The insurance regulator IRDAI has rejected the deal between Prem Watsa, India-born Canadian billionaire and Sudhir Valia, an associate of Sun Pharma’s Dilip Shanghvi, where the former was acquiring the whole of latter’s two-year old ITI Reinsurance.
The deal between the two were signed in June end and Watsa’s Indian general insurance Company, GO Digit, had approached IRDA for the regulatory approval s for the deal.
However, the IRDA, after scrutinising the deal, has refused give its stamp of approvals due to some fundamental problems that violate the current regulations.
Though, the IRDAI is yet to inform both the parties and reveal the exact reason for rejecting the deal, sources points out that the insurance regulator decision has much to do with the fact that ITI Reinsurance hadn’t done any business in the last two years after getting a license in 2016 end and Valia's deal with Watsa would have been just a `trading of license’ which is not permitted under regulations.
The total ITI Reinsurance deal value was equal to the net asset value plus a premium of Rs 13.1 crore. Valia’s Investment Trust owns an 80 per cent stake in ITI Reinsurance and the subsidiary contributed Rs 425.4 crore to its net worth. This had put the total deal value for 100 per cent of ITI Reinsurance around Rs 545 crore ($79 million).
Industry sources point out that though both the parties had signed the deal, there were no monetary transactions as yet between them as they were waiting for the IRDAI's approvals.
`What Valia will do with the ITI Reinsurance, after the IRDAI‘s decision, is not known immediately. IRDAI will also not renew the license of the ITI Reinsurance now as the company hasn’t done any business for the last two years after getting a license.
However, Watsa would revive his old plans to float a new Indian reinsurance company in India .
Before deciding to buy out ITI Reinsurance from Valia, Watsa along with other Indian partners, who have floated Go Digit General Insurance , had formed reinsurance company called Valueattics Re and had already started the processes to seek a license from the IRDAI.
With a large kitty of cash, Indian born Canadian billionaire, having exposure in financial and infra sector, is currently looking for big opportunities in India.
GO Digit General Insurance, Watsa has floated with a former senior officials of Allianz, Kamesh Goyal and other investors ,is growing aggressively and has mobilised a premium of almost Rs 360 crore in the first eight of the FY 2018-19
Watsa, CEO, Fairfax Financial Holdings, who makes investment in India through his multiple group of companies. has tested a huge success in his Indian investment in recent times and wants to expand them further in the country in many segments.He had almost earned a net profit of $ one billion after offloading 26 per cent in ICICI Lombard general insurance earlier to private equity firms.
Watsa- Valia deal about ITI Reinsurance would have been a win- win situation for both the parties as Valia along with other investors, wanted to exit ITI Reinsurance, as their entire plans to foray in to Indian reinsurance sector, where they would have been next to the state owned GIC Re as an Indian reinsurer, had gone `horribly wrong', said sources.
Valia’s entire plans to start the first priavte sector reinsurnace company crashed as he failed to get any share of 5 per cent obligatory business, to kick start ITI Reinsurnace business, which is now entirely done by the GIC Re.
Though the regulations permit that another Indian reinsurer can share the obligatory business, but it didn’t happen for the ITI Reinsurance due to several technical reasons.
Besides, the company couldn’t get other domestic and international business as it didn’t have a rating.
Lakshdeep Investments and Finance Pvt. Ltd and Suraksha Realty Ltd hold 10% each of ITI Reinsurance.