M&M, Adani in race to buy DLF’s stake in insurance firm

M&M, Adani in race to buy DLF’s stake in insurance firm

Mumbai: DLF Ltd’s 74% stake in the life insurance firm, DLF Pramerica Life Insurance Co. Ltd is on the block and the Mahindra group and Adani Enterprises Ltd are among the interested buyers, two people familiar with the development independently said.

Mahindra’s deputy general manager, corporate communications and DLF Pramerica’s Kapil Mehta declined comment because they said the news was speculative.

Adani’s chief financial officer Devang Desai denied that the company was interested in the business.

Prudential International Insurance Holdings Ltd has the remaining 26% stake in the venture.

Under current Indian laws, a foreign firm can have a maximum of a 26% stake in the insurance business.

A third person, also familiar with the development, said that audit and consulting firm Ernst and Young is an adviser to the intended transaction.

None of the three people familiar with the development wanted to be identified.

DLF’s intent to exit the business comes a mere three years after it entered it. In January, it sold its entire 39% stake in an asset management venture it had formed with the same partner.

This is now fully owned by Prudential and has been renamed Pramerica Asset Managers Pvt Ltd.

DLF’s exit from this business came after it decided to focus on its core business, real estate development.

“Pramerica is looking for a well-established local brand to form a new life insurance joint venture. DLF is looking for a good valuation for its stake," said one of the persons familiar with the development.

Mint could not immediately ascertain the valuation of DLF’s 74% stake because there is no standardized regulatory norm to evaluate the value of an insurance company though some research and consulting firms put out embedded values of top Indian insurers periodically in their reports.

Embedded value is calculated on the basis of expected premium collection, profit and loss, associated risks, solvency, retention ratio, expenses and over-runs, claim settlement strengths, liabilities and capital efficiency.

“DLF Pramerica Life has not been able to grow its policyholder-base much, while other players have recorded an aggressive growth over the past three years. An exit is a better decision rather than continuing to incur losses. Mahindra or Adani are well-established names to carry on with the life insurance business," said another of the three persons familiar with the development.

Mahindra’s intention to enter the financial space is well known. It already has a non-banking finance arm and its application to float an asset management firm has been awaiting the regulator’s approval.

“DLF is conducting the valuation exercise, but it may end up selling its holding below par, as it has not been able to grow their product portfolio adequately," the second person added.

The company has a capital base of Rs221.3 crore.

It collected premiums of Rs38.44 crore during the fiscal year ended 31 March.

Its agency distribution network operates in 22 cities across Delhi and the national capital region, Haryana and Punjab, with at least 550 employees and 450 associates.

Since its inception, the private life insurer has not been able to grow its business much except in Punjab and Haryana.

Punjab alone accounts for nearly 70% of the policies sold by the company.

The company posted a net loss of about Rs93 crore in 2010.

With recent capping in commissions and surrender charges in insurance policies by the Insurance Regulatory and Development Authority (Irda), insurers are likely to underwrite more losses in the coming days.

This, in turn, will force the life insurance firms to consolidate their operations.

“The company’s inability to grow is one of the key reasons for DLF to exit the life insurance business," said the second person.

There are 23 life insurers in India with Rs11 trillion in assets between them. According to a recent research report by Edelweiss Securities Ltd, a Mumbai-based brokerage, Indian life insurers collected Rs1.1 trillion of new business premium during the last fiscal year.

Close to 30% of this was collected by private life insurers.