Exclusive | Appointment of chiefs at public sector insurance cos may be delayed by 3 months

The appointment of chairman and managing director (CMD) at three public sector general insurance companies may be delayed by three months. Sources told Moneycontrol that while interviews were conducted, the final names will be given out only by early October. One of them, New India Assurance is listed on the exchanges.

The insurers, New India Assurance, National Insurance and United India Insurance have been headless after their CMDs retired in July, April, and May, respectively. A handful of candidates had been called for the interview in May, but a final shortlist is yet to be released.

All the public sector appointments have to be cleared by the appointments committee of the Cabinet that is headed by the prime minister.

While it was initially said the idea was to keep a lean organisation structure in United India Insurance, National Insurance, and Oriental Insurance since they were to be merged, now there are talks of this process being pushed to FY20.

“The government wants to have an entity of meaningful size and also fetch a good price when it lists. Hence, a merger in FY19 is unlikely,” said a source close to the development.

The merger was expected to be the biggest ever merger in the insurance sector with the merged entity having a valuation exceeding Rs 1 lakh crore. This announcement had come as a surprise to the market, since National Insurance was already planning to list by June 2018.

Considering two of the three headless insurers are merger and IPO (initial public offering) candidates and will have to operate independently at least for the new few quarters, investment bankers told Moneycontrol that filling up the posts is imperative to give a positive signal.

“Large private sector insurers have pipped public sector insurers in market share. Not having a chief for several months gives a negative message to the markets, especially since the government is keen on an IPO of the merged entity in the future,” said a senior investment banker.

In the initial days, there were concerns around two of the merger candidates maintaining lower-than-required minimum capital. Insurers are required to maintain a minimum solvency (capital required) of 1.5X (assets vis-à-vis liabilities) at all times.

At the close of FY18, the solvency margin of the insurers has seen an improvement. Oriental Insurance’s solvency improved to 1.67 in FY18 from 1.11 a year ago. National Insurance had a solvency margin of 1.55 at the end of the March quarter down from 1.90 a year ago. United India’s solvency moved to 1.54 from 1.15 a year ago.