UNION BANK, BOI, DAI-ICHI IN INSURANCE JOINT VENTURE

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UNION Bank of India, Bank of India and Japan-based Daiichi Mutual Life Insurance has floated a life insurance joint venture company with an initial authorised capital of Rs 250 crore.

Union Bank will hold majority 51% stake in the joint venture, Star Union Dai-ichi Life Insurance Company. Bank of India and Dai-ichi will hold 23% and 26%, respectively, in the company. “The joint venture company, with the strength of domestic venture partners in the Indian financial sector coupled with Dai-ichi Life Insurance’s know-how would make the foray into the life insurance segment, a big success,” Star Union Dai-ichi said in a company statement.

Bank of India and Union Bank’s network of 5,000 sales outlets and 50 million customer base are likely to provide a sound distribution channel to the company. The Union Bank stock closed the day at Rs 189.40, down by Rs 3.55 or 1.84%. The stock hit an intra-day high of Rs 198.90 and low of Rs 187.55. Dai-ichi, which is among the top 10 life insurance companies of the world, would provide the expertise it has on product knowledge, asset management skills and strong operational capabilities.

Cashing in on valuations and their brand equity, banks have been jumping in to pick up equity stakes in insurance joint ventures. “It makes great investment sense. The valuations of insurance companies will only go up. So even if a bank has a minority shareholding today, at the time of going public, the return on this equity will be very high,” a top official of a public sector bank in a similar alliance said.

Merrill Lynch’s research report has valued Indian life insurance companies on the basis of a multiple to their new business achieved profit (NBAP), which is basically the present value of the profits arising from new business written during the year. The valuations of most insurers have grown by 20%-60%, and are poised to more than double by 2010.

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