Finance ministry to review performance of state-run insurers; meeting to pave way for proposed merger

The finance ministry will soon review the performance of state-owned general insurers - National Insurance, United India Insurance and Oriental India Insurance, according to a media report. The review meeting will serve as a precursor to the proposed merger of the three companies and their eventual flotation on the stock markets.

The ministry has already told  the three state-run insurers to align their operations, according to The Economic Times. “We are hopeful that the firms will improve their performance, and we will be able to merge these companies in the next six months and after that we will look at listing,” a finance ministry official was quoted as saying by the newspaper.

Last week, the government told the Rajya Sabha that the proposed merger will help in effective use of infrastructure and improve solvency margins. In a written reply to Rajya Sabha on 20 March, Minister of State for Finance Shiv Pratap Shukla said the three firms will be merged into a single insurance entity and subsequently listed, the PTI reported.

Finance Minister Arun Jaitley had announced the merger of the three insurers in his Budget speech on 1 February.

Representational image. Reuters

Representational image. Reuters

The three companies together had a market share of 34.73 percent in fiscal 2016-17. While United India Insurance and Oriental Insurance reported a loss that year, National Insurance posted a decline in profit..

Why the merger?

According to Mint, the merger, which will lead to the formation of a giant organisation, is a key part of the Narendra Modi regime's divestment plan, which aims to bring in Rs 80,000 crore from the sale of the government's stake in several firms during the 2018-19 financial year.

K Sanath Kumar, the CMD of Kolkata-headquartered National Insurance Company, had told The Hindu Business Line in February that the merged company will see its valuations improve.

Elaborating on the merger, United India Insurance's CMD M N Sarma had said that it would help insurers consolidate their strengths. "Like each one of us has 30 regional offices so total number is 90. But after merger we can keep only 30 offices so the merged entity can reduce costs significantly," Sarma told the IANS.

The insurance sector has seen some consolidation and that action is expected to continue, Bajaj Allianz General Insurance Company CEO Tapan Singhel told the PTI last December. Some promoters could look at exiting non-core businesses, and consolidation will help large insurers achieve scale and bring in better synergies, and they could pass on cost efficiencies to customers and shareholders, he added.

With inputs from agencies

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Updated Date: Mar 27, 2018 14:31:08 IST

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