Government Mulls Capital Infusion For PSU General Insurers In Q4, Performance Key Factor

The Finance Ministry might consider injecting capital into three loss-making public sector general insurance companies, namely National Insurance Company Ltd, Oriental Insurance Company Ltd, and United India Insurance Company, during the fourth quarter of the current fiscal year.

The prospective capital infusion would hinge on the nine-month financial performance of the general insurers, as indicated in the report by PTI. In the previous year, the Finance Ministry directed these three insurers to prioritize their profitability rather than focusing solely on their revenue, emphasizing the importance of approving only sound insurance proposals.

Sources have reported that the Finance Ministry had asked National Insurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company, last year, to chase bottomlines rather than topline and underwrite only good proposals.

The financial assessment will provide insights into the impact of the restructuring efforts on the profitability figures and the solvency margin of these companies. The solvency margin represents the additional capital that these companies must maintain to cover potential claims beyond their expected liabilities. This serves as a financial safety net, ensuring their ability to settle all claims even in the most challenging circumstances.

Last year, the government allocated a total of Rs 5,000 crore in capital to three insurance companies: National Insurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company. Among them, National Insurance Company Limited, headquartered in Kolkata, received the largest share of Rs 3,700 crore, followed by Oriental Insurance Company Limited in Delhi, which received Rs 1,200 crore, and United India Insurance Company in Chennai, with an allocation of Rs 100 crore.

These companies were instructed to enhance their solvency ratios to meet the regulatory requirement of 150 percent. The solvency ratio serves as a measure of capital adequacy, with a higher ratio indicating a healthier financial position and the capacity to fulfill claims and address potential contingencies and expansion strategies. Excluding New India Assurance's solvency ratio, the vital measure of financial strength for the three public sector general insurance firms fell short of the mandated 150 percent regulatory threshold.

The government invested a total of Rs 17,450 crore in these insurance companies for financial improvement. This capital injection increased from Rs 2,500 crore in 2019-20 to Rs 9,950 crore in the following year and subsequently Rs 5,000 crore in 2021-22. These public sector general insurance companies are actively undergoing reforms such as organizational restructuring, product and cost rationalization, and digitalization. Since the maximum infusion in 2020-21, they've implemented performance-based reforms to promote profitable growth and efficient capital utilization.

Among the four state-run general insurance companies, only New India Assurance is publicly listed; the rest are government-owned. The government aims to privatize one of them, with Parliament already amending the General Insurance Business (Nationalisation) Act (GIBNA) to facilitate this. In the 2021-22 Budget, Finance Minister Nirmala Sitharaman unveiled a significant privatization plan, involving two public sector banks and one general insurance company.

"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," she had said.