Merger of three General Insurance Companies (PSU): Minister of State for Finance and Corporate Affairs, Anurag Thakur recently informed the Lok Sabha that three public-sector General Insurance Companies, namely, National Insurance Company Limited, United India Assurance Company Limited and Oriental India Insurance Company Limited will soon be merged into a single insurance entity. The move was announced by Finance Minister Nirmala Sitharaman in her maiden Budget 2019-20 speech, proposing to amend the General Insurance Business (Nationalisation) Act, 1972 to enable the merger of non-life insurance companies.
The Finance Bill, announced alongside the Budget 2019-20, proposed to replace the “there will be four companies” statement of a 1972 act section with “there will up to four companies”.
The merger of these three PSU General Insurance companies was also announced by former Finance Minister Arun Jaitley in his Budget speech of 2018-19; however, nothing major was done in this regard. The incumbent Finance Ministry is now serious about the merger of these three companies.
Facts & Figures of merged insurance entity as per the data of March 31, 2017:
• The three companies – National Insurance, United India Assurance and Oriental India Insurance together had over 200 insurance products with a total premium of Rs 41,461 crore.
• The combined net worth of these three companies is Rs 9,243 crore.
• The total employee strength is over 44,000.
• Total number of offices is 6,000.
• These 3 companies account for total market share of around 35 percent.
Note: The combined entity will become the largest non-life general insurance Indian company with value of Rs 1.2-1.5 lakh crore.
EY: Consultant for merger of PSU General Insurance Companies
The National Insurance Company Limited, United India Assurance Company Limited and Oriental India Insurance Company Limited had earlier appointed EY (Ernst & Young) as a consultant for their merger. EY has been tasked to carry out the merger in a consolidated way.
EY is expected to advice on organisational restructuring, management of operational issues, rationalisation of human resources, and other concerned issues.
What prompted the Government to announce the merger of these Public-Sector Insurance Companies?
In order to create synergy and unlock the value of the insurance sector, Government has decided to merge these 3 major public-sector general insurance companies. This consolidation of general insurance companies is part of the Disinvestment Strategy of the Modi 2.0 Government.
The trickling-down performance of these insurance companies is one of the major concerns behind the merger. The never-ending period of uncertainty, delays in appointment of Chief Managing Director (CMD) in two of these insurance companies, and their struggle to maintain the solvency ratio have adversely impacted their performance.
Government aims to augment the performance of these three insurance companies through this merger without any further delay.