Home >Money >Personal-finance >Can create synergy through mutual funds managing life insurance money: Nippon Life Insurance’s Kazuhide Toda
Kazuhide Toda, head Asia-Pacific, Nippon Life Insurance; Photo: Aniruddha Chowdhury/Mint
Kazuhide Toda, head Asia-Pacific, Nippon Life Insurance; Photo: Aniruddha Chowdhury/Mint

Can create synergy through mutual funds managing life insurance money: Nippon Life Insurance’s Kazuhide Toda

Nippon Life Insurance's Kazuhide Toda shares his view on the mutual fund and insurance markets in India, and more

As a first initial public offering (IPO) from a mutual fund company, Reliance Nippon Asset Management Ltd, went to the market on 25 October. The Rs1,542 crore IPO comprised fresh issue of shares worth Rs617 crore and offer for sale. After the IPO, Reliance Capital Ltd and Nippon Life Insurance Co. will each hold close to 43% stake each, in the asset management company (AMC).

Markets have reacted positively to the IPO as it was subscribed 81.45 times on the last day of the IPO. Kazuhide Toda, head Asia-Pacific, Nippon Life Insurance, was in India recently. In an email interaction, he told Mint about his view on the mutual fund and insurance markets in India. Nippon Life also has a joint venture with Reliance Capital Ltd in the life insurance sector.

Post-IPO, Nippon Life and Reliance Capital will become equal partners in the asset management company (AMC). In future, do you envisage Nippon Life being the bigger and more dominant partner? 

We are the largest insurance company in Asia and one of the largest in the world, managing assets of Rs37 trillion. After the listing of Reliance Nippon Life Asset Management Ltd, Nippon Life and Reliance Capital will hold equal stake in the company, which is as per the agreement between the two shareholders. We’ve increased our stake gradually and we are now equal partners. Our commitment to India and Reliance is for long term, and we see our presence in India with Reliance not just for a decade but for centuries to come. 

How different is the Japanese AMC market from India’s? And what learnings does the Indian AMC market offer you? 

The mutual fund market in India is still at a nascent stage. If we look at the asset size compared to the gross domestic product (GDP), it is about 7% in India as compared to 17% in Japan. This points at only one thing, growth potential in both debt and equity in India. 

The GDP in India is growing at 7%, so it can be easily said that the asset management industry in India is still growing and we clearly see it grow many times from here. 

Also, we see major consolidation happening in the asset management industry in India and as a shareholder, we will support the company if any such acquisition opportunities come in future. 

Moreover, SIP (systematic investment plan) has changed the dynamics of the Indian AMC market. SIPs have become synonymous with regular monthly investments. This change is irreversible. The India financial story is about to change. Till now there was no Indian asset management company that was listed and Reliance Nippon Life Asset Management listing has been taken very positively by institutional investors across the world. 

Talking about the Japanese markets, majority of Japanese investors are retail investors and they invest in mutual funds, too, actively. However, we do not have the exact number of retail investors’ participation in Japanese mutual fund industry. Currently, the size of mutual fund industry in Japan is around 100 trillion yen (assets of publicly offered investment trusts). 

When we look at SIPs, it was not so popular, but the Japanese government has decided to give tax benefit to SIP investors from January next year. With this initiative, we believe SIPs will become more popular in Japan. In terms of learnings, there are various fields, including information technology, where Reliance Mutual Fund has a competitive edge. We are exchanging trainees to learn from each other. 

In India, the asset management entities of mutual funds and insurance are separate. In many markets, there is no such demarcation. In fact, even in India the think tanks are now recommending greater synergies. What is your opinion, given that you operate in both sectors? 

When we look at the practical aspects, some parts of asset management function in life insurance business and the asset management business overlap. Therefore, I believe it is possible to create a bigger synergy through combining those two functions and entrusting some parts of the life insurance company’s assets to asset management company. For instance, unit-linked assets managed by Reliance Nippon Life Insurance could be outsourced to the asset management company in the future. I hope the business environment surrounding both the sectors will make progress with deregulation. 

In India, distributor incentive is heavily tilted towards life insurance. Is this the case in Japanese markets too? Given the higher remuneration structure in life insurance products, isn’t there a danger of life insurance cannibalising the mutual fund business? 

The product features of life insurance products and mutual funds are different because life insurance is more about protection. Hence, it is difficult to compare the distributor incentive. Therefore, it’s important for Reliance Nippon Life Insurance to look into customer needs and come out with products that cater to the same. 

Traditionally, life insurance has been an agency-led business but in India there seems to be an over-dependence on bancassurance (where banks are used for distributions), which also gets reflected in valuations. However, despite the fact that Reliance Life is predominantly an agency-led company, you placed great faith when you decided to raise the stake to 49% at one of the highest valuations for a life insurance company. Can you shed light on what potential you see in the company and in India’s life insurance sector? 

Indian life insurance industry is still at a nascent stage. In an emerging economy like India, economic development going forward cannot be ruled out. Hence, it can be said that the Indian insurance market will continue to grow further with rising awareness about insurance products. Each channel—including agency, direct and bancassurance—has distinct characteristics. 

So, we would like to build a well-balanced distribution strategy and aim to provide products to a wide range of customers. We will try to increase bancassurance business; however, other channels also have huge potential because of low penetration ratio in the Indian market. Therefore, even without the bancassurance channel, we are able to grow the business.  

The life insurance sector in India grapples with poor persistency of life insurance policies. Regulations have tried to address this issue by focussing on the product design but that has not helped much. Do you think poor persistency is a result of poor distribution? What changes do we need to make in India to improve customer experience with life insurance?

Poor persistency can be attributed to various factors such as inadequate communication with policyholders because of less contactability. However, I believe that providing customers with products that meet their needs and enhancing services after contracting policies will contribute to improving persistency rate. Reliance Nippon Life Insurance is making efforts in this direction to improve persistency rates. 

In your opinion, do you think India is an over-regulated market? 

Indian markets are regulated, which is good. As the markets in India are still at a nascent stage, it is always better to have a regulatory body at the helm. We can see how the markets are opening up and how the regulatory environment is turning out to be investor friendly.

Do you envisage Reliance Nippon AMC managing more and more offshore money? At present, most fund houses have a large share of domestic money as opposed to offshore money. Would that change for you, going forward?

Due to the negative interest rate policy of Bank of Japan, Japanese 10-year interest yield is below 0.1%. Therefore, the Japanese investors are looking for the opportunities overseas. On the other hand, Indian 10 year-interest rate yield is still close to 7% and inflation is under control. In addition to that, GDP of India grows at the pace of 7% every year. Because of the attractiveness of the Indian market and the robust macro situation, I believe inflows from overseas to India will continue. Nippon Life, too, has increased investment to India gradually and is looking for further opportunities .

Foreign mutual funds and pension money comes to the Indian stock market. Do you see Nippon Life of Japan investing its insurance money in Indian markets? 

The Japanese 10-year interest yield is below 0.1%, which is a result of negative interest rate policy of Bank of Japan. Therefore, Japanese investors, including Nippon Life, are looking for opportunities overseas. 

On the other hand, in India, the 10-year interest rate yield is still close to 7% and GDP grows at the pace of 7% every year. Under such circumstances, Nippon Life has been increasing its investment in India gradually. Also, we have launched three Indian funds for Japanese retail investors, which are distributed by many Japanese regional banks and distributers, even in smaller cities in Japan. The current AUM of those products has reached close to $1 billion.

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