Public-sector general insurance companies which are slated to be merged have urged the government for fund infusion before the amalgamation.
According to top officials of two public sector general insurance firms, the companies in their communication with the department of financial services have highlighted the need for immediate recapitalisation in order to maintain the regulatory solvency ratio and wipe out losses.
According to rough estimates, the need for immediate recapitalisation is at least Rs 2,000-3,000 crore in each of the companies, while the collective requirement is close to Rs 12,000-13,000 crore.
Oriental Insurance posted a net loss of about Rs 142 crore in the first quarter of this financial year. At the end of Q4 of the previous 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. National Insurance’s solvency ratio stood at 1.55, and its net losses touched Rs 2,170 crore. Data for United India Insurance and National Insurance for the current financial year is not yet available.
In the February 2018 Budget, the government had announced a plan to merge three public sector general insurance firms—National Insurance, United India Insurance and Oriental Insurance. Subsequently, it planned to list the merged entity on the stock exchanges. However, there has little progress on the merger since, even as the financial health of the firms deteriorated in terms of losses, falling market share and poor solvency ratios.
A few months back, the three companies had appointed management consultant firm EY to draw a roadmap for merger.
EY has recommended that National Insurance, United India Insurance and Oriental Insurance be merged by December 2020, or within 18 months starting July. The insurance companies are expecting fund infusion by April 2020.
The three sets of challenges identified are integration of work culture, rolling out common software, and rationalisation of branches. In total, the three insurers have close to 6,000 offices across the country. In fact, in some metros, all three firms have offices in the same areas.
The merger might not lead to mass layoffs or voluntary retirement as all three firms have had an optimal workforce the past couple of years. Since the merger was announced in 2018, there has hardly been any new recruitment in the 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.