1. Foreign firms not hiking stakes in Indian JVs; Here’s why

Foreign firms not hiking stakes in Indian JVs; Here’s why

Milliman, which is among the world's largest providers of actuarial and related products, believes foreign players are not hiking their stakes only because of high valuations.

By: | Published: December 1, 2016 6:08 AM
Insurance Laws Act, Foreign Investment, Startups, Investment, high valuations, Funding Milliman, which is among the world’s largest providers of actuarial and related products, believes foreign players are not hiking their stakes only because of high valuations. (Source: Reuters)

Even after Insurance Laws (Amendment) Act which was passed in February 2015, which allows foreign players to increase their stakes in insurance firms from 26% to 49%, several foreign insurers have not hiked their stakes in their Indian joint ventures. Milliman, which is among the world’s largest providers of actuarial and related products, believes foreign players are not hiking their stakes only because of high valuations.

Milliman, in its third annual discussion forum on the Indian life insurance sector, also stated that, the life insurance sector will grow in the range of 15-20% over the next few years. “One of the key reasons foreign players are not hiking their stakes in Indian joint ventures is rich valuations. If we do the proper discounted cash flow calculations, there is no way we can justify such valuations of Indian companies,”said Sanket Kawatkar, principal and consulting actuary at Milliman.

He also added that several Indian companies are trading at 3-3.5 times the embedded value  with low margins, compared to several life insurance companies in south east Asian countries which are trading at 1-1.5 times the EV with very high margins.

Since the insurance Act was amended, very few foreign promoters have started increasing their stakes in the insurance joint ventures, after regulator Insurance Regulatory and Development Authority of India clarified the issue of ‘management control’.

In the last few months, ICICI Prudential Life Insurance was listed on the stock exchange, while HDFC Life and Max Life Insurance have proposed their merger. Milliman also believes that players with strong bancassurance (banca) will continue to do better compared to non-banca players. Milliman also says the sudden reduction in the interest rates can be expected to have adverse impact on life insurance companies operating in the market.

“A significant portion of life insurers participating funds are invested in fixed income securities, which would be expected to yield less. In line with the internal bonus management frameworks, companies are required to actively manage the bonuses to be declared on participating business. With a possible expectation of lower investment returns in future, companies may need to deuce the future bonus rates in order to control the future build-up of guarantees. Simultaneously, companies would be required to manage the expectations of their policyholders about the level of future bonuses,” Milliman said in a release.

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