provisions - Schedule 14 - Reserves for Bad and Doubtful Debts - ? 386.43 crore Notes forming part offinancial statements - No. 16B- 10(f)

The above included ? 71.38 crore being 100 per cent provision for unsecured investments and 10 per cent provision for secured investments made by the Company in Infrastructure Leasing & Financial Services Limited’ (IL&FS) and its group companies. Total investment of the Company in the Non- convertible Debentures (NCDs) of IL&FS entities as at 31 March 2019was ? 128.24 crore1.

As per proceedings before National Company Law Appellate Tribunal available in the public domain, IL&FS has been placed under the ‘Red’ category by the new Board of Directors appointed by the Union Government to manage the affairs of the IL&FS group of companies, which means that such entities cannot meet their payment obligations towards even senior secured financial creditors. Considering these developments, the Company should have made full provision instead of 10 per cent provision towards bad and doubtful debts, in the case of investment of15 crore in secured NCDs of IL&FS.

This has resulted in understatement of provision for bad and doubtful debts and overstatement of profit by 13.50 crore.

For and on behalf of the
Comptroller and Auditor General of India
(Tanuja Mittal)
Principal Director of Commercial Audit and
Ex-officio Member, Audit Board-I, Mumbai,
Place: Mumbai
Date: 20July2019

1 15 crore in IL&FS NCD (Secured); ? 48.18 crore in Jorabat Shillong Expressway NCD (secured); ? 40.07 crore in IL&FS transportation Network NCD (unsecured ) and ? 24.99 crore in IL&FS NCD (unsecured)

REPLY TO COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA

• The Company has made a provision at 10% on the secured investments in IL&FS of 15 crores as per the extant IRDAI guidelines of 2016 on investment provisioning. The Company has also been conservative and prudent in providing 100% on all unsecured investments of IL&FS.

The Company will provide for the balance 13.5 crores in the Financial Year 2019-20.

Certificate for the year ended 31st March, 2019 as required by Schedule ‘C’ of Insurance Regulatory & Development Authority Regulations, 2002 for Preparation of Financial Statements and Auditor’s Report of Insurance Companies in case of The New India Assurance Company Limited.

We certify that:

1. a. We have verified Cash balances, to the extent considered necessary, and securities related to the Company’s Loans and Investments, subject to paragraph (b) herein mentioned below, on following basis:

Sr. No. Asset Nature of Verification
i) Cash Physical verification, Management Certificate and Regional / Branch Auditor’s reports.
ii) Investment Custodian’s Certificate (RBI, CCIL & SHCIL) and Management’s Certificate.
iii) Securities relating to loan Management’s Certificate.

b. (i) No confirmations were available from custodian in respect of following:

a. Investment in equity shares having book value of 2.18 lakhs are under objection

b. Equity shares having book value amounting to ? 9.91 lakhs and Debentures/Bonds having face value ? 48.38 lakhs respectively for which no evidence of ownership was available.

(ii) The Number of Preference Shares actually held by Stock Holding Corporation of India Ltd. (Custodian) on behalf of the Company are in excess of the number of Preference Shares held as per books of the Company. The face value of excess in Preference Shares is ? 3600/-.

(iii) Investment in Term Loans, Loans to State Government for the purpose of Housing & Fire Fighting Equipments, Investments in Pass Through Certificates (PTC) and Balances on account of restructuring/rescheduling of debts are subject to confirmations/reconciliations.

(iv) No confirmations were available in respect of Foreign Investments amounting to ? 647.81 lakhs.

2. To the best of our information and explanations given to us, the company has not undertaken any trust as trustee.

3. No part of the assets of Policy Holder’s Funds has been directly or indirectly applied in contravention of the provision of the Insurance Act, 1938 relating to the application and Investments ofthe Policy Holder’s Funds.

As per our report of even date
For NBS & Co. For Mukund M Chitale & Co.
Chartered Accountants Chartered Accountants
Firm Reg No 110100W Firm Reg No 106655W
Devdas Bhat Abhay Kamat
Partner Partner
Membership No 048094 Membership No 039585
Mumbai
May 13th, 2019