Allianz 'actively considering' exiting Bajaj Insurance JVs
Mumbai, Oct 23, 2024
Synopsis
The German insurer's decision stems from a shift in its priorities as it is unable to play a significant role in the operations. While signing the JV agreement, Allianz had expected it would raise its stake to 74%, the maximum allowed under Indian foreign direct investment (FDI) rules at a discounted price, but the option lapsed in 2016.
Allianz SE, one of Europe's largest insurers, is actively considering an exit from its life and general insurance joint ventures with Bajaj Group, marking the potential end of a 23-year partnership. Allianz holds a 26% stake in both Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance, while Bajaj Group controls the remaining 74% through its subsidiary Bajaj Finserv.
The German insurer's decision stems from a shift in its priorities as it is unable to play a significant role in the operations. While signing the JV agreement, Allianz had expected it would raise its stake to 74%, the maximum allowed under Indian foreign direct investment (FDI) rules at a discounted price, but the option lapsed in 2016.
Under the original 2001 agreement, Allianz had the right to increase stake at a predetermined price, but regulatory changes have since required all FDI deals to be conducted at fair market value.
The discussions with Bajaj are still in their preliminary stages, and no formal proposal has been presented to Bajaj Finserv or its insurance subsidiaries. In a statement to the stock exchange, Bajaj Finserv said that while Allianz intends to exit, no final decision has been made. Allianz has committed to working closely with Bajaj to ensure a smooth transition, in case it exits the JV.
The FDI cap for the insurance sector in India was raised from 26% to 74% in 2021 to attract more foreign capital into the capital-intensive insurance industry.
Allianz was not able to make strategic decisions within the joint ventures due to its minority stake. The insurer's lack of control over critical business moves, and inability to secure a higher stake, led to the long standing partnership with Bajaj falling apart.
"Allianz has indicated to Bajaj that given its strategic priorities, it is actively considering an exit from the life and general insurance joint ventures," Bajaj Finserv said in the announcement.
"It has indicated that it remains committed to the Indian insurance market but will not speculate on alternatives. Discussions are at preliminary stage and there is no proposal before the board of the company or its insurance subsidiaries in this regard."
If Allianz decides to exit, the valuation of Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance could become a key point of negotiation. The embedded value (EV) of Bajaj Allianz Life Insurance for FY24 stood at ?21,726 crore, a 16.9% increase from Rs 18,584 crore in FY23. Industry experts say that a life insurance deal could fetch 4-5 times the embedded value, depending on the market conditions and investor appetite.
In FY24, Bajaj Allianz General Insurance reported a gross written premium of Rs 20,600 crore, which covers health, motor, and property segments.
[The Economic Times]
