The Indian government plans to restart the process of privatizing a state-run general insurer in the next financial year. This decision comes after Parliament passed a bill allowing for 100% foreign direct investment (FDI) in the insurance sector. The government aims to attract more private players and achieve better valuations for the insurer. Currently, only one of the four public sector general insurers, New India Assurance, is profitable, while the other three – National Insurance, United India Insurance, and Oriental Insurance – are struggling with losses.
The government will conduct a performance review of the four state-run insurance firms after the December quarter results and hold further intergovernmental discussions. There is a possibility of capital infusion in the loss-making insurers, and the government will assess which firms have the potential to turn around on their own. The privatization process is expected to be more attractive to private players due to the increased FDI limit and the improved regulatory framework.
The financial health of the loss-making insurers is a concern, with Oriental Insurance reporting losses of around ₹8,293 crore and a solvency margin ratio of -1.01. United India Insurance Company has made a turnaround, posting a net profit of ₹154 crore, but still has losses of ₹3,297 crore. National Insurance reported a loss of ₹284 crore for the September quarter, with a solvency ratio of -0.75. The Insurance Regulatory and Development Authority of India (IRDAI) requires insurance companies to maintain a surplus of 1.5 times their liabilities at all times.
The government’s plan to privatize a state-run general insurer is part of its broader strategy to reduce its stake in public sector enterprises. In 2021, Finance Minister Nirmala Sitharaman announced the government’s intention to privatize two public sector banks and one general insurance company. The General Insurance Business (Nationalisation) Amendment Act, notified in August 2021, paved the way for reducing the government’s stake in state-owned general insurers to below 51%. The government hopes that the increased FDI limit and improved regulatory framework will attract more private players and lead to better valuations for the insurer.