Talks on to create mega single insurer; plan to merge United, Oriental and National underway.
India is looking to establish a single, mega state-run general insurer under New India Assurance, possibly revising its earlier plan to have two such firms. A government official confirmed that discussions are on between the Department of Financial Services and the Department of Investment and Public Asset Management to examine all possibilities. New India Assurance is the country’s biggest general insurer.
India has 25 general insurers, of which four are state-owned companies — New India, Oriental, National and United India.
The initial plan, as announced in FY19 budget, had been to merge Oriental, National and United Insurance into one entity, keeping New India Assurance, which listed in 2017, separate. The first three entities are unlisted.
“There are already so many private sector entities operating in this sector… Why should two large state-run firms undercut each other’s business,” said the official cited above.
The government is open to the plan outlined in the budget going ahead, followed by New India taking over the merged entity. Such a plan would create an entity in the general insurance space that’s analogous to the state owned Life Insurance Corp of India (LIC), besides allowing the government to get a payoff.
“If we first merge the three and then New India acquires this firm… This option can also be looked at,” said another official aware of the development. “This will depend on the financial strength of New India and the government may raise some proceeds in the process.”
Meeting Solvency Ratio
New India had a market share of 16.80% in terms of gross direct premium at the end of May, according to the latest Insurance Regulatory and Development Authority of India (IRDAI) data. The combined share of the other three state-run insurers was about 25%.
The finance ministry has been pushing the state-run general insurers to restructure loss-making portfolios, improve claim management and avoid pricing battles among each other in the last years.
“Their capital requirements are also being looked at,” said one of the officials cited above. The public-sector insurers’ losses shrank to Rs 12,603 crore in FY18 from Rs 16,012 crore in FY17
Thanks to special dispensation from the insurance regulator, Oriental, United and National were able to meet the mandatory solvency ratio of 1.50% at the end of March 2018, said people with knowledge of the matter. Solvency ratio is the excess of capital and value of assets over insured liabilities. It indicates the buffer an insurer has to settle claims in extreme situations.
Oriental’s former chairman RK Kaul said, however, that it would be best to merge the three smaller companies first and let them stabilise. “New India Assurance is already doing fine and it has a significant international presence,” he said. “This may not be the time to disrupt its operations in any way.”