While India continues to remain a lucrative insurance market, the entry for foreign players seems to have become expensive.
KOLKATA: While India continues to remain a lucrative insurance market, the entry for foreign players seems to have become expensive.
And with new partnerships still being clinched, most existing and foreign partners may have to pay up a substantial premium even if they wish to enhance their stake in the Indian venture, says an HSBC report.
Last year, foreign insurers like HSBC, Legal & General and Sompo are said to have paid hefty premiums to their partners, Canara Bank, Bank of Baroda and Allahabad Bank, respectively.
Sources said HSBC paid Canara Bank Rs 125 crore, whereas Legal & General paid Rs 200 crore of premium to Bank of Baroda. It would be interesting to see at what premiums State Bank of India would demand from the foreign players that it was talking with for its general insurance venture.
The hike in premium would be apparent given the brand equity and business strength of the domestic partner with which it ties up.
Sources indicated to DNA Money that public sector banks, which have got into independent business ventures, have called the shots on entry premiums given their brand recall and huge network. In fact some of the joint ventures on earlier occasions have been stuck up for a while on this issue.
“During the initial phase of entry into India, a number of foreign insurers paid a premium to the Indian domestic promoters to form the insurance venture. We expect the premium paid then at about 2x the potential stake of 26% (in other words 2x the book value). However, in recent past, the entry premium multiple has risen to 3x-4x the potential stake of 26%,” the HSBC report said.
“Going forward, most of the foreign partners - existing and new, may have to shell out a higher premium for entry as well as stake enhancement primarily owing to the untapped opportunities that the Indian insurance market offers”, it said.
While the hike in foreign cap to 49% from 26% at present is still sometime away, the speed at which the Indian life insurance market is growing has made it an attractive haven for increasing number of players.
There were 16 companies in the life and non-life sector in 2000-01, when the sector was opened up to private players. This has increased to a count of 34 at present, including some new ventures like Indiabulls Societe General, IDBI Fortis, Future Generali and Universal Sompo.
g_nandini@dnaindia.net
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