General elections will be held in April and May 2019 in India. The merger will be initiated only by the end of Q2FY20.
The merger of the three state-owned general insurance companies is likely to be pushed to the next financial year, post the General Elections in 2019. Sources told Moneycontrol the government is buying more time to get a better valuation for the combined entity.
Sources said the merger is not the top priority for the government at present. Considering April and May are when the Lok Sabha elections will take place, the merger process will be pushed to the end of the second quarter of FY20. This means it's business as usual for the almost 75 million policyholders of the three entities for the next few quarters.
“The idea is to have a better value for the larger entity. Consultants will be appointed at a much later stage so that the finer details of the merger between the insurers can be finalised. It is a complex arrangement and will take time to be completed,” said a senior official.
Finance minister Arun Jaitley had made a budget announcement in February 2018 for the merger and subsequent listing of United India Insurance, National Insurance, and Oriental Insurance. Among the public sector companies, New India Assurance and reinsurer General Insurance Corporation of India.
The merger was expected to be the biggest ever in the insurance sector with the merged entity having a valuation exceeding Rs 1 lakh crore. This announcement had come in as a surprise to the market, since National Insurance was already planning to list by June 2018.
In the initial days, there were concerns around two of the merger candidates maintaining lower-than-required minimum capital. Insurers are required to maintain a minimum solvency (capital required) of 1.5X (assets vis-à-vis liabilities) at all times.
At the close of FY18, the solvency margin of the insurers has seen an improvement. Oriental Insurance’s solvency improved to 1.67 in FY18 from 1.11 a year ago. National Insurance had a solvency margin of 1.55 at the end of the March quarter down from 1.90 a year ago. United India’s solvency moved to 1.54 from 1.15 a year ago.Apart from the valuation concerns, there has been an opposition from the employee unions has been an area of concern. Employee union sources told Moneycontrol they have not yet received a concrete response on whether there will be any human resource restructuring post the merger.