NEW DELHI -- India's capital-starved insurance industry has reason to cheer. More foreign firms are raising their stakes in their Indian joint ventures, after restrictions on foreign ownership in the sector were relaxed earlier this year.
On Monday, AIA Group, a pan-Asian life insurer, announced it will increase its shareholding in its Indian joint venture with Tata Sons from 26% to 49%, the maximum permitted under the amended insurance law passed by the Indian parliament. The previous cap was set at 26%. The partners did not disclose financial details on AIA's new investment.
Dutch insurer Aegon announced the same day that it had raised its stake to 49% in its own Indian life insurance joint venture. The transaction was completed with Bennett, Coleman & Co., a Times Group company, after Religare Enterprises, or REL, pulled out.
REL sold its entire 44% stake in Aegon Religare Life Insurance Company to BCCL for 9.7 billion rupees ($145 million). The joint venture has been renamed Aegon Life Insurance Company.
Passage to India
Foreign insurers are seeking to sell to India's growing middle class. As the country of 1.25 billion grows richer, more people see the value of insurance, analysts say. With India's economy forecast to grow by around 7.5% over the next few years despite a global economic slowdown, the country is an attractive investment destination.
The amendment to the insurance law was finally passed in March, having been stuck in parliament since 2008. The legislation was a major victory for the pro-reform government of Prime Minister Narendra Modi, which came to power in May 2014.
From March to September, the Indian insurance sector received $341.43 million in foreign direct investment, a 152% increase from the same period last year, according to Commerce and Industry Minister Nirmala Sitharaman. Analysts say the higher cap on foreign investment in the insurance industry could bring new capital flows of up to 600 billion rupees within five years.
India has more than 50 insurers, 24 in the life insurance business and 28 nonlife insurers. The state-run Life Insurance Corporation is the dominant player, while General Insurance Corporation is the sole reinsurer.
At a recent insurance summit organized by the Confederation of Indian Industry, S. K. Roy, LIC's chariman, said the industry had reached a peak in 2010 but has tapered off since. However, with renewed interest in the sector, the insurance market's size is expected to quadruple to $250 billion from the current $60 billion over the next decade, according to industry estimates.
A joint study by the confederation and Ernst & Young found that a strong run of growth from 2005 to 2011 increased India's life insurance penetration to 4.6% in financial year 2010, above the global average of 4%. However, stagnation in life premium collections afterward led to a drop in the penetration level, which stood at 2.6% in the 2015 financial year.
For the nonlife insurance industry, it said gross direct premiums came in at 847 billion rupees in FY15, having grown at a compound annual rate of 16% since the 2002 financial year. However, steady volume growth did not result in comparable value creation, particularly since 2007, as "profits eroded, owing to increased price-led competition," the report said.
Looking with longing
The AIA and Aegon announcements came a week after French insurer AXA said it had nearly doubled its stake to 49% in its life and general insurance joint ventures with Bharti Enterprises, at an investment of about 13 billion rupees.
Canadian insurance provider Sun Life also announced on Dec. 2 that it plans to buy a further 23% stake in its joint venture with the Aditya Birla Group for 16.64 billion rupees to increase its ownership in Birla Sun Life Insurance Company to 49%.
Japan's Nippon Life Insurance also signed an agreement Nov. 24 to increase its stake in Reliance Life Insurance from 26% to 49%, pumping in an additional 22.7 billion rupees. A day before, U.K.-based Bupa announced plans to pay 1.91 billion rupees to Max India to acquire an additional 23% shareholding in their joint venture Max Bupa Health Insurace.
At an investor briefing last week, Sun Life said the Indian life insurance sector is expected to expand at a compound annual rate of 12-15% over the next five years. The market is estimated to top $160 billion in premium income over the next 10 years.
With more foreign involvement, Indian insurance companies will have greater access to capital and more resources for product development, analysts say.