IAG and State Bank of India agree to form general insurance joint venture (24/11/2008)

Insurance Australia Group Limited (IAG) and State Bank of India (SBI) announced today they had signed a joint venture agreement to establish a general insurance company in India, expected to commence trading in 2009.

This follows IAG’s announcement on 13 May 2008 that it had been selected by SBI as its preferred partner to enter exclusive joint venture negotiations.

IAG Managing Director and Chief Executive Officer Mr Michael Wilkins said forming the joint venture was a significant step in IAG’s strategy to pursue select international general insurance opportunities.

“We are delighted to be partnering with India’s premier financial services organisation, SBI. This provides us with an exciting opportunity to be a key participant in India’s rapidly growing general insurance market, by leveraging the combined strengths of our two organisations.

“Entering the Indian general insurance market has been a priority for IAG for some time, to support our longer term growth and profitability. India has a large and expanding economy, with a general insurance market predicted to grow 15%–20% per annum over the next ten years.

“SBI is India’s largest and most recognised financial services organisation, with more than 100 million customers, and considerable distribution reach through a network of more than 11,000 branches, and access to an additional 46 million customers and 4,500 branches through its associate banks.

“SBI has successfully built joint venture relationships with other foreign partners, including a life insurance business, and has a track record in general insurance distribution. IAG brings to the partnership proven capabilities in the areas of underwriting, pricing and actuarial, and risk and claims management,” Mr Wilkins said.

SBI Chairman Mr OP Bhatt said the joint venture is part of SBI's strategic initiatives to retain its position as the pre-eminent financial services group in India.

“Insurance penetration in India is very low and the general insurance industry is expected to grow at a brisk rate of 15%–20% p.a. over a period of the next 10 years. SBI with its unparalleled brand equity and extensive distribution network will be able to provide protection to people even in the remote rural and semi urban areas throughout the country and help deepen the market. I am sure that this venture, like our Life Insurance venture SBI Life, will also emerge as a leader within a short span of time. This initiative will further diversify SBI's portfolio of financial services offered to its customers. We look forward to developing a successful business with IAG.”

The joint venture will have exclusive access to SBI’s distribution network and brand, and will aim to build scale in the corporate, SME and retail segments, where SBI has particularly strong customer relationships.

IAG will initially hold 26% of the joint venture, the maximum allowable under India’s current foreign investment rules, and has an option to increase its stake to 49% in future, subject to regulatory and other conditions.

Under the joint venture arrangements, IAG will have board representation, the right to appoint certain key management personnel and affirmative voting rights over key business matters.

Mr Wilkins said IAG’s investment in the joint venture will be INR 5421 million (approximately AUD$170 million), which will be funded from IAG’s internal resources. “Importantly, our total investment will be made directly into the joint venture, of which we will own 26%, and current business plans suggest that no further capital will be required for at least four years.

“Our investment reflects the attractiveness of this unique opportunity, which we believe will contribute to building value for our shareholders in the medium to long term,” Mr Wilkins said.

The joint venture remains subject to Insurance Regulatory and Development Authority and other applicable approvals. Once approvals are granted, the joint venture is expected to commence writing business in late 2009, at which time IAG’s investment will be made.

About State Bank of India
State Bank of India is the largest commercial bank in India. It has over 100 million customers and 11,000 branches across the country, and access to an additional 46 million customers and 4,500 branches when including its associate banks. It has one of the most trusted brands in India, and a heritage dating back over 200 years. SBI has successfully built joint venture relationships with other foreign partners, including a life insurance business which now has a profitable number three market position in terms of new business income. For further information please visit www.statebankofindia.com