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The Union government may privatize one of India’s four state-owned general insurers in the first half of FY23 because of high investor interest, ahead of the planned divestment of public sector banks, two people aware of the matter said.

Several private insurers have shown strategic interest in state-run insurers, and some of them have already met officials of the department of financial services (DFS) over the past few months, the people cited above said, encouraging the government to push their privatization first.

The government owns four general insurance companies —New India Assurance, National Insurance Co., United India Insurance Co. and Oriental Insurance Co.

A group of ministers (GoM) on disinvestment may identify the public sector insurer for sale before the current fiscal year ends so that the process could start in the first quarter of FY23 and be completed in the first half of next year, the people said on condition of anonymity.

Queries emailed to DFS, the administrative department for public sector insurers, and the ministry of finance remained unanswered until press time.

Privatizing an insurer will also be easier for the government since the Parliament has already amended the General Insurance Business Nationalization Act, which allows it to dilute its stake in a general insurer below 51%. However, the Parliament is yet to amend the Banking Regulation Act, which is necessary to divest a government-owned bank. Though the amendment was expected in the winter session of Parliament, it was not introduced as the session ended ahead of time.

The people cited above said that three to four large private insurers and a couple of new insurance companies have held early talks with the DFS officials. Based on the insights from these meetings, the government will create a timeline for disinvesting insurance companies.

Finance minister Nirmala Sitharaman in her Budget 2021 speech, had announced strategic divestment in two public sector companies and financial institutions, including two banks and one insurer. Though the insurer’s name was not finalized, government think tank NITI Aayog has recommended privatizing United India Insurance. The insurer reported a loss of 1,485 crore in 2019-20; still, it is considered the best candidate for privatization, as its nationwide presence and high market share in various general insurance categories would provide immense value to an acquirer. In addition, the company is not listed either, making the transaction process easier.

The Centre was earlier working on a proposal to merge National Insurance, United India Insurance and Oriental Insurance into a single entity and subsequently list it on exchanges. However, in mid-2020, the government infused 12,450 crore into the three entities, betting on their profitable growth as individual entities. The general insurance market comprises 27 companies, including the four major PSU entities, 23 private players and six stand-alone health insurers.

The insurance density in India (ratio of premium to total population) is $73 compared with the average world insurance density of $650. Insurance penetration in India is at 3.69%, compared with the world average of 6.13%. The penetration in the general insurance sector is still less than 1%.

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