New Delhi: The Narendra Modi government has dropped its plan to merge three state-run general insurance companies — a precursor to their eventual listing in the stock markets.
Then Finance Minister Arun Jaitley had announced the government’s intention in the 2018 budget to merge these firms — National Insurance Co Ltd, United India Insurance Co Ltd, and Oriental Insurance Co Ltd — into a single entity and then list the combined entity in the stock exchanges.
But the weak financial position of these insurance companies along with the challenges of merging these firms, like the different technology platforms, seems to have forced a rethink. In addition, the fact that a merged large entity with weak financials will not fetch an attractive valuation for listing has also been taken into account.
A government official who did not wish to be identified said the timing of the merger was not right given the Covid-19 pandemic and the fallout on the insurance business.
“It was felt for now the companies should focus on providing insurance rather than the merger,” the official told ThePrint.
“…given the current scenario, the process of merger has been ceased so far and/instead focus shall be on their solvency and profitable growth, post capital infusion,” said a press statement after the meeting of the union cabinet Wednesday that approved a capital infusion into these companies.
The insurance companies have been recording losses for the last few quarters, necessitating a capital infusion by the central government to replace the eroded capital.
Govt will look to ensure optimum utilisation of infused capital
The cabinet approved a capital infusion of Rs 12,450 crore into the three general insurance companies.
Of this, while Rs 2,500 crore has already been infused in 2019-20, Rs 3,475 crore will be infused in the current fiscal. The remaining amount will be infused in tranches, the government said adding that the infusion will help the three insurance companies in improving their financial and solvency position.
The government will look to ensure optimum utilisation of the capital being infused and monitor key performance indicators to ensure business efficiency and profitable growth.
State owned insurance firms reported a huge jump in their underwriting losses — or the losses incurred when the claims payout has been higher than the premiums received. This was mainly on account of the state-owned firms aggressively quoting low premiums to capture group insurance businesses, according to insurance brokers.
The government’s decision comes even as the merger plan was in advanced stages of discussion with the three insurance companies appointing EY as a consultant.