The regulator directed RHIC to comply with the order by 15 November, and ordered RGIC to service claims of the troubled insurer.
Solvency margin at RHIC, which began operations in October 2018, had slipped below the regulatory minimum in June 2019. Since then, the regulator has followed up on the issue with the insurer. Solvency margin is the margin of assets over liabilities, and indicates whether a company is solvent enough to be able to cover for its liabilities. It is mandatory to maintain the margin for all life and non-life insurers, as per Irdai’s Assets, Liabilities and Solvency Margin of Insurers Rule 2000.
“Solvency margin is a key indicator to evaluate an insurance company’s capacity to pay all risks it has covered in the market. Whether it will impact policyholders depends on the quality of business (profitable/not profitable) underwritten and consequent claim ratios," said Mahavir Chopra, director, health, life and strategic initiatives, Coverfox, an insurance broking firm.
RHIC’s solvency margin, which stood at 106% in June, dipped to 77% in August, against the 150% mandatory for health insurers. When the margin fell further to 63% in September, Irdai asked it not to make any payments towards capital expenditure, or towards any of the related parties of RHIC.
In October, Reliance Capital Ltd, the sole promoter of the insurer, admitted to the weak margins, in a letter to Irdai. It said plans to bring in a new investor were not proceeding and, therefore, it would like to amalgamate the company with RGIC. The regulator found that the firm’s underlying assets would suffice to meet claims of existing policyholders. Irdai asked RHIC to ensure policyholders were not impacted in the long run.
According to a senior official at RGIC, who requested anonymity, RHIC will amalgamate with RGIC and given that it’s only a small book vis-a-vis RGIC, it will not have any impact on its solvency margins.