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Tuesday, April 12, 2011

PNB in final stages of selecting Bancassurance Partner for Life

Punjab National Bank, the second largest bank in the country, is in the final stages of selecting its life insurance partner. In a rigorous selection procedure, more than 40 companies  expressed their interest .Subsequently, PNB has arrived at the final list of 3 life insurance companies- Aviva Life, MetLife and Bharti Axa Life- and has dropped companies such as Birla Sun Life and Reliance Life from the list 

This deal is not a pure distribution arrangement but also an equity participation arrangement wherein PNB will acquire a substantial stake in the final insurance company that it selects. Axis Bank had entered into a similar sort of arrangement with Max New York Life where they had acquired about 5% stake in Max. In this case, the stake that the insurance company would need to offer would be significantly higher as all the three companies shortlisted would be having lower valuations than Max New York, and PNB is a larger bank with more branches, and thus brings more to the party. The other variable that has changed since the Max New York and Axis Bank is that life insurance valuations have got depressed since the new IRDA regulations effective since 1st Sep 2010.

This deal could be a potential game changer for the winning life insurance company as PNB has a huge branch network (5000 + branches). MetLife lost their largest partner Axis when Axis decided to tie up with Max after Shikha Sharma joined Axis. Aviva Life has also lost a few bank partners of late and Bharti Axa Life does not have any significant Bancassurance partner. We expect very aggressive bidding by all the three players left in the fray.

PNB is being advised by BCG, the consulting firm, through this selection process. Once PNB is done with this selection process, they would in all probabilities initiate the process for selecting the non-life partner.

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