GIC plans merger of four subsidiaries

Calcutta, August 18: General Insurance Corporation of India (GIC) is considering the merger of its four subsidiaries as part of its restru...

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Calcutta, August 18: General Insurance Corporation of India (GIC) is considering the merger of its four subsidiaries as part of its restructuring plan to survive in a fiercely competitive insurance market in future.

GIC chairman D Sengupta told reporters here on Friday that a sub-committee of its board has been set up to examine the possible merger of its subsidiaries – National Insurance, New India Assurance, Oriental Insurance and United India Insurance.

Sengupta said the merger, if approved, is expected to ensure better performance by the subsidiaries who would then enjoy the economies of scale. Ending decades long monopoly by state-owned insurance companies, the Insurance Regulatory and Development Authority (IRDA) has started receiving applications for licences in the domestic life and non-life insurance sector from the private sector from Wednesday. Dabur and Prudential-ICICI have already applied for a new licence.

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However, the committee, constituted by members of the GIC board as well as invitees, was yet to arrive at any decision and was also weighing other options like maintaining the status quo or merger of some of the subsidiaries only.

The committee would submit its restructuring report to the GIC board, which in turn would place it before the centre for its approval.

Stating that the four companies, if merged, would come under the direct control of a coordinating agency, he said in such a situation GIC would remain as a national reinsurance company only.

Sengupta said GIC has plans for withdrawing from a number of unviable products while entering into other financial services to survive in a competitive age.

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"We will withdraw from a lot of products in future. Area-wise and product-wise segmentation of the market will become necessary and if we continue with unviable products, it will become difficult for us to survive," Sengupta said. About entering other financial services sector, he said GIC was interested in entering areas like domestic credit and debt securitisation.

Besides diversification and creation of a `financial supermarket’, GIC also aspired to become a leading reinsurer among Afro-Asian countries. "We have plans to go global through joint ventures or mergers," he said.

On the emerging situation in insurance after entry of private sector and multinational companies, he said there would be a "blurring of boundaries between life and non-life insurance and banks and insurance companies".

Sengupta, however, said there was need to shift from the unlimited liability concept for the insurers in the country. On downsizing of GIC, which has a 86,000 strong workforce, he said there was need to become "lean and thin" to compete with the multinationals foraying into the sector in the country.

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Foreign insurance brokerages: The Reserve Bank of India (RBI) is to soon issue a notification with regard to the stakeholding that foreign insurance brokerages could take in their joint venture with Indian partners.

“Indian insurance brokers are against foreign brokerages holding more than 26 per cent stake in any joint venture that they will be floating but the overseas firms want to have not less than 74 per cent stake and this issue needs to be resolved,” N Rangachary, chairman of IRDA said at a seminar here today.

This hotly contested issue would be resolved amicably soon, he said. Giving an overview of the liberalised insurance sector scenario, the IRDA Chief explained that the regulator received more number of applications for entry into the life sector as “it is more steady and money keeps coming in regularly” when compared to the non-life sector.