Govt kicks off merger of general insurance PSUs, heads to meet on Friday

Chiefs of three public sector general insurers--National Insurance (NIC), Oriental Insurance and United India--are meeting on Friday to thrash out the initial roadmap for the merger of the companies. The merger, proposed by finance minister Arun Jaitley in his budget speech, would lead to significant overhead cost savings, including the abolition of half of the 90 regional offices that these three companies have in aggregate, said United India Insurance head M N Sarma.

"We are meeting on February 16 to discuss the Budget pronouncements. Three of us, heads of NIC, Oriental Insurance and me would be there along with (finance) department officials," CMD Sarma said on the sidelines of industry body ASSOCHAM-sponsored conference on the insurance sector.

Jaitley on February 1 proposed merger of Kolkata-headquartered National Insurance Company, Chennai-based United India Insurance Company and Delhi-based Oriental Insurance Company to merge and eventually get listed.

"The merged entity will have a lot of operational advantages. Between three of us, we have about 90 regional offices with each having 30 offices. Post merger, we might be having 45 such offices across the country," Sarma said, adding that abolition of half of the regional offices won't lead to job cuts but the excess staff could be deployed in extending the reach of the insurance companies in a country where most of the population remain largely untapped.

"We see the merger completed by the next vote-on-accounts for the Budget," he said.

The merger of the three competing insurers might not be beneficial for consumers but Sarma claimed insurance premium wouldn't be driven up. "The competition between us is limited. There won't be much impact on insurance premiums. The benefits would largely be greater financial strength and better risk management."

The biggest of general insurance players--New India Assurance--got listed in November preceded by reinsurer General Insurance Corp (GIC) in October.

The performance of the scrips of these two state-owned general insurance players aren't satisfactory though:

New India Assurance now trades at Rs 733, down from its listing price of Rs 800 while GIC is down from Rs 912 to Rs Rs 745 since its IPO.

The government was supposed to list NIC, Oriental and United Insurance but the decision to merge them instead and then list the combined entity might have been driven by the poor stock performance of the two general insurance behemoths though Sharma denied such a possibility.

"Performance of general insurers are turning better. Insolvency ratios of all three including us would be much better by March," he said.

Both General Insurance ans New India have just come out with encouraging results.

"General insurance business in India continues to grow at a healthy rate. The insurance sector in India is projected to reach $350-400 billion by 2020. Penetration remains low at about 4% and this is an area of great opportunity," GIC said in a release on Tuesday while announcing a 4.5 times jump in bottomline to Rs 2,482 crore fuel by growth in gross direct premium of 36.8% at Rs 33,274 crore.

COST-SAVER

• Chiefs of National Insurance, Oriental Insurance and United India  to meet on Friday
   
• The merger would lead to significant overhead cost savings
   
• It would lead to abolition of half of the 90 regional offices that these three firms have