Plans

Experts see many such arrangements in the future to boost sales

PROMOTERS of several life insurance companies are willing to dilute their shareholding to banks so as to lock them to sell the company’s insurance policies for a longer term. This became evident when nearly a dozen life insurance companies responded to the expression of interest floated by Punjab National Bank (PNB) to buy equity stake in an existing life insurance company.
Companies that evinced interest included Max New York Life (MNYL), Metlife, Aviva Life, Bharti Axa Life, HDFC Standard Life, Birla Sun Life, DLF Pramerica, Aegon Religare, and Future Generali. PNB bought 30 per cent stake in Metlife for an undisclosed amount.

Senior officials of most life insurance companies told Financial Chronicle that they are willing to dilute a minor stake if the bank brings in value to the business model.

Monish Shah, director at Deloitte India, said, “We foresee many such arrangements happening. Life insurance companies are capital starved and a bank will not only bring capital but also push the insurance company’s products to its

customers. On the same lines, banks benefit by participating in the insurance growth story.“
Mayank Bathwal, chief financial officer at Birla Sun Life, said, “We have longstanding and value-based relationships with key partners like Citigroup, Karur Vysya Bank, Deutsche Bank....we are keen to partner opportunities that will help us leverage the India insurance growth story.“

Rajesh Relan, managing director Metlife Insurance, said, “It was about getting a distribution partner through equity participation. The industry is facing three problems -capital, distribution and equity. Such arrangements (PNB buying stake in Metlife) allow existing insurers and banks get value.“

An official of HDFC Standard Life said, “PNB has a vast branch network and customer base that we wanted to use. We are open to future tie-ups if there is value creation for us.“

Rajesh Sud, chief executive officer and managing director of Max New York Life Insurance, said, “With PNB, we were looking at a long term quality distribution arrangement with a large bank being made available.“

Last year, Axis Bank bought 4 per cent stake in MNYL, which has helped the insurer improve its market share. MNYL, which was at the seventh position at the time of tying up with Axis Bank, is now at third position. According to the arrangement, Axis Bank will distribute MNYL 's insurance policies for 10 years effective May 1, 2010.