India eyes turnaround plan for public insurers

The upcoming Ind AS 117 is expected to recalibrate solvency ratios.

India’s government may introduce a new turnaround plan for public sector non-life insurance companies after evaluating their capital requirements, according to sources, reported CNBC-TV18.

Options such as fundraising or capital infusion are being considered, but further fiscal support will likely depend on the companies showing profitability. 

Between fiscal year 2020 and 2022 (FY 2020 to FY 2022), the government injected approximately ₹17,500 crore into United India, National Insurance, and Oriental Insurance after dropping a proposal to merge these three loss-making entities.

Sources suggest that reviving the merger plan, initially proposed by former Finance Minister Arun Jaitley in the FY 2018 budget, is under consideration. 

The original plan involved merging United India, National Insurance, and Oriental Insurance with the profitable and listed New India Assurance. 

However, analysts caution that merging unlisted, struggling companies with a profitable, standalone entity like New India could be a complex move.

Whilst solvency ratios remain a key measure of an insurer's financial health, high claims ratios and persistent losses are concerns for public sector non-life insurers.

The government has instructed these companies to scale back motor and health insurance offerings to reduce losses.

In the first quarter of the current fiscal year, United India Insurance reported a loss of ₹556 crore, with a solvency margin ratio of -0.73. National Insurance recorded a loss of ₹293 crore, with a solvency ratio of 0.46, which improved to 1.42 due to the Insurance Regulatory and Development Authority (IRDAI) forbearance. Oriental Insurance posted a profit of ₹91 crore, but its solvency margin ratio stood at -1.03, improving to 0.78 with regulatory forbearance.

Sources estimate that if the three non-life insurers were required to fully meet IRDAI’s solvency benchmarks, they would need around ₹20,000 crore to ₹25,000 crore in capital support. 

The upcoming implementation of Ind AS 117 accounting standards for the insurance industry is expected to recalibrate solvency ratios, potentially providing some relief for the non-life public sector insurers. A roadmap from the insurance regulator on this issue is still awaited.