The Indian government is considering restructuring its three weak general insurance companies, National Insurance, Oriental Insurance, and United India Insurance. The goal is to limit the number of state-owned companies in non-strategic sectors, such as general insurance, to one or two. The options being discussed include merging two of the companies with the listed and profitable New India Assurance, merging all three, or merging only two and preparing the third for privatization.
The discussions are at an early stage, and any decision will follow a deeper study of each insurer’s solvency profile, integration challenges, and the fiscal implications of further capital support. The government’s plan to restructure the insurance sector is part of its broader policy to reduce the number of state-owned companies in non-strategic sectors.
The three weak general insurers have been struggling with low solvency ratios and dependence on regulatory forbearance, despite reporting profits in some quarters. United India Insurance, National Insurance, and Oriental Insurance have solvency ratios of -0.65, -0.75, and -1.03, respectively, which are below the minimum 1.5x set by the insurance regulator.
In contrast, New India Assurance has a solvency ratio of 1.87x and has reported significant profits in recent years. The company’s strong financial position makes it a potential merger partner for the weaker insurers. The government’s plan to restructure the insurance sector is also driven by the need to prepare public sector insurers for increased competition from private sector players, following the opening up of the sector to 100% foreign direct investment.
Industry experts believe that consolidation is necessary to strengthen the sector and limit future fiscal exposure. They suggest that merging the weaker insurers could create a stronger, larger entity that can compete with private sector players. However, they also caution that privatization should not be an immediate focus, given the low level of insurance penetration in the country.
The restructuring plan is part of a broader effort to reshape India’s public sector, including the banking sector. The government has already begun consolidating public sector banks, and similar efforts are expected in the insurance sector. The goal is to create stronger, more efficient entities that can compete with private sector players and provide better services to customers.