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

Bharat Life Insurance Ltd spent in a financial year more on expenses of management than the amount specified by regulations. Which statement matches Section 40B of the Insurance Act, 1938?

Section 40B bars an insurer from spending, as expenses of management in any financial year on business transacted in India, any amount above what the regulations specify. A board resolution cannot permit the excess, and the cap comes from regulations, not the General Insurance Council.

  1. ANo insurer may spend, as expenses of management in any financial year, an amount exceeding that specified by the regulationsCorrect
  2. BThe excess is allowed if the insurer's board approves it by resolution
  3. CThe limit applies only to expenses incurred outside India
  4. DThe limit is fixed by the General Insurance Council each year

Explanation

Section 40B prohibits any insurer from spending expenses of management in a financial year above the amount specified by the regulations, for business transacted in India. Board approval cannot override this, and the limit is set by regulations, not the Council.

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