Tata, AIG avoid conflict, to seek IRDA nod

MUMBAI, OCT 5: In a compromise formula arrived at this week, India's largest corporate house, the Tatas and the US insurance major America...

MUMBAI, OCT 5: In a compromise formula arrived at this week, India’s largest corporate house, the Tatas and the US insurance major American Insurance Group (AIG) have avoided a major confrontation over the management structure of its insurance joint venture and are planning to apply for their two insurance sector licences on Friday.

Tata-AIG were planning to set up two separate joint ventures for life and non-life segment and had delayed filing of any application an insurance licence, fuelling speculation that all is not well with the partners. “AIG had asked for an increased role in the management and the Tatas have finally agreed, the joint venture is on,” say insiders. A week back textile firm Bombay Dyeing had announced that it will not go ahead with its non-life venture with CGNU of the UK. Earlier ITC, Unit Trust of India, Kotak Mahindra and Ranbaxy were among the many companies which failed to go ahead with their joint venture partners.

Insiders say there were strong differences between the two partners on management structure and due to this reason the partners failed to make an application to the Insurance Regulatory and Development Authority (IRDA) to start the business. “The Tatas will have to make up its mind… it’s either AIG management or no JV,” say sources. “We have managed to salvage the situation and file an application soon,” they add.

The IRDA started accepting applications for insurance ventures from mid-August this year. Till date, Dabur, Reliance, ICICI, HDFC and Sundaram Finance are among the few Indian companies which have already put in their application to the regulator. But Tata-AIG, one of the best brands in the game, did not apply for a licence.

With the IRDA saying that only those companies which have made application till August-end this year will be issued licences this year, the Tatas have missed the first mover advantage. Both Tatas and AIG were planning to set up two separate joint ventures for both life and non-life segment with a corpus of Rs 100 crore each. As per the government of India guidelines, Indian partner can pick up 76 per cent stake while the multinational stake can invest only 26 per cent of the equity.

The strategy for the non-life segment was to provide the massive corporate and consumer line of insurance products with a distinct customer service. Sources say the interest of both the companies particularly in the life segment is waning.

AIG is one of the biggest investors in India and the company has already invested over $ 400 million in the country. The financial powerhouse, led by former US Ambassador to India, Frank Wisner has a plan to invest around $1 billion in the Indian infrastructure sector.

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On the other hand, the Tatas, which had founded New India Assurance in 1916, want to make a come back into the insurance sector. The insurance joint venture was planning to use the network of its existing companies: Tata Housing, Tata Housing and Tata MF for selling its insurance products.

If the Tatas do get into the insurance sector, New India Assurance, which has the majority of Tatas insurance portfolio, will lose substantial business as the Tata-AIG venture may tap these business as a kind of captive business.

AIG with an asset base of over $ 200 billion operates in 130 countries underwriting largely property, casualty, marine and life and a range of financial services including asset management business.

Insurance ventures that did not take off
* CGNU-Bombay Dyeing
* Chubb-Kotak Mahindra
* ITC-Eagle Star
* Godrej-Rothschild
* UAP-Integrated Finance
* Cigna-Ranbaxy
* Manulife-UTI
* GIO-Sammar
* Allianz-Alpic
* Liberty Mutual-Dabur
* Royal & Sun Alliance-DCM Sriram