Aviva Life Insurance may sell 30% stake to Syndicate Bank

Aviva Life Insurance, the local unit of the UK insurer, may sell as much as 30% stake to state-run lender Syndicate Bank to raise its fortunes in a competitive market.

Consumer goods maker Dabur India owns 74% stake in the insurer while Aviva Group owns the rest.

Mohit Burman, director of FMCG major Dabur Group, confirmed that talks are on. "The deal is in process," he said. A board meeting will take place on Wednesday where a decision will be taken on the stake sale, he added.

"Aviva is likely to offer a discount on the face value to Syndicate Bank," said a person familiar with the negotiations.

The insurer, which started operations in May 2002, is following the established route of bancassurance - partnering with banks to sell insurance - for a wider reach.

Aviva Life Insurance has a paid-up capital of 2,004 crore. It is not clear whether the company will issue fresh shares or if the promoters will divest their stake.

Globally, Aviva is a leader in bancassurance and operates through the bank distribution channel. In India, the company sells insurance through Punjab & Sind Bank, IndusInd Bank and DBS. The insurer will certainly benefit from an association with Syndicate Bank, which has over 1,500 branches.

The company made a profit of 29 crore in 2010-11. It had collected 2,345 crore of premium in the last financial year. Total assets under management stood at 7,654 crore. With market share of a little over 1%, Aviva is looking at a bank partner to boost income.

Syndicate Bank had short-listed a dozen insurers for its brownfield foray into life insurance. Ernst & Young is helping Syndicate in the deal.

According to a report by the Insurance Regulatory and Development Authority (Irda), premium collected through bancassurance amounted to 21,947 crore in 2009-10, which is 7.31% of the total premium income of life and non-life insurance sectors.

The Irda report said the discount in valuations offered by insurers to banks has to be treated as commission over a period time. This is expected to affect the deals under way.

There are 17 banks with shareholding in insurance companies. Although banks have entered into pacts to sell policies of insurance companies, insurers have not been able to fully utilise the potential of banks. Of the 80,000 bank branches in the country, just 7,000 are selling insurance.

Many insurers are willing to sell equity to banks which would give them wider reach. Recently, MetLife sold 30% to Punjab National Bank. Earlier, Max New York Life had sold 4% stake to Axis Bank.