New York Life International, LLC, the overseas arm of New York Life Insurance Co, is bullish on its Indian life insurance joint venture with Analjit Singh’s Max India. New York Life International Chairman and CEO Richard Mucci, who was in India to attend a board meet of the JV company, told Prashant K Sahu and Siddharth Zarabi that the company is looking forward to a change in Indian insurance laws that would allow it to increase its stake to 49 per cent in Max New York Life. Excerpts from an interview:
What is the impact of the financial turmoil in the US on New York Life?
Nobody is immune to the crisis, but it has had a minimal impact on us. Our balance sheet is strong and we have $14 billion of surplus cash, more than what we require. We have got the highest rating. New York Life is a highly diversified company. We anticipated that there will be some problem in the mortgage market – such as those affecting Freddie Mac and Fannie Mae among others. So, we have no equity or debt exposure in those companies. We have been in the business for 163 years and have seen all kind of things happening in the US economy. Since we are a company owned by policyholders, we do not take extra risks.
What is your strategy for expanding the Indian business?
We are building a strong distribution channel, especially our agency system. Both the shareholders (Max and New York Life) are supportive of this strategy. We are very bullish about the future of Max New York Life. We are pleased with the progress we have made thus far on building a distribution channel and growing our business. We would like to see the company in the top five in terms of premiums in the next three to four years.
Would you like Max New York Life get listed?
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That is a possibility in the future, although we do not have any such plan at present. Right now, both the partners are financially strong and are able to support the capital needs of the company. We have extra cash in hand to invest in new assets such as Max New York Life.
Has Max New York Life started making profit?
No, it is still losing money on statutory basis and that is not unexpected. In life insurance, you need to invest capital to meet running costs, issuing policies and distribution costs among others. The company is growing very rapidly. But we are building value. We are looking at future value, revenue streams from these investments. We may break even in another three-four years. The target has been pushed back by a couple of years as we found more opportunities to grow. We are investing in growth.
Do you plan to increase stake in the company?
We are a supporter of increasing foreign investment cap in insurance. We have the option to participate more in Max New York Life’s future. Currently, we own 26 per cent and have the option to increase it to 49 per cent, subject to increase in foreign investment cap in the sector. The hike in foreign investment will bolster the capital. We would like to invest more in the company as we think it is a good investment. We have operations in six Asian countries and India is our fastest growing operation.
Are you infusing more capital in the joint venture?
We are putting in more capital every year. The equity capital of Max New York Life will be increased to Rs 3,600 crore by 2011, from Rs 1,432 crore now. Additional investments will be utilised for expanding the business. By 2011, we plan to have 1,600 offices from 408 now, 3,50,000 agents from 54,000 and 10 million policy holders from 2.85 million now. The number of employees is also likely to go up to 25,000 from 13,000 in the period.
What is the reason for altering the joint venture agreement with Max?
The change in terms of New York Life to increase its share by 24 per cent as and when allowed by the law is rooted in market reality. Under the revised arrangement, New York Life has an option to buy up to an additional 24 per cent stake and increase its shareholding in Max New York Life. This option will be valid for eight years and priced on a fair market value-based formula, less discount of 10 per cent, as against an earlier preferential formula. This is fair to the shareholders of Max India as they would get a share of the appreciation in their investment in Max New York Life Insurance.