Government Considering United India Insurance and General Insurance Corp. for privatisation

picture credits- the financial express

It has been reported that the Centre has been planning to privatize Chennai-based United India Insurance and deliberating on whether state-owned reinsurer General Insurance Corp. of India (GIC Re) should also be considered to be divested as well.

On February 1, the budget had been announced by the Union Finance Minister Nirmala Sitharaman for the financial year 2021-22 . The budget presented big privatisation agenda of the government for the financing its humongous fiscal deficit in the Budget 2021-22.

It included selling of two state-run banks, seven major ports, one general insurance company and the mega Life Insurance Corporation of India (LIC) public issue. Additionally,  the government also had budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions in the next fiscal year, which begins on April 1.

Reportedly, North Block, headquarters of the finance ministry, and government think-tank Niti Aayog will jointly finalize which general insurer will be considered for privatisation.

Sources report that “Privatisation of GIC Re will only happen if the government decides to exit the reinsurance business and that assessment will be done in consultation with Niti Aayog,” .

In GIC Re , the government owns 85.78 % stake and was listed on the bourses in October 2017. Apart from United India, Centre owns stakes in other behemoth general insurance firms namely National Insurance, oriental insurance and new India assurance.

Reportedly, United India has better financials than National Insurance and offers most products among the four. It is quite discernible that  the government may want to own the only profitable one —New India Assurance. At present, it owns an 85.44 per cent stake in the company.

A business executive said that “It will be trickier to sell GIC Re, as under obligatory cession, insurers need to cede 5 percent of their business with the firm,” .

Earlier, it was reported that center had plans to merge three state-run general insurance companies by the end of March 2020. But will this deal happen anytime in future, is yet an area of deliberation.

Due to the weak financial positions of these companies, it has been reported that the Union Cabinet had decided to halt the merger process. The finance ministry had forcefully advised or rather had asked state-controlled general insurers to downsize branches and reduce avoidable expenses to improve their financial health.

In an attempt to improve the financial health of the general insurers , the government will infuse Rs 3,000 crore capital into general insurance firms during the current quarter i.e. January-March. Last year, the Cabinet had cleared a proposal to provide capital support to National Insurance, Oriental Insurance and United India Insurance.