Foreign Exchange Management (Insurance)Regulations, 2000

AP(DIR Series) Circular No.18 (September 12, 2002)

RESERVE BANK OF INDIA

EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI – 400 001

AP(DIR Series) Circular No.18

September 12, 2002

To

All Authorised Dealers in Foreign Exchange

Dear Sirs/Madam,

Foreign Exchange Management (Insurance)Regulations, 2000

Attention of authorised dealers is invited to the Notification No.FEMA 12/2000-

RB dated 3rd May 2000 viz. Foreign Exchange Management (Insurance) Regulations,
2000. The Memorandum of Exchange Control Regulations relating to General Insurance
in India (GIM) since brought out is enclosed. The major changes in procedure as per the
Memorandum are summarised in the Annexure.

2. Authorised dealers may bring the contents of this circular to the notice of their
constituents concerned.

3. The Directions contained in this circular have been issued under Section 10(4)
and Section 11(i) of the Foreign Exchange Management Act, 1999 (42 of 1999).

Yours faithfully,

Grace Koshie

Chief General Manager

 ANNEXURE

[A.P.{DIR Series) Circular No.18

dated September 12, 2002]

Major changes effected in the revised GIM

Sr. Subject matter Changes

No.
1. Scope of The earlier instructions of GIM covered only public sector
Memorandum general insurance companies. The present instructions
contained in the Memorandum are applicable to public sector
general insurance companies as well as general insurance
companies which are registered with IRDA.

2. Reinsurance The reinsurance arrangement of public sector general

Arrangement insurance companies registered with IRDA are to be decided
by the respective Boards of the insurance companies and
IRDA is to be kept informed. ADs designated by these
insurance companies are now permitted to make remittances
falling under such approved reinsurance arrangements without
reference to the Bank.

3. Remittance of ADs have been permitted to allow remittance of reinsurance

Reinsurance Premia premia by local brokers of insurance companies after
by local brokers verifying debit notes from the overseas insurance company,
statement of account and CA’s certificate of broker certifying
the sum etc.

4. Foreign currency Public sector general insurance companies and general

accounts abroad insurance companies registered with IRDA are permitted to
open, maintain and hold a foreign currency bank account with
a bank outside India for the purpose of facilitating
transactions and expenses relating/ incidental to general
insurance business undertaken in foreign countries.

5. Settlement of claims For settlement of claims in foreign currency in respect of

in foreign currency policies issued in foreign currency, insurance companies are
now permitted to make remittances subject to certain
condition as stipulated in the Memorandum, without reference
to Reserve Bank as required in the past.
 GIM

MEMORANDUM OF EXCHANGE CONTROL REGULATIONS RELATING

TO GENERAL INSURANCE IN INDIA

Introduction

General insurance business in India is undertaken by insurance companies which are

registered with Insurance Regulatory and Development Authority (IRDA).
Scope of Memorandum
2. (i) Exchange Control regulations governing general insurance business written in
India are set out in this Memorandum.
(ii) Directions contained in this Memorandum have been issued under Section
10(4) and Section 11(1) of Foreign Exchange Management Act 1999 (42 of
1999).

Definitions
3. For the purpose of this Memorandum, the terms "Person resident in India" and
"Foreign Currency" will have the same meaning as defined under Foreign Exchange
Management Act, 1999.

Bank Encashment Certificates

4. Where Insurers have been permitted to issue policies expressed in foreign currency
against premium payable in foreign currency, they should insist on submission of suitable
document to satisfy themselves that the premium has been received by foreign exchange
remittance through banking channels or in rupees derived by sale of foreign exchange to
an authorised dealer in foreign exchange or an authorised money-changer.

Direct Insurance outside India by Residents

5. Persons, firms, companies etc. resident in India are not permitted to take insurance
cover of any kind with insurance companies in foreign countries without the prior
permission of Reserve Bank. Besides, permission of Government of India under General
Insurance Business (Nationalisation) Act, 1972, is also required to be taken in such cases.
Transaction in Nepal and Bhutan
6. Indians, Nepalese and Bhutanese resident in Nepal and Bhutan as well as offices

and branches of Indian, Nepalese and Bhutanese firms, companies or other organisations

in these two countries are treated as resident in India for purposes of transactions in

Indian rupees. Payment of claims to such persons against marine or non-marine policies

may be freely made in rupees. Payments in foreign currency towards claims under

marine or non- marine policies will require prior approval of Reserve Bank, except where

premiums thereon were also collected in foreign currency.

7. The Memorandum is divided into four parts as under

PART A - MARINE INSURANCE
PART B - NON-MARINE INSURANCE
PART C - REINSURANCE
PART D - FOREIGN CURRENCY ACCOUNTS AND
INVESTMENTS ABROAD

PART A - MARINE INSURANCE

Currency in which Marine Policies may be issued
A.1 (i) Marine insurance policies on coastal shipments may be issued only in
Indian rupees.
(ii) Marine insurance policies on shipments between India and other countries
as also between two points outside India may be issued in rupees or in any
foreign currency

Premiums on Marine Policies covering Exports

A.2 Payment of premium on a marine insurance policy on exports from India may be
accepted in rupees provided exporter furnishes to the insurer a certificate to the effect
either (a) that insurance charges on the shipment in question have to be borne by him in
terms of contract with overseas buyer and that he is not making the payment on behalf of
any non-resident or (b) that he is defraying insurance charges on the shipment in question
on account of overseas buyer of the goods and he undertakes to add the amount on the
invoice and recover the payment so made from the buyer in an approved manner.
 NOTES:A. Overseas buyers may sometimes approach Insurers directly or through
their overseas offices/agents for extension of cover for additional risks or for
extended transit risks necessitated by circumstances not envisaged when the marine
insurance was originally covered in India with the Insurers. Such extensions may be
made by Insurers provided the additional premiums are collected from overseas
buyers in foreign currency.
B. Certain countries operate restrictions requiring importers in their countries to
obtain marine insurance cover from local insurers, settlement under which may not be
possible in the event of cargo getting lost before reaching port of destination due to
Exchange Control regulations governing remittances against imports into those countries.
Insurers may issue in such cases, contingency marine insurance policies to exporters to
protect their interest till goods are paid for. The policies should be issued with a
condition that they will not be assignable to overseas buyer or any other non-resident
party. Claims on such policies should be paid only to exporters in India.
Premiums on Marine Policies covering Imports
A.3 (i) Payment of premium on a marine insurance policy on imports into India
may be accepted in rupees provided importer furnishes to the insurer a
certificate to the effect that (a) the insurance charges are required to be
borne by him in terms of the contract with the overseas seller and (b)
where the import is made against an Import Licence, he undertakes to
ensure that the amount of insurance premium is endorsed on the import
licence in due course.
(ii) In case of imports by the public sector (viz. Central Government, any
State Government, Statutory or public bodies and Government
undertakings), payment of insurance premium in rupees may be freely
accepted.
(iii) In all other cases, where payment of premium in respect of imports is
offered in rupees, prior approval of Reserve Bank will be required.
Applications for the purpose should be made by letter (in duplicate)
furnishing full particulars.

Premiums on Marine Policies covering

Shipments between Countries outside India
A.4 (i) Premiums on marine insurance policies covering shipments between

countries outside India must ordinarily be received in foreign currency, but payment in

rupees may be accepted provided a certificate from an authorised dealer in foreign

exchange is produced to show that the rupees are derived by a remittance from abroad in

an approved manner.

NOTE: Overseas offices of the Insurers may grant marine insurance cover for trade

between China and third countries and receive premium/settle claims through foreign

currency accounts maintained by their overseas offices without prior approval of

Reserve Bank.

(ii) Sometimes, firms and companies in India finance merchanting trade i.e.

goods shipped from one foreign country to another and financed by an

intermediary in India. In some of these cases goods may be purchased on

f.o.b./c.& f. terms and/or sold on c.i.f. terms, the marine insurance cover

being arranged by the intermediary in India. Insurance companies

registered with IRDA may issue policies covering transit risks between the

loading and the destination ports in rupees or in any foreign currency in

such cases, against payment of premium in rupees by the intermediary,

after satisfying themselves that the contract provides for marine insurance

being taken by the intermediary.

Claims against Marine Policies

A.5 Claims against marine insurance policies, when payable to persons, firms or

companies in India should be paid only in rupees, irrespective of the currency in which

relative policies had been issued. Where claimant is not a resident of India, Insurers may
settle the claim out of foreign currency balances held by them, provided they are satisfied

that ownership of the goods lost, damaged etc., vests in such claimant and that the latter

is not making the claim merely as agent of the real owner of the goods in India.

Remittance of Claims on Exports

A.6 (i) In the case of marine claims against exports, remittances of claim will be

permitted by authorised dealers in foreign exchange on application on form A2 provided

the Insurer has satisfied himself that the ownership of the goods on which claim has

arisen vests in the non-resident claimant. Applications should be supported by following

documents:

(a) Statement of claim duly certified by an official authorised by the

insurance company registered with IRDA for this purpose.

(b) Insurance policy.

(c) Survey report or other customary proof of loss.

(d) Bill of lading/Airway bill.

(e) Certified copy of invoice.

(f) Any other documents ordinarily required to support the claim.

Where original documents are not available for any reason, photo copies may be

produced to authorised dealer together with reasons for non-availability of the

original documents. This provision does not apply to remittances for replenishment

of foreign currency balances which will require specific approval of Reserve Bank.

NOTE: Insurers may settle claims in rupees in favour of Indian exporters even in

cases where title to the goods has passed to foreign buyer, if a request to that effect

has been made by the non-resident claimant. A certificate indicating full particulars
 of the transaction including number of relative GR/PP form and amount paid in

settlement of claim should be issued to the exporter to enable the latter to obtain

necessary approval from Reserve Bank for making replacement shipments.

(ii) Claims against marine insurance policies covering exports may also be

settled through the overseas claims settling agents, if so desired by

insurers. Authorised dealers have been permitted to open revolving letters

of credit in favour of established claims-settling agents abroad and

reimburse claims under the credit on verification of the necessary

documentary evidence viz. statement of claim, survey report or other

documentary evidence of loss/damage, original policy or certificate of

insurance etc.

Payment in Foreign Currency of certain Import Claims

A.7 Although it is a basic rule that marine claims on imports should be settled locally

in rupees in favour of importer in cases where ownership of the goods lost, damaged, etc.

vests in the importer, Insurers may settle claims from their foreign currency balances in

favour of overseas suppliers in the following categories of imports, in order to facilitate

early replacement of the lost, damaged, etc. goods, on request being received in this

regard from importers:

(a) Imports by Government Departments and public sector undertakings

(b) Imports by private sector undertakings against foreign credits provided the

terms of the foreign credit require that insurance cover should be taken in

foreign currency for replacement of lost/damaged goods.

 (c) In all other cases, where the ownership of the goods lost/damaged, etc.

vests with the overseas supplier and no payment has been made towards

any part of the cost of the goods.

These provisions are applicable not only to marine policies, but also to marine-

cum-erection policies, whether issued separately or combined.

Claims on Policies Covering Merchanting Trade

A.8 Claims arising from marine insurance policies covering merchanting trade

financed through India may be settled by Insurers from their foreign currency balances

only if -

(a) the ownership of the goods vests with the overseas party and

(b) where the claim is proposed to be settled in favour of the overseas

supplier, payment for the goods has not been made to the supplier and

where claim is proposed to be settled in favour of the overseas buyer,

payment for the goods has been received by the Indian intermediary from

the buyer.

PART B - NON-MARINE INSURANCE

Assets in India

B.1 Insurance cover on risks inside India (including All Risks Insurance)on assets in

India owned by residents of India may be issued only in rupees. This is also applicable to

assets of Indian branches/offices of foreign companies, banks, etc.

Assets outside India

B.2 Non-marine risks in respect of assets outside India owned by residents of India

may be covered in rupees or in foreign currency provided that in respect of immovable

property held outside India by Indian nationals, permission of Reserve Bank for holding

the property had been obtained, (where necessary). Settlement of claims under such

policies should be made only in rupees locally. Foreign currency policies providing for

payment of claims in foreign currency in the foreign country may, however, be issued

only if the premiums are paid in foreign currency out of eligible foreign currency assets

held by Indian nationals/persons of Indian origin who have returned to India from abroad

after a minimum continuous stay abroad for at least one year or out of funds held in their

RFC accounts with authorised dealers in India. Issue of foreign currency policies in other

cases will require prior approval of Reserve Bank.

Policies in foreign currency approved by Reserve Bank-

Settlement of claims

B.3(i) Request for issue of policies in foreign currency which are not covered by the

above guidelines are examined on merits by RBI. For such requests where RBI grants

specific approval for issue of policy in foreign currency, acceptance of premium in

foreign currency and settlement of claim in foreign currency, insurers may approach

A.D. for remittance of claims under policies subject to the following conditions :-

(a) the policy has been issued in foreign currency with specific approval of

RBI;

(b) the claim has been admitted by the competent authority of the insurance

company.

(c) the claims has been settled as per the surveyors report and other

substantiating documents;
 (d) claims on account of reinsurance are being lodged with the reinsurers and

will be received as per reinsurance agreement;

(e) the remittance is being made to the non-resident beneficiary under the

policy. For resident beneficiaries the claim may be settled in Rupee

equivalent of foreign currency due. Under no circumstances payment in

foreign currency be made to a resident beneficiary.

B.3 (ii) Insurers may submit, to the Regional Office of RBI under whose

jurisdiction it operates, a report on quarterly basis of the claims settled in foreign

currency along with supporting documents of each claim settled by them. These reports

may be submitted within 15 days from the end of each quarter of the calendar year.

Baggage and Valuables in transit

B.4 (i) Insurance cover on baggage or valuables in transit between India and other

countries or between two countries outside India may be issued in rupees or in foreign

currency.

(ii) Premiums on such policies may be collected in rupees only if the owner of

the baggage or other valuables is either an Indian national or is normally

resident in India. In other cases, premiums should be received in foreign

currency or in rupees derived by surrender of foreign currency to an

authorised dealer in foreign exchange or authorised money-changer; such

payments should be supported by a certificate from the authorised

dealer/money-changer in the prescribed form.

(iii) Claims on such policies may be paid only in rupees in India except where

the policy holder is a person normally resident outside India and premiums
 against the policy had been collected either in foreign currency or in

rupees derived by surrender of foreign currency. Remittances of claims in

foreign currencies in other cases will require prior approval of Reserve

Bank.

(iv) Remittances towards claims on personal baggage reshipped from India by

foreign nationals on completion of their assignments in India may be

allowed by insurers, if they are eligible for or have been accorded

remittance facilities at the time of retirement from India.

War etc. Risks Insurance on Marine Hulls

B.5 Insurance on Indian marine hulls covering All Risks against war and other allied

risks arising out of civil commotion, political or labour disturbances etc. are required to

be obtained from the Insurers in India only.

Personal Accident Insurance

B.6 Personal accident policies may be issued only in rupees and claims thereon settled

only in rupees, in case of Indian nationals and persons of Indian origin normally resident

in India. In other cases, personal accident policies may be issued in foreign currency,

provided premiums thereon are paid either in foreign currency or in rupees derived by

surrender of foreign currency to an authorised dealer or authorised money-changer.

Claims in these cases may be settled in currency of the policy or in rupees as desired by

the policy holder.

NOTE:Indian companies executing construction and turnkey contracts in foreign

countries may at times desire to obtain personal accident cover from Indian Insurers for

the workmen and technical staff actually engaged in the overseas contracts providing for
settlement of claims in foreign currency. Insurers may permit such insurance being taken

provided premiums will be paid by remittances in foreign currency from out of the

foreign currency earnings generated by the contracts. Claims in such cases may be

settled in foreign currency or if so desired, in rupees locally.

Overseas Medical Insurance Scheme

for Indians Travelling Abroad

B.7 Policies may be issued in India under the Overseas Medical Insurance Schemes as

approved by Reserve Bank to Indian residents travelling abroad for any approved visits

viz. business, study tour, specialised training, conferences, employment or higher

studies. Premiums on such policies, other than for visits for employment, may be

collected in rupees and for employment in foreign currency. Insurers may also open a

revolving letter of credit with an Indian bank in London for settlement of its share in the

claims that may eventually arise under the policies.

Miscellaneous

B.8 (i) Insurers may issue product liability policies for exports and Errors and

Omissions Policy in respect of computer software exports in foreign currency against

receipt of premium in rupees and settle claims if any in foreign currency in respect of

such policies.

(ii) Claims arising outside India against policies issued under Workmen's

Compensation Act and Merchant Shipping Act may be paid in appropriate foreign

currency. Remittances will be allowed for meeting specific claims on application by the

Insurers furnishing full details of the claims.

PART C - REINSURANCE
C.1 As per the extant Govt. of India's instructions, reinsurance arrangements of the

insurance companies registered with IRDA are to be decided by the companies

themselves on an annual basis, which is to be approved by the respective insurance

company's Boards in consultation with IRDA. Authorised dealer, designated by these

insurance companies may allow remittances falling due under such approved reinsurance

arrangements, by the insurers in accordance with the terms and conditions laid down by

their Boards.

C.2 Remittance of Reinsurance Premia

by Local Brokers

Wherever local brokers arrange the reinsurance on behalf of insurers, local

brokers may remit the premia through the branch of the authorised dealer designated by

the insurance company in terms of para c.1 above subject to the production of undernoted

documents:

i) Relative debit notes from overseas insurance company.

ii) Detailed statement of premia settled by the individual insurance company,

along with a certificate to the effect that the amount of reinsurance

business is within the overall limit approved by the insurance company's

Board and that the risks covered under the reinsurance arrangements are

within the scope of the Reinsurance Programme, approved by the

insurance company's Board in consultation with IRDA.

iii) A certificate from the Chartered Accountant of the local broker, prepared

on the basis of certificates and statements obtained from the insurance

companies, to the effect that the proposed remittance of reinsurance

 premia sought, is in agreement with the various statements/certificates

obtained from the insurance company/companies.

PART D - FOREIGN CURRENCY ACCOUNTS AND INVESTMENTS ABROAD

Foreign Currency Accounts Abroad

D.1 Insurers may open, hold and maintain with a bank outside India foreign currency

accounts for facilitating transactions and expenses relating/incidental to general

insurance business undertaken in foreign countries in accordance with regulations laid

down in this Memorandum. Insurers should endeavour to keep in their foreign currency

accounts only the minimum balances required for normal business and transfer to India

regularly all surplus funds held at foreign centres.

Investments abroad

D.2 Renewal of existing investments, reinvestment of redemption proceeds of existing

investments and fresh investment out of funds 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

of India.