The federal government is seeking to provoke a mega merger of all state-owned normal insurers with the goal to create one massive public sector normal insurance coverage firm that will likely be akin to Life Insurance coverage Company of India (LIC). An Financial Instances report stated this might complement the present proposal to merger three state-run non-life entities into one single firm.
However there’s a hitch.
Whereas having one state-owned normal insurer would have the ability to create a extra invaluable entity on the inventory markets, there can be job cuts after the merger. As soon as merged, the entity may very well be value virtually Rs 2.5 lakh crore, making it the most important non-life insurer within the nation.
The whole worker power of the three firms put collectively is round 59,000 unfold over eight,200 workplaces. It’s estimated that after the merger, there may very well be a 20-30 p.c discount within the worker depend via using Voluntary Retirement Scheme (VRS) and different mechanisms.
Of the 27 normal insurance coverage firms in India, New India Assurance, United India Insurance coverage, Oriental Insurance coverage and Nationwide Insurance coverage are state-owned entities. At current, there are two specialist insurers, Export Credit score Assure Company of India (ECGC) and Agriculture Insurance coverage Firm. The remainder are personal non-life insurers.
If the brand new proposal is taken into account, they are going to be merged with New India Assurance, post-merger of those three insurers, creating an insurance coverage behmoth on the strains of LIC within the normal insurance coverage house.
This merger has been a pet undertaking of the Narendra Modi-led BJP authorities. The thought to merge the three insurers was to create a stronger and bigger insurance coverage firm that was sustainable in the long term. At current, New India Assurance is already listed on the inventory exchanges.
Sustaining sufficient solvency margin has been a problem for a number of of the PSU insurers. With this merger, the difficulty will likely be resolved.
Merger not a brand new phenomenon for PSU insurersState-owned insurers, in life in addition to normal insurance coverage, have been a results of mergers with a number of firms.
As an illustration, LIC was included on September 1, 1956 by amalgamating 243 firms. The final insurance coverage trade was nationalised in 1972 and 107 insurers had been grouped and amalgamated into the 4 PSU normal insurers.
Of those, United India was fashioned by a merger of 12 Indian insurers, 4 co-operative insurance coverage societies and Indian operations of 5 overseas insurers, other than the overall insurance coverage operations of LIC’s southern area.
Equally, Nationwide Insurance coverage was fashioned by a merger of 21 overseas and 11 Indian firms.
Submit-nationalisation, there was one profitable merger within the normal insurance coverage trade. This was L&T Normal Insurance coverage’s merger with HDFC ERGO Normal Insurance coverage in 2017.Subscribe to Moneycontrol Professional and acquire entry to curated markets knowledge, unique buying and selling suggestions, unbiased fairness evaluation, actionable funding concepts, nuanced takes on macro, company and coverage actions, sensible insights from market gurus and far more.