Assets and liabilities how to be valued
64V. (1) For the purpose of ascertaining compliance with the provisions of Section 64 VA,—
(i) assets shall be valued at values not exceeding their market or realisable value and the assets hereafter mentioned shall be excluded to the extent indicated, namely:
i. agents' balances and outstanding premiums in India, to the extent they are not realized within a period of thirty days;
ii. agents' balances and outstanding premiums outside India, to the extent they are not realisable;
iii. sundry debts, to the extent they are not realizable;
iv. advances of an unrealizable character;
v. furniture, fixtures, dead stock and stationery;
vi. deferred expenses;
vii. profit and loss appropriation account balance and any fictitious assets other than pre paid expenses;
viii. such other asset or assets as may be specified by the regulations made in this behalf.
(ii) a proper value shall be placed on every item of liability and liabilities in respect of share capital, general reserve and other reserves of similar nature not created to meet specific liabilities and investment reserves, reserve for bad and doubtful debts, and depreciation fund shall be excluded and liabilities hereafter mentioned shall be included to the extent indicated, namely:
(a) provision for dividends declared or recommended, and outstanding dividends in full;
(b) reserves for unexpired risks in respect of¬
(i) fire and miscellaneous business, 50 per cent.,
(ii) marine cargo business, 50 per cent., and
(iii) marine hull business, 100 per cent., of the premium, net of re insurances, during the preceding twelve months;
(c) estimated liability in respect of outstanding claims, in full;
(d) amount due to insurance companies carrying on insurance business in full;
(e) amounts due to sundry creditors, in full;
(f) provision for taxation, in full.
(g)such other liability which may be made in this behalf to be included for the purpose of clause (ii)
Explanation. In the case of an insurer, whose principal place of business or domicile is outside India, where, in the accounts filed with the public authority of the country in which the insurer is constituted, incorporated or domiciled, in respect of marine insurance business, the provisions for unexpired risks and outstanding claims are not shown separately, the liabilities under items (b) and (c) of C1ause (ii) in respect of marine insurance business shall be taken together at a figure of not less than the total premium less reinsurances in respect of that class of business during the preceding twelve months.
(2) Every insurer shall furnish to the Authority with his returns under Section 15 or Section 16, as the case may be, a statement certified by an auditor, of his assets and liabilities assessed in the manner required by this section as on the 31st day of December of the preceding year.
(3) Every insurer shall value his assets and liabilities in the manner required by this section and in accordance with the regulations which may be made by the Authority in this behalf.
Sufficiency of assets
64VA. (1) An insurer shall, at all times, before the commencement of the Insurance Regulatory and Development Authority Act, 1999, maintain an excess of the value of his assets over the amount of his liabilities of not less than the amount arrived at as follows (hereafter in this section referred to as the "relevant amount"), namely—
(i) in the case of an insurer whose total premium income less re¬insurances in respect of general insurance brininess (hereafter in this sub¬section referred to as the "said income") in the preceding twelve months did not exceed five crores of rupees, one fifth of the said income subject to a minimum of¬
a. five lakhs of rupees in the case of an insurer who is a co¬operative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or any other law for the time being in force in any State relating to co operative societies, or
b. ten lakhs of rupees in the case of any other insurer; and
(ii) in the case of an insurer whose said income in the preceding twelve months exceeded five crores of rupees, the aggregate of one fifth of the first five crores of rupees of the said income and one tenth of the amount by which the said income in the preceding twelve months exceeded five crores of rupees:
Provided that where a number of insurers occupying the status of parent and subsidiary companies prepare, under the laws of the country of origin of the parent company, a consolidated balance sheet, the provisions of this sub¬section shall apply to such of them as are not members of any group as if they constituted a single insurer, subject to the further condition that the relevant amount shall, in no case, be less than a sum equal to—
I. the number of such insurers multiplied by ten lakhs of rupees, or
II. where all the insurers are co operative societies registered under the Co operative Societies Act, 1912 (2 of 1912), or any other law for the time being in force in any State relating to co operative societies, the number of such insurers multiplied by five lakhs of rupees:
Provided further that If in respect of any insurer the Central Government is satisfied that either by reason of an unfavorable claim, experience or because of a sharp increase in the volume of new business or for any other reason, compliance with the provisions of this sub section would cause undue hardship to the insurer, it may direct that for such period and subject to such conditions as it may specify, the provisions of this sub section shall apply to that insurer with the modification that instead of the proportion of one fifth, wherever mentioned in this sub section, such other proportion being not less than one-¬tenth as may be specified by that Government shall be applicable to that insurer:
Provided also that in the case of an insurer carrying on insurance business at the commencement of the Insurance (Amendment) Act, 1968, it shall be sufficient compliance with the provisions of this sub section until the 31st December, 1972 or until such subsequent date, not being later than 31st December, 1976, as the Central Government may, at its discretion, allow for any particular insurer, if he progressively brings up the excess of the value of his assets over the amount of his liabilities, in such manner as may be prescribed, to the relevant amount.
(1A) Every Insurer shall, at all times, on or after the commencement of the Insurance Regulatory and Development of Authority Act, 1999, maintain an excess of the value of his assets over the amount of his liabilities of not less than the amount arrived at as follows (hereinafter referred to in this section referred to as the “required solvency margin”), namely:-
i. in the case of an insurer carrying on life insurance business, the required solvency margin shall be the higher of the following amounts-
a) fifty crores of rupees (one hundred crores of rupees in case of reinsurers); or
b) the aggregate sums of the results arrived at in items (I) and (II) stated below:-
I. the aggregate of the results arrived at by applying the calculation described in item (A) below (Step I) and the calculation described in items (B) below (Step II):
A. for Step I-
(A.1) there shall be taken, a sum equal to a percentage determined by the regulations not exceeding five per cent of the mathematical reserves for direct business and re-insurance acceptances without any deduction for re- insurance cessions;
(A.2) the amount of mathematical reserves at the end of the preceding financial year after the deduction of re- insurance cessions shall be expressed as a percentage of the amount of those mathematical reserves before any such deduction; and
(A.3) the sum mentioned in item (A.1) above shall be multiplied-
(A.3-1) where the percentage arrived at under item (A.2) above is greater then eighty-five per cent. (Or in the case of a re-insurer carrying on exclusive re-insurance business, fifty percent),by that greater percentage; and
(A.3-2) in any other case, by eighty-five percent. (or in the case of a re-insurer carrying on exclusive re-insurance business, by fifty per cent.);
(B) for Step II –
(B1) there shall be taken, a sum equal to a percentage determined by the regulations made by the Authority not exceeding one per cent of the sum at risk for the policies on which the sum at risk is not a negative figure, and
(B.2) the amount of sum at risk at the end of the preceding financial year for policies on which the sum at risk is not a negative figure after the deduction of re-insurance cession shall be expressed as a percentage of the amount of that sum at risk before any such deduction, and
(B.3) the sum arrived at under item (B.1) above shall be multiplied-
(B.3-1) where the percentage arrived at under item (B.2) above is greater than fifty per cent, by that greater percentage; and
(B.3-2) in any other case, by fifty per cent
(II) a percentage determined by the regulations made by the Authority of the value of assets determined in accordance with the provisions of section 64V;
(ii) in the case of an insurer carrying on general insurance business, the required solvency margin, shall be the highest of the following amounts:-
a) fifty crores of rupees (one hundred crores of rupees in case of reinsurer); or
b) a sum equivalent to twenty per cent of net premium income; or
c) a sum equivalent to thirty per cent of net incurred claims,
subject to credit for re-insurance in computing net premiums and net incurred claims being actual but a percentage, determined by the regulations, not exceeding fifty per cent;
Provided that if in respect of any insurer, the Authority is satisfied that either by reason of an unfavorable claim experience or because of sharp increase in the volume of the business, or for any other reason, compliance with the provisions of this sub-section would cause undue hardship to the insurer, the Authority may direct, for such period and subject to such conditions, such solvency margin not being less than the lower of the amount mentioned in sub-clause (i) or sub-clause (ii) above, as the case may be.
Explanation – For the purposes of this sub-section, the expressions-
(i) “Mathematical reserves” means the provision made by an insurer to cover liabilities (excluding liabilities which have fallen due and liabilities arising from deposit back arrangement in relation to any policy whereby an amount is deposited by re-insurer with the cedant) arising under or in connection with policies or contracts for life insurance business. Mathematical reserves also include specific provision for adverse deviations of the bases, such as mortality and morbidity rates, interest rates, and expense rates, and any explicit provision made in the valuation of liabilities in accordance with the regulations made by the Authority for this purpose;
(ii) “net incurred claims” means the average of the net incurred claims during the specified period of not exceeding three preceding financial years;
(iii) “sum at risk”, in relation to a life insurance policy, means a sum which is-
a. in any case in which an amount is payable in consequence of death other than a case falling within sub-clause (b) below, the amount payable on death, and
b. in any case in which the benefit under the policy in question consists of the making, in consequence of death, of the payments of annuity, payment of a sum by instalments or any other kind of periodic payments, the present value of that benefit,
less in either case the mathematical reserves in respect of the relevant policies.)
(2) An insurer who does not comply with the provisions of sub section (1) shall be deemed to be insolvent and may be wound up by the Court.
(2A) If, at any time an insurer does not maintain the required solvency margin in accordance with the provisions of this section, he shall, in accordance with the directions issued by the Authority, submit a financial plan, indicating a plan of action to correct the deficiency to the Authority within a specified period not exceeding three months.
(2B) An insurer who has submitted a plan under sub-section (2A) to the Authority shall propose modifications to the plan if the Authority considers it inadequate, and shall give effect to any plan accepted by the Authority as adequate.
(2C) An insurer who does not comply with provisions of sub-sections (2A) shall be deemed to be insolvent and may be wound up by the court.
(3) The Authority shall be entitled at any time to take such steps as he may consider necessary for the inspection or verification of the assets and liabilities of any insurer or for securing the particulars necessary to establish that the requirements of this section have been complied with as on any date and the insurer shall comply with any requisition made in this behalf by the Authority, and if he fails to do so within two months from the receipt of the requisition, he shall be deemed to have made default in complying with the requirements of this section.
(4) The provisions of this section shall not apply to an insurer specified in sub clause (c) of Clause (9) of Section 2.
(5) In applying the provisions of sub section (1) to any insurer, who is a member of a group, the relevant amount for that insurer shall be an amount equal to that proportion of the relevant amount which that group, if considered as a single insurer, would have been required to maintain as the proportion of his share of the risk on each policy issued by the group bears to the total risk on that policy:
Provided that when a group of insurers ceases to be a group, every insurer in that group who continues to carry on any class of insurance business in India shall comply with the requirements of sub section (1) as if he had not been an insurer in a group at any time:
Provided further that it shall be sufficient compliance with the provisions of the foregoing proviso if the insurer brings up the excess of the value of his assets over the amount of his liabilities to the required amount within a period of six months from the date of cessation of the group:
Provided also that the Central Government may, on sufficient cause being shown, extend the said period of six months by such further periods as it may think fit, so however that the total period may not in any case exceed one year.
(6) The Central Government may, by notification in the Official Gazette, reduce the sum of ten lakhs of rupees or five lakhs of rupees, as the case may be, referred to in sub section (1) to a lower figure not less than one hundred thousand rupees in respect of a country craft insurer or in respect of an insurer not having a share capital and carrying on only such insurance business as, in the opinion of the Central Government, is not carried on ordinarily by insurers under separate policies.
(7) Every insurer shall furnish to the Authority his returns under section 15 or section 16 as the case may be, in case of life insurance business a statement certified by the actuary approved by the Authority, and in case of general insurance business a statement certified by an auditor approved by the Authority, of the required solvency margin maintained by the insurer in the manner required by sub-section (IA).
No risk to be assumed unless premium is received in advance.
64VB. (1) No insurer shall assume any risk in India in respect of any insurance business on which premium is not ordinarily payable outside India unless and until the premium payable is received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until deposit of such amount as may be prescribed, is made in advance in the prescribed manner.
(2) For the purposes of this section, in the case of risks for which premium can be ascertained in advance, the risk may be assumed not earlier than the date on which the premium has been paid in cash or by cheque to the insurer.
Explanation. ~ Where the premium is tendered by postal money order or cheque sent by post, the risk may be assumed on the date on which the money order is booked or the cheque is posted, as the case may be.
(3) Any refund of premium which may become due to an insured on account of the cancellation of a policy or alteration in its terms and conditions or otherwise shall be paid by the insurer directly to the insured by a crossed or order cheque or by postal money order and a proper receipt shall be obtained by the insurer from the insured, and such refund shall in no case be credited to the account of the agent.
(4) Where an insurance agent collects a premium on a policy of insurance on behalf of an insurer, he shall deposit with, or despatch by post to, the insurer, the premium so collected in full without deduction of his commission within twenty four hours of the collections excluding bank and postal holidays.
(5) The Central Government may, by rules, relax the requirements of sub section (1) In respect of particular categories in insurance policies.
Restrictions on the opening of a new place of business
64VC. (1) No insurer shall, after the commencement of the Insurance (Amendment) Act, 1968, open a new place of business in India or change otherwise than within the same city, town or village, the location of an existing place of business situated in India without obtaining the prior permission of the Authority.
(2) The Authority may grant permission under sub section (1) subject to such conditions as he may think fit to impose either generally or with reference to any particular case.
(3) Where, in the opinion of the Authority, an insurer has, at any time, failed to comply with any of the conditions imposed on him under this section, the Authority may, by order in writing and after affording reasonable opportunity to the insurer for showing cause against the action proposed to be taken against him, revoke any permission granted under this section.
Explanation.—For the purposes of this section, "place of business" include a branch, sub branch, inspectorate, organisation office and any other office, by whatever name called.