Page 126 - Risk Management in current scenario

chances of losses and therefore should have a higher capital requirement
to meet extra loses.

Therefore, in risk-based capital, capital is calculated based on the risk
profile of the Life Companies. So a better risk managed company will have
a lower capital requirement as compared to poorly risk managed
company. Therefore solvency-II provides an incentive to invest in risk
management.

RBC Recommendation
The Committee on RBC set up by the Indian Insurance Regulator (IRDA)
in June 2016 has given its report in July 2017 and has recommended the
introduction of RBC regime by March 2021. The report is available on
IRDA website.

The key highlights in the report are:
1. The RBC approach may be based on factor-based model as compared
to internal model used in some markets
2. Qualitative Impact Study (QIS) will be performed which will help in
determining the approach and assessment of parameter value
3. Recommendation on the implementation of Enterprise Risk
Management (ERM)

"Twin-Peak" approach
Prior to submission of 2016 report on RBC, the Indian regulator also
established another committee in 2014 to study the possibility of RBC
jurisdiction. The committee recommended adopting "Twin-Peak"
approach to solvency where current prudential norm will continue to one
peak and new risk-based capital will be employed as the second peak.
The first peak would preserve policyholder protection on a current basis
to allow companies time to fully understand the implications of the new
system as the second peak. The next move is awaited from the regulator.

124 | Risk Management in Current Scenario