Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part II)

Reinsurance, Investment and Regulatory Reporting of Insurers

Updated 11 October 2026 · Fact-checked

Reinsurance is insurance bought by an insurer to pass on part of its risk. Under the Insurance Act, 1938, insurers must reinsure with Indian re-insurers as notified (Section 101A), invest assets in the proportions set by Section 27, never invest policyholders' funds outside India (Section 27E), and file investment returns with the Authority (Section 28).

Understand Reinsurance, Investment and Regulatory Reporting

An insurer takes on many risks. If one large loss or one disaster hits, it may not be able to pay. Reinsurance solves this. The insurer (the cedant) passes part of the risk to another insurer, called the reinsurer, and pays it a share of the premium.

The Act makes some reinsurance compulsory. Under Section 101A, every insurer must reinsure with Indian re-insurers a percentage of the sum assured on each general insurance policy. The Authority sets this percentage, with the previous approval of the Central Government, by notification. It can differ by class of business but cannot exceed thirty per cent of the sum assured. The Authority also fixes how the percentage is shared among Indian re-insurers. The notification can also set terms and conditions, which bind Indian re-insurers and other insurers.

Section 101A does not stop you from reinsuring more. You may reinsure the whole sum assured, or any portion above the specified percentage, with an Indian re-insurer or another insurer. A fire insurer has an option: instead of ceding a percentage of each sum assured, it may reinsure an amount out of its first surplus, as long as the yearly reinsurance premium is not less than the specified percentage of its premium income from that business.

Investment rules protect policyholders. Section 27 requires every insurer to keep assets invested in set proportions: for life insurers, a share in Government securities, a further share in Government or other approved securities, and the balance in approved investments as the regulations specify. General insurers follow a separate split under sub-section (2). Securities must be held free of any encumbrance, charge, hypothecation or lien. Section 27E bars any direct or indirect investment of policyholders' funds outside India.

Reporting keeps the regulator informed. Section 28 requires every insurer to submit returns of investments to the Authority in the form, time and manner set by regulations. Foreign insurers with a place of business in India must file particulars (Section 63) and keep books at their Indian principal office, with an auditor's certificate each January (Section 64). Indian property cannot be insured with a foreign insurer without the Authority's prior permission (Section 2CB).

Key rules to remember

Compulsory reinsurance (Section 101A): Cession to Indian re-insurers = notified % × sum assured on each policy; notified % ≤ 30%; Applies to general insurance policies, not to re-insurance policies. Set by the Authority with Central Government approval, after consulting the Advisory Committee.
Life insurer investment pattern (Section 27(1)): 25% of the sum in Government securities + a further not less than 25% in Government or other approved securities + balance in approved investments; The 'sum' is matured claims liability plus liability on policies maturing in India, less unpaid premiums within grace and loans within surrender value.
General insurer investment pattern (Section 27(2)): 20% of assets in Government securities + a further not less than 10% in Government or other approved securities + balance in other investments per regulations; 'Assets' means carrying value of all assets, subject to the Explanation's exclusions.
Encumbrance rule (Section 27(6)): Government and other approved securities must be free of encumbrance, charge, hypothecation or lien; They cannot be pledged or charged.
Investment outside India (Section 27E): No direct or indirect investment of policyholders' funds outside India; Absolute prohibition in the text.
Returns (Section 28): Investment returns to the Authority in the form, time and manner specified by regulations; Details such as dates come from regulations, not the Act.
Foreign insurer filings (Sections 63 and 64): Particulars within 3 months of setting up a place of business or appointing a representative; auditor's certificate on books by 31 January each year; Alterations must be furnished forthwith.

How to solve Reinsurance, Investment and Regulatory Reporting questions

Case questions on this topic test whether you can match the facts to the right section and apply the numbers or conditions.

1Identify the heading: reinsurance, investment of assets, or reporting and filing.
2Note the type of insurer: life, general, fire, or foreign. The rule changes with it.
3Quote the provision in plain words with its section number, only where you are sure of it.
4Apply the facts: compute percentages on the correct base (sum assured, sum under Section 27(1), or assets).
5Check conditions and limits, such as the thirty per cent cap, free-of-encumbrance rule, or the three-month and January deadlines.
6State the conclusion clearly: compliant or not, and what the insurer must do.
7Add the practical compliance point: who files, with whom, and what record to keep.

Quickest way: Section-map shortcut

When to use it: When you have limited time and the question is a short case or note.

Write the section number and a one-line rule: 101A reinsurance, 27 and 27E investment, 28 returns, 63 and 64 foreign insurers.
Plug in the numbers using the pattern: general 20% and 10%, life 25% and 25%.
Write one line on the conclusion and one line on the filing duty.

Common mistakes in Reinsurance, Investment and Regulatory Reporting

Saying the Act itself fixes the reinsurance percentage.
Students remember the thirty per cent figure and treat it as the rate.
Fix: Thirty per cent is only the ceiling. The Authority specifies the actual percentage by notification.
Applying the general insurer pattern (20% and 10%) to a life insurer.
Both sub-sections look alike.
Fix: Life is 25% plus a further not less than 25%; general is 20% plus a further not less than 10%.
Treating the second tranche as a fixed percentage.
The text says 'not less than'.
Fix: Write it as a minimum. It may be Government securities or other approved securities.
Thinking an insurer cannot reinsure beyond the notified percentage.
Section 101A(1) is read without sub-section (7).
Fix: Sub-section (7) lets insurers reinsure the whole sum assured or any portion above the percentage with any Indian re-insurer or other insurer.
Mixing up the filing deadlines for foreign insurers.
Both Sections 63 and 64 involve filing with the Authority.
Fix: Section 63: particulars within three months of establishing a place of business or appointing a representative. Section 64: auditor's certificate on or before the last day of January each year.
Saying Section 28 prescribes the return dates.
Students assume the Act gives the detail.
Fix: Section 28 leaves form, time and manner to the regulations.

Worked examples

Example 1

The Authority has notified that insurers must reinsure 20% of the sum assured on each policy of a class of general insurance with Indian re-insurers. Sahyadri General Insurance issues a policy with sum assured ₹5,00,00,000. How much must it cede, and may it cede more?

Show the solution

Section 101A(1) requires reinsurance with Indian re-insurers of the notified percentage of the sum assured on each policy.
The percentage notified is 20%, which is within the thirty per cent limit in Section 101A(2)(a).
Compulsory cession = 20% × ₹5,00,00,000 = ₹1,00,00,000.
Section 101A(7) allows reinsurance of the entire sum assured or any portion above the percentage with any Indian re-insurer or other insurer.
So Sahyadri may cede more than ₹1,00,00,000 if it wishes.

Answer: It must cede at least ₹1,00,00,000 to Indian re-insurers, in the proportions the Authority specifies. It may reinsure more, even the full sum assured, with an Indian re-insurer or any other insurer.

Example 2

A general insurer, Bharat Shield General Insurance Ltd, has assets, as defined in Section 27, of ₹2,000 crore. State the minimum it must hold in Government securities and the minimum it must hold in Government or other approved securities beyond that. Also, it proposes to invest part of policyholders' funds in a foreign bond fund. Advise.

Show the solution

Section 27(2) applies, as this is a general insurer.
Minimum in Government securities = 20% × ₹2,000 crore = ₹400 crore.
A further sum of not less than 10% of assets must be in Government securities or other approved securities: 10% × ₹2,000 crore = ₹200 crore.
The balance can go into other investments under the regulations and the Authority's limits.
Section 27E states that no insurer shall directly or indirectly invest outside India the funds of the policyholders.
The foreign bond fund proposal, if it uses policyholders' funds, is therefore prohibited.
Section 28 requires the insurer to report its investments to the Authority in the specified form, time and manner.

Answer: At least ₹400 crore in Government securities and a further not less than ₹200 crore in Government or other approved securities, with the balance as the regulations allow. Investing policyholders' funds in a foreign bond fund is barred by Section 27E, and the insurer must submit investment returns under Section 28.

Exam tips

Learn the two investment patterns side by side: life 25 and 25, general 20 and 10. Examiners often test the swap.
In reinsurance answers, mention three points: the Authority sets the percentage, the thirty per cent cap, and the freedom under sub-section (7).
Quote section numbers only for those you know: 27, 27E, 28, 63, 64, 101A and 2CB are safe from this text.
End case answers with a compliance step: what to file, with whom, and by when.
Use the line 'subject to the regulations' where the Act leaves detail to regulations.

Practice questions from Functions in Insurance and Compliance related thereto (Part II)

Reinsurance, Investment and Regulatory Reporting: frequently asked questions

What is reinsurance and why is it required in India?

Reinsurance is insurance of an insurer's own risk. It spreads large losses so that an insurer can pay claims. In India, Section 101A also makes it compulsory to reinsure a notified percentage of each general insurance policy with Indian re-insurers.

What is the maximum percentage of reinsurance with Indian re-insurers?

The Authority specifies the percentage by notification, and it cannot exceed thirty per cent of the sum assured on a policy. Different percentages can be set for different classes of insurance.

How must insurers invest their assets under Section 27?

A life insurer keeps 25% of the relevant sum in Government securities, a further not less than 25% in Government or other approved securities, and the balance in approved investments. A general insurer keeps 20% of assets in Government securities and a further not less than 10% in Government or other approved securities. The balance goes to other investments per the regulations.

Can an insurer invest policyholders' funds abroad?

No. Section 27E says no insurer shall directly or indirectly invest outside India the funds of the policyholders.

What returns must insurers file about investments?

Section 28 requires every insurer to submit returns giving details of investments made to the Authority. The form, time and manner, including authentication, are set by the regulations.