Mumbai: State-owned general insurers are backing the proposed shift to a risk-based capital regime, under which assets are valued at current market prices instead of historical cost, saying it could improve their solvency position.
The proposed framework links the capital an insurer must hold to the actual risks on its balance sheet. Unlike the current factor-based regime, it values investments such as equities and real estate at their market value.
The new regime is expected to be rolled out from April 2027, Ajay Seth, chairman of Insurance Regulatory and Development Authority of India (Irdai) said in a recent interview with a television channel.
“Given the deep, decades-long legacy of PSU insurers, our balance sheets carry substantial legacy holdings in listed and unlisted equities, alongside high-value real estate,” a spokesperson for Oriental Insurance told Mint.
Consideration of the “true market value” of these investments would instantly shift the company’s solvency position to “robustly positive, comfortable thresholds”, the person said. “The capital is heavily present; it is simply locked behind conservative asset valuation rules.”
India has four state-owned general insurers, but only one—New India Assurance—is listed and meets regulatory solvency requirements. The other three—Oriental Insurance, United India Insurance and National Insurance Company—have been grappling with inadequate solvency and capital levels.
Solvency woes
In its June Financial Stability Report, the Reserve Bank of India said the three PSU general insurers' solvency remained below the regulatory solvency ratio of 1.5 for every quarter between the fourth quarters of FY25 and FY26.
As of 31 March, 2026, National Insurance's solvency ratio was at -1.1, Oriental Insurance's at -1.6 and United India Insurance at -1.4.
“Most investments are old and have a low book value, while the current market value is much higher. Thus, the assets of the company are valued conservatively in the computation of solvency,” a spokesperson for United India Insurance told Mint, adding that the new framework will provide a more “accurate and improved” solvency position.
National Insurance did not respond to queries sent by Mint.
When the market value of an insurer's investments rises, the increase is recorded as an unrealized gain in the fair value change account (FVCA). These gains are not part of the standard operating profit until the investments are sold, but provide a financial buffer that can be included in the calculation of the solvency margin.
“At present, all assets of the company, except equity-type assets, are valued at book value. Under a risk-based capital regime, assets would instead be valued on a market basis, which is likely to improve asset valuation outcomes relative to current book value approach,” said Rahul Khandelwal, partner - financial services (actuarial practice) at EY India.
Under the new regime, the required solvency capital for insurers will be aligned with the level of risk to which they are exposed, as a result of which the value of insurers’ assets may increase, providing additional cushion to support their capital and solvency requirements, he said.
Capital debate
PSU insurers regularly book gains from the sale of equity investments to unlock their value and partly offset net losses. The four insurers together realised gains to the tune of 4.3% of total investments in the nine months ended December 2025, as against 3.2% in the year-ago period.
Their legacy equity holdings generated unrealised gains of ₹38,300 crore, equivalent to 21% of total investments, as of December 2025, according to a 29 June note by Icra.
After posting net losses during FY18-FY23, the insurers returned to profitability in FY24-FY25 driven by improvement in the combined ratio and stronger investment income. However, they fell back into the red in FY26, posting cumulative losses of over ₹11,000 crore.
The ratings agency estimates that the three loss-making insurers will require a capital infusion between ₹38,900 crore and 55,800 crore, depending on the FVCA allowance, attributing the massive funding gap to their negative solvency.
Sustained balance-sheet weakness has kept the government engaged in recapitalisation discussions since 2023. Options considered included consolidating the unlisted insurers and diluting government stake.
The latest discussions took place in December 2025, when the government was reportedly considering fresh infusion of up to ₹5,000 crore into the three loss-making and financially weak insurers, but no announcement was made in the Union budget. PSU general insurers received ₹1.7 trillion fund infusion between FY20 and FY22.
“Insurers also see merit in the new IND-AS framework’s ability to smooth balance sheet volatility, which is encouraging faster adoption, as it supports more stable and predictable earnings,” EY India’s Khandelwal said.
High opex stress
The pressure on solvency has increased with insurers hit by high loss ratios, especially in health and motor third-party policies, increasing acquisition costs, high operating costs due to extensive branch networks, and pension liabilities.
United India Insurance said that while any government capital infusion would provide immediate relief, long-term improvement would depend on operational measures. “The company is focusing on operational efficiency, leveraging its assets in the new solvency regime and strengthening its solvency,” its spokesperson said.
Oriental Insurance said its solvency position has also been affected by its broader public policy role, including contributions during the covid-19 pandemic and support for government schemes.
Even as government capital support is important to back "long-tail liabilities and ensure sufficient buffers", strategic initiatives across underwriting, distribution and technology are expected to improve portfolio quality, and financial performance and strengthen the solvency position over time, it said.