hyderabadmumbai in a move that will save the life insurance industry several hundred crores in capital requirement the insurance regulator has eased solvency margins for unitlinked insurance plans solvency margin is the excess of assets over liabilities that an insurer maintains as a prudential measure in the interest of policyholdersthe move will help enhance ulip sales especially pension and health products it will also lower the cost structure in ulips life insurers selling ulips will have a level playing field vis a vis companies selling traditional products whose solvency margins were lowered recently said r kannan member irda a lower solvency capital would mean that insurers will also have more money to underwrite new business it will also ease the pressure on bringing in extra capitalfor a life insurer the impact would vary depending on the product composition for instance for products with a guaranteed return the capital requirement has been eased by 7 whereas for products where there is no guarantee the reduction is 20 given the industrys product composition the overall capital requirement towards solvency margin would be lesser by 18for the largest private life insurer icici prudential the new norms will free up close to rs 150 crore of capital this has been a good new year gift from the regulator said shikha sharma managing director icici prudential insurers reckon that the new norms will ease capital requirements by 1015 although private life insurers have brought in over rs 21000 crore as equity capital most of the money has gone towards distribution infrastructure expenses and reserve requirements a portion of the capital goes towards capital requirements of which companies will save between 1015 this reduction will benefit not only existing business but also future business said gaurang shah md kotak mahindra life insurance when asked about the possibility of a reduction in price mr shah said competition has already been a major factor in driving down prices margins on our products has consistently coming down since 04 and the products are becoming cheapermany in the industry feel that capital requirements were high considering that in most ulip products the investment risk is borne by the customer in many cases the ulip plan is structured similar to a longterm mutual fundwhile irda has eased solvency requirement it has not revised its diktat on companies maintaining 150 of the prescribed solvency margins the capital requirements have been eased by reducing the allocation towards two components that are used to calculate the solvency marginulips are similar to mutual fund with an added life cover the returns on ulips are reflected in the increase in net asset value declared by the company many private insurers garner a large chunk 80 of their premium from ulip sales but the navs have eroded in the stock market crash there are concerns that the erosion could make the life insurance business unstable for companies in the medium and long term