Indian insurance sector: Shakeout or promoter exits to happen?

By Venkatachari Jagannathan
Chennai, Sep 3 (IANS) Mixed views were expressed by insurance industry officials to whether a shakeout or promoter exits in the Indian insurance sector are on the cards, as HDFC Life Insurance Company Ltd on Friday announced the acquisition of Exide Life Insurance Company Ltd for Rs 6,687 crore.

"As regards the life insurance sector, the storyboard is clear. The insurers have limited products (endowment, money back), lower internal rate of return (IRR) in endowment policies and disinterest on the part of life insurers to sell term insurance policies after Covid-19 death claims," a senior life insurance industry official, speaking on condition of anonymity, told IANS.

"If a life insurer has commercial banks as its distributors, then it is fine. If not, then the going will be tough," he summed up.

The bancassurance channel business is a major sales channel for the life insurers.

In the case of Exide Life, it does not have a major nationalised/private bank as its corporate agent, but several cooperative banks in this role.

During the first quarter of the current fiscal, Exide Life got bulk of its business from individual agents, brokers, and direct sales.

Interestingly there are banks that have teamed up together to float their own insurance companies - in both life and non-life sectors.

According to the official, even after the foreign direct investment (FDI) limit was hiked to 74 per cent, no new foreign player has started business.

Further, many of the foreign partners in existing life insurance companies have not hiked their stake to 74 per cent, the official added.

Not agreeing that a shakeout is in the insurance sector on the anvil, an industry analyst, not wanting to be named, told IANS that there may be promoters who may want to exit their insurance ventures and focus on their core business.

The analyst said for Exide Industries, its main focus is batteries and would like to concentrate on that by committing additional funds in that business.

Announcing the sale of Exide Life to HDFC Life, Exide Industries Ltd Vice Chairman and Exide Life Insurance Company Ltd Chairman Rajan B. Raheja said: "The focus of Exide Industries has always been to enhance the value for its stakeholders."

According to Exide Industries, it has invested a total of Rs 1,679.59 crore in Exide Life, a wholly-owned subsidiary and in turn, gets a value of Rs 6,687 crore on the sale.

Exide Life is the second life insurance company to be sold after AMP Sanmar Life Insurance was sold to Reliance Life Insurance, now Reliance Nippon Life Insurance.

The general insurance sector saw stake sale/purchase last year. Paytm acquired Raheja QBE, HDFC Ergo acquired Apollo Munich, Sachin Bansal bought DHFL General Insurance, and Bharti Axa General was acquired by ICICI Lombard.

Industry officials had earlier told IANS that world over, post opening up of the insurance sector, there will be a large number of players.

About eight years after the sectoral liberalisation, mergers and acquisition would happen but in India, it has not happened in large numbers.

Perhaps the trend is slowly in the making and mergers and acquisitions, promoter's selling out may start happening is one view.

(Venkatachari Jagannathan can be contacted at [email protected])