IRDA to tighten asset-liability norms for life insurers

Life insurers may have to adhere to more stringent norms on asset-liability and stress-testing soon.

The Insurance Regulatory and Development Authority (IRDA) is planning to put in place a specific framework for Asset-Liability Management (ALM) by insurers.

Asset-liability management (ALM) is the practice of managing a business so that decisions and actions taken with respect to assets and liabilities are coordinated.

It is relevant to, and critical for, the sound management of the finances of the insurers.

Exposure draft

In an exposure draft, Mr J. Hari Narayan, Chairman, IRDA, said all insurers would have to frame an ALM policy approved by the board of the insurer which has to be submitted to the regulator.

The policy should enable the insurer understand the risks they are exposed to and measure the interest rate risk, in particular, along with equity, real estate, currency, credit, underwriting and equity risks, among others.

“The insurer shall develop and implement controls and reporting procedures for its ALM policies,” Mr Hari Narayan said.

The board should also review the policy at predetermined, fixed intervals, he added.

The insurers would also need to undertake stress-testing in accordance with the minimum requirements fixed by the IRDA.

The specific risk factors which should be taken into consideration while undertaking a stress-test included fall of 30 per cent in equity values, a 100 basis points fall in yields on various fixed interest securities, adverse deviation of 10 per cent in mortality/morbidity expenses.

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