The General Insurance Council (GIC), the representative body of non-life insuers, is lobbying the IRDAI to relax certain regulatory requirements, particularly those related to the solvency ratio, particularly because of the current COVID-19 crisis.
In a letter to the insurance regulator, GIC said that given the huge mark-to-market loss in equity investments in March, the IRDAI should waive the requirement for insurers to account for diminution in value in equity investments when they finalise their financial statements for the year ended 31 March 2020, according to a report in Business Standard.
Many insurance companies may see their solvency ratio fall below the required minimum level of 1.5 due to COVID-19 which has battered the stock market.
While insurers ignore mark to-market-gains, they are required to recognise mark-to-market losses in their profit and loss accounts.
“Though the virus made a relatively delayed entry into India, the scare, the preventive shutdowns and the economic decline are unprecedented and the adverse impact on financial markets is quite telling. Without exception, the non-life insurance sector is severely burdened and we are afraid we will have difficulty in meeting certain regulatory requirements ,” Mr M N Sarma, GIC general secretary, wrote in the letter.
GIC also said that companies could be allowed to consider mark-to market position as on 29 February 2020 as the basis of computing solvency.
“Alternatively, the IRDAI may relax the minimum solvency requirement of 1.5 times for the time being, on the same lines as the regulator had relaxed it at the time of dismantling the motor third party pool,” the letter said.
Also, the insurance industry needs to provide for stressed debt investments as the same is not allowed for income tax assessment till the investment is written off.
“In view of the huge provisions made by the industry and the same disallowed for the purpose of income tax purpose, DTA (Deferred Tax Assets) created for such differences need to be allowed for solvency computation,” GIC said.
Furthermore, GIC sought IRDAI’s forbearance in the compliance requirement of limits on rural and social sector obligations.