Moneycontrol Be a Pro
Get App
Last Updated : Jun 14, 2019 06:44 PM IST | Source: Moneycontrol.com

Explainer | The mega PSU general insurance merger

The merger of the four state-owned general insurers into one large entity sounds easier on paper. The real challenge would be bringing all stakeholders on board within a stipulated time-frame.

Moneycontrol News @moneycontrolcom
Representative image
Representative image

The government may be planning a merger of all state-owned general insurers into one entity, a report suggested. The government's idea is to have an entity similar to the Life Insurance Corporation of India (LIC) in the non-life sector.

The process, however, would be complex with an array of approvals from the regulatory bodies, a go-ahead from the labour unions as well as the competition commission.

Here is a lowdown on how the process could actually work:

Close

Reaching a consensus

In the Budget of 2018-19, then finance minister Arun Jaitley announced a merger of National Insurance, Oriental Insurance and United Insurance into one entity. The idea was to subsequently list the merged entity. However, the process has been stretched due to a delay in the appointment of a consultant. There was also a lack of consensus among the merger contenders about the structure of the deal, which is now being ironed out.

Improvement of solvency ratio

All insurance companies are required to maintain a solvency ratio of 150 percent at all times. However, owing to the multiple natural catastrophes as well as high claims ratios in segments like crop insurance and third-party motor insurance, solvency margins of a few state-owned insurers have either slipped below 150 percent or just meet the minimum requirement. A combined entity will not have such issues and will be able to have adequate liquidity to pay claims.

Clearance from regulatory authorities

Once the modalities of the merger have been worked out, it will be essential to get regulatory permission from the insurance regulator as well the Competition Commission of India. With this, the combined entity will come into existence.

Merger into one body

When the three insurers have been merged into one entity, the next step will be to initiate a merger with New India Assurance. A new consultant will have to be appointed for the process of the final merger. When the merged entity is amalgamated with New India Insurance, the country's largest general insurer will be born. This insurer will be worth almost Rs 2.5 lakh crore with 59,000 employees across 82,000 offices.

Final regulatory clearance

Once the final merger plan is approved by the company boards, the insurance regulator (IRDAI) as well as the Securities and Exchange Board of India, will have to give a go-ahead for the deal. This is because New India Assurance is already listed on the stock exchanges.

The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .
First Published on Jun 14, 2019 06:44 pm
Loading...
Sections
Follow us on
Available On
PCI DSS Compliant