A perplexing tale of mismanagement and financial drain has been the Indian government’s association with several unprofitable and poorly-run public sector companies. State-run general insurance companies in India do not paint a different picture either. Adding to the pains, as per General Insurance Council, during FY23, nearly all state-run general insurance companies suffered a loss of market share and intense competition from private sector players.
It is interesting to know that for this fiscal year, the GOI and finance ministry are planning an ~Rs. 3000 crore capital infusion in three loss-making public sector general insurance companies – Oriental Insurance Company Limited, National Insurance Company Limited, and United India Insurance Company.
Reason? To improve their financial health. National Insurance Company Limited is set to get the highest infusion at Rs. 3,700 crore, followed by Oriental Insurance Company Limited and United India Insurance Company at Rs. 1,200 crore and Rs. 100 crore, respectively. It is to be noted that during 2019-20, the GOI infused Rs. 2,500 crore in these same companies, substantially increasing it to Rs. 9,950 crore the next year and Rs. 5,000 crore in 2021-22.
All 3 companies have been asked to improve their solvency ratio and chart a profitable growth path, as further infusion would depend on these factors. What is a solvency ratio, you ask? In layman’s terms, the solvency ratio depicts the enterprise’s capability from cash flow to meet long-term debt. The higher the ratio, the better the estimate of the company’s health and its ability to meet future contingencies.
The solvency ratio of National Insurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company in Q3FY22 stood at 0.01, 0.15 and 0.72, respectively, dangerously lower than the IRDAI regulatory requirement of 1.5.
Note that Budget 2018-19 announced no capital infusion in state-run general insurance companies. In fact, former finance minister Mr. Arun Jaitley had instead proposed a merger of these three companies into a single entity. Current finance minister, Mrs. Nirmala Sitharaman, in her Budget for 2021-22, proposed the privatisation of two public sector banks and one general insurance company, which is yet to be actioned.
This announcement of capital infusion aligns with the government emphasising PSU insurance companies to take tougher calls on their financial management strategies and compete with private sector players.
However, this may not be a simple task for these general insurance companies. The Covid-19 pandemic has had a lasting impact on these insurance companies as they raced to settle record claims. Some industry analysts also pointed out that the alarming solvency rates are a direct result of the pandemic, which slowed the sector’s growth. Many believe low government funding also as a contributing factor.
Here’s a stat reflecting well on the losses registered by these 3 insurance companies – The combined losses of United India, Oriental Insurance and National Insurance Company were recorded at Rs. 3,074.66 in FY21, which nearly doubled to Rs. 7,000 crores in FY22!
So, do you think the finance ministry’s strategy to revive these loss-making general insurance companies can bring in returns? Are loss-making public sector companies becoming a burden on the government and taxpayers?
Do share your thoughts with us! Stay tuned for more industry-related information and the latest industry news!
