Hi everybody,

Over the weekend I was working to understand how to put some value to  insurance business of the companies - Bajaj, ICICI et. Now there is one listed play in insurance - max india. Besides insurance it operates/building 7 hospitals around New Delhi. Couple of them are operational and others are being built. This business has still not generated money, but should be profitable business in the future. Now they hold 74% stake in Max Newyork Life insurance. they are growing pretty fast , though on a much smaller base. In the last 6 months Apr - sept, they did 535 cr in gross premium. Bajaj in the same period would have done close to 1700 cr in gross premium (878 cr in 3 months). The growth rates for Max Life insurance is relatively higher right now. this means that max newyork is about 1/3 the size of bajaj life insurance. now total business of max is valued at @ 900*3.6= 3300 cr which includes hospital/speciality chemicals and other businesses. assuming a conservative valuation of 800 cr for this business, the value of life insurance business is taken at 2500 cr. Now bajaj/icici being 3-4 times, should be valued at 7500 cr-10000 cr for life insurance. This value is coming significantly lower than the estimates of 15-16000 cr as done by valuers. Now is there something which we are missing? Either market is valuing max newyork life cheaply or icici/bajaj insurance higher? Or is there something else which we need to look at while valuing insurance business?

My guess is that we are missing the General Insurance part. For ICICI it is ICICI Lombard & Bajaj it is Bajaj Allianz Genaral Insuance. For Bajaj, general insurance biz is already profitable.

Edited by go4lalit - 23/Nov/2006 at 11:44am

I agree. General insurance has not been included in the above analysis on purpose. The reason was that Max India is not operating in General insurance business. Also because I did not included the General insurance business, the value of life insurance business was taken at 15-16K crore instead of 19K crore. I will hazard a guess that the general insurance business would be valued at roughly 3-4K crore because (i) The margins are much lesser as they dont have any ULIP kind of product and it is industrial selling (ii) the growth is much slower (iii) the overall opportunity itself if comparatively much less. Due to this I think there would be some other significant reason for the difference in valuation.

dear basant would yu then take a serious look at ICICI BANK as an investment at the current price you get atop qulity retail bank, you do get a top quality insurance co and you get some good quality assetslike the bpo business etc maybe they are risk takers and agressive so what does your brain say i will refrain from using the word gut feeling bcos the gut cant think.in medical terminology the gut comprises of the stomach to the rectum