Since they have been classified as systematically important insurers, LIC, GIC Re and New India Assurance will be subject to enhanced regulatory supervision
The insurance regulator has identified Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC) Re and New India Assurance as domestic systemically important insurers (D-SIIs) for 2020-21.
Here, D-SIIs refer to insurers of such size, market importance and domestic and global inter-connectedness whose distress or failure would cause a significant dislocation in the domestic financial system.
The Insurance Regulatory and Development Authority of India (IRDAI) said the continued functioning of D-SIIs is critical for the uninterrupted availability of insurance services to the national economy.
LIC is the largest insurer in the country with a balance sheet of Rs 31.2 lakh crore. GIC Re is the country's sole reinsurer, while New India is the country's largest general insurance company.
GIC Re and New India are listed insurers while LIC is in the process of listing on the stock exchanges through a disinvestment by the government. All three entities are owned by the government.
IRDAI said D-SIIs are perceived as insurers that are ‘too big or too important to fail’. This perception and the perceived expectation of government support will amplify risk taking, reduce market discipline, create competitive distortions, and increase the possibility of distress in the future.
"These considerations require that D-SIIs should be subjected to additional regulatory measures to deal with the systemic risks and moral hazard issues," said the regulator.
In order to identify too-big-to-fail insurers and to put such insurers to enhanced monitoring mechanism, IRDAI has developed a methodology for identification and supervision of D-SIIs.
The parameters include the size of operations in terms of total revenue, including premium underwritten and the value of assets under management. It also includes global activities across more than one jurisdiction.
Further, it also includes lack of substitutability of their products and/or operations.
These parameters were assigned weights to cover various aspects of their operations. IRDAI said it will identify D-SIIs on an annual basis and disclose the names of these insurers for public information.
As D-SIIs, the three insurers LIC, GIC Re and New India have been asked to raise the level of corporate governance. These insurers also have to identify all relevant risk and promote a sound risk management culture.The insurance regulator has also clarified that these D-SIIs will also be subjected to enhanced regulatory supervision during this period.