Process of shifting Capital requirements to RBC
Insurance companies will soon have to adhere to more stringent, global standards in capital requirements, with the insurance regulator IRDAI set to introduce a Risk Based Capital (RBC) regime.
Kicking off the process, the IRDAI has called for Expressions of Interest from consultancies, agencies and institutions for the implementation of the RBC regime,
IRDAI shall make the transition to RBC to conform to the principles followed in jurisdictions across the globe and consistent with the prevalent core insurance principles of the International Association of Insurers,’’ the regulator said, adding that suitable adjustments will be made in the Indian context. In the RBC regime, the minimum capital requirement will be based on the risks to which an insurer is exposed.
In a report on financial services in India released last month, both the International Monetary Fund and the World Bank suggested the adoption of risk-based solvency and supervision. They advised the IRDAI to formulate a strategy and timetable for the introduction of risk-based capital adequacy.
“It should develop a risk-based supervisory circle, using impact and risk assessment to determine supervisory focus. Skill and expertise should be upgraded to this end,” the global institutions said.
The IRDAI had initially constituted two committees: one to work on a roadmap for the risk-based capital approach in the insurance sector; and the other to handle a risk-based capital approach and market-consistent valuation of liabilities. Last September, the regulator had also constituted a 10-member steering committee to implement the RBC regime.
A timeline of March 2021 has been proposed for the implementation of the proposed RBC regime.