IRDAI Risk-Based Capital Rules are set for further development as the Insurance Regulatory and Development Authority of India (IRDAI) has formed two working groups to prepare a new capital framework for insurance companies.
The proposed framework will use financial statements prepared under Indian Accounting Standards (Ind AS) as the starting point for calculating insurers’ capital requirements.
The move aims to bring insurance solvency regulations in line with the accounting standards being adopted by the industry.
It is also expected to reduce additional compliance costs, complicated financial reconciliations and inconsistencies that could arise from maintaining two separate valuation systems.
The regulator announced the decision on November 10, 2026, giving the newly formed groups one month to complete their assignments and submit their recommendations.
 IRDAI Risk-Based Capital Rules to Be Reviewed by Two Groups
The two working groups will separately examine the requirements of life insurance and non-life insurance companies.
Jamuna Choudhary and Parmeshwar Shelke have been appointed as member conveners for the respective groups.
Although the groups will focus on different segments, they will work together on issues that affect the wider insurance industry. Joint meetings will help them develop a consistent approach to the proposed capital framework.
Their main responsibility is to prepare an exposure draft of the Risk-Based Capital (RBC) regulations along with an approach paper. These documents will eventually be placed before stakeholders for public consultation.
The groups will examine how insurers’ available capital should be calculated and classified into different tiers.
They will also determine the capital requirements for various risk categories and study how individual risks should be
What Changes Under the Risk-Based Capital Framework?
Under a risk-based capital system, insurance companies will be required to maintain capital according to the risks associated with their business operations and financial positions.
This differs from a framework that primarily relies on standardised regulatory factors.
The proposed approach will assess an insurer’s assets, liabilities and risk exposure through an economic, market-consistent balance sheet.
The regulator wants Ind AS financial statements to serve as the foundation for this balance sheet.
However, adjustments will be permitted wherever necessary to meet regulatory and policyholder-protection requirements.
The working groups will also examine several technical accounting and insurance-related components.
These include expected credit losses on debt securities, discounting, contractual service margins, risk adjustments for non-financial risks, insurance acquisition cash flows and reinsurance contracts.
Another important area will be the impact of different assumptions on insurers’ capital and solvency ratios.
The groups will study alternative calculation methods, acceptable parameter ranges, materiality thresholds, risk margins and illiquidity premiums.
 Stress Testing and Transition Plans Also on Agenda
Apart from calculating capital requirements, the working groups will recommend suitable stress factors and reporting formats for insurance companies.
Stress testing will help assess how insurers’ financial positions could change under different market and economic conditions.
The proposed approach will also examine how sensitive capital requirements and solvency ratios are to changes in important assumptions.
The groups are expected to recommend transitional provisions for introducing the new framework in phases.
This will be important because insurance companies may require time to adjust their financial reporting systems, risk assessment processes and capital management practices.
IRDAI has also instructed the groups to support every recommendation with relevant data, detailed analysis and quantified impact assessments. Sensitivity testing must form part of the evaluation process.
The regulator wants the proposed framework to achieve two objectives: maintain accurate financial representation under Ind AS and protect the interests of insurance policyholders.
Why the New Capital Framework Matters for Insurance Customers
Solvency requirements are important because insurance companies need sufficient financial resources to meet their obligations, including paying claims when policyholders need them.
A risk-based approach is designed to connect capital requirements more closely with the actual risks carried by each insurer.
Companies with different business models and risk profiles may therefore face different capital requirements.
The proposed changes could also improve transparency in how insurance companies assess their financial strength. Better risk measurement can help regulators identify weaknesses and monitor insurers more effectively.
For policyholders, the central objective remains the financial ability of insurance companies to honour their commitments.
However, the new working groups are still at the recommendation and draft-regulation stage.
Their one-month assignment will be an important step towards preparing the proposed rules.
The final regulatory framework and its implementation timeline will depend on the subsequent regulatory process and decisions.
