Methodology for Transfer of Risks amongst Members of Indian Motor Third Party Declined Risk Insurance Pool and declaration of ultimate loss ratio for 2011-12
ORDER No. IRDA/NL/ORD/MPL/72-7 03/2012, dated 22-3-2012
The Authority under Para (13 ‘e’): Manner of Calculating the Obligations, of its order No. IRDA/NL/ORD/MPL/277/12/2011, dated 23rd December, 2011 constituted a committee headed by Chairman, General Insurance Council, representatives of GIC, 2 public sector companies and 2 private sector to work out the methodology for transfer of risks amongst general insurers. The Committee submitted its report which has been accepted by the Authority. In light of those recommendations the Authority hereby orders that the methodology for transfer of risks amongst members of Indian Motor Third Party Declined Risk Insurance Pool (DR POOL) shall be as under:
1. The ceding company shall retain 20 % of the gross premium to their account, cede as per the obligatory cessions in force to GIC (currently 10 % of the gross premium) and cede the balance (currently working to 70 % of the gross premium) to the declined risk pool.
2. The pool liability for the underwriting year will be extinguished on a clean cut basis at the end of every year with net cash payments being exchanged between the ceding and receiving companies on the basis of ULR estimated by the pool actuary.
3. The estimates of ULR for the business written by the insurer for the declined risk pool shall be as per (2) above for all the three shares of business, viz. net account, GIC account & pool account. However, the estimates of ULR for the business written by the insurer to its own account fully may be as per its appointed actuary’s estimate.
The process of clean cut transfer of risks shall be as under:
1. The pool actuary shall estimate the ULR for the declined risk pool based on the data that exists for the past five years and the insurers shall make provisions as per the latest year ULR, until the underwriting year’s ULR is estimated. These estimates shall be provided by 31st March, 2012.
2. The estimation of ULR for the DR Pool shall be completed by the pool actuary by following May of each underwriting year starting from 31st May, 2013.
3. The ULR may be determined by the pool’s appointed actuary and approved by the IRDA based on a peer review, if required.
4. The DR pool shall make quarterly provisional cash settlements amongst its participants.
5. Such quarterly settlements shall be on a year to date basis and to be finally adjusted based on the year-end ULR as approved by the Authority.
6. The quarterly settlements shall be done in 45 days from the end of the quarter and the final settlements shall be done 45 days from the date, the ULR is approved by the Authority.
7. The GIC Re shall not be a part of clean cut settlement, as it has got a 10 % share by way of obligatory cession.
In addition the Authority clarifies the following:
1. Applicability of Indian Motor Third Party Declined Risk Insurance Pool: Para (2) of the Authority’s order No. IRDA/NL/ORD/MPL/277/12/2011, dated 23rd December, 2011 shall be replaced with
(a) The declined risk pool shall apply to commercial vehicles for standalone third party liability insurance. No comprehensive/package motor insurance policy or part thereof shall be ceded to the pool.
(b) Miscellaneous and special type of vehicles (Class ‘D’), and the classes ‘E’, ‘F’, & ‘G’ as per Section 4 of erstwhile Indian Motor Tariff shall also be excluded from the scope of the pool.
2. Also wherever it is mentioned “third party insurance (Act only)” in the Authority’s order No. IRDA/NL/ORD/MPL/277/12/2011, dated 23rd December, 2011, that shall be read as “third party insurance (liability only)”.
Further the Authority in accordance with IRDA’s order No. IRDA/ NL/ ORD/ MPL/ 003/ 01/ 2012, dated 3rd January, 2012 declares that the ultimate loss ratio for Motor TP Pool for the year 2011-12 as per GAD’s estimate is 145%. The insurers are therefore advised to act accordingly.