Centre puts off merger plans after trio of weak general insurers hit profit-OxBig News Network

The three companies—United India Insurance, Oriental Insurance Company and National Insurance Company—are the weaker of the four state-owned general insurers. But they posted profits in the first nine months of FY25, a turnaround after years of losses.

United India reported profits of ₹27.45 crore, Oriental Insurance ₹368.37 crore and National Insurance ₹29.46 crore in the period. The fourth company, New India Assurance, is the stronger of the quartet.

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All three have been told to focus on profitability rather than revenue growth as the government sets out to monitor their performance for a possible decision next year.

If the insurers remain profitable through FY26, options such as a merger or even privatization may be revisited, the people mentioned above said. A potential merger could involve the integration of the three entities and their subsequent amalgamation with the stronger New India Assurance.

“The weaker general insurers have shown improved performance in FY25, with all three posting profits in the first nine months. If they remain profitable through all four quarters of FY26, the government may consider options next year,”the first person mentioned above said.

“Privatization of one insurer is also under consideration. However, no formal policy decision has been taken yet,” the person mentioned above said, requesting anonymity.

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Meanwhile, the three insurers have been directed to focus on profitable business and prioritize improving margins over chasing revenue growth, the second person mentioned above said.

“The emphasis is now on underwriting discipline, cost control and better risk assessment to ensure sustainable profitability,” the person said.

At a recent event, financial services secretary M. Nagaraju said no decision had been taken yet on merging the PSU insurers and that the government would announce its policy when one was finalized.

An emailed query sent to the finance ministry remained unanswered at the time of publishing.

Spokespersons for United India Insurance, Oriental Insurance Company, National Insurance Company and New India Assurance didn’t respond to emailed queries.

Ironically, talk of consolidation in the public sector general insurance space has grown louder with the improved performance shown by these historically loss-making entities.

Oriental and National began posting profits from Q4 FY24 and Q2 FY25, respectively, while United India turned profitable in Q3 FY25 after a gap of seven years.

However, their solvency positions remain weak.

As of 31 December, 2024, United India’s solvency ratio stood at -0.91, Oriental Insurance’s at -1.05 and National Insurance’s at -0.53—well below the regulator’s mandated minimum of 1.5. A negative solvency ratio indicates that liabilities exceed assets, raising concerns about financial stability.

“As we have seen in the banking industry in India, there has been a business case of merging an under-performing bank with a leading performer. In such mergers, the leading performer can support the acquired business at negligible accretive cost for the overall good of the customers and shareholders alike,” said Narendra Ganpule, Partner, Grant Thornton Bharat. 

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“However, when you merge two below-par performers, you don’t get that benefit. It ends up becoming a larger inefficient company. The way to go should be to find a buyer for these companies through a competitive bidding process for the larger good of the companies, employees, customers and to ensure the financial prudence of taxpayers’ money,” he added.

The government had earlier proposed merging the three into a single entity and listing it on the stock exchanges. 

It also considered whether one of the three could be privatized or if the merged entity itself could undergo equity dilution. 

The merger plan was announced in 2018 by then finance minister Arun Jaitley. However, it stalled as the insurers continued to incur losses and remain weak on solvency ratios.