Aviva, Generali Group look to hike stakes in Indian joint ventures

This comes in wake of increase in FDI limit to 74% in insurance sector

With the government increasing the limit of foreign investment in the insurance sector to 74 per cent, global insurance majors such as Aviva Plc and Generali Group have initiated discussions to raise shareholding in their respective Indian joint ventures.

The two foreign insurance companies have started deliberations with their Indian partners, said a person aware of the development, but are yet to reach conclusion, the person added.

The UK-based Aviva Plc and Dabur Invest Corp have an insurance joint venture — Aviva Life Insurance Company India. The foreign partner holds 49 per cent stake in the JV, and has started discussions to increase its shareholding, the person said. The quantum of stake hike would depend on the negotiations, as would the valuation at which the stake will be increased, the person added.

The Generali Group indirectly owns 49 per cent in two Indian JVs, Future Generali India Insurance Company and Future Generali India Life Insurance Company. The Italian insurance major, too, is considering increasing its ownership in the Indian entities and has started negotiations as it looks to strengthen its presence in Asia. The valuation of the company will determine the quantum of the increase in shareholding, said the person quoted above.

Asked for comments on the issue, an Aviva Plc spokesperson said: “It is business as usual for Aviva India. We are focused on delivering our plans and delivering an excellent service to our customers. We do not comment on speculation.” Generali group did not respond to queries sent by Business Standard.

The government increased the foreign direct investment (FDI) limit for the insurance sector to 74 per cent in the Union Budget for 2021-22. The earlier cap in the sector was 49 per cent. Last month, the increase in FDI limit was notified by the Department for Promotion of Industry and Internal Trade (DPIIT).

Although the hike in foreign investment in the sector is tied to solvency margin, many foreign insurance JVs generally maintain a higher solvency margin of 180-200 per cent, and do not see it as a hurdle to raising their investment in the country, the person quoted above said.

The Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021, notified in May, state that insurance companies with foreign ownership of over 49 per cent will have to maintain a solvency margin of 180 per cent if they declare dividend payments in a financial year. 

If they repatriate profit in the form of dividend to their shareholders, but cannot meet the 180 per cent margin, they will have to set aside 50 per cent of their net profit in a general reserve. This condition has been included to safeguard the interests of policyholders.

The plan

• Two foreign insurance companies have started deliberations with their Indian partners to hike stake
• Aviva Plc owns 49% in Aviva Life Insurance Company India
• Generali owns 49% in Future Generali India Insurance Company and Future Generali India Life Insurance Company
• Quantum of stake hike would depend on discussions, and valuation
• Centre notified hike in insurance FDI to 74% in May from 49% earlier