Consolidation In Insurance
HDFC Ergo General Insurance–the non-life arm of the country’s largest home finance company–has agreed to acquire L&T General Insurance for Rs 551 crore in an allcash deal. The deal was announced shortly after HDFC’s joint venture partner Ergo bought an additional 23% stake in the non-life company from HDFC for Rs 1,122 crore, increasing its holding to almost 49%.
L&T group’s exit from the general insurance business marks the beginning of consolidation in the sector.The group had pumped in Rs 705 crore in the non-life business which was set up in 2010. L&T General Insurance continued to report a loss in FY16 as margins continued to remain thin.
“Considering the importance of scale in the insurance business, consolidation within the insurance industry is inevitable. This transaction marks the beginning of this consolidation phase. The acquisition will help HDFC ERGO to strengthen its presence in the market.The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policy holders and other stakeholders,“ said Deepak Parekh, chairman, HDFC.
For the additional stake in the non-life company , German insurer Ergo (part of the Munich Re group) has paid Rs 1,122 crore. HDFC stands to gain Rs 922 crore pre-tax from the deal. Both HDFC and Ergo have agreed to infuse additional capital into the joint venture to fund the acquisition. “It is difficult to forecast when the merger process will be completed. We will be going to the regulator, followed by the Competition Commission of India before obtaining approval from the high court,“ said Ritesh Kumar, MD, HDFC Ergo.
L&T General Insurance Company’s CEO G C Rangan and a couple of other senior executives on deputation from L&T will revert to the group.
Source: The Times of India(Mumbai)