HDFC gets Rs 202 cr from stake sale in risk arm

REPORT ON MACRO-ECONOMIC AND MONETARY DEVELOPMENT

Housing Development Finance Corporation (HDFC) has earned the highest premium paid by any foreign partner for a tie-up to enter the country's non-life insurance industry.

HDFC has earned a whopping premium of Rs 202.5 crore from ERGO International AG for selling 26 per cent stake in HDFC General Insurance to it.

The highest premium paid in the life sector is Rs 220 crore, which was charged by state-owned Bank of Baroda and Andhra Bank from the UK-based wealth and investment company, Legal & General Group, to form a joint venture for a life insurance company.

HDFC Ltd will receive a total of Rs 235 crore from ERGO for the 26 per cent share in HDFC General Insurance, of which Rs 202.5 crore is the premium charged by it, while Rs 32.5 crore is the price for the transfer of 3.25 crore equity shares.

Insurance Regulatory and Development Authority (IRDA) has 'in principle' approved the transfer of the 26 per cent stake sale in HDFC General Insurance Company Limited (HGICL) held by HDFC Limited in favour of ERGO. The transaction is likely to be completed this month.

Speaking about the premium, an expert said, "Chubb (the partner with which HDFC had initially launched operations) being conservative and risk averse, left a clean balance sheet while exiting. Besides, HDFC General Insurance is already an established company with IT systems, manpower and business plan in place."

Deepak Parekh, chairman HDFC Ltd, said, "General Insurance has been one area where we have lagged behind. We need to gear up and focus our energies to become one of the prominent players of this fast growing industry. ERGO is a leading player in Europe, and I am certain that their vast experience, technical expertise and operational know-how will make a big difference to this business."

The shareholder's agreement between the two companies was signed on October 30, 2007.