"Life insurance requires an increasing amount of capital for growth. Nearly all the Indian promoters of life insurance companies have core interest in industries, banks and asset management. All these businesses require capital which is scarce.
"The Indian and global markets are getting volatile. Balance sheets of companies are under pressure. Capital availability is getting tighter across the world. With the current foreign investment limit, there is a pressure on the Indian promoter to bring 74 per cent share of the new capital infusion that is required to maintain the fast growth of the life insurance business. With the ceiling not being raised to 49 per cent, there is a risk that the industry will face a capital crunch which could hinder the growth of the life insurance companies," he said at the Aviva Insurance Summit.
Aviva is also planning to launch an asset management company in the country. The insurer had announced its plans last year. "We will bring Aviva's entire capabilities here. Asset management is integral to Aviva's strategy. We are working on the plans and may announce something shortly."
However, he refused to give a definite time frame for the launch. Aviva is one of the largest asset manager in the world with funds under management of euro 316 billion.
Since the insurance sector was reopened to private competition in late 2000, life insurers have invested Rs 10,000 crore to keep capitalising their business and meet solvency requirement.
While the local and international players have been seeking that the foreign investment cap be increased to 49 per cent from 26 per cent at present, the Left parties, which were supporting the UPA till recently, had stalled the introduction of a Bill to amend the Insurance Act. The growth of the life insurance sector has slowed in recent months.
About the impact of slowdown on the valuations of life insurance companies, Paterson said, "Undoubtedly, the current valuations of life insurance companies are unrealistic and driven by the growth in the new business premium. If the new business premium volumes fall, valuations will also fall.
"At present, multiples such as persistency ratio, profitability margins by product are not factored in while arriving at valuations. When a life insurance company gets listed, investors will want to make an informed decision on the stock data. Therefore, the multiples applied for valuing the insurance company will become more realistic and make insurance companies more transparent."
