Aviva Plans to Exit India Life Insurance Business Stiff ownership norms take a toll as co seeks to sell 26% in Indian JV with Dabur’s Burmans

Aviva, the UK life insurer whose products are promoted by star cricketer Sachin Tendulkar, plans to sell its stake in Indian joint venture with Dabur’s founding family, the Burmans. The stake may be valued at around $250 million. The 26% stake of the insurer looking to cut costs globally, may be sold either to another global insurer, or to the Burmans themselves who could re-sell it at a later stage to an international company which could bring expertise to run the business, said two people familiar with the matter.
“Globally, Aviva is looking at alternatives but they have not formally informed us of any such development,” said Mohit Burman, director, Dabur Group. “We will look at all alternatives when the time comes. If the Insurance Bill is passed in Parliament, there will be companies willing to buy 49% in Indian companies.”
Aviva joins a rising list of international insurers who are quitting India either because of their troubles at home markets, or due to frustration because of not allowing them to raise their holding beyond 26%. ING has sold its stake in a joint venture back to battery maker Exide, and New York Life sold as well. HSBC is looking for a buyer of its stake in the insurance venture.
“Aviva does not comment on any market rumours or speculation,” said Aviva India MD and CEO TR Ramachandran in an email response. The UK company has been a laggard in the Indian insurance industry, slipping to the 13th rank with new business premium income falling 14% last fiscal, from . 799 crore a year earlier. The London office of Deutsche Bank and JP Morgan may be mandated for the sale, said those people who did not want to be identified. This could not be independently verified.
More than a decade after private insurers were allowed to end the state-run Life Insurance Corporation’s monopoly, the industry growth has slowed down due to various regulatory issues.
The Insurance Regulatory & Development Authority (Irda) clamped down on the product design and enhanced policyholders’ protection that slowed sales and raised costs. The industry shrank last fiscal 6.32%.
Slowing growth also triggered the exits of other international companies which were also unhappy with the government unable to legislate allowing them to raise holding to at least 49%.
Aviva may be the third global company to exit Indian market. In April 2012, New York Life sold its 26% stake in Max India for . 2,000 crore, valuing the company at 3.5 times embedded value-the present value of future profits. ING sold its stake in ING Vysya Life Insurance to Exide Industries for . 550 crore January 2013.
But there have been new entrants too in this market where less than 30% of the population has insurance cover. Japan’s Nippon Life bought 26% in Reliance Life for . 2,948 crore at three times embedded value in March 2012.

Source: The Economic Times


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