Canadian firm Manulife and Mahindra & Mahindra (M&M), an Indian automaker with interests in financial services, have signed an agreement to form a 50:50 life insurance joint venture (JV) with a total capital commitment of up to Rs 3,600 crore each totalling Rs 7,200 crore.
Photograph: Fred Thornhill/Reuters
Each partner will invest Rs 1,250 crore ($140 million) in the first five years.
The new business is expected to apply for a licence with the Insurance Regulatory and Development Authority of India in two to three months and aims to commence operations in 15 to 18 months.
It will mark Manulife’s entry in Indian insurance.
M&M will invest its share of capital through dividends earned from Mahindra Finance, a non-banking financial company (NBFC) of the group.
Only one-third of the dividend M&M earns from Mahindra Finance will be required for funding the JV.
With Manulife’s global reinsurance expertise, it is possible that the total capital requirement might come down as well.
The idea is to create a business that in 10 years will have a valuation of Rs 18,000 to Rs 30,000 crore, M&M’s management said, adding that the numbers are conservative and there could be significant upside.
M&M already has a JV with Manulife called Mahindra Manulife Mutual Fund in asset management.
“Our vision is to be the number one life insurer in rural and semi-urban India because of the footprint that Mahindra Finance enjoys.
“We will be a significant player in urban India as well,” said Anish Shah, managing director and chief executive officer (CEO), Mahindra Group.
“There we would want to take a leadership position in protection solutions, one that India is under-penetrated in today.
“There are specific reasons why we feel that we are well-placed to be able to do that despite the competition that we have in the space today in urban India,” he said.
“The control over distribution is important, which we have with Mahindra Finance.
“A very strong capability around underwriting, products, around reinsurance, and this is something that our partner brings, Manulife is one of the largest and among the most respected life insurers in the world, and they are going to be our equal partner,” Shah told reporters.
Shah said the life insurance JV should break even in perhaps 10 years’ time.
“I think once we start operations and once we start seeing how things are moving, we will have a better sense of the exact time.
“But at this point, I would just say that we will break-even much faster than what most others have done,” he said.
“For us, it’s not just about 10 years.
“It’s about creating a business that’s a very strong and meaningful value add for the group over a longer timeframe as well.
“That’s where this business will be very well positioned.”
The JV will “sit under” M&M but it will have a strong Mahindra Finance tie with which it has signed a distribution agreement.
“The reason for it to sit in Mahindra is that it is much easier to access the synergies across.
“From a regulatory standpoint, the NBFC regulatory landscape is evolving significantly.
“And as you see with insurance companies that have multiple NBFCs, all of them are held by the parent and not by the NBFC for that reason,” Shah said.
The JV may consider entering the non-life business once regulations allow for a composite licence. India has 24 general insurance companies and seven standalone health insurance companies.
Commenting on competition, especially from state-owned Life Insurance Corporation of India, Shah said, “We believe that this is a huge space. And there is room for many to play, as we have seen in the banking sector as well as NBFC sector.
“And the customer base we have, the connections we have, the understanding we have of markets is something that is going to help us play in a very meaningful way here.”
There are 27 life insurance companies in India.
Several of these are JVs with foreign firms, such as ICICI Prudential Life Insurance (ICICI Bank and Prudential Plc), Tata AIA Life Insurance (Tata Sons and AIA Group), Aviva Life Insurance (Aviva International Holdings and Dabur Invest Corp), Ageas Federal Life Insurance (Ageas Insurance and Federal Bank), Generali Central Life Insurance (Generali Group and Central Bank of India), and PNB MetLife Insurance (Punjab National Bank and MetLife Group).
Another notable JV is Star Union Dai-ichi Life Insurance, formed by Bank of India, Union Bank, and Dai-ichi Life. Angel One has announced plans to enter a joint venture with LivWell to establish a digital-first life insurance company.
India’s life insurance market is worth more than $20 billion in new business premiums, growing at a 12 per cent compound annual growth rate over the past five years.
However, a high protection gap and low insurance penetration continue to provide significant long-term growth potential.
These tailwinds position India to become the world’s fastest-growing life insurance market over the next decade, on track to become the fourth largest globally.
“Today marks an important milestone as we seek to enter one of the world’s fastest growing insurance markets — India.
This will further strengthen our diverse portfolio and position us for tremendous growth in a mega economy of the future,” said Phil Witherington, president and CEO, Manulife.
“We have a trusted partner in Mahindra Group, with whom we already have a successful asset management collaboration, and we see tremendous opportunity to build on our efforts by leveraging their deep distribution network alongside our industry-leading agency distribution and insurance expertise,” he said.
Kotak Investment Banking acted as financial adviser and AZB & Partners acted as legal counsel to Mahindra Group for the new JV.
Debevoise & Plimpton LLP acted as legal counsel to Manulife.
