State-Run General Insurance Agencies to Get Rs. 12,000 Crore from Centre

After the recapitalisation of nationalised banks, now is the turn for state-run general insurance agencies. In the ongoing declaration, the centre is to infuse Rs. 12,000 Crore to three public sector insurance companies. The capital infusion is to be done in United India Insurance, Oriental Insurance and National Insurance to boost their capital and meet their regulatory norms. The financial condition of all these three state-run general insurance companies is found to be very weak.

In the budget last year, the merger of these three state-run general insurance companies was declared. The merger was a part of the disinvestment strategy of the government. Ernst & Young was appointed by the centre to take care of the whole merger process.

In any case, the merger couldn’t be completed due to poor financial condition of these companies. As indicated by the Insurance Regulatory and Development Authority (IRDA), the solvency ratio of 1.5 is required for listing. Solvency ratio is the key measurement to assess any company’s ability to pay off its debts. At present, the two companies are struggling to meet this requirement. Where National Insurance has a solvency ratio of 1.5, United India has a comparatively low solvency ratio of 1.21.

As per the sources, the government will infuse Rs. 12,000-Rs. 13,000 Crore in these units to improve their solvency ratio and in this way set them up for merger. Only after the infusion can the merger take place. It is said that after the merger, the unit formed will be one of the biggest insurance agency in India.