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Insurance set for valuation upgrade; may get $8-10 bn in FDI

Reliance Capital

New Delhi: Indian insurance sector is set for a major upgrade in its valuation and foreign players may infuse USD 8-10 billion (over Rs 60,000 crore) of capital with the passage of a new bill enhancing the FDI cap.

Industry experts and analysts are upbeat about the growth in the sector and expect a number of IPOs and M&A deals to fructify in the coming months.

“The new insurance law is expected to bring in about USD 8-10 billion for the sector which is a huge positive for the industry and for the policyholders.

“We are seeing strong interest from foreign majors that are keen to have large insurance footprint in India,” Reliance Capital CEO Sam Ghosh told PTI.

Reliance Capital already has Japan’s Nippon Life as a strategic partner in its life insurance venture with 26 per cent stake. The Japanese partner has expressed interest in raising this stake following the passage of the insurance bill, which has raised foreign investment cap for the sector to 49 per cent.

In a new report, equity research firm Grupo Novo Banco said Foreign Direct Investment (FDI) in the Indian life insurance sector will rise substantially following the passage of the Insurance Amendment Bill.

“On the corporate front, we anticipate the announcement of the date of listing of Max Life post its demerger, as well as the prospective IPOs of some leading insurers over the next 12-18 months.

“In all these events, we foresee ‘sustainability’ and ‘valuations’ to be the dominant themes in the sector,” it said, while adding that the new business margins for most insurers have been weak although there has been a revival in growth for leading private life insurers in last few quarters.

Grupo Novo Banco said, “Reliance Capital could be the biggest beneficiary of an increase in FDI limits as Nippon Life could increase its stake at premium valuations.”

Beside giving additional stake to its existing foreign partner Nippon Life in life insurance venture, Reliance Capital also expects to close deals for bringing in new partners for its general and health insurance businesses soon.

The research report said focus will shift to valuations post the hike in foreign capital limit.

“We remain convinced of the long term potential of the life insurance industry in India and believe that the wheels are beginning to turn for the sector given the significant improvement in quality of the business underwritten by insurance companies, evolving product structures and the return of growth for private players.

“The increase in foreign ownership cap to 49 per cent will be a game changer for the industry as it will provide an opportunity for listing to leading players and provide access to capital to mid and lower tier players.

“Given that the leading Indian insurers are expected to IPO in the coming 12- 18 months along with some possible pre-IPO M&A, we believe that valuations will take centre stage in the life insurance industry. We expect sustainable growth and profitability to translate into superior valuations,” it added.

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