CS Professional · Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part I)
Bharat Life Insurance Co has invested assets in Government securities to meet its life policy liabilities in India. Its compliance officer proposes to pledge part of these securities as collateral for a bank loan. Under section 27 of the Insurance Act, 1938, what is the position?
The pledge is not permitted. Section 27(6) requires Government securities and other approved securities held under the investment requirement to be kept free of any encumbrance, charge, hypothecation or lien. There is no small-percentage or intimation exception, and the rule covers both kinds of securities.
- APermitted if the pledge is under 10 per cent of the securities
- BPermitted if the Authority is informed within 30 days
- CNot permitted, as these securities must be held free of any encumbrance, charge, hypothecation or lienCorrect
- DPermitted only for Government securities, not other approved securities
Explanation
Section 27(6) provides that Government securities and other approved securities in which assets are to be invested and kept invested must be held by the insurer free of any encumbrance, charge, hypothecation or lien. No percentage threshold or intimation exception exists, and it covers both Government and other approved securities.
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