While the Mukherjee committee has formulated solvency ratios, there is as yet no provision or recommendation that key ratios be compulsorily published in insurance companies' annual reports. The Mukherjee committee recommendations are also `being kept highly confidential' by the finance ministry for reasons not known and understood by the insurance industry, causing a lot of concern, according to top sources.

The Insurance Regulatory Authority (IRA), it is learnt, is looking into the matter, but is not in total favour of open publication of these ratios, as it could initially affect the prospects of a developing insurance company.

However, actuaries feel that while this could be made mandatory after two or three years of operations, companies should be given the option of publishing these ratios as early as possible ``to prove their strength and credentials of soundness in a competitive environment.''

Malhotra committee member and actuary expert R Ramakrishnan told The Financial Express that in the long run publishing these ratios will benefit the entire industry although companies may find it difficult in the short term. Insurance companies the world over (barring some in the UK) adopted uniform practices in not revealing uncomfortable facts in their annual reports. Despite an apparently healthy balance sheet which revealed high profits, companies could tumble overnight leaving a lot of customers in the lurch, he said.

In India, LIC was reasonably transparent about its accounting methods. But, according to the expert, even though some general insurance companies were safe they did not believe in openly publishing such ratios. A uniform system has to be evolved which would make all companies incorporate these vital ratios in their annual reports and this would eliminate unpleasant surprises, he said.

Currently, it is enough if the actuaries know the strength or weaknesses of a company based on the validities of these ratios. These are always kept confidential and produced during board meetings. Auditors however do have a right to demand this information, after it is placed before the board. However companies usually see to it that the matter is handled ``informally'' in a board meeting, thus depriving auditors of this information.

There are three most important ratios which have to be published, Ramakrishnan said: cost ratios, the actuals by expected ratio and lapse ratio.

Cost ratios would be expense ratio in the first year, the renewal expense ratio and the overall expense ratio. This information is only available with the actuaries and seldom comes out in annual reports. ``Companies should publish all these ratios simultaneously and not one at the exclusion of the other, for figures could then become very misleading. A company performing badly would be able to hide little if this gets done,'' he said.

Usually companies, especially those dealing in general insurance, provide for claims in the pipeline (for the months between March and June) or for pending claims. If there is over-provisioning, companies are safe despite lower profits though there may be some loss to the exchequer by way of taxes and to shareholders by way of dividend. But if there is under-provisioning, companies can get into trouble, though shareholders would be happy and the government could be lulled into satisfaction with a higher amount of taxes on higher profits declared.

Usually companies do not reflect in their balance sheets the amount of claims outgo vis-a-vis provisions made in the following year to determine whether the provisioning was adequate or otherwise. Here the importance of the actuals by expected ratio comes into play. This ratio is a must to establish the soundness of the company and to ensure that companies provide adequately without attempting to manouvre profits.

The lapse ratio (particularly in life businesses) has also to be made public, according to Ramakrishnan. In a privatised scenario, agents could be switching from company to company and so keeping track of lapsed policies becomes important.

If these ratios are declared, Ramakrishnan said, the public would be vigilant while imposing its faith in any company and competition would prosper in a transparent scenario.