Mortgage major Housing Development Finance Corporation (HDFC) on Tuesday announced it has bought the 26% stake of Chubb Global Financial Services Corp. in their joint venture, HDFC Chubb General Insurance Co., for an undisclosed amount.
The general insurance joint venture was set up in 2001.
An executive at HDFC, who did not wish to be named, said the book value of the equity in the joint venture was Rs100 crore; that would mean the book value of Chubb’s stake is Rs26 crore.
Conrad D’Souza, treasurer at HDFC, said the company has applied to the Insurance Regulatory and Development Authority (Irda), the watchdog for the sector, seeking its approval for the change in the holding pattern.
People close to the development at HDFC, who did not wish to be identified, said Ergo, the insurance arm of the world’s second-largest reinsurance company—Germany’s €37 billion (more than Rs2 lakh crore) Munich Re—is the front-runner to pick up the Chubb stake.
“Till such time the Ergo deal is finalized, HDFC will hold 100% stake in the general insurance venture,” said one of these people.
“Initial joint venture strategies did not get translated,” said D’Souza.
HDFC Chubb lags behind other general insurers such as ICICI Lombard General Insurance Co., Bajaj Allianz General Insurance Co., and others in terms of premiums collected. HDFC Chubb collected premiums of Rs200 crore for the year ended March 2006, compared with Bajaj Allianz’s Rs1,280 crore and ICICI Lombard’s Rs1,590 crore.
In fact, according to figures provided by Irda, while companies such as ICICI Lombard and Reliance General Insurance are growing at 30-40%, HDFC Chubb was actually not growing at all.
The two companies differed on strategy, with HDFC favouring an aggressive customer acquisition strategy with a range of products and Chubb preferring a more conservative approach; “Chubb’s focus and HDFC’s focus were not the same,” said the executive at HDFC.
Shrirang Samant, the insurance firm’s chief executive officer, quit two weeks ago.
Indian insurance law caps an overseas partner’s stake in an insurance venture at 26%, which restricts the amount of equity a foreign partner can put into a business that is highly capital-intensive.
HDFC, which also has a life insurance joint venture with the UK’s Standard Life, wants a strategic partner with experience in general insurance, said the HDFC executive.
“There are people interested in partnering with us,” said the executive.
D’Souza said the proposed stake sale would be finalized only after the regulator’s approval. D’Souza also said insurance firms, both international and domestic, have expressed interest in picking up the Chubb stake.
“As of now, we will run the business as it is. Who comes in as a partner or who will be the CEO will be decided only after the regulator’s approval of the buyout,’’ D’Souza said.
India has licensed 15 overseas and local non-life insurers as part of its plan to open the sector to expand coverage of insurance in the world’s second fastest growing major economy. The foreign investment cap of 26% has been an irritant for most foreign firms, which claim that this restricts their ability to invest in the business.
The industry has been lobbying to raise the limit on foreign investment to 49%, but this has met with political opposition from some quarters. Several foreign insurance firms have informal arrangements with their Indian partners to increase their stake to 49%, should this be allowed.
(Reuters and Gautam Chakravorthy of Bloomberg contributed to this story.)