Life firms ask regulator to allow risk-based solvency regime for ULIPs

Life insurance companies will raise their solvency margin and free up capital that can be used for other purposes

Some life insurance companies plan to move the Insurance Regulatory and Development Authority (Irdai), seeking a risk-based solvency regime for unit-linked insurance plans (ULIPs), where the risk is borne by policyholders.

If the regulator gives its nod to this proposal, the capital blocked for ULIPs will come down. This will boost the solvency margins of insurers and release capital for other purposes.

Currently, the insurers follow a rule-based solvency regime. As a result, insurers’ assets are required to be 1.5 times, or 150 per cent, of their liabilities. The minimum solvency ratio that insurance companies must maintain is 1.5