To,

CMDs/CEOs

AllGeneral Insurers, Health Insurers, Specialized Insurers and Reinsurers

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Sub:Preparation of Solvency Statement for FY2019-20 and Onwards

Ref: Insurance Regulatory and Development Authority ofIndia (Assets, Liabilities, and Solvency Margin of General Insurance Business)Regulations, 2016;

Duringthe perusal of the Solvency Returns filed with the Authority, it is observedthat certain assets, though“unrealizable in nature” are considered at bookvalue for the purpose of computation of Available Solvency Margin. Similarly,it has been observed that a few sub segments, instead of clubbing with theirrespective segment, have been clubbedunder the “Miscellaneous segment” whilecomputing the Required Solvency Margin. In order to have uniformity,consistency and comparability, the Authority, in exercise of the power undersection 14 of IRDA Act, 1999, hereby issues the following directions:

1.IT/Computer Software:

Ithas been observed that IT/Computer software is considered by most of theinsurers for the purpose of computation of Available Solvency Margin, eventhough the same being intangible asset is “inadmissible” in nature. In thisregard, it is hereby directed that for the purpose of computation of solvencymargin, the IT/Computer software shall be depreciated at the rate of not lessthan 1/12in each quarter on straight line basis, starting from the quarter inwhich the IT/Computer software were added to the Gross Block.The Written DownValue shall be considered for the purpose of computation of Available SolvencyMargin.

Anillustration of the same is as follows:

Ifan IT/Computer software worth Rs. 120 has been added in the gross block in Q2of FY2015-16, the admissible value of IT/Computer software for the purpose ofcomputation of Available Solvency Marginat the end of each quarter, shall be thewritten down value at the end of each quarter, as per the below table:

2.Hypothecated/Encumbered Assets:

TheAuthority has also observed that the assets that have been hypothecated orencumbered have been considered at the book value for the purpose ofcomputation of solvency margin. In this regard, it is hereby directed that:

     I.       Where the obligation(s)/contingency(ies), forwhich the assets have been hypothecated/encumbered, have been recognized asliability in the books of accounts, the entire book value of the assets andliabilities shall be considered for the purpose of computation of solvencymargin;

   II.       Where the obligation(s)/contingency(ies), forwhich the assets have been hypothecated/encumbered, have not been recognized asliability in the books of accounts, the entire book value of suchhypothecated/encumbered assets shall not be considered for the purpose ofcomputation of Available Solvency Margin.

3.Trademark / Trade Logo:

Ithas also been observed that some insurers have considered intangibles assets,such as trademark or trade logo, as admissible asset for the purpose ofcomputation of Available Solvency Margin. In this regard, it is hereby directedthat such intangible assets shall be considered as Inadmissible for the purposeof computation of available solvency margin.

4.Computation of RSM

Forthe purpose of computation of Required Solvency Margin, it is hereby clarifiedthat Personal Accident and Travel (including domestic as well as overseas) shallbe clubbed with Health segment and RSM-1 and RSM-2 shall be computed accordingly;

5.Timelines for Submission of Solvency Returns

Itis hereby directed that the solvency returns, in the forms and manner,prescribed by IRDAI (Assets, Liabilities and Solvency Margin of GeneralInsurance Business) Regulations, 2016, shall be submitted as per the followingtimelines:

Allinsurers are advised to take note of the above for compliance, while preparingthe solvency statement for Q1 of FY2019-20 and thereafter.

(Pravin Kutumbe)

Member (F&I)