Market volatility poses valuation problems: IRDA

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The Insurance Regulatory and Development Authority (IRDA) has indicated that migration to the marked-to-market regime for investment valuation is posing major problems.

The IRDA Chairman, J Hari Narayan, said, "We have problems with Basel II investment valuation."

He said that this was in view of the excessive volatility in the asset values witnessed. High volatility in the asset prices tends to make solvency ratios of the insurance companies swing. Solvency margin is the excess of capital and value of assets over the insured liabilities.

Consequently, the IRDA, he said, was working out a cut-off date for the valuation. Insurers, both life and non-life, already filed their respective solvency reports with the regulator on a quarterly basis.

Currently, insurers value assets on a book value basis. Solvency accordingly tends to get understated. Based on asset valuation guidelines, insurers are currently expected to maintain a solvency margin of 150%.

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