Allahabad Bank insurance deal with Sompo on track

KOLKATA: Uncertainty over Sompo Japan Insurance’s participation in the Allahabad Bank-led general insurance consortium is now history. Accordingly, the promoters have decided to contribute their share of the capital at a premium of 22% to the proposed insurance venture. The other stake holders in the joint venture company are Indian Overseas Bank (IOB), Karnataka Bank and Dabur.

Sompo’s participation had become doubtful after it faced three separate business suspension orders from Japanese regulator, the Financial Services Agency (FSA), this June. “All suspension orders have been withdrawn in phases with the last one being on August 25,” SK Goel, executive director at Allahabad Bank told ET. Following this, the Indian partners are comfortable with Sompo’s position and has decided to go ahead with the insurance venture.

“The proposed company will commence operation with an initial paid-up capital of Rs 200 crore, while total shareholder infusion will be to the tune of Rs 244 crore (including the premium),” Mr Goel said.

“The 22% premium has been arrived at after taking the future profit projection of the venture,” he said. Analysts feel that a general insurer takes at least five years to break even. In fact, Sompo has already deposited a token sum of Rs 5 crore towards equity contribution according to Mr Goel. The Japanese insurer will take a 26% stake in the proposed venture and will have to pump in another Rs 58.44 crore. Sompo’s India representative Koji Otsuka, when contacted by ET, however, refused to comment.

Allahabad Bank will hold 30%, while IOB and Karnataka Bank will hold 19% and 15% respectively. The non-bank partner in this venture Dabur, will pick up 10%. “We will be signing the shareholder’s agreement by month end. Thereafter, we will approach the Registrar of Companies (RoC) for its incorporation,” Mr Goel mentioned.

The partners will then have to submit its business proposal with Insurance Regulatory & Development Authority (IRDA) for a clearance. It is likely that the venture will start operations directly in the detariffed regime, wherein it would be free to fix premium for all products. Currently, the Tariff Advisory Committee (TAC) decides on premiums for motor, fire and engineering insurance policies.