MUMBAI: Allowing insurance companies to have a composite licence could trigger a round of consolidation, according to a senior analyst at Moody’s Investor Service.
Both the insurance regulator and the finance ministry have proposed issuance of a composite licence. If the government decides to go ahead with its proposal, it will need to amend current insurance laws that specify separate licences for life, non-life and reinsurance.
“If we take a macro view, the overall sector productrisk diversification will improve for composite insurers. The challenge will remain whether they have the underwriting expertise to convert the risk diversification into profits. One thing that will aid them is distribution and financial flexibility will improve. As a result, there will be enough investor interest,” said Mohammed Ali Londe, VP -senior analyst.
“One of the ways we see this happening is that instead of non-life companies acquiring a composite licence, they will merge with life companies so that they canget the underwriting and distribution capabilities,” he added.
According to Londe, life insurance could manage a quick win in health insurance by merging latter companies with themselves. “Overall in India, life insurance companies have been able to maintain better solvency and capital buffers. As a result, general insurers who have future pressures of solvency might find it attractive to merge,” he added.
Companies can opt to build a new business by acquiring a composite one, but this would require more capital than an M&A.
Both the insurance regulator and the finance ministry have proposed issuance of a composite licence. If the government decides to go ahead with its proposal, it will need to amend current insurance laws that specify separate licences for life, non-life and reinsurance.
“If we take a macro view, the overall sector productrisk diversification will improve for composite insurers. The challenge will remain whether they have the underwriting expertise to convert the risk diversification into profits. One thing that will aid them is distribution and financial flexibility will improve. As a result, there will be enough investor interest,” said Mohammed Ali Londe, VP -senior analyst.
“One of the ways we see this happening is that instead of non-life companies acquiring a composite licence, they will merge with life companies so that they canget the underwriting and distribution capabilities,” he added.
According to Londe, life insurance could manage a quick win in health insurance by merging latter companies with themselves. “Overall in India, life insurance companies have been able to maintain better solvency and capital buffers. As a result, general insurers who have future pressures of solvency might find it attractive to merge,” he added.
Companies can opt to build a new business by acquiring a composite one, but this would require more capital than an M&A.
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