To standardise asset liability management practices followed by insurance companies, the Insurance Regulatory and Development Authority (Irda) has asked insurers to develop an asset liability management (ALM) policy.
“On thorough examination of the details of ALM activities submitted by the life insurers in the Appointed Actuary's Annual Report (AAAR) for the year ended March 31 2010, it appeared these details are incomplete and inconsistent. As the mandate by the authority was very broad, each insurer had adopted its own measures in reporting such details in the AAAR,” Irda said.
Apart from identifying the various types of risks (as mentioned in the earlier guidelines), insurers would now have to analyse potential downside risks from various investment instruments like equities and fixed interest securities and submit them to the regulator in form of a table.
“The insurer shall develop and implement controls and reporting procedures for its ALM policies that are appropriate for its business and the risks to which it is exposed. These shall be monitored closely and reviewed regularly,” Irda said.
“The draft guidelines are intended to bring in some uniformity in devising ALM practices. Irda has mandated an ALM policy which covers risk considerations and requires stress tests like the impact of 30 per cent fall in equity investments,” said Ashish Goyal, chief information officer, Bajaj Allianz General Insurance Company. The guidelines would also determine asset-liability relationships, the insurer's overall risk tolerance, risks and return requirements, solvency position and liquidity requirements. The insurer's board would approve the ALM policy, he added.