PSU Insurers In Focus On Reports Of Government's Rs 5,000-Crore Capital Infusion Plans

Shares of United India Insurance Co., National Insurance Co. and Oriental Insurance Co. are in focus on Wednesday after the Centre was reported to be considering a fresh capital infusion of up to Rs 5,000 crore into the three loss-making and financially weak public sector general insurers, Mint reported.

The move comes after a brief earnings turnaround last year failed to translate into sustained balance-sheet repair.

According to people cited in the report, the proposal could be routed either through a second supplementary demand for grants in the current fiscal or through the Union Budget for FY27. The plan revives an earlier proposal that had been deferred in the past two budgets after the insurers posted short-lived quarterly profits.

The proposed capital support is aimed at stabilising balance sheets, restoring solvency margins and preparing the insurers for long-delayed consolidation or potential divestment. The government wants the entities to be adequately capitalised before executing structural reforms such as mergers, listing or privatisation, one of the people said.

Another person said the size and timing of the infusion will depend on a reassessment of financial performance for the nine months ending December 2025. One option under consideration is limited support this year via supplementary grants, followed by a larger infusion in the Union Budget for FY27.

The reassessment reflects concerns that temporary profitability in FY25 did little to address deeper structural weaknesses. Despite profits in select quarters, solvency margins remain deeply negative and well below the Insurance Regulatory and Development Authority of India’s (Irdai) mandated minimum of 1.5 times. Without fresh capital, deteriorating financial parameters could threaten business continuity and complicate any merger, listing or privatisation roadmap.

Queries sent to the finance ministry and the department of financial services remained unanswered at press time.

Solvency crunch

All three insurers continue to operate under regulatory forbearance, with solvency ratios far below Irdai’s threshold. At the end of FY25, NIC reported a solvency ratio of –0.67, UIIC –0.65 and OIC –1.03.

United India Insurance reported profits in Q3 and Q4 of FY25 and posted a full-year profit of Rs 154 crore, but still closed the year with a solvency ratio of –0.65. National Insurance turned profitable from Q2FY25 but slipped back into losses in FY26, reporting a Rs 483 crore loss in FY25 and a Rs 288 crore loss in Q2FY26, with solvency worsening to –0.75. Oriental Insurance posted profits in some quarters last year and closed FY25 with a Rs 144 crore profit despite a Rs 224 crore loss in Q4, ending the year with a solvency ratio of –1.03. It reported a Rs 73 crore loss in Q1FY26 and a marginal Rs 87 crore profit in Q2FY26.

In contrast, New India Assurance, the only listed and financially healthier PSU general insurer, reported a solvency ratio of 1.87 times in June 2025 and 1.91 times at the end of FY25. It posted a Rs 988 crore profit in FY25, an 80% jump in Q1FY26 profit to Rs 391 crore, and a Rs 63 crore profit in Q2FY26.

Even with regulatory forbearance allowing partial recognition of unrealised investment gains, National Insurance’s adjusted solvency ratio stood at 1.09 times as of December 2024, still below the mandated level.

The proposed capital infusion is intended to turn solvency ratios positive and ensure business continuity while structural decisions are finalised. The government had earlier infused Rs 12,450 crore into these insurers in FY21 and another Rs 5,000 crore in FY22.

Capital debate

Experts say capital support is unavoidable in the near term given government ownership.

“Do these companies require capital support from the government to improve solvency margins and turn profitable? Yes,” said C R Vijayan, former secretary general of the General Insurance Council. He added that operational strengthening must accompany capital infusion, including manpower augmentation, listing and potential mergers to achieve scale.

Others warn against repeated bailouts without deep reform. Narendra Ganpule, partner at Grant Thornton Bharat, said capital support helps meet solvency norms and ensures market stability, but also risks moral hazard and inefficiency if not paired with structural change. He cautioned that merging multiple underperforming entities could create a larger underperformer if integration challenges are not addressed.

Reform roadmap

The capital plan is being examined alongside a revived consolidation exercise in the PSU insurance sector. Options under evaluation include merging two or more insurers, combining them with New India Assurance, or preparing one entity for privatisation, in line with the government’s broader strategy to reduce its presence in non-strategic sectors.

Any fresh infusion is expected to come with conditions such as operational restructuring, cost rationalisation and tighter underwriting discipline. Earlier, insurers were advised to exit loss-making segments such as fire and motor insurance. EY has also been appointed to recommend restructuring measures, with steps such as office closures and staff redeployment already underway.

Officials said the objective is to stabilise the companies and fix balance sheets before pursuing consolidation or sale, rather than to continue indefinite bailouts.