Six firms nominated to take over business from struggling insurer

Severe violations led to regulator seizing control of the insurer and tapping other firms to take over its business

Six firms nominated to take over business from struggling insurer

Insurance News

By Gabriel Olano

The Insurance Regulatory Authority of India (IRDAI) has come out with a shortlist of six insurers that can take over the business of Sahara Life Insurance, after the regulator took over the management duties of the company earlier this month upon determining that it was acting against its policyholders’ interests.

IRDAI listed the following firms as potential candidates to inherit Sahara Life’s business: Bajaj Allianz Life Insurance, HDFC Standard Life Insurance, ICICI Prudential Life Insurance, Kotak Mahindra Old Mutual Life Insurance, Life Insurance Corporation of India, and SBI Life Insurance.

“We have given time to the insurers until June 30 to express their willingness,” Nilesh Sathe, IRDAI member for life insurance, told Mint. “This will not be an acquisition or a merger but a simple transfer of the insurance business.”

On June 12, IRDAI took over the management of Sahara Life and appointed R K Sharma as administrator. The regulatory agency cited three major violations of the company, leading to its confiscation.

First, Sahara Life did not appoint a new chairman despite Subrata Roy’s imprisonment in 2014 over a dispute between the parent Sahara Group and the Securities and Exchange Board of India. Second, the regulator believes that the insurer’s business is declining, as renewals decreased from INR1.4 billion (US$21.7 million) in 2013-2014 to INR1.14 billion (US$17.65 billion) in 2014-2015. IRDAI instructed Sahara Life to submit a business plan for the next three years but the insurer failed to comply.

Finally, there was a huge increase in expenses, with Sahara Life’s security and deposits increasing from INR1 million (US$15,500) in 2013-2014 to INR713.4 million (US$11.04 million) in 2014-2015. Sahara Life defended it by saying that it was undergoing an expansion and was planning to open numerous new offices, but IRDAI said that it has not approved any expansion plans from the company.

However, finding a company to absorb the struggling insurer’s business may be difficult.

“Sahara’s portfolio is rather tiny. For any sizeable insurer to be interested, the portfolio needs to be big,” Sanket Kawatkar of consulting firm Milliman India told Mint. “For any insurer to be interested, the amount of assets transferred will need to be much above the liabilities.”

Related stories:
IRDAI takes over mismanaged insurer
Insurer defends its tobacco investments
Indian regulator makes request for state-owned insurer’s divestment plans

Keep up with the latest news and events

Join our mailing list, it’s free!