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

Sunrise Life Insurance Ltd, an Indian life insurer, wants to pay a dividend to its shareholders. Its actuarial valuation, submitted to the Authority as part of the abstract under section 15, shows no surplus, but the life insurance fund holds substantial assets. Under section 49 of the Insurance Act, 1938, what is the position?

Sunrise cannot pay the dividend from the life insurance fund. Section 49 allows dividends or bonuses only from a surplus shown in the valuation balance-sheet submitted to the Authority after actuarial valuation. Where the valuation shows no surplus, the fund's assets cannot be used.

  1. AIt may pay the dividend from the life insurance fund, since the fund holds substantial assets
  2. BIt may not use the life insurance fund for the dividend, because only a surplus shown in the valuation balance-sheet can be usedCorrect
  3. CIt may pay the dividend if the board approves it unanimously
  4. DIt may pay the dividend only out of the fund for general insurance business

Explanation

Section 49 bars the use of any portion of the life insurance fund for dividends to shareholders or bonuses to policy-holders, except a surplus shown in the valuation balance-sheet submitted to the Authority as a result of actuarial valuation. With no surplus shown, the fund cannot be used. Fund size or board approval does not change this.

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