Comments
The insurance regulator has asked general insurance companies to infuse about Rs 8,000 crore as capital.
This amount will have to be brought within the next two years to boost their capital that has suffered erosion due to losses in the motor portfolio (principally, third party motor pool).
According to a circular received by the general insurers on Thursday, general insurers can absorb the losses caused by the motor third party pool either in one go or over three years, including this year.
This has been necessitated due to the dismantling of the motor third party pool from March 31, 2012.
The Insurance Regulatory and Development Authority has provided a concession in its prudential prescriptions.
It has done this by relaxing the minimum solvency ratio to be maintained by companies to between 1 and 1.1 times, if they are ready to absorb the losses immediately.
Currently they are expected to maintain a minimum solvency ratio of 1.5 ( that is, assets should be 1.5 times the liabilities). The losses incurred during 2007-08 and 2008-09 will have to borne by companies during this financial year itself.
Companies have been given the option of deferring the absorption of losses (from 2009-10 onwards) over the next three years. In that case, the required solvency ratios will vary — at 1.3 times, 1.4 times and 1.5 times for 2012, 2013 and 2014 respectively, the circular says.
According to IRDA estimation, public and private sector insurers would have infuse about Rs 4,000 crore each.
The actual amount would vary from company to company, in line with the market share.
IMPACT
This move will not impact customers or policyholders directly.
“There will be no impact on how the business operates,'' Dr Amarnath Ananthanarayanan, Chief Executive Officer, Bharti AXA General Insurance Company Ltd, told Business Line.
Companies, however, would have to provide for capital infusion/footing the losses. This is going to make things simple for accounting and bearing of liabilities among others, he added.
Premium rates, however, are expected to go up because of other aspects like annual review of rates.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.