New Delhi: Insurance companies are set to face stricter disclosure norms with the sector regulator re-examining existing reporting procedures as it looks for an effective transition to a risk-based capital regime.
Such a regime would assess the capital requirement of each company depending on its risk profile, resources available and operational efficiency. Currently, companies keep capital as determined by the regulator and the risks are calculated more broadly.
A lack of data and limited technical expertise make identification and quantification of risks challenging for insurance. Framing a comprehensive model for valuation and solvency capital will be critical for insurance companies.
“Stricter disclosures norms will be required and we are working on it,” said J. Hari Narayan, chairman, Insurance Regulatory and Development Authority, or Irda. “We are looking at several aspects of insurance companies and guidelines are expected to come out by September.”
A committee on economic capital and market-consistent valuation of insurance firms has submitted its report to Irda.
“Right now, insurance companies compared with banking companies have significant difference in terms of disclosures,” said Ravi Trivedy, executive director at audit and consulting firm KPMG. “They (insurance companies) need to disclose more both on investment and business sides,” he said, adding that though insurers send reports on a monthly basis to Irda, more clarity is needed. “It (guidelines) is not coming out of lack of regulation but is an attempt to bring more clarity on stuff, which was not otherwise disclosed.”
R. Krishnamurthy, managing director at consulting firm Watson Wyatt Worldwide, said, “IFRS (international financial reporting standard) calls for considerable disclosures and, therefore, the step is considered by the regulator. What Irda is looking at is public disclosures for stricter regulation of insurance companies.”
The committee on IFRS compliance, constituted by Irda, has also submitted its report to the regulator.
“Currently, companies are making financial disclosures. There is a possibility that more disclosures are required about embedded value of the company and more transparency will be needed while moving towards IFRS,” said U.S. Roy, managing director, SBI Life Insurance Co. Ltd.