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Insurance FDI gets mixed reaction from industry players

Private sector general insurers are more upbeat than life insurers.

Written by Surabhi | New Delhi |
October 6, 2012 1:01:38 am

Even as Opposition parties tore into the government’s big bang decision to further liberalise the insurance sector,industry players have shown a muted reaction. Private sector general insurers are more upbeat than life insurers.

Irda chairman J Hari Narayan welcomed the decision to allow up to 49 per cent FDI in insurance. “If the insurance sector has to double then it would require at least Rs 30,000 crore in the next five years,” he said.

The Union Cabinet on Thursday approved the Insurance Laws (Amendment)Bill,2008 that could possibly be the biggest churn in the industry since 2000 when the sector was opened to foreign investors. Since then,22 of the 23 private life insurers have tied up with overseas partners,while most of the 24 private sector general insurers have foreign equity.

“It will definitely help bring in fresh FDI in these companies,many of which have been bleeding losses. More importantly,we can see the entry of fresh players as 49 per cent stake would given them stronger shareholding rights,” said Punit Shah,partner,KPMG.

However,private sector life insurers are not very upbeat about the decision,pointing that other avenues such as listing are available to raise capital.

“There is nothing new in the decision. It has been going on since 2008. Unless there is some definite legislative action,we will not firm up plans for further foreign equity injection,” said an official with a private life insurer.

Meanwhile,Sam Ghosh,CEO of Reliance Capital said,“The hike in FDI cap may not be of much use and maybe some players will prefer IPOs to bring in more capital rather than asking their current foreign partner to hike stake from 26 per cent to 49 per cent.”

Reliance Life Insurance company has a 26 per cent joint venture with Japan’s Nippon Life and said it will welcome any move to increase the stake to 49 per cent.

Amitabh Chaudhry,MD and CEO of HDFC Life, said,“FDI in insurance is welcome and it will help the industry to access capital and expertise from foreign insurers. However,it is not the only precondition for a public issue. For us to go for an IPO,we need the new business margin that has shrunk in the last year to go up and growth to come back.”

But general insurers are hopeful that along with FDI,a separate bill to address the obligatory third party insurance on motor vehicles could turn around their fortunes.

“We are being cautiously optimistic about the development. Most general insurance companies are facing losses due to the impact of higher provisioning for third party motor pool and this could bring in much needed funds to shore up our balance sheets and expand operations,” said an official from a private sector general insurance company.

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