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C. Shivkumar

BANGALORE, Feb. 15

IDBI has deferred its entry into the general insurance sector. Its focus now will be on restructuring itself as a prelude to its transition into a universal bank.

IDBI had initially proposed to go through with the insurance venture with the Principal Financial group, the joint venture partner in its asset management company. Principal is now expected to partner only its proposed pension funds business.

Sources here said the deferral followed the emergence of new opportunities. One of the possible new opportunities is an entry into the general insurance business through the strategic alliance route, with one of the existing public sector insurance companies. Such an arrangement is expected to be on the lines of the Corporation Bank-LIC partnership.

Currently, the equity in the four public sector insurance companies is held entirely by the General Insurance Corporation. However, under the current regulations, GIC as the designated national re-insurer, cannot have any equity holding in the primary insurance companies. Consequently, it is expected that this equity will be transferred to the Government before eventual divestment.

An entry through the strategic alliance route, the sources said, would obviate the need to build up the infrastructure required for the insurance venture. The sources also said that the four public sector companies were keen to enter into strategic alliances with either the financial institutions or the public sector banks. This would enable them to mutually capitalise on each other's synergies and help them take on the competition in the financial sector.

Besides, such a strategic alliance would eliminate the gestation period involved in reaching a critical mass of premium income generation and profitability. For new insurance ventures, the gestation period before profitability in both life and non-life underwriting business is expected to be at least 5 years.

The new insurance companies, it is expected, will incur high management costs on building up premium income volumes and balancing underwriting losses either with investment incomes or through additional infusion of capital in the gestation period.

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