Finance Ministry To Decide On Rs 3,000 Crore Fund Infusion Based On Performance Of PSU Insurers: Report

These PSU insurers have been asked to chase the bottomline rather than topline and underwrite only good proposals

In the financial year 2021-22, the government provided Rs 5,000 crore to three insurers, National Insurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company.

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Finance Ministry will decide on Rs 3,000 crore capital infusion in three loss-making public sector general insurance companies this fiscal year based on their financial performance, reported PTI. Citing sources, the report said that these PSU insurers have been asked to chase the bottomline rather than topline and underwrite only good proposals.

The FY23 financial numbers would give some idea about the impact of the restructuring initiated on the profitability numbers and the solvency margin, sources told PTI. 

It should be noted that in the financial year 2021-22, the government provided Rs 5,000 crore to three insurers, National Insurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company. Kolkata-based National Insurance Company Limited was given the highest Rs 3,700 crore, followed by Delhi-based Oriental Insurance Company Limited (Rs 1,200 crore), and Chennai-based United India Insurance Company (Rs 100 crore).

According to the report these companies have been asked to improve their solvency ratio and meet the regulatory requirement of 150 per cent.

The solvency margin pertains to the additional capital that companies are required to maintain beyond the anticipated claim amounts that they might encounter. This serves as a financial safety net in dire circumstances, providing the firm with the means to resolve all claims. Meanwhile, the solvency ratio serves as an indicator of the company's capital adequacy. A higher ratio indicates a more favorable financial condition, demonstrating the company's capacity to satisfy claims, and to address future unforeseen situations and business expansion initiatives.

Barring New India Assurance, the solvency ratio of the three public sector general insurance companies stood below the regulatory requirement of 150 per cent in 2021-22, the report said. The solvency ratio of National Insurance Company Limited was 63 per cent, Oriental Insurance Company Limited 15 per cent, and United India Insurance Company 51 per cent.

The government invested Rs 2,500 crore in these three businesses during 2019–20. The next year in 2020-22, it significantly rose to Rs 9,950 crore, and by 2021–22, it reached Rs 5,000 crore.

Reforms are being implemented by public sector general insurance businesses including organisational restructuring, product rationalisation, cost rationalisation, and digitalization, the report said adding that all public sector general insurance companies have started a set of key performance indicators linked-linked changes as of 2020–21, when the maximum capital infusion was made, to ensure efficient capital usage and to promote profitable growth.

Of the four state-run general insurance companies only New India Assurance Company is listed on the stock exchanges, the remaining three are wholly-owned by the government.

Finance Minister Nirmala Sitharaman in the Budget 2021-22 announced a big-ticket privatisation agenda, which included two public sector banks and one general insurance company.