General insurers petition Irda for accounting relief

Written by Sitanshu Swain | Mumbai | Updated: Jan 19 2012, 07:10am hrs
Hit by an additional provisioning of R8,500 crore on account of third-party motor business in 2011-12, general insurers have pleaded for accounting relief from the segment regulator, Irda.

The General Insurance Council (GIC) , the representative body if general insurers, has asked for amortisation of losses of general insurers over a maximum of five years; and unamortised deferred asset as part of solvency margin calculations.

The council has sent a note to Irda that in 2010-11 the general insurance industry had already absorbed over R3,000 crore on account of additional provisioning for motor third-party pool.

It would be difficult for the industry to again absorb the entire additional loss of R8,200 crore in 2011-12 itself. This would severely dent the industry balancesheet strength and curb their ability to raise capital for their future needs,'' said GIC's note.

Motor Pool TP provisions required to be provided for the industry as on March 31, 2012, approximately work out to additional provisions of over R8,200 crore.

The industry is looking to weather this extraordinary impact on their balance sheet by various means. Every possible avenue is being explored to ensure that the industry not only meets the directives of the authority on the provisions, but also emerge to be in a position to continue their business operations unhindered, explained GIC. The additional provisions of approximately R8,200 crore, pertains to five years from 2007-08 to 2011-12.

We request the Irda to allow the insurers to fit in these additional provisions, to the required solvency margin (RSM) calculations of the respective years.

Banks were given options to either charge the entire amount to the profit & loss account during the FY 2010-11, or be amortised over a period of five years subject to minimum of 1/5 th of the total amount involved every year. They further stated that the unamortised expenditure would not be reduced from tier 1 capital

However, analysts have pointed out that with lower solvency margin as allowed by Irda for next five years the general insurers may be technically insolvent undermining their position to deal with customers, reinsurers, auditors and rating agency.

The whole scenario arising out of the losses and huge provisioning on account of third part motor can put a massive burden on the financials of many listed companies (having general insurance subsidiary) and other regulators like Sebi and RBI should also get involved in dealing with the issue.