IRDA Notification No: IRDA/INSP/ORD/ONS/083/04/2015 (27-Apr-15) In the matter of M/s United India Insurance Company Limited


Based on reply to the Show Cause Notice dated 6th August, 2014 and Submissions made during Personal Hearing taken by Chairman, IRDA on 18th November, 2014 at 3.30 PM at the office of Insurance Regulatory and Development Authority of India, 3rd Floor, Parishrama Bhavanam, Basheerbagh, Hyderabad.

The Insurance Regulatory and Development Authority of India (hereinafter referred to as "the Authority") carried out an onsite inspection of M/s United India Insurance Company Limited (hereinafter referred to as "the general Insurer"), having Registered & Head office at 24 Whites Road, Chennai, from 6th to 17th February, 2012. The Authority forwarded the copy of the Inspection Report to the Insurer seeking comments of the Insurer on the same.

Upon examining the submissions made by the Insurer, the Authority issued Show Cause Notice on 6th August, 2014 which was responded to by the Insurer vide letter dated 6th September, 2014. As requested therein, a personal hearing was given to the Insurer on 18th November, 2014.

Mr. Milind Kharat, Chairman cum Managing Director, Smt Asha Nair, General Manager and Director, Mr.M.Vasantha Krishna, General Manager and Director, Mr.Ch.Narasimha Rao, Deputy General Manager & Chief Compliance Officer, Mr.R.Shiva Kumar, Deputy General Manager, Mr.S.Venkataraman, Chief Manager and Company Secretary, Smt Meena Shenbagaraman, Assistant Manager were present in the hearing on behalf of the general insurer. Chairman, IRDAI took the hearing and Mr.M.Ramaprasad, Member (Non life), Dr (Ms) Mamta Suri, the then Sr.JD(Inspections & Compliance), Mr. Suresh Mathur, Sr.JD(Non-life), Mr.G.R.Surya Kumar, DD and Mr.K.Sridhar, AD (I&C) were present during the personal hearing.

The submissions made by the Insurer in their written reply to the Show Cause Notice as also those made during the course of the personal hearing have been taken into account.

The findings on the explanations offered by the general insurer to the issues raised in the Show Cause Notice and the decisions thereon are detailed below.

1. Charge 1

Inspection Observation:

It was observed that the company has not calculated the percentage of AAA/P1+ rated debt instrument to total rated debt instrument as prescribed at note 7 to Reg. 4 of IRDA (Investment) Regulations 2000 as amended upto 2008. This lead to submission of incorrect information at Point IV-h of Form-4 of quarterly investment returns and non compliance for the quarters ending March, 2011, Sep, 2011 & Dec, 2011.

Violation of

a) Note 7 to Reg. 4 of IRDA (Investment) Regulations 2000 as amended upto 2008.

b) Submission of incorrect information under Point IV-h of Form-4 prescribed under IRDA (Investment) Regulations, 2000.

Submission made by the Insurer:In accordance to Sec 27(B)(3) of the Insurance Act and Note (7) to IRDA Investment Regulation read with Point no.IV(h) of Form 4, the company while furnishing Form 4 exposure requirements has calculated the required percentage on approved debt instruments instead on debt instruments. In view of the company, the process adopted complies with the Act and Regulations.


It is observed that the company was wrongly interpreting the relevant provisions of the Insurance Act 1938 read along with IRDA(Investments) Regulations 2000 as amended upto 2008 in the context of exposure to AAA/P1+ debt instruments. However, during the submissions made by the insurer at the time of hearing and later on, it was brought to the notice of the Authority that the company has complied with the requirements of the regulations and Act during the 6 quarters ending from June, 2013 to Sep, 2014 and the percentage of AAA/P1+ rated debt instrument to total approved debt instruments has remained above 88%. In this connection it is relevant to mention that the extant regulations pertaining to investment have undergone amendments in the year 2013 which revised the exposure to AAA/P1+ debt instruments to 65% of the total approved debt instruments including Government securities as against the earlier provision of 75% of the approved investment excluding government securities. Since the company is complying with the exposure to rated instruments as per the submissions made, the charge is not pressed.

2. Charge 2

Inspection Observation:

It was observed that the rating for the long term debentures was wrongly captured by the insurer while arriving at rating exposure as on 31-12-2011. The insurer has not put in place necessary system to monitor and capture movement in the rating of its investments from time to time and report the same under various periodical returns to the Authority.

Violation of

a) Point C-3 (a & b) under Annexure-III of Investment Risk Mgmt Systems & Processes prescribed under IRDA (Invst) (Fourth Amendment) Regulations, 2008 issued vide circular dated 22nd Aug,2008.

b) Clause 6 of Corporate Governance guidelines read with point 5(e & f) of Annexure 1 on ''Responsibilities of Board of Directors'' of circular no.IRDA/F&A/ Cir/ 025/ 2009-10 dated 05/08/2009.

Submission made by the Insurer: Insurer submitted that the downgrades were inadvertently missed out. The company further informed that it is now using ''Cogencis'' software through which current ratings of debt instruments are downloaded and automatic reclassification as per IRDA code is also incorporated in the e-Treasury system w.e.f Oct 2013. The company has also submitted that appropriate internal controls have been placed to ensure that downgrading or changes in rating are immediately incorporated.


While taking note of the insurer''s submission, on using IT applications for automatic reclassification on the basis of current market ratings of investments, the Authority advices the insurer to ensure that all necessary IT systems should be in place at all times which would appropriately provide for checks and balances to produce data with integrity to the satisfaction of the regulatory compliances. The Investment Committee of the Board may be apprised of this observation so as to ensure compliance at all times.

3. Charge 3

Inspection Observation:

Many issues with regard to full implementation of mandatory Investment Risk Management Systems and Processes (as per Annexure-III of investment guidelines, 2008) were pending and to this insurer informed that the matter was taken up with service provider.

Violation of

a) Guidelines given under Point A-5, B-2 & C (3a, 4a & 5a) of Annexure 3 of Investment Risk Mgmt Systems & Processes prescribed under IRDA (Invst) (Fourth Amendment) Regulations, 2008 issued vide circular dated 22nd Aug, 2008.

b) Point B (5) of IRDA circular INV/CIR/23/2009-10, dated 4-8-2009 on audit of investment risk management systems and process.

c) Clause 6 of Annexure II of IRDA Guidelines on Corporate Governance Circular no. IRDA/F&A/Cir/025/2009-10 dated 05/08/2009.

Submission made by the Insurer:The company submitted that all the issues raised by Investment Risk Management System & Process (IRMSP) auditors and by the Concurrent Auditor are resolved. The DR site is developed and data is transferred on real time basis. The software is being continuously updated as per the requirements of the Regulator and all the IRDA returns are generated through the system and filed on time with IRDA.


The Authority notes that the company has started an off-site backup data with mirror image on real time basis in a city falling under a different seismic zone, generating all reports through the system and all the other issues raised by auditors being resolved, no charges are pressed.

4. Charge 4

Inspection Observation:

On random examination of process followed by the insurer in classifying equity investments among ''approved investments'' and ''other investments'', it was observed that though the dividend criteria was not met as on 31-12-2011, some of the investments were still categorized as ''approved investments''.

Violation of

a) Procedure prescribed under Sec. 27B (1) (g & h) of Insurance Act, 1938.

b) Note point 5 given under Regulation 4 of IRDA (Investment) Regulations, 2000.

c) Point C-3-c under annexure III of circular dated 26-12-2008.

d)Point IV (g) of ''Form 4 - Exposure and other norms - quarterly compliance certificate'', prescribed under IRDA (Investment) Regulations, 2000, by wrong confirmation on classifying of equity investments among ''approved investments'' and ''other investments''.

Submission made by the Insurer: The Company has taken note of the observation and is now changing the category of investment on a quarterly basis thereby changing from the yearly basis approach followed previously. Also informed that on a corporate action and change in the category will result in automatic modification of the IRDA code for equity into approved/unapproved on quarterly basis.


Keeping in view the submissions of the insurer regarding putting in place the IT systems for classification of equities and other instruments of investments to enable them to ensure exposure to approved and other than approved investments as per the regulatory framework, the Authority is not pressing this charge.

5. Charge 5

Inspection Observation:

For estimating IBNR provision in respect of Personal Accident (PA) business, the insurer has excluded 6 (unusual) large claims paid in the financial year 2010-11 totaling to Rs. 40.80 crores. But, no such paid claims were excluded from the estimation process in respect of previous year''s data.

As a result ultimate loss ratio estimated for the year 2010-11 was significantly lower than the previous year''s experience. Criteria for identifying any unusual or large claims and how...

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