Rs 10,000 cr cap bonanza awaits insurance

The excitement is palpable. An estimated Rs 10,000 crore of foreign capital could flow into the country’s insurance sector over the next two years if the government passes the Insurance Amendment Bill.

The Bill, which proposes to raise the foreign direct investment (FDI) cap in insurance to 49%, is likely to be passed in the Budget. The issue was part of the Economic Survey that was tabled in Parliament on Thursday.

It is estimated that about Rs 1,500-2,000 crore of capital may immediately come into the life insurance segment as some domestic players plan to offload stakes in their ventures in favour of their foreign partner.

Among options being looked at by insurance companies to unlock value are selling shares to the foreign partners, preferential allotment and initial public offerings.

The life insurance space, which has 22 players at present, is likely to see more action as the need of capital is much higher there than in general insurance.

Latest data suggests that the total capital employed in the life insurance sector is around Rs 24,838 crore, with a total FDI of over Rs 5,500 crore. 

If the capital is hiked, most insurers feel life insurance premiums, which total about Rs 2 lakh crore at present, could rise to Rs 4 lakh crore in three-four years.

SB Mathur, secretary general, Life Insurance Council, told DNA Money, “Some restructuring of shareholding between the domestic and foreign partners could come about over the next few months. There could be an additional infusion of Rs 1,500-2,000 crore into the life sector over the next one year or so”.

An industry analyst who did not want to be named said 6-7 life companies could dilute the Indian stake in the first round. “These could be the ones with the not-so-strong domestic partners, who could offload their stake in favour their stronger global insurance partners,” the analyst said.

TR Ramachandran, CEO and MD, Aviva India, said hiking the FDI limit would promote further capital flows into the market and help develop the market. “On the other hand, continued prevarication over this issue could harm the longer term outlook of the industry,” he added.

According to V Vaidyanathan, managing director of ICICI Prulife, the company is working on a few combinations in view of the likely changes. These include offering a higher stake to Prudential as they are already part of the business apart from the IPO at some point in time.

Upping FDI would also help increase capital in the general insurance business. Ajay Bimbhet, managing director, Royal Sundaram, said, “A higher FDI would unshackle the insurance industry and drive growth and long-term development….expand distribution capabilities and deepen market penetration”.