In order to make government-owned general insurance companies profitable and achieve economies of scale, finance minister Arun Jaitley in this year’s budget announced a plan to merge three insurers – National Insurance, United India Insurance and Oriental Insurance. The other company New India Assurance, which is the largest state-owned general insurance company in the country, will remain as it is as it is already listed in the bourses.

However, if the proposed merger goes through, the combined entity will be much bigger than New India Assurance both in terms of premium collections and assets under management. According to data from Insurance Regulatory and Development Authority of India (IRDAI), gross direct premium (within and outside India) of New India Assurance was Rs 21,598 crore in FY17. The company accounted for 16.5% of the gross direct premium of non-life insurers including standalone health insurers in FY17.

In contrast, the gross direct premium of the three companies which are likely to be merged is Rs 41,462 crore, accounting for around 32% of the total gross direct premium in FY17. The merged entity will also subsequently go for listing. The merged entity may be valued at Rs 60,000 crore based on its investment book, net worth and real estate. Thus a single merged entity of the three companies will be bigger in size and the valuation will improve significantly. Moreover, the merger will lead to better pricing and better underwriting profitability.

Table 1: Gross direct premium of general and health insurers (All figs in Rs. Crores)

Within & Outside India 2015-16 2016-17
All private sector insurers 39694 53805
All public sector insurers 50644 63060
National Insurance 12019 14282
New India Assurance 17763 21598
Oriental Insurance 8612 11117
United India Insurance 12250 16063
Specialised insurers 4842 8247
Standalone health insurers 4153 5858
Grand total 99333 130970

The general insurance industry was nationalised in 1973 by taking over the existing private non-life insurance companies. That way, four government general insurance companies and one reinsurance company (General Insurance Company) were established. Later in 1999, the government opened up the insurance sector to private sector players. The entry of new private non-life insurers resulted in a decline in the market share of government-owned non-life insurance companies or gross direct premium and dropped to around 48% in FY17 from 56% in FY12.

Table 2: Insurance Claim Ratio for FY 16-17 (%)

All private sector insurers 79.1
All public sector insurers 100.02
National Insurance 97.25
New India Assurance 91.28
Oriental Insurance 112.11
United India Insurance 107.08
Specialised insurers 120.22
Standalone health insurers 56.47

All the four government-owned general insurance company offer general insurance as well as cover for threats from accidents such as fire, engineering, aviation, liability, marine, motor and health insurance. Overall, the general insurance industry reported highest ever year-on-year growth of 32% in gross direct premium in FY17 because of crop insurance as compared to just 14% year-on-year growth in FY16.

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  • How the valuation of Rs.60,000 crore for the merged entity has been arrived?

    • Hello Sir,
      The valuation of the three state-owned general insurance companies (Oriental Insurance, United India and National Insurance) was arrived at based on FY17 (as on March 2017) book value of investments, fixed assets/real estate and liabilities. It must be noted that premium income received from policyholders is not the real income. Despite gross direct premium of Rs 41,000 crore during 2016-17, Oriental Insurance reported loss after tax of Rs 1,691 crore, United India Rs 1,914 crore. The net profit of National Insurance was Rs 46 crore. As insurance industry is capital intensive and claims sensitive. Also, as per IRDAI’s norms, an insurer has to maintain an asset value at 150% of the liabilities. As of March 2017, Oriental Insurance and United India Insurance had a solvency ratio of 1.11 and 1.15 respectively, which are less than the regulatory mandate.

  • dseth@gmail.com says:

    Since these two (Oriental Insurance and United India) insurance companies are making losses, my opinion is they should be closed down. They cannot service service customers and cannot settle claims.