Reliance Life Insurance Co. Ltd, a part of Reliance Capital Ltd (R-Cap), launched operations in 2005 as a fully owned company. Six years hence it now has a foreign partner in Nippon Life Insurance Co. The sixth largest insurance company in the world, Nippon Life is headquartered in Japan.
For Reliance Life, the infusion is not only of capital but also of expertise that Nippon brings. While the capital infusion is of no direct consequence for you, the fact that Reliance Life will draw from the expertise of Nippon Life will considerably impact the product suite.
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Says Samir Bali, leader-insurance advisory, Ernst and Young, an audit and consulting firm: “The Japanese market is big on protection. Even for Nippon, the expertise will understandably be in protection plans.” Product development, better customer service and cost reduction are some benefits that existing customers can look forward to.
Nippon Life will invest Rs3,602 crore to acquire 26% stake in Reliance Life. The announcement comes close on the heels of the Insurance Regulatory and Development Authority (Irda) instituting various reforms that cap costs and contain the expense ratios of insurers.
In a strict regulatory environment, it becomes important to bring in more capital to sustain growth. However, experts tracking the development see this move as an exercise in maintaining the profitability of the books.
Says an insurance consultant, who didn’t want to be named: “It is not as if the growth is constrained because the promoter is not able to bring in capital. Here the motivation has been to encash the value. There are two ways of encashing value; either you sell a stake or go public. IPO (initial public offering) has been deferred and so the other option was to get a foreign partner.”
Reliance Life was one of the insurers that aggressively pushed for an IPO. However, it may have to wait for some time before it can go public as Irda is still to come out with IPO guidelines.
The transaction has pegged the total valuation of Reliance Life at around Rs11,500 crore, said a statement by R-Cap.
Now that Reliance Life, too, has a foreign partner, Sahara Life Insurance Co. Ltd is the only private insurer that does not have a foreign partner (see table).
However, the scales at which the two companies operate are very different. Reliance Life sold 615,942 policies in the quarter ended September 2010, while Sahara Life sold around 17,848 policies in the same period. The deal is pending regulatory approval.
Graphics by Sandeep Bhatnagar and Ahmed Raza Khan/Mint