Sources said the FY23 financial numbers will give some idea about the impact of the restructuring initiated on the profitability numbers and solvency margin. (Representational image)
The finance ministry had last year asked three insurers — National Insurance Company, Oriental Insurance Company and United India Insurance Company — to chase the bottomline instead of the topline and underwrite only good proposals.
The finance ministry will decide on capital infusion of Rs 3,000 crore in the current financial year based on the financial performance of three loss-making public sector general insurance companies. According to sources, the finance ministry last year asked these three insurers — National Insurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company — to chase the bottomline instead of the topline and underwrite only good proposals.
Sources said the FY23 financial numbers will give some idea about the impact of the restructuring initiated on the profitability numbers and solvency margin.
Solvency margin is the excess capital that companies must hold over and above the claim amount they are likely to bear. It acts as a financial backup in extreme circumstances, helping the company to settle all claims.
It may be noted that the government had last year provided capital of Rs 5,000 crore to three insurance companies – National Insurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company.
Kolkata-based National Insurance Company Limited was given the highest amount of 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).
According to sources, these companies have been asked to improve their solvency ratio and meet the regulatory requirement of 150 per cent.
Solvency ratio is a measure of capital adequacy. A higher ratio reflects better financial health and a company’s ability to pay claims and meet future contingencies and business development plans.
Except for New India Assurance’s solvency ratio, this key indicator of three public sector general insurers remained below the regulatory requirement of 150 per cent in 2021-22.
For example, the solvency ratio of National Insurance Company Limited was 63 per cent, Oriental Insurance Company Limited was 15 per cent and United India Insurance Company was 51 per cent.
The government infused Rs 2,500 crore in these three companies during 2019-20. This increased to Rs 9,950 crore the next year and Rs 5,000 crore in 2021-22. Overall, the government has so far infused Rs 17,450 crore to improve the financial health of these insurance companies.
Public sector general insurance companies are undergoing various reforms, which include organizational restructuring, product rationalisation, cost rationalization and digitisation.
To drive efficient use of capital and drive profitable growth, sources said, a set of reforms linked to key performance indicators have been initiated by all public sector general insurance companies with effect from 2020-21, when maximum capital inflows are done Was.
Of the four state-run general insurance companies, only New India Assurance Company is listed on the stock exchanges, the remaining three are wholly owned by the government.
The government has already announced privatization of a general insurance company. To facilitate privatization, Parliament has already approved amendments to the General Insurance Business (Nationalisation) Act (GIBNA).
Finance Minister Nirmala Sitharaman announced a big-ticket privatization agenda in Budget 2021-22, involving two public sector banks and a general insurance company.
“We propose to privatize two public sector banks and one general insurance company in the year 2021-22. This would require legislative amendments,” she had said.
(This story has not been edited by News18 staff and is published from a syndicated news agency feed)
