Mumbai: Chennai-based financial services firm Sundaram Finance Group will exit its general insurance venture Royal Sundaram Alliance Insurance Co. Ltd, with its British partner RSA Insurance Group Plc buying out its 74% stake, according to two persons familiar with the deal.
RSA will then merge the company with Reliance General Insurance Co. Ltd to create a new firm and take a 26% stake in it, the two added, asking not to be identified.
“The process may take about a month,” said one of the two.
Reliance Capital spokesman Sharad Goel declined comment on the deal. In an email response, Louise Shield, external communications director of RSA Insurance Group, said: “We have no comment to make.”
In response to a call seeking comment from Royal Sundaram managing director, Ajay Singh Bhimbet, his secretary asked Mint to email spokesperson D.J. Ghosh for comment. Ghosh could not be reached for comment and an email sent to him elicited an automatic out-of-office reply.
Once Sundaram Finance exits the partnership in Royal Sundaram General, RSA will have to acquire the entire stake in the joint venture. But Indian regulations do not allow a foreign company to own more than 26% of an insurance firm. RSA will, therefore, merge the business (which is currently under Royal Sundaram General) with Reliance General, and the combined entity will transfer a 26% stake to RSA.
According to a third person familiar with the transaction who too did not want to be identified, Reliance General is valued at $500 million (Rs2,255 crore).
At this valuation, a 26% stake would be worth at least Rs600 crore. However, when Reliance General merges with RSA, the value of the combined entity will be more, and hence the 26% stake of RSA is likely to be worth at least Rs600 crore, this person added.
India’s insurance regulator, Insurance Regulatory and Development Authority, or Irda, is yet to prescribe a standard method to evaluate the business of a general insurance company in India.
Currently, this is done by calculating the so-called entity specific value, or ESV, which takes into account the company’s premium collections, claims, taxes, expenses and recoveries.
Ernst and Young Pvt. Ltd has been appointed to conduct the due diligence for the merger, the first in the general insurance space in India.
The combined entity, with over five million customers, will be the largest private sector general insurance firm in terms of customer base and the second largest by gross written premiums, which would reach close to Rs3,000 crore, behind only ICICI Lombard General Insurance Co. Ltd.
RSA is one of the biggest general insurers in the world with operations across 130 countries.
Reliance General is one of India’s 23 non-life insurers. During the April-February period of the current fiscal year, the firm recorded gross underwritten premium of Rs1,846.98 crore, a mere 3.96% growth from Rs1,776.64 crore during the same period last year.
During the quarter ended December, the company issued 878,000 policies. Nearly 67% of its premium came from motor insurance policies.
Royal Sundaram General underwrote a gross premium of Rs820.44 crore during the April-February period, recording 12.68% growth from the Rs728.10 crore it did during the corresponding period a year ago.
It was one of the first private sector firms to enter the general insurance space in India in 2001.
Reliance General started looking for a foreign partner around six months ago, according to one of the three persons.
This person added that RSA and Reliance started discussing the deal around a month ago and that Boston-based Liberty Mutual Insurance Co. too had expressed interest in partnering with Reliance General. Mint couldn’t independently verify this.