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Levy of a Cess from Insurance Companies
In terms of Section 7 of the Act, an order was made by the Hon. Minister of Finance for the levy of a Cess for the creation of a Policyholders Protection Fund. By Gazette Notification No. 1244/5 on 9 July 2002 it has specified 0.2% of the total net premium of long term insurance business and 0.4% of the total net premium of general insurance business to be credited to the Policyholders Protection Fund. The collection of the Cess from insurers commenced with effect from January 2003.
Policyholders Protection Fund
The Cess collected from Insurance Companies is deposited into the Policy Holders Protection Fund, established in terms of Section 103 of the Act. This Fund may be utilized for the following purposes in so far as it would be for the benefit of the policyholders and potential policyholders -
a) defraying the expenditure incurred in creating awareness of the of the insurance industry amongst the public and other expenditure incurred in the development of the insurance industry; and
b) defraying the expenditure incurred by the Board in the exercise, discharge and performance of its powers, functions and duties.
Insurance Tariff
There are no tariffs at present on any class of general insurance business. Tariffs which existed for motor insurance, fire insurance and workmen’s compensation insurance (WCI) were de-tariffed with effect from 1 January 2002, 2005 and 2007 respectively.
Tax Exemptions
In terms of section 20 of Value Added Tax (Amendment) Act, No. 9 of 2011, services being receipts from re-insurance by any local insurance company by way of commission or compensation in an insurance business (with effect from January 1, 2011) is exempt from Value Added Tax. This tax exception was obtained after several submissions made by the Board on behalf of Insurance Industry.
Overseas Insurance - Travel, Health and Liability Insurance
In terms of Section 101 of the Act, the Board has granted approval to any person in Sri Lanka to place directly or indirectly health and travel insurance with an insurer licensed or registered overseas, even if such insurer is not registered in Sri Lanka under the Act. Further approval was granted to registered insurers if such registered insurers so desire to obtain liability insurance cover for their directors and employees in respect of liabilities arising from the discharge of their duties from an insurer licensed or registered overseas, even if such insurer is not registered in Sri Lanka under the Act, provided that any proceeds on such covers payable to a resident party for any claim will be brought into the country in foreign currency.
Exemptions to the application of the Act
Provisions of the Act do not apply to the Agriculture and Agrarian Insurance Board established under the Agriculture and Agrarian Insurance Act, No. 20 of 1999, the Sri Lanka Export Credit Insurance Corporation established by the Sri Lanka Export Credit Insurance Corporation Act, No. 15 of 1978 and the Social Security Board established under the Social Security Board Act, No. 17 of 1996.
National Insurance Trust Fund (NITF)
The National Insurance Trust Fund Board established by the National Insurance Trust Fund Act, No. 28 of 2006 (NITF Act) was brought under the purview of the Board via the amendment made to section 12 of the Act.
In terms of the provisions of the NITF Act, the NITF absorbed the Strike, Riot, Civil Commotion and Terrorism Fund maintained by the Ministry of Finance and Planning. Insurance companies providing insurance covers against strike, riot, civil commotion and terrorism risks on behalf of the NITF are required to remit the collected premiums to the NITF.
The Regulation of Insurance Industry Act No. 43 of 2000 as amended by Act, No. 27 of 2007 requires all registered insurance companies to cede a percentage not exceeding 50% of reinsurance premium to NITF. In terms of the above provision, an order has been made under section 31 of the Act by the Hon. Minister of Finance & Planning directing all insurance companies to cede 20% of all types of Reinsurance Treaties and Facultative Reinsurance arrangements in respect of general insurance business to NITF with effect from 1 January 2008.
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