The three public sector general insurers, excluding New India Assurance, may require a capital infusion of Rs 15,200-17,000 crore by March 2026 to meet the regulatory solvency ratio of 1.50x, given their weak profitability, according to Icra.
The solvency ratio measures an insurer’s ability to meet its long-term obligations and is a key regulatory benchmark for financial health.
The estimated capital requirement assumes 100% forbearance on the fair value change account (FVCA). “Excluding FVCA, the capital requirement would be higher at ₹33,200–34,000 crore,” Neha Parikh, vice-president and sector head – financial sector ratings, Icra, said in a recent report.
According to the rating agency, the solvency ratio of the three PSU insurers — United India Insurance, The Oriental Insurance and National Insurance Company — remains weak at negative 0.85 (excluding FVCA on investments) as of December 2024, compared to the regulatory minimum of 1.50x. This gap has resulted in a sizeable capital requirement. In contrast, private insurers remain comfortably capitalised to support strong growth.
The PSU insurers posted an improvement in profitability in the first nine months of FY25, driven by higher realised gains on equity investments, partly supported by an improvement in their combined ratio.
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The combined ratio, a measure of underwriting performance, is the sum of incurred losses and expenses divided by earned premiums. A ratio above 100% indicates an underwriting loss.
Icra expects the combined ratio for PSU insurers to remain weak, despite some improvement, at 120.4% in FY26 (compared with an estimated 121.3% in FY25). With continued weak underwriting performance, the extent of realised gains on investments will remain the primary driver of profitability. For private insurers, the combined ratio is projected to improve to 110% in FY26 from an estimated 111% in FY25.
The agency noted that the combined ratio for private insurers worsened in FY25 due to a higher loss ratio for some players in the motor segment and an increase in the expense ratio, driven by the 1/n regulations for long-term policies. Despite this, private insurers saw improved profitability compared to the previous year, largely due to high realised gains on equity investments.
Icra expects the general insurance industry’s gross direct premium income (GDPI) to grow by 8.7% to Rs 3.21-3.24 lakh crore in FY26, up from ₹2.97 trillion in FY25. Industry GDPI is projected to rise by 10.9% to Rs 3.53-3.61 lakh crore in FY27.
“GDPI growth is expected to improve in FY26, supported by pricing discipline in commercial lines and low base, continued growth in health, and an increase in vehicle sales compared to FY25, partly offset by the impact of 1/n, which is expected to continue in H1 FY26,” Parikh said.
Source: The Financial Express
