Insurance sector regulator IRDA would make valuation of companies based on embedded value mandatory from this financial year.
The embedded value is calculated on the basis of present value of future profit plus adjusted net asset value.
The regulator had commissioned a study for economic calculation of embedded value of insurance companies, IRDA Chairman J Hari Narayan said at the Insurance Summit organised by Indian Chamber of Commerce here today.
The insurance companies would have to value their firms on the basis of embedded value and the level of disclosures would also be made broad-based and transparent so that analysts are able to draw inter-firm comparisons, Narayan said.
This would help the insurance companies access the capital market, which is allowed after 10 years of operations under the existing guidelines, he added.
Further, Narayan said that ULIPs had become the exclusive domain of the private insurance companies so far.
He, however, expressed satisfaction that the private players were now laying stress on the traditional products. "This is good news for the industry," he said.
The regulator is also mulling to cap the managerial remuneration of insurance companies, he added.
At present, the remuneration of CEOs are determined by IRDA.
There should be limit on what the policy holders could be charged for paying compensation to the managerial staff, Narayan said.
On allocation charges for ULIPs, Narayan said that IRDA is also keen to see that some kind of cap is imposed.
While on non-life insurance sector, he expressed concern that the companies were underwriting to an extent which was not sustainable. This had resulted in increasing losses and health of the sector was threatened.
Post detariffing, profits of non-life companies had come down, he said.
Narayan said that the insurance market in India is too crowded and that there is enough room for more companies to set up shops in the country.
IRDA is also working on the merger and acquisition (M&A) guidelines for the insurance companies, he said.
Moreover, he said, there is enough scope for increasing the efficiencies of the insurance companies under the present regulatory framework.
Expressing concern over the predominance of unit-linked insurance policies, he said that this is not good for the industry as these products were dependent on the vagaries of the markets.
