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AIG's India goal

It's well known for its insurance ventures with the Tatas (and arguably better known for being Manchester United's principal sponsor). Now, however, the world's largest insurer is going the whole hog in the Indian financial services arena, with forays into mutual funds, real estate funds, mortgage guarantee and asset reconstruction.

By Anand Adhikari | Print Edition: July 1, 2007

When the $999.75-billion (consolidated assets) American International Group (AIG) took shape way back in 1919, the only thing American about it was C.V. Starr, the entrepreneur who set up the corporation; AIG was actually born in Shanghai, China. However, two decades later Starr shifted the headquarters to New York as political unrest spread in China and East Asia.

The world's largest insurer also had an India presence from 1945 onwards in the non-life space, but nationalisation in the 70s forced the company to make an exit.

 
Sunil Mehta
Sunil Mehta Country Head & CEO/ AIG:"Our commitment to India is to be here for the long run and understand India from the ground level"
Today, the company that ranks sixth-largest on the Forbes list is truly a global company with operations in 130 countries. Recently it made a splash in the UK when it forked out £56.5 million (Rs 457.7 crore) to have its logo on the jerseys of the Manchester United football team for four years.

That's a 57 per cent increase over the previous deal Man U had with Vodafone, and is also the biggest shirt sponsorship deal in English football till date. In India, football is not exactly top-of-mind for AIG. But make no mistake: It's back in the country with a bang, as a full-fledged financial powerhouse.

AIG's second tryst with India began some time in late 90s, when it was busy sewing together its insurance strategy with the help of two subsidiaries, one for life insurance, and another for the non-life part.

Around that time, the country was also being swept by a business process outsourcing (BPO) wave. AIG, too, was swayed by this surge, and promptly put up a captive software development centre in Chennai in 2002. Today that centre employs some 900 people.

By then the AIG top brass realised that India had much more to offer than just a low-cost back-office. The country was also rapidly transforming into a vibrant market for the services it provided at a global level. Result? The blueprint for India would include, other than insurance, a non-banking finance company (NBFC), a mutual fund, asset reconstruction (to recover bad assets), and mortgage guarantee (which guarantees repayment of a home loan to a bank in the event of default by a borrower), to name a few business lines.

The man responsible for the task would be Sunil Mehta, AIG's fourth employee in India, when he joined in 2000. A former Citibanker, the AIG India Country Head operated out of a suite on the 12th floor of the Taj Mahal Hotel in downtown Mumbai.

 
AIG forked out £56.5 million to have its logo on the jerseys of the Manchester United's football team for four years. 

The mandate was clear-cut: Stabilise the two insurance subsidiaries, and a fledgling private equity arm and at the same time identify partners for the new lines of businesses.

Ready for kick-off

AIG has a range of businesses lined up for India. 

Private Equity
Status: Started investing in 1997, peak investment of $450 million in infrastructure, telecom, retailing and manufacturing
Future Focus: Infrastructure & other growth industries

Life Insurance
Status: Launched in 2001, emerged as a top six player out of the 14 in terms of gross premium in six years
Future Focus: Health insurance

General Insurance
Status:
Launched in 2001, emerged as a top four player out of the eight, focusing on retail, corporate and small businesses
Future Focus: Looking at cross-border opportunities as India Inc. goes global with outbound acquisitions

Aircraft Leasing
Status: A major aircraft lessor in India with a portfolio of over 20 aircraft
Future Focus: Boom in the aviation industry offers tremendous scope for growth

Asset Managemant
Status:
Just launched its first product in May 2007
Future Focus: As full convertibility happens, AIG will look at marketing its specialised products

NBFC
Status: Recently acquired Vivek Hire Purchase and Weizmann Home Finance to launch a consumer finance business
Future Focus: Auto finance and credit cards are in the pipeline

Real Estate
Status:
Targeting real estate development space in the commercial and hospitality sectors
Future Focus: Will look at residential space later

Mortgage Guarantee
Status: Has global expertise in the business
Future Focus: Waiting for regulatory guidelines

Asset Recovery
Status: Reviewing the asset recovery business either through the NBFC route or as a separate company
Future Focus: Will leverage its global expertise
 
 
Over the past seven years, Mehta has done that, and more. Thanks to the fast-growing insurance subsidiaries, AIG India today has grown into a 5,000 employee organisation with a presence in 150 cities with about 250 offices. "Our commitment to India is to be here for the long run and understand India from the ground level," says Mehta, ensconced in his swanky office in Lower Parel's Peninsula Corporate Park in Central Mumbai. AIG has now kick-started the NBFC, the mutual fund, and a real estate development business, whilst mortgage guarantee and asset reconstruction are in the pipeline.

But it was insurance that showed AIG the way. Tata AIG Life figures in the top six players out of the 14 players in the private sector players with a total premium of Rs 880 crore in 2005-06. While every other player is selling unit-linked insurance products, the Tata AIG Life boasts of a balanced portfolio. "We are growing at over 60 per cent," says Trevor Bull, Managing Director, Tata AIG Life Insurance. In non-life, Tata AIG is in fourth position out of the eight players with gross premium of Rs 572 crore in 2005-06. Says Michael Carlin, Managing Director, Tata AIG General Insurance Company: "We are looking at general insurance opportunities in India Inc.'s cross-border acquisitions."

AIG
The India Team

Trevor Bull

Trevor Bull
48
Managing Director
Tata AIG Life Insurance Company

 



Michael Carlin

Michael Carlin

45
Managing Director
Tata AIG General Insurance  






Saurabh Sonthalia

Saurabh Sonthalia

41
CEO
AIG Global Asset Management Company 





Ravi Mehrotra

Ravi Mehrotra

46
Managing Director and Head of Asia Asset Management Companies, AIG 





Rajesh Agarwal

Rajesh Agarwal

37
Managing Director
AIG Global Real Estate

Before insurance, however, it was AIG's moves in private equity that showed the group's commitment to India and the infrastructure sector. In fact, AIG was the first fund to start an India-dedicated $100 million (Rs 410 crore) sectoral fund way back in 1997. The fund had exposure to toll roads and bridges, CNG companies, it, cement, retailing and telecom. Today, AIG has made peak commitment to the tune of $450 million (Rs 1,845 crore) in India. AIG was also amongst the initial investors in the Infrastructure Development Finance Corporation (IDFC), in which it still owns close to 2.8 per cent.

That's, however, all in the distant past, and AIG is now looking ahead with its new ventures. It recently launched its maiden open-ended diversified scheme in the Indian mutual fund market. AIG may appear to be a bit late in the asset management business which, at last count, had close to three dozen players. But the way the company sees it, with assets under management of just Rs 3.5 lakh crore, the industry is still at a nascent stage. "We are here for a long haul," says Saurabh Sonthalia, Managing Director, AIG Global Investment Group. AIG is banking on product innovation and an increased acceptance of its global products. "If full convertibility takes place, we can launch a plethora of products that exist in the international market," adds Sonthalia.

The NBFC is the next big bet of AIG in India. Like the host of foreign players that entered India recently by taking the acquisition route, AIG, too, has also managed to acquire a stake in two small-sized companies, Weizmann Home last October and Vivek Hire Purchase & Leasing, last December. Weizmann Homes is a 12-year-old, Bangalore-based housing finance company, with a branch network across 33 cities and a portfolio comprising housing finance, a forex dealership, textile exports and consumer finance. "We will initially bring in home, personal and consumer durable loans, and later look at auto loans and credit cards," says Mehta.

In real estate, AIG has joined hands with a corporate real estate developer, RMZ Corp, to develop commercial space in cities. Recently, the AIG Global Real Estate-RMZ JV made a bid for a plot in Chennai for Rs 298.10 crore. AIG is also looking at opportunities in the hospitality sector, which include managing hotel properties, a business that AIG is present in at the global level. Mehta adds that developing residential properties coud also be on the cards.

Meanwhile, AIG is deliberating on the structure for the asset reconstruction company, and Mehta says he will look at mortgage guarantee as and when the sector opens up. If all these forays fall into place, AIG will become the only non-bank foreign entity with such a comprehensive presence in the Indian financial services sector. If there's one piece missing it's a banking operation; after all AIG does run banks in a few countries like Philippines and Poland. If the Reserve Bank does allow foreigners to buy Indian private banks post-2008--as outlined in its roadmap-AIG might well prove to be one of the more aggressive acquirers in the fray.

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