The Finance Ministry is planning to infuse additional capital of Rs 3,000 crore in the three loss-making public sector general insurance companies this financial year, reported PTI. Citing sources, the report said that these companies have been asked to improve their solvency ratio and meet the regulatory requirement of 150 per cent.
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).
The solvency ratio is an indicator of adequate capital. A higher ratio demonstrates the company’s stronger financial condition and ability to cover future contingencies and commercial expansion plans.
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.
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The additional capital that companies must keep on hand above and beyond the expected cost of any claims is known as the solvency margin. It serves as a financial fallback in dire circumstances, letting the business pay all claims. The sources told PTI that each of these businesses had been instructed to follow a successful expansion strategy and that additional cash infusion would be contingent upon the achievement of their performance.
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.
“We propose to take up privatisation of two Public Sector Banks and one General Insurance company in the year 2021-22. This would require legislative amendments,” she had said.