HONG KONG/MUMBAI (Reuters) - Canada’s Manulife Financial Corp (MFC.TO) and the Indian affiliate of Standard Life plc are among the suitors to place first-round bids for HSBC plc’s Indian life insurance business, a stake valued around $200 million, people familiar with the matter told Reuters.
HSBC plc (HSBA.L), Europe’s biggest bank, is selling its 26 percent stake in a life insurance joint venture with two Indian state-run banks, as it sheds noncore businesses globally.
The winner of the auction will get immediate access to about 5,500 branches of the two state-run banks. Bancassurance - an arrangement in which a bank and an insurance firm tie up so that the insurer can sell its products to the bank’s customers - is emerging as a key tool to sell insurance products across Asia as the life insurance industry matures in the region.
HDFC Life, a joint venture between India’s top mortgage lender HDFC Ltd (HDFC.NS) and British insurer Standard Life SL.L; Birla Sun Life, a venture between Indian conglomerate Aditya Birla Group and Canada’s Sun Life; and ICICI Prudential Life, a joint venture between India’s No. 2 lender ICICI Bank (ICBK.NS) and Britain’s No. 1 insurer Prudential (PRU.L), are among the bidders to submit first-round bids last week, the people said.
HSBC’s two Indian partners in the venture - Canara Bank Ltd (CNBK.NS) and Oriental Bank of Commerce Ltd (ORBC.NS) - could also pare their stakes, the people said, although no final decision has been made on this. That could push the deal value to $800 million, including a bank distribution agreement, they added.
“The biggest attraction for any Indian or foreign bidder in this joint venture would be the vast distribution network, which is absolutely essential in a country like India,” said one of the sources directly involved in the process. “There are a very few good partnership opportunities available for foreign players in India, this venture is one of them.”
HSBC, HDFC Life, ICICI Prudential, and Manulife declined to comment. Aditya Birla Nuvo, majority owner of Birla Sun Life, also declined to comment.
Canara Bank Chairman R.K Dubey was not immediately available for comment. Oriental Bank of Commerce Chairman S.L. Bansal declined to comment.
The sources declined to be identified because the sale process is confidential.
The sale is part of HSBC’s exit from nonstrategic businesses. It has got out of about 50 businesses globally since Chief Executive Stuart Gulliver took over at the start of 2011, including its recent profitable sales of its $9.4 billion stake in Ping An Insurance Group Co of China Ltd (601318.SS) and its $2.1 billion Panama business.
Indian laws limit foreign ownership in domestic insurers to 26 percent, although the government has announced plans to ease the cap to 49 percent in the future.
“High competition, strict regulations and a moderate growth outlook make this a tough operating market,” Barclays said in a report on the Indian life insurance sector last month. “In this environment, the relatively cost-efficient bank channel becomes a ticket to play.”
Canara HSBC Oriental Bank of Commerce Life Insurance - as the venture is called - was launched in June 2008 and is 51 percent owned by state-owned Canara Bank, 23 percent by state-owned Oriental Bank of Commerce and the remainder held by HSBC.
It ranks 16th in India’s 24-player life insurance sector by first-year premium - a gauge of an insurer’s ability to win new business - which was about 4.07 billion rupees ($74.9 million) as of the end of January, according to the Insurance Regulatory and Development Authority.
The joint venture earned a profit of about 90 million rupees in the October-December quarter, compared with a loss of 74 million rupees a year earlier, according to its website.
HSBC would become the third overseas insurer to exit India’s life insurance sector in the last year. The industry lost a combined $4 billion in the past decade and was hit by a 2010 clamp-down on the sale of lucrative equity-linked products.
State-run Life Insurance Corp of India is the nation’s biggest insurer, controlling about 65 percent of the market.
India’s insurance business was full of promise when it was thrown open to competition in 2000, but instead has been battered by losses, regulatory change, uncertainty and a sharp slowdown in economic growth.
Life insurance penetration in India is about 4.4 percent of the country’s gross domestic product in terms of total premiums underwritten annually, according to the insurance regulator. That compares with 8 percent in Japan and 9.5 percent in Britain, offering new entrants and existing players ample room for growth. The big reforms expected to the change the face of the industry include easing the cap on foreign ownership.
Reporting by Denny Thomas and Sumeet Chatterjee; Additional reporting by Indu Lal PM and Clare Baldwin; Editing by Michael Flaherty and Chris Gallagher