M&A norms clear way for Rel General, RSA

Written by Sitanshu Swain | Kumud Das | Mumbai | Updated: Jun 11 2011, 01:39am hrs
With the Insurance Regulatory & Development Authority (Irda) announcing merger and acquisition (M&A) norms for general insurers on Wednesday, Reliance General Insurance can finally acquire Royal Sundaram Alliance after a delay of almost a year.

We have been awaiting M&A guidelines to come out to explore the possibility of M&A activity in the general insurance space. We will explore all options now, said a source at Reliance General Insurance company, owned ADAG.

Chennai based Royal Sundaram Alliance is a joint venture between Sundaram Finance and UK insurance company Royal Sun Alliance. Under the deal, Reliance General Insurance will buy out the latter.

In the second phase, after completing the takeover, Reliance General will offer 26% to Royal Sun Alliance. Reliance General Insurance is the only company in the general insurance space that currently doesnt have a foreign partner.

J Hari Narayan, chairman, Irda had confirmed to FE that the regulator had received the proposal from Reliance General for taking over Royal Sundaram Alliance but has to apply afresh and comply with conditions stipulated in the new M&A guidelines.

The merger norms announced by Irda need the companies to first approach a court and then the regulator for the necessary clearances. The rules also say companies seeking mergers will have to submit an intent letter one month prior to application. Once the court clears the proposal, the insurance regulator might even undertake independent actuarial valuations before giving its nod.

In addition, insurance companies will also have to take the approval the Foreign Investment Promotion Board and the Reserve Bank of India before securing Irdas nod if there is foreign investment involved in the deal, as in this case.

The final guidelines also make it mandatory for insurance companies to inform all policyholders about the merger proposal through publication of the merger notice in at least one national newspaper.

Sources in the regulator pointed out that both the companies will therefore have to apply fresh for the clearances. Also, though both companies had done some valuations of the deal, it has to be worked again with the latest financial results, which was not healthy for general insurers because of regulatory changes.