LIC AAO Mains 2019- Financial and Insurance Market Questions | 20th June

Agriculture Insurance Company of India Limited was incorporated under the Indian Companies Act 1956 on 20th December, 2002 with an authorised share capital of INR 15 billion and paid up capital of INR 2 billion. AIC commenced business from 1st April, 2003.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000.

Agriculture Insurance Company of India Limited (AIC) has been formed at the behest of Government of India, consequent to the announcement by the then Hon'ble Union Finance Minister in his General Budget Speech FY 2002-03 that, "to subserve the needs of farmers better and to move towards a sustainable actuarial regime, it was proposed to set up a new Corporation for Agriculture Insurance". Authorised Share Capital of AIC was Rs. 1500 Crores.

Section 14 of the IRDA Act, 1999 lays down the duties, powers and functions of IRDA.
Registering and regulating insurance companies.
• Protecting policyholders’ interests.
• Licensing and establishing norms for insurance intermediaries.
• Promoting professional organisations in insurance.
• Regulating and overseeing premium rates and terms of non-life insurance covers.
• Specifying financial reporting norms of insurance companies.
• Regulating investment of policyholders’ funds by insurance companies.
• Ensuring the maintenance of solvency margin by insurance companies.
• Ensuring insurance coverage in rural areas and of vulnerable sections of society.

Registered Office and Head Quarters of Agriculture Insurance Company of India Limited is in New Delhi.

Insurance Regulatory and Development Authority (IRDA) set up as autonomous body under the IRDA Act, 1999.

Mrs. Alamelu T. Lakshmanachari is current Chairman-cum-Managing Director of Agriculture Insurance Company of India Limited.

Parliament has passed Insurance Laws (Amendment) Bill, 2015. It was first passed in Lok Sabha on 4 March 2015 and later in Rajya Sabha on 12 March 2015, which will become an Act when the President signs it. The amendment bill aims to bring improvements and revisions in the existing laws relating to insurance business in India. The bill also seeks to remove archaic provisions in previous laws and incorporate modern day practices of insurance business that are emerging in a changing dynamic environment, which also includes private participation. It is expected that the foreign investment would bring about 20,000-25,000 crore in short funds. The amendment bill hikes Foreign Direct Investment (FDI) cap in the insurance sector to 49 percent from present 26 percent.

Life Insurance is a financial cover for a contingency linked with human life, like death, disability, accident, retirement etc. Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is loss of income to the household.

Surrender Charges- A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.

Money Market Instruments are simply the instruments or tools which can help one operate in the money market. These instruments serve a dual purpose of not only allowing borrowers meet their short-term requirements but also provide easy liquidity to lenders. Some of the common money market instruments include Banker’s Acceptance, Treasury Bills, Repurchase Agreements, Certificate of Deposits and Commercial Papers.

A banker's acceptance (BA) is a short-term debt instrument issued by a company that is guaranteed by a commercial bank. Banker's acceptances are issued as part of a commercial transaction. These instruments are similar to T-bills, are frequently used in money market funds and are traded at a discount from face value on the secondary market, which can be an advantage because the banker's acceptance does not need to be held until it matures. Banker's acceptances vary in amount according to the size of the commercial transaction. The date of maturity typically ranges between 30 and 180 days from the date of issue, which generally classifies the banker's acceptance as a short-term negotiable instrument. To create a banker’s acceptance, the drawer must meet the eligibility requirements as set forth by the banking institution that serves as the backer in the transaction.

A bill of exchange is a written order used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date. Bills of exchange are similar to checks and promissory notes—they can be drawn by individuals or banks and are generally transferable by endorsements. A bill of exchange transaction involves up to three parties. The drawee is the party that pays the sum specified by the bill of exchange. The payee is the one who receives that sum. The drawer is the party that obliges the drawee to pay the payee. The drawer and the payee are the same entity unless the drawer transfers the bill of exchange to a third-party payee.

A Certificate of Deposit or CD, functions as a deposit receipt for money which is deposited with a financial organization or bank. However, a Certificate of Deposit is different from a Fixed Deposit Receipt in two aspects. The first aspect of difference is that a CD is only issued for a larger sum of money. Secondly, a Certificate of Deposit is freely negotiable. First announced in 1989 by RBI, Certificate of Deposits have become a preferred investment choice for organizations in terms of short-term surplus investment as they carry low risk while providing interest rates which are higher than those provided by Treasury bills and term deposits. Certificate of Deposits are also relatively liquid, which is an added advantage, especially for issuing banks. Like treasury bills, CDs are also issued at a discounted price and their tenor ranges between a span of 7 days up to 1 year. However, banks issue Certificates of Deposits for durations ranging from 3 months, 6 months and 12 months. They can be issued to individuals (except minors), trusts, companies, corporations, associations, funds, non-resident Indians, etc.

Money market basically refers to a section of the financial market where financial instruments with high liquidity and short-term maturities are traded. Money market has become a component of the financial market for buying and selling of securities of short-term maturities, of one year or less, such as treasury bills and commercial papers. Over-the-counter trading is done in the money market and it is a wholesale process. It is used by the participants as a way of borrowing and lending for the short term.