Three PSU General Insurance Companies Seek Rs. 12,000 Crore Capital Infusion

The three PSU general insurers viz., United Insurance, National Insurance, and Oriental Insurance, seek a capital infusion of Rs. 12,000 Crore from Centre to save themselves from sinking and manage the business. This has been referred to as a precondition before the beginning of the merger process.

As per a senior official, “Capital is the immediate need of the business. We can have the merger only once the entities have a healthy balance sheet.”
The proposal will probably be considered in February 2020 budget. The merger was first proposed nearly two years back.

The capital will first be used to improve the solvency or minimum capital of the three insurance companies. By June end, United India’s solvency was 140% whereas of Oriental Insurance was 156%. National Insurance’s solvency in March 2019 was 104%. Two of them are less than 150% line set out by the IRDAI (Insurance Regulatory and Development Authority of India). Which means that the assets must be 1.5 times of liability. Another cause to worry is their combined ratio, which of National Insurance was 117.76%, United India’s was 131.38%, and Oriental Insurance’s was 132.39%.

This shows that the insurer is suffering from underwriting losses, i.e. the amount paid for claims is more than the premium amount received. A ratio below 100% depicts that claims and premiums are balanced.

The Director of one of these PSU insurers said, “Valuations (during listing) will also depend on our capital. Hence this proposal needs immediate consideration," said the director of one of the merger candidates.”

The merger process

This merger was a pet project of BJP government and was announced by the former Finance Minister Arun Jaitley during Feb 2018 budget speech.

The idea was to bring the merging entity on stock exchanges. It was to create a stronger insurance company that is able to sustain in the longer run.

The two PSU general insurers namely New India Assurance and General Insurance Corporation of India have a presence on the exchanges. It is estimated that this will be the largest non-life Indian insurer worth around Rs. 1.5 Lakh Crore.

But considering a few challenges like human resource concerns, etc, sources share that the actual merger is only expected in FY 21 and not FY20. This might happen by the end of March 2021 or Q1 of FY22.