List And Divest: Centre's Idea Behind Merger Of Three General Insurers

In order to make government-owned general insurance companies profitable and achieve economies of scale, finance minister Arun Jaitley in this year's budget announced a plan to merge three insurers – National Insurance, United India Insurance and Oriental Insurance.

The other company New India Assurance, which is the largest state-owned general insurance company in the country, will remain as it is as it is already listed in the bourses.

However, if the proposed merger goes through, the combined entity will be much bigger than New India Assurance both in terms of premium collections and assets under management. According to data from Insurance Regulatory and Development Authority of India (Irdai), gross direct premium (within and outside India) of New India Assurance was Rs 21,598 crore in FY17. The company accounted for 16.5% of the gross direct premium of non-life insurers including standalone health insurers in Fy17.

In contrast, the gross direct premium of the three companies which are likely to be merged is Rs 41,462 crore, accounting for around 32% of the total gross direct premium in FY17. The merged entity will also subsequently go for listing. The merged entity may be valued at Rs 60,000 crore based on its investment book, net worth and real estate. Thus a single merged entity of the three companies will be bigger in size and the valuation will improve significantly. Moreover, the merger will lead to better pricing and better underwriting profitability.