HDFC ERGO, L&T General Insurance in Merger Talks

Promoters of L&T General Insurance and HDFC Ergo are in merger talks. L&T General Insurance is the only private company after Reliance General to be wholly owned by Indian shareholders and HDFC Ergo is the third largest private general insurance company.

According to sources, L&T has been looking at monetizing its investment in the general insurance business for some time. The non-life company had in 2013 proposed to merge with Future Generali Insurance, which would have resulted in a three-way joint venture. The deal, however, did not go through. Subsequently, the company has been looking at bringing in a foreign partner

While it is not clear how L&T will extract value from the new three-way deal, one possibility is that German insurer Ergo, which is part of the Munich Re group, would buy some of the fresh equity created to maintain its stake at 49%.

The non-life industry has grown nearly 14% in FY16. The total revenues of the non-life industry stood at Rs. 84,685 Crore, of which Rs. 35,090 Crore was in the private sector. HDFC Ergo had reported a gross premium of Rs. 3,380 Crore for FY16 as against Rs. 3,182 Crore in the previous year. The company had reported a net profit of Rs. 151 Crore as compared to Rs. 104 Crore in the previous year. L&T General Insurance, which is a much younger insurance company, has reported a loss of Rs. 68 Crore for the nine months ended December 2016. For the same nine-month period, the company reported premium income of Rs. 210 Crore up from Rs. 157 Crore in the corresponding period last year.

If the merger does go through, it will end up with HDFC being a dominant shareholder. In December 2015, Ergo had announced that it would increase its stake to close to 49% from 26% through a Rs. 1,122 Crore investment which values the company at Rs. 4,900 Crore.