Finance Ministry praises not to include solvency ratio criteria for govt owned non-life insurers in tenders

The Finance Ministry’s the Department of Financial Services has praised other ministries not to include solvency ratio of 1.5 of the liabilities as a criterion for participation of government owned non-life insurers in the tenders for general insurance needs. It added ‘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 their Ministry/Department’.

According to the Department of Financial Services, three government owned non-life insurers - National Insurance Company, Oriental Insurance Company and United India Insurance Company - 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. The insurance sector regulator has allowed forbearance to the three companies from maintaining the solvency ratio and allowed them to underwrite business.

The department noted that ‘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’. 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.