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in the airPenaltyRef:IRDA/LIFE/ORD/MISC/209/09/2012Date:07-09-2012irda journal October 2012Final Order in the matter of M/S KotakMahindra Old Mutual Life InsuranceCompany LimitedBased on Insurer’s Reply dated 31/3/2012to the Show Cause Notice dated 22ndFeb,2012 and Submissions made in PersonalHearing on 10th May, 2012 at 03:00PM atthe office of Insurance Regulatory andDevelopment Authority, 3rd Floor,ParishramaBhavanam, Basheerbagh,HyderabadChaired by Sri J. Hari Narayan,Chairman, IRDAThe Insurance Regulatory andDevelopment Authority (hereinafterreferred to as “the Authority”) carried outan onsite inspection of M/s. KotakMahindra Old Mutual Life InsuranceCompany Limited (hereinafter referred toas “the Insurer”) from 24th January, 2011to 29th January, 2011. The Authorityforwarded the copy of the InspectionReport to the Insurer under the cover ofletter dated 2ndMay, 2011 and sought thecomments of the Insurer to the same.Upon examining the submissions madeby the Insurer vide letter dated 30thMay,2011, the Authority has issued a ShowCause Notice on 22nd Feb, 2012 whichwas responded to by the Insurer videreplies dated 31st March, 2012. Asrequested therein, a personal hearing wasgiven to the Insurer by Chairman of theAuthority on 10th May, 2012. Mr.GaurangShah, Director, Mr. G Murlidhar, MD & CEO,Mr. Andrew Cartwright, Appointed Actuary,Mr. Sunil Sharma, Executive Vice President– Actuarial, Mr. Cedric Fernandes, CFO, Mr. RMahesh Kumar Vice President – Legal andCompliance and Company Secretary andMr.CheruvuMuralikrishna Associate VicePresident of the insurer were present inthe hearing. On behalf the Authority,Mr.SriramTaranikanti, FA, Mr.KunnelPrem,CSO (Life), Mr.SN Jayasimhan, JD(Investments), Ms MamataSuri, JD (F & A),Mrs.J.Meena Kumari, HOD (Actuarial),Mr.SatishHegde, OSD, were present in thepersonal hearing.The submissions made by the Insurer intheir written reply to Show Cause Notice asalso those made during the course of thepersonal hearing were taken into account.The findings on the explanations offeredby the Life Insurer to the issues raised inthe Show Cause Notice dated 22ndFebruary, 2012 are as follows.Charge No 1:Violation of Regulation 5of IRDA (Investment) regulations,(Fourth Amendment), 2008Inspection Observation No. 1: NonAdherence to the exposure/prudentialnorms at ‘Investee Company’ level, atsegregated fund level in respect of ULIPfunds.Inspection Observation No 2(a) & (b) : NonAdherence to the ceilings prescribed as toinvestments in different Industrial Sectorsin respect of ULIPs at segregated fundlevel.Decision: Insurer submits that they haveadhered to the exposure/prudentialnorms in most of the funds except for 5small sized funds aggregating to Rs.15.61Cr which works out to 0.29% of total ULfunds as at 31st March 2010. Insurer hasdenied the violation mentioned inobservation no 2 (a).Insurer submits thattheir exposure to Banking and Financialsector was 18.65% and stated that theexposure to financial sector of 29.29% hasbeen calculated by inadvertentlyincluding the exposure to Manufacturingand other Sectors which if excluded iscoming within the ceiling of 25%.Takinginto account the submissions made by theInsurer, the Charges are not pressed.Charge No 2: Violation of the provisionsas mentioned in Sec 29(1) of InsuranceAct, 1938Inspection Observation No 8: Emergencyloans were granted to Managers / Officersof the company. The total quantum ofloans so granted outstanding as at31.03.2010 was to the tune of Rs. 4 CrDecision: Insurer submitted that theyhave not violated Section 29(1) ofInsurance Act, 1938 confirming that noneof the officers/ Managers as stated in thesaid Section, read with Section 2(24) andSection 2(30) of the Companies Act hasbeen granted a loan at any point of time.The loans granted were Staff loans for thepurposes of medical emergencies andpersonal exigencies to 806 of the lowerlevel employees. Taking into account thesubmissions made by the Insurer, theCharges are not pressed.Charge No 3:Violation of the provisionsas mentioned in schedule A-Part 1-Reg.2 of IRDA (Preparation of FinancialStatements and Auditor’s Report)Inspection Observation No 11: Whilepreparing financial statements it isobserved that the insurer hasa) Recognized only 85% of the fullpremium due on Non-Linked Policiesb) Treated interest receivable onpremiums as Outstanding PremiumsThus the Insurer has not created correctprovision in case of “outstandingpremiums” as at 31st March, 2010.Decision: Insurer submits that based ontheir experience of lapses and the pastconservation ratio, 15% of the PremiumIncome due is not normally received.Hence, keeping in line with the normalaccounting principle of prudence underthe Accounting Standards and as a matterof conservatism they have recognizedonly 85% of the due premiums afterallowing for the above referred factors likelapsation, claims etc. Insurer states thatthe above policy has been consistently6