Old Mutual to exit insurance JV with Kotak Bank

Private sector lender Kotak Mahindra Bank on Friday said that it is buying out the entire 26% stake of Old Mutual in its life insurance arm for Rs 1,292.7 crore.

At the value of this stake sale, the enterprise value is at Rs 4,972 crore, while net worth of Kotak Life stands at Rs 1,825 crore as on March 2017.

With this valuations, the 26% of the deal is valued at 2.7 time the net worth. Kotak Mahindra Old Mutual Life Insurance in the year 2016-17, had seen new business premium at Rs 2,849.74 crore growth by 28.9%.

“In line with its philosophy to deepen and expand in Indian financial services, Kotak Mahindra Bank has entered into an agreement to purchase the entire 26% equity stake held by Old Mutual in Kotak Mahindra Old Mutual Life Insurance for a consideration of Rs 1,292.7 crore,” said the bank in a statement.

The buyout, which is subject to regulatory and other approvals, will result in the Kotak Mahindra Group holding 100% equity in Kotak Life, it said.

The life insurance joint venture was formed in 2001 with Kotak owning 74% and the rest being with the British partner.

“India is in an exciting phase of its economic journey and the financial services sector, especially the insurance sector, is poised for significant growth. Kotak Life will continue to leverage this opportunity,”

said Guarang Shah, president for asset management, insurance and international business of Kotak Mahindra bank.

According to the senior officials, compared to the Rs185 crore that the foreign partner had put in, they have seen a growth of 15.3% on a compounded annual growth rate (CAGR). Kotak Life posted a net profit of Rs 303 crore in FY17 compared to Rs 251 crore in FY16.

“If we look at our business we have equal share in individual business and group business 50-50%. Within group business we do pure risk business and fee based business of pension and gratuity management. We are one player and who still consistently believe that agency is going to important medium for a life insurance business to expand, so we have 50 percent of our business from agency channel and remaining 50% through bancassurance,” added Shah.

Senior officials also added that, claim settlement of Kotak Life, in 2015-16 they are at number two at 98.4% where LIC is marginally higher at 98.5%. In 2016-17 their claims settlement is increased to 99.5% and totally they cover 2 crore lives and new business premiums of pure risk is 25%. “We don’t plan to list the company going forward and are not even looking at foreign partner,” said another senior person.

The announcement comes within a month of the bank announcing a plan to raise up to Rs 5,000 crore through a share sale.