Yesterday, IRDAI (Insurance Regulatory and Development Authority of India) ordered RHIC (Reliance Health Insurance Company) not to sell new policies and transfer the existing policies along with the company’s assets to RGICL (Reliance General Insurance Company Limited) no longer than 15th of November 2019. The company which received the green light from IRDAI just last October (2018) to commence operations has not been able to maintain the minimum solvency margins required since June of this year (2019).
The Solvency Margin is an indicators whether a company has enough assets which can cover up the liability of the company, in RHIC’s case, their assets (including cash) were not of enough value to cover up the value of the policies they have provided to its customers. As per IRDAI’s Assets, Liabilities, and Solvency Margin of Insurers Rule 2000, it is mandatory for a firm dealing in life and non-life insurances to have this margin.
Coverfox.com’s Director of Health, Life and Strategic Initiative, Mahavir Chopra said ‘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’.
The solvency Margin as dictated by IRDAI’s rule (mentioned above), health insurance companies need to maintain a Solvency Margin of at least 150%, but, RHIC’s solvency margin in August dropped to 77% from 106% in June of this year. As the solvency margin dropped to 63%, IRDAI ordered RHIC to not make any Capital expenses or in favour of any parties related to RHIC.
Last month, Reliance Capital Ltd., which is the lone promoter of RHIC admitted that it has violated the solvency margin rule, telling them that they were not able to find new investors as they had hoped for, and would like to merge RHIC with RGICL.
As RHIC was not able to maintain the desired solvency margin, IRDAI has ordered the company not to make any more sales, in addition, the company has been barred from using or diluting their assets for any other reason than making claim settlements. RHIC’s current assets are sufficient enough to pay off all the claims of existing policyholders and ordered RGICL to take over the claim process of RHIC’s policy holders not later than 15th of November.
IRDAI has communicated to RHIC that the policy holders should not face any problems. Chopra said ‘Customers will most likely not get impacted given that RGICL has mentioned there is only a marginal impact on their solvency ratio due to the merger’. In the event of a merger, the insurers are obligated to submit the plans of merger to IRDAI ensuring that claims process will not be affected.
Chopra added ‘The products will get integrated into the RGICL portfolio and customers will only have a change in the name of the products, customer service numbers, etc., which RGICL will need to communicate efficiently with the customers of RHICL. Policyholders need not do anything other than expecting communication through various modes and be aware of the change in toll-free numbers, website etcetera, Similar situations have occurred in the past where one insurer has left the country and transferred their book to another insurer so it’s nothing to worry too much about’.