BackSundaram Finance to buy out insurance JV partner RSA
With more relaxation expected in FDI norms in the sector, the firm is looking for a new overseas partner
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Mumbai: Sundaram Finance Ltd is looking to buy RSA Insurance Plc’s stake in their joint venture Royal Sundaram Alliance Insurance Co. Ltd, three people close to the development said.
At the same time, the Indian firm is also searching for a new overseas partner as valuations of insurance firms rise in anticipation of a further relaxation of foreign direct investment norms in the sector.
Formed in 2000, Royal Sundaram Alliance Insurance is a 74:26 joint venture between Sundaram Finance and RSA Insurance. It covers motor, travel, health, home and accidents.
“RSA is keen to exit the joint venture as Royal Sundaram’s business growth has taken a beating in the last few years," said one of the people, adding that due to poor mix of the insurance business portfolio, the smaller firms are feeling the heat in India.
None of the three people agreed to be named.
Royal Sundaram’s gross premium underwritten stood at ₹ 1,437 crore on 31 March, compared with ₹ 1,561 crore a year ago, according to Insurance Regulatory and Development Authority data.
Royal Sundaram is the only insurance company among the top 10 that has seen a decline in gross premium underwritten in the last fiscal year.
Royal Sundaram’s market share shrunk from 2.26% to 1.85%.
The decision to sell stake in Royal Sundaram is in line with RSA’s decision to exit non-core locations, another person said.
During its announcement of financial results, RSA had said it will sell its businesses in Poland, Latvia, Lithuania and Estonia.
The firm will also exit its brokerage business in Canada.
Sundaram Finance did not respond to an email seeking comment. An RSA spokesperson declined to comment on the development. He only said that the firm will continue to evaluate the sale of non-core assets.
Sundaram is also looking for a new foreign partner, the second person cited above said.
“Sundaram is looking to buy out RSA’s stake at a lower valuation. However, as the government is likely to increase the FDI cap for insurance in India and valuations are beginning to move up, it is actively talking to potential partners," he said.
FDI for Indian insurance sector is capped at 26%. The government has been debating on increasing the limit to 49%.
Several companies have shown interest to buy out RSA’s stake, the first person said.
Any rise in the FDI cap will make Indian insurance sector more lucrative for global insurance firms, experts say.
“A higher stake will provide more comfort to the foreign partner as their decision-making power will also increase," said Harish H.V., partner at business consulting firm Grant Thornton. “While the insurance firms remain unlisted, an increase in FDI cap will move the valuations northwards."
While some foreign insurers may be looking to exit due to slower growth in premium and high capital requirement, India will be an important market in the future, Harish said.
Since 2012, some foreign insurers have exited India and others have hinted at plans to do so.
In January 2013, Exide Industries Ltd announced that it will buy out the 26% stake of ING Group in ING Vysya Life Insurance Corp. Ltd.
In April 2012, New York Life Insurance Co. sold its stake in Max New York Life Insurance Co. Ltd to Japan’s Mitsui Sumitomo Insurance Co.
In August 2013, Reuters reported that Aviva Plc may pull out of its India insurance venture with Dabur Group.
malvika.j@livemint.com
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