Life insurers asked to disclose more

In a bid to know about available solvency margins and bring in more transparency in terms of corporate governance, the Insurance Regulatory and Development Authority (Irda) has asked life insurance companies to submit scrip-wise details of their investments. The details asked for include the book value, market value and the number of units held as of March 2009.

The regulator has also asked life insurers to furnish details of their management expenses in order to know how they are managing their business.

“With regard to the scrip-wise details, the regulator wants to ensure that there is no error in finding out the valuation of the investments made by the companies,” said Irda Member Actuary R Kannan.

Irda has asked for scrip-wise details of investments in approved securities (government bonds, oil bonds and state government securities), other approved investments (corporate bonds and equity), non-mandated investments (equities which do not have a dividend track record for the last seven years, non-liquid mutual funds and bonds with a rating of below ‘AA’).
 

IDENTIFYING INVESTMENTS

* Irda wants to ensure that there is no error in finding out the valuation of the investments made by the companies

* It has also asked for premium procured from different distribution channels and commissions paid under various premium categories

* In addition to payments made to corporate agents and broker, Irda has also asked insurers to separately mention payments made to individual agents

* Basically, Irda wants to know about all payments made by life insurers to all intermediaries for the business procured by them during April-March 2009

However, insurers said that the regulator has suspended bonds facing mark-to-market losses. They also pointed out that, with a lower market value at present, they are required to maintain a lower amount as solvency margin.

“By asking for scrip-wise details, the regulator wants to know about financials which are not marked-to-market. In 2008, the value of government bonds had gone up. Irda had earlier said that bonds will be held to maturity, and not marked-to-market,” said an executive with a private life insurance firm.

“Irda wants to know the details of assets backing the solvency margins. It will lead to more segregating of details,” Max New York Life CFO Sunil Kakar added.

As for management expenses, Irda has asked for premium procured from different distribution channels and commissions paid under the categories of first-year premium, renewal premium, single premium, and even top-up premium.

The distribution channels include corporate agents, brokers, referrals and others. In fact, Irda has asked insurers to separately mention the payments made to individual agents. The idea is to get insurers to submit all payments made to intermediaries for the business procured by them during the year.

“We have asked life insurers to submit details of their management expenses in order to know how companies are managing their business,” a senior Irda official said. Management expense ratio is a measure of the total costs of operating a fund as a percentage of average total assets.

For insurers, there is a ceiling of 19.5 per cent of total revenues for management expenses. However, experts said, life insurers require hefty amounts – sometimes to the tune of 20-23 per cent – to run and maintain their business, at least in the initial years.