Investment of an Insurer’s Assets

So a life insurer's floor is fifty per cent in Government or approved securities, and a general insurer's is thirty. Those are the figures to remember, and the difference reflects the difference in the liabilities: a life insurer's promises run for decades and are matched with long dated Government paper; a general insurer's run for a year.

Section 27(2) subjects the investment to two further conditions: that the assets referred to in sub section (1) shall be held free of any encumbrance, charge, hypothecation or lien; and to such limitations and conditions as the regulations specify. A proviso excepts a repo or reverse repo transaction, or a Government securities lending transaction, undertaken in terms of the Reserve Bank of India Act, 1934 or the directions issued under it.

Section 27(3) limits concentration: subject to the terms and conditions the regulations specify, an insurer may invest not more than five per cent of those assets, by value, in any one company or other body.

"Approved securities" is defined in section 2(3) and covers Government securities, securities charged on the revenues of the Central or a State Government or guaranteed by them as to principal and interest, and debentures or other securities for money issued under the authority of a Central or State Act by or on behalf of a port trust or municipal corporation.

The four sections that went in 2026

Section 21 of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 omitted sections 27A, 27B, 27C and 27D outright, with effect from 5 February 2026. Those sections had contained further and more detailed investment restrictions, on general insurers, on the Corporation and on particular classes of asset.

Sections 22, 60 and 104 were amended consequentially, to remove the references to them from the section that lists what must be published, from the section on the Authority's powers, and from the penalty provision.

This matters for two reasons. A student who cites section 27A is citing a repealed provision, and every textbook printed before 2026 still sets them out. And the direction of the change is examinable: the Act now states the principle in section 27 and leaves the detail to the regulations, which is the pattern of the 2015 and 2025 amendments throughout.

The money stays in India: section 27E

Section 27E is one sentence and it is absolute: no insurer shall directly or indirectly invest outside India the funds of the policyholders.

Read it with section 2CB, which forbids insuring Indian property with a foreign insurer without the Authority's permission. Between them the two sections keep both the risk and the fund inside the Indian regulatory perimeter.

No lending to the people who run the insurer: section 29

Section 29(1) provides that no insurer shall grant loans or temporary advances, either on hypothecation of property or on personal security or otherwise, to any director, manager, actuary, auditor or officer of the insurer, if a company, or to any other company or firm in which such a person holds the position of director, manager, actuary, officer or partner. The one exception is a loan on a life insurance policy issued by the insurer, within its surrender value.

Two provisos. The sub section does not apply to loans made by an insurer to a banking company as the Authority may specify. And it does not prohibit a company from granting such a loan to a subsidiary, or to a company of which it is itself a subsidiary, with the previous approval of the Authority.

Section 29(2) disapplies section 185 of the Companies Act, 2013 to a loan granted to a director of an insurer on the security of a policy on which the insurer bears the risk, issued to the director on his own life, and within its surrender value.

Section 29(3) provides that, subject to sub section (1), no insurer shall grant any loans or temporary advances, on hypothecation or personal security or otherwise, except such loans as the regulations specify, including loans sanctioned as part of the salary package to full time employees under an approved scheme.

This is the anti self dealing provision and it is the one that answers the failures of the 1930s. A director who wants to borrow from his own insurer may do so only against his own life policy and only up to its surrender value, which is money the insurer already owes him.

Directors' personal liability: section 30

Section 30 provides that if, by reason of a contravention of any of the provisions of section 27 or section 29, any loss is sustained by the insurer or by the policyholders, every director, manager or officer who is knowingly a party to the contravention shall, without prejudice to any other penalty under the Act, be jointly and severally liable to make good the amount of the loss.

Three features of that section are examinable. The loss may be the policyholders' and not only the insurer's. The liability is joint and several, so any one of them may be pursued for the whole. And it is additional to any penalty the Act imposes, so the individuals do not escape by the insurer paying.

That is unusual and it is deliberate. Most breaches of the Act attract a penalty payable by the insurer, which the policyholders ultimately fund. Section 30 puts the loss on the individuals who were knowingly party to it.

How the assets are held: section 31

Section 31(1) provides that none of the assets in India of any insurer shall, except so far as they are required to be vested in trustees under section 27(5), which governs the assets of an insurer incorporated or domiciled outside India, be kept otherwise than in the name of a public officer approved by the Authority, or in the corporate name of the undertaking if a company or an insurance co-operative society.

Section 31(2) provides that nothing in the section prohibits the endorsement of a security or document in favour of a banking company solely for the purpose of collection, or for the realisation of interest, bonus or dividend.

The purpose is traceability. Assets held in a nominee's name can be moved, pledged or lost without anybody noticing. Section 31 requires them to be identifiable as the insurer's, and section 27(2)(a) requires them to be free of encumbrance, so that they are actually available when a claim is made.

The returns: section 28

Section 28, as substituted in 2015, requires every insurer to submit to the Authority returns giving details of investments made, in such form, time and manner, including authentication, as the regulations specify.

A worked example

Deccan Life Assurance holds policyholders' assets of twelve thousand crore rupees against liabilities of eleven thousand eight hundred crore.

Section 27(1) is satisfied as to quantity, because the assets exceed the liabilities. The pattern must also be right. Being a life insurer, it must hold at least twenty five per cent, three thousand crore, in Government securities; a further twenty five per cent, another three thousand crore, in Government or other approved securities; and the balance in approved investments as the regulations allow. It may put up to fifteen per cent outside approved investments under the proviso, and no more than five per cent in any one company under section 27(3).

Its treasury proposes three transactions.

First, to buy sovereign bonds issued by a foreign government, on the ground that they are Government securities. Section 27E forbids it: no insurer shall directly or indirectly invest the policyholders' funds outside India.

Second, to lend fifty crore rupees to a construction company of which its own managing director is a director. Section 29(1) forbids it, and section 30 would make the directors who knowingly and wilfully authorised it personally liable for any loss.

Third, to pledge two hundred crore of its Government securities to raise short term money. Section 27(2)(a) requires the assets counted under sub section (1) to be free of any encumbrance, charge, hypothecation or lien, so they cannot be pledged and still counted. The proviso would permit a repo transaction undertaken in terms of the Reserve Bank of India Act, 1934, which is the route the treasury should have taken.

Now change the borrower. Suppose the managing director asks for a personal loan of eight lakh rupees against his own endowment policy with the company, whose surrender value is nine lakh. That is the one exception in section 29(1), and section 29(2) disapplies section 185 of the Companies Act, 2013 to it.

What it does NOT mean

It does not mean an insurer must hold only Government securities. The Government securities requirement is a floor of fifty per cent for a life insurer and thirty for others; the balance goes into approved investments as the regulations permit.

It does not mean sections 27A to 27D still apply. All four were omitted with effect from 5 February 2026.

It does not mean an insurer can never lend to a director. It may lend on his own life policy within its surrender value, and that is the only route.

And it does not mean the assets must be held by trustees. Section 31 requires them to be in the insurer's corporate name or that of a public officer approved by the Authority, except where section 27(5) requires vesting in trustees.

Quick revision

Section 27(1): assets at all times not less than liabilities. Life: 25 per cent in Government securities, a further 25 per cent in Government or other approved securities, balance in approved investments. Other than life: 20 per cent, a further 10 per cent, balance as above. Proviso: up to 15 per cent outside approved investments.

Section 27(2): assets free of encumbrance, charge, hypothecation or lien, except a repo, reverse repo or Government securities lending transaction under the Reserve Bank of India Act, 1934. Section 27(3): not more than 5 per cent in any one company or body.

Sections 27A to 27D: OMITTED by Act 40 of 2025 with effect from 5 February 2026.

Section 27E: no direct or indirect investment of policyholders' funds outside India.

Section 28: returns of investments as the regulations specify.

Section 29: no loans to directors, managers, actuaries, auditors or officers, or to companies or firms in which they hold such a position, except a loan on a life policy within its surrender value; provisos for banking companies and for subsidiaries with the Authority's approval.

Section 30: every director, manager or officer knowingly a party to a contravention of section 27 or section 29 is jointly and severally liable to make good the loss sustained by the insurer or by the policyholders, without prejudice to any other penalty.

Section 31: assets in India to be held in the insurer's corporate name or that of an approved public officer, save assets vested in trustees under section 27(5).

Test yourself

1. State the investment pattern for a life insurer. Twenty five per cent of the assets in Government securities, a further not less than twenty five per cent in Government or other approved securities, and the balance in approved investments subject to the regulations: section 27(1)(a).

2. How much may an insurer hold outside approved investments? Not more than fifteen per cent of the assets referred to in section 27(1), subject to the conditions the regulations specify.

3. Which four sections did the 2025 amending Act omit, and from when? Sections 27A, 27B, 27C and 27D, with effect from 5 February 2026, by section 21 of Act 40 of 2025.

4. May an insurer invest the policyholders' funds abroad? No. Section 27E prohibits it directly or indirectly, without exception.

5. May an insurer lend to a company of which its actuary is a partner? No. Section 29(1) forbids loans to a company or firm in which a director, manager, actuary or officer holds the position of director, manager, actuary, officer or partner, subject only to the two provisos.

6. What happens if directors knowingly authorise a prohibited investment? Section 30 makes every director, manager or officer knowingly a party to the contravention jointly and severally liable to make good the loss sustained by the insurer or by the policyholders, without prejudice to any other penalty under the Act.