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From Amazon to Westbridge, PE firms bet on insurance due to stable rules

The deals are driven by a new regulation in December 2017, which allowed PE firms to come in as promoters in insurance firms and exit after a lock-in period of five years

Advait Rao Palepu  |  Mumbai 

Buyouts and exits: India seen 1,068 buyout deals worth $41 bn since 2018

The last few months have seen a spurt in in the insurance space, with investors like and buying stakes in Star Health & Allied Insurance and India First Life, respectively (see box). There have been other deals too.

The deals are driven by a new regulation in December 2017, which allowed to come in as promoters in insurance firms and exit after a lock-in period of five years. This was matched by few foreign partners, who were keen to sell their stake in their Indian ventures.

For instance, Legal & General sold its 26 per cent stake in to for Rs7.1 billion while and bought Videocon’s 51.32 per cent in The trigger could be different for each partner.

Some have incurred large claim payouts in certain emerging which has prompted their exit from specific countries, while others may not be satisfied with the performance of their ventures in India, say experts.

RECENT DEALS

* Amazon invests around Rs809 mn in insurance aggregator Acko

* Westbridge, Jhunjhunwala buy 93.9% in Star Health for Rs65 bn

* Warburg buys out Legal & General in for Rs7.1 bn

* Diamond Dealtrade, Enam buy out in Liberty General

The insurance industry growing at 18 to 19 per cent in the last few years. With the government introducing public insurance schemes, there's room for widening the customer base and growing faster.

READ MORE: PE/VC investments in Apr up by 23% at USD 2.4 bn on large deals: EY

“PE investors are looking to invest in sectors that have a strong underlying growth story, high degree of regulatory certainty and improving economics, among other things,’’ says Madhur Singhal, managing director of PE advisory firm

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The companies are growing at an impressive pace from 2000 when entry for private players was allowed by the insurance regulator. ‘‘New distribution channels have increased the reach and reduced cost, making insurance companies attractive,” said Rajat Tandon, President, Indian Private Equity and Venture Capital Association.

READ MORE: Private equity investors bring in deals worth $983 mn in January: Thornton

There's huge room for growth. The ratio of insurance premiums to GDP is 0.8 per cent in India while it is 4.3 per cent in the US. Further, penetration stands at 3.49 per cent in India while it is above 7 per cent in the US. This shows that regardless of the underpenetrated Indian market, today there is enormous growth potential.

Tandon feels the changes like Insurance Bill, which gives IRDAI more flexibility to frame regulations, and the introduction of tax incentives for insurance products, make the insurance market very attractive.

The increase in foreign direct investment limits to 49 per cent from 26 per cent, spurt in M&A deals augurs well for PE investors, who are looking for gross returns of 18 to 24 per cent. General insurance, which is growing at 17 per cent, can deliver 22-24 per cent returns.

“It is still early days and some insurance investments are yet to see the full deal cycle till exit, the outlook is positive,” said Singhal.

First Published: Thu, June 14 2018. 07:07 IST
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