Strengthening balance sheet: Government considering Rs 4,000 crore infusion into 3 insurers

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Published: January 9, 2019 5:17:55 AM

After public sector banks (PSBs), the government is considering infusing around Rs 4,000 crore next fiscal into three state-run general insurance firms — National Insurance Company, Oriental Insurance Company and United India Insurance Company —that it has proposed to merge.

balance sheetStrengthening balance sheet: Government considering Rs 4,000 crore infusion into 3 insurers

After public sector banks (PSBs), the government is considering infusing around Rs 4,000 crore next fiscal into three state-run general insurance firms — National Insurance Company, Oriental Insurance Company and United India Insurance Company —that it has proposed to merge. The capital infusion is aimed at improving the solvency of these companies, two of which (barring Oriental Insurance) are already struggling to meet the solvency ratio requirement of 1.5.

Sources told FE that the proposal by the department of financial services may be included in the upcoming interim Budget. “The infusion will strengthen the balance sheets of these insurers, which is essential before they are merged and listed,” said one of the sources. Rising underwriting losses and higher claims have eroded the profitability of many general insurance companies, including the state-run ones, in recent years, causing their solvency ratio to slip.

According to initial estimates, the larger entity formed by the merger of the three insurers will be the largest non-life insurance company in India, with a value of Rs 1.2-1.5 lakh crore. While Oriental Insurance already complies with the solvency requirement, as stipulated by the regulator IRDAI, United India has a solvency margin of 1.21 and National Insurance is just around 1.5.

The process of the merger — announced in the Budget for 2018-19 — has started, with the shortlisting of management consultancy firm EY to advise on the proposed move. However, the merger is expected to be completed only in the next fiscal instead of the budgeted target of FY19, as various issues — ranging from the rationalisation of branches and workforce to integration of software — are yet to be chalked out. The government intends to list the broader entity after the merger.

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The three insurance companies together accounted for 200 insurance products and a market share of around 35% as of March 2017. Their combined net worth was to the tune of Rs 9,243 crore and employee strength of around 44,000 across 6,000 offices.

The government had, in 2017, raised more than Rs 17,500 crore by listing state-run New India Assurance Company and General Insurance Corporation of India.

The government has been infusing capital into PSBs in recent years to help them meet regulatory requirement and grow out of the bad loan mess. It has planned to infuse `1.06 lakh crore into PSBs in the current fiscal, compared with Rs 88,139 crore in FY18.

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