At HyderabadDecember 29, 2010

A.V.RAO,R.K.Sharma,B. Padmaja

Objective: Making use of all available sources, the supervisory authority monitors and analyses all factors that may have an impact on insurers and insurance markets. It draws conclusions and takes action as appropriate

No. of Essential Criteria: 5; No. of Advance Criteria: 2

Crit. Contents Compliance

a. Regular Analysis of Market Conditions by Supervisor

Performance of insurers in terms of new business analysed on a monthly basis

b. Analysis to include past developments, present situation, identify trends and possible future scenarios and issues to enable action at an early stage.

Business trends studied at frequent intervals to enable timely intervention.

Crit. Contents Compliance

c. Analysis to be both quantitative and qualitative use of both public and confidential sources of information.

Quantitative analysis - based on the premium figures.

Qualitative analysis - based on market conduct issues -through public/ media, stakeholders, publicity material of the insurer

d. Aggregated market data is published and available publicly

Aggregated market data published in Annual Report of IRDA

Aggregated monthly statistics published on the website of IRDA, Journal

Crit. Contents Compliancee. Requires market-wide

systematic reporting on events of importance for the financial stability of insurance markets.

Relevant market-wide information sought as and felt necessary (Eg., Reports on claims settled during Tsunami, Exposure in Satyam Computers etc.,

f. Analysis not limited to home market

Regular macro economic and insurance scenario analysis and its impact on the home market at both national and international level

g. Monitors trends that may impact the financial stability

Assesses macroeconomic risks and vulnerabilities adversely impinging on prudential safeguards, financial stability or consumer interests.

Forms part of mission statement Entire regulatory framework is

geared to meet this requirement. Supervisor interacts with the other

regulators to identify and deal with factors which could have systemic implications on the sector at national and international level being part of FSDC and FSB.

Objective: The Supervisory Authority receives necessary information to conduct effective off-site monitoring and to evaluate the condition of each insurer as well as the insurance market

No. of Essential Criteria: 3; No. of Advanced Criteria: 2

Crit. Contents Compliancea Supervisor

-Sets: submission of regular financial and statistical information, actuarial reports and other information -Defines the scope and frequency -Requires audit opinion annually -Requires more frequent and detailed information whenever needed.

Requirement prescribed in legislation on submission of financial/statistical and actuarial returns

Various details new business submitted on monthly basis

Information like agency statistics, claims settlement statistics etc., unaudited financial statements, solvency statements on a quarterly basis.

Strategic changes likely to affect policyholders interests are called at shorter intervals where found necessary

b There is no distortion of the market in favour of or against any particular form of enterprise. (Private/public/local/foreign etc.)

No distinction made between state owned entities / private insurers

Foreign entities are not permitted to do business in India.

Crit. Contents Compliancec Supervisor

-Requires information on financial condition and performance on both a solo and a group-wide basis. –sets out norms regarding accounting–requires to report any off-balance sheet exposures. –requires report on their outsourced functions. –requires that the appropriate level of an insurer’s senior management is responsible for the timing and accuracy of these returns. –requires that inaccurate information be corrected -impose sanctions for deliberate misreporting. –maintains a framework for on-going monitoring of the financial condition and performance of the insurers.

Legislations/Regulations require submission of information on solo basis. In case of financial conglomerates information is collected on a group – wide basis.

The accounting regulations require reporting of off-balance sheet items; compliance with Accounting Standards of ICAI

The audited annual accounts to be signed by the chairman and two directors and by the principal officer of the company. Similar requirements prevalent in case of other returns

Penalty not exceeding ` 5 lakh for each failure on the persons who falsify statements in investment returns.

Various returns form the basis for off-site monitoring

Guidelines on outsourcing of insurance activities is presently exposed as draft for discussions

Crit. Contents Compliance

d. Supervisor reviews its reporting requirements.

Reporting formats are reviewed from time to time eg., forms under the Investment regulations, forms of reporting of annual accounts, monthly business numbers have been modified.

e. The supervisory authority requires insurers reporting of material changes that affect the evaluation of condition.

Regulations impose an obligation on the insurer to report extraordinary events impacting the investment portfolio

Objective: The supervisory authority carries out on-site inspections to examine the business of an insurer and its compliance with legislation and supervisory requirements

No. of Essential Criteria: 6

Crit. Contents Compliancea. By law

supervisor has powers to conduct on site inspections and gather required information

Legislation (Sec. 14(2)(h) of IRDA Act & Sec. 33 of Insurance Act) empowers IRDA to call for information and undertaking inspection and conducting enquiries/investigations of insurers and (insurance) intermediaries and other organizations connected with insurance business.

b. Supervisor, external auditors or other experts conduct on-site inspections.

Legislation enables appointment of an external (qualified) person to carry out the investigation and also specifies the manner of reporting to the Authority.

Crit. Contents Compliance

c. On-site inspections on full scale, or focused basis

Both types of inspections are carried out based on the necessity, as decided by the competent authority.

d. Findings are discussed with the insurer and obtain appropriate feedback from the insurer.

Inspection findings are shared with the insurer, for feedback. Feedback submitted by the insurer is examined by IRDA before finalizing the course of action to be taken up. Also, usually a show cause notice is issued before any corrective/penal action is taken.

Crit. Contents Compliancee. Necessary follow up

carried out to bring about required action of the insurer

After preventive/corrective action expected from regulated entities are communicated, based on the on-site inspection, necessary follow-ups are carried to ensure compliance by obtaining written commitments/confirmation and further checks in follow-up inspections.

f. Supervisor can extend on-site inspections on intermediaries; and companies that have accepted functions outsourced by the insurer.

Legislation empowers the supervisor to extend inspection of intermediaries and other organizations concerned with the insurance business.

Objective: The supervisory authority supervises its insurers on a sole and a group–wide basis.

No. of Essential Criteria : 7; In addition there are 6 Prudential requirements

Crit. Contents Compliance

a.Constitution of insurance group and financial conglomerate, clearly defined

-Group identified during registration from the details furnished. -HLCCFM has already defined Group, laid down the criteria for identification of Financial Conglomerate

b. •Supervisor ensures effective and efficient group-wide supervision•Supervisor co-operates to avoid unnecessary duplication.

– Compliance through financial conglomerates monitoring mechanism.

– Groups assigned to regulators for monitoring

Crit. Contents Compliance

c. Different supervisors responsible for different parts of a group or conglomerate

Monitored through FC monitoring mechanism

d. Adequate policies on and supervisory oversight of: •group structure •capital adequacy •reinsurance and risk concentration •intra-group transactions and exposures, •Internal control mechanisms and risk management processes,

• Reporting format prescribed for Financial Conglomerates capturing o Group Structure and cross

holdingso Capital Adequacy / Solvency

position o Investments, Operating Profit,

Net Profit Etc.o Intra-Group Transactions &

Exposures• Qualitative information such as

governance structure, auditors, penal action and group risk profile report also captured

Crit. Contents Compliance

e. Host supervisor avoid uncooperative behaviour with home supervisor

Not applicable in Indian context as foreign holding is restricted to 26%.

f.Supervisor requires insurance groups and financial conglomerates to have reporting systems to adequately meet supervisory information demands.

Exhaustive reporting formats filed every quarter

g.Supervisor may deny or withdraw the license when the organizational (or group) structure hinders effective supervision

No specific provision currently.

6 Prudential Requirements which verifies if Insurers have the ability to fulfil their obligations as they fall due

Objective: The supervisory authority requires insurers to disclose relevant information on a timely basis in order to give stakeholders a clear view of their business activities and financial position and to facilitate the understanding of the risks to which they are exposed.

No. of Essential Criteria : 4No. of Advanced Criteria : 1

Crit. Contents Compliance

a.Insurers are required to disclose information on their financial position and the risks to which they are subject.

• Public Disclosures mandated in January 2010. • Disclosures made on website

of the insurers on quarterly basis and published (limited review) in newspapers on half yearly basis.

b. Information includes quantitative and qualitative information

The disclosures covers financial statements, analytical ratios, solvency, return on investment and NPAs. etc

Crit. Contents Compliance

c. Insurers required to produce, at least annually, audited financial statements

Half yearly accounts are subject to limited review and annual accounts are subject to audit - published in newspapers and on website

d. Supervisor monitors information disclosed by insurers and takes the necessary actions to ensure the compliance with disclosure requirements.

On-going monitoring is done by the Authority.

eInformation includes quantitative information of relevant risk exposures.

Mandated disclosures cover risks to which life and non-life insurers are exposed to

THANK YOU