Investment of Insurance Companies And IRDA Regulations MCQs

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Investment of Insurance Companies And IRDA Regulations MCQs | Page 12 of 16

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Q111.
What is the significance of Commercial Papers for General Insurance Companies?

a.

They are excluded as approved investments.

b.

They are considered approved investments only if issued by All India Financial Institutions.

c.

They are considered approved investments if issued by a company or All India Financial Institution with the highest credit rating.

d.

They are treated as "Other than Approved Investments."

Discuss
Answer: (c).They are considered approved investments if issued by a company or All India Financial Institution with the highest credit rating. Explanation:Commercial Papers issued by a company or All India Financial Institution with the highest credit rating are considered Approved Investments for General Insurance Companies.
Q112.
What type of deposits are considered approved investments for both Life and General Insurance Companies under the regulations?

a.

Only fixed deposits as per section 27B (10) of the Insurance Act

b.

Only current accounts with banks

c.

Fixed deposits, current accounts, call deposits, notice deposits, and certificate of deposits with banks included in the Second Schedule to Reserve Bank of India Act 1934

d.

Only call deposits with banks

Discuss
Answer: (c).Fixed deposits, current accounts, call deposits, notice deposits, and certificate of deposits with banks included in the Second Schedule to Reserve Bank of India Act 1934 Explanation:Deposits (including fixed deposits) with banks, such as current accounts, call deposits, notice deposits, and certificate of deposits, included for the time being in the Second Schedule to Reserve Bank of India Act 1934, are considered approved investments for both Life and General Insurance Companies.
Q113.
What is the significance of the LIC Act 1956 regarding investment caps for LIC (Life Insurance Corporation of India)?

a.

LIC can invest up to 20% of the capital in a single company.

b.

LIC is not subject to any investment caps.

c.

LIC Act 1956 allows LIC to invest up to 30% of the capital in a single company.

d.

LIC can hold up to 25% stake in companies.

Discuss
Answer: (d).LIC can hold up to 25% stake in companies. Explanation:The LIC Act 1956 allows LIC to hold up to 25% stake in companies. The government had proposed allowing LIC to invest up to 30% of the capital of a single company in the current financial year.
Q114.
What change has the government approved regarding LIC's investment cap?

a.

The investment cap remains unchanged at 20%.

b.

LIC can now invest up to 30% of the capital in a single company.

c.

LIC's investment cap is reduced to 15%.

d.

LIC's investment cap is increased to 25%.

Discuss
Answer: (d).LIC's investment cap is increased to 25%. Explanation:The government of India has given approval for LIC to increase its investment in companies up to 25% of the capital from the current 20% under special circumstances.
Q115.
How long is the tenure of the Reliance Infrastructure NCOs in which LIC invested?

a.

5 years

b.

8 years

c.

10 years

d.

11 years

Discuss
Answer: (b).8 years Explanation:The Rs. 600-crore NCO issue of Reliance Infrastructure, in which LIC invested, bears a coupon rate of 11.75% p.a. for an 8-year period.
Q116.
What type of investment opportunity do NCDs provide for debt investors like LIC?

a.

Low-risk investment

b.

Convertible into equity shares

c.

High-interest earning opportunity

d.

Short-term investment

Discuss
Answer: (c).High-interest earning opportunity Explanation:Financial analysts believe that NCDs (Non-Convertible Debentures) provide good opportunities for debt investors like LIC to earn high interest in investment, especially when banks tighten their investment process in the slowing economy.
Q117.
What competitive advantage do issuers have when offering NCDs to LIC?

a.

Lower interest rates

b.

Tax incentives

c.

Higher interest rates than banks

d.

Guaranteed returns

Discuss
Answer: (c).Higher interest rates than banks Explanation:A 10.8% to 11% per annum interest rate is considered a very competitive rate, enabling issuers to get their NCDs subscribed by LIC for high interest. This is highlighted in comparison to banks, which are borrowing at the rate of 9.5% and making investments at a rate of 11% or more.
Q118.
What is the maximum allowable exposure to venture funds and AIFs combined for a life insurance company?

a.

2%

b.

3%

c.

5%

d.

10%

Discuss
Answer: (b).3% Explanation:The overall exposure to venture funds and AIFs combined should not exceed 3% of the respective fund in the case of a life insurance company.
Q119.
What is the minimum percentage of Category II AIFs that should be invested in infrastructure entities, SME entities, venture capital undertakings, or social venture entities?

a.

10%

b.

20%

c.

30%

d.

51%

Discuss
Answer: (d).51% Explanation:At least 51% of Category II AIFs should be invested in infrastructure entities, SME entities, venture capital undertakings, or social venture entities.
Q120.
Why is investment income important for insurance companies?

a.

To fund marketing activities

b.

To cover administrative expenses

c.

To offset underwriting losses

d.

To pay dividends to shareholders

Discuss
Answer: (c).To offset underwriting losses Explanation:Investment income is utilized to make good the underwriting loss.
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