Alpha Ideas

(Disclosure:I am market making in the shares of ICICI Pru Life)

The passage of the Insurance Bill in the Lok Sabha is most welcome as it would spur the sector’s growth and penetration of insurance, and bring in Rs.50,000 crore capital, said a top official of Life Insurance Council.

“We have been wanting this for a very long time for industry’s betterment. Life insurance is capital intensive and needs large doses of the same for the industry to grow,” V. Manickam, secretary general, Life Insurance Council told IANS.

The proposed law increases the foreign direct investment (FDI) cap to 49 percent from the current 26 percent, a major demand of the industry players.

Manickam said that if the FDI limit is increased more foreign players would come to India as the uninsured population in the country is around 30 crore.

He said the upward revision in the FDI limit is expected to result in additional capital infusion of around Rs.50,000 crore in five years’ time.

Manickam hoped that Rajya Sabha too passes the bill so that it becomes a law.”The total capital of the life insurance industry is now at around Rs.30,000 crore of which the foreign component is 26 percent. On the face value a minimum of Rs.7,500 crore additional fund is expected to come,” Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services told IANS earlier.

However, dilution of equity stakes does not happen at par values, he remarked.”As per market value, an additional infusion would be around Rs.55,000 crore,” Parekh added.

According to him, life insurers that are 10 years’ and above old would get a valuation of seven to eight times of their original investment whereas for companies that are around seven years’ old it will be six times and for those which are much younger the multiple will be two to four times.-from Deccan Herald