Government To Potentially Infuse Capital In PSU General Insurance Companies In Last Quarter In FY24

Last year, the government distributed capital worth Rs 5,000 crore to three insurers, where the National Insurance Company Limited was allocated the largest amount of Rs 3,700 crore.

Apart from New India Assurance, the solvency margin of the remaining three public sector general insurance companies remained below the requirement of 150 per cent.

The Ministry of Finance is considering a potential capital infusion for three loss-making public sector general insurance companies on the basis of their financial performance in the three quarters of the current fiscal year. 

The infusion, if needed, would be made in the final quarter of the current financial year (FY24), reported PTI citing sources. The report further said that the finance ministry asked three insurers last year, namely the National Insurance Company Limited, Oriental Insurance Company Limited, and the United India Insurance Company, to focus on their bottomlines instead of toplines and underwrite only good proposal. The sources also noted that the financial review will help give some idea about the impact of restructuring initiated on the profitability numbers and the solvency margin. 

The solvency margin represents the surplus capital companies are needed to hold over and above the claim amounts they would potentially incur. This margin means a financial backup for the firm in extreme situations, helping the company settle all claims. 

Last year, the government distributed capital worth Rs 5,000 crore to these three insurers, where the National Insurance Company Limited was allocated the largest amount of Rs 3,700 crore. The Oriental Insurance Company Limited was given Rs 1,200 crore, while the United India Insurance Company received Rs 100 crore. 

The report cited sources and said that these firms have been asked to work on their solvency ratio and fulfill the regulatory requirements of 150 per cent by the government. The solvency ratio measures capital adequacy. A ratio on the higher end means good financial health and the indicates to the healthy ability of the firm to pay claims and meet future contingencies and business growth plans. 

Apart from New India Assurance, the solvency margin of these three public sector general insurance companies remained below the requirement of 150 per cent. Earlier in 2019-20, the government infused Rs 2,500 crore in these three firms. This amount went up to Rs 9,950 crore in the next year and further Rs 5,000 crore in 2021-22. So far, the government has put in Rs 17,450 crore into these firms to help them improve their financial health. 

Recently, the public sector insurance firms are in the process of undergoing various reforms, such as organisational restructuring, product rationalisation, cost rationalisation, and digitalisation, among others. 

These insurance firms have began reforms since 2020-21, related to key perfomance indicators to make an efficient use of capital and promote profitable growth. Out of the four state-owned general insurance companies, only New India Assurance Company has been listed ont he stock exchanges, while the remaining are wholly owned by the government. 

Notably, the government has already announced plans to take one general insurance company private. Finance Minister Nirmala Sitharaman had announced in Budget 2021-22 a big ticket privatisation agenda, which included two public sector banks and one general insurance company. She had said, “We propose to take up the privatisation of two public sector Banks and one general insurance company in the year 2021-22. This would require legislative amendments.” To help the privatisation process, the Parliament has already agreed to amendments to the General Insurance Business (Nationalisation) Act (GIBNA).