PSU general insurance companies seek capital infusion prior to merger

Public sector general insurance companies, which are slated to be merged, have sought fund infusion from the central government before the amalgamation.

According to top officials of two of the public sector general insurance firms, the companies, in their communication to the department of financial services, have highlighted the need for imminent recapitalisation to maintain the regulatory solvency ratio and wipe out losses.

According to rough estimates, the need is at least Rs 2,000-3,000 crore in each of the companies, the total collective requirement is close to Rs 12,000-13,000 crore.  

Oriental Insurance posted a net loss of Rs 142 crore in the first quarter of this financial year. At the end of Q4 of the financial year, its solvency ratio stood at 1.57. United India Insurance’s solvency ratio stood at 1.52 at the end of last financial year, although it was profitable at the end of last financial year. 

National India’s solvency ratio stood at 1.55 at the end of last financial year. National Insurance’s net losses touched Rs 2,170 crore at the end of Q4 of last financial year. Data for United India Insurance and National Insurance for the present financial year is not available.

In the February 2018 Budget, the government had announced its plan to merge the three public sector general insurance firms — National Insurance, United India Insurance and Oriental Insurance. Subsequently the government planned to list the merged entity in the stock exchanges. However, there has not been much progress towards the merger since then, even as the financial health of the firms deteriorated in terms of losses, falling market share and poor solvency ratio.

A few months back, the three companies had appointed management consultant firm EY to draw a roadmap for merger.

The consultant has recommended National Insurance, United India Insurance and Oriental Insurance merge by December 2020, or within 18 months starting July. The companies are expecting fund infusion by April 2020.

The three sets of challenges identified are integration of work culture, rolling out a common software, and rationalisation of branches. 

In total, the three insurers have close to 6,000 offices across the country. In some metros, all the three firms have offices in the same areas.

The merger might not lead to mass layoffs or voluntary retirements as all the three firms had been working on an optimal workforce since the past couple of years. 

Since the merger was announced in 2018, there has hardly been any new recruitment in these companies.

The market share of National Insurance, Oriental Insurance, United India Insurance and New India Assurance fell below their private peers for the first time in the last financial year.

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