Govt puts Oriental Insurance's solvency ratio at a dismal 0.69

The government has put the solvency ratio of state-owned Oriental Insurance Company at a far worse number of 0.69 for the year ended March 31, 2021, than what analysts had reckoned with at 0.92, according to filings made with the National Stock Exchange (NSE).
 

The number was flagged in a recapitalisation advice, sent by the department of financial services in the finance ministry to the company this week.

The progressive improvement calendar laid out for the company, with the recapitalisation plans, shows it will still be short of industry benchmarks for upto four years, effectively ending any discussion on listing its shares for the foreseeable future.

The ministry has issued a cheque of Rs 1,200 crore to the company on March 28, to shore up capital.

The solvency ratio of an insurance company measures the size of its capital against the policies it has written, in other words, the risks it has covered.

A lower ratio than 1.5, stipulated by the regulator — the Insurance Regulatory and Development Authority of India (IRDAI) — is a cause for alarm.

By that token, Oriental Insurance, which is in the business of general insurance, is in serious trouble. Its other state-owned peers, National Insurance and United India are also in similar straits.  

Only the largest of them, New India Assurancew, is in a healthy shape. The company, which is the largest general insurer in the country, is also listed.

The finance ministry expects the New Delhi-headquartered Oriental Insurance to improve its solvency ratio to 0.86 by the end of FY23 and from there to 1.21 by the end of FY26.

The company is expected to become profitable in FY26, provided its claims ratio imp­roves, and expense ratio dips.

The government has agreed to recapitalise the three insurance companies but had simultaneously made plans to either merge or individually list at least one of them.