India Finalises Terms To Hire Adviser For Mega Insurance Merger
The finance ministry is finalising terms of reference to hire a consultant to advise on the merger of three state-run general insurers, two officials aware of the development told BloombergQuint.
A draft was prepared by the end of February and the ministry and General Insurance Public Sector Association—the group of four non-life insurers—are looking into it, the officials quoted above told BloombergQuint. The ministry’s approval is expected soon and a tender would be floated most likely by May to select the consultant, one of them said.
The planned merger of National Insurance Company, United India Insurance Company and Oriental Insurance Company will create a financially stronger giant with about 32 percent of the market share based on overall gross premiums for the last six years. This is more than twice of that of New India Assurance’s market share — currently the largest general insurer in India. The government will then part-sell its stake in the combined entity in an initial public offering.
The consultant will advise insurers on the reorganisation of personnel and employees, integration of IT systems and consolidation of investments, the two officials said.
“This will be apart from the financial structuring, legal compliance, data privacy issues, competition laws and regulatory approvals that will also have to be looked at,” said Alina Arora, partner at the law firm Luthra & Luthra. The lowest bidder will win the contract, but a merger of such scale requires the best of resources, she said.
The timeline of the merger will be finalised only after an adviser is selected, the first official quoted above said. A high-level committee of 20-30 top officers from the three insurers will supervise the process.
The three non-life insurers together, according to information on their websites, employ about 47,202 people. “Human resources compliance, right from employees’ provident funds, gratuities and termination clauses, will pose a major challenge given the size of the manpower,” said Arora.
The three companies have 6,075 branch offices in all, compared to New India's 2,452 branches.
“The merger will also entail rationalisation of offices to ensure that multiple branches of the merged entity are not concentrated in the same area,” said Naresh Makhijani, partner and head of financial services at KPMG. “The integration of IT systems and cultures of these organisations will also be mammoth tasks, where effective implementation would be key to decide the success of the process.”
The three companies together had short- and long-term investments of Rs 69,450 crore in the year ended March 31, 2017, as per disclosures on their website. These will have to be consolidated into the new entity, said one of the official quoted.
“There are various challenges to that,” said Arora. One issue would be meeting the regulatory requirement of limiting an insurer’s stake in a company to 15 percent. “Even with the large investment portfolios of these companies, it will have to be ensured that the regulatory requirement is met for each investment without any loss to policyholders.”
United India Insurance’s chairman and managing director, MN Sarma had told PTI on Feb. 13. that the merger is likely to be completed by March 31, 2019.
Both Arora and Makhijani agreed that this isn’t realistic. The process, Arora said, could take a minimum of two years considering that it’s still on the drawing board.