Irda sees risk-based capital norms in 4 yrs

The insurance industry may see moves to shift to risk-based capital norms in the next three to four years from the current solvency margin regime.

Currently, insurance companies are required to maintain a solvency margin where the excess of capital of an insurance company plus the value of assets should be 150 per cent of insured liabilities.

When asked whether the Irda is likely to adopt the global practice of risk-based capital adequacy in the near future, C S Rao, chairman, Irda said, "Solvency is a serious prudential issue. As risks in markets increase, the solvency level goes up. It is likely that when risk-based capital norms are introduced, the solvency margin requirements may actually increase to 200 per cent as seen in many jurisdictions abroad. The matter of adopting global practices in bringing adequate solvency ratio practices to the insurance industry in India, is being studied and suitable decisions in this regard will be taken in due course."

Rao said, "In the last three to four years, some countries have moved towards risk-based capital adequacy norms. However, this requires training not only for insurance companies but also for the regulator. This year, the focus is detariffing and we are monitoring how the industry takes it. Next year, the focus would be on freeing up wordings, terms and conditions (of insurance policies in the non-life industry). We don't want to start a lot of things at the same time. I think, it will take at least three to four years to look at risk based capital adequacy norms."

The insurance industry (life and non-life combined) will have total capital of Rs 10,000 crore by 2008. As on March 31 2006, the life insurance industry's capital base was Rs 6422 crore.

During April-December 2006, over Rs 1,500 crore of capital was infused by the 14 life insurance players, taking the life insurance industry's total capital base to over Rs 8,000 crore.