An inter-ministerial group will meet this week to draw a roadmap for a two-phase merger of state-run general insurers, a finance ministry official said. The government will also explore how to combine these companies with minimum capital infusion to avoid burdening the central exchequer.
“We can kickstart with merger between the three firms as planned and go for the next phase after some time,” the official said, adding that the Department of Investment and Public Asset Management should be drawing up a timeline for the process.
The initial plan, announced in the FY19 budget, had been to merge Oriental Insurance Company, National Insurance Company and United India Insurance Company – all unlisted entities – into one entity, keeping New India Assurance Company separate. In the next phase, New India Assurance will take over the merged entity.
The combined market share of the three state-run insurers in terms of gross direct premium was about 25% at the end of May. New India Assurance had a market share of 16.8% during this period.
The government had listed National Insurance Company and General Insurance Company in 2017-18, divesting 11.65% and 12.5% of its stake, respectively, in the two companies.
ET had reported earlier that the government is looking to create a general insurer behemoth on the lines of Life Insurance Corporation of India, the country’s largest insurer.
The government is also examining how Oriental, National and United India can be merged with minimum capital support, another government official said. “Initial estimates show that more than Rs 10,000 crore will be required for the proposed merger. Given the capital constraints, options will be looked at to minimise such capital infusion,” this official said.
The Insurance Regulatory & Development Authority of India has prescribed that insurance companies always maintain a surplus of 1.5 times their liabilities.
With special dispensation from the regulator, Oriental, United and National were able to meet the mandatory solvency ratio of 1.5% at the end of March 2018.
The solvency margin – the minimum margin of assets required by an insurer in excess of its liabilities – is like a bank’s capital ratios.
Losses at public-sector insurers shrank to Rs 12,603 crore in FY18 from Rs 16,012 crore in FY17. Of the 25 general insurers operating in the country, four are state-owned companies.
Source: Economic Times