INSURANCE COMPANIES

- Life Insurance
- General Insurance

10/19/09 1
10/19/09 2
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 MEANING OF INSURANCE
Insurance is a contract between two parties whereby one
party called insurer undertakes in exchange for a
fixed sum called premium, to pay the other party
called insured a fixed amount of money on the
happening of certain event.
Insurance indemnifies assets and income. Every asset
(living and non-living) has a value and it generates
income to its owner.
The income has been created through the expenditure of
effort, time and money.

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 MEANING OF INSURANCE contd…
Every asset has expected lifetime during which it may
depreciate and at the end of life period it may not be
useful, till then it is expected to function.
Some times it may cease to exist or may not be able to
function partially or fully before the expected life
period due to accidental occurrences like burglary,
collisions, earthquakes, fire, flood, theft, etc.
These types of possible occurrences are “risks”.

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 MEANING OF INSURANCE contd…
Future is uncertain, no body knows what is going to happen? It
may or may not? Insurance is the concept of risk management
– the need to manage uncertainty on account of above stated
risks.
Insurance is a way of financing these risks either fully of
partially.
Insurance industry has both economic and social purpose and
relevance
Insurance business in India can be broadly divided into two
categories such as Life Insurance and General Insurance of
Non-life insurance.

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 HISTORY OF INSURANCE IN INDIA
Phase Period Industry
Phase I
a. Life Insurance 1818 to 1956 Many (245) private sector companies only,
(about 138 yrs) competitive market.

b. General Insurance 1850 to 1972 Many (107) private sector companies only,
(about 122 yrs) competitive market.

Phase II
a.Life Insurance 1956 to 2000 Nationalization, public sector or State monopoly,
(about 44 yrs) only one company.

b.General Insurance 1972 to 2000 Nationalization, public sector monopoly, only one
(about 28 yrs) company with its four subsidiaries.

Phase III Opened to the entry of private domestic and

Life Insurance and After 2000 foreign companies, mixed sector of public and
General Insurance private sector units, oligopoly of public sector
companies (14 life insurance and 12 general
insurance companies)
10/19/09 7
 HISTORY OF INSURANCE IN INDIA contd..
-1818 First life insurance company “Oriental Life Insurance
Company (in Calcutta).
- 1850 First general insurance company “Tritan Insurance
Company (in Calcutta)
- Till 1956/1972 life and general insurance industry grown in
terms of number of companies (life 245 and General 107 with
complete private sector ownership), the volume of premium,
investible resources, and so on. And both type of insurance
companies were competitive.
- The insurance was regulated through the Insurance Act, 1938.
- The picture changed after the Independence.

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 HISTORY OF INSURANCE IN INDIA contd..
- In 1956, 245 Indian and Foreign life insurers and provident
societies were nationalized, and new single entity namely
“LIC” was established by passing the LIC Act, 1956.
- Similarly, in 1972, 107 general insurers were nationalized
through the passing of General Insurance Business
(Nationalisation) Act, 1972.
- The existing 107 insurers were amalgamated and grouped into
Five companies, viz., National Insurance Company (NIC),
New India Assurance Company (NIAC), Oriental Insurance
Company (OIC), United India Insurance Company (UIIC),
and General Insurance Corporation (GIC).
- Then insurance industry transformed into monopoly and
Oligopolistic state or public sector insurance industry in India.
10/19/09 9
 CHRONOLOGICAL DEVELOPMENT OF
INSURANCE SECTOR
• 1818 - Establishment of British firm Oriental Life Insurance Company in
Calcutta
• 1823 - Establishment of Bombay Life Assurance Company
• 1912 - The Indian Life Assurance Companies Act 1912 (First statutory
measure to regulate Life Insurance business)
• 1938 – The Act 1928 was consolidated and amended by the Insurance Act
with effective control over the activities of insurers
• 1950 – The Act was amended resulting in far reaching changes in the
insurance sector, including, a statutory requirement of equity capital for
companies carrying on life insurance business, ceiling on share holdings in
such companies, strict control on investments, submission of periodical
returns relating to investments and such other information to the controller.

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 CHRONOLOGICAL DEVELOPMENT OF
INSURANCE SECTOR cotd…
• 1956 – 154 Indian insurers, 16 foreign insurers and 75 provident
societies were carrying on life insurance business in India mostly
concentrated in Urban Areas
• 1956 – January 19, the management of life insurance business of
245 Indian and Foreign insurers and provident fund societies,
then operating in India, was taken over by the Central
Government. By an Act of Parliament, viz., LIC Act 1956, with a
capital contribution of Rs.50 million, Life Insurance Corporation
(LIC) was formed in September 1956.
• 1971 – Management of Non-Life insurers was taken over by the
Central Government as a prelude to nationalization

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 CHRONOLOGICAL DEVELOPMENT OF
•
INSURANCE SECTOR cotd…
1972 – General insurance was urban-centric, catering mainly to the needs of
organized trade and Industry. 107 insurers including branches of foreign companies
operating in the country were amalgamated and grouped into four companies, viz.,
The National Insurance Company Ltd., The Oriental Insurance Company Ltd., The
New India Assurance Company Ltd., and The United India Insurance Company Ltd.
• 1973 – Watershed in the history of General Insurance Business in India. The General
Insurance Business was nationalized with effect from January 1, 1973 by the General
Insurance Business (Nationalisation) Act, 1972. GIC was incorporated as a company
in 1972 and commenced business on January 1st 1973.
• 1993 – First Step to Liberalisation. In April 1993 Malhotra Committee formed to
recommend measures to deregulate Indian Insurance Sector, and submitted its report
in January 1994.

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LIBERALISATION OF INSURANCE SECTOR
• 1990s saw the emergence of liberalisation. Liberalisation meant
lifting government controls, permits, licenses and allowing
competition to play its role in the economy. With respect to the
insurance business, liberalisation means allowing private
enterprises, including MNCs, to operate in the area that was
hitherto monopolised by the Government of India.
• As a first step towards allowing private sector entry, Government
of India appointed a committee under the chairmanship of Sri.
Malhotra. The Committee submitted its report in 1994,
recommended, among after things, that the insurance sector in
India be thrown open to private sector. Government accepted the
recommendations and allowed private players to offer insurance
cover to Indian citizens.
10/19/09 13
 MALHOTRA COMMITTEE
RECOMMENDATIONS
Structure
• Government stake in the insurance Companies to be brought
down to 50 per cent.
• Government should take over the holdings of GIC and its
subsidiaries, to act these as independent companies.
• All insurance companies should be given greater freedom to
operate. No special dimension is given to government
companies.
• Increase of capital base of LIC and GIC up to Rs. 200 crores,
half retained by the government and the rest sold to the
public at large with suitable reservations for its employees.
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 MALHOTRA COMMITTEE
RECOMMENDATIONS Contd…
Competition
• Private Companies are allowed to enter insurance industry
with a minimum paid up capital of Rs. 1billion.
• No company should deal in both Life and General Insurance
through a single entity.
• Foreign insurance may be allowed to enter the industry by
floating an Indian company as joint venture with Indian
partner.
• Postal Life Insurance should be allowed to operate in the
rural market. Only and one State Level Life Insurance
Company should be allowed to operate in each State.
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 MALHOTRA COMMITTEE
RECOMMENDATIONS Contd…
Regulatory Body
• Establishment of a strong and effective insurance regulatory
body in the form of a statutory autonomous board on the
lines of SEBI.
• Controller of Insurance to be made independent
Investments
• Mandatory Investments of LIC Life Fund in government
securities to be reduced from 75 per cent to 50 per cent.
• GIC and its subsidiaries are not to hold more than five per
cent in any company (the current holdings to be brought
down to this level over a period of time)
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 MALHOTRA COMMITTEE
RECOMMENDATIONS Contd…

Customer Service
• LIC should pay interest on delays in payments beyond 30 days.
• Insurance companies must be encouraged to set up unit linked
pension plans.
• Computerisation of operations and updating of technology to be
carried out in insurance industry.

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 WHY
LIBERALISATION OF INSURANCE SECTOR?
• To avoid monopolized (by the State run LIC and GICs)
market.
• Create awareness in urban areas about the needs and benefits
of insurance.
• To reduce the yawning gap between the needs of customers
and products being offered by the state owned companies.
• To mobilize funds from the economy for the infrastructure
development.
• To provide multiple innovative products.
• To provide better customers’ service from existing state
owned players.
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 INSURANCE INDUSTRY IN INDIA

Public Sector Private Sector

Life General
Life General
( 16 Companies) (09 Companies)

GIC and
its Four
subsidiaries

Post Office
LIC of India
Insurance

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 CURRENT SCENARIO
-Several leading private sector companies have entered in the field
of insurance sector, both in life and non-life insurance.
-There are several MNCs, in Joint Venture with Indian private
sector firms, have started operations in a big way.
Private Players in the Life Insurance Business
Regd. Date of Name of the Company Who Owns it (in percentage)
No. Regd.
101 23.10.00 HDFC Standard Life Standard Life, UK - 18 and HDFC – 82
104 15.11.00 Max New York Life New York Life - 26 and Max India – 74
105 24.11.00 ICICI Prudential Life Prudential, UK - 26 and ICICI Bank – 74
107 10.01.01 Om Kotak Mahindra Old Maruthi, South Africa – 26 and Kotak
Mahindra – 74
109 31.01.01 Birla Sunlife Sun Life of Canada–26 and Birla Capital– 74
110 12.02.01 Tata AIG AIG, US – 26 and Tatas – 74
111 30.03.01 SBI Life Cardif SA, France – 26 and State Bank of
India – 74
114 02.08.01 ING Vysya ING, Holland–26 and GMR Group, Hyd–54
10/19/09 and ING Vysya Bank–20 20
 CURRENT SCENARIO contd….
Private Players in the Life Insurance Business
Regd. Date of Name of the Who Owns it (in percentage)
No. Regd. Company
116 03.08.01 Allianz Bajaj Allianz AG, Germany – 26 and Bajaj Auto – 74
117 06.08.01 Metlife Metlife, US–26, Shapoorji Pallonji–30 and J&K
Bank–25
121 03.01.02 AMP Sanmar AMP, Australia–26 and Sanmar Group, Chennai–
74
122 03.01.02 Aviva Aviva PLC, UK– 26 and Dabur Investments – 74
*** *** Reliance Life
*** *** Bharathi AXA
127 06.02.04 Sahara India Insurance

128 07.11.05 Shriram Life

Insurance
Source: ). Indian Insurance Sector: A report, The Analyst, July 2002, p.9.
2). Cover Charge: An Economic Times Exclusive on Insurance’ The Economic Times, B’lore, Jan.2003,
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p.1.
Note: *** Data not available
 CURRENT SCENARIO contd….
Private Players in the General Insurance Business
Regd. Date of Name of the Company Who Owns it (in percentage)
No. Regd.
113 02.05.01 Bajaj Allianz
115 03.08.01 ICICI Lombard
106 04.12.00 IFFCO-Tokio
103 23.10.02 Reliance
102 23.10.02 Royal Sundaram Alliance
108 22.01.01 Tata AIG
123 15.07.02 Cholamandalam
124 27.08.02 Export Credit Guarantee
125 27.08.02 HDFC Chubb
Source: ). Indian Insurance Sector: A report, The Analyst, July 2002, p.9.
2). Cover Charge: An Economic Times Exclusive on Insurance’ The Economic Times, B’lore, Jan.2003,
p.1.
Note: *** Data not available
10/19/09 22
 STATUS OF INSURANCE INDUSTRY
Beginning in the year 1818, insurance business in India
has travelled a long way. As at the of financial year
2001 the insurance business is well entrenched as
shown in Table -1
Table -1 Growth of Life Insurance Business in India
Financial Year
Particulars 1997 1998 1999 2000 2001

Number of Policies in force-million 78 85 92 109 129

New Business
Number of Policies-million 12.28 13.33 14.86 16.99 19.67
Sum assured-Rs. Billion 569.93 639.28 756.06 914.90 1,249.51
Annual Premium Receivable-Rs. Billion 33.61 38.59 48.81 60.26 88.63
Life Fund ICRA Information Services," Industry
Source: 878Comment
1,058–The1,274 1,540
Indian Insurance 1,860
Industry”, Hyderabad, 2002,
10/19/09 23
 LIC OF INDIA
Life Insurance Corporation of India (LIC) was formed in September
1956 by an Act of Parliament, LIC Act 1956 with a contribution of
Rs. 50 million.
The then Finance Minister Mr. C. D. Deshmukh while piloting the bill
for nationalization outlined the objectives of LIC thus: “To conduct
the business with utmost economy with the spirit of trusteeship; to
charge premium no higher than warranted by strict actuarial
considerations; to invest the funds for obtaining maximum yield for
the policy holders consistent with safety of capital; to render prompt
and efficient service to policy holders thereby making Insurance
widely popular”.

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 LIC OF INDIA contd…
Presently the LIC has a network of seven zones; 100 divisions and 2,048 branches,
personnel exceed seven lakhs employees and over six lakhs agents.
Vision: A trans-nationally competitive financial conglomerate of significance to
societies and Pride of India.
Mission: To explore and enhance the quality of the life of people through financial
security by providing products and services of aspired attributes with competitive
returns and by rendering resources for economic development.
Values: Caring and Courtesy, Initiatives and Innovation, Integrity and Transparency,
Quality and Returns, Participation and Relationship, and Trustworthiness and
Reliability
Culture: Agility (quickness), Adaptability, Collaboration, Commitment, Discipline,
Empowerment, Sensitivity, and Excellence.

10/19/09 25
 LIC OF INDIA contd…
Objectives
• Spread Life Insurance widely and in particular to the rural areas.
• Maximise mobilization of people’s savings by making insurance-
linked savings adequately attractive.
• Deployment of funds to the best of advantage of the investors as
well as the community as whole, keeping in view national priorities
and obligations of attractive return.
• Conduct of business at most economy and with the full realisation
that the money belongs to the policyholders.
• Act as trustee of the insured public in their individual and collective
capacities.

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 LIC OF INDIA contd…
Objectives contd….
• Meet the various life insurance needs of the community that
would arise in the changing social and economic environment.
• Involve all people working in the Corporation to the best of
their capability in furthering the interests of public by
providing efficient service with courtesy.
• Promote amongst all agents and employees of the Corporation
a sense of participation, pride and job satisfaction through
discharge of their duties with dedication towards achievement
of Corporate Objectives.

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WHY TO TAKE LIFE INSURANCE POLICY?
Contract of Insurance: A contract of insurance is a contract of
utmost good faith technically known as uberrima fides. The
doctrine of disclosing all material facts is embodied in this
important principle, which applies to all forms of insurance.
At the time of taking a policy, policyholder should ensure that all
questions in the proposal form are correctly answered. Any
misrepresentation, non-disclosure or fraud in any document
leading to the acceptance of the risk would render the insurance
contract null and void.
Protection: Savings through life insurance guarantee full protection
against risk of death of the saver. Also, in case of demise, life
insurance assures payment of the entire amount assured (with
bonuses wherever applicable) whereas in other savings schemes,
only the amount saved (with interest) is payable.

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WHY TO TAKE LIFE INSURANCE POLICY?
Aid To Thrift (economy): Life insurance encourages 'thrift'. It allows long-
term savings since payments can be made effortlessly because of the
'easy instalment' facility built into the scheme. (Premium payment for
insurance is either monthly, quarterly, half yearly or yearly).
For example: The Salary Saving Scheme popularly known as SSS, provides
a convenient method of paying premium each month by deduction from
one's salary.
In this case the employer directly pays the deducted premium to LIC. The
Salary Saving Scheme is ideal for any institution or establishment subject
to specified terms and conditions.
Liquidity: In case of insurance, it is easy to acquire loans on the sole
security of any policy that has acquired loan value. Besides, a life
insurance policy is also generally accepted as security, even for a
commercial loan.
10/19/09 29
 WHY TO TAKE LIFE INSURANCE POLICY?
Tax Relief: Life Insurance is the best way to enjoy tax deductions on income tax
and wealth tax. This is available for amounts paid by way of premium for life
insurance subject to income tax rates in force. Assesses can also avail of
provisions in the law for tax relief. In such cases the assured in effect pays a
lower premium for insurance than otherwise.
Money When You Need It: A policy that has a suitable insurance plan or a
combination of different plans can be effectively used to meet certain
monetary needs that may arise from time-to-time.
Children's education, start-in-life or marriage provision or even periodical needs
for cash over a stretch of time can be less stressful with the help of these
policies.
Alternatively, policy money can be made available at the time of one's retirement
from service and used for any specific purpose, such as, purchase of a house or
for other investments. Also, loans are granted to policyholders for house
building or for purchase of flats (subject to certain conditions).

10/19/09 30
 TYPES OF INSURANCE POLICIES
as on 1.10.2003
I. Basic Life Insurance Plans
 Whole Life Assurance Plan -low cost insurance plan where the
Sum assured is payable on the death of the life assured whenever
it occurs.
 Endowment Assurance Plan –Under this plan the Sum assured is
payable on maturity or on death of the life assured, if earlier.
 Jeevan Anand –this plan combines the features of the
Endowment and Whole life plans. The basic Sum assured plus
accrued bonus is payable to the policyholders on his survival till
the end of the premium paying term. An additional sum assured
is payable to the nominee on death of the policyholder after
expiry of premium paying term.

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 TYPES OF INSURANCE POLICIES contd…
II. Term Assurance Plans
 Anmol Jeevan-I: Pure term assurance policy for term varying 5
to 25 years and provides for payment of Sum assured on death of
the policyholder during the term of the policy.
 Convertible Term Assurance Plan: It provides for term assurance
for 5 to 7 years with an option to convert to a Limited Payment
Whole Life Policy or an Endowment Assurance Policy without
having to undergo fresh medical examination. The option of
converting may be exercised at any time during the specified
term except during the last 2 years provided the policy is in full
force.
 New Bhima Kiran: In addition to return on premiums paid, this
plan provides for Loyalty addition, if any, in-built accident cover
and a term Cover is in full force.
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 TYPES OF INSURANCE POLICIES contd…
III. Specific Plans for Children
 Childern’s Deferred Endowment Assurance
 Jeevan Balya  Komal Jeevan
 Jeevan Kishore  Jeevan Chaya
 Jeevan Sukaya (for female children)
IV. Pension Plans
 New Jeevan Akshay-I  Varishtha Pension BIma Yojana
 New Jeevan Dhara-I  New Jeevan Suraksha
V. Plans for Handicapped Dependents
 Jeevan Adhar Jeevan Viswas

10/19/09 33
 TYPES OF INSURANCE POLICIES contd…
VI. Other Plans
 Mortage Redemption  Bhavishya Jeevan
 New Jana Raksha  Money Back Plans
 Jeevan Surabhi  Jeevan Rekha
 Jeevan Samriddhi  Jeevan Saathi
 Jeevan Mitra  LIC’s Jeveen Shree-I
 Asha Deep-II  Jeevan Asha-II
 Jeevan Bharathi  Bima NIvesh Triple Cover
 Varishtha Pension Bima Yojana
 Fixed Term (Marriage) Endowment / Educational Annuity
VII. Unit Linked Plans

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 TYPES OF INSURANCE POLICIES contd…
VIII. Group Schemes
 Group Term Insurance Scheme
 Group Superannuation Scheme
 Group Gratuity Scheme
 Group Leave Encashment Scheme
VII. Unit Linked Plans

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 VALUATION OF LIFE POLICIES
- The life fund is being valued from time to time.
- The valuation being based on the method of discounting future
income and expenditure back to the present (present value).
- The rate of discount is used is usually equal to the rate of
interest with the fund’s assets are expected to earn on an
average and allowance may be made for increase in interest
rates, future bonuses (in the case of “with profit” policies)
while determining the discount rate.
- A life fund is in surplus if the valuation of fund is greater than
the PV of future liabilities.
- The surplus is partly available for distribution to policy (only
with profit policies) holders and partly for adding to reserves.

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 VALUATION OF LIFE POLICIES contd….
Methods of Distributing Surplus Funds to policyholders
1. Cash form as a reduction in premium,
2. As an addition to the value of policy (Reversionary Bonus).
Bonus may be declared as a simple reversionary bonus, calculated on the
original sum assured, or
A compound reversionary bonus, calculated on the original sum assured, plus
any bonuses already declared.
Types of Surplus
A. Revenue surplus (an excess of future income over future outgoings), and
B. Capital surplus (Value of the fund is balanced by the values of the
various assets of the life fund as recorded in the balance sheet)

10/19/09 37
 VALUATION OF LIFE POLICIES contd….
- LIC has valued its funds about every TWO years b/w 1979 and 1985.
- It conducted special valuation in March 1986 and announced its
results on (1st Sept.) its 30th anniversary.
- LIC has decided to conduct valuation for every six months (to
declare increased reversionary bonus per thousand of rupees).
- The 25th valuation in 1994-95 showed a surplus of Rs.3,197 crore, of
which the amount of Rs. 3,057.93 crore was allocated to
participating policyholders.
- The valuation as on 31.03.2003 showed a surplus of Rs.9,733 crore,
of which Rs. 9,246 crore (95per cent) is distributed as bonus to
policyholders of with profit policies.

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PRINCIPLES AND INVESTMENT POLICY OF LIC’s
1. Security of funds, and
2. Maximization of return of investment,

Investment Policy in 1995 (GOI, Economic Survey, 1996-97, p-65)

1. Central Govt. marketable securities being not less than 20%
2. Loans to Housing Bank including above (1) being not less than 25%
3. State Govt. securities including Govt. Guaranteed marketable
securities, inclusive of (2) above being not less than 50%
4. Socially oriented sectors including public sector, co-operative sector
house building by policyholders, own house scheme, inclusive of (3)
above not less than 75%
5. Private corporate sector, loans to policyholders for construction and
acquisition of immovable property 25%

10/19/09 39
Investment Policy in 2003 (IRDA Report, 2001-2002)
1. Govt. securities 25%

2. Govt. securities or approved securities (including above 1) Not less than 50%
3. Approved Investments as specified in schedule – 1 infrastructure and
social sector Not less than 15%
4. Others to be governed by Exposure Norms Not less than 35%
(investments in “other than in Approved Investments” in no case
exceed 15% of the fund)

10/19/09 40
INFORMATION TECHNOLOGY AND LIC
LIC has been one of the pioneering organizations in India who introduced
the leverage of Information Technology in servicing and in their
business. Data pertaining to almost 10 crore policies is being held on
computers in LIC. We have gone in for relevant and appropriate
technology over the years.
1964 saw the introduction of computers in LIC. Unit Record Machines
introduced in late 1950’s were phased out in 1980’s and replaced by
Microprocessors based computers in Branch and Divisional Offices for
Back Office Computerization. Standardization of Hardware and
Software commenced in 1990’s. Standard Computer Packages were
developed and implemented for Ordinary and Salary Savings Scheme
(SSS) Policies.

10/19/09 41
 AWARDS

Awaaz Consumer Award 2006 Awaaz Consumer Award 2005

10/19/09 42
GENERAL INSURANCE CORPORATION (GIC)
• Prier nationalization there were 68 Indian insurers (including
LIC) and 45 non-Indian insurers did the business.
• In Nov. 1972, the general insurance business was nationalized by
the General Insurance Business (Nationalized), Act 1972
(GIBNA) and vested in the hand of the GIC and its four
subsidiaries viz.
1. National Insurance Co. Ltd.,
2. New India Assurance Co. Ltd.,
3. Oriental Fire and General Insurance Co. Ltd., and
4. United India Insurance Co. Ltd.
• GIC was incorporated as a holding company in 1992.
• General Insurance Business is completely owned by the
government.
• The paid up capital of GIC was fully subscribed by the
Government and of four subsidiaries.
• It was controlled by a single organization with four subsidiaries.
10/19/09 43
 G I C contd…
• GIC’s four subsidiaries:
1. National Insurance Co. Ltd.,
2. New India Assurance Co. Ltd.,
3. Oriental Fire and General Insurance Co. Ltd., and
4. United India Insurance Co. Ltd.
• The Govt on India took over Control, supervision, and policy
making is with GIC.
• But certain structural and ownership of capital changes have been
since the presentation of Malhotra Committee Report.
• The premium income for GIC comes mainly through the obligatory
reinsurance premium on a quota share basis from subsidiaries on
their direct business in India (almost 20% of subsidiaries business
come to GIC).
• GIC’s direct business is only in the form of aviation insurance.

10/19/09 44
 G I C contd…
Classification of General Insurance Business
1. Marine, (relatively less importance to India)
2. Fire, (Major business but its share is coming down) and
3. Miscellaneous (grown substantially) theft, loss, damage, etc.
Other Policies (non-traditional schemes)
- Manages Comprehensive Crop Insurance Scheme introduced
by the Central Govt. in 1985.

10/19/09 45
 G I C contd…
TYPES AND STRUCTURE OF BUSINESS
- General insurance policies are not financial claims.
- There is no guarantee of renewal of policy on the same terms or on
any terms.
- The contract is short-term contract.
- The general insurance companies do not collect savings.
- Policy claims are unpredictable.
- Assets are held in relatively liquid form.
- GIC meets the requirements of industrial, manufacturing,
commercial, services, household, and agricultural sectors through
wide rage of 115 products, granting insurance coverage.
- GIC has been promoting insurance cover in the field of livestock,
poultry, sericulture, horticulture, pump sets, and personal accidents.
and its subsidiaries

10/19/09 46
 PRINCIPLES AND INVESTMENT POLICY GIC

1. Central Govt. securities being not less than 20%

2. State Govt. securities and other government guaranteed
securities, including (1) above, being not less than 30%
3. Loans to HUDCO/DDA/GIC-HF and to state govts. For
housing and fire fighting equipment, not less than 15%
4. Market sector not more than 55%

10/19/09 47
 I R D A

10/19/09 48
 IRDA’S MISSION
To protect the interests of the policyholders, to regulate,
promote and ensure orderly growth of the insurance industry
and for matters connected therewith or incidental thereto.
Composition of Authority under IRDA Act, 1999
As per the section 4 of IRDA Act' 1999, Insurance Regulatory
and Development Authority (IRDA, which was constituted by
an act of parliament) specify the composition of Authority.
The Authority is a ten member team consisting of
a. a Chairman;
b. five whole-time members;
c. four part-time members,
(all appointed by the Government of India)
10/19/09 49
 Duties, Powers and Functions of IRDA
Section 14 of IRDA Act, 1999 lays down the duties, powers
and functions of IRDA.
1. Subject to the provisions of this Act and any other law for the
time being in force, the Authority shall have the duty to
regulate, promote and ensure orderly growth of the insurance
business and re-insurance business.
2. Without prejudice to the generality of the provisions
contained in sub-section (1), the powers and functions of the
Authority shall include:
a. issue to the applicant a certificate of registration, renew,
modify, withdraw, suspend or cancel such registration;

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 Duties, Powers and Functions of IRDA contd…
b. protection of the interests of the policy holders in matters
concerning assigning of policy, nomination by policy
holders, insurable interest, settlement of insurance claim,
surrender value of policy and other terms and conditions of
contracts of insurance;
c. specifying requisite qualifications, code of conduct and
practical training for intermediary or insurance
intermediaries and agents;
d. specifying the code of conduct for surveyors and loss
assessors;
e. promoting efficiency in the conduct of insurance business;

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 Duties, Powers and Functions of IRDA contd…
f. promoting and regulating professional organisations
connected with the insurance and re-insurance business;
g. levying fees and other charges for carrying out the
purposes of this Act;
h. calling for information from, undertaking inspection of,
conducting enquiries and investigations including audit of
the insurers, intermediaries, insurance intermediaries and
other organizations connected with the insurance business;
i. control and regulation of the rates, advantages, terms and
conditions that may be offered by insurers in respect of
general insurance business not so controlled and regulated
by the Tariff Advisory Committee under section 64U of the
Insurance Act, 1938 (4 of 1938);
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 Duties, Powers and Functions of IRDA contd…

j. specifying the form and manner in which books of account

shall be maintained and statement of accounts shall be
rendered by insurers and other insurance intermediaries;
k. regulating investment of funds by insurance companies;
l. regulating maintenance of margin of solvency;
m. adjudication of disputes between insurers and
intermediaries or insurance intermediaries;
n. supervising the functioning of the Tariff Advisory
Committee;

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 Duties, Powers and Functions of IRDA contd…

o. specifying the percentage of premium income of the insurer

to finance schemes for promoting and regulating
professional organizations referred to in clause (f);
p. specifying the percentage of life insurance business and
general insurance business to be undertaken by the insurer
in the rural or social sector; and
q. exercising such other powers as may be prescribed

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 Miscellaneous
NBF INTERMEDIARIES

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 INTRODUCTION TO NBFCs
- NBFCs faces serious definitional and data difficulties.
- NBFCs are thousands of companies.
- Only small portion of NBFCs reports to RBI.
- Large categories, due to the emergence of multi-service companies.
- NBFC: The RBI (Amendment) Act, 1997 defined as an institution or
company whose principal business is to accept deposits under any
scheme or arrangement or in any other manner, and to lend in any
manner (including a number of loan, investment companies in NBFC
category).

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 CATEGORIES OF NBFC
1. Equipment Leasing Company (ELC) – activity of leasing
of equipment of the financing such activity.
2. Hire-Purchase Finance Company (HPFC) – activity of HP
transactions, or the financing of such transactions.
3. Housing Finance Company (HFC) – financing of acquisition,
or construction of houses, or development of plots of land in
connection therewith.
4. Investment Company (IC) – activity of acquisition of
securities.
5. Loan Company (LC) – providing finance whether by
making loans or advances, or any activity other than its own.

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 CATEGORIES OF NBFC contd…
6. Mutual Benefit Financial Company (MBFC) – any company
which is notified by the Central Government under section 620A
of the Companies Act, 1956.
7. Miscellaneous (MNBC) – Chit funds
8. Residuary Non-banking Company (RNBC)- A Company
which receives any deposit under any scheme or arrangement,
by whatever name called, in one lumpsum or in installments by
way of contributions or subscriptions or by sale of units or
certificates or other instruments, or any other manner and which
according to the definitions contained in the NBFCs (Reserve
Bank) Directions, 1977 or as the case may be, the Miscellaneous
NBCs (Reserve Bank) Directions, 1977 is not an insurance
company or a company belonging to one to seven above.

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 IMPORTANCE OF NBFCs

Necessary for promoting the growth of an efficient and

competitive economy.
- Perform a diversified range of financial functions,
- Offer various financial services to individuals, corporate,
and institutional clients.
- Helps to bridge the credit gaps in several sectors.
- Serving the household, form and SSI.

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 STRUCTURE AND GROWTH OF NBFCs
• Thousands of market players
• Majority (80 to 85 per cent) are private limited
companies
RESOURCES OF NBFCs
1. Deposits (regulated and exempted), and
2. Net Owned Funds
Deposit-means any money received by a non-banking
company by way of a deposit or a loan, or in any other
form (inter corporate loans, and borrowings by private
ltd).
Regulated Deposit- means a deposit which is subject to
certain ceilings and other restrictions as imposed by the
regulatory measures.
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 RESOURCES OF NBFCs contd…
Regulated Deposit- means a deposit which is subject to certain
ceilings and other restrictions as imposed by the regulatory
measures. It includes,
a. Non-convertible debentures,
b. Deposits received by companies from their shareholders,
c. Deposits guaranteed by directors in their personal capacity,
d. Fixed deposits received from the public, and
e. Inter corporate deposits.
Exempted Deposits- signifies those types of deposits/ borrowings
which are outside the scope of the regulatory measures. It
includes,
a. Borrowings from banks and specified FIs,
b. Money received from Central/State/Foreign governments,
c. Advances received against orders,
d. Convertible debentures., etc

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MAJOR FEATURES OF THE GROWTH OF NBFCs
1. Total deposits increased.
2. Net owned funds constitute the core funds.
3. Exempted deposits far exceeded regulated deposits.
4. Growth of NBFCs deposits exceeded that of commercial banks.
5. Ratio of NBFCs deposits to Bank deposits increased.
REASONS FOR GROWTH OF NBFCs
1. They provide tailor made services to the clients.
2. Larger degree of regulation of NBFCs compared to Banks.
3. High level of customer orientation, simplicity, and seedy services.
4. Monetary and fiscal policy have created “unsatisfied fringe of
borrowers”.
5. High interest rates offered by NBFCs.

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 REGULATION OF NBFCs
- Regulated by RBI (except HFCs - NHB).
- RBI (Amendment) Act, 1997 brought all NBFCs under this Act.
- Minimum net owned funds Rs.25 lakhs for registration.
- Existing companies also should improve net owned funds to Rs.25
lakhs by 8-7-1997.
- Maintain 10 and 15% of their deposits in liquid assets effective
from 1st Jan and 1st April 1998 respectively.
- Create reserve fund and transfer not less than 20% of their net
deposits to it every year.
- RBI can direct them on issues of disclosures, prudential norms,
credit, investment, tec.,

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 REGULATION OF NBFCs
- Nomination facility is now made available to depositors of these
companies.
- Unincorporated bodies engaged in financial activity can not accet
deposit from the public from 1st April, 1997.
- They have to achieve a minimum capital adequacy norm of 8% by
31.3.1996.
- Need to obtain minimum credit rating from anyone of the three
credit rating agencies.
- A ceiling of 15% interest rate on deposits has been prescribed for
MBFCs or nidhis, effective from JUly8, 1996.
- The interest rate ceiling on deposits as also the ceiling on the
quantum of deposits for NBFCs have been removed, subject to
compliance with the RBI directives and guidelines.
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 PRESENT POSITION OF NBFCs
- Major business of NBFCs is givign loans, ICDs, investment in
securities and provide hire purchase credit.
- Major source of funds are Public deposits, convertible debentures,
borrowings from banks, IC borrowings.
- Interest rates reduced form 12.5% to 11& w.e.f 2003.
- NBFCs mobilized funds primarily short-term deposits (not more than
3 years period).
- Stability n the ratio of public deposits o net owned funds.
- Increase in NPAs.
- Little improvement in the operational efficiency.
- RBI imposes penalty (apart from cancellation of registration) for not
submitting annual reports to RBI.
- NBFCs prohibited to undertake sale of govt. securities as broker.
- RBI allowed to participate in insurance business.

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 LOAN COMPANIES
- Constitute the major part of the NBFCs sector.
- Mostly partnership companies, and their operations are generally
confined to a few places in India, particularly Gujarat and Mysore.
- Deposits accepted by them mainly fixed deposits (some also accepted
call deposits).
- They attract deposits by prize and gift schemes, recurring deposits,
insurance linked deposits.
- High rate of interest on deposits compared to banks (with 8% difference)
- Gives loans (unsecured form) to wholesale and retail traders, SSIs, self
employed persons.
- Interest rate on loans is equivalent to rates charged by money lenders varying
b/w 18 to 36%.
- Other services: Discounting post-dated cheques, collecting dividends for their
customers, purchasing and discounting hundies.
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 INVESTMENT COMPANIES
- Small in number and specialized.
- Offers higher rates of interest for attracting deposits.
- Provides loans (unsecured) for consumption, commerce, and trading
purposes.
- Interest rate charged is higher than commercial banks and orgd. FIs.
- Need for Regulation: Managements of investment companies are
dishonest (depositors interests are neglected), undermining the goals of
monetary policy by providing loans to speculative business.

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 INVESTMENT COMPANIES
- Small in number and specialized.
- Offers higher rates of interest for attracting deposits.
- Provides loans (unsecured) for consumption, commerce, and
trading purposes.
- Interest rate charged is higher than commercial banks and orgd. FIs.
- Need for Regulation: Managements of investment companies are
dishonest (depositors interests are neglected), undermining the
goals of monetary policy by providing loans to speculative
business.

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10/19/09 69
 VENTURE CAPITAL

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