Life cos’ capital levels may rise 45%

The opportunity for an FDI hike has been missed yet again this Budget, but capital expansion in life insurance could still go up by approximately 40-45% this fiscal. 

Incidentally, latest data suggests that the FDI component in life insurance has nearly doubled in the last six months.

Pinning on lower growth targets this year on account of the economic downturn, some of the larger players may not require huge doses of capital immediately, but medium and newer players could be infusing money for expansion.

Although the common refrain among insurance companies is that the budget could have stated the intent of upping FDI to 49% from 26% in insurance, but by not doing so it really does not deter insurers from carrying on their expansion plans as scheduled for the year and “injecting capital as and when needed”.

Data available with DNA shows that FDI has increased by approximately 56% to Rs 2,821 crore in FY08 from Rs 1,809 crore in FY07. Till May 2009, the FDI component increased manifold by over 200% to almost Rs 5,600 crore from what it was in 2006-07.

The corresponding total capital deployed in the life insurance sector in 2007-08 was Rs 16,235 crore over Rs 9,485 crore in 2006-07.

As of FY09 the total capital deployed stood at Rs 24,838 crore. Also, the number of life insurance companies has increased from 16 in FY07 to 22 in FY09.

Some 6-7 companies are said to have immediately looked into working on new shareholding patterns had there been a green signal on FDI.

However, a senior official of a relatively new insurance company said, “FDI or no FDI as of now will not be an impediment for our expansion plans in the near future. We have a total paid-up capital below Rs 500 crore at present and would infuse capital as per the existing proportions perhaps later this year if we need it. But obviously a go ahead on the FDI front would have been welcome”.

An industry analyst said, “Capital is not infinite and there would be an urgency to increase FDI now that we are nearing 10 years since the insurance sector was opened up to private players.”

Deutsche Bank in a recent report on the life insurance sector, in its company-wise analysis, has said that the capital infused in Bajaj Allianz Life has been Rs 1,200 crore. “They have a buffer of about Rs 150 crore which they are yet to utilise. Birla Sun Life right now has Rs 2,000 crore invested in the business and the management plans to invest another Rs 1,200 crore over FY10 and FY11”, the report said.

For other companies like HDFC Standard Life, the total capital infused till date is Rs 1,800 crore and it added Rs 525 crore in FY09. This year’s expectation is Rs 350 crore. ICICI Prudential Life infused about Rs 1,700 crore in FY08 which came down to Rs 10 billion in FY09 and they might require additional capital of Rs 500 crore in FY10”, the report stated.

“Promoters of Max New York Life last year infused Rs 750 crore into the company taking the total capital invested up to Rs 1,780 crore. Their expectation for this year is Rs 600-700 crore. For SBI Life, capital requirements if any for FY10, would be mostly in the second half”, the report said.