Irda Sounds Alert Over Deluge Of Assured Return Schemes

New Delhi, September 25: | Updated: Sep 26 2002, 05:30am hrs
The Insurance Regulatory and Development Authority (Irda) has sounded a note of caution on the negative effects of flooding the market with assured return schemes. On the sidelines of a seminar on insurance here on Wednesday, Irda chairman N Rangachary said that rather than issuing too many assured return and single-premium policies in a declining interest rate scenario, companies should create reserves to prevent asset-liability mismatches in future.

The preponderence of single premium policies is likely to affect solvency (asset-liability ratio) of life insurers and there is a requirement for a guarantee. We have asked them to be guided by market rate of interest and build reserves for those policies, he told newspersons.

I am sure insurance companies will act according to regulations and market rates. If they have to keep their solvency ratio at 150 per cent, they have to build reserves, he added.

Earlier, the ambassador of the delegation of the European Commission in India, Michel Caillouet called for a hike in foreign direct investment limit in the insurance sector to 49 per cent, early implementation of pension reforms, lowering of minimum capital requirement for health insurance companies and relaxation of other insurance laws.

Insurance industry in India will require considerable investment in the years ahead. It is in this context, that recent recommendations of NK Singh committee to hike the foreign equity cap in insurance to 49 per cent is a step in the right direction, he asserted.

Given the European experience, I feel this is possibly the precursor to many more dynamic changes that the insurance industry will witness in the days ahead, he said.Differing with his view, though, Mr Rangachary felt that the hike in the limit from 26 per cent would neither satisfy the foreign companies nor lead to any dramatic growth of the sector. He remarked that the 26 per cent cap had not deterred foreign players from setting up shop. A hike to 49 per cent would only lead to a demand for at least 51 per cent stake, he added.