Netherlands headquartered Dutch insurance and pensions major Aegon has secured a 12 year lock in from their joint venture partners – the Singh brothers-promoters of Ranbaxy Laboratories for their life insurance venture in India.
The promoters of Ranbaxy Laboratories have agreed to invest Rs 440 crore of their personal wealth over a four to five year period, via their financial services flagship Religare Enterprises for a 44% stake in the proposed joint venture.
Aegon will hold the maximum permissible 26% whilst Bennett Coleman and Company owners and publishers of The Times of India group of newspapers, will hold the balance 30% stake in the life insurance business.
“For the first time in the history of the life insurance business in India, an Indian joint venture partner has agreed to a 12 year lock in on their investment in the life insurance business,” says a top official of Aegon NV.
Most of the industrial houses who have so far entered the insurance sector have viewed this as a financial investment rather than a strategic business to be in, save for a handful of Indian promoters.
Says R Krishnamurthy, managing director, distribution consulting of Watson Wyatt India -- a global consulting firm specialising in insurance and financial services.
“This is an interesting JV to watch out to in the Indian context, as Religare, despite being a new player is known to be quite aggressive in the financial services sector.
New players like Aegon are expected to offer regional products and other rural products instead of piggybacking on the Unit Linked Insurance Plans – which are variants of equity diversified mutual funds.
Aegon also being one of the leading pension fund players globally could also be considered as strong contenders once the pension funds open up in India.”
Aegon has spent over a year in India since hiring Vimal Bhandari from Infrastructure Leasing & Financial Services to look for the right joint venture partners.
The lock-in period assumes significance because typically life insurance companies need between 7-8 years just to break even and require periodic infusions of capital to remain solvent as they have to bear losses in the initial few years of operation.
"We are very happy to join hands with Aegon to establish business in the high growth areas of life insurance and asset management", says Malvinder Mohan Singh.
"Whilst the company will start with a paid up equity capital of Rs 200 crore, we plan to invest Rs 1,000 crore in this business altogether, to give it the scale and the size necessary to establish a prominent position in the developing Indian marketplace for life insurance,” says the Aegon official.
This as per industry estimates is an ambitious target as ICICI Prudential is the only other player with a paid up capital over Rs 1,000 crore followed by Max New York Life (Rs 587 crore ) and Bajaj Allianz (Rs 508 crore).
It’s learnt that even BCCL has agreed to a five year lock in period on its investment. The lower lock in period for BCCL will help Aegon hike its shareholding to 49% by purchasing a part of BCCL’s stake, as and when the maximum permissible foreign direct investment in life insurance is hiked from the 26% cap currently imposed.
Aegon is also partnering the Singh brothers in a 50:50 joint venture for the asset management business. The Dutch major has also hired one of the top tier international search firms to identify a suitable candidate to drive this business it’s learnt.
Life insurance penetration in India at 2.53% of GDP is almost half that of the Asian average of 6-7% of GDP. The industry currently comprises of 14 private players and has a total capital invested of Rs 5,260 crore.
The share of the private sector in the life insurance business has been steadily increasing as private life insurance companies have been driving growth of the sector.
Aegon’s entry follows that of French insurance giant Axa who tied up with telecoms major Bharti recently to form Bharti Axa Life Insurance.