Irdai issues new insurer solvency margin rules

For segments like health, motor and liability, insurer would be required to maintain a higher solvency ratio

The Insurance Regulatory and Development Authority of India has come up with a new set of norms for companies maintaining a solvency ratio, based on each line of business.

The health, motor and liability segments would be required to maintain a higher ratio, as both the premiums and claims are high. It would be less in engineering, aviation and fire.

Available Solvency Margin (ASM) is calculated as the excess of value of assets over that of liabilities. The solvency ratio is the ratio of the ASM amount to that of the required margin. The higher the ratio, the more financially sound a company would be considered. The required minimum solvency ratio is currently 150 per cent, to be maintained at all times.

Sector officials said in segments like group health where heavy discounts are an issue, a higher solvency ratio will aid in curbing this. The ratio will be dependent on the amount of premium collections and on net incurred claims.

In life insurance, too, the required solvency margin for each line of product would be different.