Expected to be one of the biggest mergers in the history of insurance, three general insurance companies namely National Insurance, Oriental Insurance and United India Insurance have been proposed to be merged by Mr. Arun Jaitley in this Union Budget. However, this ambitious mega merger is witnessing hindrances in its initial phase.
According to sources, the three general insurance companies are yet to agree on a consultant who would be responsible for the pricing and valuation of the merger.
Reportedly, the prime reason for this disagreement is the differences in the way the companies will be valued and who will get a better deal in the merger. Sources also state that there have been three meetings in the past two months in this regard, but all of them have been inconclusive as stakeholders have not been able to come to a consensus on the terms and conditions of the appointment of a consultant.
The major reason why the general insurance players have not come to a common ground is to ensure a smooth process flow of the merger. Out of the three, only National Insurance has a solvency margin of 1.53, whereas United India and Oriental Insurance hold a solvency margin of 1.08 and 1.43 respectively. According to IRDAI rules insurers are required to maintain 1.5 solvency margin at all times. Reportedly, the insurance companies want the consultant to consider the fact that he would have to pull up the solvency margins of the two insurers to 1.5, to meet the standards set by IRDAI. The fourth quarter results are yet to be released.
The Budget proposal and progress on the merger
Mr. Arun Jaitley, while presenting the Union Budget had stated that, “We will merge the three companies and subsequently list them.” This announcement by the finance minister came as a surprise, more so for National Insurance as the company was ready with IPO and optimistic about its listing by June 2018.
Informal discussions within the three companies had begun, as soon as the merger was proposed. The senior management of the insurers had recently met with the Finance Ministry officials on February 16 to discuss the proceedings of this amalgamation. So far, the company board members are yet to meet to discuss the human resource matters and how the merger shall pan out.
Hopefully, the board members of the three general insurance companies shall soon come to a consensus to bring a consultant on-board, who ensures a smooth transition of these players as a united firm in the insurance space.