The Hindu Business Line : `Aviva Life open to picking up equity stake in Indian banks'

Aviva and almost all the life insurance companies have been pursuing with the Government for raising the FDI ceiling from the current level to 49 per cent.

Bangalore April 1 Aviva Life Insurance Company Ltd is open to picking up equity stakes in Indian banks for cementing its bancassurance arrangements.

Speaking to Business Line the Aviva India Managing Director, Mr Bert Patterson, said "Aviva already has equity investments in financial institutions in Europe. We could think about it in India as well." Aviva has equity investments in Italian banks and financial institutions that also provide a life insurance distribution network.

Aviva India is a 74:26 per cent joint venture between the Dabur group and Aviva Life Plc of the UK.

However, Mr Patterson clarified that equity-linked bancassurance tie-ups would depend on the regulatory regime. "It is all linked to the foreign direct investment (FDI) regulation," he said.

Aviva and almost all the life insurance companies have been pursuing with the Government for raising the FDI ceiling from the current level to 49 per cent.

Currently Aviva has bancassurance arrangements with about 30 banks in the country. These include cooperative and regional rural banks for increasing its outreach in the country's rural areas.

However, Canara Bank, which was one of Aviva's earliest bancassurance partners, is on the verge of exiting the tie-up. This was after Canara Bank, Oriental Bank of Commerce and HSBC Insurance Holdings joined hands to set up a life insurance company in the country.

But Mr Patterson said the exit would have little impact on Aviva's business growth. Currently about 70 per cent of Aviva's premium contributions came through bancassurance channels.

"Canara Bank contributes to only about 8 per cent of that business," he said. Nevertheless to offset the impact of Canara Bank, he said, Aviva was beefing up its direct reach and increased the number of offices to 197 up from 93 during the last year. Further Aviva was raising its direct sales force to 31,000 from the current level of 14,000.

The increases were being done to sustain the Aviva's growth momentum, Mr Patterson said. Aviva's annual premium accretions have grown by close to 83 per cent. Till February this year, Aviva's new premium's accretion amounted to Rs 600 crore, up from Rs 328 crore during the corresponding period of the last year. Close to 90 per cent of this growth was from unit-linked insurance plans (ULIP).

ULIPs

ULIPs are considered capital-efficient by insurers, since the investment risk was on the policyholders themselves.

Despite, the large premium accretions from ULIPs, Aviva would still require an additional capitalisation for complying with the solvency margin requirements of the Insurance Regulatory and Development Authority (IRDA). IRDA's prescribed margin is 1.5 times.

This implied that the capital and assets of life insurers should be at least 1.5 times more than the insured liabilities. But effective from the next financial year, IRDA has directed insurers to switch to a quarterly solvency reporting.

"Aviva's standards," Mr Patterson said," are a little more rigorous than the regulator's guidelines." The joint venture partners planned capital requirements accordingly after factoring business growth targets, he said. This year, after the addition of Rs 199.1 crore in January, Aviva's capital has increased to Rs 758 crore. Capital infusions have been planned up to 2010, he added.

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