The ministry of finance has opened discussions with the four state-owned general insurance companies?New India Assurance, Oriental Insurance, United Insurance, and National Insurance?on the issues of disinvestment and possible consolidation, according to sources.
?For the four public sector companies, both the issues of disinvestment and consolidation are being linked in order to get a better pricing for the issues?, an official in one of the insurance companies told FE.
But the process could be long-drawn, given the political hot potato the issue is. The disinvestment, whenever it happens, will not alter their public sector status, but will give them more room to raise capital for expansion.
Consolidation of some general insurers has become necessary after the insurance regulator relaxed the rules for free pricing of risks. The ?de-tariffing? process created severe underwriting losses for all the four companies, which has impacted their balance sheet. This has been exacerbated by the low income they garnered from their investment in the capital markets.
Despite being larger in terms of branch network, manpower and customer penetration, these companies have lost over 40% of their market shares to the 17 private sector general insurance companies.
The government is, therefore, keen to merge them into two bigger entities prior to any stake sale to create a stronger balance sheet. This will need an amendment to the General Insurance Act of 1972, which created these four entities. The process could get support from an unlikely source?the trade unions in the public sector companies who favour consolidation.
The four companies have recently appointed two management consultants, at a cost of over Rs 70 crore, to rework some of their businesses and have begun implementing some recommendations.
After de-tariffing, the industry?s combined ratio (net incurred claims and insurance-related operating expenses as a percentage of net premiums) was high at over 115% in 2008-09.