“There has been no movement on the merger. There has been no communication from the government, and we have also not heard from consultants.
However, the board has already approved the merger. Given the current situation, we have a feeling it will get delayed,” said an executive of a one of the insurers.
In January, the boards of all three firms had approved the merger. Last year, the three firms had appointed EY to prepare the roadmap for the merger. It had recommended completion of the same by December 2020 or within 18 months starting July. “Merger is not on the priority list,” said another executive of one of the firms.
“For insurers and the government, there are other issues on the agenda. Hence, it is of secondary priority,” said a third senior executive of one of these firms.
In yet another indication, S N Rajeswari, general manager of New India Assurance (NIA), was recently selected chairman and MD of Oriental Insurance Company by the Banks Board Bureau (BBB).
Current Chairman and MD, A V Girija Kumar, is retiring this month end.
“Till a proper plan evolves — not just for the merger but also the IPO — it is necessary that chiefs of the insurance firms prepare the blue print for the merger, and handle integration of the three entities. Therefore, the government is making appointments wherever the CMD post is falling vacant,” said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.
People in the know said the whole purpose behind the merger was to augment capital by listing the merged entity, which would bring down government equity. In the present context — given that the three firms are not in a very good shape — if they go through with the merger and do the listing, it will be below-par and fetch the government less than expectations.
Further, the prevailing market conditions are not conducive enough for a merger because IPO plans might not fructify, given the weak market sentiment. In the February 2018 Union Budget, the government had announced its plan to merge the three. Subsequently, it planned to list the merged entity on the exchanges.
In the Budget earlier this year, the government set aside Rs 6,950 crore for recapitalisation of the three entities as all of them were struggling on the solvency ratio front.
As of Q3FY20, National had a solvency ratio of 1.01, against the regulatory requirement of 1.5. Its combined ratio — a measure of profitability for non-life insurers — stood at 173 per cent. If the combined ratio is below 100, the firm is making underwriting profits.
Oriental had a solvency ratio of 1.54 and reported a combined ratio of 132 per cent. United reported a solvency ratio of 0.94, much below the regulatory requirement, with combined ratio at 127.62 per cent.