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
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