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Solvency regime in India By Dr. R. Kannan Member (Actuary)

Solvency regime in India By Dr. R. Kannan Member (Actuary) Insurance Regulatory and Development Authority, India. Structure of my presentation . A brief background Solvency regime in India Prompt corrective framework. A brief background.

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Solvency regime in India By Dr. R. Kannan Member (Actuary)

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  1. Solvency regime in India By Dr. R. Kannan Member (Actuary) Insurance Regulatory and Development Authority, India IAIS, Information session,Chile April 20,2009

  2. Structure of my presentation • A brief background • Solvency regime in India • Prompt corrective framework IAIS, Information session,Chile April 20,2009

  3. A brief background • With the enactment of “Insurance Regulatory and Development Authority Act, 1999” private participation in the Indian insurance market was allowed, though foreign equity in any insurance company being restricted to 26%. IAIS, Information session,Chile April 20,2009

  4. Growth of Insurance Companies IAIS, Information session,Chile April 20,2009

  5. Size of Life Insurance Premiums IAIS, Information session,Chile April 20,2009

  6. Size of Non-life Insurance Premiums IAIS, Information session,Chile April 20,2009

  7. Insurance penetration (Premium as a % of GDP) IAIS, Information session,Chile April 20,2009

  8. Insurance density(Premium per capita in US dollar ) IAIS, Information session,Chile April 20,2009

  9. International Comparison of Business Mix Non-Life Insurance Industry IAIS, Information session,Chile April 20,2009

  10. II. Solvency regime in India • Minimum solvency requirement of $10 million. • Simple factor based approach. • In arriving at the solvecy margin available the assets are to be valued as follows: Equities-----at market value Debt-------HTM----at book value HFT----at market value • Control level of 1.5 times the minimum requirement is observed. IAIS, Information session,Chile April 20,2009

  11. Solvency regime – Life Insurance • The solvency margin requirement is based on the liability estimated on actuarial basis, which is a sum of x% (first factor) of Technical / mathematical reserves and y% (second factor) at sum at risk. IAIS, Information session,Chile April 20,2009

  12. Details of solvency factors – Life Insurance IAIS, Information session,Chile April 20,2009

  13. Solvency regime – Non-life Insurance • The solvency margin requirement is higher of 20% of net premium income or 30% of net incurred claims for the year under consideration. • Reinsurance credit allowed in this regard is limited, as detailed in next slide. IAIS, Information session,Chile April 20,2009

  14. Details of reinsurance credit factors – Non-life Insurance IAIS, Information session,Chile April 20,2009

  15. Status of Life Insurance Industry $ Billions IAIS, Information session,Chile April 20,2009

  16. Status of Non-Life Insurance Industry $ Billions IAIS, Information session,Chile April 20,2009

  17. Solvency ratios of insurers IAIS, Information session,Chile April 20,2009

  18. Prompt Corrective Framework ( Early Warning System ) Ratios selected for this work • Expense ratio • Lapse ratio • Yield on assets • Claim ratio • Solvency ratio IAIS, Information session,Chile April 20,2009

  19. Finding the weights and determining the EW parameters • Data for the period 2005-06 to 2007-08 were used. • A multi variate linear regression using weighted least squares method was used as follows: • RSM = f ( ER, LR, CR and YoA ) • p values of each of the independent variables were found • Weights were derived using the p values ( for deriving lower and upper limits of the EW parameters) • For each of the independent variables, a histogram was plotted and found 75 % and 95 % of the distribution of each of the independent variables • The above procedure was used for the first three independent variables and for the YoA we used 25 % and 10 % values IAIS, Information session,Chile April 20,2009

  20. Weights and percentile values for independent variables IAIS, Information session,Chile April 20,2009

  21. EW Parameters • EWPLL =  (wi Lower percentilei ) + w4 ( 1- Upper percentile4 ) EWPUl =  (wi Upper percentilei ) + w4 ( 1- Lower percentile4) IAIS, Information session,Chile April 20,2009

  22. EWPs IAIS, Information session,Chile April 20,2009

  23. IAIS, Information session,Chile April 20,2009

  24. IAIS, Information session,Chile April 20,2009

  25. Mandatory and Discretionary policy actions IAIS, Information session,Chile April 20,2009

  26. Mandatory and Discretionary policy actions IAIS, Information session,Chile April 20,2009

  27. Mandatory and Discretionary policy actions IAIS, Information session,Chile April 20,2009

  28. THANK YOU IAIS, Information session,Chile April 20,2009

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