The Insurance Regulatory and Development Authority (IRDA) has released guidelines on Asset-liability management and Stress testing for all life insurance and non-life insurance companies in the country.
Asset Liability Management (ALM) and Stress testing plays a vital role in the sound management of the insurance business. ALM is the critical area of managing the finances of the insurers, while Stress testing is critical in the management of risks and the financial soundness of the insurers.
After examining the details of ALM activities submitted by life and non-life insurers in the Appointed Actuary’s Annual Report (AAAR), for the year ended March 31, 2010; the authority noted that the details were incomplete and not consistent. Each insurer has their own measures of reporting the requisite details in AAAR.
In an effort to standardise ALM practices followed by all insurers, the regulator has come up with a new framework. The ALM policy will aid the insurance companies to understand the risks they are exposed to. It will also enable them to measure such risks and apply appropriate techniques.
The authority has also prescribed minimum requirements for Stress testing by these insurers.
The guidelines laid down by IRDA shall come into effect on from September 30, 2011, and will be applicable to all insurance companies, including reinsurers.
Also read IRDA releases Grievance Redressal guidelines for Insurance Companies
