Mukesh Ambani-controlled Reliance group is in talks to buy out Bharti in the life insurance firm Bharti Axa Life. Reliance, which has spelt out its aspirations to build a financial services empire, is understood to be in advanced stage of negotiations with the Mittals-led Bharti which has been looking for an exit for the past one year.At 9:45 am, shares of Reliance Industries were trading 0.53% up at Rs 979 on the Bombay Stock Exchange .
According to a Reliance insider, "the group is indeed keen to enter insurance and has been approached by two to three companies, but is yet to finalise a partner." A Reliance spokesperson declined to comment on the matter while a Bharti spokesperson said, "As a policy, we do not comment on rumours or speculation".
Bharti Axa Life is one of the struggling players in the insurance industry with a market share of 1.1%. The firm, a joint venture in which Bharti owns 74% equity and the Paris-headquartered Axa group holds 26%, started operations in 2006. The company's new business premium income has dropped 17% to Rs 364 crore in 2010-11.
For Reliance, financial services and particularly insurance, are capital intensive avenues to deploy its large investible surplus generated by the petrochemicals business. A month ago, Reliance Industries, the country's largest private sector company, announced a financial services joint venture with New York-based DE Shaw .
"Life insurance with its huge opportunities is an obvious area that it will look into. Unlike general insurance where the key element is risk, the life business is a combination of savings and risk," said a senior investment banker.
At the peak of the stock market boom, the life insurance industry emerged as a formidable domestic investor. Fuelled by investor interest in Ulips, a market-linked product, insurance companies were competing with foreign portfolio investors in the local securities market. In 2007, of the total premium income earned by insurance companies, 80% was Ulip investment; of this close to 70% went into stocks.
While Ulip inflow has fallen as expenses have been capped and agents are less eager to promote the product, for investors Ulip has transformed into a more transparent product. "For a group taking up insurance business, traditional products like endownment are equally alluring with their higher margins," said a senior official of an insurance company.
Reliance's entry into financial services services is a development that is closely tracked by corporates and markets. It's perceived that the group will build businesses like non-banking financial services, insurance and asset management where entry barriers are low compared to banking.
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