Nandini Goswami

Kolkata: State Bank of India said on Tuesday it has signed a memorandum of understanding with Insurance Australia Group for a general insurance venture.

Both firms will finalise an agreement and approach regulators for approvals, they said in a joint statement, without specifying financial details. IAG holding will be 26%, the maximum allowed under Indian law, while SBI will hold the majority 74%, the statement said.

However, there is a catch in the deal.

Even as SBI works out the nitty-gritty of its deal with IAG, the latter is being pursued by another Australian insurer, QBE Insurance.

And QBE, Australia’s top insurer by premium income, is the joint venture partner for Rajan Raheja’s general insurance venture in India.

If QBE is successful in its take over of IAG, the the Insurance Regulatory & Development Authority (Irda) will have to decide whether a foreign company can have two joint ventures in the same category, even if it is occurs through a subsidiary company.

For example, can Allianz,which has a life and general insurance tie-up with Bajaj in India, also tieup with another Indian company for a life/general insurance venture?

Although it is still early to take a call, industry observers say such a happening could trigger some FDI guidelines if something to this effect works out.

Munich Re, for example, has a health insurance-only venture in India with Apollo Hospitals through its company DKV. It also has a presence in the general insurance space through Ergo,which has separately tied up with HDFC.

Munich Re is at present working towards a JV on the life side. Talks on QBE’s takeover proposal have been going on for the last couple of months in Australia.

While QBE’s initial offer of A$ 8.1 billion ($7.6 billion) was rejected by IAG early this month, QBE said later that it was extending the takeover offer.

QBE chief executive Frank O’ Halloran was last week quoted by international news agencies as saying: “The proposal has been extended to allow more time to consider the stakeholders impact of IAG’s profit downgrade announced last week and the value of QBE shares.”

Halloran said that QBE, which has acquired 110 companies in the past 25 years was hoping for a friendly merger.

Despite being a late entrant, industry analysts feel that SBI, with its large network, will be able to demand a high entry premium from the foreign partner and could save on operational costs with its established network.

SBI Life, the bank’s life insurance venture with French insurer Cardiff, has been the only life insurance company to post a net profit for three years in a row and is planning to go public later this year.

Source : DNA