Indian rupee banknotes of various denominations sit in a cash register at at the checkout counter of a hypermarket in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Capital Needed By Three State-Run Insurers To Meet Risk Buffer Higher Than Expected

Capital required by three state-run insurers to meet their solvency margins before going ahead with merger is higher than what was expected earlier.

National Insurance Company Ltd., United India Assurance Ltd. and Oriental Insurance Company Ltd. will together need Rs 10,926 crore just to meet their solvency requirements, according to a document with the Insurance Regulatory and Development Authority of India’s calculations. BloombergQuint has reviewed the document. It’s higher than what was reported earlier because the regulator has included forbearance for motor third party liability and the reduction in fair value of their investments.

The insurers have under-reserved for their motor-third party liability, chief actuary at a general insurance company told BloombergQuint on condition of anonymity. The calculations of the IRDAI have taken into account the shortfall in reserves that these insurers have created for their motor third party liability. This has been mentioned as ‘deferred’ liability which will now have to be provided for before these companies merge, the person said.

The government had announced the merger and subsequent listing of the combined entity as part of its Rs 80,000-crore divestment plan for 2018-19. It will create India’s largest general insurer with a market share of 35 percent.

BloombergQuint’s emailed queries to the three companies remained unanswered.

The regulator wants the insurers to maintain their solvency margin to the mandatory minimum of 1.5 times their liabilities, BloombergQuint reported earlier. It has asked either the Finance Minister to infuse capital or let the companies raise tier-2 supplementary capital from the market, an official present at a meeting called by the ministry to discuss the merger process had told BloombergQuint requesting anonymity.

BloombergQuint earlier reported, citing the official present at the meeting called by finance ministry, that the regulator had asked the ministry and insurers to infuse more than Rs 10,000 crore. Going by disclosures made to the regulator, the three insurers as of December needed nearly Rs 2,000 crore to meet the solvency margins. The rest was expected to be growth capital.

The Rs 10,926 crore amount is just to meet solvency margin, the official quoted above said. Growth capital requirement will be over and above that, he said.