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The insurance sector will continue to see M&A deals, new entrants
September 18,2022 16:58
Mergers and acquisitions will continue to be part and parcel of the insurance sector, which is a highly capital-intensive sector, and can accommodate new entrants with specialized skills sets and long-term vision.

Past developments in the sector and the recent decision of the National Company Law Tribunal (NCLT) in Mumbai, allowing Exide Life Insurance to merge with HDFC Life, are a sign that companies lacking the requisite expertise may exit the sector.

In order to equip itself with the complexities of mergers and acquisitions, the Insurance Regulatory and Development Authority of India (IRDAI) has started looking for consultants who can carry out valuation of government-owned and private sector insurance companies, and train its officials about valuation methodology and processes.

Market players and analysts believe that the sector has significant potential for growth and there will be new entrants in the insurance sector and merger and acquisition (M&A) deals.

The sector, like others, has witnessed some merger and acquisitions in the past and will continue to witness them and newer opportunities will emerge in the future.

Players with sound underwriting practices, strong financials and right management practices will continue to grow in the long-run, said Anand Pejawar, Deputy Managing Director, SBI General Insurance.

Pejawar further said India's insurance landscape is vast and there is immense scope and enough volume for players to co-exist. Given the scope for growth in the sector, both large and niche players can continue to operate in the market.

There are currently 24 life insurance companies and 31 non-life or general insurance companies, including specialized companies such as Agriculture Insurance Company of India Limited and ECGC Limited.

There have been consolidation in the insurance sector in recent times -- Bharti AXA General Insurance merger with ICICI Lombard General Insurance was completed in September 2021 and HDFC Ergo acquired Apollo Munich Health Insurance Company in 2020. In 2016, HDFC Ergo General Insurance acquired a 49 per cent stake from L&T in L&T General Insurance.

Avinash Singh, analyst with Emkay Global Financial Services said ... given the advantage from economies of scale, in all possibility, the top 10 players in life and general will command 90 per cent or more of the profit pool.

Experts were of the view that the main requirement in both life and general insurance is to bring in more capital and invest the capital into developing the business.

M&A, while useful in building scale does not necessarily bring more capital to the business. So, I think there is the opportunity for many more insurers to enter, as opposed to a consolidation that is implied in an M&A, said Kapil Mehta, Co-founder, SecureNow.

Economies of scale are important but that can also be achieved by business growth rather than just M&A, Mehta added.
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