Nippon to buy 26% stake in Reliance Life

Deal values Reliance Capital’s life insurance arm at Rs 11,500 cr.

Reliance Capital has agreed to sell a 26 per cent stake in its life insurance arm to Japan’s Nippon Life Insurance for Rs 3,062 crore. The deal, the largest foreign direct investment (FDI) in the country’s insurance sector, values Reliance Life at Rs 11,500 crore.

Reliance Life, which managed assets of over Rs 17,000 crore ($3.7 billion) as on December 31, 2010, started operations in 2005, after acquiring AMP Sanmar Life Insurance Company.

Reliance Capital’s shares rose sharply after the news. Analysts said the deal would give Reliance Life the funds it needed for growth.

Nippon Life, Asia’s largest private life insurance company, posted a revenue of Rs 3,24,000 crore ($72 billion) and a profit of Rs 11,700 crore ($2.5 billion) in the financial year ended March 31, 2010, said a release.

The Insurance Amendment Bill, pending in Parliament, prescribes increasing the FDI cap in insurance companies from 26 per cent to 49 per cent.

Reliance Capital had earlier said that it was looking to rope in a strategic investor for both life and general insurance units ahead of a possible initial public offering.

Late last year, it was reported that Reliance General Insurance was in talks to buy a majority stake in rival Royal Sundaram. Both are awaiting approval from the insurance regulator.

“Nippon Life is the largest life insurer in Asia and as a strategic partner will bring expertise and global best practices,” said Sam Ghosh, chief executive, Reliance Capital.

“We are delighted to partner with Reliance Life, an extremely competitive company with unique service offerings,” said Kunie Okamoto, president, Nippon Life Insurance.

The brokers said the valuation was on the higher side, but welcomed the deal.

“It is difficult to comment on the valuation. But it proves that foreign investors have a lot of faith in the potential of Indian insurance industry, which is a healthy sign for the sector,” said Pavan Dhingra, vice-president of Prudent Insurance Broker.

“Though it’s not fair to comment on the valuation as Reliance Life is a not a listed entity, we believe the valuation is a little inflated,” said Bhishma Maheswari, an official at Edelweiss Insurance Broker.

At present, most 22 private life insurers in India have foreign partners.

Nippon Life is the fourth Japanese insurer to enter the Indian market after Dai-Chi Mutual Life, Sompo Japan Insurance Inc and Mitsui Sumitomo Insurance Group.

Dai-Chi Mutual Life owns 26 per cent in Star Union Dai-ichi Life Insurance Company, a joint venture of Bank of India, Union Bank of India and Dai-Chi Mutual Life.

General insurer Sompo Japan Insurance Inc is a partner of Allahabad Bank, Dabur Investments, Karnataka Bank and Indian Overseas Bank in Universal Sompo General Insurance Co, which started operations in 2007.

Mitsui Sumitomo Insurance Group of Japan is the Murugappa Group’s partner in Cholamandalam MS General Insurance Company Ltd.