Tokyo: Nippon Life Insurance Co plans to buy a 26% stake in India’s Reliance Life for about ¥60 billion ($724 million), a source with knowledge of the matter said, in the latest move by a Japanese insurer to expand overseas.
Nippon Life, Japan’s largest life insurer, is in talks with Reliance Capital , the parent of the Indian insurer, to acquire the 26% stake, the maximum allowed for a foreign company in an Indian insurance joint venture, said the source, who was not authorised to talk to the media about the matter.
Both Nippon Life and Reliance Capital, a financial services firm controlled by billionaire Anil Ambani, declined to comment on the news, which was first reported by Japan’s Asahi newspaper.
Reliance Capital has said in the past that it was looking to bring in a strategic investor for its life insurance unit ahead of a possible initial public offering.
Shares in Reliance Capital, which has a market value of about $3 billion, were trading down nearly 4% at 0732 GMT in the main Mumbai market that was 1.3% lower. The stock had earlier risen as much as 1.6%.
“We value Reliance Life Insurance at about $2.5 billion and therefore the amount that Nippon will reportedly pay for the 26% stake is not a significant premium,” said Santosh Singh, a sector analyst with brokerage Execution Noble in Mumbai.
“It’s good for the company as it will get access to Nippon’s expertise and can have a better product mix,” he said.
Life insurance penetration in India is about 4% of the gross domestic product, in terms of total premiums underwritten in a year, compared with 2.4% in China and about 13.5% in Britain.
Industry executives say the outlook remains bright in an under-insured, booming economy that is expected to grow at 8.6% in the current fiscal year ending in March.
“Other than China, India is the only other market which holds a lot of potential for foreign insurance players such as Nippon because of the under-penetration of insurance products, growing savings rates and higher economic growth,” Singh said.
“India is a long-term growth story for insurance companies.”
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 said it would buy out Tower Australia Group for $1.2 billion.
India opened up the insurance sector to private and foreign players in 2000.
State-owned Life Insurance Corporation of India was once the only option for the world’s second-most populous country with more than a billion people.
Today, about two dozen players including ICICI Prudential Life Insurance, HDFC Standard Life Insurance, Aviva Life Insurance Company and Bajaj Allianz Life Insurance vie for a bigger share of the insurance market in India.
Of the 22 companies that have set up operations in the life segment after opening up of the sector, 20 are in joint venture with foreign partners, according to data on the sector regulator’s website.