हिंदी साहित्य: पेन ड्राइव कोर्स
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Indian Economy

Capital Infusion for the Insurance Companies

  • 10 Jul 2020
  • 3 min read

Why in News

Recently, the Union Cabinet has approved the capital infusion of Rs.12,450 crore in the three Public Sector General Insurance Companies (PSGICs) namely Oriental Insurance Company Limited (OlCL), National Insurance Company Limited (NICL) and United India Insurance Company Limited (UIICL).

Key Points

  • Capital Infusion:
    • The capital infusion of Rs. 3,475 Crore will be allocated to three PSGICs as the first tranche in the current financial year and the balance amount will be released in one or more tranches.
    • To give effect to the infusion, the authorised capital of NICL has been increased to Rs. 7,500 Crore and that of UIICL and OlCL to Rs. 5,000 Crore respectively.
  • Impact:
    • The capital infusion will enable the three PSGICs to improve their financial and solvency position.
    • It will also help to meet the insurance needs of the economy and enhance the capacity to raise resources and improve risk management.
  • Background:
    • The government has dropped the process of merger, which was proposed, in the 2018-19 Budget, of these three PSGICs in view of the economic crisis created due to Covid-19 pandemic.
      • Instead, it has decided to focus on the profitable growth of these three PSGICs.
      • The aim of the merger was to augment capital by listing the merged entity on stock exchanges, which would have brought down government equity (share).
    • The firms were also not in good shape.
      • As of the third quarter of 2019-20, NICL had a solvency ratio of 1.01, against the regulatory requirement of 1.5.
        • The solvency ratio examines a company's ability to meet its long-term obligations.
      • Its combined ratio stood at 173%. If the ratio is below 100%, it indicates that the firm is making underwriting profits.
        • The combined ratio is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations.
        • Underwriting profit consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted.
      • OICL had a solvency ratio of 1.54 and reported a combined ratio of 132%.
      • UIICL had a solvency ratio of 0.94, much below the regulatory requirement, with combined ratio at 127.62%.

Note:

Source: PIB

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