The government plans to sell stake in National Insurance Company, Oriental Insurance Company and United India Insurance Company
Ministry of Finance is considering merger of state-owned general insurance companies as part of the government's consolidation plan for the insurance sector.
The Department of Investment and Public Asset Management (Dipam) under the finance ministry is mulling various options in this regard. One of them is to sell the government's stake in three general insurance companies -- National Insurance Company, Oriental Insurance Company and United India Insurance Company. Second option is to merge the four public sector insurance companies instead of the proposed three in order to create a large public sector giant in general insurance on the lines of Life Insurance Corporation (LIC).
Once the merger is complete, the government can sell its stake in the broader entity.
Dipam is preparing a proposal on the consolidation of public insurers in consultation with the Department of Financial Services (DFS), sources said.
The government had earlier planned to merge three companies – National Insurance Company, Oriental Insurance Company and United India Insurance Company.
The government is also looking at the the feasibility of its stake sale in three state-owned insurance firms after their proposed merger with New India Assurance, sources said, adding that merger would help cut costs and achieve economies of scale as well as unlock value. This will also help the government to make up for any shortfall in tax revenues.
Various options include issuance of fresh shares which could be subscribed by New India Assurance and direct sale of stake to New India Assurance.
The government had appointed EY as a consultant to see through the completion of the merger process.
The consolidation in the public sector general insurance companies is part of the disinvestment strategy of the government.
The government has fixed a disinvestment target of Rs 90,000 crore for the current fiscal as against Rs 85,045 crore in 2018-19.
The 2018-19 Budget had proposed to merge National Insurance Co, Oriental Insurance Co and United India Insurance Co into a single insurance entity.
The process of the merger could not be completed due to various reasons, including the poor financial health of these companies. The insurance companies have lost market share during last one year, with National Insurance losing the most. Its share fell from 10.55% to 8.04% between 2018 and 2019.
The two of these public sector companies are struggling to maintain the solvency ratio, one of the key metrics to assess the financial health of an insurance company. As against the Insurance Regulatory and Development Authority's (Irda) solvency ratio norm of 1.5, National Insurance has an insolvency ratio of 1.5 while United India's level is comparatively lower at 1.21.
THE OPTIONS
- The government plans to sell stake in National Insurance Company, Oriental Insurance Company and United India Insurance Company
- The second option is to merge the four public sector insurers instead of the proposed three in order to create a large public sector giant
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