Financial Times

New insurance guidelines
The Insurance Board of Sri Lanka (IBSL) has issued new guidelines aimed at ensuring more transparency and strengthening the financial health of insurers amid concerns that some firms may have difficulties in meeting asset and solvency requirements owing to massive tsunami-related claims.

Under the new rules effective January 1, 2005, insurance companies are required to certify on a half yearly basis that they have complied with regulatory provisions and reserving and solvency guidelines and are able to meet assets and minimum capital requirements.

These have to be certified by the chief executive and chief financial officers. "This is very good for the public - to know the solvency positions as certified by CEOs and CFOs on a half yearly basis," said an industry official. The insurance regulator has also issued directions that general insurance claims have to be validated by external actuaries. At present that requirement is only for life funds.

"The reason is that with the tsunami claims, the ability of insurers to meet their liabilities is a critical factor for the economic well being of those insured and of the country," said the official. IBSL officials said the guidelines were meant to ensure more transparency and commitment on the part of insurance companies.

There have been calls in the wake of the tsunami to tighten the regulatory framework on reinsurance and solvency margins to avoid unnecessary risk exposure and to protect the interests of both policyholders and the insurance industry.

Buddhika Piyasena, vice president of Fitch Ratings Lanka Ltd., recently said insurers were facing gross claims of Rs 12 - 15 billion. Insurance companies have made announcements that they are paying claims of tsunami victims and even making ex-gratia payments which insurance industry analysts said were prompted by competition.

"These are competitive pressures at work but it is important not to risk solvency," said one analyst. Insurance industry officials said there were now concerns about the financial soundness of some insurers and whether they would be able to meet another round of heavy claims arising suddenly from a natural disaster.

If insurers have not covered for catastrophe insurance then they would only have their retained assets and shareholders funds to pay claims. "The policy holders must know the correct financial position of the insurers, and that while they may be able to pay today's claims, whether they would be able to meet future claims as well," said the industry official.

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