More mergers and consolidations likely in insurance sector

The proposed merger of Bharti AXA’s non-life insurance business with that of ICICI Lombard General Insurance is just one of the latest in the insurance sector, which has seen quite a few such developments in recent months.

Big-ticket announcements

The general insurance segment has seen two such big-ticket announcements in as many months, while the life insurance segment, too, has been witnessing hectic activity.

According to analysts, with a large number of players in both sectors, more such mergers and consolidations could take place in the coming months.

Noting that the country’s general insurance industry has 34 players in 2020 against 26 in 2010 and 29 in 2015, a note by ICICI Securities said: “Only 14 out of 34 players have both healthy combined ratio (less than 110) and comfortable solvency (greater than 180). As such, the industry is rife for consolidation.”

Earlier in July, Paytm had announced plans to acquire Raheja QBE General Insurance.

“Going forward, we expect more mergers and consolidations in the Indian insurance sector, especially in the non-life space. This is primarily because there are very few players with large market share in the non-life space. Further, issues such as low non-life insurance penetration, increased operating costs, difficulty to maintain the prescribed solvency ratio, fierce competition, and inadequate distribution channels pose a challenge for smaller insurance players in the market,” said Amrit Mehta, Partner, Majmudar & Partners, adding that consolidation can help leverage better on well established distribution network and reduce operating costs.

In the life insurance sector, too, there has been a move towards acquisitions and stake sales.

IDBI Bank deal

Earlier this month, IDBI Bank said it had executed an agreement to sell up to 27 per cent of its stake in the life insurer to its joint venture partners – Ageas Insurance International and Federal Bank. While 23 per cent stake would be sold to Ageas, Federal Bank would acquire up to four per cent stake, leaving IDBI Bank with 21 per cent stake.

Similarly, Axis Bank and Max Financial Services had, in April, announced the signing of definitive agreements to become joint venture partners in Max Life Insurance.

There are two dozen life insurance companies, including Life Insurance Corporation of India.

With mergers of public sector banks, many of which own stakes in insurance companies, stake sales and consolidations in the insurance sector could see more activity.

Union Bank, which has a stake in Star Union Dai-Ichi Life Insurance, plans to sell the 30 per cent stake it got in IndiaFirst Life Insurance company post-merger of Andhra Bank with it by December this year.

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