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Insurance regulator, IRDA, on Tuesday relaxed accounting norms for insurance companies to take care of higher liability arising out of enhanced outgo towards gratuity for their employees.
The regulator allowed the insurance and reinsurance companies to amortise (pay off in regular intervals) the additional liability on account of gratuity over a period of five years starting from financial year 2010—11.
Last year the government had enhanced gratuity limit for all employees to Rs 10 lakh from Rs 3.5 lakh and also revised payment structure of employees of Public sector entities.
The insurance regulator said these moves would lead to the increase in liability on account of gratuity which would in turn affect insurers’ profitability.
“(This) in turn will impact the insurers profitability significantly as they need to provide the same in the financial year 2010—11. This will cause a strain on their solvency as well as on their performance results,” IRDA said.
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