AMP Sanmar finds a buyer for the stakes of its two promoters, while Anil Ambani's Reliance Life, without ever having sold a policy, acquires a running business. Venkatachari Jagannathan reports.

Chennai: Anil Ambani's Reliance Life Insurance Company Limited, a subsidiary of Reliance Capital Limited, has concluded a much awaited deal in the life insurance sector.

Even before selling a single life insurance policy, Reliance Life, a part of the Anil Dhirubhai Ambani Enterprises, has snapped the Chennai-based private life insurer AMP Sanmar Life Insurance Company Limited. AMP Sanmar is a 26:74 joint venture between AMP, Australia and Sanmar group.

Interestingly, only recently, the Reliance Life had approached the Insurance Regulatory and Development Authority (IRDA) to revive its business licence that had been cancelled by the regulator for non commencement of business.

Though the three parties to the deal — Reliance Capital, AMP and Sanmar — are keeping the deal size secret, figures ranging between Rs225-400 crore are being talked about as being the final price.

What is clear is that Reliance Life has clearly outbid other suitors like Aviva, ICICI Prudential Life Insurance Company, etc. This acquisition makes Reliance Life the first private sector life insurer to start business without a foreign partner.

The deal gives Reliance Life a jumpstart as AMP Sanmar has around 90 branches, 900 staff and 9,000 agents. Further, AMP Sanmar is doing relatively good business even after the sale announcement. Till this July the company has earned a premium income of around Rs35 crore.

According to sources, in July the company earned a fresh premium income of Rs10 crore — far exceeding its own expectations. Going by this trend, officials say the company would complete its nine months targets by August / September itself.

From distress sale to desperate purchase

However, industry circles feel that the price is on the higher side as they had estimated AMP Sanmar's value below Rs200 crore, much less than the company's Rs217 crore equity capital.

Sometime ago the CEO of a large private insurer told domain-b, "Given the size of AMP Sanmar's operations and the kind of business they have done, I will not pay more than Rs136 crore which is nearly 1.5 times their last year's fresh premium income of Rs91.18 crore." (See: )

Even AMP had valued downwards its equity investment of Rs56.55 crore (A$17.29 million) to less than A$10 million.

Any price in excess of Rs217.50 crore would be a bonanza for AMP and Sanmar and a jackpot if the sale price is over Rs400 crore, says an insurance sector analyst.

AMP Sanmar keeps its numbers close to its chest. The company declined to share numbers like the amount transferred from shareholder's fund to policyholder's fund to declare dividend, the company's total liability under unit and non unit-linked policies and, finally, the assets available for the new shareholder.

Perhaps from distress sale by the two partners, the deal has morphed into desperate purchase by Reliance Life, feel some industry analysts.

Curtains for Sanmar's insurance plans

However, the sellers are not complaining. Says Sanmar group chairman, N Sankar, "The group entered the life insurance business at the invitation of AMP. To facilitate its exit and the 100 per cent sale, Sanmar has agreed to cooperate with AMP in selling its own interests in the venture as well." (See: )

Adds AMP Sanmar's chief operating officer B Natraj, "Though having the first right of refusal to AMP's 26 per cent stakes, Sanmar didn't exercise the same."

As Sanmar is cashing out its holdings now, it did consider other options. With the initial investment phase getting over, Sanmar was open to the idea of remaining invested in the life insurance company by partnering with another foreign life insurer or a group of investors who would buy out AMP's stakes. It is learnt that one overseas life insurer and a private investor were keen on such a partnership.

But Reliance Life's bold bid dashed any such hopes. If Sanmar wanted to continue with the venture either on its own or with potential partners, it would have had to match Reliance Life's bid. Perhaps the prospective partners felt that it was wiser to start from scratch and incur lower overheads rather than buy an existing company.

Though the sale agreement with Reliance Life does not bar Sanmar's re-entry into the life insurance segment, Sankar discounts any such possibility. "The business is capital intensive. The group needs capital for its other projects. At least in the near future the group has no plans of getting into life insurance sector again."

According to AMP Sanmar's managing director, Graham Meyer, the next step is to discuss the deal with IRDA and get it cleared and also iron out other transitional issues. According to him, AMP's presence in India will mainly be in asset management through AMP Capital Investors.

While AMP Sanmar's policyholders and agents can heave a sigh of relief with Reliance Life's entry, the employees of AMP Sanmar have started worrying about their status under the new dispensation.

For industry watchers, the days ahead will be more interesting as there will have to be a new CEO for AMP Sanmar and the head office will be shifted from the Sanmar group headquarters. Whether the life insurance operations would continue to be headquartered in Chennai or be shifted to Mumbai will have to be seen.