Financial Daily from THE HINDU group of publications
Monday, Mar 20, 2006
Financial Daily from THE HINDU group of publications Monday, Mar 20, 2006 |
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Regulatory Bodies & Rulings Money & Banking - Insurance Web Extras - Investments Disclosure norms for insurance cos on cards Radhika Menon
The proof of the pudding The move to make it mandatory for insurance companies to reveal their investments would increase transparency of their operations. Analysts say that vetting of the company's accounts by board members would also reduce manipulations such as citing a lower `implied liability'.
Mumbai , March 19 Insurance policyholders will be able to know where their premium is being invested. The Insurance Regulatory and Development Authority(IRDA) is working on disclosure norms for insurance companies, particularly on their investments. Mr. C.S Rao, Chairman, IRDA, told Business Line, that the authority is drafting a guideline on this. Insurance companies would have to make certain disclosures to policyholders as well as to their boards of directors. "Significantly, they would have to make known where the policyholders funds are being invested." The management of the company would also have to be accountable to the board of Directors, said Mr Rao. "As per the new norms, the Board should be involved in the policy of accounting and the disposal of assets. Before the audit takes place, the company's accounts should have adhered to all the guidelines prescribed by the regulator." He said that the International Association of Insurance Supervisors is finalising its views on the issue of corporate governance.
TRANSPARENCY
The new norms would require insurance companies to reveal the investment figures with respect to profits as well as the corpus invested in equity, debt, as well as the names of the companies' stocks/securities. This would be particularly significant in the case of Life Insurance Corporation of India, which is the biggest life insurance player in the market with a current equity market portfolio of around Rs 84,000 crore, and book value of Rs 38,000 crore.
While listed companies have had to comply with Clause 49 for improving corporate governance, insurance companies by virtue of not being listed have remained out of the purview.
Analysts say that the vetting of the company's accounts by Board members would also reduce manipulations such as citing a lower `implied liability'.
"Since insurance is a matter of probability, the liability is `implied' rather than `crystallised'. A higher `implied' liability means higher risk and higher reserves for the purpose of solvency," said an analyst.
The increased transparency would prevent insider trading and manipulation of accounts, said Dr K.C. Mishra, Director, National Insurance Academy, and former member of the Board of National Insurance Company.
"The insurance industry has no codified regulation with respect to disclosures on investments. The Chairmen or CEOs of insurance companies are selective about the disclosures made on investments."
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