RIL buys out Bharti stakes from insurance joint ventures with Axa

Sunil Mittal and Mukesh Ambani

For the first time, Ambani scions are coming head to head in a fast growing insurance business.

Six years after gifting the insurance business to younger brother Anil Ambani as part of the family settlement, the elder brother Mukesh Ambani has now made a big move by way of an acquisition to enter into the high growth insurance business.

In a major development that will have far reaching consequences, Mukesh's Reliance Industries has acquired the entire stake of Sunil Mittal's Bharti Enterprises in the two join ventures with Axa , both life  and general insurance. Sunil Bharti Mittal and Anil Ambani are arch rival in the telecom business. This is a significant development  in the 10-year-old private sector insurance industry as Mukesh with a war chest of funds  is most likely to flex his muscle. In the aftermath of  financial meltdown , many players in the life insurance industry have already shifted gears by slowing down  the growth becuase of huge accumulated losses in the books, high capital requirement  and a long gestation period. Even after 10 years , there are handful of players churning out profits.

Today, Bajaj Allianz and ICICI Group's insurance arms dominate the market with a leadership position.

Bharti which entered into a joint venture with the AXA Group in 2006 was struggling right from the start. Bharti held a majority 74 per cent stake in both the ventures - Bharti AXA Life Insurance and Bharti AXA General Insurance.

In the last six years, Anil Ambani who got the insurance business which was more captive in nature before the settlement between the warring brothers has scaled up his both the businesses by pumping in capital and attarcting  the best talent from the market. Sam Ghosh, who built the insurance business for Bajaj Allianz today heads Anil's Reliance Capital which is a holding company for both the ventures.  In the nest few years, Mukesh will have to do some catching up in the insurance businesses as Anil Ambani's insurance biz figures in the top 5 private  players in the market. In the just completed FY 11, Anil Ambani's life venture recorded a first year premium of Rs 3,000 crore as against Bharti Axa 's Rs 360 crore. In the general insurance, Anil Ambani's arm clocked gross premium of Rs 1,655 crore as aginst Bharti Axa 's Rs 550 crore in FY'11.  Many expert say there is is likely to be consolidation in the insurance space where smaller players will exit the space due to shortage of capital and longer gestation period. Today, there are  two dozen players in the life insurance, which enjoys high valuations and about a dozen in the general insurance, which is growing at modest 15-18 per cent.

The current acquisition is actually part of Mukesh Ambani's bigger plan in the financial services sector. In March this year, Mukesh's Reliance inked a JV with DE Shaw, the USD $ 20 billion hedge fund, to build a financial services business.

So watch out for more action in future.