final lbi (07)

8/8/2019 FINAL LBI (07)

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8/8/2019 FINAL LBI (07)


Insurance act ,1938 to regulate the business of insurance

Stronger economic growth

Reforms in insurance 1990Malhotra Commitee formation

IRDA formation in 1999 to protect the interest of policy holders

Privatisation

INTRODUCTIONINTRODUCTION

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Section 15 of the Insurance Act, 1938

Governed by the IRDA (Preparation of Financial Statements and Auditor·s

Report of Insurance Companies) Regulations, 2002.

Section 220 of the Companies Act, 1956.

While the Insurance Act, 1938 provides a period of six months for filing of the

returns.

RE: FURNISHING OF THERE: FURNISHING OF THE

RETURNS BY THE INSURERSRETURNS BY THE INSURERS

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MEDICAL INSURANCEMEDICAL INSURANCEMedical insurance: Preference in licensing will be given to companies engaged in

providing health cover (amendment to Insurance Act, 1938, Section 3, clause (2AA)).

Investment of assets: Investment of assets is covered by Sec. 27 of the Insurance

Act. The main amendments made by the IRDA Act are:

Sec. 27C: Prohibition on investment of funds outside India

Sec. 27D: IRDA will specify the regulations regarding investment of assets to

be held by an insurer

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REGULATION OFREGULATION OF

INVESTMENTSINVESTMENTS

Life business: Every insurer carrying on the business of life insurance shallinvest and at all times keep invested his controlled fund in the following manner:

Government securities: 25 per cent,

Government securities or other approved securities, including (i) above: not lessthan 50 per cent,

Approved investments: as specified

infrastructure and social sector: not less than 15 per cent,

others: to be governed by exposure/prudential norms specified:

not exceeding 20 per cent,

Other than in approved investments to be governed

by exposure/prudential norms: not exceeding 15 %.

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PENSION AND GENERALPENSION AND GENERAL

BUSINESSBUSINESS

Every insurer shall invest and at all times keep invested assets of

pension business, general annuity business and group business in the

following manner: Government securities: being not less than 20 per cent,

Government securities or other approved securities inclusive of above: being

not less than 40 per cent

Balance to be invested in approved investments as specified and to be governedby exposure/ prudential norms: not exceeding 60 per cent.

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General insurance business: Every insurer carrying on the business of

general insurance from now shall invest and at all times keep invested his total assets in

the manner set out below:

Central Government securities: being not less than 20 per cent

State government securities and other guaranteed securities including above: being not

less than 30 per cent

Housing and loans to State government for housing and fire fighting equipment: being

not less than 5 per cent

Investments in approved investments as specified

infrastructure and social sector: not less than 10 per cent

others to be governed by exposure/ prudential norms specified: not exceeding 30

per cent

Other than in approved investments to be governed by exposure/ prudential norms: not

exceeding 25 per cent.

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CREATION OF RESERVE FORCREATION OF RESERVE FOR

UNEXPIRED RISK (URR)UNEXPIRED RISK (URR) BY THEBY THE

NONNON--LIFE INSURANCE COMPANIESLIFE INSURANCE COMPANIES

Section 64V(1) of the Insurance Act lays down the manner of valuation of Assets

and Liabilities of insurance companies. Provision (ii) (b) of the said section provides

for creation of reserves for unexpired risks in respect of ²

Fire and miscellaneous business, 50 per cent,

Marine cargo business, 50 per cent, and

Marine hull business, 100 per cent, of the premium,

during the preceding twelve months.

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E PAYMENTE PAYMENTClause 3.1.9 (i) of the Guidelines which among others specifies that all payments should be

made after due verification of the bonafide beneficiary through' account payee' cheques.

To permit payments to all policyholders and beneficiaries through electronic payment

methods.

Reserve Bank of India has impressed upon banks the need to use electronic modes forpayments

So that the dependence on paper-based clearing products is brought

down the payment systems

Becomes safe, secure, sound and efficientSpeed up the clearing process

Reduces incidence of frauds inherent in cheques, drafts and other

paper modes of payment.

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DETERMINATION OF REQUIREDDETERMINATION OF REQUIRED

SOLVENCY MARGIN UNDER LIFESOLVENCY MARGIN UNDER LIFE

INSURANCE BUSINESSINSURANCE BUSINESS

The efficient use of capital and provide insurance products at affordable premium rates

while maintaining the continued safety of the insurance companies so that they remain

solvent at all points of time.

Computation of the required solvency margin reckons two factors:

First factor: which is applicable to the mathematical reserve under each policy .

Second factor: which is applicable to the sum at risk.

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RE: TRANSFER OF FUNDS BY THERE: TRANSFER OF FUNDS BY THE

LIFE INSURANCE COMPANIESLIFE INSURANCE COMPANIES

´All securities are required to be transferred to the policy holders Account

at market price or cost price, whichever is lower.( 29th april 2003)

In respect of debt securities, the transfers are to be carried out at the net

amortized costµ.

Transfer from the shareholders· account to the policyholders· account

Transfer between policyholders· funds

Purchase / Sale transactions between unit linked funds

Funds of Non-linked business

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REQUIREMENT OF PAN FORREQUIREMENT OF PAN FOR

INSURANCE PRODUCTSINSURANCE PRODUCTS

Insurers shall collect PAN from all persons purchasing insurance policies with annualized

premiums exceeding Rs. one lakh per policy.

Representations have also been made that since certain categories of persons such aspersons with only agricultural income, NRIs with no assessed income under the IT Act, 1961

etc are exempted from the requirement of PAN.

It has also been decided that in cases where a proposer has applied for PAN but has still

not received the same, a copy of form 49A in lieu of PAN Card.

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FOREIGN DIRECT INVESTMENT INFOREIGN DIRECT INVESTMENT IN

INSURANCEINSURANCE

THE PROPOSAL to raise the level of foreign direct invest ent in the insurance sector fro26 per cent to 49 per cent has, as expected, caused so e concern a ong trade unions.

The ain reco endations of the alhotra co ittee ere:

The private sector should be allo ed to enter the insurance business.The pro oters' holding in a private insurance co pany should not exceed 40 per cent

of the total.

If pro oters ish to start ith a higher holding, the holding is brought do n to 40 per

cent ithin a specified period through a public offering.Entry of foreign insurance co panies is per itted, in joint venture ith

an Indian partner.

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The Government accepted all the recommendations of the committee.

But, as per:

Sec.2 (7A), incorporated in 1999 in the Insurance Act, 1938, "a

foreign company's stake in the equity of an Indian insurance company

shall not exceed 26 per cent,Four foreign companies can together exercise 100 per cent control

over an Indian life insurance company.

4 INSURANCE COMPANIES =

1 INSURANCE COMPANY + 3 NON-INSURANCE COMPANY

ENTER THE INDIAN MARKET

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final lbi (07)

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