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CMA Final · Risk Management in Banking and Insurance · Life Insurance

Under Section 56(1) of the Insurance Act, 1938, in the winding up of an insurer, how may assets held in respect of life insurance business be applied?

Life insurance assets are ring-fenced. In a winding up, their value and the life liabilities are ascertained separately, and the assets can be used for other liabilities only to the extent they exceed the liabilities of the life insurance business. Free pooling with other assets is not permitted.

  1. AThey may be applied to other liabilities only to the extent they exceed the liabilities of the life insurance businessCorrect
  2. BThey may be freely pooled with all other assets to meet any liability
  3. CThey must be paid wholly to shareholders first
  4. DThey may be applied to general insurance liabilities up to half their value

Explanation

Section 56(1) requires the life assets and liabilities to be ascertained separately, and life assets cannot discharge other liabilities except to the extent they exceed life liabilities. Free pooling would defeat the ring-fencing of policyholders' funds.

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