The Insurance Regulatory and Development Authority (IRDA)
constituted under the Insurance Regulatory and Development
Authority Act 1999, which derives its powers from the Insurance Act
1938 regulates entities which carry on insurance business and
intermediary business (brokers, insurance surveyors, loss
assessors, insurance agents and third party administrators) in or
Performance of any commercial activity in the insurance sector
requires the establishment of a duly licensed local entity. A local
insurer must be a public company or a co-operative society.
Branches of foreign insurers/reinsurers are not permitted. However,
a liaison/representative office may engage in promotional
activities on behalf of foreign reinsurers.
26 per cent limit on direct and indirect foreign ownership. It
has been proposed for many years that this limit will be increased
to 49% but as yet the implementing legislation has not been
Any transaction in shares of insurers amounting to > 1 per
cent of the paid-up equity of an insurer requires prior approval of
In addition, prior approval of the IRDA is required for any
transfer resulting in:
a banking or investment company holding ? 2.5 per cent of the
paid up equity of an insurer; or
any other person holding ? 5 per cent of the paid-up equity of
All other changes in shareholding must be notified to IRDA.
Minimum paid-up capital requirements:
Insurer – INR1 billion
reinsurer – INR2 billion
direct broker – INR5 million
reinsurance broker – INR20 million
composite broker – INR25 million
NB. Only a single class of equity shares with a single face
value is allowed.
INR61.91= USD1.00 at 1 January 2014
Risk based capital
No, however there are proposals to develop a risk based capital
Every insurer must maintain an excess of assets over liabilities
(Required Solvency Margin). Required Solvency Margin is:
insurer: the higher of INR500 million or formulaic calculation
of net premium or formulaic calculation of net claims.
reinsurer: the higher of INR1 billion or a formulaic
calculation of net premium or a formulaic calculation of net
Available Solvency Margin (ASM) is excess in policyholder funds
and shareholder funds.
Solvency Margin Ratio (ASM/RSM) must be not less than 1.5.
No, although there are 'conduct of business'
regulations, mostly contained in the IRDA (Protection of
Policyholders' Interests) Regulations.
Yes. A scheme for amalgamation must be submitted to and approved
in principle by IRDA then advertised to policyholders, following
which IRDA will give final approval if the merger is in the best
interests of the policyholders.
Core and important activities which are said to affect corporate
governance, protection of policyholders, solvency and revenue flows
of the insurer cannot be outsourced. There is a comprehensive list
of core activities in the Guidelines on Outsourcing of Activities
by Insurance Companies, including: underwriting, product design,
actuarial functions, ERM, investment and related functions, fund
accounting, claims decisions, bank reconciliation, complaints,
market conduct, appointment of experts and compliance.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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