‘Insurance industry will be hot bed for M&A deals’

Hyderabad: In a development that can impact the consolidation aspects of Indian life insurance industry, the valuation of industry players is increasing rapidly and will impact the capital requirement of stake holders in the existing joint venture arrangements, according to Jean Francois Izac, Director (Mergers & Acquisitions), Aviva Plc.

“Going by the current trends, Indian insurance industry will be hot bed for M&A deals once the upper ceasing on foreign direct investment is relaxed or removed,” Izac told Business Line in Prague recently.

Basic parameters

The four basic parameters of insurance value chain - distribution, risk management, administration and asset management were strong in India taking up the valuations of different companies, he said.

“Though the methodologies of valuation are not uniform, globally fundamental analysis (of discounted dividends, qualitative issues, and embedded value/appraisal value including actuarial analysis) and reality check (of comparables, competition, precedent transactions and ROI) are being taken up. The fact is that the Indian industry is staging impressive growth,” he said.

Citing a Merrill Lynch source, Izac said by FY09, the valuation of ICICI Prudential was currently at $7.2 billion, Bajaj Allianz at $3.6 billion, SBI Life at $2.3 billion HDFC Standard at $2.2 billion and Max New York Life at $1.3 million.

“While the figures are more indicative, they give a hint of what is in store for the industry ahead,” he observed.

FDI norms

Elaborating further, he said on the expected re-jig of FDI norms by the Government soon, the companies were focusing more on valuation procedures.

In countries such as the UK, the valuation was increasingly done in the embedded value method and there would be lot of action in India on this front, he added.

On Aviva’s M&A plans, Iazc said the company had been adopting joint venture and acquisition route globally.

“We are open to acquisitions in Europe,” he added.

Source: Business Line