Chennai, July 4 (IANS): The Union Finance Ministry has urged other ministries not to include solvency ratio criteria for state-owned non-life insurers to participate in tenders for general insurance needs.
In a memo, the Department of Financial Services of the Ministry of Finance asked other ministries not to include the solvency ratio as a criterion for participation of public sector general insurers in tenders.
“This would enhance competition in the bidding process without compromising the quality of services. It is also requested to bring this to the attention of all procuring entities and organizations under the administrative jurisdiction of your ministry/department”, indicates communication.
According to the Department of Financial Services, three state-owned non-life insurers – National Insurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd – do not have the stipulated liability solvency ratio of 1.5.
Some central public sector companies and some state departments include the required solvency ratio as an eligibility condition in their tenders.
Stressing that the regulator of the insurance sector has authorized the three companies to refrain from maintaining the solvency ratio and allowed them to underwrite business.
“It is pertinent to note that the reinsured liability is not taken into account in the calculation of the solvency ratio, specified by the IRDAI (Insurance Regulatory and Development Authority of India), so that the solvency ratio of 1, 5 is very high from a risk perspective,” the Office memorandum notes.
In addition, state-owned non-life insurers have never defaulted on their commitments. The Indian government has recently injected capital into the above-mentioned companies and is committed to providing more capital as needed, the Department of Financial Services told other ministries.