Section 101A of IA : Section 101A: Re-Insurance With Indian Re-Insurers

Explanation using Example

An insurance company, 'SafeGuard Insurance Ltd.', which offers fire insurance policies in India, is required to comply with Section 101A of the Insurance Act, 1938. To illustrate the application of this section, consider the following scenario:

SafeGuard Insurance Ltd. issues a fire insurance policy with a sum assured of INR 10 crore. The Insurance Regulatory and Development Authority (IRDA), with the approval of the Central Government, has notified that insurers must re-insure 20% of the sum assured on each policy with Indian reinsurers.

According to Section 101A(1), SafeGuard Insurance Ltd. must therefore re-insure INR 2 crore (20% of INR 10 crore) with Indian reinsurers. The IRDA has also specified, under Section 101A(2)(b), that this amount should be allocated among various Indian reinsurers in specified proportions.

If SafeGuard Insurance Ltd. decides, as per Section 101A(3), that it wants to re-insure a different amount from the first surplus of its fire insurance business, it must ensure that the total premium paid for re-insurance is not less than 20% of its premium income from fire insurance policies for that year, excluding premiums from re-insured or accepted re-insurances.

Additionally, under Section 101A(4), any terms and conditions specified by the IRDA in the notification must be adhered to by SafeGuard Insurance Ltd. when transacting the required re-insurance business.

Finally, under Section 101A(7), SafeGuard Insurance Ltd. is allowed to re-insure more than the specified 20% with Indian reinsurers if it chooses to do so, ensuring greater risk coverage and financial stability for the company.