Edelweiss rejects Tokio bid to get controlling stake in insurance JV

The Indian financial services group Edelweiss has turned down its Japanese partner Tokio Marine's bid to gain controlling stake in the decade-old life insurance joint venture Edelweiss Tokio Life Insurance (ETLI).

Edelweiss owns 51% in ETIL with 49% held by Tokio Marine. Unlike several other insurance ventures in India where the shareholders' agreement gave the foreign partner a right to raise stake as and when regulations allowed, there was no such pact between Edelweiss and the Japanese giant.

The Insurance Amendment Bill 2021, which was passed in June, has raised the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%.


Edelweiss, sources said, may have felt that ceding control could derail its plan to list the insurance arm within the next few years.

Asked about the future of the relationship between the two partners, Jun Tokora, chief strategy officer and the Tokio Marine person in ETIL executive committee said, "The joint venture agreement between Edelweiss Financial Services Ltd (EFSL) and Tokio Marine Holdings (TMH) --- promoters of Edelweiss Tokio Life Insurance --- has expired as of November 2021. We are engaged in discussions and will make a comment, if any, at an appropriate time."

Few weeks ago some of the Tokio Marine officials seconded to ETLI, have returned to the Japanese parent company in line with the original terms of the agreement between the two partners.

The discussions on a new agreement between the shareholders have no impact on the business operations of ETLI, said Edelweiss officials.

The pace of ETIL's growth during the pandemic may have strengthened Edelweiss group's belief that the business could be ready for an IPO in the medium term. "While Tokio Marine is keen to acquire a majority stake, given Edelweiss's focus on Insurance businesses, it does not intend to dilute its existing majority stake in ETLI," said a source in the group.

According to Rujan Panjwani, who leads the insurance cluster at Edelweiss, "Over the last decade ETLI has emerged as a high-quality business, making it the youngest and among the fastest growing life insurance players. The India opportunity for the insurance sector is very compelling and we at Edelweiss are committed to growing these businesses. We have a strong management team and a well-capitalized and robust business we believe in."

In FY22, ETLI is expected to record a total premium of Rs 1,500 crore. About Rs 2200 crore has been invested in the company so far, of which Tokio Marine has chipped in Rs 1600 crore while Edelweiss has infused Rs 600 crore. The Japanese partner has three nominees in the 12-member ETLI board.

Besides ETIL's growth and expectations from the company, Edelweiss believes it has the capital to support the insurance business - thanks to the part-sale of the wealth management arm to PAG, an Asia-focused investment manager, earlier this year which generated Rs 2,300 crore cash for Edelweiss. More recently, it divested stake in the insurance broking business to Arthur Gallagher, the American insurance broker.

Based on agency model (as against sale of insurance through bank branches) and focusing on term insurance and traditional products, ETLI benefitted, particularly during the first five years, from the agency procurement strategy and actuarial models brought in by Tokio Marine, Japan's first insurance company set up 140 years ago.

"It would be interesting to follow how Tokio Marine chooses to play the Indian market and how the two partners strike a new deal.