New Delhi: While the financial crisis continues to throw global markets in turmoil, affecting many banks and insurance companies in its wake, the Insurance Regulatory and Development Authority (Irda) has begun taking stock of repercussions on the domestic insurance industry. While it expects a wave of consolidation for which it is putting merger and acquisition norms in place, Irda is worried about companies’ asset-liability mismatches and is set to mandate companies to mark all their investments to market.
The regulator is concerned about the widening asset-liability mismatch in insurance companies’ balance sheets. Irda chairman J Hari Narayan said, “We are getting into asset-liability mismatch of varying degrees. There is lack of long-term securities in the market, which might impact certain kind of liabilities.” Irda will be taking up the issue with the finance ministry soon.
Significantly, Irda is planning to introduce mark-to-market norms for the investment portfolio of companies. While this was introduced earlier, it did not include all investments. Irda is now contemplating whether the mark-to-market norms for banks can be used for the insurance sector as well. “The question is whether they are relevant for the insurance sector,” he pointed out.
Indicating that Irda expects the crisis to trigger a consolidation of sorts, the regulator is finalising norms to encourage mergers and acquisitions in the sector. “Given what is happening in the market, it is an opportune time for mergers and acquisitions,” Narayan said on Wednesday. The draft guidelines should be ready by March 2009, he said while addressing a seminar by the Federation of Indian Chambers of Commerce and Industry.
With 21 life insurance companies and 20 general insurance companies operating in the country and the industry itself estimated to grow at 17% this fiscal, Irda is of the view that the move to bring in specific guidelines for mergers and acquisitions (M&As) will further help the sector, especially since there are no guidelines in place as of now. Irda is also consulting the Institute of Actuaries to frame appropriate calculations for the purpose, the chairman said. While M&A guidelines will help insurance companies operate with more clarity, the relaxation in solvency norms that the industry has been seeking for a while is unlikely to come anytime soon. The insurance regulator feels it might be imprudent to relax solvency norms in the current situation.
“A certain amount of conservatism towards solvency regime has proved beneficial,” Hari Narayan said. The existing guidelines require insurance firms to keep aside 150% of the uncovered liability as solvency margins.
The regulator is also planning to put in place a data warehouse for health and transport by January next year, which will enable the industry to improve its understanding of the markets and trends. This would help improve the quality of products, Irda chairman concluded.
