Third-party motor pool figures incorrect: Irda

Written by Sitanshu Swain | Mumbai | Updated: Dec 9 2011, 07:09am hrs
The liquidity crisis in the insurance sector has developed into an ugly spat between Irda and a clutch of general insurance companies.

As the sector battles the government reluctance to raise the foreign investment cap from 26% in the companies, a critical fund to underwrite motor insurance losses has become prey to the battle.

The fund is the third-party pool insurance pool, whose half-yearly balance sheet shows a loss of R3,488 crore. To meet this gap, the companies, including ICICI Lombard General Insurance, Tata Aig General Insurance, HDFC ERGO General Insurance and Reliance General Insurance, have to raise fresh capital.

But Irda has challenged the basis of the calculation, throwing into disarray the finalisation of the half yearly balance sheet of the pool.

Funds from the pool collectively service commercial vehicle third-party insurance business and the objective is to make available the loss-making third-party insurance to all commercial vehicle owners at reasonable rates and terms.

The segment regulator, Irda, has accused the motor pool managed by GIC Re of discrepancy, which, it says, is because it has adopted incorrect accounting methods, including provisioning. The regulator wrote a letter to the motor pool on Wednesday, seeking an explanation of the discrepancy between audited figures and the figures that were sent to Irda.

Irda decided to clarify the matter with motor pool officials after it detected two set of figures with regard to the premium and claims of the motor pool in a gap of one month.

The motor pool has prepared its half-year balance on the basis of a 172% provisioning for the entire third-party motor business, thereby showing the massive losses of R3,488 crore. The losses for 2010-11 (March 2010 to February 2011) were R3,612.57 rores. .

The third-party motor business is mandatory in nature as all the vehicle owners have to take third-party covers and there is always a time lag between the origin and payment of claims. So, Irda norms prescribe that each of the general insurers has to provide immediately at the time of the origin of the claim. As a result of these losses, the general insures have to bring in a great deal of capital to remain solvent.

In fact, sources point out that the motor pool was toying with the idea to make provisioning at 400%, but had changed its mind as it would have put things beyond control.

The general insurers have protested the move by the motor pool to increase the provisioning from the existing 153% to 172.25% of their own as this is the second time in six months the promoters have infuse capital to keep the company running. Earlier in March 2011, all the promoters of the general insurance companies had infused capital because Irda had asked the motor pool to hike the provisioning from 126% to 153%.

The general insurers ICICI Lombard General Insurance, Tata Aig General Insurance, HDFC ERGO General Insurance, Reliance General Insurance,Royal Sun Alliance have reasons to protest about further hiking the provisioning on the third-party motor portfolio as almost all their promoters like ICICI Bank, HDFC, Tata Sons Bajaja Finserv, IFFICO, Reliance Capital, Sundaram Finance are listed companies and may get hit in the capital markets.

However the motor pool official has justified the move to increase the provisioning base, saying that ultimate loss ratio (ULR) of 153%, which was decided by the Irda, was meant for 2010-11 and the pool was free to adopt the new provisioning base.

The General Insurance Council (GIC), the official representative, is meeting on December 9 to discuss the issue and find a way out of the imbriligio.