Lankan insurers poised to adjust capital to reflect risks

Similar to the banking industry embracing capital adequacy requirements under BASEL regulations, Sri Lanka’s insurance industry too is currently working towards a Risk-Based Capital (RBC) model and is set to become the next country in Asia to fully embrace the regulatory requirement, according to an international insurance professional.

AIA Group Chief Financial Officer Garth Jones, who is now in Sri Lanka to address the industry professionals on the new development, said RBC would enable the insurance companies to determine the capital requirement based on the underlying risks.

“I believe, capital determined based on the RBC model better reflects the underlying risks in the business. From an evolutionary perspective, this is a very positive development which underpins a very strong financial base for the insurance industry in Sri Lanka,” he said.

According to Jones, while RBC will give capital credits to companies that better manage their risks, it will also ask for more capital from those who do not understand their risks well.

Meanwhile, speaking on the progress so far made by the Sri Lankan insurance sector towards this end, AIA Insurance Lanka PLC (AIA) CEO Shah Rouf said that the industry was ready to embrace the RBC model.

“Industry players have had very fruitful dialogue with the regulator during the last 12 months and I believe tomorrow’s seminar which is hosted by the Insurance Board of Sri Lanka (IBSL) will be the culmination of all these discussions in formulating the Sri Lankan guidelines. I think, we will have the initial set of framework by the end of this year,” Rouf confided.

He added that his company along with several other insurers is quite confident of moving into the RBC model as early as within the next 12 months, although the IBSL had not given a deadline.

According to Jones, originally the basis for capital requirement was determined based on the actuarial calculations.

“But capital based on actuarial calculations didn’t distinguish between the different risks the company was undertaking. RBC is an evolution to a more risk-based approach that is being adopted in many Asian markets now,” said John, who is also an actuary.

Countries which have so far embraced the RBC model are Singapore, Malaysia, Thailand, Japan, Korea, Australia, Indonesia and Taiwan.

AIA is the gold sponsor of the two-day international seminar on RBC held today and tomorrow at Cinnamon Lakeside Hotel, where Jones will deliver the keynote address. (DK)