Insurance
Act 1938:
The
Insurance Act, 1938, broadly provides the ground rules for the operating
insurance companies in India. The Act provides for the following: The Insurance
Act is the parent legislation which aimed at consolidating and amending the law
relating to the business of insurance in February 1938, when, during the
British Rule in India, there were many insurance companies which were
operating. The Insurance Act, 1938, broadly provides the ground rules for the
operating insurance companies in India.
Incorporation of
insurance companies, issue of licence and renewal of licence (Sections 2C to 5)
Every
insurer who proposes to do insurance business has to register with IRDA and
obtain a licence before they start doing insurance business. Three lines of
businesses recognised within insurance – Life insurance, Non-life insurance and
Standalone Health insurance. Currently only one Reinsurer GIC is licensed in
India as the National Reinsurer. Separate companies will have to be formed for
doing Life, Non-Life and Standalone Health insurance business. Such companies
cannot transact any business other than the insurance business for which the
licence is issued. All companies formed for the purpose of doing insurance
business shall carry the suffix “Assurance” or “Insurance” in their names to
enable anyone to recognise that they are engaged in insurance business.
A
Public company is first incorporated under the Companies Act, 1956, with the
primary object of engaging in the business of life or non-life or standalone
health insurance business. Applicants for insurance licence will have to
submit, among other things, certified true copy of memorandum and articles of
association, list of directors, certain affidavits and undertakings from
Promoters and the fees required for registration. I
IRDA
is vested with powers under the Act to cancel the registration of insurers on
certain grounds such as default in complying with the provisions of the Act or
Regulations passed thereunder, carrying on business other than insurance
business etc.
(b)
Requirements as to Capital, Transfer of shares, Voting Rights etc.(Sections 6,
6A to 6C)
Every
insurer carrying on insurance business shall have a minimum paid up equity
capital of `100 Crores for life insurance and general insurance business and
`200 crores for an insurer carrying on reinsurance business.
The
Act also provides for restrictions on transfer of shares in an insurance
company. Before an insurance company can put through transfer of shares in
excess of the following limits, prior approval of IRDA is required:
Deposits
with Reserve Bank of India (Sections 7 to 9)
Section
7 mandates that every life insurance company shall maintain a sum equivalent to
1% of the total gross premium written in India in any financial year commending
after 31 day of March 2000, but not exceeding `10 Crores with the Reserve Bank
of India in the form of Cash or approved securities. In respect of general
insurance business, a sum equivalent to 3% of the total gross premium written
in India in any financial year commencing after 31 day of March 2000, but not
exceeding `10 Crores is required to be maintained. For reinsurance companies, a
flat sum of `20 Crores has been prescribed.
(d)
Accounts, Audit and Actuarial report and Abstract (Sections 10, 11, 12)
Separate
books of account are required to be maintained for each class of business.
Since separate companies will have to be formed for Life, Non-Life or
Reinsurance, this provision is automatically taken care for formation of
separate companies and consequent maintenance of separate books of account.
Further a separate fund called Life insurance fund shall be formed, the assets
of which shall be separate and distinct from all other assets of the insurer.
By virtue of the powers given under Section 11, IRDA have framed Regulations
for Financial Statements which provides for forms of Revenue Account, Profit
and Loss Account and Balance Sheet alongwith the form of Management Report and
some of the documents annexed to the financial statements.
The
accounts and the statements referred to in Section 11 shall be signed by the
Chairman of the Board of the Insurance company and two other Directors, Section
12 provides for audit of the financial statements shall be audited by an
auditor. Detailed guidelines have been framed by IRDA on the qualifications of
persons who can be appointed as Statutory Auditors of the Company.
(e)
Provisions Relating to Investments (Sections 27, 27A, 27B, 27E)
The
manner in which the investment is required to be made is – not less than 50% in
Government and Approved securities (out of which 25% only in Government
securities) and the balance in Approved investments as specified in Section 27A.
The deposits made with Reserve Bank of India under Section 7 are deemed to be
Government Securities for this purpose.
Investment
in “Other investments”
Any
investment in other than Approved Investments as above is allowed upto 15% of
the sum specified in Section 27, provided such investments are made with the
consent of all the directors present at a Board meeting and eligible to vote,
in respect of which a special notice has been given to all the Directors in
India.
Prohibited
Investments (Section 27A(5) and 27C)
Investments
in the shares or debentures of a Private Limited Company and investments out of
Policyholders funds outside India are prohibited.
Prohibition
of Loans
Section
29 prohibits grant of any loans or temporary advances to any Director, Actuary
or Auditor of the insurance company or to any company or firm in which any such
Director, Actuary or Auditor holds the position of a Director, Actuary or
partner. This prohibition is not applicable to:
Minimum
insurance business under Rural and Social Sectors
Section
32B and 32C requires every insurer to undertake such minimum percentage of the
insurance business for covering risks associated with persons forming part of
rural or social sector, workers in the unorganized or informal sector or
economically vulnerable or backward classes of society or such classes as
prescribed by IRDA.
No comments:
Post a Comment