Irda wants 150% solvency ratio by 2014

The Insurance Regulatory and Development Authority (Irda) on Saturday directed the general insurance companies to augment the Indian Motor Third Party Insurance Pool (IMTPIP) reserves to maintain a solvency ratio of 150 per cent by March 2014 from the present 126 per cent in order to meet the cost of higher compensation to be paid to road accident victims.

The authority has allowed the companies to raise the pool to the prescribed solvency ratio in a gradual manner: to 137 per cent by March 2012 and to 145 per cent by March 2013 before achieving the ratio of 150 per cent by March 2014. The same ratio has to be maintained afterwards.

 

Besides, Irda has asked the companies to maintain the solvency ratio at a minimum of 130 per cent for all lines of businesses by the end of March this year.

The latest orders on the solvency ratio have been issued in the light of Irda’s findings on the actuarial valuation of the IMTPIP. The findings were from a report submitted by KP Sarma, the authority’s consultant actuary, which established the ultimate loss ratios for the years 2007-08, 2008-09 and 2009-10 at 172.3 per cent, 181.81 per cent and 194.15 per cent respectively.

“Such augmenting will strengthen the insurance companies and will enable them to meet all claim obligations at all times expeditiously and without fail,” the authority said in a press release.

To restrict the expenditure of the insurers in the wake of mounting compensation from third party insurance claims, the authority has directed all the insurance companies not to disburse bonus, performance incentives, etc to any key management personnel, the senior management, appointed actuaries, whole-time directors on the board, among others, without specific prior approval.

The authority also wants the companies not to declare dividends to shareholders. It has asked the companies to bring in additional capital as and when necessary.

Irda asked the companies to submit a financial plan within two months, indicating a plan of action to correct the deficiency for the said three-year period up to March 2014. In addition, these companies have to submit an annual plan with regard to maintaining the solvency ratio by February 15 of every year.