Finance Ministry to Consider Capital Infusion in Three Public Sector General Insurance Companies
New Delhi – The Finance Ministry is reportedly considering capital infusion in three loss-making public sector general insurance companies based on their financial performance in the nine months leading up to the current financial year. Sources suggest that the infusion, if required, will take place in the fourth quarter.
Last year, the finance ministry instructed National Insurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company to prioritize bottomlines and underwrite only good proposals. The purpose of the financial review is to assess the impact of restructuring on profitability and solvency margins.
Solvency margin refers to the additional capital that insurance companies must maintain over their anticipated claim amounts. It acts as a financial backup in extreme situations and ensures that the company can settle all claims.
In the previous year, the government infused Rs 5,000 crore into these three insurers, with Kolkata-based National Insurance Company Limited receiving the highest amount (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). The companies have been directed to improve their solvency ratio and meet the regulatory requirement of 150 percent.
Solvency ratio is a measure of capital adequacy, with a higher ratio indicating better financial health and the ability to pay claims and handle future contingencies and business growth plans. Except for New India Assurance, the solvency ratios of the three public sector general insurance companies have fallen below the regulatory requirement.
During the past few years, the government has infused a total of Rs 17,450 crore into these insurance firms to enhance their financial health. They are currently undergoing various reforms, including organisational restructuring, product rationalisation, cost rationalisation, and digitalisation.
To ensure efficient use of capital and promote profitable growth, key performance indicators linked to reforms have been implemented by all public sector general insurance companies since 2020-21, when the largest capital infusion took place.
Among the four state-run general insurance companies, only New India Assurance Company is listed on the stock exchanges, while the remaining three are fully owned by the government. The government has expressed its intention to privatise one of the general insurance companies and has already obtained parliamentary approval for amendments to the General Insurance Business (Nationalisation) Act (GIBNA).
In the Budget 2021-22, Finance Minister Nirmala Sitharaman announced a major privatisation agenda, which includes the privatization of two public sector banks and one general insurance company. She stated, “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.”
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