IRDAI gives in-principle approval for IndiaFirst Life Insurance stake sale

IndiaFirst is a joint-venture between Bank of Baroda, Andhra Bank and UK-based Legal and General.

The insurance regulator has given its in-principle approval for UK-based Legal and General Group to sell its stake in IndiaFirst Life Insurance Company to private equity firm Warburg Pincus LLC, two sources confirmed.

IndiaFirst is a joint-venture between Bank of Baroda (which has a 44 per cent shareholding), Andhra Bank (30 per cent) and Legal and General. Legal and General announced in June it would sell its 26 per cent stake in the life insurer to Warburg Pincus for Rs 7.1 billion.

A source confirmed Insurance Regulatory and Development Authority of India’s (IRDAI) in-principle approval for the share transfer. “The final approval will come in time once the special-purpose-vehicle (SPV) is set up. Under the guidelines for private equity investments in the insurance sector, the company needs to set up an SPV to complete the share transfer. This is not a condition in other cases where a company buys a stake from another in the insurance space,” said the source.

The source said this is the first private equity deal in the insurance sector to have been filed with IRDAI after guidelines were introduced in December 2017.

Warburg Pincus refused to comment.

The other major private equity deal in the insurance space is the Rs 65- billion acquisition of a 93.99 per cent stake in Star Health and Allied Insurance Company by a consortium of investors, including WestBridge Capital, billionaire Rakesh Jhunjhunwala and Madison.

IndiaFirst posted losses between FY2010 and FY2014, but after RM Vishakha took over as managing director and chief executive officer the company’s net profit rose from a net loss of Rs 250 million in FY2014 to Rs 352 million at the end of FY2017. At the end of FY2018, IndiaFirst’s net profit grew by 45 per cent, year-on-year, to Rs 512 million.

“From a premium perspective, we’ve grown from collecting Rs 24.6 billion APE (annualized premium equivalent) in FY2015 to nearly Rs 40 billion at the end of FY2018. As we speak, if I took it up FY2019, it would be double the business. For our shareholders, even they have other issues, we have given them a 5x growth in their initial investment, which is not a small amount in less than ten years” Vishakha told Business Standard.

The company’s assets under management have nearly doubled in the last three years from Rs 76.5 billion in FY2015 to Rs 126.22 billion at the end of FY2018.

At the end of the last financial year, the company covered one million lives and 3.75 million lives through its individual and group life insurance policies. IndiaFirst has paid a total of Rs 8.9 billion in claims in nine years. It had 10,205 claims worth Rs 2.3 billion at the end of FY2018, from 3,962 claims worth Rs 71.6 million at the end of FY2015.

“As I have said before micro-insurance is the future and the ‘insurance in a sachet’ model is the only way we can improve penentration of life insurance. I want to do with insurance what FMCG companies have done with the market,” said Vishakha.

The company entered the micro-insurance segment by starting ‘Khata Plan’ using government-run Common Service Centres last November. This year it tied up with Oxigen Services, a payments company, to distribute insurance through point-of-sale (POS) outlets.

IndiaFirst caters to the three segments--micro, middle and high net worth-- through its ticket-sizes which ranges from Rs 500 to Rs 20 million.

During the first seven months of FY2019, total premium grew by 91.96 per cent from Rs 5.6 billion at the end of October 2017 to Rs 10.74 billion at the end of October 2018.

The majority of the growth came from the group insurance segment, which has grown 175 per cent, year-on-year, to Rs 7.6 billion at the end of October 2018.

“We continue to be focused on our targeted 20 per cent growth for the financial year. While individual premium has been flat, in the month of October we’ve seen it jump. Large part of the growth has come from group term policies,” she said.