Merger of PSU general insurers called off two years after budget proposal

Over two years after proposing a merger of public sector general insurance companies, the government on July 8 said it has 'ceased' the process. Instead, the focus will now be on their profitable growth and maintaining minimum capital levels, the government has now said.

As of Q3FY20, United India's solvency ratio stood at 0.94 as against the regulatory requirement of 1.5. Here, solvency means the minimum capital/assets that have to be maintained against the liabilities.

Solvency ratio of Oriental Insurance stood at 1.54 at the end of Q3FY20 while that of National Insurance stood at 0.12 percent as of Q3FY20.

National Insurance which had a wide gap between its solvency margin and the minimum solvency mandated by IRDAI had said in its public disclosure that this is after considering full fair-value change account balance and 2.5 percent discounting on motor third party IBNR (incurred but not reported) provisions as per forbearance given by the regulator.

The government had announced plans to merge state-owned general insurance companies, Oriental Insurance, United India Insurance and National Insurance in Budget 2018.

Union Cabinet chaired by the Prime Minister Narendra Modi also today approved the capital infusion for an overall value of Rs 12,450 crore (including Rs. 2,500 crore infused in FY20) in the three insurers.

Of the total, Rs 3,475 crore will be released immediately while the balance Rs 6,475 crore will be infused later.

The PSU general 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 idea was that the merged entity would 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.

However, there were solvency concerns that had delayed the merger process.

Moneycontrol had also reported earlier about how the government had put the PSU merger on the back-burner.

EY was appointed as the consultant for the process in December 2018. The initial estimates had suggested that once merged, the new entity would be the largest non-life insurance company in India valued at about Rs 1.5 lakh crore.