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Radhika Menon

Mumbai , Jan. 13

THE Insurance Regulatory and Development Authority (IRDA) may introduce international reporting system for insurance companies.

A senior IRDA official said the regulator would consider having insurance companies furnish their business figures as annualised premium rather than on a received premium basis.

Currently, insurance companies report their earnings on a received premium basis. This is calculated as the new business premium amount that has been collected by the company, giving equal weightage to both regular and single premium income.

For example, the entire amount of a single premium received for a 10-year policy is calculated as the premium income for the first year.

According to IRDA sources, there have been representations from life insurance companies seeking a shift to the system of reporting annualised premium. However, the decision to move towards this method will have to be taken first at the Life Insurance Council before it can be approved by the regulator, said sources.

The annualised premium is, however, the internationally accepted way of reporting new business.

According to Mr Sandeep Batra, Chief Financial Officer, ICICI Prudential Life insurance company, Annualised Premium Earnings (APE) is the more globally accepted form of viewing premium income, particularly for nascent life insurance companies.

"APE attaches different weights to the regular and single premiums, on account of the different tenures they remain with the company. In this, we annualise regular premium (monthly, quarterly and half-yearly are multiplied as necessary) and only single premium receives a 10 per cent weightage."

With several insurance companies having a sizeable portfolio of single premium plans, analysts say the current received premium method does not convey an apple-to-apple comparison of new business figures. Several life insurance companies, for instance, have as much as 50 per cent of their business coming from single-premium policies.

Ms Anjana Grewal, Vice-President, Marketing, Birla Sun Life, said the annualised premium also takes into account other irregularities such as a heavy skew in premium in the last quarter of the fiscal.

Insurance is usually purchased or the premium is paid in the last quarter for tax-saving purposes.

Life insurance companies that have international partners are already calculating their annualised premium.

Mr Batra said "The logic behind this is that insurance is typically a long-term business and hence the income has to be distributed evenly over the life of the contract. Taking full amount of single premium in the first year itself gives a very skewed picture because the income and liability spread do not match."

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