The Indian insurance regulator's likely move to limit the bancassurance business will weigh on private insurers, and their distribution partners proving to be detrimental to growth, according to brokerages.
Stocks of insurance companies slipped in Thursday's session after reports that the Insurance Regulatory and Development Authority of India might limit the parent bank's share in insurance companies' total bancassurance business to 50%.
Bancassurance is an arrangement between a bank and an insurance company, through which the insurer can sell its products to the bank's customers.
Life insurers would need to either control sales by parent banks or add large bank partners to reduce the parent bank mix if the proposed cap is implemented, according to Bernstein.
This would be bad for private insurers and their distribution partners as private life insurers rely on the bank channel—dominated by their parent banks—to drive sales, the brokerage said.
The proposal will trigger a "lot of pushback from insurers" and also has implications for fee income for banks involved in insurance distribution, Bernstein said. "If enacted the proposal would prove difficult to implement and detrimental to growth."
The new limit would likely be negative for annual premium equivalent growth, Morgan Stanley said. "We also need to see if the regulator will include group credit life business within bancassurance caps." Stocks likely to stay under pressure until clarity emerges, it said.
Negative for SBI Life Insurance Co., HDFC Life Insurance Co. and Max Financial Services Ltd., according to Bernstein. Life Insurance Corp., ICICI Prudential Life Insurance Co. and PB Fintech Ltd. stand to gain, the brokerage said.
However, insurance stocks gained in early trade on Friday after the Finance Ministry proposed to raise the foreign direct investment limit to 100% from 74% earlier.
This is undertaken to ensure accessibility and affordability of insurance to citizens, foster expansion and development of the insurance industry, and streamline business processes, the statement said.
Shares of New India Assurance Co. rose the most followed by Life Insurance Corp. of India and Go Digit General Insurance Ltd.
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