Max Life drops bid for Aviva Life

Tags: Insurance
Max Life Insurance has pulled out of the bid to acquire Aviva Life Insurance, leaving the race to two players — HDFC Life Insurance and Birla Sun Life Insurance.

A source close to the development told Financial Chronicle that the two private life insurance players, HDFC Life and Birla Sun Life, have entered a non-binding agreement with Aviva Life a few weeks back. “We did not see value in the deal,” said a source in Max Life Insurance.

According to a person close to the development, Aviva Life is looking at a valuation of Rs 5,000 crore, while its embedded value is estimated to be around Rs 1,800 crore.

“Aviva has a good back-book and a strong franchise in the south besides a robust distribution strength comprising agency, online and corporate relationship tie-ups. But they are asking for too much,” said an official with one of the bidders.

Aviva India is a joint venture between UK’s largest insurance group Aviva Gro­up (26 per cent) and the Burmans of Dabur Group, who own the majority 74 per cent. Both the promoters, Burmans and Aviva, are looking to exit the business. Aviva had appointed JP Morgan and Deutsche Bank to manage the sale.

A mail sent to Aviva Life director Mohit Bu­rman, who represents Dabur, did not elicit any response. Top officials of Aviva Life, HDFC Life and Birla Sun Life refused to comment.

“In mature markets, insurance deals normally fetch one to 1.5 times the embedded value, depending on factors such as persistency of the business, products and management. In emerging markets, you may get a higher multiple,” said an industry expert.

Embedded value of a life insurance company is the present value of future profits plus adjusted net asset value.

The two previous deals in the industry involving New York Life selling 26 per cent in Max New York Life to Mitsui Sumitomo and Reliance Life offloading 26 per cent to Nippon Life were valued at more than three times the embedded value.

“If deals are done in a hurry, then the acquirer gives a lower value. Take the example of Exide Industries. It paid one time the embedded value of ING Vysya Life Insurance to the sellers (ING, Hemendra Kothari and Enam Group),” added the insurance expert.

Aviva India has completed 12 years of operations. During 2013-14, it had a first-year premium of Rs 1,186.94 crore, a 14 per cent drop from Rs 1,374.79 crore in 2012-13. The insurer has bancassurance tie-ups with IndusInd Bank, DBS, RBS, Punjab and Sind Bank and several cooperative and regional rural banks. Aviva India has 14,000 financial planning advisers and 134 branches.

Globally, Aviva has been retreating from less profitable markets. Last month it sold its entire 47 per cent stake in South Korean business Woori Aviva Life Insurance. It has also announced the sale of its Turkish general insurance business Aviva Sigorata to a private equity consortium. Last year, Aviva sold its life insurance division in the US to a subsidiary of the Bermuda-based Global Atlantic Financial Group.

Several foreign players have lost patience in India due to the government’s inability to deliver on its promise to hike the foreign direct investment limit in insurance to 49 per cent.

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