Solvency Margin of Non-life Insurance Companies in respect of Motor TP Pool

The Authority vide its Circular No. 063/IRDA/F&A/Mar-07 dated March 29, 2007 on “Solvency margin in respect of Motor TP Pool” has defined the term “Gross” in respect of Motor Pool as under:
“Gross shall be defined as relating to the business written direct before reinsurance cessions and without adding reinsurance accepted”.

While the above Circular clarified the position related to the retrocession of premium received from the TP Pool and excluded it from the calculation for the RSM, the position related to treatment of share of claim retro ceded from the pool remained unclear. The interpretation of the above Circular is taken differently by different companies. As a result, the insurers are following different approach in calculation of Solvency Margin in respect of Motor TP Pool.

In order to have uniformity in the computation of the solvency margin, the following clarifications are issued in respect of Motor Third Party Pool business. The Circular will supersede Circular No. 063 / IRDA / F&A / Mar-07 dated March 29, 2007.

1.For the purpose of Calculation of RSM 1 – Gross Premium in respect of Motor TP Pool will be defined as retrocession received from Motor TP Pool i.e. the share of premium received from Motor TP Pool arrangement. Gross written premium directly underwritten by insurers in respect of Motor Pool business need not be considered for the calculation of RSM 1.

2.For the purpose of computation of RSM2 – Gross Incurred Claim will be taken as Incurred Claims of Retro Ceded Business (that share of the premium and claims as agreed in Thirty Party Pool agreement). It excludes any incurred claims directly incurred in respect of Motor Pool business underwritten by insurers but includes the IBNR/IBNER of the retroceded business. 

3.As there is no further Reinsurance for retro-ceded business, Gross and Net to be the same for retro-ceded Premium & Claims.

4.The proportionate share of assets and liabilities should also be considered for the purpose of determination of Available Solvency Margin (ASM).

5.For Monthly/Quarterly Solvency Ratios, provisional un-audited figures received from the Pool Manager/Estimated by Insurers can be considered, provided the disclosure of the same should be made in the solvency statement.

6.There should be explicit demonstration of how any assets from Shareholders’ Fund and/or assets belonging to other funds support the required solvency margin.

All insurers are advised to comply with these instructions w.e.f. April 1, 2011.

Sd/-
(R. K. Nair)
Member (F&I)