IAG, State Bank of India Agree to Form General Insurance Joint Venture
Insurance Australia Group Limited (IAG) and State Bank of India (SBI) announced that they have signed a joint venture agreement to establish a general insurance company in India, which is expected to commence trading in 2009.
IAG Managing Director and CEO Michael Wilkins described the deal as a significant step in IAG’s strategy to pursue select international general insurance opportunities. “We are delighted to be partnering with India’s premier financial services organization, SBI,” he stated. “This provides us with an exciting opportunity to be a key participant in India’s rapidly growing general insurance market, by leveraging the combined strengths of our two organizations.”
He added that “entering the Indian general insurance market has been a priority for IAG for some time, to support our longer term growth and profitability. India has a large and expanding economy, with a general insurance market predicted to grow 15 percent-20 percent per annum over the next ten years.
“SBI is India’s largest and most recognized financial services organization, with more than 100 million customers, and considerable distribution reach through a network of more than 11,000 branches, and access to an additional 46 million customers and 4,500 branches through its associate banks.”
Wilkins also noted that SBI has “has successfully built joint venture relationships with other foreign partners, including a life insurance business, and has a track record in general insurance distribution. IAG brings to the partnership proven capabilities in the areas of underwriting, pricing and actuarial, and risk and claims management.”
SBI Chairman OP Bhatt indicated that the joint venture is part of SBI’s strategic initiatives to retain its position as the pre-eminent financial services group in India. He noted that “insurance penetration in India is very low.”
He stated that “SBI with its unparalleled brand equity and extensive distribution network will be able to provide protection to people even in the remote rural and semi urban areas throughout the country and help deepen the market. I am sure that this venture, like our Life Insurance venture SBI Life, will also emerge as a leader within a short span of time. This initiative will further diversify SBI’s portfolio of financial services offered to its customers. We look forward to developing a successful business with IAG.”
The announcement said the “joint venture will have exclusive access to SBI’s distribution network and brand, and will aim to build scale in the corporate, SME and retail segments, where SBI has particularly strong customer relationships. IAG will initially hold 26 percent of the joint venture, the maximum allowable under India’s current foreign investment rules, and has an option to increase its stake to 49 percent in future, subject to regulatory and other conditions.
“Under the joint venture arrangements, IAG will have board representation, the right to appoint certain key management personnel and affirmative voting rights over key business matters.”
Wilkins said IAG’s investment in the joint venture will be INR 5421 million (approximately AUD$170 million [US$107 million]), which will be funded from IAG’s internal resources. “Importantly, our total investment will be made directly into the joint venture, of which we will own 26 percent,” he confirmed, “and current business plans suggest that no further capital will be required for at least four years.”
He described the investment as a “unique opportunity, which we believe will contribute to building value for our shareholders in the medium to long term.
IAG noted that the joint venture “remains subject to Insurance Regulatory and Development Authority and other applicable approvals. Once approvals are granted, the joint venture is expected to commence writing business in late 2009, at which time IAG’s investment will be made.”
Source: Insurance Australia Group – www.iag.com.au
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