Marking the maiden joint venture in the general insurance business, Kotak Mahindra Bank said on Thursday that it has entered into definitive agreements with Zurich Insurance Company Ltd., whereby the Zurich will invest approximately ₹4,051 crore to acquire a 51 per cent stake in Kotak General Insurance. Capital will be deployed through a combination of fresh issuance and share purchases, though the split between the two hasn’t been revealed. The share purchase agreement permits Zurich to acquire an additional stake of 19 per cent within a period of three years from its initial acquisition. “Zurich’s investment represents the single largest investment by a global strategic insurer in an Indian non-life insurer,” said Kotak Mahindra Bank in its press statement.

It is understood that Kotak Mahindra Bank will retain management control of the general insurance arm until Zurich increases its stake in the business to 70 per cent.

Also read: Word on the street. Zurich Insurance eyes $400-million stake in Kotak General Insurance

Commenting on the deal, Dipak Gupta, MD & CEO, Kotak Mahindra Bank Ltd, said, “Kotak Mahindra Group’s pan-India ‘phygital’ distribution presence and Zurich’s distinct global capabilities in digital assets in B2B and B2C formats have the potential to create a transformational ‘digical’ impact for Kotak General Insurance.” “We are confident this partnership can bring strong innovation, know-how, and excellent customer experiences to the Indian general insurance market,” said Tulsi Naidu, CEO Asia Pacific, Zurich Insurance.

Deal relevance

Presently, all non-bank businesses are 100 per cent subsidiaries of Kotak Mahindra Bank. The JV with Zurich will be the first that the bank will explore with a foreign partner, nearly six years after ending its tie-up with Old Mutual, an erstwhile 26 per cent joint venture partner in Kotak Mahindra Old Mutual Life Insurance Limited (now Kotak Life Insurance). The general insurance arm is perhaps a weak link for the group from the perspective of financials. In FY23, it posted a loss of ₹117 crore, higher than ₹83 crore of loss in FY22. However, at an 183 per cent solvency ratio in FY23, the company is well capitalised.

Past deals

The association with Zurich is the third investment venture for the bank, though the past associations are now terminated. The joint venture with Goldman Sachs for the capital market and securities business, which dates back to 1992, ended in 2006, and the second with Old Mutual for the life insurance business ended in 2017. Interestingly, both tie-ups lasted for 14 years each.

Deal details

• Zurich Insurance Company to acquire 51% stake in Kotak General Insurance
• The deal is valued at ₹4,051 crore
• Capital to be ploughed through fresh issuance and share purchases from Kotak Mahindra Bank
• Zurich may increase stake by 19% within three years of the initial acquisition
• Kotak Bank to retain management control in the general insurance arm till Zurich’s stake increased to 70%