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Merger of GIC arms on cards?

Sarbajeet K. Sen

NEW DELHI, July 10

THE merger of the four nationalised general insurance companies into a single entity may be round the corner, with the alternative fast emerging as the most favoured option for restructuring the Government-owned non-life insurance set-up in the country.

According to highly-placed insurance industry officials, the opinion among the top brass of the General Insurance Corporation (GIC) is fast swinging towards the need to merge the four companies into a single outfit, to enable the Government sector to mee t the challenges posed by the entry of private companies.

They said that a decision on the restructuring of the nationalised set-up is among the top priorities of both the Government and the GIC, with the time fast approaching for the entry of private players into the Indian insurance market. ``A decision on re structuring is expected to be taken before the entry of the private sector,'' industry officials said.

They said that the GIC-appointed consultants, PricewaterhouseCoopers and Chitale and Co, who are looking into the restructuring of the corporation's operations, are also likely to favour the merger of the companies into a single unit.

It is understood that an impact analysis done by the GIC on the post-liberalised scenario, has pointed out that the four nationalised companies independently competing for a market share could spell disaster for all of them in the long run.

GIC is the holding company for its four subsidiaries, New India Assurance Co Ltd, Oriental Insurance Co Ltd, National Insurance Co Ltd and United India Insurance Co Ltd.

The holding company has asked its consultants to look into a range of alternatives, including the merger into one entity. The other scenarios which the consultants have been asked to explore are delinking of the four companies from GIC (with the holding company turning into the national re-insurer), merger of the four companies into two companies, the possibility of developing synergies between the four companies through a pattern of cross-holding of shares and the option of placing territorial restrict ions on the operations of the companies.

The options put forward by the GIC are greater in number than those proposed by the Standing Committee of the Ministry of Finance which studied the Insurance Regulatory and Development Authority (IRDA) Act and other related issues on insurance sector lib eralisation.

The Standing Committee had suggested three alternatives which included the merger of the subsidiaries into one company, turning the four companies into independent companies and allowing only one company to operate in the corporate insurance business, wh ile the other three would be left free to compete for the remaining areas of business.

Prior to this, the Malhotra Committee had suggested that the four companies should be delinked from GIC, with the holding company being turned into an exclusive re-insurance company.