No need to tighten rules, says insurance regulator

No need to tighten rules, says insurance regulator

New Delhi: The Indian insurance regulator has said there is no need to tighten rules as private insurers in which foreign firms have stakes have not been hurt by the global financial crisis. Indian insurance companies are well-capitalised and maintain an adequate solvency margin, a senior Insurance Regulatory and Development Authority (IRDA) official has said.

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bd6cf7c4-8bd1-11dd-9dcc-000b5dabf613.flvSpeaking at the Birla Institute of Management and Technology conference at PHD House in Delhi on Friday, IRDA member R. Kannan also said the regulator had sought a business and not a solvency report from AIG. This has been done because the company is undergoing structural changes and not because it is concerned about whether TATA-AIG would be able to meet its customer commitments, he said. However, the regulator is keeping a close watch on the evolving global markets, he added.

The IRDA had last week started investigating whether the Indian units of American International Group were affected by the financial crisis in the US. AIG has a 26% stake in each of the two life and general insurance ventures with the Tata group. It had last week agreed to a $85 billion federal bailout that will give the US government 80% ownership, avoiding a possible collapse under mounting mortgage losses.

Closer home, with a view to manage financial and market volatility, IRDA had earlier asked Life Insurance Corp. to bring down its stake in companies to 10%. But the insurance regulator has now clarified that the insurance company will be given time to make this transition.

"It is an issue on which we are in touch with LIC and we may give them sufficient time. We don’t want forced sale so that LIC offloads shares in the market and get lower returns on investment," Kannan said.

At present, LIC owns more than 10% equity in companies like Corporation bank (27%), Ranbaxy Laboratories (15%), M & M (17.5%), ACC (15.9%), ITC (14.4%) and Reliance Infrastructure (11.5%).

IRDA is also considering introducing Risk Based Capital (RBC) norms to manage the acquisition of capital for insurance companies. Kannan said IRDA is presently mulling over the format and structure of these rules.

RBC norms decide the solvency margins for insurance companies. Solvency margin is the amount by which the assets of an insurer exceed its liabilities. The solvency ratio fluctuates according to the financial risk in markets as it increases or decreases. It stands at 150% for Indian insurance companies at present.