IRDA: Insurance firms must do valuation on embedded value

Move is to make disclosures more broad-based and transparent

The embedded value is calculated on the basis of present value of future profit plus adjusted net asset value, Narayan pointed out while speaking at the sidelines of a seminar on Insurance Summit organised by the Indian Chamber of Commerce.  According to him, the IRDA has already commissioned a study for economic calculation of embedded value of insurance companies to facilitate higher transparency in the assessment of valuation.  

In doing the exercise, the insurance companies, he said, would have to value their firms on the basis of embedded value to make the level of disclosures more broadbased and transparent. This in turn, will help the analysts draw inter-firm comparisons, Narayan added.

This apart, the exercise will further assist the insurance companies in accessing the capital market,a facility which can be granted after ten years of operations under the existing guidelines, he stated. While accepting the fact that ULIPs have become the exclusive domain of the private insurance companies, he, however, expressed satisfaction that the private players have now started laying stress on the traditional products. “This is good news for the industry,” he said.  

Cap on remuneration

In another move, the regulator has been mulling to introduce a cap on the managerial remuneration of insurance companies,he said. At present, the remuneration of CEOs are determined by IRDA.   To a question,  he said there should be a limit on the charges to be levied on the policy holders for paying compensation to the managerial staff.On allocation charges for ULIPs, Narayan said that IRDA is also keen to ensure that some kind of cap is imposed in that sector as well.

Asked whether IRDA has plans to bring out some guidelines on the merger & acquisition(M&A) for insurance companies, he said the regulator has been working on it, but declined to specify when they would be declared. Expressing concern on the non-life insurance sector, he said that the companies have been underwriting to an extent which is not sustainable. This has already resulted in higher losses, threatening the health of the sector. In fact, post de-tariffing, profits of non-life companies have come down, he pointed.

Unhealthy trend

Expressing concern over the predominance of unit-linked insurance policies, he said that the trend is not healthy for the industry as these products are subject to the vagaries of the market.

According to him,the insurance market in India is already too crowded and there is enough scope for the insurance companies to increase their efficiency under the present regulatory framework.