Page 104 - Risk Management in current scenario

Moving towards RBC

U ntil recently, capital employed in the insurance sector was not an

explicit function of risk. Now, most of the developed and Asian
economies have moved towards the Risk-Based Capital (RBC)
framework, where the capital employed is in proportion to the risk taken.

India is also moving in this direction. The current position of capital
determination for the statutory solvency purpose is based on a Solvency
I approach. In this approach, two identical companies with similar size
and volume will keep similar capital amounts irrespective of how risks
are managed in both companies - offering little incentive for better risk
management.

Disclosures on websites
It may be observed that although the capital requirements in the Indian
in-surance sector are not directly based on risk currently, many steps
taken by the regulator are for the protection of policyholders, with
disclosure norms, and financial stability requirements similar to those
prevalent in the RBC jurisdiction.

Since 2010, the regulator had prescribed all insurance companies to
disclose all their financials on their websites on a quarterly basis.

Apart from this, all insurers will also have to report economic capital

102 | Risk Management in Current Scenario