HDFC on Friday announced that the board of directors of its non-listed subsidiary HDFC ERGO General Insurance has approved the acquisition of 100 per cent stake in L&T General Insurance Company for an aggregate all cash consideration of Rs 551 crore.
This is probably the first instance of consolidation in the domestic general insurance space after it was opened up to the private sector in 2000. Currently, there are 29 general insurance companies’ in the country.
The strategic rationale for the acquisition is obtaining additional top line volume and growth inter alia by having access to distribution channels of L&T General Insurance and margin improvements by leveraging HDFC ERGO’s expertise in reducing operating costs by leveraging technology, according to a stock exchange filing by housing finance giant HDFC.
As per the indicative time period for completion of the transaction, acquisition of shares would be completed in two to three months. Thereafter, merger would be completed in about six to eight months. The acquisition/ merger proposal is subject to requisite approvals.
Deepak Parekh, Chairman of HDFC Ltd and HDFC ERGO General Insurance said, "Considering the importance of scale in the insurance business, consolidation within the insurance industry is inevitable. This transaction marks the beginning of this consolidation phase.
“The acquisition will help HDFC ERGO to further strengthen its presence in the market. The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policy holders and other stakeholders."
L&T General Insurance is a wholly-owned subsidiary of Larsen & Toubro, which is an Indian multinational engaged in technology, engineering, construction, manufacturing and financial services. The six year old insurer is a relatively new entrant in the insurance industry.
During the financial year ended March 31, 2016, L&T General Insurance wrote gross premium of Rs 483 crores registering a growth of 40 per cent over previous financial year. The company operates through 28 offices and has over 800 employees.
HDFC ERGO, a 51:49 joint venture between housing major HDFC Ltd and ERGO International, Germany (part of Munich Re Group). It is the 4th largest private sector general insurer in India.
During the financial year ended March 31, 2016, HDFC ERGO wrote gross premiums of Rs 3467 crores and made a profit after tax of Rs. 151 crores. The Company operates through 108 offices and has over 2000 employees.