June 6, 2016
HDFC ERGO General Insurance has acquired L&T General Insurance, a wholly owned subsidiary of Larsen & Toubro, a move which will turn HDFC ERGO into India’s third biggest private-sector non-life insurer.
he transaction, an all-cash deal, is valued at INR5.51 billion (US$82.5 million), according to filing with the Bombay stock exchange. The deal was sealed last Friday. The acquirer is a 51:49 joint venture between HDFC and ERGO International (part of the Munich Re Group) and the fourth largest private sector general insurer in India before the acquisition. In December last year, ERGO increased its stake in the joint venture from 25.84% to 48.74% at a cost of INR11.22 billion. L&T General Insurance is among the few players operating in the Indian market without a foreign partner.
In 2013, a proposal to merge with Future Generali Insurance fell through. “While a foreign partner was subsequently found, the deal was shelved and so the top management decided it would be better to exit the business,” the Financial Express reported, citing a senior industry executive.
Market consolidation
Mr Deepak Parekh, Chairman of HDFC and HDFC ERGO General Insurance, said: “Considering the importance of scale in the insurance business, consolidation within the insurance industry is inevitable. This transaction marks the beginning of this consolidation phase. The acquisition will help HDFC ERGO further strengthen its presence in the market. The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policyholders and other stakeholders.” Currently, there are 29 players in the non-life space including four state-owned insurers.