In an attempt to provide sorely needed oxygen to gasping state-run general insurers, the government is considering infusing a fresh dose of capital in three PSU insurers even as a proposal for their merger hangs in the balance.
Although the three companies — National Insurance Company, Oriental Insurance Company and United India Insurance Company — have sought nearly Rs 7,000 crore, the government is likely to infuse only about Rs 4,000-4,500 crore. The announcement to this effect could be made in the first full-fledged Union Budget of the Modi 2.0 government, to be presented in Parliament on July 5. The idea is to first infuse capital and spruce up the minimum solvency, then merge the three firms to create a stronger and larger insurance company. The merged entity will then be listed on the bourses.
Owing to the rising underwriting losses and huge amount of paid claims, the profitability of general insurers has already taken a massive hit in recent times. The delay in the proposed merger has further cast its impact on the three firms, which has been reflected in their financial performance. In Q2FY19, the three firms posted high losses. For United India Insurance, loss before tax stood at Rs 868 crore in Q2 as against a loss of Rs 36 crore before tax in the corresponding period. For National Insurance, the loss was Rs 707 crore against a profit of Rs 90 crore a year ago, while Oriental India Insurance posted a whopping loss of Rs 240 crore in the said quarter against a profit of Rs 200 crore the previous year.
Apart from profitability, factors like solvency ratio and market share of these state-run firms also remain a concern. In terms of solvency ratio, all three have been pulled up for their poor scorecards and told by the finance ministry to boost their capital levels ahead of the merger, according to sources. As on March 2018, United India’s solvency ratio was at 1.54, Oriental at 1.67 and National Insurance at 1.26. While United India and Oriental have managed to pass by a narrow margin through the regulator’s solvency ratio requirement of 1.50 — a measure of an insurer’s ability to meet claims — National Insurance has failed to meet these standards. The dismal show comes into sharp contrast when measured with New India Assurance’s 2.58 and private players such as Bajaj Allianz General Insurance’s 2.76.
Data from the Insurance Regulatory and Development Authority of India also shows that the market share of Oriental declined to 7.60 per cent in 2017-18 from 8.43 per cent in the previous year. National, meanwhile, has seen market share fall from 11.11 per cent to 10.75 per cent, while the share of United India Insurance declined to 11.57 per cent from 12.54 per cent over the same time frame.
On the other hand, private player ICICI Lombard has cornered 10.1 per cent of the market in terms of gross direct premium underwritten up to June, making it the second-largest insurer in the non-life space pushing United India Insurance to the third spot with a market share of 9.67 per cent. While it remains to be seen if the infusion of capital can move the needle, initial estimates suggest that the combined entity formed by merging the three insurers will be the largest non-life insurance company in India valued at about Rs 1.3-1.5 lakh crore.
High claims drive loss
Owing to the rising underwriting losses and huge amount of paid claims, the profitability of general insurers has already taken a massive hit in recent times
In Q2FY19, the three firms posted high losses.
For United India Insurance, loss before tax stood at G868 crore in Q2 as against a loss of L36 crore before tax the previous year
For National Insurance, the loss was J707 crore against a profit of J90 crore a year ago, while Oriental India posted a whopping loss of J240 crore against a profit of J200 crore the previous year