The Insurance Regulatory and Development Authority of India (IRDAI) has taken another step towards replacing India’s existing factor-based solvency regime with a risk-based capital (RBC) framework. On 10 November 2026, the regulator constituted separate working groups for life and non-life insurers to develop the framework and align it with Indian Accounting Standards (Ind AS). The groups have been given one month to prepare an exposure draft of the RBC regulations and an accompanying approach paper. Under the proposed system, capital requirements would be linked more closely to the risks an insurer actually carries, using an economic or market-consistent balance sheet.
The shift could have significant implications for underwriting, pricing, capital allocation and reinsurance structures. The proposed framework will examine market, underwriting, credit and operational risks, as well as diversification benefits and the treatment of reinsurance and counterparty risk. Insurers with diversified portfolios and effective reinsurance may potentially receive better recognition of their risk profile, while higher-risk or concentrated portfolios could require more capital. IRDAI is also seeking quantified impact assessments and sensitivity testing, while stressing that convergence with Ind AS must not dilute policyholder protection. The final capital formulas, solvency thresholds and implementation timeline are not yet established, making the working groups’ recommendations the next key milestone.
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