Maintaining a firm stance over guaranteed returns on Unit-Linked Pension Plans (ULPPs), the Insurance Regulatory and Development Authority (IRDA) has ruled that the insurers will have to provide guaranteed returns of 4.5% on gross premiums untill March 11, 2011, and post that date the returns will be linked to the reverse repo rate. Hence now investors will stand to gain half a percentage point more than the average reverse repo rate at the end of each quarter. In a note to the insurers, IRDA also mentioned that the returns will be in the range of 3.0% to 6.0%.

 

In case of group pension plans, the guaranteed return will be applicable to individual contributions made to group pension products, if the contract has been in force for five years continuously.

 

On this issue, insurers had earlier met the regulator and requested that 4.5% guaranteed returns should be paid on the net premium. However, the IRDA rejected this plea, which made many insurers predictably unhappy. Even an actuary of a large insurance company had expressed concerns saying, “Managing this return on gross premium will make the product costlier by 2%. We wanted return to be subjected to net premium,”

 

We believe that such a measure taken by the IRDA, would be in the long-term interest of policyholders and will be beneficial once the new rules come into effect from September 1, 2010. Moreover, going forward this may also induce insurers to provide efficient service to the policyholders as there would be increased competition due to standardisation of products.

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john@sequentialventures.com Jan 19, 2012 I was really confused, and this answered all my questions.

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