Sundaram Finance Limited (SFL) will buy out RSA Group of the U.K. (RSA) in their joint venture, Royal Sundaram Alliance Insurance Company Limited.
This follows an agreement initialled to this effect between the two.
Rs.450 crore Under the agreement, RSA will sell its entire 26 per cent equity stake in Royal Sundaram Alliance Insurance Co. Ltd., to SFL for a consideration of Rs.450 crore. The deal, however, is subject to required regulatory approvals. SFL has robust cash reserves to fund the buy-out.
T.T. Srinivasaraghavan, Managing Director, Sundaram Finance Ltd., said, “the plan is to do it (payment) in one shot once all the regulatory approvals are obtained.”
He went on to add, “I think it is a fair valuation at 1.1 times the gross written premium.”
Royal Sundaram reported a gross written premium (GWP) of Rs.1,437 crore in the financial year 2014.
The U.K. group’s move to quit the joint venture comes in the wake of its decision to exit non-core market.
Since it has identified India too as a non-core market, RSA has decided to move out of the joint venture by selling its stake to its partner.
Sundaram Finance currently holds 49.90 per cent in the joint venture. The acquisition of RSA stake would increase its holding to 75.90 per cent. After the completion of the transaction, Sundaram Finance and its associates would hold 100 per cent of the shareholding of Royal Sundaram.
Royal Sundaram, the first private sector non-life insurance company to be granted a licence in 2000, is a joint venture between SFL and RSA. SFL and its associates hold 74 per cent equity stake. RSA holds the balance.
Mr. Srinivasaraghavan, said, “Insurance business is tied to the broader economy. If there is an improvement in the broader economy, then the insurance business too will benefit from it.” With the changes in the insurance rules and the Motor Vehicles Act, some of the major irritants for insurance companies would be addressed, he felt.
“All these are signs of a market that will mature and improve,’’ he pointed out. “It (the insurance venture) is a profit-making company, and we are committed to this business,’’ he asserted.
“We are poised at a point where positive things are in the offing for the general insurance sector. Looking ahead, I would say that the timing of this buy-out is very opportune,’’ he added.
He said that there was a lot of depth of talent in the company.
“We have imbibed the global best practices in this business, and going forward, we are confident of growing this,’’ he said.
Managing Director, Sundaram Finance Ltd., said, “Sundaram Finance and RSA have enjoyed an excellent relationship over the past 15 years, and built up a successful and respected brand in the insurance industry in India. While we are sorry to part company with them, we recognise that this is part of their larger global portfolio strategy.” Given the strong synergy with the parent’s auto lending and housing finance businesses, the buy out of its partner would further strengthen SFL's presence in the retail financial services space, he added.
6.7 million customers Royal Sundaram currently has over 6.7 million customers and 1,700 employees. Its products are distributed in over 180 cities across the country.
