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Banking and Insurance - Laws and Practice · Regulatory Framework in Insurance

Registration and Conduct of Insurance Business under the Insurance Act, 1938

Updated 11 October 2026 · Fact-checked

Under the Insurance Act, 1938, an insurer cannot be registered unless it meets the capital test in section 6. Life, general and exclusive health insurers need paid-up equity capital of ₹100 crore. An exclusive re-insurer needs ₹200 crore. A foreign re-insurance branch needs net owned funds of ₹5,000 crore. IRDAI registers and regulates insurers.

Understand Registration and Conduct of Insurance Business

Insurance is a business of public trust. Policyholders pay premiums today and depend on the insurer to pay claims years later. So the law lets only well-funded, regulated entities enter the business. The Insurance Act, 1938 sets the entry conditions. The IRDA Act, 1999 creates the regulator that grants and controls registration.

The first gate is capital. Section 6(1) says no insurer (other than the foreign re-insurer branch category in section 2(9)(d)) carrying on life, general, health or re-insurance business in India can be registered unless it has the required paid-up equity capital. The figure depends on the business. Preliminary expenses for forming and registering the insurer are excluded when you count paid-up equity capital.

The second gate is for the foreign re-insurer branch category covered by section 2(9)(d). Section 6(2) does not ask for paid-up capital. It asks for net owned funds of not less than ₹5,000 crore.

The third layer is conduct. The regulator can issue, renew, modify, withdraw, suspend or cancel registration. It also regulates investment of funds, books of account and the margin of solvency. Conduct rules also stop conflicts of interest. Section 32A, for example, stops a managing director or other officer of a life insurer from holding a similar post in another life insurer, a banking company or an investment company. Section 62 lets the Central Government impose reciprocal disabilities on insurers from a country that burdens Indian insurers.

In the exam, treat these as a chain: who may enter, with what capital, under which regulator, and how conduct is policed.

Key rules to remember

Capital for life or general insurer
Paid-up equity capital ≥ ₹100 crore
Section 6(1)(i). Applies to a person carrying on life insurance or general insurance business.
Capital for exclusive health insurer
Paid-up equity capital ≥ ₹100 crore
Section 6(1)(ii). Applies only if the insurer carries on exclusively health insurance.
Capital for exclusive re-insurer
Paid-up equity capital ≥ ₹200 crore
Section 6(1)(iii). Applies only to exclusive re-insurance business.
Foreign re-insurer branch (section 2(9)(d))
Net owned funds ≥ ₹5,000 crore
Section 6(2). Net owned funds, not paid-up capital, is the test.
Counting paid-up equity capital
Paid-up equity capital counted = paid-up equity capital − preliminary expenses as specified by regulations
Second proviso to section 6(1). Preliminary expenses of formation and registration are excluded.
Enhancing capital
Enhancement allowed under the Companies Act, 2013, SEBI Act, 1992 and rules, regulations or directions under them or other law
First proviso to section 6(1).
Common officers (life insurer)
MD or officer of a life insurer ≠ MD or officer of another life insurer, a banking company or an investment company
Section 32A(1). The Authority may permit it for amalgamating or transferring business between two insurers.

How to solve Registration and Conduct of Insurance Business questions

Use this method for any case question on registration or conduct of an insurer.

  1. 1Identify the type of business: life, general, exclusive health, exclusive re-insurance, or the foreign re-insurer branch category under section 2(9)(d).
  2. 2State the capital rule in section 6 for that type, with the exact figure and whether it is paid-up equity capital or net owned funds.
  3. 3Check the figures in the facts. Deduct preliminary expenses from paid-up equity capital before comparing.
  4. 4Apply any conduct provision the facts raise, such as section 32A on common officers or section 62 on reciprocal disabilities.
  5. 5Name the regulator and its power under section 14 of the IRDA Act, 1999, such as granting, suspending or cancelling registration.
  6. 6Conclude clearly: eligible or not, permitted or not, and what the company must do to comply.

Quickest way: Type, figure, test, regulator

When to use it: Use when you have a short case and little time.

  1. Write the business type in one line.
  2. Write the matching figure: ₹100 crore, ₹200 crore or ₹5,000 crore NOF.
  3. Subtract preliminary expenses if given, then compare.
  4. Add one line on IRDAI's power to register or cancel, and conclude.

Common mistakes in Registration and Conduct of Insurance Business

  • Saying a foreign re-insurer branch needs paid-up capital of ₹5,000 crore.

    Students merge section 6(1) and 6(2) into one capital rule.

    Fix: Remember section 6(2) uses net owned funds of at least ₹5,000 crore for the section 2(9)(d) category.

  • Applying ₹100 crore to every health insurer.

    The word health is read loosely.

    Fix: The health limb applies to a person carrying on exclusively health insurance. State that word in your answer.

  • Counting preliminary expenses as part of paid-up equity capital.

    Students compare the raw capital figure with the limit.

    Fix: Deduct preliminary expenses of formation and registration, as specified by regulations, before testing.

  • Quoting ₹200 crore for any re-insurer.

    Students forget the word exclusively.

    Fix: Section 6(1)(iii) is for a person carrying on exclusively the business of a re-insurer.

  • Saying section 32A bars a life insurer's officer from any other post.

    Students overstate the rule.

    Fix: It bars being MD or officer of another life insurer, a banking company or an investment company. The Authority may permit it for amalgamation or transfer of business.

Worked examples

Example 1

Surya Life Ltd. seeks registration to carry on life insurance business in India. Its paid-up equity capital is ₹108 crore, of which ₹10 crore represents preliminary expenses incurred in formation and registration. Advise whether it meets the capital requirement.

Show the solution
  1. Business type: life insurance. Section 6(1)(i) requires paid-up equity capital of ₹100 crore.
  2. Preliminary expenses are excluded in determining paid-up equity capital, under the second proviso to section 6(1).
  3. Qualifying capital = ₹108 crore − ₹10 crore = ₹98 crore.
  4. ₹98 crore is less than ₹100 crore, so the test is not met.

Answer: Surya Life Ltd. does not meet section 6(1)(i). Its qualifying paid-up equity capital is ₹98 crore. It must raise at least ₹2 crore more, in accordance with the Companies Act, 2013, the SEBI Act, 1992 and rules or directions under them, before it can be registered.

Example 2

Mr. Rao is the managing director of Bharat Life Insurance Ltd., a life insurer. He is invited to become a director of an investment company. Can he accept? Would your answer change if Bharat Life proposes to transfer its business to another life insurer where he is also MD?

Show the solution
  1. Section 32A(1) bars a managing director or other officer of a life insurer from being MD or officer of another life insurer, a banking company or an investment company.
  2. Being MD of an investment company's board falls within the bar, so he cannot accept as the facts stand.
  3. The proviso lets the Authority permit such a person to hold the post in another life insurer for amalgamating or transferring the business of one insurer to the other.
  4. That permission is for the amalgamation or transfer purpose and needs the Authority's approval.

Answer: Mr. Rao cannot accept the investment company post. For the transfer to another life insurer, he may hold both posts only if the Authority permits it for the purpose of that amalgamation or transfer.

Exam tips

  • Learn the three figures by business type: ₹100 crore, ₹200 crore and ₹5,000 crore net owned funds.
  • In case questions, always deduct preliminary expenses before comparing capital to the limit.
  • Write the sub-section numbers of section 6 in your answer. Examiners reward exact provisions.
  • Use the provision, analysis, conclusion pattern. Close with what the company should do to comply.
  • For conduct questions, add IRDAI's section 14 powers to registration, investment and solvency margin.

Practice questions from Regulatory Framework in Insurance

Registration and Conduct of Insurance Business in other exams

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

Registration and Conduct of Insurance Business: frequently asked questions

What is the minimum capital to register an insurer in India?

Under section 6(1) of the Insurance Act, 1938, a life or general insurer needs paid-up equity capital of ₹100 crore. An exclusive health insurer also needs ₹100 crore. An exclusive re-insurer needs ₹200 crore.

What is the requirement for the section 2(9)(d) foreign re-insurer category?

Section 6(2) requires net owned funds of not less than ₹5,000 crore. It is not a paid-up capital test.

Who grants registration to an insurer?

The Insurance Regulatory and Development Authority of India. Under section 14 of the IRDA Act, 1999, it can issue, renew, modify, withdraw, suspend or cancel registration.

Can an insurer increase its capital later?

Yes. The first proviso to section 6(1) allows it to enhance paid-up equity capital in accordance with the Companies Act, 2013, the SEBI Act, 1992 and rules, regulations or directions under them, or any other law in force.