The Union Cabinet recently approved the capital injection of Rs.12,450 crore in three Public Sector General Insurance Companies (PSGICs). These companies are Oriental Insurance Company Limited (OlCL), National Insurance Company Limited (NICL), and United India Insurance Company Limited (UIICL). The primary regulatory body for insurance in India, the Insurance Regulatory and Development Authority of India (IRDAI), oversees their operations.
Capital Infusion Details
The government plans to distribute a capital infusion of Rs. 3,475 Crore among these PSGICs as the first lot in the current financial year. The remaining balance will be released in one or multiple phases as required. As part of this process, NICL’s authorised capital has been boosted to Rs. 7,500 Crore, whereas UIICL and OlCL now have an authorised capital of Rs. 5,000 Crore each.
Expected Impact of Capital Infusion
This inflow of capital is projected to ameliorate the financial standing and solvency position of the three PSGICs. Furthermore, it would bolster their capacity to meet the country’s insurance needs, enhance their capability to generate resources, and improve risk management.
Government’s Shift Away from Merging PSGICs
Originally intending to merge these three PSGICs, as proposed in the 2018-19 Budget, the government has suspended this process due to the economic turmoil caused by the Covid-19 pandemic. Instead, it has decided to concentrate on fostering the profitable growth of these individual entities. The aim of the merger was to bolster capital by listing the amalgamated entity on stock exchanges, which would have reduced government equity. However, these firms were not in a sound financial condition.
Company Health Before Infusion
By the end of Q3 in 2019-20, NICL’s solvency ratio was 1.01, short of the regulatory requirement of 1.5. The solvency ratio assesses a company’s capability to honour its long-term liabilities. The company’s combined ratio was at a high 173%. A score below 100% would indicate that the company is making underwriting profits. OlCL reported a healthier solvency ratio of 1.54 and a combined ratio of 132%, while UIICL lagged with a solvency ratio of 0.94, far below the regulatory requirement, and a combined ratio of 127.62%.
About Public Sector Insurance Companies
Public Sector Insurance Companies operate under the Department of Financial Service, Ministry of Finance. Among them, the Life Insurance Corporation of India (LIC) is the largest insurance company in India, setting the standard for public sector insurance operations.
Source: PIB
