Big investors approached for SBI General Insurance deal
Private equity funds have also taken large bets on insurance.
Canada Pension Plan Investment Board (CPPIB), sovereign wealth funds such as Abu Dhabi Investment Authority (ADIA) and Temasek as well as existing investors like PremjiInvest have also been approached to buy out Insurance Australia Group (IAG), which is looking to exit its nineyear-old Indian joint venture as part of a larger global realignment.
The biggest Australian general insurer is restructuring its Asia-Pacific operations and has already exited Indonesia, Thailand and Vietnam, said the people cited above. India and Malaysia are next on the agenda. Earlier this month, the Australian company said its first-half profit dropped 9.3 per cent, hurt by claims from the hailstorm that battered Sydney in December. Net profit fell to $500 million in the six months ended December 31, compared with $551 million in the same period a year earlier.
State Bank of India (SBI) had sold a 4 per cent stake in the company to Axis Asset Management Co Ltd and PremjiInvest for Rs 482 crore at a Rs 12,000-crore valuation in September last year. This was seen as a price discovery exercise ahead of an initial public offer (IPO) that was planned by the end of FY20. SBI’s stake in the venture dropped to 70 per cent following the sale, while IAG continued to own 26 per cent. In December 2016, IAG had expressed its interest in raising the stake to 49 per cent in the next two years. IAG paid Rs 542 crore for a 26 per cent stake in the joint venture, which started in 2010.
Non-binding bid submissions started in the first week of this month. IAG has mandated Goldman Sachs to run an official sale process. It’s still not clear if IAG will sell in one shot or in phases but executives said a strategic investor would want the entire 26 per cent.
“Close to 40 potential suitors have been sounded out, including Warren Buffett’s General Reinsurance Corp (Gen Re),” said one of the persons cited above.
“Most global players are already here but there are some Europeans who would still explore getting a toehold in India. Even Premji, who has a small stake, has been tapped to see if they want to increase their exposure.”
CPPIB, Zurich, Temasek, IAG, Blackstone Warburg Pincus and KKR declined to comment. Premji-Invest, SBI, ADIA, Gen Re and Swiss Re didn’t respond to queries.
SBI General Insurance reported a 53 per cent rise in net profit to Rs 89 crore in the quarter ended December, up from Rs 58 crore in the year earlier. The firm reported a 150 per cent increase in its annual revenue to Rs 400 crore in FY18. Gross written premium (GWP) revenue grew 36 per cent to Rs 3,545 crore, while assets under management rose to Rs 5,300 crore from Rs 4,360 crore. Return on equity almost doubled from 13.9 per cent in FY17 to 26.5 per cent.
Valuation of general insurance companies is based on gross written premium, profitability and net worth. In recent listings, investors have given them a multiple of eight times to book and three times gross written premium. Going by ICICI Lombard’s market capitalisation of Rs 40,150.65 crore, analysts expect SBI General’s valuation could range from Rs 12,500 crore to Rs 13,000 crore, with a 26 per cent stake worth about Rs 3,380 crore.
Set up in 2010 as a 74:26 joint venture between SBI and IAG, SBI General offers retail and commercial general insurance products. Its offerings include motor, health, personal accident, travel and home insurance in the retail space and aviation, fire, marine, construction, engineering and liability insurance in the commercial space with a leading market share in fire and personal accidental insurance. It currently has a presence through 23,000 branches of the State Bank Group and over 5,500 regional rural banks. That’s a presence in more than 110 cities.
The firm has been aiming to be among the top general insurers in a market that has about 30 companies. In the first half of FY19, it moved up a notch to seventh position in terms of gross written premium at Rs 2,067 crore, up from Rs 1,593 crore a year earlier.
India is one of the world’s fastestgrowing insurance markets and is set to grow to $280 billion by FY20, according to an Assocham study. The domestic life insurance industry registered 11 per cent year-on-year growth in new business premiums in FY18, generating revenue of $30 billion. Non-life premiums rose 17.5 per cent.
For strategic investors like Swiss Re, Zurich and Gen Re, an investment will give them a firm footing in the Indian market. Gen Re received a licence to open an India office in 2017, as did Swiss Re, which has been exploring a firm entry into the market.
Private equity funds have also taken large bets on insurance. KKR is an investor in SBI Life, while Blackstone has made an attempt to buy Star Health and Allied Insurance. Carlyle and GIC of Singapore are in the process of buying a 10 per cent stake in SBI Life Insurance.
“New business value growth remains robust and continues to outpace sales growth,” HSBC analyst Vinod Rajmani said in a January 25 note. “The new life product regulation, in its current state, will aid pension sales. The 2019 outlook is positive, as comparisons will ease; we expect industry new sales growth in the high single digits or low double digits, with the top three companies growing faster than the industry.”