The government is exploring the possibility of a new turnaround strategy for three public sector non-life insurance companies after evaluating their capital needs, according to sources. United India Insurance, National Insurance, and Oriental Insurance could see capital infusion or other fundraising measures, but any further fiscal support will be conditional on these companies demonstrating profitability.
In the past, the government injected approximately ₹17,500 crore into these insurers between FY20 and FY22, following the abandonment of a plan to merge the loss-making entities. Despite this, these companies continue to face challenges, particularly concerning their solvency ratios and profitability.
Key Challenges Faced by Insurers
A crucial concern for the insurers is their solvency ratio, which reflects their financial health. Persistent high claims ratios and ongoing losses continue to hinder these firms’ ability to stabilize their operations. To mitigate these issues, the government has already instructed these insurers to scale back their motor and health insurance businesses, sectors that have contributed significantly to their losses.
In the first quarter of the current financial year, the financial performances of the insurers remained under scrutiny:
- United India Insurance posted a loss of ₹556 crore with a solvency margin of -0.73.
- National Insurance reported a loss of ₹293 crore, with a solvency margin ratio of 0.46, which improved to 1.42 with forbearance from the Insurance Regulatory and Development Authority of India (IRDAI).
- Oriental Insurance, despite recording a profit of ₹91 crore, had a negative solvency margin ratio of -1.03, which improved to 0.78 after receiving 100% forbearance from IRDAI.
Estimated Capital Needs and Regulatory Changes
Sources estimate that in order to fully meet IRDAI’s solvency benchmarks, these non-life public sector undertakings (PSUs) may require between ₹20,000 crore and ₹25,000 crore in capital support. Additionally, the impending implementation of the new accounting standard, Ind AS 117, could lead to adjustments in the solvency margin calculations, potentially offering some relief to these struggling insurers. However, the insurance sector is still awaiting IRDAI’s roadmap on this matter.
The turnaround plan being considered by the government aims to address these capital needs while ensuring that the companies operate profitably, thus reducing the need for further government intervention in the future.
