Finance Minister Arun Jaitley in his Budget -2018 presented in Lok Sabha on Thursday has announced a mega merger plan among three public sector general insurers – Chennai based United India Insurance, Kolkata based National Insurance Company, Delhi based Oriental Insurance Company and list the proposed new entity after the merger., .
After the completion of the merger of the three companies, the country will see the largest general insurer with over Rs 40,000 crore of premium and having a market share of over 30 per cent.
Asia Inurance Post, on Jan 19, had flagged off government's intention to merge three of the four public sector general insurance companies.(http://www.asiainsurancepost.com/non_life-news/govt-indicates-merger-three-public-sector-general-insurers)
New India Assurance,another public sector company , is currently the largest non-life player in the country with around Rs 22,000 crore of premium and 15 per cent of market share.
Subhas Chander Garg, Secretary, Economic Affairs Secretary
Subhas Chander Garg, Economic Affairs Secretary, Ministry of Finance, immediately after the Budgetary announcement said the government will be completing merger of three public sector general insurers in FY 2018-19 and will list the new entity during the year.
However , he ruled out any plans to disinvest in Life Insurance Corporation, whose disinvestment analysts say can help the government to mobilise a massive resources to tackle the slipping fiscal deficit.
Some analysts put a figure of Rs 20 lakh crore as the valuation of the LIC and a just 10 per cent disinvestment can help government generating more than Rs 2 lakh crore.
G Srinivasan, CMD, NIA
“It is a welcome move and it will help the merged company to get listed. We need to await full details,'' said G Srinivasan, CMD, NIA
MN Sarma, CMD, UII
MN Sarma, CMD, UII, commented, “Cut-throat competition among the state-run general insurance now will come to an end. Cost of operations will come down. As of now all the three companies put together have got 90 regional offices which will now come down to 30 post the merger. Requirement of staff will also come down and thus there may be 10,000-15,000 excess staff out of nearly 45,000 staff currently working in the industry. I personally believe that the merger may happen before the close of the next fiscal. As of March 2017, three general insurers had a total premium income of Rs 39,000 crore and has a market share of 32 per cent in the domestic general insurance markets.''
K Sanath Kumar, CMD, NIC
K Sanath Kumar, CMD, NIC , said,“The merger will result in the making of a very stronger company with higher enterprise value. It will create a good synergy. However, it depends on speed on pace that how long will it take to complete the process.
Alice Vaidyan, CMD, GIC Re.
The merger proposal of three insurance PSUs is a sound one but it is the implementation which will be the key to reaping the benefits of the proposal, said Alice Vaidyan, CMD, GIC Re..
Pushan Mahapatra, MD & CEO, SBI General Insurance
Pushan Mahapatra, MD & CEO, SBI General Insurance said, “The merger will create the largest general insurance company in the country This entity will subsequently be listed as part of the Government disinvestment programme and provide the necessary impetus to insurance penetration.
The merged entity and its subsequent listing could lead to improved operational efficiencies, adoption of suitable risk based pricing model while looking at a sustained growth rate, positively impacting both the insurance sector and the customer in the long term. Further, this would encourage domestic and foreign investors to positively review their investment decision in the sector. The impact of the merger and listing, on the end consumers, would be visible only 5 – 6 quarters post the merger as the process is long.
However, these three companies have faced difficulties in maintaining their required solvency ratios due to huge underwriting losses in recent years. The regulations by the IRDAI prescribe a solvency ratio of 1.5 per cent for each of the general insurers which operate in the country.
All the three companies are currently taking a number of corrective measures to cut down their underwriting losses and improve their solvency ratios. NIC had borrowed Rs 800 crore to gain back its solvency ratio while UII has just raised Rs 900 crore to improve its solvency ratio.
Earlier NIC which had planned a IPO during the current fiscal had postponed the exercise to the next fiscal.
Each of these insurers have around Rs 800-900 branches and around 15,000 employees and Rs 30,000 crores of assets.
It is worth noting that unlike unions in the other public sector companies, all major unions in the public sector general insurance companies have demanded a merger among state owned general insurers.
The analystes point out that still may not a easy task to merge three companies who were set in 1972 after effecting merger of so many general insurnace companies.
“More than physical merger , emotional integration among the companies are more important to achieve the desired results,'' said a CMD of a public sector general insurance company, who doesn't want to be named.