4 Reasons Why National Insurance, Oriental Insurance, United India Will Be Merged

4 Reasons Why National Insurance, Oriental Insurance, United India Will Be Merged
4 Reasons Why National Insurance, Oriental Insurance, United India Will Be Merged

Three of the biggest and most influential insurance companies from the public sector: National Insurance, Oriental Insurance, United India will be merged. This will create India’s biggest non-life insurance company, fully owned and operated by Govt.

Analysts have termed this as the biggest consolidation in India’s insurance space, and things are charged up right now.

Interestingly, unlike other mergers in Govt owned entities like banks, etc, employee unions are not opposing this merger of National Insurance, Oriental Insurance, United India. Infact, the employee unions from all the three PSUs want this merger to happen.

Here are 4 reasons why this merger is actually happening:

The Origin & The Objective

During 2018-19 Budget announcement, then finance minister (now expired) Arun Jaitley had declared that three of the biggest non-life PSU insurance companies: National Insurance, Oriental Insurance, United India would be merged.

The idea was to create India’s biggest non-life insurance company, and then list the entity in the stock market to raise more funds.

However, due to lack of consensus among all the parties involved, the actual merger took longer. But December end is the approximate timeline for completing the merger now.

Improving Insolvency Ratio

As per Govt. mandated rules, every insurance provider (life or non-life), will have to maintain an insolvency ratio of 150 times, at any given time.

Insolvency Ratio indicates whether the company will be able to meet its short-term and long-term liabilities or not. 

Now, this insolvency ratio of all three state-owned insurance companies: National Insurance, Oriental Insurance, United India are either below 150, or just hovering on the edge. The reason is that these insurance firms provide insurance cover for crops, and motor insurance, and due to natural phenomena, the insurance claims are higher.

Another objective was to raise the insolvency ratio for all the three insurance companies, by merging them.

Creating India’s Largest Insurance Firm (Non-Life)

The primary idea was to merge National Insurance, Oriental Insurance, United India into one entity, and then merge this combined entity with New India Assurance, which is right now India’s biggest general insurance company.

This way, Govt plans to create a single general (non-life) insurance giant, just like LIC is there for life insurance.

This mega-merger of four PSU insurance firms will create an entity whose market value will be Rs 2.5 lakh crore, along with 59,000 employees, across 82,000 offices.

Financial Assistance Of Rs 12,000 Crore

As mentioned earlier, the three state insurers (non-life): National Insurance, Oriental Insurance, United India are going through financial troubles right now, and their insured claims ration is often as high as 114%.

We already mentioned that insolvency ratio is low, and the companies are being difficult to manage.

However, just before the merger, these three firms can get Rs 12,000 crore each from Govt, under Budgetary allocation.

Once this happens, their financial woes can be removed. Due to legal and technical issue, these insurance firms can only receive the funds when they merge.

National Insurance, Oriental Insurance, United India have collectively market value of Rs 9343 crore, with 44,000 employees, across 6000 offices. They offer 200+ insurance products, and had a market reach of 35% (2017 numbers).

We will keep you updated, as more details come in. 

Sources: 1, 2, 3, 4

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