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Report No. 190 Shareholder's funds and policyholder's funds 9.1.15 Section 49 of the Insurance Act, 1938 provides for restrictions of payments of dividends and bonuses. In the Consultation Paper, the following change was proposed: "An enabling provision may be inserted for transfer from shareholders funds to policyholders funds in case of an insurance company in the initial years of operation. This could be by way of a proviso to the following effect: "provided further that an amount not exceeding the aggregate amount, which was transferred from the shareholders funds, in the previous years, shall be transferred back to the shareholders funds, in case of surplus, prior to the declaration of bonus to the policyholders"." 9.1.16 In response to the above proposal, FICCI has suggested that where there is a transfer from the shareholder's funds to the policyholders fund for meeting the cost of payment of new bonus to policyholders, such amount should not be allowed to be transferred back to the shareholder's fund at any time. Further, FICCI would like a distinction to be drawn between the temporary and permanent deficit in the policyholder's funds. The National Insurance Academy has also submitted a very detailed response. At the outset, the NIA states that "during all these years, this provision has conformed to the requirements of the market and hence a review at this stage is not called for." However, according to NIA, if money is sought to be transferred from the shareholder's funds to the policyholder's funds on account of deficit arising out of 'new business strain', several safeguards will have to be built in. NIA has accordingly suggested a draft amended section 49. 9.1.17 The Subedar Committee Report commissioned by the Actuarial Society of India has also dealt with this issue extensively. Importantly, that Report states that as regards this issue "convergence of views as between the Industry, Regulator and actuarial profession is key to an acceptable and sustainable solution". Ultimately, the Report has suggested that there is a need for a wider debate on the issue. 9.1.18 The Law Commission of India is of the view that the specific question of the use of shareholder's funds and policyholder's funds, and transfer from the former to the latter, requires deliberations both within the industry as well as between the industry and the government. The IRDA would also have to play a pro-active role in helping evolve a consensus on the issue. 9.1.19 As at present, the Law Commission does not have the benefit of the views of either the Government or the IRDA on this issue. Also, there does not appear to be any agreed response from within the industry as well. In these circumstances, the Law Commission is not suggesting any changes in section 49 for the present. Extent of foreign shareholding 9.1.20 One issue that repeatedly surfaced during discussions with the industry was whether the law should be amended to permit greater foreign equity participation than the present limit of 26%. There were also questions raised about permitting insurance companies to have branches outside of India and to conduct business outside India. The Law Commission does not have the benefit of the views of the Government or the IRDA on these matters. In the Law Commission's perception these are matters on which a policy decision will have to be taken by the Government in consultation with the industry and the IRDA. The Law Commission is not making any research in this matter.    |
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