The Government of India is weighing various options including merger of state-run general insurance firms to improve their financial condition.
An inter-ministerial panel (IMG) has been constituted to chalk out a plan for a two-phase merger of state-run general insurers.
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A finance ministry official told the Economic Times that the government is also looking to explore how to merge Oriental Insurance Company, National Insurance Company and United India Insurance with minimum capital infusion.
The official told the publication: “We can kickstart with merger between the three firms as planned and go for the next phase after some time.”
He further added that the Department of Investment and Public Asset Management, under the Ministry of Finance, is also working to draw a roadmap for the process.
In its fiscal year 2019 budget, the government revealed intentions to merge the three insurance firms into one entity, keeping New India Assurance Company separate.
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By GlobalDataIn the next phase of consolidation, it was planned that New India Assurance will acquire the merged entity.
Through the proposed merger, the government aims to create a general insurance major similar to Life Insurance Corporation of India (LIC), the country’s largest life insurer.
At the end of May, the pooled market share of the three state-run insurers in terms of gross direct premium was approximately 25%, while New India Assurance had a market share of 16.8%.
In order to merge Oriental, National and United India, the government will have to infuse millions of dollars.
“Initial estimates show that more than INR100bn ($b1.45n) will be required for the proposed merger. Given the capital constraints, options will be looked at to minimise such capital infusion,” this official told the newspaper.
The Insurance Regulatory and Development Authority of India (IRDAI) requires insurance firms to have solvency ratio of 1.5 times their liabilities.
