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Govt Warned About National Insurance Company’s Deteriorating Financial Health

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.

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Updated:July 23, 2019, 12:58 PM IST
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Govt Warned About National Insurance Company’s Deteriorating Financial Health
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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.

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.

“IRDAI 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,” a government official aware of the matter told Economic 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 government will need to infuse around Rs 3,000 crore in the firm to keep it afloat for the next two quarters,” the official quoted earlier said. 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, another official told Economic Times. “We expect the government to proceed with merger announcement in this quarter itself,” he said.

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