In an unprecedented move, the insurance regulator has directed Reliance Health Insurance to transfer its entire portfolio to Reliance General Insurance and stop underwriting any new policies.
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The move comes after the Insurance Regulatory and Development Authority (IRDAI) observed a constant deterioration in the solvency margin of Reliance Health Insurance.
The regulator in its order stated, "Given the fact that the solvency of Reliance Health Insurance is considerably below the control level of solvency and based upon the submissions made by Reliance Health Insurance and Reliance Capital, the authority has come to the conclusion that continuation of transaction of health insurance business by Reliance Health Insurance at this juncture, will not be in the interest of policyholders."
Both Reliance Health Insurance and Reliance General Insurance are wholly-owned subsidiaries of Reliance Capital.
Directing Reliance Health Insurance to shut down its operations and transferring its portfolio to Reliance General Insurance was just one part of the order. The insurance regulator also put additional restrictions on Reliance Health Insurance.
IRDAI directed Reliance Health Insurance to transfer its investments from the policy as well as shareholder accounts to Reliance General Insurance. It also asked Reliance Health Insurance to ring-fence all its existing assets and not to dispose of any of them off with prior approval from the insurance regulator.
Reliance Health Insurance will also not be allowed to make any capital expenditure for itself or for any of its related parties. These additional restrictions were imposed on Reliance Health Insurance to meet the potential claims from the policyholders of Reliance Health Insurance.
The regulator said, "It is estimated that the underlying assets are sufficient to meet the claims of the existing policyholders that may that may arise in future."
Reliance General Insurance has been directed to service claims of Reliance Health Insurance’s policyholders promptly and efficiently with effect from November 15, 2019. IRDAI said that it will be closely monitoring the situation to ensure the smooth transfer of the portfolio, settlement of claims and protection of interest of the policyholders.
While the insurer was asked to restore the level of solvency within one month, IRDAI said that Reliance Health did not comply. IRDAI mandates that all life and general insurance companies must maintain 150 percent solvency at all times. Reliance Health’s solvency stood at 106 percent till June-end. It slipped to 77 percent by August-end and further deteriorated to 63 percent by September-end.
The insurer was issued a show-cause notice and given another opportunity to present its case. But it failed to show any improvement in its financial position. Reliance Capital and Reliance Health Insurance will have the option of challenging IRDAI’s order at the Securities Appellate Tribunal or SAT.
First Published: Nov 7, 2019 5:08 PM IST
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