List of 'safer' domestic insurance companies FY23-24

Domestically systemically important insurance companies are those that are considered as too important to fail. As a consequence there is a perceived expectation that the government would support these insurers in case of any financial distress. Which are these ‘too important to fail’ insurance companies in India?

The list, for financial year 2023-24 comprises three companies – LIC, GIC and New India Assurance – all 3 PSUs.

As per a press release from the IRDAI dated March 27, 2024, Life Insurance Corporation of India, General Insurance Corporation of India and New India Assurance Co. Ltd continue to be identified as Domestic Systemically Important Insurers (D-Slls) for FY2023-24. This list is the same as in 2022-23.

Domestic Systemically Important Insurers (D-Slls) refer to insurers of such size, market importance, and domestic and global inter connectedness, whose distress or failure would cause a significant dislocation in the domestic financial system. Therefore, the continued functioning of D-Slls is critical for the uninterrupted availability of insurance services to the national economy.

D-Slls are perceived as insurers that are ‘too big or too important to fail’ (TBTF), says the release. This perception and perceived expectation of government support may amplify risk-taking, reduce market discipline, create competitive distortions and increase the possibility of distress in the future, as per the release. These considerations require that D-Slls be subjected to additional regulatory measures to deal with systemic risks and moral hazard issues.

The release further states: Given the nature of their operations and the systemic importance of the D-Slls, these insurers have to carry forward their efforts on the following:

(i) Raise the level of corporate governance;

(ii) Identify all relevant risks and promote a sound risk management framework and culture.

Consequently, D-SIIs are being subjected to enhanced regulatory supervision, the release adds.

It may be noted that State Bank of India, ICICI Bank and HDFC Bank have been classified as domestic systemically important banks.

The Reserve Bank had issued the Framework for dealing with Domestic Systemically Important Banks (D-SIBs) on July 22, 2014. The D-SIB framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs starting from 2015 and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs). Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it.

Harry Byrne

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