Government to promote public sector insurance companies in FY 2015 – Gudstory

He told Mint that a token capital infusion could be provided ahead of the budget on February 1.

The capital infusion will help improve the financial health of state-backed general insurance companies, said one of the persons cited above.

The recapitalization will also help improve their solvency ratio, a key parameter that indicates the financial buffer to settle all claims in extreme situations, the person said.

The four state-backed general insurance companies are National Insurance Company Limited, Oriental Insurance Company Limited, United India Insurance Company and New India Assurance.

Three out of four companies had negative solvency ratios at the end of March quarter of FY23. An insurance company’s ratios compare the capital it has with the risks it takes.

According to the Insurance Regulatory and Development Authority of India (IRDAI), insurance companies have to maintain a minimum solvency ratio of 1.5 to mitigate risk.

National Insurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company had solvency ratios of -0.29, -0.69 and -0.29 respectively at the end of Q4FY23.

Solvency ratio of New India Assurance during the above period stood at 1.87.

However, despite incurring massive losses in FY2013, some state-owned general insurance companies have reported profits in recent quarters.

During Q2FY24, United India Insurance Company Limited declared profit While National Insurance Company Limited earned a profit of Rs 204.30 crore. Loss of Rs 44.82 crore in the first half of the current financial year It was Rs 1,768.46 crore in the year-ago period.

Oriental Insurance Company Limited narrows its loss in the first half Net loss of Rs 42.17 crore 3,586.93 crore during the first half of FY23.

However, New India Assurance Company Limited reported a loss Profit of Rs 199.99 crore in the second quarter of FY24 ₹260.23 crore posted during Q2FY23. The government had planned to infuse capital at the beginning of this financial year 4,000 crores- 5,000 crore in state-owned general insurance companies. But this could not happen and the government can now recapitalize these companies in the next financial year.

In her Budget 2021 speech, Finance Minister Nirmala Sitharaman announced strategic disinvestment plans for two banks and an insurance company. But the process has still not progressed. Although the name of the insurer has not been decided yet, government think tank NITI Aayog has recommended privatization of United India Insurance.

It will now be easier for the government to privatize an insurer as Parliament has amended the General Insurance Business Nationalization Act, allowing it to reduce its stake in a general insurer to below 51%.

The Center was earlier working on a proposal to merge public sector insurance companies. The plan was to merge National Insurance Company, United India Insurance Company and Oriental India Insurance into a single entity and list them on the exchanges.

The person cited above said the finance ministry may consider the merger and listing proposal and take a decision in fiscal 2025.

A Finance Ministry spokesperson did not respond to an emailed query.

India’s general insurance market comprises 27 companies, including the four major PSU units mentioned above, 23 private players and six stand-alone health insurers.

Mint reported in January 2023 that public sector insurance companies had appointed EY to suggest restructuring of their operations to drive profits and employee growth through performance and capacity management.

“Merger of state-backed general insurance companies could be a better option (than disinvestment),” said NR Bhanumurthy, vice-chancellor of Dr BR Ambedkar School of Economics University, Bengaluru.

“These companies will have to modify their business models to be able to sustain themselves. The support from the government in the form of recapitalization and providing long-term planning will go a long way.”