(1) These regulations may be called the Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2016.

(2) They shall come into force from the date of their publication in the official Gazette.

(3) The Regulations shall be applicable to Insurers transacting General Insurance or Health Insurance business.

(1) In these regulations, unless the context otherwise requires

(i) Act means the Insurance Act, 1938 (4 of 1938)

(ii) Authority means the Insurance Regulatory and Development Authority of India established under subsection (1) of Section 3 of Insurance Regulatory and Development Authority Act, 1999 (41 of 1999)

(iii) Charges : means charge against profit such as income tax and wealth tax and other taxes like Service Tax borne by the insurer and other charges which are levied against the profit.

(iv) Duration of Business means the duration of an insurer's business reckoned from the beginning of the financial year of commencement of business if the date of commencement is in the first half of the financial year, and from the beginning of the immediately succeeding financial year if the date of commencement is in the second half of the financial year.

(v) Expenses of Management shall include all expenses in the nature of operating expenses including commission, brokerage/remuneration to the insurance agents, intermediaries and insurance intermediaries which are charged to Revenue Account. However, it shall not include the Charges as defined in these Regulations.

(vi) Health Group shall include any health insurance policy including personal accident policy/travel policy issued to group/body corporate to cover the health risk of members of group.

(vii) Health Government Scheme for the purpose of these Regulations, Health Government scheme shall include any scheme launched by the Government to cover health risk including personal accident of public at large such as Rashtriya Swasthya Bima Yojana, etc.

(viii) Health Retail shall include health insurance policies including personal accident/Travel policy issued to individual to cover the health risk of individual or his family.

(ix) Miscellaneous Retail for the purpose of these Regulations, miscellaneous retail shall include insurance policies issued to an individual/family in the following segments

(a) Public Liability; and

(b) Any other segments which may be specified by the Authority from time to time.

(x) Miscellaneous-Corporate/Group for the purpose of these Regulations, miscellaneous Corporate/Group shall include

(a) Workmen's Compensation/Employers' Liability,

(b) Product Liability,

(c) Engineering,

(d) Aviation,

(e) Public Liability Insurance policies issued to Group/Body Corporate, and

(f) Any other segments which may be specified by the Authority from time to time.

(2) All words and expressions used herein and not defined, but defined in the Insurance Act, 1938 (4 of 1938) or in the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), or in any Rules or Regulations made thereunder, shall have the meaning respectively assigned to them in those Acts or Rules or Regulations.

LIMITATION OF EXPENSES OF MANAGEMENT IN GENERAL INSURANCE BUSINESS OR HEALTH INSURANCE BUSINESS

3. No insurer carrying on General Insurance Business or Health Insurance Business in India, shall spend in any financial year as expenses of management, an amount exceeding

(i) the amount of commission or other remuneration paid to insurance agents and insurance intermediaries in respect of their business transacted in the financial year as may be allowed by the Authority from time to time;

Provided that the Authority, based upon the representation received from an insurer, may allow higher remuneration to the insurance agents and insurance intermediaries with such conditions as it may be deemed fit.

(ii) Commission and expenses reimbursed on reinsurance inward; and

(iii) Operating expenses.

Provided that the sum of (i), (ii) and (iii) above shall not exceed an amount computed on the basis of percentages appropriate to the various parts of its total gross premium written in India during the year in respect of various segments of business as specified in Schedule-I.

HEAD OFFICE EXPENSES

4. An insurer having his principal place of business in India and having branch offices outside India shall be allowed an additional allowance towards share of Head Office. Such allowance shall not exceed 10 per cent of the gross premium income written direct outside India through such branch during the year.

ALLOCATION AND APPORTIONMENT OF EXPENSES OF MANAGEMENT

5. Every insurer shall have a well documented Policy for allocation and apportionment of expenses of management amongst various business segments. The Policy shall, at the minimum, cover

(i) Expenses which shall be allocated;

(ii) Basis of allocation;

(iii) Expenses which shall be apportioned;

(iv) Basis of such apportionment;

(v) Manner in which the compliance with the Policy shall be ensured.

The Policy shall be approved by the Board of Directors of the company and the same shall be available for inspection by the Authority.

6. The Policy shall be subject to an annual review by the Board. Any revision in the policy shall be disclosed in the Annual Report along with its implication on various segments.

RETURN OF EXPENSES OF MANAGEMENT

7. All insurers transacting General insurance or Health Insurance business, at the expiration of each financial year, shall prepare with reference to that year a Return of Expenses of Management in the format given Schedule-II. The Return shall be signed by the Chief Executive Officer, the Chief Financial Officer and Chief Compliance Officer of the Insurer.

8. The Return shall be certified by the Statutory Auditor of the Insurer and the certificate duly signed by at least any one of the statutory auditors shall be filed in format given in Schedule-III.

9. The Return along with the statutory auditor's certificate shall be reviewed by the Audit Committee prior to being placed for approval of the Board of the Insurer.

10. The statement of expenses of management duly adopted by the Board, shall be filed with the Authority along with returns indicated in sub-section (1) of Section 15 of the Act in the manner and within the time specified therein.

POWER TO EXEMPT AND ACTION FOR NON-COMPLIANCE

(i) The Authority based upon a representation received from a newly registered insurer, in accordance with the provisions of the Act, may exercise forbearance for a period not exceeding five years.

(ii) If an insurer fails to comply with these regulations even after the period of five years, the Authority, having regard to the business model of the insurer, may direct an existing Insurer to charge the expenses above the allowable limit to the Shareholders' Account.

Provided that no such direction shall be issued by the Authority unless a representation detailing the business plan and time period required for compliance with the Regulations has been furnished to the Authority in accordance with the applicable provisions of the Act.

12. The Insurers shall ensure that its expenses of management are within the allowable limit on the segmental basis as indicated in Schedule I to these Regulations. For the purpose of these Regulations, the following shall be segments which will be monitored by the Authority;

(i) Fire;

(ii) Marine;

(iii) Health including Personal Accident:

(a) Health Retail,

(b) Health Group and

(c) Health Government Schemes;

(iv) Motor;

(v) Miscellaneous:

(a) Retail

(b) Group/Corporate;

(vi) Any other segments which contributes more than 10 percent of the Miscellaneous class of business;

(vii) Any Other Class as may be specified by the Authority.

13. The Insurers shall ensure that their expenses of management are within the allowable limit on segmental basis. Where the company has violated the limits of expenses of management for one or more segments but is compliant on an overall basis, the excess of such expenses shall be borne by the Shareholders.

Action for Non-compliance

14. Any violation of the limits on overall basis or the directions issued by the Authority in this regard may entail one or more of the following actions:

(i) Excess to be charged to Shareholders' Account;

(ii) Restriction on performance incentive to Managing Director (MD)/Chief Executive Director (CEO)/Whole-Time Directors (WTD) and Key Management Persons (KMPs);

(iii) Restriction on opening of new places of business;

(iv) Graded Penal action under section 102 of the Act;

(v) Removal of Managerial Personnel and/or appointment of Administrator;

(vi) Any other action as specified in the Act.

15. The Authority, apart from taking action as enumerated in Regulation 14, may also direct the insurer to not underwrite new business in one or more segments in case of persistent violation of these Regulations. Notwithstanding such directions, the insurer shall continue to service the existing policyholders in such segments.

16. Insurers shall ensure that at segment level, the deviation between the actual incurred claim ratio and the incurred claim ratio projected at the time of filing of the product under product filing procedures shall not be more than ten percent.

17. Where at segmental level, the deviation between the actual incurred claim ratio and the projected incurred claim ratio is more than ten percent over a period of three years or more, an exception report along with the plan of action specifying the reasons for such deviation shall be filed by the insurers with the Authority in the format to be specified by the Authority

(i) For the financial year 2015-16, Insurers have an option either to comply with these Regulations or with the provisions of the Rule 17E of Insurance Rules, 1939.

The Insurers who have complied with Rule 17E shall be deemed to have complied with these Regulations.

(ii) From the financial year 2016-17 onwards, all insurers shall comply with these Regulations.

The Chairperson shall have the powers for interpretation of these Regulations. The interpretation of the Chairperson shall be final and binding on insurers.

Note: For Health Insurance segment, fees paid to Third Party Administrators shall form part of claims cost Where the TPA services are in-house, an expense of not exceeding 3 percent of the premium may be charged to the claims cost.

______________________________________________________________________________________________________________________________________________________

To the Board of Directors of .. (name of the Insurer)

I/We (Name of the Auditor), the statutory auditors of (name of the Insurer) (hereinafter the Insurer ) have examined the attached Return of Expenses of Management for the financial year ended (specify the date) (hereinafter the Return ), prepared by the Insurer pursuant to Regulation of the Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2016 (hereinafter the Regulations ).

The management of the Insurer is responsible for preparation of the Return. The management of the Insurer is also responsible for preparation and maintenance of the proper books of account and such other relevant records as prescribed under relevant laws and Regulations. This responsibility includes designing, implementing and monitoring of internal controls relevant to the preparation and maintenance of such books of account and records and the particulars furnished in the aforesaid Return.

The management of the Insurer is also responsible for compliance with, inter alia, the requirements of the Regulations. This includes the responsibility to design and consistently implement a Policy for allocation and apportionment of expenses of management, duly approved by its Board of Directors, as envisaged in the aforesaid Regulations.

My/Our responsibility is to verify the aforesaid Return of Expenses of Management. We have carried out our verification in accordance with the Guidance Note on Audit Reports and Certificates for Special Purposes, issued by the Institute of Chartered Accountants of India.

Based on our aforesaid verification and to the best of our knowledge and belief and according to the information, explanations and representations given to us by the management of the Insurer, I/we hereby certify that:

1. The computation of Expenses of Management as contained in the attached Return are in accordance with Regulation of the Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 20162.

2. The apportionment and allocation of management expenses amongst various business segments is in accordance with the policy laid down in this regard by the Insurer.3

3. The Insurer has complied with the provisions of Regulation 11 and in accordance with the directions issued by the Authority vide order no , the excess of expenses has been charged to the Shareholders' Fund.

4. The Insurer has complied with the provisions of Regulation 17 and has included all the products under the segments where the deviation in the actual incurred claim ratio and the incurred claim ratio projected at the time of filing of the products is more than ten percent. (In case of deviation, please furnish detail).

5. The payments made by the Insurer towards outsourcing arrangement are in compliance with the outsourcing guidelines issued by the Authority except the deviation as provided below. (Please furnish the detail of deviation, if any observed).

Chartered Accountants

Firm's Registration Number

Date

(Signature)

(Name of the Member)

(Designation)

Membership Number

1. IRDAI, Noti. No. F. No. IRDAI/Reg/12/124/2016, dated April 27, 2016, published in the Gazette of India, Extra., Part III, Section 4, dated 9th May, 2016, pp. 10-16, No. 194.

2. Or where applicable, The computation of Expenses of Management as contained in the attached Return of Expenses of Management is in accordance with Regulation of the Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2016 except as specified below/except as given in the Annexure to this Certificate.

3. Or where applicable: The apportionment and allocation of management expenses amongst various business segments is in accordance with the policy laid down in this regard by the Company except as specified below/in the Annexure to this Certificate.