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Last Updated : Jun 06, 2019 06:00 PM IST | Source: Moneycontrol.com

Exclusive | PSU merger could be pushed to FY21, capital infusion will be top agenda

The insurers will be closely monitored on the solvency front after the capital infusion process is completed

M Saraswathy @maamitalks
Representative image
Representative image

The merger of the three state-owned general insurance companies (National Insurance, Oriental Insurance and United India Insurance) may be pushed to FY21 as the first priority of the government is now to infuse capital and spruce up the minimum solvency capital, according to sources.

"The three entities are in immediate need of capital. This will be the first step. The merger process has not been abandoned but is not an immediate priority," said a senior official associated with the development.

The original plan was to complete the basic merger by April 2019. This was then pushed to Q3FY20. Even if the merger is completed in FY21, the listing could be pushed to FY22.

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The recent incidents of flooding in Odisha and nearby areas has led to insurance losses and the PSU insurers are said to have taken a partial hit. Further, compared to other insurers in the non-life sector who have solvency of 230 percent and above, the three PSUs have either struggled to maintain 150 percent solvency or are just above the mark.

While the insurers are said to have sought almost Rs 7,000 crore, the government will only infuse a portion of this. The figure is likely to be Rs 4,000 crore-4,500 crore.

IRDAI rules mandate that every insurance company has to maintain the solvency of 150 percent at all times. This is to ensure that even if an insurer faces a high claim, they are able to pay the claims and run the business.

The PSU insurers' merger has been a pet project of the BJP government. It was announced by former finance minister Arun Jaitley in his February 2018 budget speech. The merged entity will subsequently be listed on the stock exchanges.

The idea to merge the three insurers was to create a stronger and larger insurance company that was sustainable in the long run. The other two state-owned entities, New India Assurance and General Insurance Corporation of India are listed on the exchanges.

While a consultant for the process was to be appointed by May 2018, the process was delayed. Delay in appointments of CMDs in some of the PSU insurers had also led to a delay.

The unions have also expressed concerns about the merger of the entities saying this would lead to retrenchment of staff at the mid and junior levels.

The initial estimates suggest this will be the largest non-life insurance company in India valued at about Rs 1.4 - 1.5 lakh crore.

The total employee strength of the three companies put together is around 42,000 spread over 5,700 offices. It is estimated that with the merger, there could be a 20-30 percent in the employee count through the use of Voluntary Retirement Scheme (VRS) and other mechanisms.

As of now, there has only been one successful merger in the general insurance industry, namely L&T General Insurance's merger with HDFC ERGO General Insurance in 2017.

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First Published on Jun 6, 2019 06:00 pm
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