Regulations of IRDA Regarding Solvency Margin


The IRDA has published Assets, Liabilities and Solvency Margin of the Insurers Regulations' in 2000, Section 64VA of the Insurance Act, 1938, lays down the requirements of solvency margins to be maintained by the Insurance Companies. It also states the procedure for calculating solvency margin requirements and consequences of not maintaining it. It stipulates that every insurer shall maintain an excess value of the assets over the amount of his liabilities According to the Regulations, every insurer has to 

1. Prepare a statement of the value of the assets 
2. Prepare a statement of the amount of liabilities, and 
3. Prepare a statement of solvency margin. 

The assets are categorized as the following: 
a) approved securities, 
b) approved investments, 
c) deposits, 
d) non- mandated investments, and 
e) other (specified) assets 

For the purpose of valuation of the liabilities, the contracts are classified as: a) linked business, and b) non linked business.

Available solvency margin means the excess of value of assets over the value of liabilities and other liabilities of poli holders funds and shareholders' funds. Solvency ratio' means the ratio of the amount of available solvency margin' to the amount of required solvency margin', According to the IRDA directive, the available solvency margin should not be less than 150 percent of the required solvency margin. Hence, the insurers will have to build up their reserves as the business grows.

The required solvency margin for every life insurer shall be a minimum of rupees 50 crores. This is subject to the provisions of the IRDA Regulations. The IRDA Regulations require that the valuation results as on 31 March of every year shall be accompanied by statements of;

1) solvency margin of the insurer, 
2) required solvency margin, and 
3) available solvency margin and solvency ratio

Comments

Post a Comment

Popular posts from this blog

Insurable Interest

Image
In simple words, insurable interest means monetary Insurable Interest interest. No person can enter into a valid contract of insurance unless he has insurable interest in the subject matter of insurance. A person is said to have insurable interest in the subject matter, if he suffers financially, by its loss or destruction. Thus a person has insurable interest in his own life, in the life of his spouse or child or debtor. Similarly the owner of a property has an insurable interest in it. It is also important, to know the time at which the insurable interest must exist to execute a valid contract of insurance. It depends on the branch of insurance. In the case of life insurance, the insurable interest must exist at the time when the policy is taken. It may not be in existence at the time of the death of the person whose life is insured. For eg. A creditor can insure the life of his debtor to the extent of the debt. Even if the debtor dies after paying off the debt, the creditor ca...
Read more

Definition - Fire Insurance

Image
Definition A fire insurance may be defined as "a contract by which the insurer undertakes, for a money consideration, to indemnify the insured against the consequences of a fire during an agreed period upto the amount stated in the policy.'  According to V.R. Bhushan and Prof. R S. Sharma, a fire insurance may be defined as "an agreement whereby one party, in return for a consideration, undertakes to indemnify the other party against financial loss which he may sustain, by reason of certain defined subject-matter being damages or destroyed by fire or other defined perils upto an agreed amount." The main purpose of a fire insurance contract is to protect the insured against the loss of his property by fire. A fire insurance contract is a contract of indemnity. It indemnifies the insured against any loss caused by fire. To get compensation for loss of property under fire insurance, it must be proved that the loss of property has arisen due to fire. It is also...
Read more

Requirements as to Capital Structure and Voting Rights and Maintenance of Registers

Image
According to section 6A of the Insurance Act, 1938, the following provisions should be made with regard to the requirements as to capital structure and voting rights and maintenance of registers: 1 . A public company limited by shares having its registered office in India, shall carry on life insurance business only, if it satisfies all the following conditions, namely: i. that the capital of the company consists only of ordinary shares each of which has a single face value ii. that the paid-up amount is the same for all shares whether existing or new, except during any period not exceeding one year allowed by the company for payment of calls on shares; 2 . The voting right of every shareholder of any public company as aforesaid shall in all cases be strictly proportionate to the paid-up amount of the shares held by him. 3 . A public company which carries on life insurance business shall not issue any shares other than ordinary shares of the nature specified in sub-sectio...
Read more