NEW DELHI: The Centre is considering a fresh capital infusion of up to ₹5,000 crore into three loss-making and financially weak public sector general insurers—United India Insurance Co. (UIIC), National Insurance Co. (NIC) and Oriental Insurance Co. (OIC), according to two people aware of the discussions. The move follows a brief earnings turnaround last year that failed to translate into sustained balance-sheet repair.
The proposal, which could be routed through a second supplementary demand for grants this fiscal or the Union Budget for FY27, the people said, revives a plan that was deferred in the past two budgets after the insurers reported short-lived quarterly profits.
The proposed funding is aimed at stabilizing the balance sheets of the insurers, restoring their solvency margins and preparing them for a long-delayed consolidation and potential sale plan, one of the two people quoted above said. The government wants the entities to be adequately capitalized before executing structural reforms such as mergers, listing or privatisation, this person added.
The second person said the quantum and timing of the capital support will depend on a reassessment of the insurers’ financial performance over the nine-month period ending December 2025. One option under consideration is to provide limited support this year through supplementary demand for grants, followed by a more comprehensive infusion in the Union Budget for 2026-27.
The government’s reassessment reflects the failure of temporary profitability in FY25 to arrest deeper structural weakness. Despite profits in select quarters last year, the insurers’ solvency margins remain deeply negative and well below the Insurance Regulatory and Development Authority of India’s (Irdai) mandated minimum of 1.5x. There are concerns that without fresh capital, deteriorating financial parameters could threaten business continuity, undermining any merger, listing or privatization roadmap.
Queries sent to the finance ministry and secretary, department of financial services (DFS), the administrative body in charge of public sector insurers, remained unanswered at press time.
Solvency crunch
All three insurers continue to operate under regulatory forbearance, with solvency ratios far below Irdai’s mandated minimum. The solvency ratio indicates an insurer’s ability to meet long-term obligations and pay policyholder claims.
At the end of FY25, NIC had a solvency ratio of –0.67, UIIC –0.65 and OIC –1.03, underscoring the depth of capital stress.
The renewed push follows a brief earnings improvement last year that prompted the government to defer capital support. United India reported profits in Q3 and Q4 of FY25 and posted a full-year profit of ₹154 crore, but still ended the year with a solvency ratio of –0.65.
National Insurance began reporting quarterly profits from Q2 of FY25, but slipped back into losses in FY26, posting a ₹483 crore loss in FY25 and a ₹288 crore loss in Q2FY26, with solvency worsening from –0.67 to –0.75. Oriental Insurance reported profits in a couple of quarters last year and closed FY25 with a ₹144 crore profit despite a ₹224 crore loss in Q4, and a solvency ratio of –1.03. It posted a ₹73 crore loss in Q1FY26 and a meagre ₹87 crore profit in Q2FY26.
In contrast, New India Assurance, the only listed and financially healthy PSU general insurer, reported a solvency ratio of 1.87 times in June 2025 and 1.91 times as of March-end FY25, well above regulatory thresholds. The company posted a ₹988 crore profit in FY25 and an 80% jump in Q1FY26 profit to ₹391 crore, followed by a Q2FY26 profit of ₹63 crore.
Irdai's regulatory forbearance allows PSU insurers to count a portion of unrealized investment gains when calculating solvency margins. Even with this uplift, National Insurance’s adjusted solvency ratio stood at 1.09 times as of December 2024, still below the mandated 1.5 times.
The second person cited earlier said the capital infusion is intended to turn solvency ratios positive and ensure business continuity while structural decisions are finalised. The government had earlier infused ₹12,450 crore into these insurers in FY21 and another ₹5,000 crore in FY22.
Capital debate
Experts say capital support is unavoidable in the near term, given the government’s ownership role.
“Do these companies require capital support from the government to improve their solvency margins and turn profitable? Yes,” said C R Vijayan, former secretary general of the General Insurance Council. “As business increases, companies require additional capital. Being the owner and largest shareholder, the government has an obligation to provide capital support.”
Vijayan said operational strengthening must go beyond capital. “Over the last 10 years, the number of employees has more than halved—from about 16,000 to nearly 7,000 per company. Apart from capital, increasing manpower is important. Listing will help improve capitalization, and merger will definitely help. Ultimately, the insurance industry needs economies of scale, which today only LIC enjoys,” he said.
Others caution that repeated capital infusions without deep reform risk entrenching inefficiencies.
“There are arguments both for and against providing capital support to PSU insurers,” said Narendra Ganpule, partner at Grant Thornton Bharat. “Support helps meet solvency requirements, supports social and financial inclusion, and ensures market stability. But bailouts also create moral hazard, impose a cost on taxpayers, and reward inefficiency.”
Ganpule said reliance on government support after decades of operations reflects structural weakness. “Capital infusion to fund losses or operations is a band-aid solution. Long-term sustainability requires structural reforms, cost optimisation, operational efficiency and functional autonomy—something that can only come through private capital, either via strategic sale or listing and progressive dilution of government stake.”
He also warned against a blanket merger. “Merging three large under-performing organisations could simply create a mega under-performer. Integration of technology, people and processes is expensive and complex. The government’s role should be policy-making, not running businesses.”
Reform roadmap
The capital plan is being examined alongside a revived consolidation exercise in the PSU insurance sector. The government is evaluating multiple configurations, including merging two or more insurers, combining them with New India Assurance, or preparing one entity for privatization, in line with the Centre’s strategy to reduce its presence in non-strategic sectors.
With insurance penetration still low—3.69% overall and less than 1% in general insurance—policymakers believe a stronger, better-capitalized public sector insurer is needed in the near term. The persons cited earlier said any fresh infusion would come with conditions, including operational restructuring, cost rationalisation and tighter underwriting discipline.
“The idea is to stabilize these companies, not to keep bailing them out indefinitely,” the first person said. “This is about fixing the balance sheets before executing consolidation or sale.”
An official at one of the three loss-making insurers said, on condition of anonymity, that capital infusion at this stage would help strengthen operations and accelerate a return to profitability.
Queries emailed to NIC, UIIC and OIC remained unanswered at press time.
The first person added any infusion would be conditional on further operational restructuring. Earlier, the insurers were advised to exit loss-making segments such as fire and motor insurance.
The four PSU insurers had also appointed EY to recommend restructuring measures for profitable growth and employee development. Based on initial inputs, steps such as office closures and staff redeployment have already been implemented.