Govt may infuse ₹5,000 cr in state-run general insurers

The government may infuse about ₹5,000 crore equity into state-run general insurers to help them achieve solvency requirements as they meet an inflated wage bill, said two executives aware of the matter. The employee wage revision approved earlier this month, along with five-year arrears payments, are expected to cost the four general insurers an additional ₹8,000 crore.

This planned equity support is over and above the ₹5,000 crore already infused this year in National Insurance (₹3,700 crore), Oriental Insurance (₹ 1,200 crore) and United India Insurance (₹100 crore).

“A fresh assessment may be done by the end of the December quarter and, accordingly, a capital allocation may be made,” said an executive aware of the deliberations.

As per Insurance Regulatory and Development Authority of India (Irdai) regulations, all insurance companies have to meet a required solvency margin-the excess of the value of assets over the amount of liabilities. The Irdai has set this requirement as a solvency ratio, currently at 1.5 for general insurers. United India had a solvency ratio of 0.43 in June, while that of National Insurance was a little higher at 0.63 at the end of March.

Out of the four state-run general insurers, only New India Assurance is profitable. The remaining three – Oriental Insurance, National Insurance, and United India – are loss-making.


‘Restructuring Underway’

“A restructuring exercise is already being worked out for the general insurers. Once that is implemented, we will have a better assessment of the individual requirements of each insurer,” said another executive aware of the matter.

In a gazette notification issued on October 14, the finance ministry notified wage revisions for officers and employees of the four public sector general insurance companies effective August 2017. They will get five-year salary arrears. The next revision due from August 2022 will be in the form of variable pay based on the performance of the company and the employee, the government said while announcing the wage increase. The insurers have picked consulting firm EY to advise them on organisational restructuring and performance management.

This comes as the government is moving ahead with its plans to privatise a general insurer. The Centre has already notified the General Insurance Business (Nationalisation) Amendment Act, which will allow the government to cut its stake in state-owned general insurers to below 51%. The government is yet to decide on the general insurer that will be divested. The Niti Aayog is said to have recommended United India to the core group of secretaries on disinvestment headed by the cabinet secretary.

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