The Insurance Regulatory and Development Authority of India (IRDAI) on Tuesday announced the formation of two expert panels to develop a risk-based capital (RBC) framework aligned with Indian Accounting Standards (Ind AS).
The regulator is working to transition the Indian insurance sector from the existing factor-based solvency regime to an RBC framework. Under the proposed system, an insurer’s capital requirement will be linked to the risks it carries, measured through an economic, market-consistent balance sheet.
IRDAI Seeks Alignment with Indian Accounting Standards
One of the key objectives of the working groups is to ensure that the RBC framework converges with Indian Accounting Standards. The regulator intends to use Ind AS financial statements as the basis for RBC calculations, allowing a single set of underlying data, models, assumptions and valuation frameworks to serve both purposes to the greatest extent possible.
“The resulting RBC framework shall be transparent, comparable across insurers, resistant to arbitrage, proportionate, and implementable within a realistic transition path,” IRDAI said in a release.
The two panels will also prepare an exposure draft of the proposed RBC regulations. In addition, they will develop an approach paper outlining recommendations across possible scenarios, alternative approaches and their implications.
Working Groups Given One Month to Submit Recommendations
IRDAI has asked both working groups to complete their assignments and submit all deliverables within one month.
Jamuna Choudhary and Parmeshwar Shelke will serve as the member conveners of the life and non-life insurance working groups, respectively.
The proposed framework is expected to establish a risk-sensitive approach to determining insurers’ capital requirements while improving consistency and comparability across the sector.
