The country’s third-largest general insurer ICICI Lombard General Insurance has begun initial discussions with Reliance General Insurance for buying a majority stake in the latter.
“This is not the first time when ICICI Lombard has started a discussion with Reliance General Insurance for buying a stake. A year back also, these companies had started discussion but then they were not able to proceed,” the source said.
For the transaction, global professional services firm EY has been appointed as the consultant, another source said. The consultant has started due diligence this week.
ICICI Lombard General Insurance did not respond to a query sent last week by Moneycontrol. In response to a query by Moneycontrol, Arijit De, Chief Communications Officer, Reliance Capital termed the news as "complete rubbish."
Reliance General Insurance is a 100 percent subsidiary of Reliance Capital (a company belonging to Anil Ambani's Reliance Group). ICICI Lombard is promoted by ICICI Bank.
Earlier, Reliance General Insurance had tried to rope in a foreign partner for the company but did not succeed.
Later, Reliance had also filed draft papers with markets regulator Securities and Exchange Board of India (SEBI) for an IPO in October 2017 and had received a go-ahead for the same in November 2017. However, the Sebi approval for the IPO expired in November 2018.
Two non-life insurance companies have been listed on the exchanges: ICICI Lombard and New India Assurance.
How the entities stack up?
As of March 2018, Reliance General's book value stood at Rs 1,250 crore. Reliance General Insurance’s gross written premium saw a 20 percent YoY increase in the September quarter to Rs 2,025 crore. The profit after tax rose to Rs 56 crore, a YoY increase of 20 percent. It is among the few companies in the market that does not have a foreign joint venture partner.
The insurer’s combined ratio (a measure of claims paid versus premiums collected) improved from 109 percent in Q2FY18 to 106 percent in Q2FY19. This reflected an improvement in their underwriting performance.
Earlier this year, Reliance carved out its health insurance business into a separate company called Reliance Health Insurance.
ICICI Lombard General Insurance had earlier looked for an acquisition opportunity in the health insurance space. It was among the frontrunners for the acquisition of Star Health and Allied Insurance. However, a consortium of WestBridge Capital and billionaire investor Rakesh Jhunjhunwala was selected as the final buyer.
ICICI Lombard’s net profit for Q2 FY19 grew 43.6 percent year-on-year to Rs 293.1 crore. Its gross direct premium income (GDPI) increased to Rs 7,305 crore in the first half of the fiscal, a growth of 12.5 percent.
The combined ratio improved to 101.1 percent in Q2FY19 from 102.9 percent a year ago.
Second merger?
If initiated, this will be the second such merger in the general insurance space. In 2017, L&T General Insurance was merged with HDFC ERGO General Insurance.
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