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New distribution norms to dent valuations of insurers tied to banks

As per the draft norms, banks will have to sell products of three companies, with one not exceeding 50% of the promoter company over the next four years.

, ET Bureau|
May 22, 2015, 09.04 AM IST
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MUMBAI: Valuations of insurance companies, tied to banks, are set to plunge, given the new distribution policy pursued by the regulator. Global insurance companies such as Dai-ichi and IAG (Insurance Australia Group) may pay a lower premium to raise their stake in the joint venture with banks.

The Insurance Regulatory and Development Authority (Irda) has proposed a mandatory open architecture, where one bank will have to sell products of multiple insurance companies. As per the draft norms, banks will have to sell products of three companies, with one not exceeding 50% of the promoter company over the next four years.

At present, under the corporate agency tie-up, banks sell one life insurance, general insurance and specialised insurance like standalone health insurance. “Fresh valuation could be lower from what IAG had earlier paid,” said Bhaskar Sarma, managing director and CEO, SBI General Insurance.

“The new open architecture norms will have an impact on the valuation of companies.” IAG holds 26% stake in the general insurance joint venture with the country’s largest bank State Bank of India.

The Australian insurer had paid a premium of Rs 500 crore for a tie-up with State Bank of India, which has over 17,000 branches.

Bank branches that are exclusive to the insurance company now will have to be shared with others, eating into their share of business. “It’s the exclusivity in distribution that was at the core of JV relationships and with that going away there will be a definite impact on the overall value perception,” said Girish Kulkarni MD and CEO Star Union Dai-ichi Life Insurance.

“While there will be other strength areas still intact, this first level impact could then drive subsequent valuation dynamics in such JVs. Finally, what needs to be assessed is, are we really enabling the industry ecosystem by doing this?”

“This is a big shift and there’s a bigger downside for a bank-promoted company,” said Roopam Asthana, managing director and CEO Liberty Videocon General Insurance.
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