Merger most likely by end of next financial year: CMD, National Insurance

In a Q&A, K Sanath Kumar says the challenge of technology and cultural convergence can be addressed

After the initial public offering (IPO) of New India Assurance last year, Kolkata-based National Insurance was next in line for an IPO early next financial year. However, now with the government proposing the merger of three public sector general insurance companies -— Oriental Insurance, National Insurance and United India Assurance -- National Insurance will now have to re-prioritise its strategies. K Sanath Kumar, chairman and managing director of the state-owned insurer, in an interview with Namrata Acharya, points out how the mega-merger will create new synergies amid challenges.

What are your views on the merger of the three public sector general insurance firms?

The merger will increase the combined strength of the public sector insurance companies, and also add to enterprise value. We hope that such a merger will bring more synergies and consolidation of market share. It would lead to the creation of largest general insurance company in the country. Today the general insurance market is very fragmented. So creating large entities in a fragmented market makes sense.

What kind of synergy can we expect in the merged entity?

Different public sector general insurance companies have presence in different geographies. They also have different distribution channels and specific array of customers. For example, some companies have a good presence in the power sector, others are good in retail, while others may have presence in oil and energy--so all this leads to synergies.

What are the challenges in creating this insurance behemoth?

It would be a challenge to manage such a big company, but we have necessary management expertise within us to oversee the merger and drive its growth. One challenge would be technology, as we are on different technology platforms that have to be brought together, However, the challenge can be met with the present technology. Also, there should be a cultural convergence, which also is possible. Salaries and terms of conditions of all the employees should remain the same.

Would it be a challenge to rationalise the products as all the three companies have different offerings?

Most of the products are essentially similar with some finer aspects of differentiation. Hence rationalisation of product will not be difficult. It is difficult to predict how the premium will move -- whether it will go up or down.

What would the expected size of the merged entity be?

This will not simply be an addition of numbers, although the total premium income alone together would be around Rs 40,000 crore (Rs 400 billion). Then there will be a lot of convergence and rationalisation of offices as well.

You had been in the process of having an IPO. Now with the sudden change in government decision, did you incur any costs?

It is very clear now that the combined entity will go to the market. We haven’t appointed any merchant bankers as yet, and only discussions had been going on with the government.

What do you think is the rationale and government’s thinking behind the merger?

In the banking sector too, government had announced that there would be consolidation, so it is continuation of government’s vision of creating a larger government-owned entity in the financial sector. This is just a natural corollary.

What is the realistic timeframe for the merger?

I was told that the merger would be most likely finalised by the end of next financial year. The Insurance Nationalisation Act has to be amended and necessary permission for the merger has to be acquired from the Irdai. Share transfer is not a challenge, as 100 per cent is held by the government.