Ergo, banks in talks for life insurance JV

German insurance giant Ergo is said to be in talks with public sector banks to form a life insurance joint venture.

In March last year, Ergo and the Hero group, the country’s largest two-wheeler maker, ended their life insurance tie-up, after Hero decided to focus on its core business. Ergo has been scouting for partners since.

Sources close to the development said the insurer had decided to enter into a bank-led insurance venture. It is in talks with Punjab National Bank (PNB), Allahabad Bank, Syndicate Bank, Central Bank of India and Vijaya Bank.

Since government-owned banks are not allowed to acquire more than 51 per cent in an insurance company, it will be a three-way joint venture. In addition, foreign investment in the insurance sector is capped at 26 per cent.

“Ergo may rope in two banks to form the life insurance company. The bank-led model has proved to be the most efficient,” said a person associated with the negotiations. PNB is learnt to be the frontrunner. Syndicate Bank, on the other hand, is said to be in talks with Bharti AXA Life Insurance to buy a substantial stake.

Management consultancy firm Ernst & Young is advising Ergo.

PNB, the second-largest public sector lender, earlier distributed life insurance policies through the referral model. It had a partnership with UK-based Principal Financial and Vijaya Bank for Principal PNB Advisory. Last year, the two partners sold their stakes in the venture, paving the way for both banks to enter the business of underwriting life insurance policies.

Most large banks, including some foreign players, have ventured into the insurance business in India. SBI Life is the only exception, as SBI has more than 51 per cent stake in the life insurance JV. Last year, Bank of Baroda and Andhra Bank formed a joint venture called India First Life with Legal and General of UK. Similarly, Bank of India and Union Bank of India joined hands with Daiichi to form Star Union Daiichi Life Insurance.

Ergo already has a presence in the non-life space. In 2007, it bought Chubb’s stake in HDFC to form HDFC Ergo General Insurance. The eight-year-old company is expected to break even by 2010-11.