Action picks up in insurance sector

Foreign investment; mergers and acquisitions (M&As), and the listing of companies likely to drive growth in sector, say experts

Action in India’s insurance sector is gathering steam with HDFC Life announcing its intent to acquire Max Life, and Bajaj group reported to likely buy out partner Allianz’s stake in the JV in both life and general insurance space.

Many players in life as well as general insurance are jostling for space. Perhaps the time is now ripe for consolidation to drive growth for the decades ahead. The sector has 24 life insurance and 29 general insurance companies, including five standalone health insurers.

Analyst and insurance industry executives say the three themes that will drive action are foreign investment; mergers and acquisitions (M&As), and the listing of companies on stock exchanges. 

The hike in limit on foreign investment to 49% has triggered a flurry of action in the sector. Just last week Japanese insurance group Dai-ichi hiked stake to 44% in Star Union Daichi Life Insurance. Bank of India, its JV partner, sold 18% stake to Dai-ichi for Rs 540.crore.

M&As will also shape activity to increase market share and efficency in the sector. Early this month L&T General announced it would merge into HDFC ERGO General Insurance, a deal valued at Rs 551 crore.

To reach the next phase of growth, apart from mergers and acquisitions, listing on the stock exchanges will be the next logical step. Until now, private capital has funded growth in the sector; now, public funds may be also tapped to raise capital based on performance.

The regulator (IRDA) feels those completing 10 years should do so. However, only HDFC Life and ICICI Prudential Life have announced an intent to list.