Mumbai: Reliance Capital Ltd (R-Cap), the financial services firm of the Anil Ambani-led Reliance Group, is in talks with at least three international firms to sell a 26% stake in its general insurance arm, according to two persons with direct knowledge of the development.
These include US-based insurer Travelers Companies Inc. and Samsung Fire and Marine Insurance Co. Ltd, the general insurance arm of South Korean electronics-to-financial services conglomerate Samsung Group, and a Japanese insurer.
Mint’s Aveek Datta Anil Ambani’s Reliance Capital is talking to three foreign firms about selling a 26% stake in its general insurance arm
Mint could not independently verify the name of the Japanese firm, but one of the persons said it was not an affiliate of Nippon Life Insurance Co., which picked up a 26% stake in R-Cap’s life insurance business in September.
None of the persons wanted to be named as the deal is not yet closed.
An R-Cap spokesman declined to comment.
“Some companies have evinced interest in our general insurance business and we are in advanced talks with one of them,” said Sam Ghosh, chief executive of R-Cap. “We will take a decision depending on the offers we get.” Ghosh refused to divulge the names of the firms R-Cap was talking to.
A senior Reliance Group official said UBS has been appointed as a banker for the transaction. He declined to be named.
Mint, however, could not independently verify the appointment of UBS.
An email sent to Travelers on 30 November remained unanswered at the time of writing this report. Another email sent to Samsung on Wednesday did not elicit any response either.
Reliance General Insurance Co. Ltd is one of the few private firms out of the 24 general insurers in India without a foreign partner. Going by the existing norms, a foreign entity is allowed to hold up to 26% in an Indian non-life insurer’s business.
According to the Insurance Regulatory and Development Authority (Irda), general insurers underwrote a total gross premium of Rs 28,604.82 crore between April and September. With a gross premium of Rs 894.27 crore during the period, Reliance General ranks fourth among private non-life insurers.
The talks between Reliance General and the foreign firms are being held at a time when the general insurance industry is facing multiple challenges, especially in motor insurance. Owing to large claims from the motor third-party pool, domestic non-life insurers have been making substantial losses and their financial viability is stressed with the current pricing models.
At present, the size of the stand-alone third-party pool is Rs 754 crore and this is expected to reach Rs 1,300 crore by next year.
Irda recently raised the provisioning requirement for the third-party commercial motor portfolio of general insurance firms from 136% to 153% and may increase it again. This will raise the third-party motor pool losses for insurers.
The industry’s total loss on motor insurance is expected to be Rs 17,432.89 crore for fiscal 2010-11, according to an Irda panel.
The Irda panel has recently proposed a concept of so-called declined risk pool for commercial vehicles to curb losses for the industry arising due to third-party motor insurance claims.
A major portion of Reliance General’s premium comes from motor insurance. Higher provisions for the commercial third-party motor pool curbed R-Cap’s consolidated net profit for the year ended 31 March by 33.1% at Rs 291.18 crore against Rs 435.69 crore a year ago. During 2010-11, the firm made a one-time provision of Rs 183.7 crore for commercial third-party motor pool losses.
According to estimates, during 2010-11, the industry’s losses on account of the commercial third-party motor pool stand at Rs 4,000 crore.
During the previous fiscal, Reliance General recorded a loss of Rs 310 crore, compared with a loss of Rs 91 crore a year ago.
A foreign partner brings in fresh capital for an insurer and increases its loss-taking abilities. It also brings in global pricing expertise and opportunities to explore offshore markets.
Travelers is one of the US’ largest general insurers for property casualty, auto, home and business, according to its website. Listed on the New York Stock Exchange, it is the largest American insurance firm by market value.
For the year 2010, Travelers reported a total revenue of $25.11 billion (Rs 1.3 trillion today) and a net profit of $3.2 billion, according to its annual report. The firm may explore opportunities in emerging markets such as India and China, the report said. One of its subsidiaries, TCI Global Services, already has a liaison office in India.
“Along with the money, the foreign partner will also play a strategic role in helping the company formulate and price new products,” said one of the persons with direct knowledge of the development.
Samsung Fire and Marine is South Korea’s biggest non-life insurance firm, according to its website. In the first six months of the current fiscal, it wrote a direct premium of 7,157 billion Korean won (Rs 35,785 crore today) and reported a net profit of 482.7 billion Korean won, according to an investor presentation dated 31 October on the website.
R-Cap has been scouting for a partner for its general insurance business. At one point, it was exploring a partnership with London-based RSA Insurance Group Plc, but the talks were called off due to differences over valuation and general concerns faced by insurers in the European market.
If R-Cap indeed sells a stake in the general insurance business to one of the three firms with which it has been talking, it will be its second such international tie-up in recent times. In September, R-Cap sold a 26% stake in its life insurance business to Nippon Life for Rs 3,062 crore. It is also in talks with Nippon to sell a 26% stake in its asset management business.