HERO, ERGO CALL OFF LIFE INSURANCE JV

 The downturn has claimed another victim. The memorandum of understanding (MoU) between the Hero group and German insurer Ergo a part of the Munich Re group has been called off. Hero, the countrys largest two-wheeler maker, said it has decided to focus on its core business.

Meanwhile, Ergo said it remained committed to the Indian market and will look for a new partner. We will actively pursue opportunities the current market environment offers. We believe it is the right time to enter the Indian life market, having in mind that several players are dealing with difficulties, said Jochen Messemer, who is responsible for the international business on Ergos board of management. Both partners said it was a split by mutual consent and will continue to maintain amicable relationship.

In May 2008, Ergo Insurance Group and the Munjals, the promoters of the Hero group, had signed an agreement to form a life insurance JV which was scheduled to start operations in 2009.
 
In light of the current economic downturn and recessionary market conditions, both in India and globally, the Hero group has decided to maintain its focus and continue to grow its core business, said Sunil Kant Munjal, chairman of Hero Corporate Service. The decision also reflects significant capital outlays for the build-up of a life insurance business and the long gestation period.

The Munich Re group already has a presence in India through three JVs. Group company Ergo is a partner with HDFC in the non-life business. DKV, another group company and Europes largest health insurer, has a partnership with Apollo Hospitals in health insurance. The group is also a stakeholder in Paramount Healthcare a third-party administrator.

Of the 20 life insurance companies that have come up since the industry was liberalised in 1999, more than six have invested over Rs 1,000 crore in the business. The total capital invested in the life insurance business is over Rs 20,000 crore. Except for SBI Life Insurance
 
, none of the companies have managed to break-even. Promoters poured money into the life insurance business, which recorded among the fastest growth rates world-wide. However, following the downturn in equity markets, premium flowing into investment-related insurance schemes have slowed down. And growth, this year, is expected to be flat at best.