Regulatory oversight on LIC is quite comprehensive: Irda

The Insurance Regulatory and Development Authority (Irda) on Thursday sought to allay concerns on its oversight of government owned Life Insurance Corp of India (LIC). Responding to a report by the International Monetary Fund (IMF), Irda Chairman T S Vijayan said the regulator would like to assert there was complete oversight on LIC with regard to both market conduct and prudential regulations.

The regulatory oversight of LIC is quite comprehensive to the extent that it requires monitoring both prudential and market conduct operations of LIC, Irda said. Though the LIC Act excludes the applicability of certain provisions of Insurance Act, 1938, there is no dilution on the regulatory oversight on the state-run life insurer.

IMF in its report said: "The current uncertainty regarding Irda's control of its funding and budget, its incomplete oversight of LIC, and the reserve powers of the central government to direct its activities all potentially detract from the supervisor's powers and independence."

These comments come at a time when putting a 30 per cent equity investment cap for LIC is being discussed within Irda.

The IMF report said the authorities might wish to consider allowing the voluntary wind-up of solvent non-life insurers, subject to satisfactory safeguards. Here, Irda said it was examining these recommendations. It added the Insurance Amendment Bill needed to be passed and become effective to ensure that Irda was clearly independent and had a wider range of direct powers of intervention.

The report also mentioned that Irda's ongoing supervision of insurance companies and market was tight and displayed a strong level of control and that the insurance industry in India had a relatively large footprint, compared with other forms of financial intermediation.

One of the recommendations of the IMF is putting in place a modern risk-based early warning system.

Given the high level of solvency at 150 per cent required to be maintained by insurers at all times, Vijayan said Irda did not envisage the need for a ladder approach to the intervention levels. However, he explained that with a view to facilitating a risk-based oversight, Irda is looking at having in place the early warning signals for the systemically important insurance groups, and is working closely with other regulators in the financial sector. As regards moving towards the risk-based capital approach to solvency, Irda is currently examining various issues related to the same and would take a view on adopting a standardised framework after deliberations with all stakeholders.

The Irda chairman added, as a first step, an exposure draft has been released, laying down the framework to assign risk weights to financial assets supporting insurance liabilities.