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

Investment and Regulatory Compliance of Insurers under the Insurance Act, 1938

Updated 11 October 2026 · Fact-checked

Under the Insurance Act, 1938, an insurer must keep policyholders' funds invested in India, give the Authority investment returns in the prescribed form, value assets and liabilities as required, and meet capital rules. You answer by stating the provision, applying it to the facts and concluding.

Understand Investment and Regulatory Compliance of Insurers

An insurer collects premium today and pays claims later. Until then it holds large funds that belong, in substance, to policyholders. The law therefore controls where and how those funds are used, and makes the insurer report to the regulator.

The regulator is the Authority, that is, IRDAI. The Act's investment and reporting rules sit alongside regulations made under it. For the exam, anchor your answer in the sections of the Act and add that detailed form, time and manner are set by regulations.

Five duties matter here. First, no investment outside India of policyholders' funds, directly or indirectly (Section 27E). Second, investment returns must be submitted to the Authority in the form, time and manner specified by regulations (Section 28). Third, valuation: assets and liabilities are valued as prescribed and certified (Section 64V). Fourth, published returns must match the form furnished to the Authority (Section 25). Fifth, capital requirements for registration (Section 6).

Foreign insurers with a place of business or representative in India have filing duties too (Section 63), and the Central Government can impose reciprocal requirements on insurers of a country that burdens Indian insurers (Section 62).

Think of the pattern as: restrict, report, value, publish accurately, hold capital. Most case questions test one of these.

Key rules to remember

Foreign investment ban (Section 27E): No insurer shall directly or indirectly invest outside India the funds of the policyholders; Covers indirect investment also. The ban is on policyholders' funds.
Returns of investments (Section 28): Every insurer submits to the Authority returns giving details of investments made, in the form, time and manner specified by regulations; Form, time, manner and authentication are left to regulations.
Valuation of assets (Section 64V(1)): Assets valued at a value not exceeding their market or realisable value; Used to ascertain compliance with Section 64VA. The Authority may exclude certain assets by regulations.
Valuation of liabilities (Section 64V(2)): A proper value placed on every item of liability, as specified by regulations; Applies to every item of liability.
Certified statement (Section 64V(3)): Statement of assets and liabilities as on 31 March each year, certified by an Authority-approved Auditor (general insurance) or actuary (life insurance); Filed with the returns, within the time specified by regulations.
Publication of returns (Section 25): No publication in India of a return in a form other than that furnished to the Authority; Proviso: a true and accurate abstract may be published for publicity.
Paid-up equity capital (Section 6(1)): ₹100 crore for life or general insurance; ₹100 crore for exclusively health insurance; ₹200 crore for exclusively reinsurance; Preliminary expenses are excluded in determining paid-up equity capital.
Net owned funds (Section 6(2)): Not less than ₹5,000 crore; Applies to an insurer defined in section 2(9)(d), not to the others above.
Foreign insurer filing (Section 63): File particulars with the Authority within 3 months of establishing a place of business or appointing a representative in India; Includes charter documents, directors list, service-of-process person, principal office address, classes of business and affidavit.

How to solve Investment and Regulatory Compliance of Insurers questions

Use this method for any case question on insurers' investments and compliance.

1Identify the insurer: Indian or foreign, life, general, health or reinsurer.
2Identify the act in question: investing, reporting, valuing, publishing, registering or establishing in India.
3State the matching provision in plain words, with the section number.
4Apply it to the facts: where is the money, whose funds, what form was used, what date.
5Check conditions and provisos, such as abstracts for publicity or exclusions of assets.
6Conclude clearly: compliant or not, and what the insurer must do.
7Add the practical compliance step, such as filing with the Authority or obtaining certification.

Quickest way: Five-label scan

When to use it: When time is short and the facts mix several issues.

Label each fact as Place, Return, Value, Publish or Capital.
Place: any investment outside India of policyholders' funds breaches Section 27E.
Return: check form, time and manner with the Authority (Sections 28, 63).
Value: market or realisable value cap and certification (Section 64V).
Publish: same form as filed, or a true abstract (Section 25).
Write one line of conclusion per label.

Common mistakes in Investment and Regulatory Compliance of Insurers

Saying insurers may invest abroad if the fund is the insurer's own.
Students ignore the wording on policyholders' funds and generalise.
Fix: State that Section 27E bars direct or indirect investment outside India of policyholders' funds, and analyse whose funds are used.
Writing that the Controller of Insurance receives returns.
Older texts use the word Controller.
Fix: Say the Authority. The Act substituted it for Controller from 19-4-2000.
Treating publication of any abstract as an offence.
Students remember only the main rule of Section 25.
Fix: Add the proviso: a true and accurate abstract for publicity is allowed.
Applying the ₹100 crore capital to every insurer.
Section 6 has several limbs and students merge them.
Fix: Separate life or general (₹100 crore), exclusively health (₹100 crore), exclusively reinsurance (₹200 crore) and Section 6(2) net owned funds of ₹5,000 crore.
Valuing assets at book or cost value.
Confusion with accounting valuation.
Fix: Under Section 64V(1) assets are valued at a value not exceeding market or realisable value.
Missing the 3-month deadline for foreign insurers.
Students recall the documents but not the time limit.
Fix: Write: within three months from establishing the place of business or appointing the representative, file with the Authority.

Worked examples

Example 1

Suraksha Life Insurance Ltd., an Indian insurer, proposes to place part of its policyholders' funds in bonds issued by a Singapore company through a Mumbai-based fund manager. Advise.

Show the solution

Provision: Section 27E says no insurer shall directly or indirectly invest outside India the funds of the policyholders.
Facts: the funds are policyholders' funds and the bonds are of a Singapore company.
Analysis: routing through a Mumbai fund manager does not change the result, because the ban covers indirect investment.
Conclusion: the proposal is not permitted. The insurer should invest within India and report investments to the Authority under Section 28.

Answer: The proposal would breach Section 27E, as it is an indirect investment outside India of policyholders' funds. Suraksha Life should not proceed.

Example 2

Bharat General Insurance Ltd. wants to publish its filed return in its annual brochure after rearranging the format. It also wants to know what it must certify under Section 64V. Advise.

Show the solution

Publication: Section 25 bars publishing in India a return in a form other than that furnished to the Authority.
Proviso: a true and accurate abstract from the returns may be published for publicity.
Application: a rearranged full return is not allowed. A true and accurate abstract is allowed.
Valuation: under Section 64V(3) it must furnish with its returns a statement of assets and liabilities as on 31 March each year.
Certification: for general insurance, the statement is certified by an Auditor approved by the Authority, within the time specified by regulations.
Basis: assets valued at a value not exceeding market or realisable value, and a proper value on every liability.

Answer: It may not publish the rearranged return but may publish a true and accurate abstract. It must file an Authority-approved Auditor's certified statement of assets and liabilities as on 31 March each year.

Exam tips

Quote the section number with the rule. Examiners reward provision, analysis and conclusion.
Use the word Authority, not Controller.
Learn the capital figures by category and say which limb applies.
In case questions, spot indirect arrangements for Section 27E.
Add a practical compliance line, such as filing deadline or certification.

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

Investment and Regulatory Compliance of Insurers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalRegistration, Capital and Management of Insurers

Investment and Regulatory Compliance of Insurers: frequently asked questions

Can an Indian insurer invest policyholders' funds abroad?

No. Section 27E prohibits investing policyholders' funds outside India, directly or indirectly. Check whose funds are used and whether the route is indirect.

What returns do insurers file regarding investments?

Under Section 28, every insurer submits returns with details of investments to the Authority. The form, time, manner and authentication are specified by regulations.

Who certifies the statement of assets and liabilities?

Under Section 64V(3), an Auditor approved by the Authority certifies it for general insurance and an approved actuary for life insurance. It is as on 31 March each year.

What capital must an insurer have to be registered?

Section 6 requires paid-up equity capital of ₹100 crore for life, general or exclusively health insurers, and ₹200 crore for exclusively reinsurers. Section 6(2) requires net owned funds of at least ₹5,000 crore for the insurer defined in section 2(9)(d).