INSURANCE LAW PROJECT

INVESTMENT ISSUES OF INSURANCE

SECTOR

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

under the guidance of:

Mr. SHANTANU BRAJ CHOUBEY

project submitted by:

ANKIT PANDEY
ROLL NO.- 1309
TH
SEMESTER- 8

SESSION- 2015-2020
COURSE- B.A. LL.B
 CERTIFICATE OF DECLARATION

I/We hereby declare that the research paper titled “INVESTMENT ISSUES OF INSURANCE
SECTOR” submitted by me is based on actual and original work carried out by me. Any
reference to work done by any other person or institution or any material obtained from other
sources have been duly cited and referenced.

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 ACKNOWLEDGEMENT

I feel highly elated to present the project Research on “INVESTMENT ISSUES OF

INSURANCE SECTOR”, which owes its very existence to a number of people without
thanking whom, I would fail to do proper justice to its original profounder.

Firstly, I would like to thank the Insurance law Subject Faculty, Mr. SHANTANU BRAJ
CHOUBEY for showing his belief in me and considering me potent enough to carry out the
research methodology, and thereby assigning the said topic to me. In fact without his continuous
exemplary guidance and worm- view criticism the project could never have reached its current
stature.

Secondly, I would like to extend my sincere acknowledgement towards the Librarian of CNLU,
for making all the reading materials available relevant for my Research Paper, within such short
notice. In fact the CNLU Library came up as an excellent source for all the requisite data.

Thirdly, I would like to thank the Managing staff of CNLU, for providing me with the facility
of 24 hours/ 7 days a week Internet connection, since the search engines namely,
www.google.com, www.bing.com, where an indispensable need to facilitate data access within
fractions of seconds.

ANKIT PANDEY

ROLL NO. 1309

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METHOD OF RESEARCH:

The researcher has adopted a doctrinal method of research. The researcher has made extensive
use of the library at the Chanakya National Law University and also the internet sources
available.

SOURCES OF DATA

The sources of data for this project are secondary in nature, including books, articles and online
resources.

LIMITATION OF STUDY

In spite of best of efforts to minimize all limitations that might creep in course of the research,
there were certain constraints within which the research was completed. The project offers a
comprehensive study. However due to paucity of time and pages the research paper does not
provide a complete understanding of the all the provisions related to it.

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 TABLE OF CONTENTS

INTRODUCTION...........................................................................................................................6

INVESTMENT PATTERN.............................................................................................................6

LIFE INSURANCE COMPANY:...............................................................................................8

GENERAL INSURANCE COMPANY....................................................................................10

REINSURANCE BUSINESS...................................................................................................10

INVESTMENT MANAGEMENT................................................................................................11

INVESTMENT IN RURAL AND SOCIAL SECTOR.................................................................13

CONCLUSION..............................................................................................................................15

BIBLIOGRAPHY..........................................................................................................................16

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 Chapter One

INTRODUCTION

According to John bird an insurance contract is a contract having as its principle object, one
party (the insurer) assuming the risk of an uncertain event which is not within its control,
happening at a future time in which event the other party (the insured) has an interest and under
which contract the insurer is bound to pay money or provides its equivalent if the uncertain
events occurs. So, there is a contract between the insurance company and the policy-holder that
the insurance company will accept premium to be given by the insured, and in return the
company promises to satisfy the claim on the happening of certain events. These premiums so
collected are invested in long term securities or assets to earn reasonable return, to enable the
insurance company to satisfy the claims when arises.

Since, the money collected as premium is a public money the insurer is under responsibility to
invest this fund in safe and sound manner. Also in order to safeguard the interest of policy
holders the IRDAI introduces different regulation from time to time depending upon the needs ,
directing the investment made by insurance company. The basic aim of the regulator is to ensure
solvency of the business and diversified and adequately spread investment portfolio. It has to be
ensured that the insurers must at all times maintain a prescribed minimum level of solvency as a
protection to the policyholder's legitimates interests. Another important factor in regulation of
investment is the need to earmark some portion of investible funds for social obligations. The
savings of the people coming to insurance companies by way of premium have to be channelized
into community development, infrastructure development, socially oriented investments,
provision for basic amenities in rural areas etc.

In this project the researcher will deliberate over the provisions of section 27, 27A,B,C,D of
the THE INSURANCE LAWS (AMENDMENT) ACT, 2015 which deals with the investment of
certain sum by the insurer carrying on life insurer business or general insurance business. Then
provisions regarding different investment pattern defined for life, general and re-insurer as
prescribed under THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
OF INDIA (INVESTMENT) REGULATIONS, 2016. Lastly the obligation to be discharged by

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the insurer to undertake such percentages of life insurance business and general insurance
business in the rural or social sector as may be specified by regulations made by IRDA in
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
(OBLIGATIONS OF INSURERS TO RURAL AND SOCIAL SECTORS) REGULATIONS,
2015

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 Chapter Two

INVESTMENT PATTERN

Investment of assets (Section 27,27A, 27B and 27C of The Insurance Laws (Amendment) Act,
2015)

Investment of certain sum by an insurer carrying on life insurance business:

Every insurer shall invest and at all times keep invested assets equivalent to not less than the sum
of-

a) the amount of his liabilities to holders of life insurance policies in India on account of
matured claims,and
b) the amount required to meet the liability on policies of life insurance maturing for
payment in India,

less -

i) the amount of premiums which have fallen due to the insurer on such policies but
have not been paid and the days of grace for payment of which have not expired,
and
ii) any amount due to the insurer for loans granted on and within the surrender values
of policies of life insurance maturing for payment in India issued by him or by an
insurer whose business he has acquired and in respect of which he has assumed
liability in the following manner:

a) 25% of the said sum in Government securities, a further sum equal to not less than 25%
of the said sum in Government securities or other approved securities; and

b) the balance in any of the approved investments, as may be specified by the regulations
subject to the limitations, conditions and restrictions specified therein.1

1
Sec 27(1), The Insurance Laws(Amendment) Act,2015.

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Investment of certain sum by an insurer carrying on general insurance business:

In the case of an insurer carrying on general insurance business, 20% of the assets in
Government Securities, a further sum equal to not less than 10% of the assets in Government
Securities or other, approved securities and the balance in any other investment in accordance
with the regulations of the Authority and subject to such limitations, conditions and restrictions
as may be specified by the Authority in this regard.2

No insurer carrying on life insurance business shall invest or keep invested any part of his
controlled fund and no insurer carrying on general insurance business shall invest or keep
invested any part of his assets otherwise than in any of the approved investments as may be
specified by the regulations subject to such limitations, conditions and restrictions therein.3

All assets of an insurer carrying on general insurance business shall, subject to such conditions,
if any, as may be prescribed, be deemed to be assets invested or kept invested in approved
investments specified in section 27.4

An insurer may invest not more than 5% in aggregate of his controlled fund or assets as referred
to in sub-section (2) of section 27 in the companies belonging to the promoters, subject to such
conditions as may be specified by the regulations.5

The Authority may give specific directions for the time, manner and other conditions subject to
which the funds of policyholders shall be invested in the infrastructure and social sector as may
be specified by the regulations and such regulations shall apply uniformly to all the insurers
carrying on the business of life insurance, general insurance, or health insurance or re-insurance
in India on or after the commencement of the Insurance Regulatory and Development Authority
Act, 1999 (41 of 1999).6

Life Insurance Company:

The life insurance company business has been divided in two parts as follows:—

1. Life Insurance Business

2
Sec 27(2), The Insurance Laws(Amendment) Act,2015.
3
Sec 27A, The Insurance Laws(Amendment) Act,2015.
4
Sec 27B, The Insurance Laws(Amendment) Act,2015.
5
Sec 27C, The Insurance Laws(Amendment) Act,2015.
6
Sec 27D,

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 2. Pension & General Annuity Business
3. Unit Linked Insurance Business

 The investment pattern of controlled funds of Life Insurance Business is as follows:

Investment in Govt. securities - Not less than 25%

Investment in Govt. security or approved securities - Not less than 50% including
above security

Infrastructure and Social Sector - Not less than 15%

Investments in approved investments - Not exceeding 35% and not

and other than approved investments exceeding 15% in other than
approved investments 7

 The investment pattern of Pension and General Annuity Business:

Investment in Govt. securities - Not less than 20%

Investment in Govt. security or - Not less than 40%approved

securities including above security
Investments in approved investments and as per exposure norms - Not exceeding 60%8

 Unit Linked Life Insurance Business:

Every insurer shall invest and at all times keep invested his segregated fund of unit linked
life Insurance business as per pattern of investment offered to and approved by the
policyholders. Unit Linked policies may only be offered where the units are linked to
categories of assets which are both marketable and easily realizable. However, the

7
Regulation 5 of IRDAI (Investment) Regulations, 2016
8
Regulation 6 of IRDAI (Investment) Regulations, 2016

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 investment in Approved Investments shall not be less than 75% of such fund(s) in each
such segregated fun.9

General Insurance Company

Investment in Govt. securities Not less than 20%

Investment in State Govt security and other guaranteed Not less than 30%
securities including above security

Housing and Loans to State Not exceeding 5%

Government for Housing and
Fire Fighting equipment, being
not less than, (Subscription to/
purchase of Bonds/ debentures
issued by HUDCO, National
Housing Bank or House building
institutions duly accredited by
National Housing Banks, for
house building activities, duly
guaranteed by Government or
carrying current rating of not
less than ‘AA’ by independent,
reputed and recognized rating
agencies would also qualify
for compliance of this regulation.)

Infrastructure and Social Sector Not less than 10%

Investments in approved and non approved - Not exceeding 55% and not
investments more than 25% in non-
approved investments10

Reinsurance Business
Every reinsurer carrying on reinsurance business in India shall invest and at all times keep
invested his total assets in the same manner as set out above, until such time separate regulations
in this behalf are made by the Authority.11
9
Regulation 7 of IRDAI (Investment) Regulations, 2016
10
Regulation 8 of IRDAI (Investment) Regulations, 2016.
11
Ibid.

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Infrastructure Facility means ---

i) a road, highway, bridge, airport, port, Railways including BOLT, road transport system,

a water supply project, irrigation project, industrial parks, water treatment system, solid
waste management system, sanitation and sewerage system;
ii) generation or distribution or transmission of power;
iii) telecommunication;
iv) project for housing;
v) any other public facility of a similar nature as may be notified by the Authority in this
behalf in the Official Gazette;12

Chapter Two

INVESTMENT MANAGEMENT

 CONSTITUTION OF INVESTMENT COMMITTEE

Every insurer shall constitute an Investment Committee which shall consist of a minimum of two
non-executive directors of the Insurer, the Chief Executive Officer, Chief of Finance, Chief Risk
12
Clause (h), Sec (2), Insurance Regulatory and Development Authority (Registration of Indian Insurance
Companies) Regulations, 2000.

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Officer, Chief of Investment division, and the Appointed Actuary. The Board of the Insurer shall
ensure that Chief of Finance, Chief of Investment and the Chief Risk Officer, shall fulfil the
minimum qualification requirements specified in the regulations / guidelines issued by the
Authority. The decisions taken by the Investment Committee shall be recorded and be open to
inspection by the officers of the Authority.13

 INVESTMENT POLICY
1. Every insurer shall draw up annually an Investment Policy and place the same before its
Board of Directors for its approval.

2. The investment policy as approved by the Board will be implemented by the investment
committee, which shall keep the Board informed periodically about is activities.

3. The Board shall review its investment policy and its implementation on an half-yearly
basis or at such short intervals to protect the policyholder’s interest.

4. While framing the Investment Policy, the Board shall ensure compliance with the
following:
 Issues relating to liquidity, prudential norms, exposure limits, stop loss limits
including securities trading, management of all investment risks, management of
assets liabilities mismatch, Scope of Internal or Concurrent audit of Investments,
criteria form empanelment and review of investment brokers, investment statistics
and all other internal controls of investment operations, the provisions of the
Insurance Act, 1938 and IRDAI (Investment) Regulations, Guidelines and Circulars
made there under
 Ensuring adequate return on policyholders and shareholders’ funds consistent with
the protection, safety and liquidity of such fund(s).14

5. The details of the Investment Policy or its review as periodically decided by the Board
shall be submitted to the Authority. The Authority may call for further information from
13
Regulation 13 (A) of IRDAI (Investment) Regulations, 2016.
14
Regulation 13 (B) of IRDAI (Investment) Regulations, 2016.

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 time to time from the insurer as it deems necessary and in the interest of policyholders
issue such directions to the insurers as it thinks fit.15

Chapter Two

INVESTMENT IN RURAL AND SOCIAL SECTOR

Given the vulnerability of weaker sections of society, the IRDAI had mandated life insurance
and general insurance companies to undertake certain percentage of their total business in rural
and social sectors. The idea was to extend insurance cover to meet emergency situations caused
due to natural catastrophes or accidental death of the breadwinner.

15
Regulation 13 (G) of IRDAI (Investment) Regulations, 2016.

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Every insurer shall, after the commencement of the Insurance Regulatory and Development
Authority of India Act, 1999, undertake such percentages of life insurance business and general
insurance business in the rural or social sector, as may be specified, in the Official Gazette by the
Authority, in this behalf.16

Every insurer shall, after the commencement of the Insurance Regulatory and Development
Authority of India act, 1999 discharge the obligations specified under section 32B to provide life
insurance or general insurance policies to the persons residing in the rural sector, workers in the
unorganized or informal sector or for economically vulnerable or backward classes of the society
and other categories of persons as may be specified by regulations made by the Authority and
such insurance policies shall include insurance for crops.17

For the purposes of sections 32B and 32C of the Insurance Act, 1938 as amended from time to
time, every insurer shall ensure that it undertakes the following obligations:-

(A) Rural Sector

(a) In respect of a Life Insurer the following percentages of the total number of policies
written in the respective years shown below:

Sr.No
Financial year from inception Percentage of number of policies
.

i First year 7%

ii Second year 9%

iii Third year 12%18

(b) In respect of a General Insurer, the percentage of gross premium income written direct in
the respective years shown below:

16
Sec 32B, The Insurance Act 1938.
17
Sec 32C, The Insurance Act 1938.
18
Regulation 3 of IRDAI (Obligations of Insurers to Rural and Social Sectors) Regulations, 2015.

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 Sr.
Percentage of gross premium written
No Financial year from inception
direct
.

i First year 2%

ii Second year 3%

iii Third year to Seventh year 5%

 (B) Social Sector

In respect of all Insurers (Life, Non-Life, Standalone Health):

Age of the "Percentage of Social Sector lives" computed on the total business
Insurer in procured in the preceding financial year
years

1 0.5%

2 1%

3 1.5%19

Provided that in cases where an Insurer commences operations in the second half of the
financial year and is in operations for less than six months as at 31st March of the relevant
financial year, (i) no rural and social sector Obligations shall be applicable for the said period,
and (ii) the annual obligations as indicated in the Regulations shall be reckoned from the next
financial year which shall be considered as the first year of operations for the purpose of
compliance to this regulations.20 

19
Ibid.
20
Ibid.

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 CONCLUSION

Insurance Regulatory & Development Authority is regulatory and development authority under
Government of India in order to protect the interests of the policyholders and to regulate,
promote and ensure orderly growth of the insurance industry.

Since privatization of the insurance sector, There has been considerable growth in the insurance
industry leading to sharp increase in the quantum of money available with insurance companies.
As a result the management of Investments has assumed greater importance in the over all
interest of all the stakeholders as well as the economy. The Insurance Regulatory and
Development Authority (IRDA) has always been very proactive in bringing out the relevant
regulations for better management, reporting and protection of the interest of various
stakeholders. The emphasis laid by IRDA on the System and Procedures of insurers to manage
the Investments is also very laudable.

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 BIBLIOGRAPHY

Websites Referred :-

https://www.irdai.gov.in

https://financialservices.gov.in

https://rrjournals.com/past-issue/an-analysis-of-investment-pattern-of-insurance-sector-in-india/ , retrieved
on 12th March,2018.

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