The Insurance Regulatory and Development Authority (IRDA) is entrusted with the regulation, promotion and orderly growth of insurance business in India . Maintaining efficient, fair and stable insurance market is necessary for the growth of the industry as well as for the protection of the policyholders. Public disclosure of risks faced by the insurers is critical for ensuring fair and orderly insurance sector. The disclosures shall be reliable and timely to ensure efficiency of the markets. The markets have to provide necessary feedback to the insurance regulator to ensure safety of the investors as well as the policyholders. International Association of Insurance Supervisors (IAIS) has recognized that the insurers have an equal if not greater responsibility towards the policyholders than their duty towards the investors. This is because of the fact that when insurers become insolvent, policyholders lose much more money than the investors. Public disclosures on the risks faced by the insurers provide information to the policyholders to make necessary decisions before entering into a contract. In the present context in India , it may not possible for an individual policyholder to have necessary ability and resources to undertake the task of assessing the insurers. However, various stakeholders in the market like agents, brokers, analysts, rating agencies and the media can provide necessary inputs based in the disclosures which will help them in arriving at necessary judgment regarding risks faced by them in entering into a contract with an insurer. Hence the public disclosures become necessary even for the companies which are not listed in any stock exchange. The IRDA has been bringing out various regulations for fulfilling its mandate of regulating the promoting of insurance market in India . The guidelines on corporate governance is a major development, which will help insurance market to grow in a safe manner. Another important measure, which will strengthen the corporate governance and market discipline, is the standard on public disclosures for the insurance companies. In a few months from now, several companies will be completing the period of 10 years which is the statutory period fixed, after which they may be allowed by the Regulator to go for the Initial Public Offer (IPO). It is essential that the investors are fully aware of the financial performance, company profile, financial position, the risk exposure, the corporate governance and the management of the insurance companies well before the companies go for an IPO. The data shall preferably be available for atleast a period of 4-5 years in order to judge the performance of the companies in a reasonable fashion. IAIS has brought out the following four papers on the public disclosure by the insurers.
The Standard on Disclosures recommended by IAIS for Investment risks and performance for insurance and reinsurance are :
The Standards on disclosures concerning technical risks and performance for life and non-life insurance prescribes the following requirements for the disclosure:
Several jurisdictions have complied with the standards prescribed by IAIS and have detailed disclosure requirements on the basis of above standards. IAIS has also prescribed that disclosures by the electronic means may be encouraged to ensure availability of historical data on a continuous basis to the various stakeholders. The analysis of disclosure requirements by Monetary Authority of Singapore (MAS) shows that the disclosure requirements both on an annual and quarterly periodicity are more stringent than the standards prescribed by IAIS. The requirements as per the MAS are annexed (Annexure I) to this paper. CRISIL carried out a study on the disclosure by Insurance companies and the global practices which is annexed at (Annexure II). The study of the Prudential Insurance Company of America and Hartford Fire insurance Company carried out by the CRISIL shows that the annual as well as quarterly disclosure requirements largely comply with IAIS standard and is so comprehensive that the stakeholders will get full understanding of the financial position, performance and risk profile of the companies. In the above context, IRDA proposes to bring out guidelines for the public disclosure for insurance companies to be with effective from 1 st November, 2009 . The disclosures proposed are largely inline with the standards prescribed by the IAIS and being followed in other jurisdictions. The disclosure requirement has been kept at the minimum, keeping in view the costs involved in making such disclosures and balancing with the need for transparency in the insurance market. The formats, the periodicity and mode of publication of disclosures are annexed at (Annexure III) (Click here for Soft copy in Excel Format). The disclosures proposed are a subset of the quarterly and annual returns which have already been prescribed by Regulations brought out by IRDA. Where the returns do not cover the disclosure requirement in holistic fashion, additional information disclosures have been prescribed the formats of which, are annexed at (Annexure-IV-A and Annexure-IV-B). The disclosures proposed can be grouped into :
The additional disclosures, which at present are not being submitted to IRDA and being proposed are :
The schedules of the Annual Financial Statements which are proposed to be disclosed on quarterly and half-yearly basis are not at present being obtained by IRDA on quarterly basis. However, as the companies are already submitting quarterly financial statements of IRDA, it is presumed that the schedules which feed into the financial statements are readily available for disclosures. It is proposed that the insurers disclose every quarter the data of the same quarter / half year last year and the cumulative figure for the current year. The stakeholders in the insurance market are requested to offer their remarks on this exposure draft on “Public Disclosures by Insurers” before 25 th October, 2009 to the following address: Ph: (040) 2338 1300 (B)
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