The Hindu Business Line : Life insurers may not need more capital infusion

Life insurance companies may not need infusion of additional capital in 2010-11 to meet solvency requirement even as the Insurance Regulatory and Development Authority’s new valuation norms come into force in the current fiscal.

Though the balance-sheets of the companies for 2009-10 may be calculated differently from earlier years, following the enforcement of new risk-based valuation norms, additional capital infusion may not be needed as the changes in the assets and liability calculations were likely to balance each other out, the actuarial officers at different life insurance companies told Business Line.

A mismatch between assets and liabilities due to the new norms, if any, might not lead to immediate capital infusion as the solvency standard would be kept unchanged for now, they said.

A new global standard for solvency called solvency II, due for implementation in Europe in 2012, was likely to be introduced in India at a later stage, industry sources said.

Solvency margin

Solvency indicates a life insurance company’s ability to process claims. In India, the solvency margin for an insurance company is 150 per cent, meaning, its total assets must be 1.5 times its liabilities.

IRDA has asked all the life insurance companies to disclose economic capital (risk based solvency requirement) in their balance sheets of 2009-10 in line with the Basel II norm for the banking sector.

The move is expected to benefit the policyholders as capital requirements based on different risks to the company would ensure that they could pay claims even in stress situations.

Changes in balance-sheet

“While there will be some changes in the balance sheet as components such as asset, liability and excess capital may vary based on the new norms, the variations will most likely balance out each other,” Mr Sanchit Maini, Deputy Chief Actuary, Max New York Life, said.

Liabilities

The liabilities of the companies in this year’s balance sheet were likely to be lower than earlier years, the Chief Actuary at a private life insurance company said.

The excess capital or free asset component might be reported higher due to separate allotment for different risks, he added. Capital infusion is required if liabilities plus excess capital exceed assets.

“Liabilities of insurance companies are calculated conservatively while assets are valued on marked-to-market basis. The new norms are aimed at bringing the asset and liability valuations at par so that there is no implicit reserve,” Mr R. Kannan, Member (Actuary), IRDA said.

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