A seven-year-old merger plan for insurance weaklings is being dusted off the shelves

The Union finance ministry is discussing various options for the future of the three weak general insurers, the people mentioned above said on condition of anonymity. These include merging two of them with the listed and profitable New India Assurance; merging all three; and merging only two and preparing the third for privatization.

“The Centre is seeking a structure that aligns with the policy to limit the number of state-owned companies in non-strategic sectors to one or two, while retaining a minimum of four in strategic sectors,” one of the two people said on the condition of anonymity. General insurance falls under the non-strategic category.

The discussions are at an early stage, and any decision will follow a deeper study of each insurer’s solvency profile, integration challenges, and the fiscal implications of further capital support, the people cited above added.

Queries emailed to the finance ministry and the four insurers went unanswered.

Back from the back-burner

The discussions to strengthen India’s state-owned insurers mark the revival of a seven-year-old plan.

The 2018 plan to merge and subsequently list the three general insurers failed as they battled heavy losses and low solvency margins, leading to repeated capital injections by the government. Despite weak solvency ratios and dependence on regulatory forbearance, all three reported profits in at least some quarters of fiscal year 2025 (FY25), bringing the consolidation plan back on the agenda.

“This time, the conversation is more pragmatic,” the second person mentioned above said. “The focus is on what is feasible, what strengthens the sector, and what limits future fiscal exposure.”

Discussions to consolidate insurance companies are unfolding alongside similar efforts to reshape India’s public banking sector.

Policy push

“It is the government’s stated policy to have bare minimum presence of PSUs in the strategic sector, with the remaining to be privatized or merged, or subsidiarized with other central public sector enterprises, or closed,” said C.R. Vijayan, former secretary general of the General Insurance Council, adding it is “very natural” that the government attempts merger or privatization in the sector.

Consolidation began with banking, and the same would be rolled out for insurance companies, Vijayan said. “How it is done would be decided by the government. But it will be done now.”

Others pointed out that with the insurance sector now fully open to foreign direct investment (FDI), public sector insurers must urgently prepare for a far more competitive marketplace. The move is set to reshape the market: more global players are expected to enter or expand, bringing capital, technology, and product innovation that will pressure public sector insurers to modernise, improve efficiency, and strengthen customer service.

“Competition elevates the quality of customer focus and the need to bring about better efficiencies, something that the public sector insurers can achieve through consolidation. This makes the case for merging the three relatively weaker PSU insurers for building a stronger, larger entity,” said Vivek Iyer, partner and financial services risk leader at Grant Thornton Bharat.

“Privatization should not be an immediate focus, especially given the fact that the level of insurance penetration in the country is still low. But the government could consider hiring senior, seasoned professionals from the private sector to run the business in an efficient manner with government shareholding. Privatization should be looked at by the government from a value-unlocking standpoint in the future,” Iyer added.

To be sure, India’s insurance sector has steadily opened up over two decades, culminating in the shift to 100% FDI.

In March, General Insurance Employees’ All India Association pressed its long-standing demand for forming a single corporation by merging all four general insurers, a Business Line report said. “This (the merger) has greater significance and can cater to the social and economic needs of the policyholders and the citizens of the country at large,” Trilok Singh, the association general secretary, was quoted as saying in the report.

Financial strains

Despite sporadic profitability and government support, all three insurers remain undercapitalized. This has driven down their solvency ratio — which shows if an insurer has enough capital to meet policyholder obligations — below the minimum 1.5x set by the insurance regulator.

United India Insurance reported a ₹154 crore profit in FY25 but still has a solvency ratio of –0.65, far below the 1.5x regulatory minimum. National Insurance posted a ₹483 crore loss in FY25 and a ₹284 crore loss in Q2 FY26, with solvency worsening from –0.67 to –0.75. Oriental Insurance remained volatile, reporting a ₹73 crore Q1 loss, after ending FY25 with a ₹144 crore profit (despite a ₹224 crore Q4 loss). Its solvency ratio stood at –1.03 at the end of FY25.

IRDAI’s regulatory forbearance, allowing companies to count a portion of unrealized investment gains as capital, temporarily lifted National Insurance’s adjusted solvency ratio to 1.09x as of December 2024, still short of the mandated 1.5x.

In contrast, New India Assurance reported a solvency ratio of 1.87x in June 2025 and 1.91x as of March-end FY25, well above regulatory thresholds. The company posted a ₹988 crore profit in FY25 and an 80% jump in Q1 profit to ₹391 crore.

During FY25, all four PSU general insurers managed to narrow their combined underwriting losses to ₹18,366 crore. Their total premium income rose to ₹1.06 trillion from ₹90,344 crore in the previous fiscal.

United India reported investment assets of ₹11,793 crore in FY25. New India, the strongest among all, had current assets worth ₹27,632 crore in FY25, reflecting its continued dominance in investment strength among state-owned general insurers. National Insurance reported ₹7,730 crore in current assets at the end of FY25, while Oriental Insurance disclosed ₹10,113 crore in current assets for the same period.