
Privatization on the table: Govt may pick one troubled PSU general insurer for sale

Summary
- While National Insurance, United India Insurance and Oriental India Insurance are considered weak, market leader New India Assurance is seen as strong and not a candidate for privatization.
The Centre may drop its plan to merge three general insurers and instead pick one of them for privatization this fiscal year, two people aware of the development said.
The other two may be provided additional capital to strengthen their balance sheets, the people cited above said on the condition of anonymity. To begin with, the government will assess the financial performance of all three insurers in the coming quarters.
"The aim is to strengthen the general insurers’ balance sheets through recapitalization before any potential merger is considered," the person added.
While National Insurance, United India Insurance and Oriental India Insurance are considered weak, market leader New India Assurance is seen as strong and not a candidate for privatization.
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The Union budget 2018-19 had proposed merging the three weak insurers into one and listing it on the stock exchanges, a plan that has made little progress. Federal think tank NITI Aayog recommended United India Insurance for privatization to a secretaries' panel in FY22, but that has not taken off either.
PSU performance
At the end of the September quarter, solvency ratios of National Insurance, Oriental Insurance, and United India Insurance stood at -0.45, -1.02, and -0.71, respectively, while that of New India Assurance stood at 1.81. The insurance regulator mandates all insurers to maintain a minimum solvency ratio of 1.5. The ratio measures an insurer's ability to service the risks it has undertaken. According to the second person mentioned above, all PSU insurers are expected to have positive ratios after an expected capital infusion.
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"While the Centre had earlier sought exemption from the Insurance Regulatory and Development Authority of India (Irdai) for all three entities from meeting regulator-mandated solvency margins, capital infusion may be done to strengthen them further," the person said. "After assessing the performance of these companies in these companies, a call could be taken on privatization," the person added.
Queries emailed to a finance ministry spokesperson and the secretary of the Department of Financial Services remained unanswered.
On 16 December, Mint reported that the government may consider a capital infusion of ₹4,000-5,000 crore in state-owned general insurers facing solvency issues, depending on the improvement in their financial health.
To be sure, market leader New India Assurance reported a net profit of ₹1,129 crore in FY24 and ₹73.56 crore in Q2 of FY25. United India Insurance Company reported a profit of ₹45.43 crore in Q2, FY25, and ₹803.71 crore loss in FY24. Oriental Insurance reported a profit of ₹210.82 crore in Q2, FY25, and ₹18.61 crore profit in FY24. National Insurance Company reported a profit of ₹81 crore in Q2, FY25, after narrowing its loss to ₹187 crore in FY24.
"The plan to privatize a general insurance company is a good but impractical idea as no public sector bank has been privatized yet. Even IDBI Bank is still in the government/LIC hands," said C.R. Vijayan, former secretary general of the industry body General Insurance Council.
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"One advantage public sector general insurance companies had was the number of offices they had. But, almost half of them have been closed. It is better to recapitalize them (like banks) and then merge them (like banks)," he suggested.
To be sure, privatizing insurance companies is expected to be more straightforward, as Parliament has already amended the General Insurance Business Nationalisation Act, enabling the government to reduce its stake in a general insurer below 51%. This stands in contrast to the privatization of public sector banks, which requires an amendment to the Banking Regulation Act first.
Insurance market
India’s general insurance market comprises 27 companies, including four major public sector undertakings, 23 private insurers, and six standalone health insurance providers.
Despite the sector’s size, India’s insurance density (premium per capita) stands at about $95, significantly lower than the global average of $889. Similarly, insurance penetration in India is at 3.7%, compared to the global average of 7%.
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While ongoing negative solvency in public sector insurers hampers their social impact despite ₹17,450 crore infused between FY20 and FY22, capital infusion alone is a band-aid; structural reforms, operational efficiency, and cost optimization are essential for long-term sustainability, said Rajeev Saxena, partner-audit, S.N. Dhawan & Co LLP.
"To strengthen loss-making public sector insurers, the government can provide immediate capital infusion linked to operational reforms and cost optimization. Strategic disinvestment or privatization could bring in expertise and to quite an extent higher orientation towards financial wellbeing and growth without offloading the social responsibility they have been shouldering," he added.