Transcript Presentation 1

Workshop
On
Financial Sector Assessment Programme
29th
Hyderabad
December, 2010
DVS Ramesh
Objectives


ICP – 14 – Preventive and Corrective Measures
 Regulators
are adequately backed by
comprehensive legal structure with powers
to safeguard the public interest.
ICP – 15 – Enforcement or Sanctions
 Regulators are legally empowered to take
action, where necessary, to ensure
compliance to the Act and Regulations.
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Preventive and Corrective
Measures

Core Principle: “Supervisory authority takes
preventive and corrective measures that are
‘timely’, ‘suitable’ and ‘necessary’ to achieve
the objectives of insurance supervision”.



Regulatory
intervention
to
protect
policyholders
Regulatory Response is based on problem
detected
Overall Enabling Tools: Insurance Act, 1938;
IRDA Act, 1999 adequately equipped IRDA.

Section 14 (2) – An Omnibus Provision
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Essential Criteria
a.
b.
Availability of Adequate Instruments for timely preventive and corrective
measures
 Specified returns within 6 months from the end of FY (Sec 15), Qly
Accounts & Investment Returns, Solvency Margin returns, Monthly
Business / Other Returns etc.
Progressive Escalation of action or remedial measures
 Call for Information, Inspection, Examine Books / Accounts / Officers
on oath Investigation into the affairs of Insurer (Sec 33) and Search
and seizure (Sec 34 H); Penalties (Sec 102) , Suspension /
Cancellation of License (Sec 3 (4))
 Formal Advise to Warning Letters / Letters of Caution
 Proposed Insurance legislation makes individuals jointly and severally
liable to make good the loss for contravening investment provisions
 Enhances certain penalties to Rs 25 Crores
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Contd....
c.
d.
e.
Authority shall have capacity and standing to communicate
 From formal communications to Directions u/s 34, 110 C;
Require insurers to develop an acceptable plan for correction of
problems, if necessary
 Financial Plan (Sec 64VA (2A); Modification of rates, terms and
conditions of life policies (Sec 3B); requires insurer to take action
(Sec 33(6)); directions regarding reinsurance treaties (Sec 34 F)
Measures to prevent breach of law and promptly and effectively deals
with non – compliance with regulation
 Call for further information (Sec 21); Order the revaluation (Sec
22) Review of Returns, Examination of Grievances
Areas to Strengthen
 Risk Based Supervision
 Powers to prescribe higher initial capital requirements in specific
cases
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Enforcement and Sanctions


Core Principle: “The Supervisory authority enforces
corrective action and where needed imposes
sanctions based on clear and objective criteria that
are publicly disclosed. “
 Decision making lines for remedial actions to be
structured
 A range of actions available say from withholding
approval for expansion to revoking the license
Overall Enabling Tools: Fines and Penalties &
Suspension and Cancellation of Licenses
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Essential Criteria
a.
Issue formal directions and failure to
comply has serious consequences


b.
Advices / Formal communications
Directions u/s 27 D (3), 33 (6), 34, 14 (1)
Power to prevent issuing new policies


Sec 34 E (a) empowers IRDA to prohibit
Insurers / any Insurer entering a particular
transaction / Class of transactions
Reg 27 Cease to transact new business
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Contd…
c.
Compulsory Transfer of obligations from
failing insurers

d.
Sec 37 A empowers to prepare a scheme of
amalgamation
Requiring Capital levels to increase, restrict
or suspend dividend or other payments to
shareholders, restrict share transfer

Capital Levels not insurer specific, Prior approval
for share transfer beyond a percentage and
restriction on dividend (on Par Fund)
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Contd…
e.
Effective means to address Management
Problems and powers to impose conservatorship



Sec 34 A prior approval for appointment of CEOs/whole
time directors; Sec 34 B empowers to remove
managerial personnel; 34 C additional directors and 34
E (b) call for meeting of directors or depute its officers
to watch the proceedings; Approval for Appointed
Actuary
Sec 52 A Power to recommend appointment of
Administrator for Life Insurance Business
Sec 52 H Power of Central Government to acquire
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undertakings of Insurers
Contd…
f.
g.
Periodical checks to determine the compliance

Regular Reviews, additional returns or a follow up
inspection (where necessary)
Fines against Individuals and Insurers

Fine on individuals for acting as insurance
intermediaries and for rebating

Rs 500, proposed to be escalated to Rs 10000
and to Rs 500000 respectively

Fine on Insurers for accepting business from other
than licensed intermediaries

Rs 5000, proposed to be increased to
10
Rs 1 Crores
Contd…
Sanctions
for
withholding
the
information or misleading information
h.

i.
Sec 104 Empowers to penalize for false
statements in the investment returns
Barring individuals from
responsible positions

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acting
in
Part of overall due diligence – Scope for
strengthening
the
procedures
by
disclosures
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Contd…
j.
k.
l.
Process of Sanctions do not delay preventive and
corrective measures

Procedures in place to independently review these
respective lines
Powers to withdraw the license

Reg 23 Suspension of Certificate, Section 3 (4)
empowers
Powers to protect one or more insurers from financial
difficulties of other parts of the group


Insurance business
is relatively insulated and
Policyholder’s funds are maintained separately
Abilities to infuse additional capital / Solvency Margin
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Review an ongoing process
Contd…
m.
Authority enforces the sanctions


n.
Section 110 AA of the proposed Bill
classifies
the
penalty
imposed
is
recoverable as arrears of land revenue
Escalation Provisions ensure the compliance
to sanctions
Ensuring
sanctions

consistency
in
imposing
Procedures are in place
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Contd…
o.
Authority takes action against individuals /
entities operating insurance business
without a licence.



Section 103 – Rs 5 lakhs penalty or with
imprisonment up to 3 years
Issues Public Statements cautioning the public
In the Proposed Bill the penalty was
escalated
to
Rs
25
Crores
with
imprisonment
up
to
10
years
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Thank You
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