The Insurance Regulatory and Development Authority's (IRDA) new disclosure norms for 2009-10 will help policyholders get a clearer picture about the claim settlement ability of the life insurance companies. But the regulator is not insisting on immediate disclosure of information, which might be relevant for prospective shareholders keen to invest in the IPOs of these companies.

IRDA has asked all the life insurance companies to disclose economic capital (risk-based solvency requirement) in their balance sheet of 2009-10 with effect from March 31, 2010, to help the policy-holders but it will offer more time to these companies to disclose the Market Consistent Embedded Value (MCEV), relevant to prospective shareholders.

"While the new disclosures have been made compatible to the proposed IPO norms, we have not asked for disclosure of MCEV in 2009-10,"said R. Kannan, Member (Actuary), IRDA, adding that the disclosure might be introduced in the next financial year.

The MCEV, which refers to the value of future streams of renewal premium from existing business, indicates the company's future prospect to the shareholders in case of an IPO.

The disclosure of economic capital, based on different risks to the insurance companies such as exposure to the equity market, lapsation rates, compensation for mis-selling of policies, is expected to redefine solvency requirements and may lead to additional capital infusion by the insurers. This, in turn, would ensure more security to policyholders about the company's claim settlement ability.

Thus, while the economic capital reflects the true fundamentals of the company, MCEV is indicative of its future financial strength. It may be mentioned here that an IRDA committee, consisting of members from actuarial departments of different life insurance companies, is expected to come out with an elaborate IPO norm within a month.

"The two valuation principles should ideally go together. But the regulator in this case is first in the lookout for the draft changes in the balance sheet once the risk-based valuation is introduced,"Sanchit Maini, Deputy Chief Actuary, Max New York Life, said.

The embedded value of future business was not reflected in the balance sheet and, therefore, would be introduced at a later stage, he said.

The second round of disclosure might also include giving break-ups of business from different distribution channels, Chief Actuary, in another private sector life insurance company said.

"The second round would be important for the prospective shareholders in relation to IPO, board management, stock options and so on," he said.