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Repudiation refers to the right of an insurer to refuse admittance of the claim by the insured. This is possible under the following different cases. i) When the claims for losses are caused by un-insured perils or perils specifically excluded from the scope of the policy ii) When the claims which are other wise admissible under the policy, become refused due to the violation or non- compliance by the insured of some of the policy conditions. iii) When false statements are made by the insured while applying for insurance. iv) When the insured fails to disclose relevant facts while applying for insurance v) When the insured fails to comply with the terms of the agreement. vi) When the insured makes an untrue statement to the insurer to get the compensation for loss vii)When the insured makes unreasonable delay in reporting the incident leading to a claim. Thus, in the above cases, the insurer may repudiate the theclaims of the insured.

Objectives An insurance company chooses reinsurance as a part of its responsibility to cover different risks for the benefit of its policy holders and investors. The important objectives of reinsurance are: 1) To reduce net liability and increase surplus for the insurance company 2) To protect against catastrophies 3) To stabilise the company's overall operating results by reducing the fluctuations in loss experience. 4)To limit liability on specific risks 

Whenever the same subject matter is insured with two or more insurers to cover the same risk, it is called double insurance. The principle of contribution applies to all double insurance contracts. Accordingly, when there is a double insurance, the insured is entitled to recover only the actual amount of loss. He cannot claim anything more than the actual amount of loss, although he has taken two or more policies. He can recover the entire loss either from the insurer or from all insurers. If the insured chooses to recover the entire loss from one insurer alone, then the insurer, who has paid the actual loss has a right to recover proportionate amounts from the other insurers. In other words, each insurer is bound to contribute to the loss of the insured in proportion to the policy amount. The right of the insurer to contribution from the part of the co-insurers may be explained clearly by means of an example. Suppose, A insures his house against fire with Y and Z for Rs. 15,000/-e...

The principle of subrogation is an extension of the principle of indemnity. This principle applies only to contracts of indemnity. So it does not apply to life insurance and personal accident insurance contracts as they are not contracts of indemnity. According to this principle, when the insurer pays compensation to the insured for loss, the insurer will get all the rights of the insured in respect of the damaged property and against a third party who is responsible for the loss. Thus, if A suffers a loss of property due to B's negligence, A has a right to recover the loss from B. If the property so lost is insured, then the insurer will have to compensate A. However, the insurer will, get A's right of recovery of loss from B. If A is allowed to recover the loss from B also, he will be making a profit which is against the principle of indemnity

All insurance contracts, except life and personal accident insurance, are based on the principle of indemnity It means that the insured will be paid only the actual amount bound of loss or the amount of the policy whichever is less. That is he will not be allowed to make a profit out of any damage to his property by taking an insurance policy. For eg. If a person has insured his goods for Rs. 20,000 against fire and if goods worth Rs. 15,000 are destroyed by fire, the insurance company need pay only Rs. 15,000/- ie. The actual value of the goods lost. Moreover, if the actual loss exceeds Rs. 20,000, then subject the insured will get only Rs. 20,000/. This is because if the insured has a chance to get an amount higher than the amount of loss there will be a temptation for him to destroy his property intentionally and thus secure a profit out of insurance. However, in the case of life and accident insurances this principle of indemnity does not apply. The monetary loss caused by de...

In simple words, insurable interest means monetary Insurable Interest interest. No person can enter into a valid contract of insurance unless he has insurable interest in the subject matter of insurance. A person is said to have insurable interest in the subject matter, if he suffers financially, by its loss or destruction. Thus a person has insurable interest in his own life, in the life of his spouse or child or debtor. Similarly the owner of a property has an insurable interest in it. It is also important, to know the time at which the insurable interest must exist to execute a valid contract of insurance. It depends on the branch of insurance. In the case of life insurance, the insurable interest must exist at the time when the policy is taken. It may not be in existence at the time of the death of the person whose life is insured. For eg. A creditor can insure the life of his debtor to the extent of the debt. Even if the debtor dies after paying off the debt, the creditor ca...

Every contract of insurance is based on the principle of utmost good faith. It implies that the insurer and the insured must act in good faith and disclose all material facts concerning the subject matter of insurance. This rule applies particularly to the insured because he is naturally in possession of all material facts relating to the subject matter of insurance. The material facts must be disclosed at the time of giving a proposal for insurance by the insured. If he does not disclose all material facts at the time of the contract, the insurer can avoid the contract, when he comes to know of such concealment. However, he is not bound to disclose those facts which are known to him only after the contract is entered into.

Insurance contracts are based on certain fundamental principles.They are 1) Utmost good faith (Uberrimae fidei) 2) Insurable interest 3) Indemnity 4) Subrogation 5) Contribution 6) Mitigation of loss 7) Causa proxima (Proximate cause)

A contract of insurance is completed as soon as the insurance company accepts the premium. The following are the essentials of an insurance contract:- (1) Written Agreement Insurance is a written agreement between the insurer and the insured wherein the insured makes an offer and the insurer nccepts his offer. Thus, the filling up of a proposal form by the proposer is an offer and the notice of acceptance of the proposal form by the insurance company is an acceptance of insurance. So, insurance agreement must be in writing. (2) Consideration Under insurance contract, the insured takes over particular risk of the insured for a consideration called remium Tho insurer promises to pay to the insured or his nominee a certain sum on the happening of an uncertain event. (3) Competency A proposer must be competent to enter into contract. If the insured is of sound mind and has attained the age of majority, he is said to be competent. An insurance policy taken by a legal guardian o...

An insurance contract has the following attributes Entirety: All the terms and conditions are to be mentioned explicitly in the policy document Personal: The contract follows the person insured rather than property Unilateral: After the insured pays the premium, the insurer is under the obligation to pay the claim amount when the situation arises except on the ground of fraud. Aleatory: The amounts exchanged by the insured and the insurer are unequal and depends upon uncertain future events Uberrimae fidei: It requires both parties of the insurance contract to deal in good faith. In particular it imparts on the insured a duty to disclose all material facts which relate to the risk to be covered.

To Business  Many writers comment on the link between a sound insurance market and industrial development. Mehr and Cammack, the American writers on insurance, observe in their book 'Principles of Insurance' that the rise of Britain as great trading nation and the fact that it had good fire insurance facilities during the same period was no coincidence 1. Uncertainty of business loss is reduced:  A firm makes use of large number of assets. The slightest negligence may turn these assets to ashes. Buying insurance allows the entrepreneur to transfer some parts of risk to the insurer 2. Business efficiency is increased with insurance :  Insurance acts as a stimulus for business. In the absence of insurance, firms will have to set aside certain portion of their earnings as reserve for contingencies such as fire, theft etc. resulting in capital lock Because of the existence of insurance the firms can now invest in productive channels without locking its funds 3...

The role and importance of insurance has been discussed in three phases: A) To individual B) To business or industry C) To the society A) To individual 1. Insurance provides security and safety: Insurance provides safety and security against the loss on a contingency. In the case of life insurance, payment is made when death occurs or on the expiry of the term of insurance. Therefore, security against premature death and old age sufferings are provided by life insurance. Similarly in other insurances too, the security is provided against the loss from a given contingency 2. Insurance affords peace of mind: The knowledge that insurance exists to meet the financial consequences of certain risks provides a form of peace of mind. Suppose our car is stolen we can be confident that we will be compensated for our loss 3. Insurance protects mortgaged property: At the premature death of the mortgager, the ownership passes to the money lender and the family is deprived of the pro...

* Payment on Contingency Payment is made on the occurrence of the contingency insured. The life insurance contract is a contract of certainty because the contingency, death or the expiry of term, will certainly occur. Here the payment is certain. But in other insurance contracts, the contingencies like fire or marine perils may or may not occur.So if the contingency occurs, payment is made, otherwise no amount is given to the policy holder * Amount of payment On the occurrence of the contingency, the insurer is legally bound to make good the financial loss suffered by the insured. The amount of payment depends upon the value of loss occurred due to the particular insured risk. In the case of life insurance, the insurer promises to pay a fixed sum on the happening of an event. But in general insurance, the amount as well as the happening of loss is required to be proved. * Insurance is not charity Charity is given without consideration, but insurance is not possible without ...

Insurance has the following characteristics: (1) Co-operative Device "All for one and one for all" is the basis for a co-operative device. The insurance is a method where in large number of persons posed to a similar risk are covered and risk is spread over among the larger insurable public Insurance is a social or co-operative method wherein losses of one is borne by the society. (2) Contract  Insurance is a valid contract between the insured on the one side and the insurer on the other. It has all the essential elements of a valid contract and is enforceable irn the court of law (3) Consideration  Like other contracts, there must be lawful consideration in insurance also. This consideration is in the form of premium, which the insured agrees to pay to the insurer (4) Protection against Risk The insurer agrees to indemnify the insured upon the happening of a particular event. Thus, insurance is a protection against the risk. (5) Risk sharing and the risk tr...

There are many reasons why an insurance company would choose to reinsure a part of its responsibility for the benefit of its policy holders and investors 1. Risk transfer Reinsurance allows a ceding (transferring) company to assume greater individual risks than its size would otherwise allow. It allows an insurer to offer higher limits of protection that its own assets would allow. For e.g. if an insurer could underwrite only 50 lakhs on any given policy, he can reinsure (or cede) the amount in excess of 50 lakhs. 2. Increased capacity An insurance company's writings are limited by its solvency margin. When that limit is reached an insurer can either stop writing new business or increase its capital base or reinsure. The latter i.e. reinsurance is often done as it is an efficient way of not having to turn the clients away or raise additional capital. Catastrophe protection Reinsurance provides protection against catastrophic losses. Insurers use reinsurance to prote...

The different types of reinsurances are given below: Reinsurance is broadly classified as facultative, treaty and pool I. Facultative reinsurance  In this case the individual risk is offered by an insurer for acceptance or rejection by a re-insurer. Both parties are free to act in their own best interests. In a facultative relationship the reinsurer retains the faculty or power to either accept or reject each individual risk offered to it by the insurer.  II. Treaty reinsurance   A treaty is an agreement for the reinsurance of a specific portfolio, which may relate to certain class of business. The reinsurer assumes part or all of a ceding company's responsibility for certain sections of business. It is an obligatory contract and risk cedes automatically to the reinsurer as per the treaty. Thus, for reinsurance of individual risk, facultative reinsurance is arranged while for the reinsurance of entire portfolio, treaties are arranged. Again, treaties re...

Reinsurance is a contract between two insurers ie. an original insurer, who is called direct insurer and another of insurer, who is called reinsurer. It refers to the arrangement under which an insurer enters into a contract with another insurer for the assumption of a part or whole of the risk insured by the first insurer. In other words, the reinsurer undertakes to insure the first insurer against loss from some or all of the risks insured. It can otherwise be called as insurance of insurance. This may be done in several ways The reinsurer may agree a. to cover all losses beyond a specified amount, b. to cover a proportion of every loss, or c. to cover the total of all losses over a specified amount during a given period. A contract of reinsurance is a contract of indemnity as well. It also requires utmost good faith. Here there is a contract between one insurer with another insurer who may be called reinsurer. The insured under the original policy has nothing to do with th...

Investigation Each and every claim is to be investigated to assess the the loss and circumstances in which the loss occured Investigation can be done by the company officials or by the surveyor as the case may be. (i) By Company Officials: If the claim is small, simple and straight forward, it is investigated by any authorized officials of the company. The claim is settled on the basis of the report submitted by him. (ii) By Surveyor:- When the claim is a large one and complicated in nature, a surveyor is engaged to report on the details cause of loss and also the extent of loss. A surveyor is independent person and expert in his job. Discharge voucher  When the report is received from the surveyor it is scrutinised by the insurer. If everything is found to be in order a discharge voucher is sent to the insured. The discharge voucher is to be signed, stamped by the insured and returned to the insurer duly completed. On receipt of it, a cheque in settlement of the clai...

The insurer shall follow the undermentioned procedure for settling the claim for compensation of fire loss 1) Receipt of Claim Intimation The insurer should be informed at once about the loss or damages by the insured. As soon as the claim intimation is received by the insurer the following steps are to be taken:-  (a) To verify that the policy is in force at the time of loss.  (b) To ascertain that the subject matter is insured against the perils mentioned in the policy (c) To ascertain that the items of goods affected are the same as covered under the policy (d) To verify that the location involved is the same as covered in the policy Entering in the Claim Register After verifying the policy, the claim is registered and entered in a book called Claim Intimation Register. A claim number is allotted to the insured. This claim number is used for future reference. The claim register contains details like claim number, policy number, date of fire and address o...

Comprehensive Policy  Here, the insurer undertakes to indemnify the insured not only for fire risk but also for all other risks like burglary theft, riot, lightning, flood etc. It is also known as All Risk Policy. However, it does not mean to cover each and every risk. There are certain exclusions also. Building in Course of Construction Policy  This policy covers the loss or damage caused by fire to buildings while they are in course of construction. The policy is useful for the contractors who have taken a contract to construct a huge building, township or a colony Transit Policy  Goods in transit by road or rail is covered under this policy. The risk commences with the loading of goods on rail or motor truck and terminates as soon as they are unloaded from the motor truck or at the railway station. Only the transit risk caused by fire is covered under this policy Maximum Value with Discount Policy Under this policy no declaration or adjustment of poli...

Adjustable Policy  This type of policy is taken on the existing stock for a specific period. The premium is paid in full at the time of taking a policy. If there is any variation in stock, the insured intimates the insurer. Now, the insurer ends the policy accordingly and the premium is adjusted. So in this type of policy, the amount of policy changes from time to time 9. Re-instatement or Replacement Policy In this type of policy, the Re-instatement or Replacement clause is inserted. The insurer undertakes to pay the cost of replacement of the property destroyed or damaged by fire. So in case of loss of property, the insurer will reinstate or replace the property instead of paying compensation in cash. This type of policy prevents the insured from making a false claim Loss of Profit or Consequential Loss Policy  Business transactions may have to be suspended for some time when a fire occurs. The business of the insured will then suffer a loss. That is, the insured w...

Floating Policy  Under a floating policy, properties and assets which remain in different places and localities are insured by  policy. This policy is specifically designed to meet the requirements of big traders or manufacturers whose goods may be lying at different places. It is difficult for trader to take a policy for a specified amount or a specific policy or each stock of goods. This policy is useful to cover fluctuating stocks in different localities. Excess Policy  This policy is a combination of floating and average policies. In this case, the insured takes two policies one First Loss Policy and second Excess Policy'. The First Loss Policy' will cover that value of stock below which the value never goes. Excess Policy' will cover the maximum additional amount by which the stocks rise at different periods. For example, a businessman's stock varies between Rs. 70,000 and Rs. 100,000. He may take the "First Loss Policy for Rs. 70,000 and "Exces...

Specific Policy  Under this policy, a specific property is insured for a specific amount. In case of destruction of the specific property estimated at this amount. But when the actual loss is less by fire, the insured is paid this specific amount if the loss is than the specific amount, he is paid only the actual loss suffered by him. Example: Suppose, A insures his house worth Rs. 40,000/- for Rs. 30,000/- against fire and the house is damaged by fire. If the loss is estimated to be Rs. 20,000/ he will get the whole amount of loss ie. Rs. 20,000/- However, if the loss is estimated at Rs. 35,000/- he will, then, get only Rs. 30,000/- ie. the specified amount. Average Policy  Average policy is a fire policy under which the "Average Clause" is included. The average clause is included in a fire policy to check under-insurance. (Under-insurance means insuring a property for an amount lower than the actual value of the property. In this policy, if the actual value is gr...

The various fire insurance policies which are issued in order to meet different demands of the insured are discussed below Valued Policy A valued policy is a policy in which the value of the property insured is agreed upon at the time of taking out of the policy. In case the property is destroyed or damaged by fire, the insurer is required to pay the agreed value (amount) to the insured. Usually, this type of policy is issued where the value of the property cannot be determined after loss or damage, cg. Works o art, jewellery, paintings, pictures, sculptures, rare articles etc. These policies are not based on the principle of indemnity because the loss is not indemnified on the basis of market price. The main advantage of this policy is that the insured is relieved of providing the value of property at the time of loss by giving proof of purchase. The disadvantage of this policy is that the new additions can not be added to the valued policy. Valuable Policy A valuable poli...

Human life is open to many risks and uncertainties. For instance, accidents, death, loss of health, destruction of property by fire, floods, etc. may take place at any time. Insurance is a device, or rather a means, to minimise the evil effects of these risks and uncertainties on man. It does not eliminate risks, but it gives man protection against risks. There are countless risks in every sphere of life. The chances of occurrences of the events causing losses are quite uncertain because these may or may not take place. For e.g. a biker is always subject to the risk of head injury. But it is not certain that the accident causing him head injury would definitely occur. Still he covers his head with a helmet. Insurance is like the helmet that protects the biker from contingent accident and ultimate danger While it may not be possible to tell in advance, which person will suffer the loss, it is possible to work out the probability (based on past experience) as to how many may suffer t...

(a) Period of Insurance All the insurances except life are one year term year. But, a policy for a term of less than one year can also be insurance. A fire insurance policy is issued generally for one issued known as short term policy'. If the policy is issued for more than one year it is called long term policy' (b) Commencement of Risk As soon as the contract is completed, the risk is commenced irrespective of the issue of policy or payment of premium (c) Issue of Cover Note A cover note is an unstamped document issued in advance of the policy. It contains the same terms and conditions as in the policy. If any loss occurs before the issue of policy, cover note will be sufficient to prove the insurance. (d) Policy Fire insurance policy is a document which contains the terms and conditions of a fire insurance contract. It is usually issued for one year. It can be renewed at the end of every year. The policy contains many details such as, the name of the ins...

 The insurer under a fire policy has the following rights Right of avoiding the contract for non-disclosure of material fact:- If the assured mis-states any fact or conceals any material fact, the insurer can avoid the contract. The assured is bound to disclose not only the facts which he really knows but also those which he is deemed to know. Right of control over the property:- When the property or goods are damaged or destroyed, the insurer has an implied right to assume control over the damaged property. In order to safeguard his interests he can adopt any means he likes to mitigate further loss. Right of entering the property:- The insurer, on a notice of fire by the assured, has the right to enter the premises insured or the premises where the things insured are lying. Right of subrogation: When the insurer pays the amount of loss to the assured, he steps into the shoes of the assured. He gets all the rights which the assured has against the third persons. If th...

Indemnity  A fire insurance contract is based on the principle of indemnity. It means that the insurer undertakes to compensate the insured for the loss caused to him due to fire. This principle does not allow the insured to make any profit from a fire. For example, a godown is insured for Rs. 300,000. There is a fire which results in a loss of Rs. 100,000. The insured can recover only Rs. 100,000 from the insurer and not more than that. Thus, the amount which can be recovered under the policy cannot exceed the insured sum. Utmost Good Faith  The contract of fire insurance is entirely based on the principle of Uberrimae Fidei' ie. absolute good faith. It is the duty of the proposer to disclose all the material facts before the contract is completed. This principle applies equally to insurers also. Subrogation Subrogation is a supplement to the principle of indemnity and applies to all the contracts of insurance except life insurance and personal accident insuranc...

A fire insurance policy cannot be assigned without the permission of the insurer because the insured must have insurable interest in the property at the time of contract as well as at the time of loss. The insurable interest in goods may arise out on account of (i) ownership, (ii) possession (iii) contract. A person with a limited interest in a property or goods may insure them to cover not only his own interest but also the interest of others in them. Under fire insurance, the following persons have insurable interest in the subject matter: (a) The owner of the property always has insurable interest in it. (b) A partner has an equitable interest in the firm's property. c) A Mortgagee has an insurable interest in the property on which he has lien. (d) A Pawnee has insurable interest. (e)Pawn broker also has insurable interest. (f) Official receiver or assignee in insolvency proceedings has insurable interest. (g) A Warehouse keeper has insurable interest in the ...

1. Features of General contract All the features of general contract are also applicable to the fire insurance contract. a) Proposal:- There must be.a proposal for every valid contract. The information in the proposal form must be given correctly. No material facts should be concealed as the proposal form and declaration is the basis of this agreement. b) Acceptance:- On receipt of the proposal form, the insurer after assessing the risk may or may not accept the risk. lf the proposal is accepted intimation to this effect is sent to the insured c) Consideration:-There must be consideration for every legal contract, otherwise the contract would be a wagering contract. The premium is the consideration for such contract. d) Capacity of Parties to Contract:- The parties to the contract must be competent, ie. the person entering the contract must be major, of sound mind and has not been disqualified from making contract with others. e) Free consent:- There must be free consen...

 Fire causes huge losses every year. An individual by taking fire insurance can prevent the fire waste to some extent. The fire insurance is of great importance to the business field and the general public due to the following reasons:- 1. Financial Help Business properties like factories, godowns, administrative buildings, raw materials, semi -finished goods and finished goods are exposed to risk. Fire may destroy everything ands bring the business to zero. Fire insurance gives financial help n case of any loss to the property of the insured 2 Compensation of Loss of profits Fire not only destroys the property of business but also dislocates business. The business activity is suspended for a long time. A business is, thus, losing also the profit for this period. A fire insurance policy makes good the loss of profit of the insured for the above period. 3. Mental Security Fire insurance gives mental security to the general public. People can get their household artic...

The need for fire insurance arises out of the following facts: 1. There exists material property in business susceptible to damage or destruction by fire or other peril 2. Such material property has intrinsic value measurable in terms of money 3.Fire may not only destroy the business assets but also result into closure of business for quite a long time. Thus, the business activity will have to be suspended for a long time. 4. Fire results not only in loss of business assets, but also in other consequential losses like loss of production, loss of profit, etc. So, to protect a business from the above losses a fire insurance is inevitable Fire insurance is needed for the general public also The individuals can also get fire insurance. People become mentally and financially secured by insuring their personal assets. Every step can be taken to eliminate or minimise the loss. Fire insurance companies stimulate the installation of protective devices by granting soft loans. They ...

Definition A fire insurance may be defined as "a contract by which the insurer undertakes, for a money consideration, to indemnify the insured against the consequences of a fire during an agreed period upto the amount stated in the policy.'  According to V.R. Bhushan and Prof. R S. Sharma, a fire insurance may be defined as "an agreement whereby one party, in return for a consideration, undertakes to indemnify the other party against financial loss which he may sustain, by reason of certain defined subject-matter being damages or destroyed by fire or other defined perils upto an agreed amount." The main purpose of a fire insurance contract is to protect the insured against the loss of his property by fire. A fire insurance contract is a contract of indemnity. It indemnifies the insured against any loss caused by fire. To get compensation for loss of property under fire insurance, it must be proved that the loss of property has arisen due to fire. It is also...

Fire insurance does not have a long history. It came into existence after the Great Fire of London in 1666. This fire lasted for four days and four nights from 2 to 5 September, 1666. Almost 80 percent of the city was destroyed. This incident sowed the seeds of fire insurance as we know it now. Fire insurance business in India is governed by the All India Fire Tariff, 2001, that lays down the terms of coverage, the fl premium rates and the conditions of the Fire Policy. Meaning A fire insurance is an agreement between the insurer and the insured, under which the insurer agrees to indemnify the loss caused by fire, to the insured, in consideration of certain payment called premium It is a device to compensate the insured for the loss caused by fire. In fire insurance, the insurer distributes the burden of fire losses to all the members of the insurance community. It relieves the insured from the risks of loss caused by fire. The insurer will pay only the actual amount of loss,...

In order to satisfy the requirements of solvency margin, the insurance companies have follow the guidelines as stated below: 1. Building up Reserves  The insurance companies have to build up reserves systematically by holding back a part of the surplus, and transferring it to a special reserve called Solvency Margin Reserve. Holding back too much surplus will result in excessive reduction in bonus rates declared, and make life insurance less attractive, in comparison with other financial instruments. Hence, only a part of the surplus held back shall be utilized for meeting the requirements of solvency margin. 2. Reserves from the difference in the value of assets  The balance requirement has to be met by the difference between the market value and book value of assets, the share capital and free reserves in the shareholders' fund 3. Share capital  During the early years of a life insurance company, the share capital will be the major factor in the determin...

The IRDA has published Assets, Liabilities and Solvency Margin of the Insurers Regulations' in 2000, Section 64VA of the Insurance Act, 1938, lays down the requirements of solvency margins to be maintained by the Insurance Companies. It also states the procedure for calculating solvency margin requirements and consequences of not maintaining it. It stipulates that every insurer shall maintain an excess value of the assets over the amount of his liabilities According to the Regulations, every insurer has to  1. Prepare a statement of the value of the assets  2. Prepare a statement of the amount of liabilities, and  3. Prepare a statement of solvency margin.  The assets are categorized as the following:  a) approved securities,  b) approved investments,  c) deposits,  d) non- mandated investments, and  e) other (specified) assets  For the purpose of valuation of the liabilities, the contracts are classified ...

Like commercial establishments, the insurance companies also have to ensure that the value of their assets is not less than the value of their liabilities It was stipulated that the value of the assets, after distribution of surplus, should exceed the value of the liabilities by a certain margin. This margin is known as the solvency margin. The solvency margin ance company can be said to be the ability of the company to pay the claims.(Solvency margin is the excess of the assets of the company over its liabilities. It is like the capital adequacy requirements of the banks. It is also defined as the excess capital over the projected liabilities. Solvency margin decides the financial health of the insurance company Hence, the regulators stipulate the minimum solvency margin for the insurer.

According to section 6A of the Insurance Act, 1938, the following provisions should be made with regard to the requirements as to capital structure and voting rights and maintenance of registers: 1 . A public company limited by shares having its registered office in India, shall carry on life insurance business only, if it satisfies all the following conditions, namely: i. that the capital of the company consists only of ordinary shares each of which has a single face value ii. that the paid-up amount is the same for all shares whether existing or new, except during any period not exceeding one year allowed by the company for payment of calls on shares; 2 . The voting right of every shareholder of any public company as aforesaid shall in all cases be strictly proportionate to the paid-up amount of the shares held by him. 3 . A public company which carries on life insurance business shall not issue any shares other than ordinary shares of the nature specified in sub-sectio...

Requirements as to Capital  One of the important provisions of the IRDA Act has been substitution of section 6 of the Insurance Act, 1938 with the following provision; Any insurance company proposes to carry on life insurance, or general insurance business, must have paid up equity capital of rupees one hundred crores or of rupees two hundred crores, if the company proposes to carry on business exclusively as a reinsurer; then only that company can be registered. In determining the aforesaid paid-up equity capital, the deposit to be made by the company under section 7 of the Insurance Act, 1938 and any preliminary expenses incurred in the formation and regulations of the company are to be excluded. This provision regarding minimum capital of rupees one hundred crores for a life or general insurance company has been made mainly with a view to ensuring that only serious players enter the business. This should reassure the insuring public about the financial viability of pri...

An insurer shall determine the values of investments in the following manner: Real Estate Investment Property:-  The investment property shall be valued at historical cost subject to revaluation at least once in every three years. The change in the carrying amount of the investment property shall be taken to Revaluation Reserve. Fair value on the balance sheet date and the basis of its determination shall be disclosed in the financial statements as additional information. Debt Securities:  Debt securities, including government securities and redeemable preference shares shall be considered as "held to maturity" securities and shall be measured at historical cost, subject to amortisation Equity Securities and Derivative Instruments:-  Listed equity securities and derivative instruments that are traded in active markets shall be measured at fair value on the balance sheet date. For the purpose of calculation of fair value the lowest of the last quoted closing ...

The insurance money belongs to the policyholders. The insurer is merely a trustee. The insurer is required to invest the funds as determined under the Insurance Act. The funds of the policyholders can not be invested (directly or indirectly) outside India. The Insurance Company has to follow the norms for investment of funds in Section 27 of the Insurance Act, 1938, read with Rule 3 and Rule 4 of the IRDA (Investment) Regulations, 2000).  Investments are assets held by an insurer for earning income by way of dividends, rent and interest or for capital appreciation or for other benefits to the insurer. An insurance company makes investment, apart from earning income, to comply with the statutory requirements and also for meeting any unforseen contingencies and claims. There are two main sources of investible funds viz, surplus funds arising out of the business and income from interest and dividends on existing investments.

As per section 44 of the Income Tax Act 1961, the profits and gains of insurance business carried on by any person shall be computed and taxed in accordance with the rules contained in the first schedule. a) Life Insurance Business  The Finance Act, 1976 has inserted a new section in the Income Tax Act. Viz. section 115B. Accordingly, the rate applicable to income from life insurance business from the assessment year 1977-78 will be 12 '% percent. A surcharge of 10 percent on income tax is also payable. Since as per IRDA regulations, policyholders' profit and shareholders' profit can be arrived at separately, the former should be taxed at 7.5 percent and the latter should be subject to the tax rates applicable to corporate sector. b) General insurance business  The rates of tax applicable to income from general insurance business as at 50 % of the income and surcharge on income tax income tax, and shall be those which are applicable to companies as per Finance A...