An employee checks documents (Photographer: Balint Porneczi/Bloomberg)

Budget 2019: Consolidation Of State-Run General Insurers May Require Infusion Of Rs 13,000 Crore

The government may need to shell out close to Rs 13,000 crore to improve the financial health of state-run general insurers before initiating their consolidation, according to people in the know.

The government is exploring various consolidation options, including merger of state-run general insurance companies with New India Assurance Company Ltd., to create synergy and unlock value.

The Department of Investment and Public Asset Management, under the Ministry of Finance, is also looking at other options including stake sale in three state-run insurance firms—National Insurance Company Ltd., Oriental Insurance Company Ltd. and United India Insurance Company Ltd., the people said.

The idea is to fast-track stake sale in the public-sector general insurance companies which has been pending since last year.

However, the people said the government may have to infuse Rs 12,000-13,000 crore in the three companies to improve their solvency and prepare them for the merger. The upcoming budget could have provisions for the capital infusion, they said.

The Centre, in budget 2018-19, had announced that the three companies would be merged into a single insurance entity. The process of merger could not be completed due to various reasons, including poor financial health of these companies. Two of these companies are struggling to maintain their solvency ratio—a metric that measures a company’s ability to service claims. As against the Insurance Regulatory and Development Authority’s solvency ratio norm of 1.5, National Insurance has a solvency ratio of 1.5, while United India's level is comparatively lower at 1.21.

The consolidation in the public sector general insurance companies is part of the government’s disinvestment strategy.

The Centre had appointed EY as a consultant to see through the completion of the merger process. In 2017, New India Assurance Company and General Insurance Corporation of India were listed on the bourses and the exchequer earned money from the stake sale. The government has fixed a disinvestment target of Rs 90,000 crore for the current fiscal as against Rs 85,045 crore disinvestment receipts in the previous financial year.

Bloomberg Quint

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