Insurance – Valuation of Premium Receivable from Central / State Government for Computation of Solvency Position
Circular No. IRDA/F&A/CIR/SOLVN/011/01/2011, dated 27-1-2011
Various general insurance companies are running health insurance schemes which are sponsored/subsidized by Central/State Government. However, the premium of such schemes are not paid upfront but paid at a later stage. The IRDA (Assets, Liabilities and Solvency Margins of Insurers) Regulations, 2000 lay down the manner of computation of solvency margin, clause 2(1) of Schedule 1 lays down the value to be placed on the assets of the insurer. Further, clause 2(1)(a) of the said Schedule prescribes that Agent’s balances and outstanding premium in India, to the extent they are not realized within a period of thirty days should be placed with value “zero” for the purpose of calculating Available Solvency Margins. The above said clause does not differentiate between the Government and non-Government receivables.
Authority has received representations from various insurers for relaxing the provisions of regulation 2(1)(a) for the receivable from Central/State Government since they experience considerable delay in receipt of the dues which in turn may adversely effects their solvency position. Authority has carried out analysis of the dues from the Government and observes that the average time lag for the receipt of such dues varies up to 180 days.
In order to mitigate the difficulties of Insurance Companies in meeting the solvency requirement and given the fact that most of the receivables relates to Central/State Government sponsored health insurance schemes such as RSBY, Rajiv Aryogashri etc., Authority hereby provides a special dispensation to the extent that authority will exercise forbearance for a period of six months (two quarters) in case the solvency ratio falls below 1.50 provided that:
1. The fall in the solvency ratio should be only on account of “premium receivable” from Central/State Government.
2. The product(s) for which such premium receivable is outstanding, must have been filed and cleared by the Authority in terms of its file and use guidelines.
3. A statement in the enclosed format certified by CEO and CFO should also be annexed to the Solvency Statement.
The circular comes into effect immediately.