Money & Banking

Valuation disparity may deter insurance stake sales

Our Bureau Mumbai | Updated on January 22, 2018 Published on November 25, 2015

The number of incremental deals in the insurance sector after the government raised the foreign direct investment cap to 49 per cent is likely to be limited due to conflicts on valuations, according to Sanket Kawatkar, principal and consulting actuary of Milliman.

“The difference in expectation of the domestic partner on the valuation of the insurance joint venture and what the foreign promoter is ready to pay, is getting reflected in the delay in stake sales,” Kawatkar said.

He said that only around 3 more incremental stake sales are likely to take place during the current fiscal year as many foreign promoters are using a ‘wait and watch’ method before raising stake in their insurance joint ventures.

“The valuation of the insurance joint venture are going to be derived by not just quantifiable aspects but softer aspects such as the growth that the foreign promoter perceives in the Indian market and comfort with the Indian promoter,” Kawatkar added.

Recently, Nippon Life bought 23 per cent stake in Reliance Life Insurance (part of Reliance Capital) pushing up its holding in the company to 49 per cent with an implied embedded value of over three times.

The deal comes close on the heels of Max India’s sale of 23 per cent in Max Bupa — its health insurance business — to its foreign JV partner Bupa Plc. Kawatkar said that these deals will act as a benchmark for other insurance joint ventures to arrive at valuations and evaluate stake sales.

Published on November 25, 2015

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