India’s state-owned general insurance giants Oriental Insurance, National Insurance, and United India Insurance, who together have 34 percent of the total market share and underwriting total direct premium of over Rs. 33,000 crore, are likely to be merged to create a stronger entity to fetch better valuations at the time of listing.
In January the government formally approved to list five state-run general insurers while announcing its intent to pare its stake in these firms to 75 percent in one or more tranches.
“It is in a preliminary stage. We are looking at various options,” a senior finance ministry official said.
The listing plans of GIC Re, the state-owned reinsurer, and New India Assurance is already in the works, the official said.
“Consolidation in state-run companies is being explored across all sectors. In insurance, it is necessary that we have presence of state-run entities as they serve the larger purpose of financial inclusion and also to ensure there is there is enough competition,” he said.
Finance minister Arun Jaitley in his budget speech said one of the themes under the broad agenda in the financial sector is ‘growth and stability through stronger institutions.’
According to insurance regulator Insurance Regulatory and Development Authority of India (IRDAI) annual report 2015-16, market share of Oriental declined to 8.63 percent in 2015-16 from 8.75 percent in the previous year and National Insurance fell to 12.43 per cent from 13.27 per cent in 2014-15.
These three firms have also been struggling with their solvency ratio, a measure of excess of capital and assets over the insured liabilities. Thus, the government may not be able to unlock their full potential if individually listed.
“We have to look at all aspects, including HR issues. These decisions take time,” the above-quoted official added.
Oriental Insurance Company has a solvency margin of 1.1% and National Insurance Company is at 1.26 per cent against the regulatory requirement of 1.5 percent. United India stands at 1.56 per cent but had notched up net losses of Rs.429 crore in the first half of the current fiscal.
“By these methods, central public sector enterprises (CPSEs) can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders,” Jaitley said in his budget speech.
