HDFC ERGO to turn into third largest general insurer after Rs 551cr L&T unit buy

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Mumbai | Updated: June 4, 2016 7:50:59 AM

HDFC ERGO General Insurance said on Friday it has acquired L&T General Insurance, a wholly owned subsidiary of Larsen & Toubro, reports fe Bureau in Mumbai.

HDFC ErgoHDFC ERGO General Insurance said on Friday it has acquired L&T General Insurance, a wholly owned subsidiary of Larsen & Toubro, reports fe Bureau in Mumbai. (Image Source: Website)

HDFC ERGO General Insurance said on Friday it has acquired L&T General Insurance, a wholly owned subsidiary of Larsen & Toubro, reports fe Bureau in Mumbai. The transaction, an all-cash deal, has been valued at R551 crore, a filing to the BSE said.

The acquirer is a 51:49 joint venture between HDFC and ERGO International (part of the Munich Re Group) and the fourth largest private sector general insurer in India. The acquisition will make it the third largest general insurer after ICICI Lombard and Bajaj Allianz.

In the year to March 2016, it wrote gross premiums of Rs 3,467 crore, earning a profit after tax of R151 crore. In December last year, ERGO had increased its stake in the joint venture from 25.84% to 48.74% at a cost of R1,122 crore. The transaction valued the company at Rs 4,900 crore.

L&T General Insurance, which wrote gross premiums of Rs 483 crore in FY16, is among the few players operating without a foreign partner. In 2013, a proposal to merge with Future Generali Insurance fell through.

“While a foreign partner was subsequently found, the deal was shelved and so the top management decided it would be better to exit the business,” a senior industry executive said.

The consolidation in the general insurance sector, which grew premium income at 13.8% in FY16 to Rs 96,402. 37 crore, will hurt smaller players, experts say. Currently there are 29 players in the space include four from the public sector.

With the Insurance Laws (Amendment) Act passed in February 2015, enabling foreign partners to increase their stakes in their Indian outfits from 26% to 49%, activity has picked up. Sun Life Financial upped its holding in Birla Sun Life Insurance from 26% to 49% at an investment 1,664 crore while French insurer AXA increased its stake in both the life and general insurance joint ventures with Bharti Enterprises to 49% for an undisclosed amount. In August last year, Standard Life announced plans to buy an additional 9% stake in its Indian insurance venture HDFC Life to raise its ownership to 35%, valuing HDFC Life at Rs 18,951.4 crore. British insurer Aviva also announced plans to raise its stake in its Indian joint venture with Dabur Invest Corporation to 49%.

Deepak Parekh, chairman of HDFC and HDFC ERGO General Insurance, said, “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 further 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.”

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