Amid concern on the slackening performance of state-owned insurance companies, Finance Minister Pranab Mukherjee is set to meet the chiefs of these companies on June 13. The meeting would focus on the reasons behind the declining profits of these companies. Insurance companies are likely to raise issues related to taxation and the third-party motor pool.
The meeting would be held a day after the finance minister’s annual meeting with the heads of public sector banks and financial institutions on June 12. The last such meeting was held in 2009.
Officials from the four public sector general insurers — National Insurance, Oriental Insurance, New India Assurance and United India Insurance — along with those from the Life Insurance Corporation (LIC) of India, the General Insurance Corporation and the Insurance Regulatory and Development Authority (Irda) are likely to attend the meeting.
Finance ministry officials said some of these companies were recoding losses, and this was a matter of concern for the government, the majority shareholder in these. In a recent letter, the ministry had asked the companies to raise premiums to boost their performance. Some insurers, however, had expressed displeasure at the ministry’s proposals. The matter is likely to be debated at the meeting.
New India Assurance, India’s largest general insurance company (by gross premium), recorded a loss of Rs 422 crore in 2010-11, while the net profits of National Insurance and United India Insurance fell during the year. It is estimated the performance of some of these companies deteriorated further in 2011-12.
“We will discuss some income tax issues that are leading to litigations. Also, there are issues regarding profits on the sale of investment. If the finance ministry can provide some relief, it would help the companies,” said a senior executive of a non-life insurance company.
In December 2011, the Income Tax Department had issued a notice to LIC, demanding tax of Rs 9,000 crore on a Rs 37,000-crore entry treated as ‘negative reserves’ in the company’s balance sheet.
Insurers would also discuss the high provisioning for the third-party motor pool, which led to profits declining last year. Irda had earlier raised provisioning rates for the third-party motor pool.
In the non-life sector, the four public sector insurers compete with 18 private sector companies, while in the life insurance segment, LIC competes with 23 private sector companies. Though LIC has lost some business to private players in the last few years, it still accounts for about 68 per cent market share.
While the market share of public sector general insurers declined to 60 per cent following the entry of private insurers in the last 10 years, in absolute terms, premiums underwritten by public sector insurers have increased.