Royal Sundaram, Reliance division to re-apply for merger

Move necessitated by Irda’s draft rule for non-life M&As.

In light of the proposed merger and acquisition (M&A) guidelines for non-life insurance firms, general insurers Royal Sundaram and Reliance General, which had applied for a merger in July 2010 and were awaiting the regulator’s permission, will have to file their application afresh.

Last week, the Insurance Regulatory and Development Authority (Irda) laid down the draft guidelines for M&As among non-life insurance companies. It has invited comments by February 22, after which it will come up with the final guidelines. When the two companies applied, there were no guidelines for general insurers. As a result, they had to follow the norms applicable to life insurance companies.
“There were no merger-exact norms in the non-life space when the two companies applied. Since they have not got an approval from the regulator, they will have to re-file the application,” said a senior Irda official.
Apart from issues of taxation and valuation and the projected revenue of the merged entity, the draft guidelines put up by the regulator look into reinsurance strategies, protection and maintenance of reinsurance assets and key contracts and policyholders’ interests.
Both companies submitted the proposal for merger in July last year.
Royal Sundaram Alliance Managing Director Ajay Bimbhet said the company’s policy did not allow him to comment on the matter. Reliance General could not be reached for comment.
Reliance General has been scaling down business for some time. Even as the industry posted 24(%) per cent growth, Reliance General registered a loss of 22(%) per cent in gross written premium income during the nine months ended December.
According to the proposal, the UK-based RSA group was expected to have a 26(%) per cent stake in Reliance General, the fourth-largest private general insurer. As of now, Reliance Capital owns 100(%) per cent stake in the company. South-based Sundaram group, which holds 74(%) per cent in Royal Sundaram General Insurance, was likely to exit through this merger.
As of now, the deal has hit a roadblock. Sources close to the development say the companies have not reached an agreement regarding the valuation.