Life Insurance Memorandum (LIM)
A.P. (DIR Series) (2002-2003) Circular No. 72, dated 17-1-2003, issued by Exchange Control Department, RBI
Attention
of authorised dealers is invited to the Notification No. FEMA 12/2000-RB, dated
May 3, 2000 viz., Foreign Exchange Management (Insurance) Regulations, 2000.
The Memorandum of Exchange Control Regulations relating to Life Insurance in
India (LIM) since brought out is enclosed. The major changes in procedure as
per Memorandum are summarised in the Annexure.
2. Necessary
amendments to the Foreign Exchange Management Regulations, 2000 are being
issued separately.
3. Authorised
Dealers may bring the contents of this circular to the notice of their
constituents concerned.
4. The
directions contained in this circular have been issued under section 10(4) and
section 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999).
ANNEXURE
Major
changes proposed in the revised LIM
|
Sr.No. |
Subject-Matter |
Changes |
|
1. |
Scope of Memorandum |
The earlier instructions of LIM covered only LIC
which was the only institution permitted to undertake the business of Life
Insurance. The present instructions contained in the Memorandum are
applicable to LIC as well as Life Insurance Companies which are registered
with IRDA. |
|
2. |
Re-insurance Arrangement |
The re-insurance arrangement of Life Insurance
Companies registered with IRDA are to be decided by the Company’s Board
themselves and IRDA is to be kept informed. Authorised Dealers designated by
these insurance companies are now permitted to make remittances falling due
under such approved re-insurance arrangements. |
|
3. |
Settlement of claims in foreign currency favouring
residents and crediting the same to RFC Accounts. |
In the LIM issued under FERA, residents were not
permitted to retain any receipts in foreign currency as the same had to be
surrendered to the authorised dealer within 7 days. Under FEMA resident
beneficiaries of foreign currency life insurance policies are being permitted
to retain the proceeds in foreign currency in RFC Accounts. |
|
4. |
Permitting credit of foreign currency claims
favouring non-residents to NRE/FCNR Accounts. |
In the revised LIM the proceeds of policies
denominated in foreign currency or the rupee policies for which premia are
paid in foreign currency or out of NRE/FCNR Accounts are now permitted to be
credited to NRE/FCNR Account of non-resident without prior approval of
Reserve Bank. |
|
5. |
Restrictions on issue of rupee policies to foreign
nationals |
The restrictions on issue of rupee policies maturing
within 7 years to foreign nationals not permanently resident in India have
been withdrawn. |
|
6. |
Export of Policies |
The restrictions in regard to export of policies
have been withdrawn under revised LIM. |
|
7. |
Instructions addressing Exchange Control concerns |
The revised LIM is modified in such a manner whereby
only issues of exchange control concern are addressed. Other operational
instructions not relating to exchange control have been excluded. |
LIM
Memorandum of Foreign
Exchange Regulations Relating to Life Insurance in India
Life
insurance business in India can be undertaken by insurance companies registered
with Insurance Regulatory and Development Authority (IRDA) and as per the
regulations notified by Reserve Bank of India under Notification Nos. 1 and
12/2000-RB, dated May 3, 2000.
Exchange
Control Regulations governing issue of life insurance policies in rupees and
foreign currencies to non-residents, collection of premia, settlement of
claims, maintenance and operations of foreign currency accounts abroad,
reinsurance, investment of surplus funds abroad and allied matters are set out
in this Memorandum. The receipt and payment of foreign exchange shall be as per
Notification FEMA 14/2000-RB, dated May 3, 2000 i.e. Foreign Exchange
Management (Manner of Receipt and Payment) Regulations. For current account
transactions, insurers may be guided by the rules notified by Government of
India vide G.S.R. 381(E), dated May 3, 2000, as amended from time to time and
the various notifications issued under FEMA 1999 by Reserve Bank.
For
the purpose of this Memorandum the terms “Person resident in India”, “Person
resident outside India” and “foreign currency” will have the same meaning as
defined under Foreign Exchange Management Act, 1999 (42 of 1999).
“Foreign
nationals” will have the same meaning as defined in Regulation 4 of FEMA
Notification No. 12/2000-RB, dated May 3, 2000.
“Person
of Indian Origin” will have the same meaning as defined in FEMA Notification
No. 5/RB-2000, dated May 3, 2000.
Issue of policies and collection of premia
(a) Residents
(i) Policies may be issued in foreign
currency to resident persons of Indian nationality or origin who have returned
to India after being non-resident provided the premia are paid out of
remittances from foreign currency funds held by them abroad or from their
Resident Foreign Currency (RFC) account with authorised dealers in India.
(ii) Policies denominated in foreign currency
or rupees may be issued to foreign nationals not permanently resident in India
provided the premia are paid out of foreign currency funds or from their income
earned in India or repatriable superannuation/pension fund in India.
(iii) Conversion of Rupee policies on the lives
of persons resident in India into foreign currency or transfer of records of
such policies to a country outside India is not permitted without prior
approval of Reserve Bank.
(b) Non-Residents
(i) Insurers may issue policies denominated
in foreign currency through their offices in India or abroad to non-residents
provided the premia are collected in foreign currency from abroad or out of
NRE/FCNR accounts of the insured or his family members held in India.
(ii) For policies denominated in rupees
issued to non-residents, funds held in NRO accounts can be accepted towards
payment of premia.
(iii) Policies issued to Indian nationals and
persons of Indian origin resident abroad by overseas offices of insurers may be
transferred to Indian register, together with the actuarial reserves held
against the policies, on the policy-holders’ return to India. Foreign currency
policies in such circumstances shall be converted into rupee policies except in
cases where the policy has been in force for at least 3 years prior to
policy-holder’s return to India and the policy-holder wishes to retain and
continue the foreign currency policy. Requests received for payment in foreign
currency towards premia on such policies may be permitted by authorised dealers
provided the policy-holder undertakes to repatriate to India the maturity
proceeds or any claim amounts due on the policy through normal banking
channels.
(i) The
basic rule for settlement of claims on rupee life insurance policies in favour
of claimants resident outside India is that payments in foreign currency will
be permitted only in proportion in which the amount of premia paid in foreign
currency in relation to the total premia payable.
(ii) Non-resident
beneficiaries of insurance claims/maturity/surrender value settled in foreign
currency may be permitted to credit the same to NRE/FCNR account, if they so
desire.
(iii) Resident
beneficiaries of insurance claims/maturity/surrender values settled in foreign
currency may be permitted to credit the same to RFC accounts, if they so
desire.
(iv) Claims/maturity
proceeds/surrender value in respect of rupee life insurance policies issued to
non-resident Indians for which premia have been collected in non-repatriable
rupees may be paid only in rupees by credit to NRO account of the beneficiary.
This would also apply in cases of death claims being settled in favour of
non-resident assignees/nominees.
(v) Claims/maturity
proceeds/surrender value in respect of rupee policies issued to foreign
nationals not permanently resident in India may be paid in rupees or may be
allowed to be remitted abroad, if the claimant so desires.
Insurers
may pay commission to their agents who are permanently resident outside India
regardless of the fact that part of the business booked by them may be on the
lives of persons resident in India and relative premia are paid in rupees in
India. Remittances of commission from India to such agents abroad will be
governed by instructions contained in Government Notification No. G.S.R.
381(E), dated May 3, 2000 relating to Current Account transactions as amended
from time to time.
In
terms of the existing instructions, reinsurance arrangements for the insurance
companies registered with IRDA are to be decided by the companies themselves on
an annual basis and approved by the respective insurance company’s Board in
consultation with IRDA. Authorised dealers, designated by these insurance
companies may allow remittances for the reinsurance arrangements in accordance
with the terms and conditions laid down by the respective Board of insurance
companies.
Insurers
may open, hold and maintain with a bank outside India foreign currency accounts
for facilitating transactions and expenses relating/incidental to life
insurance business undertaken in foreign countries in accordance with
regulations laid down in the Memorandum. Insurers should transfer to India
regularly all surplus funds held at foreign centres and endeavour to keep in
their foreign currency accounts only minimum balances required for normal
business.
Renewal
of existing investments, reinvestment of redemption proceeds of existing
investments and fresh investments out of funds held abroad, in
Government/Semi-Government securities and bank deposits may be made by insurers
freely without prior approval of Reserve Bank provided they are for meeting
statutory requirements in the foreign country concerned. All other investments
will require prior approval of Reserve Bank.
(i) Insurers
may freely use its foreign currency balances for meeting all the normal
expenses of its overseas offices inclusive of taxes and other dues in
connection with maintenance and upkeep of buildings and properties held by
insurers in foreign countries as well as purchase of cars for official use.
(ii) Insurers
may also freely use their overseas funds for settlement of provident fund,
gratuity and other retirement benefits to retiring employees of overseas
offices.
(iii) Insurers
may grant loans, without prior permission of Reserve Bank, to employees of
their overseas offices (other than Indian nationals who had been deputed or
posted from India) against provident fund balances held in the country
concerned provided loan recoveries will be made in foreign currency.