Zurich Insurance Group is currently in discussions to acquire a significant stake (up to 51%) in Kotak General Insurance, an Indian insurance company. This potential deal would be Zurich Insurance’s first major venture into the rapidly growing South Asian insurance market.
The talks, which are still in the early stages, value Kotak General Insurance at around $800 million. Zurich Insurance has expressed interest in acquiring either a minority stake of 49% or a majority stake of 51%. The stake that the Swiss insurer aims to secure would be worth approximately $400 million.
While Kotak is considering various offers, including those from other investors, it prefers to maintain control of the company even after the stake sale, according to a source. Zurich Insurance, being one of Europe’s largest insurers, declined to comment on the rumors and speculations surrounding the potential deal. Kotak General Insurance, which is fully owned by Kotak Mahindra Bank, did not respond to queries from Reuters.
While the idea of Kotak selling a stake in its insurance unit has been previously reported, the negotiations with Zurich, the potential deal size, and the valuation are now being disclosed for the first time. India’s general insurance market consists of over 30 companies, with annual premium collections reaching $26.7 billion in 2021-22, a growth of 11%. This growth is attributed to increased financial literacy and rising income levels in the country, according to a report by CareEdge Ratings.
Despite this growth, the general insurance market in India remains largely untapped, with a penetration rate of only 1% in 2021, compared to the global average of 4.1%. This highlights the immense potential of the industry. Foreign companies such as Germany’s Allianz and South Africa’s Lombard have already formed general insurance partnerships with Indian banking and financial groups.
According to a source, Kotak, being a relatively smaller player in the general insurance sector, is engaging in stake sale talks with the hope of finding an investor who can help them turn around the business and achieve faster growth. In the financial year 2021-22, the Kotak insurance unit reported a loss of $10 million and generated a premium income of $91.35 million, while its larger rival, HDFC Ergo, amassed $1.66 billion.
An industry executive in Europe, who is not privy to the current deal talks, mentioned that Zurich has been evaluating the Indian market for several years. The executive noted that businesses in India tend to be more profitable with better margins compared to those in Europe.
In 2017, Zurich expressed its intention to expand its presence in markets like China and India, where it could compete without being a dominant player. The company operates in more than 200 countries and provides various types of insurance, including life, health, and auto.
India relaxed its foreign investment rules for the insurance sector in 2021, allowing companies to acquire majority stakes of up to 74%, up from the previous limit of 49%. This regulatory change has further opened up opportunities for foreign investment in the Indian insurance industry.