The Insurance Regulatory and Development Authority of India (IRDAI) has directed Reliance Health Insurance Company (RHICL) to stop selling new policies.
It also directed the insurer to transfer the entire policyholders’ liabilities along with financial assets to Reliance General Insurance Co. (RGICL) with effect from November 15.
IRDAI’s direction follows the Anil Ambani group entity’s solvency margin falling below the control level of 150% for some months now.
The regulator said in its order that the solvency ratio reported by RHICL for the quarter ended June was 106%.
“There was further deterioration in solvency between June and August 2019, from 106% to 77%,” the order said. RHICL’s solvency ratio declined to 63% as on September 30, 2019.
IRDAI said, it had, in August, issued a direction to the health insurer to restore the required level of solvency margin within one month.
“Despite repeated follow up, this has not been carried out so far. Thereafter, the insurer was issued a show-cause notice and given another opportunity to present its case.”
As there had been no improvement, but only deterioration in the financial position of RHICL, a decision was taken to direct the insurer to stop selling new policies and transfer the entire policyholders’ liabilities along with financial assets to RGICL with effect from November 15.
“Till that time, RHICL had been prohibited from using its assets for any payment other than claim settlement. It is estimated that the underlying assets are sufficient to meet the claims of the existing policyholders that may arise in future,” IRDAI said.
Reliance General Insurance Co. had been directed to service the claims of the RHICL policyholders promptly and efficiently with effect from November 15.
“IRDAI will be closely monitoring the situation to ensure smooth transfer of the portfolio, settlement of claims and protection of the interest of the policyholders,” a statement said.
The regulator said it would like to assure RHICL policyholders that “all their interests have been adequately protected and all genuine claims will continue to be duly honoured.”
However, Reliance Capital, the promoter of Reliance Health, said it had proposed transfer of the health portfolio to Reliance General.
“As proposed by Reliance Capital, the promoter company of Reliance Health Insurance (RHI) and Reliance General Insurance (RGI), RHI will transfer its health insurance portfolio covering all financial assets and policyholder liabilities to RGI. This process is being undertaken in consultation with IRDAI and has been approved by the regulator,” a Reliance Capital spokesperson said.
Sources said Reliance General Insurance and Reliance Health Insurance would be merged and the proposal was tabled by Reliance Capital about two weeks ago.
The difference between assets and liabilities of the company as on September 30 was ₹31.66 crore as against the required statutory difference of ₹50 crore [being 50% of amount of the minimum paid up capital], IRDAI said referring to a report of RHICL.
Earlier, in mid-September, IRDAI had directed the health insurer not to make any payment towards capital expenditure as well to any of the related party of RHICL. It also did an analysis of information provided by RHICL and found a sharp reduction in the company’s net-worth, investments and cash and bank balance from June-August 2019 mainly because of the operating expenses. “The monthly outgo was approximately ₹5.86 crore on account of operating expenses,” IRDAI said.
Besides advising the company to restore the solvency margin by September 30, the IRDAI had sought information on how the control level of solvency was proposed to be achieved. In response, RHICL had said “they will be submitting their plan to ensure the emergence of a strong, well-capitalised Health Insurance Company.” The company said it intended to bring in new/additional promoters/investors. RHICL had also indicated that RCL (Reliance Capital Ltd.) along with RHICL had signed a term sheet with a potential new promoter and due diligence process had commenced.
However, in view of the continuing deteriorating financial position of RHICL as also the declining solvency, IRDAI directed the insurer, among others, to ring fence the investments, cash and bank balance and not to utilise funds for any purpose other than for re-coupment of any deficiency arising on account of payment of claims to the existing policyholders. The company was directed to not sell investment except with the prior written approval of the Authority and report on a daily basis cash inflow and outflow; balance sheet, cash flow statement and undertaking on compliance of directions on a weekly basis; and solvency margin return on a monthly basis.
Reliance Capital, the sole promoter of RHICL, had in October admitted to violations of the provisions pertaining to solvency margin even while affirming that the health insurer had sufficient assets to cover policyholders’ liabilities. It also informed that proposed induction of a new promoter/investor was not proceeding as envisaged. Instead, it proposed to amalgamate/merge RHICL with Reliance General Insurance Company.
While requesting an opportunity for personal hearing, RCL said, as an immediate step, it proposed to transfer available funds with RHICL and policyholders’ liabilities to RGICL, which has RCL as the sole shareholder and promoter.
In its order, IRDAI said no additional facts were brought out in the personal hearing and the health insurer admitted to the violation of certain provisions. The regulator directed the company to submit an action plan approved by its Board on proposed merger/amalgamation or revival within 30 days of the appointed date (November 15).
(With inputs from Manojit Saha in Mumbai)