PSU General Insurance Companies Seek Fund Infusion from the Government Before Amalgamation

Criticised to be merged, public-sector general insurance companies are now persuading the government for fund infusion before merging. Top officials from two PSU general insurance companies share that companies have put forward their requirement of urgent recapitalisation in their talks with the financial services department so that they are able to maintain the regulatory solvency ratio and get rid of the losses.

Going by the estimates, there is a requirement of recapitalisation of at least Rs. 2,000 Crore to Rs. 3,000 Crore in every company. However, the collective need is assumed to be roughly around Rs. 12,000 to Rs. 13,000 Crore.

Oriental Insurance reported net loss of around Rs. 142 Crore during Q1 of the current financial year. After Q4 of the last financial year, its solvency ratio was 1.57. Whereas United India’s solvency ratio was 1.52, but it was profitable. National insurance’s solvency ratio was 1.55 and its net losses were around Rs. 2,170 Crore. The data for the current financial year of National Insurance and United India Insurance is unavailable.

The government announced a plan in February 2018 that notified about the amalgamation of three PSU companies, viz., United India Insurance, Oriental Insurance and National Insurance. Then it was planned to list the merged identity on stock exchanges. But the merger has not seen great progress since poor solvency ratio and declining market share.

The three PSU general insurance companies had assigned the task of defining a roadmap for the merging identity to a management consultant EY. EY suggested amalgamation of the three general insurers by December 2020 or within 18 months from July. The insurers are seeking fund infusion from the government by April 2020.

There are some sets of challenges pointed out including rolling out common software, integration of work culture, and rationalisation of branches. The three companies have nearly 6,000 offices throughout India. In fact, all the three insurers have offices nearby each other.

The merging identity might not result in mass layoffs or voluntary retirement because all the insurers have the best workforce in the past few years. Since the announcement of the merger, there were not many new hiring in the companies.

Market share of general insurance companies viz., Oriental Insurance, New India Assurance, and National Insurance, and United India Assurance declined way more than their private peers.