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

Sunrise Life Insurance Ltd, a life insurer, wants to declare a dividend to its shareholders. Its life insurance fund is large, but the actuarial valuation balance-sheet submitted to the Authority shows no surplus. Under Section 49 of the Insurance Act, 1938, what is the position?

The insurer cannot pay the dividend from the life insurance fund. Section 49 permits dividends to shareholders or bonuses to policyholders only from a surplus shown in the actuarial valuation balance-sheet submitted to the Authority. With no surplus disclosed, Board approval or later intimation does not make the payment lawful.

  1. AIt may pay the dividend from any part of the life insurance fund if the Board approves
  2. BIt may not use the life insurance fund for the dividend, as only a surplus shown in the valuation balance-sheet can be usedCorrect
  3. CIt may pay the dividend if it first transfers amounts from any reserve fund into the life fund
  4. DIt may pay the dividend if the Authority is informed within 30 days after payment

Explanation

Section 49 bars the use, directly or indirectly, of any portion of the life insurance fund for dividends or bonuses except a surplus shown in the valuation balance-sheet submitted to the Authority as a result of an actuarial valuation. With no surplus, the fund cannot be used. Board approval or later intimation does not change this.

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