IRDAI prescribes specific directions for the preparation of Solvency Statement under the IRDA (Assets, Liabilities, and Solvency Margin of General Insurance Business) Regulations, 2016 from the first quarter of 2019-2020

The Insurance Regulatory and Development Authority of India (“Authority / IRDAI”) has observed in the Solvency Returns filed to them that, computations under Available Solvency Margin and Required Solvency Margin have not been done correctly. Accordingly, IRDAI has issued a circular dated May 20, 2019. through which it aims to establish uniformity, consistency and comparability in the Solvency Returns by prescribing certain directions.

The directions prescribed by IRDAI through the circular are as follows:

  • Computation of Required Solvency Margin (“RSM”): For the purpose of computation of Required Solvency Margin, IRDAI clarifies that Personal Accident and Travel (including domestic as well as overseas) shall be clubbed with Health segment and RSM-1 and RSM-2 shall be computed accordingly;.
  • Where the obligation(s)/contingency(ies), for which the assets have been hypothecated/encumbered, have not been recognized as liability in the books of accounts, the entire book value of such hypothecated/encumbered assets shall not be considered for the purpose of computation of Available Solvency Margin.
  • Hypothecated/Encumbered Assets: IRDAI has observed that the assets that have been hypothecated or encumbered have been considered at the book value for the purpose of computation of solvency margin. In this regard, it has been directed that:

    a. Where the obligation(s)/contingency(ies), for which the assets have been hypothecated/encumbered, have been recognized as liability in the books of accounts, the entire book value of the assets and liabilities shall be considered for the purpose of computation of solvency margin.

  • IT/Computer Software: It has been observed that IT/Computer software is considered by most of the insurers for the purpose of computation of Available Solvency Margin, even though the same being intangible asset is “inadmissible” in nature. In this regard, it is directed that for the purpose of computation of solvency margin, the IT/Computer software shall be depreciated at the rate of not less than 1/12 in each quarter on straight line basis, starting from the quarter in which the IT/Computer software were added to the Gross Block.
  • Trademark / Trade Logo: Some insurers have considered intangibles assets, such as trademark or trade logo, as admissible asset for the purpose of computation of Available Solvency Margin. In this regard, it is directed that such intangible assets shall be considered as Inadmissible for the purpose of computation of available solvency margin.
  • Timelines for Submission of Solvency Returns: The solvency returns, in the forms and manner, prescribed by IRDAI (Assets, Liabilities and Solvency Margin of General Insurance Business) Regulations, 2016, shall be submitted as per the following timelines:
Period of Return Timeline
For the Quarters ending on 30th June 30th September and 31st December Within 45 days from the end of the quarter
For the Quarter ending on 31st March Within three months from the end of the period to which they refer to or within thirty days from the date of adoption of accounts by the Board of the insurer, whichever is earlier.

These directions are to be followed while preparing all Solvency Statements from the first quarter of 2019-2020 and thereafter.

Source Insurance Regulatory and Development Authority of India

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