Aviva might exit Indian life insurance JV

Looking for buyer to draw back and cut costs; dull market and uncertainty about FDI cap raise seen as reasons

UK-based Aviva Plc is looking to exit its Indian life insurance joint venture with the Dabur Group, said sources.

The 74:26 JV, in which Aviva Life Insurance has 26 per cent, the maximum permissible under law, is valued at a little more than $500 million (Rs 3,040 crore). The British insurer is in the process of a retreats from less-profitable markets where it has struggled to expand, people familiar with the matter said.

Aviva aims to cut its costs by an estimated $600 million (Rs 3,700 crore) by year-end. It is in the process of hiring corporate advisors to find buyers for its 26 per cent stake in Aviva Life, news agency Reuters reported, quoting unnamed sourcea.

The insurer is considering various options, including selling its stake to the Dabur Group if it fails to find a foreign buyer, a source said. Aviva would be the third foreign insurer to quit India since 2012, stymied by regulations that restrict foreign ownership and fierce political opposition to changing those limits.   “We don't comment on market speculations or rumours as a policy,” said Aviva PLC in a statement. Mohit Burman, a director of Aviva Life who represents Dabur Group, was not available for comment.

The insurer had identified China and India as 'high priority' and 'must win' markets but the move to sell out of India signals a change in that strategy. Last year, Aviva hired former AIA Group chief executive Mark Wilson to lead a turnaround in its business, hit by slower growth in its main market of Europe. Wilson joined after spiralling costs and poor share price performance triggered an investor revolt in 2012 that forced out then-CEO Andrew Moss. This year, Aviva pulled out of its Malaysian insurance joint venture and exited from Russia.

New business premiums of life insurance companies saw a 4.1 per cent drop for April and May, as compared to the same period last year. Private life insurers saw a 7.8 per cent drop in new premium collection to Rs 2,960 crore in this period.

Life insurance penetration in India is about 3.4 per cent of gross domestic product in terms of total premiums underwritten in a year, much lower than the 8.8 per cent in Japan and 8.7 per cent in Britain.  

Sector experts said uncertainty over the amendment in the Insurance Act, which would increase the foreign direct investment (FDI) cap in the sector from 26 per cent to 49 per cent, is a primary reason for the exit. Insurers were also hit by a 2010 clamp on the sale of lucrative equity-linked products. Foreign firms remain overshadowed by state-owned Life Insurance Corp of India, which holds 75 per cent market share.  

Foreign insurers — including Britain's Standard Life, Canada's Sun Life, Prudential, Japan's MS&AD, Italy's Generali and Dutch insurer Aegon — operate in India through JVs with local companies. HSBC recently launched a process to sell its 26 per cent stake in an insurance JV with two Indian state-owned banks. Dutch banking and insurance group ING  and New York Life have also exited their India insurance JVs.  Profit at Aviva's India unit fell by a little more than half in the financial year ended March to about Rs 32 crore, from Rs 73.6 crore in the same period a year before.

Aviva Life collected new premiums of Rs 687.49 crore for the year ended March 31, compared to Rs 799.52 crore collected in financial year 2011-12, showing a drop of 14 per cent. Life insurance industry saw a 6.3 per cent drop in new business premiums for financial year  2012-13.