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HDFC buys out Chubb in non-life JV

HDFC has bought out its US partner Chubb from its non-life insurance joint venture. The shareholders have approached IRDA with their decision to part ways.

After the buyout, HDFC Chubb General Insurance will be a wholly-owned subsidiary of HDFC. The corporation is likely to bring in another foreign partner in the future. HDFC has already been approached by insurance groups from the US, Europe and Japan for its proposed non-life venture.

The HDFC Chubb separation is the first instance of a failed marriage in the insurance industry. Both partners are keen on the non-life business in India, but irreconcilable differences had arisen over the way the business is run. “The company has not grown as planned and we would like to grow this business much faster in keeping with the growth potential of the industry,” said Conrad D’souza, senior general manager, treasury, HDFC.

Although HDFC has refused to confirm it, sources said that HDFC has paid a nominal amount close to the par value of shares. HDFC Chubb has a paid-up capital of Rs 125 crore to which HDFC has contributed Rs 92.5 crore and Chubb Rs 32.5 crore.

The US insurer had also provided technical support to the joint venture through product development support and helping put in place systems. Most of the employees are on the company’s rolls and would not be affected by the buyout. HDFC may debut an executive to oversee the day-to-day working of the company. Shrirang Samant, MD, HDFC Chubb, is understood to have put in his papers.

While HDFC has been restless about the low ranking of HDFC Chubb in the industry league tables, Chubb has been extremely cautious. Worldwide, Chubb takes a very long-term view, waiting as long as six years in some markets before moving into a growth mode. While HDFC can run the business on its own, Chubb would need to find another Indian partner. Currently, foreign insurers looking at India include Germany’s Ergo group, Macquaire and Insurance Australia Group, Singapore GE Holdings, Allstate Insurance and a couple of Japanese insurance companies.

Industry watchers feel that the split has taken place because HDFC has the wherewithal to run a company on its own. HDFC is also the first port of call for multinationals in the financial services industry. Although the Law requires Indian shareholders to own at least 74% in an insurance company, in many joint ventures promoters have handed over management control to the foreign partner.

Ever since news of the differences between the two broke out, HDFC Chubb General Insurance has been losing business. Many corporate clients have left the company.

Source : Economic Times

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