Achange in ownership rules and the potential availability of large stakes ininsurance companies make India an appealing prospect for foreign investors, butthere are pitfalls for new entrants into the market, analysts told S&PGlobal Market Intelligence.
is planning to launch an IPO to sell a stake of up to 10% in The shareholding in the joint venture between India's largest mortgage lenderand Standard Life Plccould be valued at $302 million, according to an April 21 Bloomberg Newsreport, which added that seven other Indian insurance businesses — those by and — could also belisted in the near future.
Thepotential availability of large stakes in Indian insurance businesses comes onthe back of recent regulatory changes in relation to foreign investors. SinceMarch 2015, they can own up to 49% in Indian insurance firms, havingpreviously been limited to 26%. Companies such as Bupa and Standard Life have the opportunity to expand theirpresence in India, with the latter recently increasing its holdings in HDFC Standard Life Insuranceto 35% from 26%. Standard Life has also insisted that it does not intend tosell any of its shares in HDFC Standard Life Insurance as part of the company'sIPO.
Butforeign investors tempted by India's huge and as yet largely uninsuredpopulation are entering a fiercely competitive marketplace, where low marginson some insurance products could fall even further,
Butforeign investors tempted by India's huge and as yet largely uninsuredpopulation are entering a fiercely competitive marketplace, where low marginson some insurance products could fall even further,according to S&P Globalanalyst Philip Chung.
SushmaViswanathan, insurance analyst at Timetric, said he expects the Indian lifeinsurance segment to grow by about 14.9% a year between 2015 and 2020. "Thefuture outlook looks promising for the life insurance segment, with favorabledemographic factors, revised regulations and new tax reforms in thesegment," he wrote in an emailed reply to questions, adding that heexpects a lot more interest from foreign insurers as a result of the relaxedownership rules.
Yet,he also warned that foreign insurers have to invest "huge sums" tobuild brand awareness in India, where the life insurance market is dominated bya single player, state-owned LifeInsurance Corp. of India (LIC). According to Viswanathan, thecompany has such a strong presence "that it has become a generic term forlife insurance in India."
EYanalyst Rajesh Dalmia said in an interview that the interest of foreigncompanies in the Indian life business is likely to remain muted due to a raftof new pro-consumer regulations.
Thereis scope, though, for new entrants to outperform existing insurance providersin India by adopting new strategies. According to a 2016 McKinsey study, theprivate-sector life industry in the country has delivered returns "farbelow" the cost of capital and below the returns of other Asian markets,as many life insurers have focused on building up large sales forcesrather than producing profits through the sale of higher-margin products.
Onthe P&C side, Dalmia expects annual gross written premiums to grow by atleast 15%, driven by a change in attitudes toward insurance in India.
"TheP&C business, though growing in double digits, has sustained combinedratios above100% for years, partly as a result of strong investment income, but alsobecause there's a fight for market share in the expectation of stronggrowth," he said.
Despitethe deals on offer, penetration rates in India remain extremely low, at 0.49% —in line with Indonesia and Vietnam, Viswanathan said.
TheIndian personal accident and health insurance segment is one area whereViswanathan and Dalmia expect significant growth.
"Thereis this thinking that's really coming out now that protection is valuable andwhatever you're paying for protection is worth it," Dalmia said."Health insurance in particular is growing at more than 20%."
Thekey reasons for this are rising health care expenditure, the introduction oflow-cost personal-accident insurance schemes and the liberalization ofinsurance industry regulations, he said, adding that India's growing population,more domestic and international travel and greater public awareness of thebenefits of health insurers should also contribute to growth.
Whileneither Dalmia nor Viswanathan thought that the 49% cap on foreign investmentin the Indian insurance industry will be scrapped in the foreseeable future,the government is considering allowing 100% FDI in insurance intermediaries.This would allow international brokers such as , andHowden Insurance BrokersLtd., which currently operate in India through joint ventures orpartnerships, to directly operate their own subsidiaries, Viswanathan noted.
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