General Insurance business Act, 1972

The business of general insurance was nationalised through The General Insurance (Emergency) Provisions Ordinance promulgated on 13 May 1971 and thereby the business being carried on by 107 entities was consolidated and restructured into four companies namely The New India Assurance Company Limited, Bombay, United India Fire & General Insurance Company Limited, Madras, Oriental Fire & General Insurance Company Limited, Bombay and National Insurance Company Limited, Calcutta (New India Assurance Co. Ltd., United India Insurance Co. Ltd., The Oriental Insurance Co. Ltd., and National Insurance Company Co. Ltd. respectively).

The General Insurance Business (Nationalisation) Act, 1972 (GIBNA) that followed paved the way for the Government to take over ownership of these businesses. Accordingly, GIC was incorporated on 22 November 1972 as a private company under Companies Act, 1956[4] in Bombay and received its Certificate for Commencement of Business on 1 January 1973.

GIC’s stated role was to function as the holding company of the four companies, and superintend, control and carry on the business of General insurance on behalf of the Government of India.

The first Chairman of GIC was A Rajagopalan, an Actuary and an officer of the Indian Administrative Service (IAS). M K Venkateshan and S K Desai were appointed the two Managing Directors of GIC.

On 1 January 1973, GIC was notified as the reinsurer under Section 101 A of Insurance Act, 1938,[5] making it the Indian reinsurer for receiving obligatory cessions, a role hitherto played by two companies called India Reinsurance Corporation Limited (India Re) and Indian Guarantee and General Insurance Company Limited (Indian Guarantee).

GIC was reborn as a pure reinsurance company in November, 2000. It was re-notified as ‘Indian reinsurer’ under Insurance Act, 1938 and continued to receive obligatory cessions from direct insurers. It continued writing foreign inward reinsurance business purely on its own account from 1 April 2002.

With effect from 21 March 2003, the four subsidiaries were delinked from GIC by an administrative order from the Ministry of Finance and became directly owned by the Government.

An Act to provide for the acquisition and transfer of shares of Indian insurance companies and undertakings of other existing insurers in order to serve better the needs of the economy by securing the development of general insurance business in the best interests of the community and to ensure that the operation of the economic system does not result in the concentration of wealth to the common detriment, for the regulation and control of such business and for matters connected therewith or incidental thereto.

Effect of transfer of undertakings.

(1) The undertaking of every such existing insurer as is referred to in section 5 shall be deemed to include all assets, rights, powers, authorities and privileges and all property, movable and immovable, cash balances, reserve funds, investments and all other rights and interests in, or arising out of, such property as were immediately before the appointed day in the ownership, possession, power or control of such existing insurer in relation to the undertaking, whether within or without India, and all books of accounts, registers, records and all other documents of whatever nature relating thereto, and shall also be deemed to include all borrowings, liabilities and obligations of whatever kind then subsisting of the existing insurer in relation to the undertaking.

(2) Unless otherwise expressly provided by this Act, all deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments of whatever nature subsisting or having effect immediately before the appointed day and to which any such insurer as is referred to in section 5 is a party or which are in favour of such existing insurer shall be of as full force and effect against or in favour of the Indian insurance company in which the undertaking or the part to which the instrument relates has vested and may be enforced or acted upon as fully and effectually as if, in the place of the existing insurer referred to in section 5, the Indian insurance company in which the undertaking or any part thereof has vested had been a party thereto, or as if they had been issued in its favour.

(3) If, on the appointed day, any suit, appeal or other proceeding of whatever nature in relation to any business of the undertaking which has been transferred under section 5 is pending by or against any such existing insurer as is referred to in that section, the same shall not abate, be discontinued or be in any way prejudicially affected.

The objectives of this Code will be pursued having regard to the law, and acknowledging that a contract of insurance is a contract based on the utmost good faith.

Assignment

A policy of insurance is a contract of a personal nature and hence cannot be transferred by the insured without the consent of the insurer. In the case of life and personal accident insurances, the subject matter of the insurance is a life and is not amenable to transfer. An assignment of the policy in such cases is just an assignment of the right to receive the proceeds of the policy.

The Insurance Act lays down the mode of assignment and transfer of a life insurance policy. An assignment or transfer may be made only on satisfaction of the following conditions:

(i) An endorsement upon the policy itself or by a separate instrument;

(ii) The endorsement or instrument should be signed by the transferor or his agent and should be attested by at least one witness;

(iii) It should specifically set forth the fact of transfer or assignment.

Nomination

A policy holder of a life insurance policy on his own life has the right, either while effecting the policy or before it matures, to nominate a person to whom the money secured by the policy should be paid in the event of the death of the policy holder. An insurer is not bound by such nomination unless it is brought to his notice, endorsed on the policy and registered in the records of the policy. It is pertinent to note that a transfer of assignment of a policy automatically leads to cancellation of a nomination. Additionally, these provisions relating to nomination under the Insurance Act do not 16 apply to any policies under the Married Women’s Property Act, 1874.

Tax implications

Insurance companies and insurance agents, in India, are subject to tax for the premiums and the commissions received by them respectively, under the Indian Income Tax Act, 1963 (“Income Tax Act”).

The Income Tax Act deals with the computation of the income of the following insurance companies:

• Companies carrying on life insurance business which are resident in India;
• Companies carrying on any other kind of insurance business, which are resident in India; and
• Non-resident persons carrying on the business of insurance in India through a branch.

Taxation on Insurance Business

The Income Tax Act provides that the income tax payable on the profits and gains arising from the life insurance business will be calculated at the rate of 12.5% of such prof its and gains. An insurance company is required to deposit an amount equal to one-third of the tax, in a Social Security Fund as notified by the Central Government. Further, the insurance company is required to deposit an amount of not less than 2.5% of the profits and gains of the insurance business in such a Security Fund. Where the insurance company has deposited such an amount, the income tax payable by the insurance company will be reduced by that amount and the amount to be deposited in the Security Fund would also be calculated on the income tax so reduced.