Centre weighs restructuring of three PSU insurers as merger talks return

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The Centre is exploring a major restructuring of National Insurance, Oriental Insurance and United India Insurance, with options ranging from mergers to eventual privatisation. According to a report by Mint, the Union finance ministry is evaluating several combinations, including merging two insurers with New India Assurance, merging all three, or consolidating only two while preparing the third for privatisation.

A senior official told Mint that “the Centre is seeking a structure that aligns with the policy to limit the number of state-owned companies in non-strategic sectors to one or two, while retaining a minimum of four in strategic sectors.” General insurance falls under the non-strategic category. Any final decision will depend on a detailed assessment of solvency deficits, integration challenges and the fiscal burden of further capital infusion.

The revival of consolidation discussions marks the return of a plan first mooted in 2018. That effort stalled as the three insurers faced mounting losses and weak solvency margins, forcing continuous government support. Their intermittent quarterly profits in FY25 have now reopened the debate over consolidation. A second person told Mint, “This time, the conversation is more pragmatic. The focus is on what is feasible, what strengthens the sector, and what limits future fiscal exposure.”

Experts say the government’s approach mirrors earlier public-sector bank consolidation. C.R. Vijayan, former secretary general of the General Insurance Council, told Mint it is “very natural” for the government to pursue mergers or privatisation. With insurance now fully open to 100% FDI, global insurers are expected to expand aggressively, putting pressure on PSU companies to modernise.

Vivek Iyer, partner and financial services risk leader at Grant Thornton Bharat, said in the Mint report, “Competition elevates the quality of customer focus and the need to bring about better efficiencies, something that the public sector insurers can achieve through consolidation.” He added that privatization should be seen as a future “value-unlocking” move, and suggested bringing in experienced private-sector professionals to run the firms more efficiently.

Financial pressure remains significant. The three weaker insurers continue to report solvency ratios far below the mandated 1.5x threshold, despite occasional profits and regulatory forbearance. In contrast, New India Assurance remains comfortably above regulatory levels and continues to show strong profitability and investment strength, making it the likely anchor for any restructuring.