New Delhi:
Inching towards the final implementation of the two-year old merger plans of three PSU general insurance companies,after being directed by the government,the boards of Oriental Insurance Company(OIC) and United Insurance Company (UII) have met today separately in New Delhi, to pass merger resolutions.
The board of National Insurance Company (NIC) will meet in Kolkata on Monday to follow suit.
“In a short notice, the ministry of finance (MoF) asked boards of the three companies to meet and pass necessary resolutions on the merger proposal.There was no other agenda for today's board meeting and government is yet to give us a clear-cut and detailed roadmap for the meger,’’ confirmed a CMD of a PSU general insurance company, who doesn't want to be named.
Like in the PSU banking industry, where three banks have already been merged and 10 more are already in the process to be merged into four, the merger resolutions of the boards of the three companies will now facilitate necessary approvals by the Union Cabinet.
The finance ministry has already floated a Cabinet note on the proposed merger of three state-owned general insurance companies
“We are expecting some fund infusion for the three companies that may be a part of the forthcoming Budget- 2020-21. With so many challenges, the target for the full merger of three companies is now March 2021,’’ said the CMD of PSU general insurance company.
Though, the three companies have asked for a fund infusion of around Rs 12,000 and have remained unsuccessful in that, finance minister Nirmala Sitharaman may allocate Rs 5,000-Rs 6000 crore so that these companies can improve solvencies and be in a better position to do business. Rest of the capital can be raised through subrdinated debts.
With all its legal, IT and operational complexities, there are lot of steps need to be completed before three companies are merged into one. After merger, the merged company would be largest general insurance company in the country with a premium over Rs 50,000.The government also plans come out with an attractive VRS scheme for around 45,000 employees of three companies and would list the merged entity on stock exchanges at the earliest.
Thanks to crop insuranace, the three companies, at over Rs 33,500 crore, have seen significant growth in the premium income till Dec 2019. However, at present they lack profitability and solvency due to heavy losses and heavy provisioning.
As on Mar 31, 2019, the solvency ratio of National Insurance Company was 1.04 and for Oriental Insurance Co it was 1.57. Solvency ratio for United India Insurance, as on Mar 31, 2018, it was 1.54.According to the guidelines of Insurance Regulatory and Development Authority of India, general insurance companies need to maintain a minimum solvency ratio of 1.50.
The regulator defines solvency margin as the excess of value of assets over the value of liabilities. Lower the solvency ratio of a company, the greater the chance of it defaulting on debt obligations.
In Dec 2018, Ernst & Young(E&Y) was appointed as a consultant to develop strategies for the merger at a cost of Rs 60 crore..