Oriental Insurance Approves Rs 1,200-Crore Rights Issue To Improve Solvency Levels

State-run Oriental Insurance Co. has approved fund infusion via a rights issue under the government's recapitalisation plan to improve the solvency level of the general insurer.

Oriental Insurance's board in its March 28 meeting approved the proposal to raise Rs 1,200 crore as the first tranche of capital infusion by issuing shares to existing shareholders, the company said in an exchange filing. The Ministry of Finance on the same day issued a notice to the insurer to raise capital via a rights issue.

Fresh funds are required to improve the company’s solvency status. The state-run insurer ran into trouble with its solvency ratio dropping to 0.69 as on March 31, 2021, compared to the requirement of 1.5 times solvency ratio mandated by the insurance regulator. A low ratio indicates poor health of the insurer in terms of ability fulfill obligations.

The solvency ratio is expected to improve to 0.86 times by FY23, and to 1.21 times by FY26. However, these targets will still be lower than the mandatory requirement, indicating that it will not be able to list independently anytime soon.

The insurer informed the exchange that the capital infusion is "subject to the achievement of certain milestones that would improve the company’s profitability".

Oriental Insurance Co. reported a net loss of Rs 1,512 crore in FY21. This is expected to be brought down to less than Rs 507 crore by FY23. It expects to generate profit of over Rs 141 crore by FY26 and sustained profits thereon, as well as to reduce net incurred claims ratio to 84% by FY23, and 76% by FY26, from 95.3% in FY21. It aims to bring down expense ratio to 34.7% by FY23, and 31% by FY26 to improve profitability.