Merger of Ori­en­tal, Na­tional & United In­dia In­surance in the Works

Govt plans con­sol­i­da­tion of in­sur­ers to cre­ate a stronger en­tity that will help fetch bet­ter val­u­a­tions at the time of list­ing

The Economic Times - - Economy: Macro, Micro & More - Dheeraj.Ti­wari@ times­

New Delhi: In­dia’s state-owned gen­eral in­surance giants Ori­en­tal In­surance, Na­tional In­surance, and United In­dia In­surance, who to­gether have 34% of the to­tal mar­ket share and un­der­writ­ing to­tal di­rect pre­mium of over .₹ 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 staterun gen­eral in­sur­ers while an­nounc­ing its in­tent to pare its stake in th­ese firms to 75% 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 staterun en­ti­ties as they serve the larger pur­pose of fi­nan­cial in­clu­sion and also to en­sure there is there is eno- ugh com­pe­ti­tion,” he said.

Fi­nance min­is­ter Arun Jait­ley in his bud­get speech said one of the themes un­der the broad agenda in fi­nan­cial sec­tor is ‘growth and sta­bil­ity through stronger in­sti­tu­tions.’

“In that spirit, we are look­ing at var­i­ous op­tions,” the above quoted fi­nance min­istry of­fi­cial added.

Ac­cord­ing to in­surance reg­u­la­tor In­surance Reg­u­la­tory and Deve- lop­ment Au­thor­ity of In­dia (IRDAI) an­nual re­port 2015-16, mar­ket share of Ori­en­tal de­clined to 8.63% in 2015-16 from 8.75% in the pre­vi­ous year and Na­tional In­surance fell to 12.43% from 13.27% 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% against the reg­u­la­tory re­quire­ment of 1.5%. United In­dia stands at 1.56% but had notched up net losses of .₹ 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.

3 state-run in­sur­ers have 34% of to­tal mkt share & un­der­writ­ing to­tal di­rect pre­mium of 33,000 cr

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