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

Under section 27(1), a life insurer's matured claim liabilities plus liabilities on policies maturing for payment in India total Rs 600 crore before adjustments. Premiums fallen due but unpaid and within days of grace are Rs 20 crore, and loans granted within surrender values on such maturing policies are Rs 30 crore. It has ceded reinsurance on these policies involving a liability of Rs 50 crore. Applying the sub-section (5) adjustment, what minimum amount must be held in Government securities (first twenty-five per cent slab)?

The minimum is Rs 125 crore. The sum is 600 less 20 premiums less 30 loans, giving 550, then reduced by the Rs 50 crore ceded reinsurance under section 27(5) to 500. Twenty-five per cent of Rs 500 crore in Government securities is Rs 125 crore.

  1. ARs 125 croreCorrect
  2. BRs 137.5 crore
  3. CRs 150 crore
  4. DRs 112.5 crore

Explanation

Base sum is 600 less 20 less 30 = Rs 550 crore. Under section 27(5), cession reduces the sum by the liability ceded, so 550 less 50 = Rs 500 crore. Twenty-five per cent of 500 is Rs 125 crore. Rs 137.5 crore ignores the cession, and Rs 150 crore ignores all deductions. Rs 112.5 crore deducts the cession twice.

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