The Indian government is actively considering a significant financial intervention to rescue three ailing public sector general insurance companies. According to sources familiar with the matter, a fresh capital infusion of up to ₹5,000 crore is being weighed for United India Insurance Co. (UIIC), National Insurance Co. (NIC), and Oriental Insurance Co. (OIC).
The Solvency Crisis Deepens
This move comes despite a brief period of profitability in the last fiscal year (FY25), which proved insufficient to repair their critically weak balance sheets. The core issue remains a severe solvency crisis. The solvency ratio, which measures an insurer's ability to meet future obligations, is mandated by the Insurance Regulatory and Development Authority of India (Irdai) to be at least 1.5 times.
Alarmingly, all three insurers are operating far below this threshold under regulatory forbearance. As of the end of FY25, National Insurance had a solvency ratio of –0.67, United India stood at –0.65, and Oriental Insurance was at a dire –1.03. This negative solvency underscores a deep capital stress that threatens their business continuity and any plans for future structural reforms.
From Brief Profits to Renewed Losses
The government had deferred capital support plans in the past two budgets after seeing quarterly profits. However, the recovery was short-lived. For instance, United India reported a full-year profit of ₹154 crore in FY25 but still ended with negative solvency. National Insurance slipped back into losses in the current fiscal year (FY26), posting a ₹288 crore loss in Q2. Oriental Insurance also returned to a loss in Q1FY26.
In stark contrast, the only listed and healthy PSU general insurer, New India Assurance, reported a robust solvency ratio of 1.91 times at the end of FY25 and consistent profits, highlighting the stark divide within the state-owned sector.
Roadmap for Reform and Consolidation
The proposed capital infusion, which could be routed through a supplementary demand for grants this fiscal or the Union Budget for FY27, is not just a bailout. Officials indicate it is aimed at stabilizing the balance sheets to pave the way for long-pending structural changes. The government intends to adequately capitalize these entities before executing plans for mergers, listing, or even privatization.
The capital plan is being examined alongside a revived consolidation exercise. Options include merging two or more of these insurers, combining them with New India Assurance, or preparing one for strategic sale, aligning with the government's policy to reduce its footprint in non-strategic sectors.
Experts warn that repeated capital infusions without deep operational reforms risk perpetuating inefficiencies. C R Vijayan, former secretary general of the General Insurance Council, emphasized the need for capital but also pointed to reduced manpower as a critical issue. Narendra Ganpule, partner at Grant Thornton Bharat, cautioned that bailouts create moral hazard and that long-term sustainability requires structural reforms, cost optimization, and possibly private capital.
Any fresh government funding is expected to come with strict conditions, including operational restructuring, cost rationalization, and exiting from persistently loss-making segments like fire and motor insurance. The message from the Centre is clear: this infusion is about fixing the balance sheets to enable a future exit, not about indefinite life support for the insurers.
