Kotak buys out Old Mutual’s stake in life insurance venture

Kotak Mahindra Bank Ltd. on Friday announced to buy out the entire 26% stake of its joint venture partner Old Mutual Plc, UK in Kotak Mahindra Old Mutual Life Insurance Ltd. for Rs1,292.7 crore, the private lender said in an exchange filing.

Kotak Mahindra Old Mutual Life, which collected a total first year premium of Rs2,849.74 crore during the financial year ended March 31, is ranked sixth among 24 life insurers in the industry in terms of premium collections.

Old Mutual quits its life insurance JV in India when the insurance industry is going through a phase of consolidation that began last September with ICICI Prudential Life Insurance Co. Ltd’s Rs6,000-crore new share sale.

Gaurang Shah, president – asset management, insurance and international business, Kotak Mahindra Bank, said “Old Mutual is undergoing a restructuring exercise and they may break up their business into four different businesses globally. At the end of this exercise, Old Mutual itself will vanish. But, in this whole restructuring process, they are strategically evaluating their own businesses themselves. So as a fallout of that exercise at Old Mutual, they came and asked us whether we would like to buy their stake held by Old Mutual. We, at Kotak, have always been open for both organic and inorganic growth and that is how we entered into this strategic agreement to buy their stake in an all cash deal, which, at the agreed price, values our business at Rs 4,972 crore.”

While some of the large players are planning to get listed, the midlevel and smaller ones are looking at mergers and acquisitions to grow.

HDFC Standard Life Insurance Co. Ltd has made a move towards getting listed by means of a three-way merger with Max Life Insurance Co. Ltd and Max Financial Services Ltd.

Shah said unlike other top players, Kotak Life Insurance does not have a plan either to bring in a foreign JV partner or to get itself listed any time soon.

“While being a partner with Old Mutual, we have developed the expertise that is typically brought in by the foreign JV partner in insurance business, which is mainly in the areas of actuary and distribution. So, we may not immediately look for any foreign JV partner at the moment. On the other hand, we have a strong capital adequacy at around 3 and a networth of around Rs1,825 crore. So, we do not need to access capital from the public by getting listed right now.”

In last year, while the industry grew by 21%, Kotak Life Insurance managed to grow at 29% in terms of premiums. The acquisition of ING Vysya Bank helped.