Distributed provisioning is aimed at easing the impact of periodic wage settlements on their balance sheets, said the people aware of the regulatory directive.
The regulator has also asked insurers to review the adequacy of these provisions every quarter after the wage revision obligation crystallises, the people said.
The directive comes as the government has ruled out fresh capital infusion into three public sector general insurers despite their weak solvency.
Instead, improvements in solvency are expected to come from the implementation of IFRS 17 accounting standards and gains from the monetisation and revaluation of their holdings in the National Stock Exchange (NSE), the people said.
Each insurer could realise around ₹1,000-1,200 crore by selling 15-20% of its NSE stake through an offer for sale, while the revaluation of the remaining holdings could add nearly ₹5,000 crore to the available solvency margin of National Insurance, Oriental Insurance and United India Insurance, according to the people.
The gains, however, would provide only a one-time boost. The regulator continues to closely monitor the three insurers, which remain well below the regulatory solvency requirement of 1.5 times the required solvency margin.
As of March 2025, Oriental Insurance reported a solvency ratio of negative 1.03, followed by National Insurance at negative 0.67 and United India Insurance at negative 0.65. The trend has steadily worsened over the past year. Even after accounting changes and gains from NSE holdings, each insurer would still require an estimated ₹10,000-12,000 crore to meet the regulatory solvency requirement, the people said.