Japan’s Mitsui Sumitomo Insurance Company Ltd is acquiring 26 per cent stake in Max New York Life Insurance Company Ltd for Rs 2,731 crore ($530 million), in a two-tiered transaction that would mark the exit of USA’s New York Life Insurance Co from the JV.

As per the arrangement, Max India, the majority partner in the Indian insurance joint venture, will acquire 9.37 per cent stake in Max New York Life Insurance from its US JV partner New York Life Insurance for Rs 182.2 crore ($35 million), which it would sell to Mitsui Sumitomo for Rs 984.45 crore ($191 million). The Japanese insurance major will acquire the balance 16.63 per cent from New York Life Insurance for 1,746 crore ($339 million).

Mitsui Sumitomo is Japan's largest non-life insurer by revenue.

The US JV partner’s stake sale to Max India is at par value of the shares, which means New York Life Insurance will make a profit of around Rs 1,423 crore ($276 million) on the balance stake being sold directly to the Japanese firm, as per VCCircle estimates.

The latest deal values Max New York Life Insurance at Rs 10,500 crore ($2 billion).

This is around 13.7x its annualised profit for the year ended March 31, 2012. Max New York Life Insurance recorded 8 per cent growth in gross revenue to Rs 4,470 crore, with profit rocketing 18x to Rs 572 crore for the nine months ended December 2011, compared to the same period in the previous year. Its total asset under management grew 18 per cent to R. 15,357 crore over the year-ago period.

Although new business premium declined 13 per cent to Rs 1,282 crore, the renewal premium grew 20 per cent to Rs 3,188 crore.

The insurance firm had solvency margin of 539 per cent, as compared to 306 per cent for the corresponding period previous year. Insurance regulator IRDA mandates solvency margin of 150 per cent.

Diversified firm Max India owns 70 per cent in the Indian life insurance JV while Axis Bank holds the balance 4 per cent. Current FDI norms restrict foreign investors from owning more than 26 per cent in a local insurance venture.

Max India scrip shot up more than 7 per cent on Thursday to close at Rs 202 a share, close to its 52-week high of Rs 214 a unit.

Last week, private equity giant Warburg Pincus sold 4.2 per cent of its remaining 5.7 per cent holding in Max India for $39 million at Rs 175 a share. The PE firm had been part-exiting its eight-year-old investment in the company with share sale at around Rs 180 a piece.

In December 2011, the PE firm sold over half of its holding in Max India for Rs 308 crore ($59 million). This followed a part-exit in June last year when it had sold around 2 per cent stake or over 5 million shares in Max India to the promoters for over Rs 90.65 crore ($20 million). Warburg first invested in Max India in 2004, pipping ChrysCapital to the deal. It had picked up 29 per cent stake in the firm for Rs 200 crore.

Earlier, Warburg Pincus exited its direct holding in Max Healthcare. Max India had struck a similar sweetheart deal with the PE firm for the healthcare business as it has now done for the insurance business. It had bought the PE firm’s stake at par (more on that here).

Soon thereafter, South Africa’s Life Healthcare Group Holdings said that it would be acquiring 26 per cent stake in Max Healthcare Institute Ltd for Rs 516.5 crore. This investment came at over two times the valuation of Rs 855 crore at which Max India bought the stake of Warburg Pincus, and a little less than 2x pre-money valuation in that transaction.

Japanese Firms Eyeing Indian Insurance

This is the second Japanese strategic stake acquisition in Indian insurance industry in less than a year. Earlier, Japan's Nippon Life Insurance, the world's sixth largest insurer, acquired 26 per cent in Reliance Life Insurance, an Anil Ambani Group company, for Rs 3,062 crore ($680 million). The transaction pegged the total valuation of Reliance Life Insurance at approximately Rs 11,500 crore ($2.6 billion).

For Mitsui, the deal would mean a significant play in Indian financial services business and an extension of its strategy to acquire both life and non-life insurance assets in the Asian region.

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