Solvency buffers at insurers thinning; general insurance sector more of a concern

Mumbai: The Reserve Bank of India, in its latest Financial Stability Report (FSR), flagged concerns over weakening solvency buffers in the insurance sector, warning that while life insurers remain compliant with regulatory norms, capital cushions are gradually thinning, the general insurance segment remains a financial stability concern, with three public sector insurers staying below the regulatory minimum solvency requirement for five consecutive quarters.

The life insurance sector remained compliant with the regulatory minimum solvency ratio of 150% throughout 2025-26, with no insurer breaching the threshold. However, RBI report said that a gradual shift of insurers from higher solvency levels toward the lower end of the compliant range, indicating that a larger number of companies are operating with relatively thinner capital buffers.

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" A large number of insurers operating with thin buffers above the minimum is structurally more vulnerable to simultaneous stress, particularly under adverse interest rate or equity market scenarios," the report said.

The outlook for the general insurance sector was more challenging. The RBI said three public sector general insurers remained below the mandatory 150% solvency ratio for five consecutive quarters between the fourth quarter of 2024-25 and the fourth quarter of 2025-26, describing the persistent non-compliance as a direct financial stability concern.

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The report said that the solvency ratio of general insurance segment shows greater quarterly volatility compared to the life segment. "This volatility, combined with the structural presence of persistently sub-compliant entities and elevated underwriting losses, positions the general insurance sector as the more acute near-term concentration of capital risk in the broader insurance system," RBI said.