The Hindu Business Line : Life insurers file Q1 solvency reports

This is the first time that insurers were filing audited quarterly solvency reports. Quarterly reports provide an early warning signal for regulatory intervention.

C. Shivkumar

Bangalore, Sept. 5 Life insurers, including the public sector Life Insurance Corporation of India, have filed their quarterly solvency returns with the Insurance Regulatory and Development Authority (IRDA).

Top officials of the IRDA said: “Technically LIC has complied with the IRDA guidelines. They have sent us a statement. But there are procedural issues.”

LIC is governed by the LIC Act 1956 while all the private sector insurers come under the IRDA Act of 1999 and the Insurance Act of 1938.

Consequently LIC’s procedures were in compliance with the statute governing it, and not necessarily that of the IRDA. Besides, LIC had just completed reporting its annual results for 2006-07.

But sources said that the Group of Ministers (GoM) has already made recommendations for amendments to the LIC Act, which would make the insurance behemoth answerable to the regulator.

However, these amendments are yet to be passed by Parliament, in view of opposition from the Left parties. These recommendations also included changes to the sovereign guarantee cover on policies issued by LIC.

The IRDA officials said that all insurers had complied with the deadline of August 15, as mentioned in the February directive of the regulator. The required solvency margin is the 1.5 times the insured liabilities or a minimum solvency margin of Rs 50 crore, whichever was higher. But this was the first time that insurers were filing audited quarterly solvency reports. So far solvency reporting was done on an annual basis.

No resistance

There was virtually no resistance to filing quarter solvency returns. In fact, the entire private sector has supported the tight solvency guidelines. ICICI Prudential Life Insurance Company Ltd’s Executive Director, Mr. N S Kannan, said: “This is the international practice and we are complying with globally accepted insurance standards.”

Quarterly solvency reports provide an early warning signal for regulatory intervention. The quarterly solvency indicates whether life insurers’ capitalisation is in line with business volume.

In the first quarter for which solvency reports were filed, gross premia of life insurance companies in the country, including the LIC amounted to Rs 12,512 crore. Private sector accounted for 32 per cent of the market share.

But the sources said that at least 80 per cent of the policy accretions with the private sector insurers during Q1 were by way of unit linked insurance policies (ULIP), with a bias to growth or equity schemes.

With the equity markets on a high during the period, solvency was hardly an issue.

Limited risks

However, even in the event of an equity downturn, life insurers are unlikely to be affected much since in ULIPs, the investment risks are entirely the policyholder’s. There are no guaranteed returns and therefore no solvency issues. Moreover, the sources said, life insurers push for ULIPs was also largely driven by the government delays in acceptance of the GOM recommendations fearing political reprisals from the Left. The GOM recommendations were to raise the foreign equity cap to 49 per cent from the current 26 percent.

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