Second consolidation wave starts in insurance sector

The $100-billion Indian insurance sector, comprising life and non-life segments, is showing a second wave of consolidation, with several promoters unable to infuse more capital to grow.

According to industry sources, several small sized players at the bottom, in both life and the non-life segments, are eager to consolidate and the sector would see another two to three mergers in the next one year while some medium-sized players would look at listing.

Many reasons are driving the promoter appetite for divestment. One is that many promoters are in need for capital to fund their other businesses.

On Saturday, the largest private non-life insurer, ICICI Lombard General Insurance, said it would acquire Bharti Axa General Insurance Company’s business in a share swap deal. Post the deal, ICICI Lombard will become the third-largest non-life insurer and the combined entity shall have a market share of around 8.7 per cent on a pro-forma basis.

Shareholders of Bharti Axa will receive two shares of ICICI Lombard for every 115 shares of Bharti Axa, as per the share exchange ratio recommended by independent valuers.

The companies did not disclose the deal value.

“There is a second round of consolidation

happening in the insurance space and you will see two to three more transactions in the general insurance space and some amount of deals in the life insurance space also. Insurers occupying the lower position say 15th to 24th position are eager to consolidate. The medium-sized players with 3 to 5 per cent market share are looking at an IPO,” said an insurance expert.

While the sector was opened to private players more than 20 years ago, barring the top five, most players are still struggling to remain afloat with negligible market share, high operating expenses and losses. Sample this, the top five private life insurers today constitute 65 per cent of the private insurance market, while the remaining 19 private insurers have a combined marke]t share of 35 per cent. The Indian insurers offer a return on equity (RoE) of 10-20 per cent compared to their Asian counterparts that offer RoE of 40-60 per cent.

There are now 24 life insurers, 27 non-life insurers and seven standalone health insurers operating in the market. However, despite investing a significant amount of capital in excess of Rs 36,000 crore, many life insurers continue to face headwinds on their future growth prospects and profitability.

In June this year, IDBI Bank said it would offload 27 per cent in IDBI Federal Life Insurance at a combined value of Rs 595 crore.