Monday, January 23, 2023

Composite licence could encourage life and non-life insurer mergers and acquisitions

Composite licence may boost M&As of life, non-life insurers

 MUMBAI: According to a senior analyst at Moody's Investor Service, granting insurance companies a composite license could lead to further consolidation.

A composite license has been proposed by the finance ministry and the insurance regulator. Current insurance laws that specify separate licenses for life, non-life, and reinsurance will need to be amended if the government decides to proceed with its proposal.

"The overall sector productrisk diversification for composite insurers will improve if we take a macro view. Whether they have the underwriting expertise to turn risk diversification into profits remains a challenge. They will benefit from distribution, which will improve their financial flexibility. Consequently, there will be sufficient investor interest, according to VP-senior analyst Mohammed Ali Londe.

He continued, "One of the ways we see this happening is that non-life companies will merge with life companies so that they can get the underwriting and distribution capabilities" rather than acquiring a composite license.

Londe asserts that by merging with themselves, health insurance and life insurance could achieve rapid success. Life insurance companies in India have been able to improve their solvency and capital buffers overall. Therefore, general insurers facing future pressures on their solvency may find merging appealing," he added.

Although this would require more capital than an M&A, businesses can choose to build a new business by acquiring an existing composite one.

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