New Delhi – The Finance Ministry is considering a capital infusion in three public sector general insurance companies based on their financial performance over the past nine months. The potential infusion, if necessary, would occur in the fourth quarter of the current fiscal year, according to sources.
Last year, the finance ministry instructed National Insurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company to prioritize their bottom lines and underwrite only profitable proposals. This move aimed to improve profitability and solvency in the companies.
The financial review will assess the impact of the restructuring measures on profitability and solvency margins. The solvency margin represents the additional capital that insurers must hold to cover potential claims, providing financial security in extreme situations.
In the previous fiscal year, the government injected Rs 5,000 crore into the three insurers. National Insurance Company Limited received the largest amount at Rs 3,700 crore, followed by Oriental Insurance Company Limited with Rs 1,200 crore, and United India Insurance Company with Rs 100 crore.
Sources reveal that the companies have been urged to enhance their solvency ratio and meet the regulatory requirement of 150 percent. The solvency ratio indicates an insurer’s capital adequacy and ability to fulfill claims and future obligations.
Except for New India Assurance, the solvency ratio of the three public sector general insurance companies fell below the regulatory threshold of 150 percent. To address this, the government infused Rs 2,500 crore in the companies during 2019-20, Rs 9,950 crore the following year, and Rs 5,000 crore in the current fiscal year, totaling Rs 17,450 crore.
To bolster their financial condition, the public sector general insurance firms are undergoing various reforms, including organizational restructuring, product rationalization, cost reduction, and digitalization.
In line with improving the efficient use of capital and driving profitable growth, the companies have initiated key performance indicator-linked reforms since 2020-21, the year with the highest capital infusion.
Among the four state-run general insurance companies, only New India Assurance Company is listed on the stock exchanges, while the remaining three are wholly owned by the government. The government has expressed its intention to privatize one of the general insurance companies and has sought amendments to the General Insurance Business (Nationalization) Act to facilitate this move.
Finance Minister Nirmala Sitharaman announced in the Budget 2021-22 the government’s plan to privatize two public sector banks and one general insurance company in the fiscal year. She emphasized that these plans would require legislative amendments.
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