INSUBCONTINENT EXCLUSIVE:
for the mega merger of three general insurance firms to create one large and strong entity seems to have hit a roadblock
The Department of Financial Services (DFS), which oversees the operations of state-owned insurance firms, has written to the DIPAM not to
proceed with the merger plan in haste and let it examine the proposal afresh and untangle complex operational issues first.The fresh
impediment has already removed the merger plan from this year's disinvestment calendar prepared by the Department of Investment and Public
Sources now say that with the Finance Ministry raising fresh concerns, it would be difficult for the merger plan to go through even next
year when a new government comes in at the centre.The government had announced the merger of three public sector general insurance firms:
National Insurance Company, United India Insurance Company and Oriental India Insurance Company, in Budget 2018
The move was billed as the biggest ever merger in the insurance sector with the new entity having a valuation exceeding Rs 1 lakh crore
It intended to complete the exercise in FY19 itself."The DFS is concerned that a merger without looking at the exercise from different
angles could lead to problems for the new entity emerging from the coming together of three general insurance firms
Besides, there are also issues of further cutting losses and making operations of companies efficient and low cost
These have been highlighted by the DFS in its letter that virtually stalls the process and seeks more time to complete the merger," said an
Even this could be delayed if the tasks identified by the DFS are to be implemented and observed in detail."Though the government hoped that
the financial position of general insurance firms would improve before commencing the merger, the plan has not moved on the desired lines
In the quarter ended September last year, the three insurers had posted a combined loss of around Rs 1,800 crore
HR practices across the three firms is also needed before any merger could be considered
This is important as a combined entity could clock growth only if synergies are built
Right now there are no synergies and commercial interest of each company is clashing with others.Rather than strengthening operations,
state-run general insurance companies have gone deeper into the red this year
Oriental had posted a loss of Rs 240 crore in the second quarter of this fiscal year, against a profit of Rs 200 crore in the July-September
The companies' market share has also fallen with market share of National Insurance Company with respect of gross direct premium till
December 2018 fell to 8.63 per cent
United India Insurance share also came down by around 4.88 per cent."There is need to bring down the losses of insurance firms further
before any merger and subsequent listing is considered
The idea of the exercise is to create a larger and stronger entity and not one that remains weak and unable to take competition," said a
monetising their assets including real estate to raise revenues
It is expected that some capital support will also come from the Centre as there is also a plan to list the merged entity
In 2017-18, the centre had listed National Insurance and General Insurance Company, divesting 11.65 per cent and 12.5 per cent stakes
respectively.Last year, the merger process moved a step ahead with the government floating a request for proposal (RFP) for appointment of
consultants to oversee the merger process
But it did not move any further thereafter.
