Fundraising or capital infusion into the companies could be options, but further fiscal support from the government will be linked to the companies showing profits. The government had previously infused close to ₹17,500 crore into United India, National, and Oriental Insurance during FY20-FY22, after a proposal to merge the three loss-making entities was dropped by the Cabinet.
However, sources indicate the government may consider reviving this plan which was first proposed by former Finance Minister Arun Jaitly in his FY18 budget. The then budget had proposed merging United India, National Insurance & Oriental Insurance with New India Assurance. Sources indicate , “ All options are on the table “. However analysts say it could be a tricky proposition to merge ailing, unlisted companies with a standalone , profitable and listed non life player like New India .
Sources also indicate that while the solvency ratio is a critical metric to assess the health of an insurer, consistently high claims ratios, coupled with losses or low profitability, remain ongoing concerns that need to be addressed by the general insurance companies.
It’s worth noting that the government has already instructed the insurers to scale back motor and health insurance businesses to reduce losses.
In the first quarter of the current financial year, United India Insurance reported a loss of ₹556 crore, with a solvency margin ratio of -0.73. National Insurance reported a loss of ₹293 crore, with a solvency ratio of 0.46. However, with an IRDAI forbearance, the solvency margin ratio improves to 1.42 for National.
Oriental Insurance, on the other hand, recorded a profit of ₹91 crore but had a solvency margin ratio of -1.03, which improves to 0.78 with the company seeking 100% forbearance from the insurance regulator.
Sources suggest that if all three non-life PSUs are required to fully comply with IRDA’s regulatory benchmarks, they may need an estimated ₹20,000 crore-₹25,000 crore in capital support. Meanwhile, the expected rollout of the new accounting standards, Ind AS 117, for the insurance industry is likely to lead to some recalibration of solvency margin ratios, which could provide relief for the non-life PSUs. The insurance regulator’s roadmap on this is still awaited.
(Edited by : Sheersh Kapoor)
First Published: Sept 23, 2024 9:23 PM IST