The Daily PulseBusiness
Insurance Regulator Moves to Align Capital Framework with Accounting Standards
Reported by Kunal Bhatia (Senior Writer) · The Hindu - Business ·
Photo: Wikimedia CommonsFinancial statements made using Indian Accounting Standards will serve as the base for a new Risk-Based Capital framework for insurance companies in India. The Insurance Regulatory and Development Authority of India announced the creation of separate working groups for life and non-life insurers to manage this shift.
Working Group Goals
The main aim of these working groups is to match the Risk-Based Capital framework with Indian Accounting Standards. This allows a single set of data and models to act as the primary base for valuation. The updated framework aims to be transparent, easy to compare across different companies, and realistic to put into practice.
Regulatory Shift
The regulator is moving the insurance sector away from the older factor-based solvency system. Under the new Risk-Based Capital model, a company's capital needs will match the actual risks it faces. Insurers were earlier advised to prepare financial statements using Indian Accounting Standards starting from April 1, 2026.
Background
Having separate financial and regulatory systems creates extra costs and matching problems for companies. Bringing them together protects policyholders while keeping financial reports clear and accurate. Working groups must prepare an exposure draft of the new regulations and an approach paper within one month, according to IRDAI CGM C. Srinivasa Kumar.
ExplainerWhy this matters
What Happened
The Insurance Regulatory and Development Authority of India is changing how it measures financial safety for insurance companies by shifting from a basic formula system to a Risk-Based Capital framework.
Why It Matters
Under the old system, insurers held a fixed amount of capital regardless of their actual business risks. The new approach ties capital directly to the real risks a company takes on, which helps protect customer policies better while removing duplicate paperwork and extra costs for insurers.
What Happens Next
The newly formed working groups have one month to submit an exposure draft of the regulations and an approach paper. Insurers will then need to adapt their data and reporting systems to meet the converged framework.
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