Mumbai : HDFC Ergo General Insurance—the non-life arm of the country's largest home finance company—has agreed to acquire L&T General Insurance for Rs 551 crore in an all-cash deal. L&T General Insurance had reported gross earned premium (GEP) of Rs 483 crore for the last financial year, which puts the deal value at 1.14 times of the GEP.
“Considering the importance of scale in the insurance business, consolidation within the insurance industry is inevitable,” said Deepak Parekh, chairman of HDFC and HDFC Ergo General Insurance. “The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policyholders and other stakeholders,” he said. For the additional stake in the non-life company, German insurer Ergo (part of the Munich Re group) has paid Rs 1,122 crore. HDFC stands to gain Rs 922 crore pre-tax from the deal. Both HDFC and Ergo have agreed to infuse additional capital into the joint venture to fund the acquisition. "It is difficult to forecast when the merger process will be completed. We will be going to the regulator, followed by the Competition Commission of India before obtaining approval from the high court," said Ritesh Kumar, MD, HDFC Ergo.
HDFC Ergo's marketshare as of March 31, 2016, was 3.47%, and L&T 0.48%. The leaders in the private insurance market are ICICI Lombard (8.31%), Bajaj Allianz General (5.99%), IFFCO-Tokio General Insurance (3.79%) and Tata AIG General Insurance Co (3.04%). With the merger, HDFC Ergo's market share will go up to 3.95%, shooting ahead of IFFCO-Tokio General, making it the third largest private insurer in India.
L&T General Insurance Company's CEO G C Rangan and a couple of other senior executives on deputation from L&T will revert to the group.Kumar said that the company will retail all 800 employees at L&T General Insurance. "Our two businesses will complement each other. We have strength in our bancassurance channels, while L&T General Insurance has strength in motor (64%), personal accident and health (15%) and fire and property (17%)," said Jain.