A life fund is a statutory fund maintained by a life insurance company consisting of all premiums received from life insurance business, investment income, and other receipts related to life insurance, from which claims, bonuses, annuities, surrender values, management expenses, and other liabilities are paid.
International Perspective—Under international insurance practice and insurance accounting principles, a Life Fund represents the accumulated assets held by a life insurer to meet present and future obligations to policyholders. It is essentially the policyholders' fund and is separated from shareholders' funds.
Bangladesh Perspective—According to Section 41 of the Insurance Act, 2010, every life insurer must maintain a separate Life Insurance Fund, and the assets of the fund shall be utilized only for purposes connected with life insurance business.
Objectives of Life Fund:
Protection of policyholders' interests.
Ensuring solvency of life insurers.
Meeting future claim liabilities.
Supporting actuarial valuation and bonus declaration.
1(b) Provisions relating to the appointment of an Advisor in an Insurance Company (6 Marks)
The appointment of an Advisor in an insurance company is governed by the Articles of Association, Section 81 of Insurance Act, 2010, Corporate Governance Guidelines issued by IDRA and regulatory directives.
1. Prior Approval of IDRA—An insurer must obtain prior approval from the Insurance Development and Regulatory Authority (IDRA) before appointing an advisor where such approval is required by regulatory directives.
Section 81 of the Insurance Act, 2010, reveals that notwithstanding anything contained in any other law for the time being in force or in the articles of association of an insurer, no insurer shall appoint more than 2 (two) advisers, and such appointment shall not be made without the approval of the Authority:
Provided that an adviser so appointed shall have specific duties and responsibilities and shall possess such qualifications and experience as may be prescribed by regulations.
Appointment of the Advisers. ÿNotwithstanding anything contained
in any other law for the time being in force or in the articles of association of an
insurer, no insurer shall appoint more than 2 (two) advisers and such
An appointment shall not be made without the approval of the authority:
2. Qualifications— The proposed advisor should possess the following:
Sound knowledge of insurance business.
Experience in management, finance, law, actuarial science, accounting, banking, economics, or related fields.
Good reputation and integrity.
3. Disqualifications—A person shall not be appointed as advisor if he:
Has been convicted of an offense involving moral turpitude.
Is declared bankrupt or insolvent.
Is involved in fraudulent or unethical activities.
Falls under any disqualification prescribed by the Insurance Act or IDRA regulations.
4. Scope of Duties of an Advisor:
Provides professional advice to the Board or management.
Does not exercise executive powers unless separately appointed to an executive position.
Does not participate in management decisions as a director.
5. Regulatory Oversight - IDRA may:
Examine the appointment.
Require the removal of an unsuitable advisor.
Issue directions regarding remuneration and responsibilities.
Purpose - The appointment of Advisors helps insurers obtain specialized expertise while ensuring proper corporate governance and regulatory compliance.
1(c) Procedures to Renew Registration Certificate of a General Insurance Company (5 Marks)
The provisions are contained in Section 11 of Insurance Act, 2010
Renewal Procedure
Step 1: Application
The insurer must apply to IDRA for renewal of registration before 30 September of the preceding year of the target year (starting from expiry of 1 January to 31 December) in the prescribed form.
Step 2: Submission of Documents
The application should be accompanied by:
Prescribed renewal fee with 15% VAT to be determined as Tk. 2.5 per thousand Taka gross premium of the preceding year of the application year.
Audited financial statements.
Solvency margin compliance certificate.
Reinsurance arrangements with SBC and/or reinsurers abroad.
Information regarding management and shareholding.
Any other documents required by IDRA.
Step 3: Regulatory Review
IDRA examines whether:
The insurer complies with the Insurance Act, 2010.
Capital requirements are maintained.
Solvency requirements are fulfilled.
Corporate governance requirements are observed.
Policyholders' interests are adequately protected.
Application made in compliance with Section 11 of Insurance Act, 2010.
Step 4: Payment of Fees
The prescribed renewal fee must be paid within the stipulated time with 15% VAT.
Step 5: Grant of Renewal
If satisfied, IDRA renews the registration certificate for the prescribed year.
Grounds for Refusal—IDRA may refuse renewal if:
Solvency margin is inadequate.
Statutory requirements are violated.
Required documents are not submitted.
The insurer acts against policyholders' interests.
1(d) Whether Progressive Life Insurance Company Ltd. can nominate Mr. Karim as Director of Popular Life Insurance Company Ltd.? (6 Marks)
Facts
Mr. Karim is the Managing Director of Progressive Life Insurance Company Ltd.
Progressive Life Insurance Company Ltd. is a qualifying shareholder of Popular Life Insurance Company Ltd.
Progressive Life wishes to nominate Mr. Karim as its nominee director on the Board of Popular Life Insurance Company Ltd.
Legal Analysis
Under Insurance Act, 2010 and Corporate Governance Guidelines for Insurers issued by IDRA, the proposal is generally not permissible. Sec 75 of Insurance Act, 2010 reveals the restriction on becoming directors simultaneously of more than one insurer or insurer and bank-company or financial institution. Notwithstanding anything contained in any other law for the time being in force, a director of any insurer shall not be a director of another insurer registred fot the same class of insurance business or any bank company or financial institution.
Reasons
1. Conflict of Interest
Both companies are life insurance companies and competitors in the same market.
Appointment of the Managing Director of one insurer as director of another insurer of similar class may:
Create conflict of interest.
Result in sharing of confidential information.
Affect fair competition and independent decision-making.
2. Corporate Governance Requirements
IDRA Corporate Governance Guidelines require:
Independence of directors.
Avoidance of conflicting business interests.
Protection of policyholders' interests.
3. Restrictions on Key Management Personnel
The managing director is a Key Management Person (KMP). A KMP of one insurer should not hold a position that may compromise fiduciary duties to another insurer.
4. International Best Practice
International insurance regulatory standards issued by the International Association of Insurance Supervisors emphasize:
Sound governance.
Avoidance of conflicts of interest.
Independent oversight of insurers.
Allowing the CEO/Managing Director of one insurer to sit on the board of another insurer may violate these principles.
Closing Remark:
The proposal should not be approved.
Although Progressive Life Insurance Company Ltd may be a qualifying shareholder entitled to nominate a director, the nomination of its Managing Director, Mr. Karim, as director of another life insurance company would create significant conflict-of-interest and corporate governance concerns. Therefore, under the spirit of the Insurance Act, 2010, IDRA Corporate Governance Guidelines, and international insurance governance standards, IDRA is likely to object to or refuse such nomination. A person who is not involved in the day-to-day management of Progressive Life Insurance Company Ltd should be nominated instead.
2. a) Explain the provision relating to payment of premium by a policyholder from overseas'
b) In connection with life, Fire and marine insurance, what is meant by the term 'insurable interest'?
c) What procedure is to be followed for the appointment of a director in an insurance company?
d) When is the 'Principle of Contribution' is applicable? (3+6+6+5)=20
2.a) Explain the provision relating to payment of premium by a policyholder from overseas. (3 Marks)
When a policyholder resides outside Bangladesh, the insurance premium may be remitted from abroad through authorized banking channels in compliance with insurance laws and foreign exchange regulations.
Under the Insurance Act, 2010, Foreign Exchange Regulation Act, 1947, and directives of Bangladesh Bank, premium payment from overseas is permitted subject to the following conditions:
Premium must be remitted through an Authorized Dealer (AD) Bank or any legally approved remittance channel.
The insurer must maintain proper records of foreign remittances.
Premium received in foreign currency must comply with Bangladesh Bank's foreign exchange regulations.
Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements must be observed.
The insurer must issue official receipts and account for such premium in its books of accounts.
Internationally, insurance regulators permit cross-border premium payments through regulated banking systems, subject to:
AML/CFT compliance;
Foreign exchange regulations;
Verification of the policyholder's identity and source of funds.
(b) In connection with life, fire, and marine insurance, what is meant by "insurable interest"? (6 Marks)
"Insurable interest" means a legally recognized financial or pecuniary interest in the subject matter insured whereby the insured benefits from its preservation and suffers loss from its destruction or damage.
It is one of the fundamental principles of insurance recognized worldwide.
International Principle—Under English common law and international insurance practice:
"No insurance contract is valid unless the insured has an insurable interest in the subject matter."
The doctrine prevents wagering or gambling contracts.
Insurable Interest in Life Insurance
In life insurance, insurable interest must exist at the time the policy is taken out.
Examples- A person has insurable interest in:
His own life.
Spouse's life.
Child's life.
Business partner's life.
Debtor's life to the extent of debt.
Nature- Once validly established at policy inception, it need not continue throughout the policy period.
Insurable Interest in Fire Insurance
In fire insurance, insurable interest must exist:
At the commencement of the policy; and
At the time of loss.
Examples
Owner of property.
Tenant.
Mortgagee.
Bailee.
Trustee.
Purpose - The insured must suffer financial loss if the property is damaged by fire.
Insurable Interest in Marine Insurance
Under international marine insurance law, particularly principles reflected in the Marine Insurance Act 1906, insurable interest must exist at the time of loss.
Examples
Owner of ship.
Cargo owner.
Consignee.
Mortgagee.
Freight owner.
Importance
A person without financial interest in the ship or cargo cannot recover marine insurance claims.
Significance of Insurable Interest
Prevents gambling.
Ensures legality of insurance contracts.
Protects public policy.
Reduces moral hazard.
Supports indemnity principle.
(c) What procedure is to be followed for appointment of Director in an Insurance Company? (6 Marks)
The appointment of directors is governed by the Insurance Act, 2010, the Companies Act, and IDRA Corporate Governance Guidelines for Insurers.
Step 1: Identification of Candidate
The proposed director must satisfy:
Educational qualifications.
Experience requirements.
Fit and proper criteria.
Good reputation and integrity.
Step 2: Board Approval
The Board of Directors considers the nomination and passes a resolution recommending the appointment.
Step 3: Due Diligence
The company verifies:
Absence of criminal conviction.
Financial soundness.
No conflict of interest.
Compliance with statutory requirements.
Step 4: Submission to IDRA
The insurer submits relevant documents to IDRA, including:
Personal profile.
Educational qualifications.
Experience certificate.
Declaration regarding eligibility and fit-and-proper status.
Other documents required by IDRA.
Step 5: Approval/No Objection from IDRA
For appointments requiring regulatory clearance, IDRA examines whether the candidate:
Meets legal requirements.
Is suitable to serve as director.
Will not compromise policyholders' interests.
Step 6: Appointment and Reporting
Upon completion of statutory requirements:
Director is formally appointed.
Necessary filings are made.
Shareholders are informed where required.
Disqualifications
A person may be disqualified if:
Declared bankrupt.
Convicted of offences involving moral turpitude.
Found guilty of fraud or financial misconduct.
Violates fit-and-proper requirements prescribed by IDRA.
International Standards
The International Association of Insurance Supervisors Insurance Core Principles require insurers to ensure that directors are:
Competent;
Honest;
Financially sound;
Independent in judgment.
(d) When is the principle of contribution applicable? (5 Marks)
The principle of contribution applies when the same subject matter is insured against the same risk with more than one insurer and the insured suffers a loss.
Each insurer contributes proportionately to the loss so that the insured receives only one full indemnity.
Conditions for Application
Contribution applies only when:
1. Two or More Policies Exist: The insured has multiple insurance policies.
2. Same Subject Matter: All policies cover the same property or interest.
3. Same Insured: The same person is insured under all policies.
4. Same Risk: The policies cover identical risks.
5. Actual Loss Occurs: A compensable loss has occurred.
6. Contract is a Contract of Indemnity: Contribution applies only to indemnity insurance.
Example
A factory is insured:
Insurer A = Tk. 60 lakh
Insurer B = Tk. 40 lakh
Total Insurance = Tk. 100 lakh
Actual Loss = Tk. 50 lakh
Contribution:
Insurer A pays = 60/100 × 50 = Tk. 30 lakh
Insurer B pays = 40/100 × 50 = Tk. 20 lakh
Thus, the insured receives only Tk. 50 lakh, not Tk. 100 lakh.
Where Contribution Applies
Fire Insurance
Marine Cargo Insurance
Motor Property Damage Insurance
Engineering Insurance
Property Insurance
Where Contribution Does Not Apply
Life Insurance
Personal Accident Insurance (generally)
Other non-indemnity contracts
Purpose
Prevents unjust enrichment.
Ensures equitable sharing among insurers.
Upholds the Principle of Indemnity.
Protects the insurance market from abuse.
Closing Remark: The Principle of Contribution is an internationally recognized doctrine applicable where multiple insurers cover the same risk under contracts of indemnity, ensuring that the insured receives compensation only for the actual loss suffered.
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