The insurance industry in India will continue to observe its current solvency rules even though insurers in other countries are moving over to the new Solvency II regime, according to local media reports.
"Our country does not have the required statistical database to adopt Solvency II norms that have been devised by the European community," says says Mr RK Nair, a member of the IRDA which is not keen on adopting Solvency II rules in India.
Solvency II is a risk-based model for all insurers and reinsurers in the European Union. The rationale is to facilitate the development of a single market in insurance services in Europe, while ensuring adequate consumer protection through a risk-based approach to supervision. Scheduled to be implemented in January 2014, Solvency II comprises a new set of capital requirements, valuation techniques and governance and reporting standards.
"The challenge for India, however, is that evaluation of risk can throw up different figures for regulators, insurers and valuers because there are no proper systems of evaluation or calculation of such risks in India," says Mr Nair. "We have a factor-based process in India to calculate solvency. Our regulator and the industry are comfortable with that."
India's current solvency framework is in line with Solvency I model which itself is based on the EU's insurer solvency regime put in place in the 1970's. This requires insurers to maintain a minimum solvency ratio, which currently is 150% for Indian life insurers and 130% for non-life insurers. The required solvency margin is thus easy to compute and to monitor. However, it does not recognise the size of the insurer's portfolio, type of business, operational risk and risk management practices such as reinsurance and underwriting.
.......EDITOR
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