MUMBAI: Three of India's four state-owned general insurers have remained below regulatory solvency norms for the past several quarters, prompting the Reserve Bank of India (RBI) to warn that the persistent capital weakness poses a financial stability concern.
In its June Financial Stability Report, released on Monday, the RBI said the general insurers remained below the regulatory solvency ratio of 1.5 for every quarter between the fourth quarter of FY25 and the fourth quarter of FY26. While the central bank did not name the insurers, public disclosures show that National Insurance Co. Ltd, Oriental Insurance Co. Ltd and United India Insurance Co. Ltd reported negative solvency ratios during the period, indicating their liabilities exceeded the capital available to support them.
The RBI described the persistent breach as "a direct financial stability concern."
“The general insurance solvency picture is more mixed and structurally more concerning,” it said.
Together, the three financially stressed public sector insurers accounted for 17.3% of the general insurance market by gross direct premium as of May 2026, according to data from the General Insurance Council.
The solvency ratio is the capital buffer insurers are required to maintain against their liabilities. The Insurance Regulatory and Development Authority of India (Irdai) mandates a minimum solvency ratio of 1.5, and insurers falling below the threshold are expected to restore capital adequacy.
New India Assurance, the sole listed state-owned general insurer, was the only one to remain above the regulatory threshold, reporting a solvency ratio of 1.84.
The three financially weak state-owned insurers had already been reporting negative solvency ratios through most of FY25. Oriental Insurance was the exception early on, with a solvency ratio of 1.03 in March 2024 before slipping into negative territory later in the year.
Emails sent to National Insurance, Oriental Insurance and United India Insurance seeking comment did not receive a response till press time.
Back to losses
Three of the four public sector general insurers reported losses in FY26. New India Assurance remained the strongest performer, with net profit rising to ₹1,383.6 crore from ₹988 crore a year earlier. United India posted a loss of ₹4,839.3 crore from a profit of ₹154 crore in the previous financial year. Oriental Insurance posted a net loss of ₹4,061.4 crore from a profit of ₹144 crore in the previous year, while National Insurance’s net loss widened to ₹2,533.7 crore from ₹483 crore a year earlier.
Underwriting losses across non-life insurers rose to ₹30,276 crore in FY25 from ₹28,555 crore a year earlier, according to Irdai. Public sector general insurers accounted for ₹18,366 crore of those losses, only marginally better than ₹18,862 crore in FY24, while private sector general insurers reported underwriting losses of ₹12,398 crore.
An insurance sector analyst, who did not want to be named, said the weak solvency position reflected continued underwriting losses and weak capital positions. While the broader insurance sector remains stable, the general insurance industry has experienced greater volatility than life insurance, making it the more immediate source of capital risk, the analyst said.
The analyst said all three insurers also continued to report combined ratios above 100% throughout the five-quarter period. A combined ratio above 100% means an insurer spends more on claims and operating expenses than it earns through premiums, resulting in underwriting losses.
Rating agency Icra Ltd in a June 29 note said that the solvency position of the three public sector insurers remained weak and estimated they would require an equity infusion of ₹38,900-39,800 crore to meet the regulatory solvency ratio of 1.5 by March 2027.
According to Icra, the divergence between public and private insurers reflected structural differences in capital strength and operating efficiency. Weak solvency could constrain the PSU insurers' ability to underwrite large-ticket and long-tail risks, hurting their competitive position, it said.
Vivek Iyer, partner and national leader, financial services risk advisory at Grant Thornton Bharat LLP, said restoring profitability alone would not be enough to improve solvency.
“There are two pieces to profitability—rationalize your costs, or look at revenues. The most effective thing they can immediately look at is cost rationalization, because it is internal to the organization and the results can be faster,” he said.
He added that while premium growth remains important, sustained profitability would require deeper operational changes.
The government infused ₹17,450 crore into these state-owned general insurers in FY20 and FY21. A February 2025 finance ministry statement had said the objective was to enable the companies to undertake structural reforms, improve operational efficiencies and return to profitability.
Mint reported in December that the government is considering a fresh capital infusion of up to ₹5,000 crore into three loss-making and financially weak public sector general insurers. Separately, Mint reported in November that the Centre is weighing a broader restructuring of National Insurance Co., Oriental Insurance Co. and United India Insurance Co., potentially involving a merger, privatization or both.
The government has repeatedly explored merging the three insurers. A 2019-20 proposal was shelved in favour of restoring solvency after recapitalization, according to a 2020 official release.
“Capital can get injected, but if the business is not done in an efficient manner, there will be a challenge of generating enough profits to maintain an adequate level of solvency,” Iyer said.
He also pointed to an incentive problem that can arise when organizations expect continued government support. “There is a kind of moral hazard. Knowing that there is government backing for capital, focus on profitability is limited,” Iyer said.