Indian state-owned insurers may need capital infusion before merger

Regulator wants insurers to meet required capital levels before proceeding with transaction

Indian state-owned insurers may need capital infusion before merger

Insurance News

By Gabriel Olano

India’s insurance regulator says that three state-owned general insurers set to merge need additional capital of INR100 billion (US$1.47 billion) before the transaction can proceed.

According to a report by BloombergQuint, the Insurance Regulatory and Development Authority of India (IRDAI) has requested the government provide the capital infusion or allow the insurers to raise the needed capital from the market.

The three insurers, National Insurance Company Ltd, Oriental Insurance Company Ltd, and United India Insurance Ltd will result in the largest general insurer in India once merged, with almost a third of total market share. The resulting entity is set to be listed on the stock exchange after the merger.

IRDAI wants the three companies to have a larger solvency margin, acting as a risk buffer, equal to 1.5 times the value of their liabilities, the report said. Two of the insurers, United India Assurance and Oriental Insurance, lack the capital reserves needed to meet IRDAI’s requirements.

However, the solvency margin is not an accurate reflection of the insurers’ actual strength, according to R Chandrasekaran, secretary general of the General Insurance Council.

“These companies have large hidden reserves that are not reflected in their books as the solvency margin is estimated conservatively,” he said. “The insurers could utilise these reserves in extreme situations to meet policyholders’ liabilities.”



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