ICICI Bank 2011 Annual Report Download - page 145

F67
•In the case of general insurance business, premium is recorded for the policy period at the commencement of risk and
for installment cases, it is recorded on installment due dates. Premium earned is recognised as income over the period
of risk or the contract period based on 1/365 method, whichever is appropriate, on a gross basis, net of service tax.
Any subsequent revision to premium is recognised over the remaining period of risk or contract period. Adjustments
to premium income arising on cancellation of policies are recognised in the period in which the policies are cancelled.
Commission on reinsurance ceded is recognised as income in the period of ceding the risk. Profit commission under
reinsurance treaties, wherever applicable, is recognised as income in the period of final determination of profits and
combined with commission on reinsurance ceded.
•In the case of general insurance business, insurance premium on ceding of the risk is recognised in the period in which
the risk commences. Any subsequent revision to premium ceded is recognised in the period of such revision. Adjustment
to re-insurance premium arising on cancellation of policies is recognised in the period in which it is cancelled. In case
of life insurance business, cost of reinsurance ceded is accounted for at the time of recognition of premium income in
accordance with the treaty or in-principle arrangement with the reinsurer. Profit commission on reinsurance ceded is
netted off against premium ceded on reinsurance.
•In the case of general insurance business, premium deficiency is recognised when the sum of expected claim costs and
related expenses exceed the reserve for unexpired risks and is computed at a business segment level.
3. Stock based compensation
The following entities within the group have granted stock options to their employees:
•ICICI Bank Limited
•ICICI Prudential Life Insurance Company Limited
•ICICI Lombard General Insurance Company Limited
•ICICI Venture Funds Management Company Limited
The Employees Stock Option Scheme (the Scheme) provides for grant of equity shares of the Bank to wholetime directors and
employees of the Bank and its subsidiaries. The Scheme provides that employees are granted options to subscribe to equity
shares of the Bank that vest in a graded manner. The options may be exercised within a specified period. ICICI Prudential Life
Insurance Company and ICICI Lombard General Insurance Company have also formulated similar stock option schemes for
their employees for grant of equity shares of their respective companies.
The Group follows the intrinsic value method to account for its stock-based employee compensation plans. Compensation
cost is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date.
The fair market price is the latest closing price, immediately prior to the grant date, which is generally the date of the Board of
Directors meeting in which the options are granted, on the stock exchange on which the shares of the Bank are listed. If the
shares are listed on more than one stock exchange, then the stock exchange where there is highest trading volume on the said
date is considered. The banking subsidiaries namely, ICICI Bank UK and ICICI Bank Canada account for the cost of the options
granted to employees by ICICI Bank using the fair value method based on Black Scholes model. In the case of ICICI Prudential
Life Insurance Company and ICICI Lombard General Insurance Company, the fair value of the shares is determined based on an
external valuation report.
The Group’s venture capital subsidiary i.e. ICICI Venture Funds Management Company has settled carried interest trusts for the
benefit of its employees. These trusts have investment in a separate class of units of certain fully consolidated funds. These
carried interest entitlements are treated as employee compensation and are accounted for at the time of distribution of such
carried interest to the trusts.
4. Income taxes
Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Group. The current tax
expense and deferred tax expense is determined in accordance with the provisions of the Income Tax Act, 1961 and as per AS
22 on ‘accounting for taxes on income’ issued by ICAI, respectively. Deferred tax adjustments comprise changes in the deferred
tax assets or liabilities during the year.
Deferred tax assets and liabilities are recognised on a prudent basis for the future tax consequences of timing differences
arising between the carrying value of assets and liabilities and their respective tax basis and carry forward losses. Deferred tax
assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at the balance
sheet date. The impact of changes in the deferred tax assets and liabilities is recognised in the profit and loss account.
Deferred tax assets are recognised and re-assessed at each reporting date, based on the management’s judgement as to
whether their realisation is considered as reasonably certain.
In the consolidated financial statements, deferred tax assets and liabilities are computed at an individual entity level and
aggregated for consolidated reporting.
5. Claims and benefits paid
In the case of general insurance business, claims incurred comprise claims paid, estimated liability for outstanding claims made
following a loss occurrence reported and estimated liability for claims incurred but not reported (IBNR) and claims incurred but
not enough reported (IBNER). Further, claims incurred also include specific claim settlement costs such as survey/legal fees
and other directly attributable costs. Claims (net of amounts receivable from re-insurers/co-insurers) are recognised on the
date of intimation of the loss based on estimates from surveyors/insured in the respective revenue account. Estimated liability
for outstanding claims at the balance sheet date is recorded net of claims recoverable from/payable to co-insurers/re-insurers
and salvage to the extent there is certainty of realisation. Estimated liability for outstanding claim is determined by the entity on
the basis of ultimate amounts likely to be paid on each claim based on the past experience. These estimates are progressively
forming part of the Consolidated Accounts (Contd.)
schedules