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A Timely Merger Plan

 

The government has decided to merge three state-owned insurers -- National Insurance, Oriental Insurance and United India Insurance -, and list the consolidated entity later, reversing its earlier decision to take them to stock markets as individual companies.
 
The proposed move will lead to the creation of a state-owned insurer with heft and a strong balance sheet beside contributing significantly to the government’s disinvestment coffers.
 
It will also help in the implementation of the universal health coverage scheme, Ayushman Bharat, that finance minister Arun Jaitley has unveiled in the Union budget 2018-19. 
 
This presents a huge business opportunity for insurance companies. But only insurers with strong balance sheets would be able to make use of the potential opportunity. In this context, the proposal is well-timed.
 
The three insurers together account for nearly 30% of the country’s non-life insurance business. However, none of them is financially robust. As per the standards set by the sector watchdog IRDAI, the companies have to maintain a solvency ratio of 1.5. The ratio measures an insurer’s capital available to meet claims from the business that it has covered.
 
But neither of the three meets the statutory requirement, which means they cannot underwrite fresh business. 
 
The government has set target to raise Rs 80,000 crore via disinvestment in the coming fiscal. The proposed merger is expected to generate significant revenue to help the government meet the sell-off target next fiscal, just like ONGC-HPCL merger which came in handy for the government this year.
 
At a time when the government’s non-tax revenue collection target faces challenges, the proposed merger of insurers is a goldmine.


Posted By :  Admin
Posted Date :  05-10-2018