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Chennai: Agreeing that
not all foreign partners of domestic insurers will pump in capital
when allowed to increase stakes to 49 percent, insurance sector
experts said Thursday the union cabinet nod will rekindle
investors' animal spirits.
"More than rationality, it is sentiments that plays a major part
in the market. The cabinet decision will turn the market
sentiments positive and rekindle animal spirits," P. Nandagopal,
managing director and chief executive officer, IndiaFirst Life
Insurance Company, told IANS.
The country's federal cabinet Thursday cleared proposals to amend
the legislations governing insurance industry to hike foreign
equity from 26 percent to 49 percent and on pension to allow up to
26 percent stake to overseas investors.
All these proposals, however, need parliament's approval to take
effect.
"The sector will get more money which is currently needed and
improve market sentiment," Nandagopal said.
Life insurance officials are of the view that foreign partners of
the bottom 10 players in the 24-company industry will actually
bring in fresh funds.
For the top industry players, it will be more of stake sale --
Indian partner diluting his stakes in favour of foreign partner --
or a mere book adjustment.
"The bottom 10 companies will need additional capital to scale up
their business. Further, the more may make Indian market more
attractive for other foreign insurance companies. Recently, the
Japanese are showing interest in the Indian life insurance
market," Vibha Padalkar, executive director and chief financial
officer, HDFC Standard Life Insurance Company, told IANS over the
phone from Mumbai.
She agreed with the view that in larger companies, it will be more
of transfer of shares between promoters.
"Initial public offerings (IPO) by life insurers will depend on
whether government allows foreign institutional investors (FII) to
invest," Padalkar said.
She said as on March 31, the capital deployed by the life
insurance industry was Rs.33,633 crore or around $6 billion.
Last year, the life industry booked a fresh premium of
Rs.114,232.72 crore (around $21 billion).
On the possibility of fresh infusion of equity or stake change
between partners HDFC and Standard Life (of Britain), Padalkar
said foreign partner had openly declared that it would increase
its holdings to 49 percent when permitted by law.
She said HDFC Standard Life's embedded value (present value of
future profits in the current policies) will be around Rs.5,000
crore and going by the recent deals that happened in the sector
(Nippon buying into Reliance Life and Mitsui Sumitomo investing in
Max New York Life -- now Max Life Insurance), the overall
enterprise value will be around Rs.16,000 crore.
Life and non-life insurance officials say there would be various
kinds of changes -- transfer of stakes, fresh infusion and
board-level representation -- happening if the parliament approves
the increase in foreign direct investment (FDI).
Speaking on the increase in FDI and its impact on the non-life
insurance industry, S.S. Gopalarathnam, managing director,
Cholamdandalam MS General Insurance Company, told IANS: "The
sector is not in need of huge capital like the life insurance
industry. Here, reinsurance plays a major role in minimising
capital needs."
He said the government's move would only result in changes in the
equity holding structure.
According to him, the hike in FDI limits may attract newer
players.
Last year, the non-life insurance industry logged a premium of
Rs.58,344 crore ($11 billion).
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