The government is likely to announce infusion of about Rs 4,000 crore in three public sector general insurance companies to shore up their capital.

The capital infusion will help them improve their financial health to an extent that the proposed merger of the general insurance firms could take place, sources said. The announcement to this effect could be made in the first full-fledged Budget of Modi 2.0 government, to be presented in parliament on July 5.

According to the sources, the Department of Financial Services will seek around Rs 4,000 crore in the Budget for fund infusion in three insurance companies -- National Insurance Company, Oriental Insurance Company and United India Insurance Company.

Depending on the capital that Budget provides, the individual allocation would be made, they added. The profitability of many general insurance companies, including that of state-owned ones has been under pressure owing to rising underwriting losses and higher claims.

The two of these public sector companies are struggling to maintain the solvency ratio. As against the insurance regulator Insurance Regulatory and Development Authority's (IRDA) solvency ratio norm of 1.5, National Insurance has an insolvency ratio of 1.5, while United India's level is comparatively lower at 1.21.

It is to be noted that the government, in the Budget 2018-19, had proposed to merge National Insurance Company, Oriental Insurance Company and United India Insurance Company.

The then finance minister Arun Jaitley in the Budget speech had announced that the three companies would be merged into a single insurance entity. The process of merger could not be completed due to various reasons, including the poor financial health of these companies.

As on March 31, 2017, the three companies together had more than 200 insurance products with a total premium of Rs 41,461 crore and a market share of around 35 percent.

Their combined net worth is Rs 9,243 crore, with total employee strength of around 44,000 spread over 6,000 offices. In 2017, state-owned New India Assurance Company and General Insurance Corporation of India were listed on the bourses.

Initial estimates suggest that the combined entity formed by merging the three insurers will be the largest non-life insurance company in India, valued at Rs 1.2-1.5 lakh crore.