Risk-based capital norms for insurers

At present, the amount of capital that an insurance company has to set aside to take care of any liabilities is calculated using a particular formula. The risk-based capital model is a more scientific way of calculating liabilities. It takes into account several factors and gives a more realistic picture of the liabilities that may arise. So the liability might turn out to be lower, which in turn will free up some more capital for the companies.

8220;Overall I think it is good. The key is policy holder protection, and risk-based capital is a move towards that. As it tends to be scientific, it is more efficient in terms of capital allocation,8221; said ICICI Prudential Life Insurance actuary head Avijit Chatterjee.

Besides this, Kannan also stressed that there is no need to further tighten the regulatory regime to ward off any threats of insolvency. 8220;The solvency margin capital adequacy prescribed is very adequate. There is no need to review it,8221; he said. The regulator8217;s existing guidelines require insurance firms to keep aside 150 per cent of the uncovered liability as solvency margins.