Introduction: The Insurance Regulatory and Development Authority of India (IRDAI) is driving the development of the Indian Risk-Based Capital (Ind-RBC) Framework to enhance the capital adequacy of insurers while effectively managing risks. As part of this journey, IRDAI has initiated the First Quantitative Impact Study (QIS1) to evaluate the potential impact of the proposed framework on insurers’ capital and solvency.
Analysis: The IRDAI’s initiative to establish the Ind-RBC Framework signifies a strategic move towards adopting global best practices in the insurance industry. The framework aims to ensure that insurers maintain an appropriate level of capital aligned with the risks inherent in their operations. QIS1 serves as a pivotal step in transitioning from the current factor-based model to a risk-based approach, enabling insurers to assess the potential impact on their capital and overall solvency comprehensively.
The release of a ‘Technical Guidance’ document offers insurers a structured approach to quantify and assess risks in the QIS1 process. Insurers are expected to submit the QIS1 outcomes within a specified timeframe for evaluation. This initiative reflects IRDAI’s commitment to refining and implementing the Ind-RBC Framework through successive Quantitative Impact Studies (QIS), ultimately leading to a robust risk-capital symbiosis in the insurance landscape.
Conclusion: IRDAI’s focus on the Quantitative Impact Study (QIS1) within the Indian Risk-Based Capital (Ind-RBC) Framework demonstrates its dedication to enhancing the insurance industry’s resilience and risk management capabilities. By aligning with global practices and incorporating feedback from insurers, IRDAI is paving the way for a future that balances financial strength and inclusive insurance, aligning with the vision of ‘Insurance for All by 2047’. The Technical Guidance document provides insurers with the necessary tools to participate effectively in the QIS1, shaping the future of the Indian insurance industry.
Insurance Regulatory and Development Authority of India
Press Release
Quantitative Impact Study -1
The Insurance Regulatory and Development Authority of India (IRDAI) is actively working towards the development and implementation of the Indian Risk-Based Capital (Ind-RBC) Framework for the Indian Insurance Industry as part of its developmental agenda. This framework would serve as a pivotal mechanism which would enable insurers to maintain an appropriate level of capital commensurate with the risks inherent in their insurance and reinsurance operations. Thus, it would act as a catalyst for insurers in optimizing capital utilization and ensuring efficient risk management.
As a major step towards transition to RBC from the present factor-based model, IRDAI has initiated the First Quantitative Impact Study (QIS1). This study holds paramount significance, as it provides the opportunity to comprehensively evaluate the potential impact on the capital and overall solvency of the insurers. A ‘Technical Guidance’ document has also been released which is meticulously designed to guide and facilitate the insurance industry in quantification and assessment of risks in the QIS1. A circular has been issued in this regard.
To ensure a streamlined progression, insurers are entrusted with the responsibility of submitting the outcomes of the QIS1 within a prescribed timeframe. Subsequent to the evaluation of the QIS1 findings, the IRDAI envisions embarking on successive Quantitative Impact Studies (QIS), a dynamic sequence that may culminate in the fine-tuning and evolution of the RBC Framework, ultimately resulting in its definitive implementation.
In essence, the IRDAI’s strategic trajectory encapsulates a resolute commitment to fostering a robust and well-calibrated risk-capital symbiosis within the insurance landscape. By navigating this course with judicious foresight, the industry is poised to achieve not only heightened financial resilience but also the collective vision of inclusive insurance by 2047.
Insurance Regulatory and Development Authority of India
Circular No: IRDAI/RBC/CIR/MM/158/8/2023 Date: 10.08.2023
To,
All Insurers including Branches of Foreign Reinsurers, Lloyds India
Subject: Technical Guidance in respect of Indian Risk Based Capital Framework – Quantitative Impact Study-1
1. This circular is issued in exercise of powers conferred by Section 14 (2) (e) of the Insurance Regulatory and Development Authority Act,1999.
2. Applicability: This circular shall be applicable to all Life Insurers, General Insurers, Standalone Health Insurers, Reinsurers, Branches of Foreign Reinsurers and Lloyds India.
3. The Insurance Regulatory and Development Authority of India (IRDAI) has been taking various initiatives to align the Indian Insurance Industry with the global best practices with the aim of ease of doing business and finally to achieve the last mile of ‘Insurance for All by 2047’. One of the key initiatives pertains to development and implementation of a Risk Based Capital (RBC) Framework for Indian insurance industry. As a part of this endeavor, a dedicated RBC Mission Mode team was constituted with the explicit objective of rationalizing the current capital and solvency requirements.
4. After detailed study, deliberations and discussions on global practices including Insurance Capital Standard and Insurance Core principles of International Association of Insurance Supervisors (IAIS), considering various other documents available in the public domain including RBC framework of other jurisdictions and submissions of Economic Capital reports by insurers, discussions with various foreign supervisory authorities and extensive consultation with insurance industry, an initial Technical Guidance document has been prepared detailing the Indian Risk Based Capital (Ind-RBC) framework for carrying out the first Quantitative Impact Study (QIS1).
5. The QIS1 shall be the first major step towards desired transformation and shall help in assessing the likely impact on the Indian Insurance Industry of the proposed framework for quantification of capital and solvency requirements following a Risk based approach. The results of QIS1 shall be submitted by insurers on or before 30th November 2023.
6. Insurers shall carry out the QIS1 as per the Technical Guidance document with the data used for Actuarial Valuation as at 31st March, 2023. Technical Guidance document and requirements regarding associated templates for submission of results, mode of submission of results from QIS1 exercise along with supplementary information is being informed separately to the insurers.
7. As clarified above, QIS1 results shall indicate initial assessment and the Technical Guidance on proposed framework may further be refined based on these results as well as suggestions/feedback from the industry. The insurers may please note that the Technical Guidance shall be for the purpose of QIS1 only and should not be interpreted as indicative of final decision of the IRDAI on RBC framework. It is noteworthy that this is a separate exercise and insurers shall continue to submit regulatory returns as mandated by the current regulatory regime as and when due.
Member (Actuary)
