The government is likely to announce a capital injection of about INR40bn ($576m) into three state owned general insurance companies when the first full-fledged Budget of the newly re-elected Modi government is scheduled to be presented in Parliament on 5 July.
The three companies are National Insurance, Oriental Insurance and United India Insurance.
The additional capital will help them improve their financial health so as to facilitate the merger of the general insurers, reported Press Trust of India.
At 31 December 2018, National Insurance reported a solvency ratio of 1.01 while Oriental Insurance’s solvency ratio was 1.21. The required minimum solvency ratio of 1.5. United India Insurance had a better solvency ratio, 1.51 at the end of December. The three insurers reported losses for the first nine months of the financial year ended 31 March 2019.
It is uncertain whether the INR40bn figure would be sufficient for recapitalisation. There have been estimates that the combined recapitalisation amount required is between INR90bn and INR150bn.
The consolidation of the three insurers has been discussed for over a year. In the February 2018 Budget, the central government had announced its plan to merge them and then list the merged entity. The merger would create India's largest general insurance company. Currently, the combined market share of the three insurers is 35% in terms of premiums. They have an aggregate staff strength of around 44,000 spread over 6,000 offices nationwide.
According to a report by Indo-Asian News Service, National Insurance's chairman and managing director Ms Tajinder Mukherjee said at a meeting organised last week by the Bharat Chamber of Commerce, "There is a huge requirement for capital by all the public sector (general insurance) companies. We have requested the government to infuse capital so that the companies can grow. We are hopeful that our request would be met."
She said the industry experienced "unprecedented growth" in the last few years, with the CAGR growing around 16-17% in the last 5-7 years.
"As we want to grow our business, capital has to be infused,” she said. subsequently list the entity would not be "restrictive" in terms of competition. "It will make the merged entity a stronger company which will have more capacity.”
She said that the consolidation of the three non-life insurers is the government's call. “We cannot give a timeline and how it will happen and in what form," Ms Mukherjee said, referring to the three insurers.