The proposed merger of Reliance General Insurance and Royal Sundaram Alliance has hit a roadblock, with differences over valuation.

According to persons with knowledge of the issue, both firms have failed to reach an agreement on the valuation of Reliance General. Reliance General reckons that its valuation is well over Rs 2,000 crore, but this has been disputed by the Chennai-based Royal Sundaram Alliance. Both the companies are likely to inform the regulator that the merger, in the form currently proposed, may not go through, they said on condition of anonymity.

The information is purely speculative, baseless and stands categorically denied, said a spokesperson of Reliance General. ET did not receive a response to queries sent to Royal Sundaram.

The original proposal had envisaged the foreign promoter of Royal Sundaram Royal Sun Alliance of UK would continue to hold 26% in the merged entity. The UK insurer was to bring in over Rs 700 crore since it would hold 26% in a much larger entity.

Reliance Capital now owns 100% stake in Reliance General while the South-based Sundaram group owns 74% in Royal Sundaram Alliance, with the rest being held by the RSA group. The merger was proposed several months ago. A senior official at Irda said the companies were pursuing their proposal with the authority.

But there is ambiguity on the regulatory front that needs to be sorted out as the existing law allows the regulator to permit mergers only of life companies. We are legally examining how M&As in non-life companies can be done within the extant law, said Irda chairman J Hari Narayan.

The RSA group has been looking at expanding its operations in Asia after its exit from the US in 2007. Reliance General Insurance, on the other hand, has been substantially scaling down its business in its pursuit of underwriting profits. A merger of this sort would have allowed Reliance General to regain the size and also a substantial motor insurance business.

In terms of valuations, non-life business has not evinced much interest from equity analysts. This is because of cut-throat competition that has resulted in insurance companies suffering major losses largely in motor insurance and group health insurance. In addition to suffering losses on high-growth business, the industry is forced to underwrite loss-making thirdparty liability insurance for motor vehicles.