The Indian government is contemplating a turnaround strategy for public sector non-life insurance companies as it assesses their capital needs, sources tell CNBC-TV18. Potential measures being explored include fundraising and capital infusions, although any additional fiscal support is likely contingent upon these companies demonstrating profitability.
From fiscal year 2020 to 2022, the government allocated approximately ₹17,500 crore to United India, National Insurance, and Oriental Insurance after shelving a merger proposal aimed at consolidating these struggling entities.
Reviving the merger plan, initially suggested by former Finance Minister Arun Jaitley in the FY 2018 budget, is reportedly under consideration. The original proposal sought to merge the three underperforming firms with the profitable, publicly listed New India Assurance. However, analysts warn that integrating unlisted, loss-making companies with a successful standalone entity could present significant challenges.
Solvency ratios, a crucial indicator of an insurer’s financial stability, remain concerning for public sector non-life insurers, especially given high claims ratios and ongoing losses. The government has directed these companies to limit their motor and health insurance offerings in a bid to mitigate losses.
In the first quarter of the current fiscal year, United India Insurance recorded a loss of ₹556 crore, resulting in a solvency margin ratio of -0.73. National Insurance posted a loss of ₹293 crore, with an initial solvency ratio of 0.46, which later improved to 1.42 due to forbearance from the Insurance Regulatory and Development Authority of India (IRDAI). Oriental Insurance, while reporting a profit of ₹91 crore, had a solvency margin ratio of -1.03, which improved to 0.78 under similar regulatory leniency.
Experts estimate that if the three non-life insurers were to meet IRDAI’s solvency benchmarks fully, they would require capital support ranging from ₹20,000 crore to ₹25,000 crore.
The forthcoming implementation of the Ind AS 117 accounting standards is anticipated to recalibrate solvency ratios, potentially offering some relief to the struggling public sector insurers. A detailed roadmap from the insurance regulator regarding this change is still awaited.
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