1. Workshop On Financial Sector Assessment Programme Hyderabad 29 th December, 2010 DVS Ramesh

2. 2 Objectives ICP – 14 – Preventive and Corrective Measures Regulators are adequately backed by comprehensive legal structure with powers to safeguard the public interest. ICP – 15 – Enforcement or Sanctions Regulators are legally empowered to take action, where necessary, to ensure compliance to the Act and Regulations.

3. 04/12/20153 Preventive and Corrective Measures Core Principle: “Supervisory authority takes preventive and corrective measures that are ‘timely’, ‘suitable’ and ‘necessary’ to achieve the objectives of insurance supervision”. Regulatory intervention to protect policyholders Regulatory Response is based on problem detected Overall Enabling Tools: Insurance Act, 1938; IRDA Act, 1999 adequately equipped IRDA. Section 14 (2) – An Omnibus Provision

4. 04/12/20154 Essential Criteria a. Availability of Adequate Instruments for timely preventive and corrective measures  Specified returns within 6 months from the end of FY (Sec 15), Qly Accounts & Investment Returns, Solvency Margin returns, Monthly Business / Other Returns etc. b. Progressive Escalation of action or remedial measures  Call for Information, Inspection, Examine Books / Accounts / Officers on oath Investigation into the affairs of Insurer (Sec 33) and Search and seizure (Sec 34 H); Penalties (Sec 102), Suspension / Cancellation of License (Sec 3 (4))  Formal Advise to Warning Letters / Letters of Caution  Proposed Insurance legislation makes individuals jointly and severally liable to make good the loss for contravening investment provisions  Enhances certain penalties to Rs 25 Crores

5. 04/12/20155 Contd.... c. Authority shall have capacity and standing to communicate  From formal communications to Directions u/s 34, 110 C; d. Require insurers to develop an acceptable plan for correction of problems, if necessary  Financial Plan (Sec 64VA (2A); Modification of rates, terms and conditions of life policies (Sec 3B); requires insurer to take action (Sec 33(6)); directions regarding reinsurance treaties (Sec 34 F) e. Measures to prevent breach of law and promptly and effectively deals with non – compliance with regulation  Call for further information (Sec 21); Order the revaluation (Sec 22) Review of Returns, Examination of Grievances Areas to Strengthen  Risk Based Supervision  Powers to prescribe higher initial capital requirements in specific cases

6. 6 Enforcement and Sanctions Core Principle: “The Supervisory authority enforces corrective action and where needed imposes sanctions based on clear and objective criteria that are publicly disclosed. “ Decision making lines for remedial actions to be structured A range of actions available say from withholding approval for expansion to revoking the license Overall Enabling Tools: Fines and Penalties & Suspension and Cancellation of Licenses

7. Essential Criteria a. Issue formal directions and failure to comply has serious consequences Advices / Formal communications Directions u/s 27 D (3), 33 (6), 34, 14 (1) b. Power to prevent issuing new policies Sec 34 E (a) empowers IRDA to prohibit Insurers / any Insurer entering a particular transaction / Class of transactions Reg 27 Cease to transact new business 7

8. Contd… c. Compulsory Transfer of obligations from failing insurers  Sec 37 A empowers to prepare a scheme of amalgamation d. Requiring Capital levels to increase, restrict or suspend dividend or other payments to shareholders, restrict share transfer  Capital Levels not insurer specific, Prior approval for share transfer beyond a percentage and restriction on dividend (on Par Fund) 8

9. Contd… e. Effective means to address Management Problems and powers to impose conservatorship  Sec 34 A prior approval for appointment of CEOs/whole time directors; Sec 34 B empowers to remove managerial personnel; 34 C additional directors and 34 E (b) call for meeting of directors or depute its officers to watch the proceedings; Approval for Appointed Actuary  Sec 52 A Power to recommend appointment of Administrator for Life Insurance Business  Sec 52 H Power of Central Government to acquire undertakings of Insurers 9

10. Contd… f. Periodical checks to determine the compliance  Regular Reviews, additional returns or a follow up inspection (where necessary) g. Fines against Individuals and Insurers  Fine on individuals for acting as insurance intermediaries and for rebating  Rs 500, proposed to be escalated to Rs 10000 and to Rs 500000 respectively  Fine on Insurers for accepting business from other than licensed intermediaries  Rs 5000, proposed to be increased to Rs 1 Crores 10

11. Contd… h. Sanctions for withholding the information or misleading information  Sec 104 Empowers to penalize for false statements in the investment returns i. Barring individuals from acting in responsible positions  Part of overall due diligence – Scope for strengthening the procedures by disclosures 04/12/201511

12. Contd… j. Process of Sanctions do not delay preventive and corrective measures  Procedures in place to independently review these respective lines k. Powers to withdraw the license  Reg 23 Suspension of Certificate, Section 3 (4) empowers l. Powers to protect one or more insurers from financial difficulties of other parts of the group  Insurance business is relatively insulated and Policyholder’s funds are maintained separately  Abilities to infuse additional capital / Solvency Margin Review an ongoing process 12

13. Contd… m. Authority enforces the sanctions  Section 110 AA of the proposed Bill classifies the penalty imposed is recoverable as arrears of land revenue  Escalation Provisions ensure the compliance to sanctions n. Ensuring consistency in imposing sanctions  Procedures are in place 13

14. Contd… o. Authority takes action against individuals / entities operating insurance business without a licence.  Section 103 – Rs 5 lakhs penalty or with imprisonment up to 3 years  Issues Public Statements cautioning the public In the Proposed Bill the penalty was escalated to Rs 25 Crores with imprisonment up to 10 years 04/12/201514

15. 15 04/12/2015 Thank You