Oriental Insurance, National Insurance need Rs 1,000 crore as motor pool strains solvency

The government may have to invest 1,000 crore in two non-life insurance companies – Oriental Insurance and National Insurance – to make up for provisioning requirements towards third-party motor pool by March, said two people close to the development.Â
Of the four state-owned general insurance companies, Oriental and National may face solvency constraints. The concern is that they will fall below the required solvency ratio of 1.10% at the end of 2012 after paying towards the loss-making segment. Both insurers have to provide 500 crore to 700 crore each, depending on their market share.

“The government may have to infuse 1,000 crore in the two non-life insurance companies to protect the solvency margin requirements,” said one of the persons. At the end of September, the solvency ratio of Oriental Insurance was 1.49%, while that of National was 1.36%.

Contribution to the pool depends on the market share of each company. As third-party cover is mandatory by law, all companies write policies and the claims are settled through the common pool. State-owned insurance companies, including New India Assurance, United India, National and Oriental India, have over 50% market share. In the same way, promoters of private companies also have to put in capital according to their market share.

“We will not see any impact on solvency if it goes up by 180%. But a sharp increase of 213% is most likely to hit our balance sheet and solvency,” said a senior executive of National India Insurance who did not wish to be identified.

“Our solvency will remain above 2% after making provisions,” said AR Sekar, officiating chairman and managing director New India Assurance.