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Published in Mint on 2nd February, 2018.

The Budget 2018 announced the merger of three state-run general insurance companies: National Insurance Co. Ltd, United India Insurance Co. Ltd and Oriental India Insurance Co. Ltd; before listing them on the stock exchanges as a part of its disinvestment programme. New India Assurance Co. Ltd, the fourth public sector general insurance company was listed in November 2017. The four state-run non-life companies together constitute nearly 60% of the market share. With merging the three entities, it’s expected the government can get better valuation. “With the merger, we will be a larger and a stronger entity. The enterprise value will definitely increase and so a better valuation can also be expected,” said K. Sanath Kumar, chairman and managing director, National Insurance.

As per a senior official of a state run general insurance company who did not want to be quoted, the idea of merging the entities could also be to boost solvency ratios. “All the three state run general insurance companies have very poor solvency ratio. The government could expect a better solvency through a merger. It also eliminates inter-company competition. Further the performance of public issues of both General Insurance Corporation and New India has not been great; so a merger of the remaining three PSU may bring a better price when listed,” he said. “Poor underwriting performance of any one insurance company will get hidden in the merged entity. So merging is not addressing the problem. Also, some of these companies on their own may even find it difficult to list given their poor underwriting performance,” said Kapil Mehta, co-founder, SecureNow.In.
As per Pushan Mahapatra, managing director and chief executive officer, SBI General Insurance Co. Ltd, the merged entity will be the largest company in the non-life space and it will also increase efficiencies. “Currently, financial parameters such as solvency, profitability and growth are a challenge. By merging the entities and if they are able to pull off the merger well, all of these can be addressed and also have better governance. Further listing will bring in greater transparency which will flow into the industry as more and more companies begin to list,” he said. Shashwat Sharma, partner and head of insurance, KPMG India agrees. “This will bring in more operational efficiencies,” he said. Customer of the merged entity can expect better customer experience and on a larger level, listing will bring in higher levels of transparency and accountability and will also push the industry to focus on underwriting profits.