Government to inject more capital into general public sector insurers next year

The government may need to inject more capital into the three general public sector insurance companies to improve their financial health, a senior government official said.

The government last year provided Rs 5,000 crore of capital to three insurers – National Insurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company.

Based on FY23 performance, the Treasury Department would take a call about how much capital they would need to meet regulatory requirements, the official said.

They are not in good financial shape and funds would be flowing into these companies to increase their solvency margin, the official added.

The solvency margin is the additional capital that companies must maintain beyond the expected amounts due. In extreme situations, it serves as financial security and enables the company to settle all claims.

According to the mandate of the regulator IRDAI, insurance companies must comply with a minimum solvency ratio of 1.5 in order to reduce risks. In relation to the solvency margin, the required value is 150 percent.

The 2023-24 budget has not earmarked any capital injections for insurance companies, but the funds can be requested through additional demand, the official said.

In 2020-21, Rs. 9,950 crore was invested by the government in three general public sector insurers, of which Rs. 3,605 crore in United India Insurance, Rs. 3,175 crore in National Insurance and Rs. 3,170 crore in Oriental Insurance.

Also Read: Irdai Makes Health Insurers and General Insurers Mandatory to Cover Mental Illness, HIV and Disability

In addition to the capital injection, an outside consultant has also proposed a number of reforms for these companies to implement.

Some of the proposals have been incorporated, while others are at various stages of implementation, the official added.

Of the four government general insurance companies, only New India Assurance Company is listed; The remaining three are wholly owned by the government.

The government has already announced its intention to privatize a general insurance company. To facilitate privatization, Parliament has already approved amendments to the General Insurance Business (Nationalization) Act (GIBNA).

Finance Minister Nirmala Sitharaman had announced a large-scale privatization agenda in the 2021-22 budget, which included two public sector banks and a general insurance company.

“We propose to start privatizing two public sector banks and one general insurance company in 2021-22. This would require legislative changes,” she had said at the time.