New Delhi: The Insurance Regulatory and Development Authority (Irda) is expected to evolve a roadmap on risk-based capital norms by March 2009. “When other segments are moving towards Basel II guidelines, there is a need for the Indian insurance sector to adopt to new capital risk norms,” R Kannan member IRDA said on Friday on the sidelines of the Bimtech Insurance Summit 2008.
Risk-based capital norms are used to set capital requirements or solvency margins for insurers, taking into consideration the size and degree of risk undertaken by them. At present life insurers are mandated to have a 150% solvency margin but the industry has been demanding for a reduction in it to 100%.
They have argued that in a capital-intensive business, the 150% solvency criterion is putting enormous strain on their shareholders.
The insurance regulator is also in talks with the Life Insurance Corporation (LIC) over its investment pattern. Kannan said IRDA will give reasonable time to LIC to offload its stakes, which violate the new investment norms introduced by the regulator last month. “We do not want forced sale by LIC so that it gets lower returns. We want to give reasonable time so that transition is smooth,” Kannan said. The new norms prohibit an insurer from having more than 10% stake in any company.
LIC, which has equity investments of over Rs 1.3 lakh crore, holds over 10% in a number of companies including Corporation Bank, Cipla, M&M, Maruti Suzuki, MTNL, Tata Motors, HPCL, Ranbaxy Labs, Oriental Bank, Dr Reddys Labs, Tata Steel and Reliance Infra.
