Finance Ministry To Take A Call On Rs 3,000 Crore Fund Infusion Based On Performance Of PSU General Insurers

Finance Ministry will take a call on Rs 3,000 crore capital infusion this fiscal based on financial performance of three loss-making public sector general insurance companies.

According to sources, the finance ministry last year had asked these three insurers -- National Insurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company -- to chase bottomline rather than topline and underwrite only good proposals.

The FY'23 financial numbers would give some idea about the impact of restructuring initiated on the profitability numbers and the solvency margin, sources said.

The solvency margin is the extra capital the companies must hold over and above the claim amounts they are likely to incur. It acts as a financial backup in extreme situations, enabling the company to settle all claims.

It is noted that the government last year provided Rs 5,000 crore capital 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 sources these companies have been asked to improve their solvency ratio and meet the regulatory requirement of 150 per cent.

The solvency ratio is a measure of capital adequacy. A higher ratio reflects better financial health and the ability of the company to pay claims and meet future contingencies and business growth plans.

Barring the solvency ratio of New India Assurance, this key indicator of the three Public sector general insurance companies stood below the regulatory requirement of 150 per cent in 2021-22.

For example, the solvency ratio of National Insurance Company Limited was 63 per cent, Oriental Insurance Company Limited was 15 per cent and United India Insurance Company was 51 per cent.

During 2019-20, the government infused Rs 2,500 crore in these three companies. It increased substantially to Rs 9,950 crore in the following year and Rs 5,000 crore in 2021-22. In all, the government has infused Rs 17,450 crore in these insurance firms so far to improve their financial health.

Public sector general insurance companies are undergoing various reforms, including organisational restructuring, product rationalisation, cost rationalisation and digitalisation.

For efficient use of capital and to push profitable growth, the sources said, a set of key performance indicators linked reforms have been initiated by all public sector general insurance companies effective 2020-21, when the maximum capital infusion was made.

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.

The government has already announced its intention to privatise one general insurance company. To facilitate privatisation, Parliament has already approved amendments to the General Insurance Business (Nationalisation) Act (GIBNA).

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.