By M. Sriram
MUMBAI (Reuters) - Zurich Insurance Group is in talks to buy up to 51% of India's Kotak General Insurance, two sources with direct knowledge of the matter said, a deal that would mark its first major bet on the fast-growing South Asian insurance market.
Backed by Asia's richest banker Uday Kotak, the early-stage negotiations value the Indian company at around $800 million, and Zurich Insurance has expresed interest in both a minority stake of 49% or taking up a majority 51% stake, the sources said.
The stake the Swiss insurer wants to secure will be worth around $400 million, they said.
Kotak is still evaluating offers, including from other investors, but it prefers retaining "control of the company" after the stake sale, the first source said.
A spokesperson for Zurich, one of Europe's largest insurers, said "as a matter of principle, we don't comment on market rumours and speculations." Kotak General Insurance, which is fully-owned by Indian banking giant Kotak Mahindra Bank, did not respond to Reuters queries.
While the Kotak insurance unit's interest in selling a stake has been reported earlier, its talks with Zurich, the potential deal size and valuation are being reported for the first time.
More than 30 companies operate in India's general insurance market, where annual premium collections grew 11% to reach $26.7 billion in 2021-22, helped by rising financial literacy and income levels, CareEdge Ratings said in a report.
Many in India still consider health insurance, for example, as a tax savings tool. CareEdge added that India remains a vastly underpenetrated market with non-life insurance penetration of 1% in 2021, compared with the global average of 4.1%, highlighting "the potential of the industry."
Already, foreign companies such as Germany's Allianz (ETR:ALVG) and South Africa's Lombard have general insurance partnerships with Indian banking or financial groups.
The first source said Kotak, which is a relatively smaller general insurance player, is holding stake sale talks as it hopes to get an investor who can help them "turn around the business and grow faster".
The Kotak unit reported a loss of $10 million and clocked a premium income of $91.35 million in 2021-22, when bigger rival HDFC Ergo garnered $1.66 billion.
One industry executive in Europe, who is not aware of the current deal talks, said Zurich has for several years evaluated the India market, where businesses are generally more profitable and have better margins than those in Europe.
In 2017, Zurich said it wanted to grow its presence in markets such as China and India, where it can "compete without being a dominant player". The company operates in more than 200 countries and provides life insurance as well as for health and cars.
India in 2021 relaxed foreign investment rules for the insurance sector, allowing companies to acquire majority stakes of up to 74%, from 49% earlier.