IRDA has directed all insurance companies to state their position at every quarter, while maintaining a solvency margin of 150%.
KOLKATA: The Insurance Regulatory and Development Authority (IRDA) has directed all insurance companies to state their position at every quarter, while maintaining a solvency margin of 150%.
IRDA had already asked life insurance companies to file audited reports on solvency every three months. On Thursday, the regulator also directed all general insurance companies to file such reports. “There was a need to monitor the solvency position of all non-life insurers at shorter intervals, post relaxation of controls on the tariffs”, IRDA said.
But while tracking solvency margins every three months marks a significant direction in the Indian insurance industry, many life insurers feel maintaining a 150% solvency margin after being in business for four to five years is on the higher side and needs to be reviewed. The insurers said on anonymity that capital infusion is crucial to massive expansion plans that almost every other insurer has lined up in recent times.
Most insurers contend the lack of capital will not be a major hurdle in expansion, as all players are big names with deep pockets. But with the foreign direct investment for insurance a non-starter, a lower solvency margin would have helped, they said.
Solvency margin, like the capital adequacy ratio of banks, is the excess of the value of assets and capital to be maintained over insured liabilities. Under the current solvency regime, insurers are expected to maintain a 150% margin over insured liabilities.
“The initial years do require companies to maintain sufficient capital to remain solvent and prove their business worth. But having done phenomenally well on the business front, a review can be attempted”, said an officeholder of one firm.
One industry analyst said that as the market matures, the solvency ratio of 1.5 can be broken down into more sophisticated measures of insurance risks. However, as there are no hybrid instruments at present, it is not possible to trade in them.
It is doubtful, however, whether IRDA would be willing to re-look at the issue. Sources in IRDA said the issue has not been given much consideration and the regulator is not keen on the change. Being a regulator, it is not willing to take any risk on the arithmetic of solvency at this juncture.
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