Irda relief to general insurers on bonus, dividend payment

Written by Sitanshu Swain | Mumbai | Updated: Jan 12 2012, 08:36am hrs
Yielding to general insurers demand, the segment regulator, Insurance Regulatory Development Authority (Irda), has agreed to reduce the solvency ratio threshold limit from 150% to 135% to enable them to pay bonus and dividend to their employees.

After getting requests from the general insurers , We have agreed to reduce the solvency ratio threshold limit to 135% from 150% for the payment of dividend and bonus, said a senior Irda official .

Earlier in a notification issued in December 2011, Irda, as a part of revamping the loss making third-party motor portfolio, had directed the insurers to make higher provisioning on the portfolio and put restriction on the general insurers to pay any bonus and dividend if their solvency ratio is below 150%.

However, the general insurers had resisted the Irda move to ban any bonus and dividend for their employees without the regulators permission as it would discourage the existing as well as fresh promoters. Any restrictions on bonus, performance incentives on an industry issue like Motor TP loss ratios would drastically bring down the talent attraction to the industry. Irdas leniency on these conditions would help boost the current low morale in the industry, stated the industry sources

The Irda, in a notification, had asked the general insurers to hike the third-party motor provisioning from 153% to 159% for 2007 which has to be complied by 2012, to 188% for 2008 (by 2013), to 200% for 2009 (by 2014) and to 213% for 2010 (by 2015).

However, the insurance regulator is yet to prescribe any figure for 2011-12, which it may announce by March 2012. Also, in a bid to ensure smooth transition for the general insurers in their move to comply with the new provision norms, the segment regulator announced some relief on solvency ratio front. Accordingly, the general insurers can maintain solvency ratio of 1.10 in 2012, 1.20 by 2013, 1.3% by 2014 and 1.4% in 2015.

Even the conditionof having solvency ratio of 135% of solvency ratio is a stiff one. Despite bringing down from 150% to 135%, no general insurer can pay any bonus and dividend for next couple of years.