Mumbai: Reliance Capital Ltd (R-Cap), part of the Anil Ambani-led Reliance Group, and its life insurance business partner Japan’s Nippon Life Insurance Co. on Thursday signed a pact to explore more collaboration opportunities across all financial services.
In March, Nippon Life, Japan’s largest and the world’s seventh largest life insurer, picked up a 26% equity stake in Reliance Life Insurance Co. Ltd, a subsidiary of R-Cap, for Rs3,062 crore, valuing the Indian life insurer at Rs11,500 crore. Indian rules bar foreign companies from owning more than 26% in insurance joint ventures with local firms.
“Nippon Life will be evaluating collaboration opportunities, including strategic partnership, across all R-Cap promoted financial businesses,” the companies said in a joint statement.
Faced with weak growth prospects at home due to a sluggish economy and an ageing population, Japanese insurers have been stepping up efforts to expand overseas, often by acquiring stakes in and buying out local players.
Late last year, Japan’s No. 2 life insurer Dai-ichi Life Insurance Co. Ltd said it would buy out Tower Australia Group Ltd (now TAL Life Ltd) for $1.2 billion (Rs5,520 crore today). India opened up the insurance sector to private and foreign participation in 2000. A long-pending move to raise the overseas investment limit to 49% has been blocked owing to resistance from trade unions and other quarters.
R-Cap has a presence across the financial services space in both life and general insurance, mutual funds, broking, and distribution and commercial finance. Reliance Mutual Fund, the firm’s asset management arm, is the country’s largest asset manager with Rs1.01 trillion of average assets under management.
Nippon Life posted revenue of $80 billion and profit of $3 billion in the fiscal year ended 31 March. It sold around 1.2 million policies, taking the total number in force to more than 14.5 million as of March.
Apart from life cover, Nippon Life sells medical and defined contribution pension plans.
India’s economic growth and the resulting surge in demand for both corporate and consumer financial services is attracting interest from international groups based in mature markets, where growth has slowed or even stagnated.
The high savings rate in the country offers significant opportunity for investment in the financial markets. The country has a favourable demographic profile, with a large segment of the population under 30 years of age.
The 2011 Census showed that 56.9% of India’s total population comes in the 15-59 age group. The country is also expected to witness a sharp decline in the dependency ratio over the next 30 years.
As the dividend begins to pay off, with the working age-group population rising disproportionately over the next two decades, the savings rate is likely to rise further, finance minister Pranab Mukherjee has said.
Consultancy firm KPMG has estimated that the Indian mutual fund industry’s assets under management are likely to continue to grow at 15-25% in 2010-15, based on the current pace of economic growth.