Interview with John Brice, Representative for India, CGU General Insurance. CGU General Insurance is the largest UK-based life and general insurance group which was created in 1998 subsequent to the friendly merger of Commercial Union and General Accident. With worldwide premium of income of Rs 108,000 crore, of which 62 per cent is derived from outside UK. It has entered into separate MoUs — with the Wadia group (Bombay Dyeing) for non life and the Hindustan Times group for life insurance. John Brice, representative for India, divulges his views on foreign equity, the start-up capital and other issues with Jayshree Bose of FE.

What are your views on the 26 per cent cap on foreign equity holdings in the private sector insurance joint ventures, that is very likely to come into force after the IRDA Bill is passed?

I understand the political equations attached to this likely decision. We have accepted this, and we will come in on that basis. However, I understand that it is not only the foreign partners but also most of the Indian promoters who would have preferred a more equitable shareholding. But these are the rules, and we accept them.

What sort of a response are you expecting in terms of licence applications after the markets open up?

One thing is evident: its not the foreign insurers who will dictate what the number will be. Take the example of banks. Setting aside the fact of whether the majority of them will be allowed to go beyond distribution initially, I also understand that should they be permitted to do so, the perception as of today is that their holdings will be restricted to 30 per cent. Coupled with the 26 per cent foreign equity contribution, this still leaves a gap of 44 per cent. The deciding factor would be how many Indian companies would be willing to bring in up to Rs. 74 crores of capital, not just in the case of banks, but in other cases, as well.

So, do you feel that the capital of Rs 100 crore that would be possibly stipulated is too high?

Yes, a capital of Rs 100 crore is artificially high, since the initial business volumes will not require such a high start-up capital. All Asian countries except Japan have lower capital requirements. Having said that, let me also add that the high capital is a necessary hurdle. It’s evident that the regulators are looking for long-term commitment, and only from serious players.

When are you expecting to break-even?

In the case of non life insurance, we are expecting to break even after four to five years. This is when we are expecting the underwriting results —which is insurance premium minus outgoings such as claims payments, acquisition costs and business expenses—to turn positive. The capital and policyholders’ funds would earn investment income, which we expect will offset our initial losses.

What has been your experience in other markets, especially with regard to market shares?

One doesn’t enter new markets every day, especially when CGU already has a presence in over 50 countries (10 of these are Asian countries). India and China are two countries in Asia where we are looking currently to enter. In Poland, where we entered the life sector in 1992, CGU had premium of USD 275 mn in 1998. The overall market has grown from USD 462 mn in 1994 to USD 1,519 mn in 1998. The dominant insurer is the Polish insurance company PZU Zychie, which still has a 64 per cent market share. This is proof that competition stimulates growth. As far as Asian countries are concerned, foreign joint ventures have typically been able to carve only small market shares. In Indonesia, which opened up long ago, the combined market share of joint venture companies is about 15 per cent. The same scenario may be replicated here; we cannot initially compete against a huge branch network and a large workforce. New entrants are looking at a 10 per cent market share at best, within five years, and a 20 per cent figure, long term.

Do you expect the new players to get a sizeable portion of the insurance spend of the Indian partner involved in the joint ventures?

I don’t see why not — it happens everywhere. The joint ventures will all be well-capitalised and professionally-run.

Which are the specific areas and growth levels you are targeting?

In non life, we are looking at, commercial insurance, cargo, motor insurance and personal lines business (which have more long term potential than commercial lines.) In growth terms, some commentators are looking at a 20 per cent compounded annual growth rate in non life. This is not too much, considering the present size of the market here. It is around USD 2 bn, which is 0.27 per cent of the world-wide general insurance premium income. The cake will grow, though qualitative improvements — new products and newer and better distribution channels. India is an attractive market by itself. With opposition to liberalisation gradually reducing, we do hope the Bill is passed and new licences issued by end-2000.