ICICI Lombard
PE firms looking to buy Fairfax’s 35% stake in the insurance JV; deal to value ICICI Lombard at ₹20,000 cr
Global private equity (PE) firms including The Carlyle Group, Warburg Pincus LLC and Advent International have evinced interest in acquiring the 35% stake in ICICI Lombard General Insurance Company Ltd held by Canadian financial institution Fairfax Financial Holdings Ltd, said two people aware of the development. The proposed deal will value the joint venture at $3 billion (₹20,000 crore), the two added, asking not to be identified.
ICICI Bank Ltd holds the remaining 65% stake in the joint venture.
ICICI Lombard, India’s largest private-sector general insurer, was set up in 2001 as a 74:26 joint venture between India’s largest private-sector lender ICICI Bank and the Prem Watsa-owned Fairfax. Fairfax raised its stake in 2015 after ICICI Bank agreed to sell an additional 9% stake in its general insurer for about ₹1,550 crore, valuing it at ₹17,225 crore.
ICICI Lombard has an overall market share of 8.82%. Reuters reported on 20 January that Blackstone Group and KKR and Co were in talks with Fairfax for the stake sale. Mint learns that both have backed out due to the high valuation of ICICI Lombard.
This was “3-3.5 times of embedded value, which is very high,” said one of the two people cited in the first instance, a fund-manager whose company decided not to pitch for the stake.
Embedded value, a common valuation measure for insurance companies, is the sum of the adjusted net asset value and the present value of future profits.
Spokespersons at Carlyle, Warburg Pincus and Advent declined comment. Spokespersons of Fairfax, Blackstone and KKR did not respond to e-mails seeking comment. Interestingly, Carlyle and Warburg are also the front runners for acquiring GE Capital Corp’s stake in a credit card joint venture with State Bank of India (SBI), in a deal worth $400 million.
Fairfax has been compelled to dilute its stake because its proposal to start a new general insurance company in India is stuck at the Insurance Regulatory and Development Authority of India (IRDAI), which has demanded that the Canadian firm reduce its stake in its Indian joint venture.
The Canadian firm submitted an application to form a fresh joint venture in general insurance with Kamesh Goyal, a former executive at German financial services firm Allianz, The Economic Times reported in January this year. Fairfax will own close to a 45% stake in the venture. If the deal closes at the expected valuation, ICICI Bank could sell another 5-10% stake in the insurer to the PE firms, the second person said.
Earlier, ICICI Bank’s plans to sell ICICI Home Finance fell through due to a valuation mismatch between the bank and potential private equity buyers, Mint reported on April 1, 2016. Global PE investors such as TPG, Partners Capital and Baring Private Equity Asia, were in discussions with ICICI Bank for a possible deal, that report added.
At present, India has 30 nonlife insurers which together recorded a total gross underwritten premium of ₹1.04 lakh crore during the April-january period. Private sector non-life insurance companies have a market share of 42.03% in the industry and recorded total gross underwritten premium of ₹43,571.02 crore during the April-january period of 2016-17, according to the Insurance Regulatory and Development Authority of India.
After the government raised the foreign direct investment limit in the insurance sector from 26% to 49% in March 2015, most insurance firms have seen their foreign partners raise stakes. For instance, AXA raised its stake in both its life and non-life insurance ventures with Bharti Enterprises for a total consideration of about ₹1,300 crore.
Japan’s Nippon Life Insurance increased its stake by 23% in Reliance Life Insurance for about ₹2,265 crore. UK‘S Bupa raised its stake to 49% in Max Bupa Health Insurance for ₹191 crore. Fairfax Financial Holdings too raised its stake in ICICI Lombard.