The union government’s plan to merge the three ailing public sector general insurance companies — National Insurance Company, Oriental Insurance Company, and United India Insurance Company – and subsequently list the merged entity on the bourses seems to have been put in the back burner as of now.
According to people in the know, for the past two months, preparations for the merger had taken a backseat as the attention of the government shifted to dealing with Covid 19 pandemic.
“There is no movement on the merger as of now. There is no communication from the government and we have also not heard anything from the consultants. But the board has already approved the merger. Given the current situation, we have a feeling that it is getting delayed,” said an executive of a public sector general insurance company.
Notably, in January this year, the boards of the three general insurance firms had given a nod for the merger. Last year, the three insurers had appointed management consultant firm EY to chalk the road map for the merger. It had recommended the merger to be complete by December 2020, or within 18 months starting July.
“Merger is not in the priority list. We have too much on our plate now”, said another executive of a public sector general insurance company.
“At this time, merger process does not have any active momentum, as it had earlier. For insurance companies, as well as the government, there are other priority issues on the agenda. Hence, it is a secondary priority now,” said a senior official of another public sector insurance firm.
In an another indication that the merger is no longer on active agenda of the government, recently, S N Rajeswari, General Manager, New India Assurance (NIA), was selected by the Banks Board Bureau (BBB) as the Chairman and MD of Oriental Insurance Company. Its current CMD, AV Girija Kumar is retiring this month end on reaching 60.
“Till a proper plan evolves not just for the merger, but also for the IPO, it is necessary that the chiefs of the insurance companies prepare the blue print for the merger and handle the integration of the three companies. Hence, the government is making appointments wherever the post of CMD is falling vacant”, said Ashvin Parekh, Managing Partner, Ashvin Parekh Advisory Services.
Sources said, the whole purpose behind the merger was to augment capital by listing the merged entity on the bourses which would bring down the government equity in the merged entity. In the current context, given that the three companies are in not so good shape so if they go through with the merger and do the listing then it would be below par and will fetch the government less than what they were anticipating.
Further, the prevailing market conditions are not conducive enough for a merger as the IPO plans of the merged entity might not fructify due to weak market sentiments. In the February 2018 Union Budget, the government had announced a plan to merge the three firms. Subsequently, it planned to list the merged entity on the stock exchanges.
In the Union Budget for this year, the government set aside Rs 6,950 crore for recapitalisation of the three companies as all the companies are struggling as far as their solvency ratio is compared.
As of Q3FY20, National Insurance had a solvency ratio of 0.12 against the regulatory requirement of 1.5. Its combined ratio, a measure of profitability for non-life insurers stood at 173 per cent. If combined ratio is below 100 then the company is making underwriting profits.
Oriental Insurance has a solvency ratio of 1.54 as of Q3FY20 and it reported a combined ratio of 132 per cent. United India Insurance reported a solvency ratio of 0.94, much below the regulatory requirement and its combined ratio for Q3FY20 stood at 127.62 per cent.
Source: Business-Standard