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Rediff News  All News  » Business » SBI seeks record entry premium for insurance foray

SBI seeks record entry premium for insurance foray

December 14, 2007 10:03 IST
State Bank of India (SBI) is asking prospective partners for its general insurance foray to pay it Rs 300 crore (Rs 3 billion) to Rs 350 crore (Rs 3.5 billion) as entry premium, insurance industry sources said.

The premium is considered extremely high for a general insurance venture, when the highest paid by a foreign partner in the much more lucrative life insurance business is Rs 220 crore (Rs 2.2 billion).

In general, entry premiums have been high because of the distribution strength Indian partners bring to the company.

"For every Rs 10 per share, the foreign promoter has paid a (entry) premium of Rs 22," said O N Singh, chairman, Universal Sompo General Insurance Co.

Analysts said SBI is seeking to claim a very high entry premium because, as the country's largest bank, it is a household name and its 14,000 branch network has the capability to provide the kind of reach no other entity in India can offer.

The expectations of getting ever higher entry premium are a result of rising valuations of insurance businesses driven by the growth of the insurance sector.

The total annual premium of general insurance companies has more than doubled to Rs 25,000 crore (Rs 250 billion) in 2006-07 from Rs 10,000 crore (Rs 100 billion) in 2000-01.

New business premiums of life insurance companies have increased even faster - to Rs 75,400 crore (Rs 754 billion) in 2006-07 from Rs 8,299 crore (Rs 82.99 billion) in 1999-2000.

Falaknaaz Syed in Mumbai