News Non-Life22 May 2018

India:Regulator wants state owned general insurers to inject more funds before merger

22 May 2018

The insurance regulator wants three state-run insurers to inject funds of INR100 billion ($1.47 billion), to boost their capital to meet solvency and growth targets before the insurers merge, reports BloombergQuint.

The three general insurers are National Insurance, Oriental Insurance and United India Insurance, whose merger was announced by Finance Minister Arun Jaitley in the Budget for 2018-19.

According to an official present at a Finance Ministry meeting called to discuss the merger process, the IRDAI asked the government to either provide the additional funds or allow the insurers to raise Tier-II—supplementary—capital from the market.

The regulator wants the three companies to bring their solvency ratio up to the mandatory 1.5 times. The three will require at least INR18.95 billion to achieve this ratio, according to BloombergQuint’s calculations based on the insurers' disclosure to the regulator.

However, Mr R Chandrasekaran, secretary general of the General Insurance Council, said that the solvency margin, doesn’t reflect the actual strength of the insurers. “These companies have large hidden reserves that are not reflected in their books, and the solvency margin is estimated conservatively.”

The regulator currently values assets at their cost of acquisition to calculate the solvency margin of general insurers and doesn’t take into account the market value of the assets. “The insurers could utilise these reserves in extreme situations to meet policyholders’ liabilities,” said Mr Chandrasekaran.

But the three companies would also need growth capital as their exposure to the government’s crop and health insurance schemes would increase in the future, the official quoted above said.

The merger process is on track and is expected to be completed by 31 March 2019, said Mr MN Sarmam, chairman and managing director of United India Insurance. The combined entity, which will be largest Indian non-life insurer commanding nearly a third of the market, will be listed.


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