The GoI will merge 3 public Sector Insurance Companies as announced in budget 2019-20. The merger includes United India Insurance Limited, National Insurance Co Limited and Oriental Insurance Company Limited.
Highlights
- The Budget 2019-2020 did not make provision of funds for insurers and the Department of Financial Services. Therefore, the government institutions in the financial sector are forced to seek supplementary demands to fulfil their purposes. The Budget allocated Rs 12,000 crore for this.
- The General Insurance Companies have sought Rs 500 crore to Rs 3000 crore each to avoid falling below solvency ratio. However, the three companies that are to be merged are struggling to maintain minimum solvency ratio of 1.5
Laws on solvency Ratio
According to the Guidelines of Insurance Regulatory and Development Authority of India, an insurance company has to compulsorily maintain a minimum solvency ratio of 1.5.
The solvency ratio is calculated by dividing company’s tax net operating income by its total debt obligation. The ratio indicates if the enterprise is able to meet its debt obligations. The lower the ratio, the greater is its probability to default its debt obligations.