The Cabinet on Thursday approved 49% foreign investment in insurance companies through the FIPB route, ensuring management control in the hands of Indian promoters.
Insurers believe the move will help companies attract fresh capital of Rs 25,000 crore over the next 10 years. “Till date, private life insurers have invested a capital of around Rs 35,000 crore and, assuming assets under management growing 15% annually, the incremental capital requirement over the next 10 years would be approximately Rs 25,000 crore,” said Sandeep Batra, executive director of ICICI Prudential Life Insurance.
The top 3-4 private insurance firms in the country may look at listing on the stock exchanges once the Insurance Amendment Bill is passed in the current session of Parliament.
The Cabinet clearance to hike FDI in the insurance sector to a composite 49% with Indian control, via the FIPB route, is in line with extant DIPP guidelines.
The Insurance Amendment Bill will also lay down guidelines for companies to be listed on the bourses.
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HDFC Life Insurance, one of the top three private players in terms of new business premiums earned, said its shareholders have expressed interest in the company being listed on the exchanges. “The actual process might take about 3-6 months even as we look for some more clarity on the extant guidelines on Indian promoters,” Amitabh Chaudhry, managing director & CEO of HDFC Life, told FE.
Market players say that listing on a bourse to raise funds from FIIs may not be attractive for all insurance companies. “According to Insurance Regulatory and Development Authority (Irda) norms, companies whose embedded value is two times their paid-up capital can list on the bourses. Companies not wishing to list will look at pure FDI only,” said Tarun Chugh, managing director & CEO of PNB MetLife Insurance.
Embedded value is a common valuation measure in the insurance industry calculated by adding the adjusted net asset value and the present value of future profits of a firm. The present value of future profits considers the potential profits that shareholders will receive in the future, while adjusted net asset value considers the funds belonging to shareholders that have been accumulated in the past.
Shares of insurance players and listed holding firms of some of the prominent unlisted insurance companies rallied after the Cabinet approval. After witnessing intraday gains of up to 5%, shares of Max India, Reliance Capital and Sundram Finance closed at Rs 322.35, Rs 613.95 and Rs 959, up 3%, 4% and 2%, respectively.
In his Budget speech earlier this month, finance minister Arun Jaitley had said that the insurance sector is investment-starved and there is a need to increase the composite cap in the sector to 49%, with full Indian management and control, through the FIPB route.
A composite foreign investment cap will include investments from FDI, FIIs, qualified foreign investors (QFIs), non-resident Indians (NRIs) and foreign venture capital investors.