India’s insurers ordered to provide RBC quantitative impact by November
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Insurers operating in India, including branches of foreign reinsurers and Lloyd’s India, will need to submit the results of the likely impact of proposed risk-based capital rules to their regulator no later than 30 November.
The Insurance Regulatory and Development Authority of India is in the process of developing the Indian Risk-Based Capital framework, which the regulator said would enable insurers to maintain an appropriate level of capital commensurate with the risks inherent in their re/insurance operations.
As part of the transition to Ind-RBC from the current factor-based model, IRDAI launched on Thursday its first quantitative impact study, which “holds paramount significance, as it provides the opportunity to comprehensively evaluate the potential impact on the capital and overall solvency of the insurers”.
Insurers will need to carry out the QIS1 with the data used for actuarial valuation as at 31 March 2023, said the authority.
“The QIS1 shall be the first major step towards desired transformation and shall help in assessing the likely impact on the Indian insurance industry of the proposed framework for quantification of capital and solvency requirements following a risk-based approach,” said IRDAI in a circular sent to firms.
Following the evaluation of the QIS1 findings, IRDAI expects to launch successive QIS to finetune the RBC framework, “ultimately resulting in its definitive implementation”.
India currently follows a solvency standard under which insurers have to maintain a solvency margin of 150%, irrespective of the risks faced or the liabilities that arise from the pricing of policies.
According to research by Swiss Re, the immediate impact of the introduction of RBC could be on the equity and solvency position of insurers.
“The risk-weighted approach for capital allocation should result in a freeing up of capital in certain cases, possibly for large insurers with more diversified underwriting portfolio, while requiring higher capital requirements on insurers underwriting more risky business,” said Swiss Re in the report India: a growth engine for the global insurance sector, published in January.
“This would likely also increase the importance of reinsurance as a tool to manage earnings and balance sheet volatility more efficiently.”
What will be the pros and cons of risk-based capital rules?
