Life insurers will see more financial stability in their business, with the insurance regulator mandating them to adopt a new model to assess various risks and compute the capital needed to cover such risks from end-March, this year.

The model, economic capital in technical parlance, allows insurers to factor in various types of risks — including insurance, market, credit and liquidity risks — quantify them, and charge capital accordingly.

The amount of capital that a company needs to earmark would depend on the type of business it underwrites. The capital requirement will be higher for products with a guaranteed return and lower for a product that has no guarantee like the Unit-Linked Insurance Plan (ULIP).

ULIPs, one of the hottest products in a bull run, constitute more than 70 percent of the portfolio for most private insurers. If more capital is released, it would help boost the profitability of the life insurance company.

With some life insurers like Reliance Capital planning to launch IPOs, economic capital requirements would help investors get a clear view of the performance of the company.