After Pushback By Life Insurers, IRDAI Retains 'Surrender Value Regulations'

The Insurance Regulatory and Development Authority of India has notified the final regulations surrounding the surrender value of life insurance policies, and they are a watered down version of the December draft. This is a positive for life insurance companies.

Morgan Stanley, in its industry report, highlighted that while the regulator has retained the prevailing guaranteed surrender value guidelines for non-linked policies in the final regulations, there are some changes to the special surrender value computation.

The special surrender value factors, which are used for the computation of special surrender value, are based on asset share or notional asset share. Per the regulation, the calculation shall also be consistent with principles set out in the Guidance Note or Actuarial Practice Standard, subject to new specifications:

• expenses being consistent with the pricing basis but not exceeding the applicable expenses of management (EOM) limits,

• The interest rate shall not be less than the "pricing interest rate less than 50 bps.".

"All-in-all, this appears to be less onerous than the proposed norms by the regulator in December 2023," the report said based on discussions with life insurers.

Thus, the new regulations would not adversely affect life insurers, in contrast to the December draft, where the proposed surrender value to be paid to policyholders would be much higher than the existing regulations.

The regulations are a positive for life insurance companies, whose stocks took a beating after the December draft regulations. However, this is not much of a positive for policyholders.