Don't stipulate solvency ratio for public sector general insurers: Finance Ministry

Chennai, July 4

The Union Finance Ministry has urged other ministries not to include solvency ratio criteria to government owned non-life insurers to participate in the tenders for general insurance needs.

In an Office Memorandum, the Department of Financial Services under the Ministry of Finance requested other Ministries not to include solvency ratio as a criterion for participation of public sector general insurers in tenders.

"This would enhance competition in the bidding process without compromising on the quality of services. It is also requested to bring this to the attention of all the procuring entities and organisations under the administrative jurisdiction of your Ministry/Department," the communication said.

According to the Department of Financial Services, three government owned non-life insurers - National Insurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd - do not have the stipulated solvency ratio of 1.5 of the liabilities.

Some central public sector companies and government departments include the required solvency ratio as an eligibility condition in their tenders.

Pointing out that the insurance sector regulator has allowed forbearance to the three companies from maintaining the solvency ratio and allowed them to underwrite business.

"It is pertinent to note that the reinsured liability is not factored into calculation of Solvency Ratio, specified by IRDAI (Insurance Regulatory and Development Authority of India), as a result of which solvency ratio of 1.5 is very high from a risk perspective," the Office Memorandum notes.

Further, the government owned non-life insurers have not defaulted ever on their liabilities. The Government of India has recently infused capital in the above-mentioned companies and stands committed to provide more capital, as may be required, the Department of Financial Services told other Ministries.