ICICI FDI in Insurance

8/3/2019 ICICI FDI in Insurance

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V Vaidyanathan, MD and CEO of ICICI Prudential Life Insurance, said he was hopeful that thenew government would clear insurance reforms within three-six months. "There is no ideological

reason for insurance reforms to be postponed," he said, adding that ICICI Pru was looking atpicking up stake if the foreign direct investment (FDI) limit was relaxed. "We may also look at

the initial public offering (IPO) route for capital raising."

The growth path for the insurance industry continues, Vaidyanathan said, adding that the processof valuations of the insurance business was underway.

Here is a verbatim transcript of the exclusive interview with V Vaidyanathan onCNBC-TV18. Also watch the accompanying video.

Q: You would hope now that with the kind of composition this government has foreign

direct investment (FDI) of 49% can certainly become a reality soon?

A: Yes, very quickly. We are very hopeful and that will do well to the industry.

Q: Whether global insurance companies are in a position to bring in that money or the

additional stake at good valuations. Do you think that might be a hurdle or that may follow

easily?

A: That may follow because end of the day the opportunity in India is so large that many of thesepeople would not want to miss it out for e.g. the insurance industry garnered close to about Rs

2,00,000 crore last year, I wouldn't be surprise if this number goes to anywhere close to about Rs4,00,000 crore in the next three-four years. That's an opportunity you just can't miss. So my

sense is that many of these organisations of course the magnitude of capital to come in is quitesignificant but they will garner it to bring it in.

Q: How swiftly can the government move on this because this was a bill, which was

introduced in the Rajya Sabha last July, so it's not like a new reform that needs to happen?What is your sense of a timeline by which they can move on this?

A: The way we are looking at it, we are saying that there is no ideological reason why theyshould get held back anymore. In fact, the former Finance Minister Mr. Chidambaram had talked

about it only a couple of days ago both on the pension side as well as insurance side and he saidthis could be around the corner. So our sense is that anywhere between the next three-six months,

we could expect some good news on this front.

Q: What would be your company's stance if that legislation were to come through? How

swiftly would you move to accommodate 49% FDI?

A: Our partners have expressed an interest to part take in this increase up to 49%. A lot will

depend upon the amount of capital they are willing to bring in and the amount of interest wehave in the markets in general but two-three combinations available to us; one, the first priority

is of course to share this with Prudential because they have been part of the business and that'sthe kind of nature of the arrangement at the current market valuation. The other is the market or

an initial public offering itself or we could time this between each other. So these are threecombinations we are working on. But we should be taking call on this soon.


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Q: The IPO option is very much there given the recovery in the market?

A: Very much there. But that's just one of the options as I said. The other one is for the partner to

take their own stake from 24% to 49% that opportunity is there as well.

Q: Prudential would have recourse to that kind of capital now to bring in their additional

stake?

A: As I said the opportunity is too large to miss so they should be in a position to bring out this

kind of capital.

Q: Since you took over have you worked on the valuation numbers because in 2008 there

was one valuation done which was at bout USD 14 billion for the company ever since the

whole global market structure has changed but does that valuation hold; is it lower, is it

higher. What would your sense be now?

A: A lot has changed since the time many of these valuations came out but one thing is certain

that the growth path for the insurance industry continues and I think there is a lot of confidencein the markets in general and in our partners about the opportunity of growth. So we have not

gone about revaluing it in fact the process is certainly underway and this process is continuingprocess. We keep undertaking these valuations.

Q: Even if you did a deal after a clearance comes through would it be at a sub-USD 10

billion or more than USD 10 billion valuation you think, off-the-cuff?

A: It's tough for me to take a call on this or even comment on it right now because this process isunderway but the important thing the way we look at it is that is the market for real it is: is this

company for growing well and is that growth for real it is and if these two conditions are true Iwould say that the overall interest will sustain in India and in ICICI Prudential.

Apart from this, life insurance I would say that our own interest and eye is out on the way theeconomy itself is rolling out and will play out over the next few years. It certainly looks as if the

next four-five years now the growth rate looks as if things will play out very well again. So a lotof the life insurance industry and the insurance industry in general depend a lot on how the

economy place itself out and that's looking like good news.

Q: What is your total equity exposure at ICICI Prudential Life at this point and how much

do you expect to invest in the equity markets over the next 12 months because LIC, the

largest public sector entity in this space has just put out a much enhanced target for next

year?

A: Our overall corpus is close to 32,000 crore. I do not know the exact split between these and

our view on the equity market now has certainly turned positive. We now believe that this is nowsustainable story over a long period of time. So to the extent that we have kept certain amounts

of money in cash, a portion of that will start going into the markets again.


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Q: You are saying that you are not cautious at ICICI Prudential Life on the markets any

more. That you won't book profits but you will be deploying cash on the other hand?

A: Our investment manager would probably be better to ask this question. But my broad sense

on this is that it is trying to be reasonably optimistic. Now, of course you don't deploy all your

cash straight away in equities, it doesn't work that way because we got to watch the market, seethe global cues because it's not that the global issues have completely receded. I think there iscertain amount of caution in the air with regard to what's happening on the global side. But the

important thing to note is: are we looking good on the domestic front? Probably the answer isyes. Therefore is our prospect looking better? The answer is yes, and therefore to that extent will

incremental money of our corpus start moving towards equity? The answer is certainly yes.

Q: What's happening with the insurance sector per se? Are you seeing collections pick up

again because there was a period in January-March where insurance companies were

saying maybe collections are flagging off a bit. Now with this development do you see

acceleration again?

A: Yes, what happen was a number of investors were invested when the Sensex was between

20,000-18,000 or 17,000 definitely felt that the value of their holdings has come down. Of courseinsurance companies not only provide asset management but insurance companies primarily

provide life protection and health protection but that's the other part of the story. But back toyour question there was a certain amount of holding back of money and renewals of premiums

and so forth particularly in the period of October-December there was a slowdown somehow bythe period of January-March probably because the economy itself was improving, and money

started flowing back.In fact, March was a terrific month. But it would be fair to say that April-May hasn't been that

good either. Our sense is that with the equity markets now holding up, looking like quite stableand the confidence of people now returning now to the rest of the next six-nine months should

look quite good for the insurance industry. It is fair to say that this industry which probably de-grew last year could grow this year anywhere about15% or so.

Q: You expect the pickup to start this month itself or May-June?

A: We are already seeing the pickup. The figures of May are looking good already. In fact, it's a big jump over what the month of April was. So sequentially month-on-month, we are seeing

improvement and that's good news. If we were to project this to the rest of the year, the figureslook really quite good.

Q: What's making you optimistic about the fact that even the economy will start moving?

Is it that you will have a big Budget and infrastructure spending and reforms kick off in a

big way what are you predicating your better scenario or things have improved, scenario

on?

A: There are two factors; a lot has been talked in the last few days as to what has suddenlychanged? In three months, nothing has exactly changed; India is the same, the economy is the

same, the trillion dollar economy is the same and growth rates haven't substantially beenupgraded otherwise. What has substantially changed is that confidence. Now you talk to business


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people across the board most people are now saying that we project good numbers, we areplanning to hireagain and some optimism has come. So number one is confidence and I can tell

you it's a real big thing.The other factor which has made significant difference to our life in the last six-nine months is

the liquidity particularly after January after the Reserve Bank of India started infusing liquidity

initially people were not even quite sure what that Rs 2,00,000 crore of cash reserve ratio releaseto the system will do. But the way it now appears that all other factors; the liquidity that came back to the market is coming back in the form of consumption of goods, services, cars and

consumer durables and that's good news for the economy. All in all, therefore I would sayliquidity has a very significant role to play in the way this thing has turned out to be and of

course last three days confidence has been a big factor as well.

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ICICI FDI in Insurance