Nippon-Rel Life deal gives a boost to insurance sector

Mumbai: Even as Japan’s Nippon Life Insurance signed a definitive agreement on Monday to acquire a 26% stake in Reliance Life Insurance for R3,062 crore, Indian life insurance industry, which is going through structural adjustments, received a big boost.

Reliance Life has so far invested R3,000 crore in its operations and has effectively recovered its entire investment though the single deal.

This transaction pegs the total valuation of Reliance Life Insurance at approximately R11,500 crore.

This transaction which is subject to necessary regulatory approvals is the largest foreign direct investment (FDI) in Indian financial services sector. This also marks the beginning of joint venture culture for financial sector operations of Anil Ambani Group.

The group’s general insurance company Reliance General has already proposed to take over Royal Sunderam Alliance. The proposed deal is awaiting Irda’s nod, which is expected to give approval after it finalises the M&A norms for general insurance sector.

Buoyed by...the Reliance Life-Nippon deal prominent research houses have re-rated the Indian insurance industry.

“The deal valuations are significantly higher than our estimates and implies 60-85% higher valuations versus our current valuations,’’ said JP Morgan.

This is positive for banks with insurance subsidiaries. The deal valuations imply a significant premium to our and consensus valuations , even after adjusting for M&A/strategic premia. “ICICI Bank and HDFC are the most impacted, while Kotak and State Bank of India are also positively impacted. Aditya Birla Nuvo and Max India would also be larger beneficiaries as insurance is the largest contributor to their valuation,” Sam Ghosh, CEO of Reliance Capital, said.

“We believe we can develop a strategic partnership to help Reliance Life become a world class company,” said Kunie Okamoto, president, Nippon Life Insurance.