Another two-year bonus for life insurers
By Venkatachari Jagannath | 18 Apr 2007
Chennai: The Insurance Regulatory and Development Authority (IRDA) has permitted life insurers to declare a bonus even without an actuarial surplus for seven years from the date of the commencement of their operations. As a result some of the companies that started operations five years ago have got two more years as a bonus for declaring bonuses without generating a surplus in the valuation balance sheet.
According
to Section 49 of the Insurance Act 1938, "no insurer
shall declare bonus to the policyholders except out
of a surplus after taking into account the assets and
liabilities of the company in the valuation balance
sheet". The section further provides that insurers
cannot generate or increase the surplus by contributions
out of any reserve fund or otherwise unless such contributions
have been brought in as revenue through the revenue
account on or before the date of actuarial valuation.
However, to enable private insurers to declare bonus even if their ''life fund'' is in deficit in order to be able to compete with the Life Insurance Corporation of India (LIC), IRDA had exempted new insurers from the provisions of Section 49 of the Insurance Act for the first five financial years. It was expected that after five years of operations, the new life insurers would have stabilised their finances and would be able to declare a bonus from the surplus they generated within the life fund without recourse to contribution from the shareholders.
However, that hasn''t happened. On the other hand the life insurers had sent petitions to IRDA for extension of the facility to which the regulator has agreed.
This apart, the regulator has also acceded to another request to be allowed to disclose scrip-wise investments for their unit-linked life insurance policies (ULIP) only when the exposure to on industry rose to 10 per cent or more, from the earlier limit of 5 per cent.