New Delhi: Insurance companies may soon be allowed to raise capital through several means which are normally used by commercial banks. The government is considering an amendment in the insurance law for allowing insurers to have hybrid capital. This would help the insurers meet their expansion plans while fulfilling solvency norms. The new norms would be applicable for both public and private insurers. “We are planning to allow insurance companies to raise resources through hybrid capital so as to help them meet their capital requirements,” a senior finance ministry official said, adding there was huge capital requirement for expansion of the life insurance business and the government needed to facilitate the expansion plans of the companies. Almost all the life and non-life insurers are in the need of additional capital for meeting their requirements. In fact, insurance companies were demanding that the government and the regulator should either ease the solvency norms or allow them to raise resources through multiple sources. Presently, Insurance Regulatory and Development Authority (Irda) norms require an insurance company to keep solvency margin at 150%. Insurers wanted it to be brought down to 100%. Funds injected by promoters for adhering to the solvency norms go into the insurer’s shareholders funds. Solvency of an insurance company corresponds to its ability to pay claims. An insurer is considered insolvent if its assets are not adequate (over indebtedness) or cannot be disposed of in time (illiquidity) to pay the claims. A 100% margin means that insurers are adequately placed to pay claims. The capital requirement of non-life insurers has also gone up substantially in the recent past. They need additional capital with de-tariffing of the fire, marine and engineering insurance products, which hitherto proved to be quite profitable.
Source: The Economic Times
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