New rules added by IDRA
Zarif Mahmud: Some new rules are going to be added to ensure transparency in the insurance system. In the light of this, bonus, office expenses or other charges can’t be included in the fixed net premium of the insurance policy in future. Besides, Islamic life insurance business has to account for two types of reserves – reserve for risk and reserve for investment. Also, life insurance companies have to determine actuarial reserves for each plan.
It is reported that such provision has been attached in the draft of ‘Life Insurers’ Solvency Margin Regulations 2023’ prepared by the Insurance Development and Regulatory Authority.
According to the draft regulations, life insurance companies have to assess their assets and determine the actuarial reserves for each plan or plan separately according to the appropriate valuation and actuarial basis. Actuarial reserves are to be valued on the net premium method. If the engaged actuary deems a valuation method other than net premium value reasonable, that method may be used. Provided, however, that the actuarial reserve assessed under this method shall not be less than the actuarial reserve assessed under the net premium method and the actuary engaged in the report shall state the rationale of the method used.
The draft states that if the actuarial reserve of a policy is negative, it shall be treated as nil. And if the actuarial reserve in any policy valuation is less than the stipulated promised surrender value, then the stipulated promised surrender value will be determined as actuarial reserve.
In case of asset valuation – debts which are not recoverable; Advances of non-collectible nature; Furniture-Fixed goods-Dead stock-Software and stationery; Prepaid expenses; Reconciliation status of profit and loss account; Reinsurer’s delinquent status for more than one month; Initial costs of company formation; intangible assets; Premiums unpaid within one month and agent status etc. will be treated as zero value.
In assessing the liability of each policy, the liability must be assessed on the basis of reasonable assumptions taking into account all relevant factors. The valuation methods and assumptions filed may be changed from year to year as needed.
According to the draft, the fixed net premium of the insurance policy shall not include bonus, office expenses or other charges and the amount of net premium shall be sufficient to provide the benefits included in the policy. However, large initial costs can be offset by using actuarial principles from net premiums.
In the draft regulations, samples of individual forms have been added for valuation of assets of life insurance companies, determination of deposit amount, preparation of solvency margin statement.
In the draft, it is said about the Islamic life business, two types of reserves are to be calculated in the Islamic life insurance business, the reserve for risk and the reserve for investment. The value of the fund’s assets of the participants shall be deemed to be the value of the investment fund and shall be deemed to be reserve in respect of investment.
Reserves should be determined by generally accepted actuarial principles in the case of life insurance business not specified in the regulations. Besides, in case of policies where it is not possible to calculate actuarial reserves, consolidated reserves should be kept in some cases. These are – the various risks of poor quality of life at the underwriting stage such as – occupational risk, overweight, underweight, smoking risk, health risk, climate and geographical risk are among the additional premiums accepted.
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