The Insurance Regulatory and Development Authority (IRDA) is not too keen on introducing solvency II norms for covering companies in India although insurers the world over are moving over to the new regime.
Indian insurers are still following solvency I norms.
"Our country does not have the required statistical database to adopt solvency II norms that have been devised by the European community. Domestic insurers use factor-based process for arriving at solvency margins and we are comfortable with it. It has a set formula and there is no scope of variation while arriving at capital requirements," RK Nair, member IRDA (finance & investment) told reporters in Kolkata. He was here to attend the 4th Indian Chamber of Commerce Summit 2011.
IPO norms for life insurance companies are likely to be finalised in the next few months, said Mr Nair.
Solvency II is the new regime for all insurers and reinsurers in the European Union . It will come into effect from December 31, 2012. Solvency II aims to implement solvency requirements that they feel will better reflect all kinds of risks that companies face. It aims to ensure understanding by insurers of the inherent business risks in the industry and the allocation of sufficient capital to cover them.
"The challenge for India, however, is that evaluation of risk can throw up different figures for regulators, insurers and valuers because there are no proper systems of evaluation or calculation of such risks in India," said Mr Nair.
On IPO norms for general insurance companies, Mr Nair said: "The norms will be similar to life insurance companies but exposure norms will be different. The way business is done by general insurers is different from the methods used by life insurers, and therefore, a different set of exposure norms will be required."
He also said general insurers may have to complete 10 years of operations before accessing the capital markets. The embedded value of an insurer will also have to be double the equity based of the company. Embedded capital is the present value of future profits.
Mr Nair added that the World Bank and the International Monetary Fund are currently evaluating accounting rules laid down by IRDA for domestic insurers to find out if they adhere to international standards.
"They will be meeting us in 3-4 rounds and are likely to submit a report early next year. The last assessment by World Bank was done during 2001," he said.
Source: The economic times
Vivek Agrawal
Summer Intern-Fundamental Analysis
DENIP Consultants Pvt. Ltd.
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