IRDA eases solvency margins for Ulips

Friday 02, January, 2009 HYDERABAD/MUMBAI: In a move that will save the life insurance industry several hundred crores in capital requirement, the insurance regulator has eased solvency margins for unit-linked insurance plans . Solvency margin is the excess of assets over liabilities that an insurer maintains as a prudential measure in the interest of policyholders. “The move will help enhance Ulip sales, especially pension and health products. It will also lower the cost structure in ULIPs. Life insurers selling ULIPs will have a level playing field vis a vis companies selling traditional products whose solvency margins were lowered recently,” said R Kannan, member, IRDA. A lower solvency capital would mean that insurers will also have more money to underwrite new business. It will also ease the pressure on bringing in extra capital. For a life insurer the impact would vary depending on the product composition. For instance for products with a guaranteed return the capital requirement has been eased by 7%, whereas for products where there is no guarantee the reduction is 20%. Given the industry’s product composition the overall capital requirement towards solvency margin would be lesser by 18%. For the largest private life insurer, ICICI Prudential, the new norms will free up close to Rs 150 crore of capital. “This has been a good new year gift from the regulator,” said Shikha Sharma, managing director, ICICI Prudential. Insurers reckon that the new norms will ease capital requirements by 10-15%. Although private life insurers have brought in over Rs 21,000 crore as equity capital most of the money has gone towards distribution infrastructure, expenses and reserve requirements. A portion of the capital goes towards capital requirements of which companies will save between 10-15%. “This reduction will benefit not only existing business but also future business,” said Gaurang Shah, MD, Kotak Mahindra Life Insurance. When asked about the possibility of a reduction in price Mr Shah said “Competition has already been a major factor in driving down prices.

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