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Friday, April 29, 2011

Mukesh Ambani led RIL looking to enter the Insurance industry

If newspaper reports are to be believed, Mukesh Ambani led Reliance Industries is looking to buy out Bharti's stake in Bharti Axa Life and General Insurance companies. Bharti has been looking to sell its stake in the insurance venture over the past year. Given the pedigree of the two partners- Bharti and Axa-it must be said that one would have expected these two insurance ventures to have generated more premium income. Bharti Axa Life has a market share of about 0.3% as far as new business premiums in the financial year 2010-11 are concerned. However, Bharti Axa Life is in the final shortlist of three companies for the Bancassurance tie up with Punjab National Bank, which can be a game changer.

On the other hand, Mukesh Ambani led Reliance Industries has been looking to enter the financial services space in a big way after its non compete with the ADAG group came to an end. It has partnered with DE Shaw and at one time was also looking at acquiring IL&FS. Buying Bharti's stake and entering the high potential insurance business in India makes perfect sense for Reliance's ambitions in the financial services area. In fat, Anil Ambani led ADAG had also entered the insurance space by buying out AMP Sanmar, which was a life insurance company. Currently, Reliance Life is ranked 6th among the private life insurance players in India with a new business premium of Rs 3035 crores in FY 2010-11 and has a 2.4% market share in the life insurance industry. Reliance Industries, which is known for the scale at which it operates, might look at acquiring a substantial market share in the insurance area in India through this particular transaction.

Whether the transaction goes through or not, time will tell. But prima facie, it seems a very good vehicle for Reliance to enter into the insurance industry without going through all the license related delays. If RIL does indeed join the insurance industry in India, even LIC will be forced to take notice and observe closely.

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