IDBI Bank is selling 27 percent stake in IDBI Federal Life Insurance for Rs 595 crore to Federal Bank and Belgium's Ageas Insurance International
In an interaction with Moneycontrol, Vighnesh Shahane, managing director and chief executive officer of IDBI Federal Life Insurance, said there is a need to get a bank distributor quickly, and that the insurer is on the lookout for a potential bancassurance partner.
Shahane added that IDBI Bank-led sales have now come down to less than 5 percent, compared to the peak of 50-55 percent about three years ago. The sale started to decline after Life Insurance Corporation (LIC) took 51 percent stake in the bank.
IDBI Bank now sells LIC policies too in its bank branches, affecting sales of IDBI Federal Life policies.
For the April 1 to July 31 period (FY21), IDBI Federal collected new business premium of Rs 109.31 crore, showing a year-on-year decrease of 27.5 percent.
On August 6, IDBI Bank announced that it will sell 27 percent stake in IDBI Federal to Ageas Insurance International and Federal Bank for Rs 595.30 crore. As per the agreement, 23 percent stake would be sold to Ageas, and Federal Bank would acquire up to 4 percent stake from IDBI Bank. The deal valued IDBI Federal Life Insurance at Rs 2,198.15 crore.
IDBI Federal Life’s parent IDBI Bank is now owned by LIC, after the state-owned insurer bought 51 percent stake in the bank in January 2019.
IDBI Bank currently owns 48 percent in IDBI Federal Life, while Federal Bank and Belgium’s Ageas hold 26 percent each. Once the transaction is completed, IDBI Bank’s stake will come down to 21 percent. Federal Bank will then hold 30 percent and Ageas will hold 49 percent, which is the maximum permissible foreign direct investment in an Indian insurance company.
“The uncertainty is now considerably reduced with IDBI Bank giving out its plans to pare down stake in the company. But we have to increase our distribution footprint,” said Shahane.
In May 2018, while IDBI Bank was close to a stake sale in the life insurance company, however the deal could not be completed due to valuation concerns. With LIC as the majority shareholder, the stake sale process had to begin afresh.
Shahane said on one hand while business from IDBI Bank has almost evaporated, business from Federal Bank has seen an increase of 40 percent despite the COVID-19 pandemic.
Right now, Federal Bank contributes about 70 percent of the business for IDBI Federal Life.
Green shoots emerging
There are early signs of revival being seen in IDBI Federal Life. Despite a drop in new business premium at the end of FY20, the life insurer posted a 11.3 percent YoY increase in net profit at Rs 147.83 crore.
When it comes to the new business premium, the life insurer saw a slower rate of decline in July 2020.
Data from the Insurance Regulatory and Development Authority (IRDAI) showed that IDBI Federal Life had seen a 36.8 percent decline in March and 67.7 percent decline in April in new business premium on a YoY basis.
In May 2020, the premium declined by 48.2 percent, and in June the decline was 17.3 percent. However, in July the YoY decline was only 5.2 percent at 45.42 crore.
“Our accumulated losses were wiped off (in July 2018). Our focus has been to build the business, but not at the cost of profitability or persistency,” said Shahane.
He explained that products like annuity and protection plans are in demand, and that customers now want guaranteed return plans in life insurance.