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 Posted: Thu Mar 22, 2007 7:19 am Post subject: Discussion over the Term Solvency Ratio |
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Hello people , during my college days , i had to present a Seminar over this Topic
" Solvency Ratio and Insurance " with focus on latest IRDA conflict of LIC over Solvency Ratio...
THis was a conflict which was started by IRDA - Insurance Regulatory Development Authority over LIC - Life Insurance Corporation of India.. Issue was the low solvency ratio maintained by LIC ..
While lerning about this term, I came to know that it is the margin that each company requires to maintain in its Finances for contingency actions...
Then there were many types of the term ( Leaving aside the theory as it is boring )
I explored some anomalies in this " If LIC is runned by Govt. of India and IRDA is an organization also under Govt. of India, then why there is so much Fuss, I mean LIC could have shown the deficit funds with the help of any other Govt Sources.. After all its all the AUDIT thing....
However when it comes to Private Players, they have very stringent regulations over that....No doubt they are maintaining it as this is one of their prime jobs to do
Does any one else has any story to share regarding Solveny Ratio in Insurance Sectors and also I would like to know much about how company may reduce the Premium ra6tes to fulfill this SR criteria..
Awaiting your comments...
A. Arora |
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patekibaat
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| Posted: Thu Mar 22, 2007 8:10 am Post subject: |
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Hi patekibaat, nice topic to start. You are eager to pursue Actuarial science right!
Let me share some of the info. Go to www.actuariesindia.org
And there you can find all the forms and required info.
Now come to the above post. Though I am not much aware of the fact like audit and the solvency ratios as mentioned above.. But common sense is that, if an insurance company wouldn't able to meet the number of claims or in other words cannot able to absorb that amount who will go to support that? If the LIC is maintaining a low solvency ratio that means Govt. will provide the support to clear the things in front of IRDA. That may be the reason that still the major portion of the insurance market in India enjoyed by the LIC. You can understand the rest. The return in LIC is also low as compared the other private players. You can go for a quick comparison or ask this web guys to provide you the same.
But for the private players the solvency ratio is high as the insurance sector is still in its childhood and some solid confidence or faith whatever you say is yet to earn by the Privates. At least in the middle class level.
So the solvency ratio should not be relaxed at least for some years. |
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edgar
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| Posted: Thu Mar 22, 2007 9:57 am Post subject: thanx edgar |
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Hey thanx buddy for the quick and informative response...
Yea definitely it should not be relaxed for middle class private Insurance Sectors for some years untill they get maturity and consistency in profitable operation for few years.
However, it is also true that in initial stages of operations, any company can't maintain a higher solvency ratio .. Some countries have norms upto 200% say Korea.. In India it is almost 100 % as far as I know...
So that also is a tougher start for any insurance company as initially profits are definitely not too high..Acc to our above point of not relaxing norms over a Insurance Company which is in its Child Hood may create some difficulty for the company as well... We just took the side of regulatory Authority and made out this point but if we see the next side,,, we may feel that an Insurance baby must be relaxed and then the restriction be imposed upon it... wat ya say... ? |
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patekibaat
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| Posted: Thu Mar 22, 2007 10:28 am Post subject: |
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Yes that is an issue to consider. As I am related to the insurance sector, there is ample opportunities to marketise your insurance product through various channels. So for the Baby insurers, if we keep aside the part of solvency, they can grow at any level if the proper marketing and distribution strategy is taken.
Oh! BTW, you are going to serve a market of 120 million and you say that you don't have sufficient bucks to back up that, it seems really funny to me. To capture the power of the market, insurers needs to be financially strong enough and that is indeed measured by the Solvency Ratio  |
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edgar
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| Posted: Thu Mar 22, 2007 10:56 am Post subject: |
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Well you are right Mr. Edgar. I certainly agree upon your point that "To capture the power of the market, insurers needs to be financially strong enough and that is indeed measured by the Solvency Ratio "
But it certainly must not be the only criteria of evaluating the strength of an Insurance Company. Now , these Insurance companies apply the concept of INTERPOLATION for various things such as Life ,Maturity etc.. And what if when it comes for applying an interpolation for the success rate of the company as a whole... Their why the terms must be Generic as to whether it is a Company in Child Hood or in Maturity stage,, it has to fulfill 120 % SR criteria.,...
I say the SR criteria should also keep track of the maturity of an organization keeping in view the time it takes to develop the company and also the Success Rate or the Profitability Ratio Increase Rates so that a justifiable SR be imposed on every company...
Many countries have such kind of restriction but obviously an AUDIT always depends upon the Govt Regulations of any country...
So this issue becomes very debatable then?
But in all I think Mr. Edgar , you would agree that a new bee in Insurance never thinks about 120 million in starting..It cant exceed its expectation over few bucks in the initial years and my point is keeping a stringent pressure at that time would make it difficult for the company to sustain.. I agree that Insurance companies are no founded by Middle Class Men. Its all the Richie Rich affair... Still percentage is a percentage brother..... 200 % on $ 1 means $ 2 and 200 % on $ 30 million means 60 million $.....
Again if you can resolve this doubt of mine,.,,that wud be gr8? |
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patekibaat
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| Posted: Fri Mar 23, 2007 8:24 am Post subject: |
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well Mr Edgar , I am still waiting for your reply. To add to my previous comment..
I had a discussion with an actuary online yesterday during night..
He told me some facts regarding calculation of Solvency Margin in Insurance companies
He told me that there were various factors which were involved one of them was the maturity of an organization and initially it used to be a criterion ...but later on as competition became high and all players in Insurance sectors were all Biggies.... So the companies were treated on same platform..... he couydl however not convince me of this but insisted on competition and the point you mentioned ......however...this is a valid issue to be addressed too |
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patekibaat
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| Posted: Tue Mar 27, 2007 9:15 am Post subject: |
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Hey Mr. Anand , please tell me more abt Solveny Ratio.... Heard of it thru LIC agents too that there was a prob in LIC regarding IRDA conflict bt that didnt prompted LIC to reduce the interest rates i hop so...
Watever can u give me some links to browse into and tellme wat is SR u repeatedly sayn |
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sudhirkapata
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| Posted: Tue Mar 27, 2007 9:15 am Post subject: |
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| SOlveny Margin and Solveny Ratio are two terms.. |
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sudhirkapata
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| Posted: Wed Mar 28, 2007 8:45 am Post subject: |
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Yea they are Mr. Sudhir indedd two terms.. Margin reflects the quantity and ratio is what i have known the ratio of solveny margin to that of turn over.
But while discussing in a casual way, we can refer any thing out of two.. |
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patekibaat
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| Posted: Tue Apr 03, 2007 10:10 am Post subject: An explanation.Hope it suffices |
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PRIVATE life insurance companies fear that the 150 per cent solvency margin stipulated by IRDA (Insurance Regulatory and Development Authority) is quite hefty and it may affect their growth. Acording to them, IRDA norms will affect companies which have lower capital base and those offering conventional products. The delay in hiking FDI in insurance may also add to the problem as Indian promoters will find it difficult to raise more capital to meet the norms.
Solvency margin, in simple terms, means the excess of assets an insurance company is required to maintain over its liabilities. To satisfy the solvency margins, insurers have to build up reserve as their business grows.
For example, if a company collects Rs 20 as premium and provides an insurance cover for Rs 100, the risk element is Rs 80. The solvency margin is calculated on Rs 80.
LIC was the first one to protest the IRDA norms, but it subsequently made provision as per IRDA norms. The contention of private insurance companies is that they require more unencumbered capital to write new business especially if their business deals with pure protection products rather than unit-linked products as more capital has to be stashed away in the case of the former because of the higher risk attached to it.
While some companies have been maintaining balanced portfolios in the kind of products they sell, others get majority of their business from a single kind of product. ICICI Prudential has about 80 per cent of its business coming from unit-linked products, while SBI Life has 50-60 per cent of its business coming from group insurance.
In the case of term policies since there is no maturity benefit, the risk tends to be lower. With money back and endowment plans, the risk to be borne by the company is much higher.
The argument is that the stipulated capital requirement has no linkage to the risk characteristics of the group. The requirement can be eased, say private insurers, if the capital is linked to factors such as the level of mortality risk applicable to the group. |
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patekibaat
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| Posted: Thu Apr 12, 2007 4:47 am Post subject: |
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Well Seems like .... This forum got no appeal since last few days...
Thought of reminding ...... |
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patekibaat
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| Posted: Fri Apr 27, 2007 6:31 am Post subject: about ratios |
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i want know about insurance net retition ratios and combanied ratios
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venkatesan
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| Posted: Fri Apr 27, 2007 6:52 am Post subject: |
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Retention Ratio =Expected growth rate/ Return on Equity .... I knw this much about retention ratio...can u elaboprate a lil bit more related to insurance sector.....
plus what is this combined ratio???? |
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patekibaat
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| Posted: Tue Sep 04, 2007 8:45 pm Post subject: insurance |
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explanation of solvency margin in GIC
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shil
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| Posted: Wed Sep 05, 2007 5:07 am Post subject: Combined Ratio |
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Hi there,
Combined ratio, well you can say that it is an estimation of an insurance firm's profitability.
Combined Ratio = (Incurred Losses+ Expenses) /Earned Premium
If the ratio lies below 100% then the insurance firm is making money out of its underwriting, viz-a-viz a ratio greater than 100% implies that the firm is making loss. O.K. lemme explain this little more elaborately.
Incurred Losses= money paid out towards claims or underwriting expenses.
Expenses= it includes all the expenses the firm incur during its day-to-day operation, like- daily operational costs, management costs, so on and so forth.
The combination of these two measures the total expense of the company. Therefore, in one word, Combination Ratio (total cost/total revenue earning) is the measurement of the company's economic viability.
One more thing, combination ratio does not include company's earning from the investment of the accumulated premium. Hope this will clear off your confusions.
Juanita |
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Juanita
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