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IRDA is scheduled to release a roadmap on risk-based capital norms by March 2009, that will be used to set capital requirements or solvency margins for insurers, taking into consideration the extent and degree of risk they undertake.
It is understood that the government may impose several conditions before allowing the life insurance sector to migrate to the risk-based capital system. These conditions could include tougher public disclosure requirements.
Life insurers have been demanding that the current 150% solvency ratio be cut to 100% to relieve funding pressures on shareholders as their business expands.
But Mr Tarun Bajaj, joint secretary of the department of financial services at the Finance Ministry, said: "The IRDA solvency margins have worked well. Although the regulator did appear to go overboard with the requirements, they were needed in order to ensure that there were no problems at the initial stages."
He says that before moving to a risk-based capital regime, the industry needs to ask itself whether there is enough competence to do so and whether the regulator has the capacity to implement such a system. The regime is as good as the reliability of data and the quality of assumptions, he says.
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