Nod to FDI hike in insurance will turn market sentiments: Experts
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 USD 6 billion.
Last year, the life industry booked a fresh premium of Rs.114,232.72 crore (around USD 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 (USD 11 billion).