Government calls off the merger of the three public sector general insurance companies
The Union government decided not to proceed with the merger of three ailing public sector general insurance companies. The main focus will be on making them profitable instead.
The Cabinet also approved capital infusion of Rs 12,450 crore into the three firms — Oriental Insurance Company, National Insurance Company, and United India Insurance Company. It is inclusive of Rs 2,500 crore which was already infused in February.
“Given the current scenario, the process of the merger has been ceased so far and instead focus shall be on their solvency and profitable growth, after capital infusion”, according to Press Information Bureau (PIB).
Out of the Rs 12,450 crore, the government will release Rs 3,475 crore immediately. The remaining Rs 6,475 crore will be infused later. In the 2020’s budget, the government allotted Rs 6,950 crore for re-capitalisation of the three entities.
The Cabinet also approved raising the authorised capital of National Insurance Company to Rs 7,500 crore and that of United India Insurance to Rs 5,000 crore to give effect to the infusion. “The capital infusion will enable the three public sector general insurance companies to improve their financial and solvency position, meet the insurance needs of the economy, absorb changes and enhance the capacity to raise resources and improved risk management” as per PIB release.
As of the third quarter of 2019-20, National Insurance Company had a solvency ratio of 1.01, against the regulatory requirement of 1.5. Solvency ratio is a key indicator of financial health. Its combined ratio stood at 173 per cent. The combined ratio is the measure of profitability for non-life insurers. If the ratio is below 100, it indicates that the firm is making underwriting profits.
Oriental had a solvency ratio of 1.54 and reported a combined ratio of 132 per cent. United reported a solvency ratio of 0.94, much below the regulatory requirement, with the combined ratio at 127.62 per cent.
