Posted on Mar 15, 2011 by Sergio Ulloa
Japan's Nippon Life Insurance Company has announced that it has entered into an agreement with Reliance Life Insurance of India to acquire a 26 percent stake in the company for an outlay of US$680 million.
Nippon Life - one of Japan's largest life insurers
- will invest the maximum amount permitted under the foreign direct investment guidelines by a foreign insurer in a local Indian insurance venture.
The deal reflects Reliance Life Insurance's valuation of US$2.6 billion, with shares in its parent company, Reliance Capital, rising on the Bombay Stock Exchange's on release of the news. Reliance Life's new life insurance partner, Nippon Life, is one the largest life insurance companies in Japan - by asset value. Nippon Life already has a presence in life markets in Europe, the Americas, the Middle East and Asia.
Like other Japanese Life insurers, Nippon Life, has been looking to bolster its overseas presence, with the new Indian venture enabling access to be gained to one of the world's fastest growing life insurance industries.
The Indian life market already has a number of Indian-foreign life insurance partnerships including ICIC Prudential Life Insurance, Metlife India Life Insurance, Bajaj Allianz Life, HDFC Standard Life and Aegon Religare Life Insurance; these companies being some of the main players in the Indian life insurance sector.
Although Nippon Life is entering a competitive Indian life insurance market
, there is still tremendous scope for growth in the sector. It is estimated that only 10 percent of the 1.2 billion population in India holds life insurance cover. Together with the general economic prosperity and rapidly expanding middle class sector in India, the Indian life insurance market is forecast to expand as personal wealth improves.
The life insurance market in India is largely underdeveloped, with potential for life insurers to use their expertise to create new life insurance products designed to meet the growing demand in a fledgling sector.
Nippon Life's investment in the Indian life sector comes at a time when Japanese life insurers have been looking to expand their international platform due to declining levels of new business in the life sector in Japan; this reflects a slowdown in birth rates in the country experienced over a number of years.
The dwindling birth rate in Japan and tough economic conditions applicable in the country has meant that life insurers operating there have needed to shift focus to overseas markets in a bid to generate new premium income.
Foreign insurers entering the Indian life insurance market are faced with relatively high start-up costs and strict scrutiny from insurance regulators. However, the potential for profitable returns from new premiums from a burgeoning life sector in India more than counteract the potential pitfalls present in the country for overseas investors.
The Indian government is considering allowing foreign insurers to invest up to 49 percent in partnerships with a domestic Indian insurer; if this change comes to fruition it will allow overseas investors to expand their presence in an insurance sector which is becoming increasingly important for international insurers seeking growth opportunities. The attraction of the Indian insurance market for multinational insurers is important in offsetting stagnating business levels in traditional markets in Japan, the USA and Western Europe.
Nippon Life's Japanese rivals, Dai-ichi Life Insurance, recently acquired a controlling stake in Tower Australian for US$1.2 billion in a move to gain access to the Australian life insurance market which also offers better growth opportunities than the domestic Japanese life market. The Nippon Life - Reliance Life deal is still subject to regulatory approval by the Insurance Regulatory and Development Authority (IRAB) in India.
India, and Asian powerhouse rivals China, are becoming increasingly critical markets for the insurance industries as growth in demand for the full range of insurance products continues. This is especially important for Japanese specialist life insurers needing to find alternative markets to replace the loss of growth in domestic markets.
Nippon Life will also be competing for new clients with Japanese rival Daiichi, which has a presence in India through its local venture with state controlled Bank of India and Union Bank of India - the joint venture operating as Star Union Dai-ichi Life Insurance.
Reliance Life is a relativity young insurer having been established in 2005; it has managed to accumulate approximately US$3.7 billion in net assets. New partners, Nippon Life, was founded in 1889 in Osaka, Japan and has created a range of life product lines, including whole life insurance, term life insurance, medical insurance, endowment insurance and insurance linked to annuities.
Insurance Companies Mentioned:
Nippon Life Insurance
Nippon Life Insurance Company was established in 1889 in Japan and through its subsidiaries offers various life and non life insurance products and services. Nippon Life operates in North America, Europe, Oceania, Asia, Central and South America, and the Middle East.
Reliance Life Insurance
Indian life insurance company, Reliance Life Insurance, is an associate company of Reliance Capital. Reliance Capital is one of India's top 3 financial services companies by net worth. Both Reliance Life Insurance and Reliance Capital are part of the Reliance - Anil Dhirubhai Ambani Group.
Star Union Dai-ichi Life Insurance
Star Union Dai-ichi Life Insurance is a joint venture between the Dai-ichi Mutual Life Insurance Company of Japan and local Indian partners Bank of India and Union Bank of India. Star Union Dai-ichi Life Insurance was set up in order to trade in India's life insurance sector.
Dai-Ichi Life Insurance
Dai-Ichi Life Insurance Company was founded in Tokyo in 1902 and operates in the life insurance market in Japan and overseas. Dai-Ichi Life offers whole life, term insurance, annuities and endowment products. The insurer has operations in Asia, Europe and North America offering saving and protection products for individuals and groups.