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Last Updated : Jun 14, 2019 11:21 AM IST | Source: Moneycontrol.com

An LIC-like general insurer will improve valuations, but could lead to job cuts

Once merged, the entity could be worth almost Rs 2.5 lakh crore making it the largest non-life insurer in the country.

Moneycontrol News @moneycontrolcom
Representative image
Representative image

The government is looking to initiate a mega merger of all state-owned general insurers with the aim to create one large public sector general insurance company that will be comparable to Life Insurance Corporation of India (LIC). An Economic Times report said this could complement the existing proposal to merger three state-run non-life entities into one single company.

But there is a hitch.

While having one state-owned general insurer would be able to create a more valuable entity on the stock markets, there would be job cuts after the merger. Once merged, the entity could be worth almost Rs 2.5 lakh crore, making it the largest non-life insurer in the country.

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The total employee strength of the three companies put together is around 59,000 spread over 8,200 offices. It is estimated that after the merger, there could be a 20-30 percent reduction in the employee count through the use of Voluntary Retirement Scheme (VRS) and other mechanisms.

Of the 27 general insurance companies in India, New India Assurance, United India Insurance, Oriental Insurance and National Insurance are state-owned entities. At present, there are two specialist insurers, Export Credit Guarantee Corporation of India (ECGC) and Agriculture Insurance Company. The rest are private non-life insurers.

As per the report, the mega merger will be the next step to the existing plan. In the Union Budget 2018-19, the then Finance Minister Arun Jaitley had announced that United India, National Insurance and Oriental Insurance will be merged and subsequently listed.

If the new proposal is considered, they will be merged with New India Assurance, post-merger of these three insurers, creating an insurance behmoth on the lines of LIC in the general insurance space.

This merger has been a pet project of the Narendra Modi-led BJP government. The idea to merge the three insurers was to create a stronger and larger insurance company that was sustainable in the long run. At present, New India Assurance is already listed on the stock exchanges.

Maintaining adequate solvency margin has been a challenge for a few of the PSU insurers. With this merger, the issue will be resolved.

Merger not a new phenomenon for PSU insurers

State-owned insurers, in life as well as general insurance, have been a result of mergers with several companies.

For instance, LIC was incorporated on September 1, 1956 by amalgamating 243 companies. The general insurance industry was nationalised in 1972 and 107 insurers were grouped and amalgamated into the four PSU general insurers.

Of these, United India was formed by a merger of 12 Indian insurers, four co-operative insurance societies and Indian operations of five foreign insurers, apart from the general insurance operations of LIC’s southern region.

Similarly, National Insurance was formed by a merger of 21 foreign and 11 Indian companies.

Post-nationalisation, there has been one successful merger in the general insurance industry. This was L&T General Insurance's merger with HDFC ERGO General Insurance in 2017.
First Published on Jun 14, 2019 11:21 am
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