India’s insurance regulator has alerted the government about the deteriorating financial condition of state-run general insurer National Insurance Co. Ltd, according to a report in the Economic Times.

The Insurance Regulatory and Development Authority of India (IRDAI) has written a letter to the finance ministry highlighting the fact that National Insurance Company’s solvency ratio has gone below 1%. In India, insurers are required to maintain a minimum solvency ratio of 1.50. Insurance players whose solvency ratios are dangerously close to this minimum level are closely watched by IRDAI.

What is the solvency Ratio:

The solvency ratio of an insurance company is the size of its capital relative to all risks it has taken. In laymen language, solvency ratio helps identify whether the insurer has enough buffer to settle all claims in extreme situations. Hence, the higher the solvency ratio, the greater the chances of claims getting paid which means that the company has good financial health.

“Insurance Regulatory authority has flagged this issue repeatedly with the government as the company’s solvency ratio has gone below 1%, as against the regulatory requirement that all insurance companies maintain a surplus of 1.5 times the liabilities at all times,” .

National Insurance Company’s condition hasn’t improved despite the special dispensation provided by IRDAI earlier to meet the mandatory solvency ratio at the end of March 2018. The premium income of the insurer is declining continuously & even in the first quarter of the current year, the decline is -12% which is the worst rate among the four public sector companies.

The claim ratio is also moving on the higher side. In order to control the ICR, the company is implementing the in-house survey of the reported losses at various locations. The instruction to employ various other measures to control the claim outgo have been issued to all its offices throughout India.

It is said that the government will need to infuse around Rs 3,000 crore in the firm to keep it afloat for the next two quarters. He added that the finance ministry also needs to fast-track the proposal for merger of the three state-run general insurers.

In Union Budget 2018, the government had announced merger of Oriental Insurance Company, National Insurance Company and United India Insurance Company into one entity, keeping New India Assurance Company separate.

The government has appointed consultancy firm EY for the merger of the three general insurers and initial estimates are that around Rs 10,000-12,000 crore capital support will be required to keep the combined entity afloat and meet all regulatory norms, but there was no provision was kept for the same in budget 2109.

 

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