Budget

Union Budget 2018: Mega insurance firm in offing

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Merger of 3 state-run insurers to raise efficiencies; may lift combined valuation

The proposed merger of three general insurers would create a mega insurance company in the public sector domain and the consolidated entity is likely to come out with a public issue.

Currently, there are four public sector insurance companies: New India Assurance, National Insurance, Oriental Insurance and United India Insurance.

Under the Gross Direct Premium underwritten up to December, in the current fiscal, New India Assurance was at ₹16,806.45 crore; National Insurance ₹11,732.21 crore; Oriental Insurance ₹8,396.18; and United India Insurance was at ₹11,987.03 crore. The proposed insurance company’s premium would be at more than ₹30,000 crore.

“The consolidation... is a step in the right direction and would lay the foundation for the merged entity to become collectively stronger,” said Khushroo B. Panthaky, director, Grant Thornton Advisory.

Further, Mr. Panthaky said that these state-owned companies were based in different regions and therefore were not in the best position to scale up across the country.

The suggestion for consolidation came from the All India Insurance Employees Association (AIIEA) – Secretary of Standing Committee and would result in elimination of competition between the three PSU companies, reducing marketing expenses, raising cost efficiencies, streamlining of processes and systems by adopting the best prevailing, and finally, enabling an increase in the risk retention capacity, which directly results in saving in the cash outflow of re-insurance premiums.

The listing of the merged entity also gives the opportunity to the government to optimise on the divestment front as it enhances the valuation of the entity. The consolidation and subsequent listing is step towards enhanced penetration of general insurance business by the public sector, that would result in higher mobilisation of funds for general insurance products.

“Merger of the three general insurance companies is expected to be positive given the benefits from better economies of scale and reduction in unhealthy competition thereby benefiting the private sector insurers also. Merger prior to listing shall also result in better valuation of the entity,”Karthik Srinivasan, Group Head- Financial Sector Ratings, ICRA Ltd.

“Merger of three PSU insurance firms is definitely a positive move for the entire insurance industry. Just like a whole is greater than a sum of individual elements, the merged entity will have higher scalability and lower operational costs,” said K.G Krishnamoorthy Rao, Managing Director & Chief Executive Officer, Future Generali India Insurance Company Limited.

From the industry’s perspective, Mr. Rao said that it will lead to healthy competition which will ensure innovation in product offerings and better customer service.

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Printable version | Jan 21, 2020 11:58:05 AM | https://www.thehindu.com/business/budget/union-budget-2018-mega-insurance-firm-in-offing/article22625177.ece

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