The finance ministry has asked public sector general insurance firms, especially National Insurance, Oriental Insurance and United India Insurance, to rationalise branches and cut down avoidable expenses to improve their financial health, sources said.

Earlier this year, the Union cabinet decided to halt the merger process of three state-owned general insurance companies because of the weak financial positions of these three companies. Instead, the government approved a fund infusion of Rs 12,450 crore to meet the regulatory parameters.

The finance ministry has asked these companies to cut the flab by rationalising branches and rein in other avoidable expenses such as guest house, sources said.

Besides, sources said, they have been asked to expand their business through the digital medium.

As part of the capital infusion exercise, the government also approved raising the authorised share capital of National Insurance Company Ltd (NICL) to Rs 7,500 crore and that of United India Insurance Company Ltd (UIICL) and Oriental Insurance Company Ltd (OICL) to Rs 5,000 crore each.

The Rs 12,450-crore capital infusion approved by the cabinet in July includes Rs 2,500 crore provided to these companies in 2019-20.

During this year, the government infused Rs 3,475 crore while announcing an infusion of the balance Rs 6,475 crore in one or more tranches.

The government in budget 2020-21 had made a provision of Rs 6,950 crore for capital infusion in these three insurance companies in order to maintain the requisite minimum solvency ratio.

Three PSU general insurers, with their large underwriting losses of Rs 14,443 crore, together have been responsible for the overall losses of over Rs 7,118 crore in 2019-20.

NICL, with a combined ratio of 160.8 per cent and underwriting losses of Rs 5,759 crore, has suffered losses of Rs 4,108 crore, while Oriental Insurance and United India Insurance have been hit with losses of Rs 1,524 crore and Rs 1,486 crore, respectively, in 2019-20.

However, New India Assurance, the only exception out of the four public sector general insurers, posted a profit of Rs 1,418 crore in 2019-20.

Meanwhile, the Insurance Regulatory and Development Authority of India (Irdai) on Friday gave in-principle approval to the merger of Bharti AXA General with ICICI Lombard.

ICICI Lombard is progressing applications for the receipt of requisite approvals from other concerned regulators for the transaction, the insurance company said in a regulatory filing.

Upon closing of the proposed transaction, the consolidated entity will have a market share of about 8.7 per cent on a pro forma basis in the non-life business, it added.