If you've been tracking the banking and financial services space lately, you would probably not have missed the surge in interest expressed by banks and non banking financial companies to enter the general insurance sector in the country. This at a time when banks are particularly keen to increase their fee based income and NBFCs are exploring newer avenues to diversify their business portfolio.
Listed below is a summary of some of the recent announcements and news bytes appearing in the press:
1. UCO Bank - Announced its plans to enter in to a JV with three other partners by September 2009. Reportedly, a PSU bank, a foreign bank and another foreign general insurance company. The banks intends to have a 30% stake and would invest INR 45 Crores in the proposed JV.
2. Corporation Bank - Engaged in discussions with a foreign player to establish a joint venture including a third partner.
3. IDBI Bank - The three partners who established IDBI Fortis Life Insurance - IDBI, Federal Bank and Belgium based Fortis International may float a general insurance company.
4. Union Bank - Earlier this year, the CMD of the Bank had announced plans to enter the general insurance sector
5. Religare - US based Liberty Mutual is said to have approached Religare Enterprises to establish a general insurance JV.
6. Magma - Although relatively less popular, a listed NBFC based out of Kolkata, Magma Fincorp has entered in to a JV agreement with HDI-Gerling of Germany to set up a new general insurance company
Already, the State Bank of India is in advanced stages of setting up its JV company along with IAG of Australia following the R1 approval received earlier last month. The company is looking to start operations before the end of FY2009-10.
Similarly, engineering giant Larsen and Toubro is in the process of setting up its own general insurance company. Reports indicate that its proposed JV with Travellers of the US did not fall through and that the company has decided to go solo. While there's little doubt that the company would be eying to leverage the captive business generated from the various L&T projects, it is the extent to which the company would be seeking to leverage the synergies and capabilities of L&T Finance, more particularly distribution, that would define whether it manages to make it through the ranks.
What is even more concerning is that these companies are vying to enter the GI space at a time when the industry has been reporting huge underwriting losses (excess of claims over premium). Private general insurance companies almost doubled their losses in FY2008-09, having reported losses to the tune of INR815 Crores as against INR416 Crores in FY2007-08, despite registering a 12% growth in premium income. The GI sector is witnessing cut throat competition, particularly group health, with many companies facing losses on account of third party motor insurance. In fact, the IRDA has called upon general insurers to reflect upon their underwriting losses, product, pricing and underwriting practices. It has also asked GI firms to address the issue of huge expense ratios which stood at 30% in FY2008-09.
While one may question the intent, one hopes these banks and NBFCs would stay put in the long term. In the recently launched guidelines on Corporate Governance, the IRDA has prescribed a minimum lock-in period of five years from the date of certificate of commencement of business for the promoters and no transfer of shares of the promoters within this period. With the M&A and IPO guidelines to be released soon by the IRDA, the field would be set open. Only time will tell whether some of these banks and NBFCs reconsider their plans or decide to buy stake in an existing venture or for that matter adopt a wait an watch approach.
Listed below is a summary of some of the recent announcements and news bytes appearing in the press:
1. UCO Bank - Announced its plans to enter in to a JV with three other partners by September 2009. Reportedly, a PSU bank, a foreign bank and another foreign general insurance company. The banks intends to have a 30% stake and would invest INR 45 Crores in the proposed JV.
2. Corporation Bank - Engaged in discussions with a foreign player to establish a joint venture including a third partner.
3. IDBI Bank - The three partners who established IDBI Fortis Life Insurance - IDBI, Federal Bank and Belgium based Fortis International may float a general insurance company.
4. Union Bank - Earlier this year, the CMD of the Bank had announced plans to enter the general insurance sector
5. Religare - US based Liberty Mutual is said to have approached Religare Enterprises to establish a general insurance JV.
6. Magma - Although relatively less popular, a listed NBFC based out of Kolkata, Magma Fincorp has entered in to a JV agreement with HDI-Gerling of Germany to set up a new general insurance company
Already, the State Bank of India is in advanced stages of setting up its JV company along with IAG of Australia following the R1 approval received earlier last month. The company is looking to start operations before the end of FY2009-10.
Similarly, engineering giant Larsen and Toubro is in the process of setting up its own general insurance company. Reports indicate that its proposed JV with Travellers of the US did not fall through and that the company has decided to go solo. While there's little doubt that the company would be eying to leverage the captive business generated from the various L&T projects, it is the extent to which the company would be seeking to leverage the synergies and capabilities of L&T Finance, more particularly distribution, that would define whether it manages to make it through the ranks.
What is even more concerning is that these companies are vying to enter the GI space at a time when the industry has been reporting huge underwriting losses (excess of claims over premium). Private general insurance companies almost doubled their losses in FY2008-09, having reported losses to the tune of INR815 Crores as against INR416 Crores in FY2007-08, despite registering a 12% growth in premium income. The GI sector is witnessing cut throat competition, particularly group health, with many companies facing losses on account of third party motor insurance. In fact, the IRDA has called upon general insurers to reflect upon their underwriting losses, product, pricing and underwriting practices. It has also asked GI firms to address the issue of huge expense ratios which stood at 30% in FY2008-09.
While one may question the intent, one hopes these banks and NBFCs would stay put in the long term. In the recently launched guidelines on Corporate Governance, the IRDA has prescribed a minimum lock-in period of five years from the date of certificate of commencement of business for the promoters and no transfer of shares of the promoters within this period. With the M&A and IPO guidelines to be released soon by the IRDA, the field would be set open. Only time will tell whether some of these banks and NBFCs reconsider their plans or decide to buy stake in an existing venture or for that matter adopt a wait an watch approach.
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