The Finance Ministry will make a decision on Rs 3,000 crore capital infusion into three state-run general insurance companies based on their financial performance this fiscal year. These companies have been asked to chase the bottom line instead of the top line and to underwrite only good proposals. In the fiscal year 2021-22, the government provided Rs 5,000 crore to three insurers, National Insurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company. The ministry expects these companies to improve their solvency ratio and to meet the regulatory requirement of 150 percent.
Financial Performance and Solvency Margin
The FY23 financial numbers will give an idea about the impact of the restructuring initiated on the profitability numbers and the solvency margin, according to sources. The solvency margin pertains to the additional capital that companies need to maintain beyond the anticipated claim amounts they might encounter. It serves as a financial safety net in dire circumstances, providing the company with the means to resolve all claims. The solvency ratio is an indicator of the company’s capital adequacy. A higher ratio indicates a more favorable financial condition, demonstrating the company’s capacity to satisfy claims and address future unforeseen situations and business expansion initiatives.
Government Investments and Reforms
The government invested Rs 2,500 crore in these three businesses during 2019-20. The next year in 2020-22, it significantly rose to Rs 9,950 crore, and by 2021-22, it reached Rs 5,000 crore. The solvency ratio of National Insurance Company Limited was 63 percent, Oriental Insurance Company Limited 15 percent, and United India Insurance Company 51 percent, barring New India Assurance. Of the four state-run general insurance companies, only New India Assurance Company is listed on the stock exchanges, while the remaining three are wholly-owned by the government.
Reforms are being implemented by public sector general insurance companies, including organizational restructuring, product rationalization, cost rationalization, and digitization. All public sector general insurance companies have started a set of key performance indicators linked to changes as of 2020-21, when the maximum capital infusion was made, to ensure efficient capital usage and to promote profitable growth.
The government expects to make a decision on capital infusion based on the financial performance of these companies this fiscal year. The companies must improve their solvency ratio and meet the regulatory requirement of 150 percent. The government invested Rs 5,000 crore in the previous fiscal year and will decide whether further capital infusion is required to help these companies maintain their financial stability and continue their operations.
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