LIC set to buy 40-49% stake in ManipalCigna; primary and secondary deal values company at Rs 3,500 crore, ET BFSI

Life Insurance Corp of India (LIC) is finalising phrases to purchase a major minority stake in Ranjan Pai-led ManipalCigna Well being Insurance, individuals conversant in the matter mentioned.

It marks the state-owned big’s entry into the quickly rising standalone home medical insurance market. The transfer will enable LIC to faucet a section that accounts for 37% of the nation’s Rs 3 lakh crore basic insurance coverage market, business executives mentioned.

Three-way Partnership
Given LIC’s distribution power and stability sheet heft, the transfer is about to disrupt the medical insurance market as soon as the deal is accomplished, they added.

The state-run insurer, with Rs 4.97 lakh crore market capitalisation, will purchase 40-49% of ManipalCigna, valuing it at Rs 3,500-3,750 crore, making it a three-way partnership with Pai’s Manipal Training & Medical Group and Cigna Company of the US.

The latter two are presently 51:49 companions within the enterprise.

LIC will probably be primarily infusing contemporary capital, diluting the 2 current shareholders. The transaction may also contain a smaller chunk of secondary share gross sales by the 2, mentioned the individuals cited above.

“LIC already has an in-principle board approval to purchase a minority stake within the firm. The precise quantum of stake sale remains to be getting thrashed out,” mentioned an government within the know. “There are authorities representatives within the LIC board, so the ultimate approval course of mustn’t take a lot time. Earlier, funds like KKR have been however with LIC, it grew to become a strategic dialog and never a monetary funding.”

All three are anticipated to have board illustration proportionate to their shareholding.

“Will probably be a board-run firm. That’s more and more being the enterprise mannequin of Pai throughout a lot of the sectors he operates in, together with flagship healthcare, the place Singapore’s Temasek is the one largest shareholder,” mentioned one other government. “Right here too, LIC might find yourself changing into the one largest shareholder among the many three, though it has not but been sealed.”

LIC managing director and chief government Siddhartha Mohanty not too long ago mentioned the state-owned firm was seeking to enter the medical insurance house and anticipated to finalise a deal by March-end. He didn’t elaborate. “LIC is within the ultimate phases of discussions on a medical insurance proposal, because it sees the sector as a pure enlargement alternative,” he had mentioned on the sidelines of the International Convention of Actuaries earlier this month.

Pai and an LIC spokesperson didn’t reply to queries.

ET was the primary to report that LIC was eyeing a 50% stake within the enterprise on November 28.

Consultants mentioned LIC’s entry into medical insurance will intensify competitors within the sector, which is rising at 20% yearly, and speed up market progress by leveraging its 1.4 million brokers and an unlimited distribution community.

Standalone medical insurance is already the fastest-growing non-life insurance coverage section, outpacing motor, hearth, marine and journey insurance coverage. The section’s share of gross direct premiums has expanded from 24.6% in FY18, to 37.1% in FY24, with an annualised progress charge of 19.5%. The retail section is rising even sooner, at 22% yearly.

Listed well being insurers commerce at 1.5 instances to 2.5 instances their gross written premium (GWP).

Niva Bupa Well being Insurance coverage, with a Rs 5,600 crore GWP in FY24, has a market capitalisation of Rs 13,000 crore, whereas Star Well being & Allied Insurance coverage, which wrote Rs 15,251 crore in premiums, is valued at Rs 20,450 crore. ManipalCigna, which reported Rs 1,691 crore GWP in FY24, might be valued at Rs 3,500 crore based mostly on this metric. A 49% stake buy would value round Rs 1,700 crore.

The corporate’s GWPs grew 9.74% to Rs 983 crore within the first seven months of FY24, giving it a 0.53% market share. The corporate operates by 70,000 brokers, 500 distribution companions, and greater than 9,000 healthcare amenities. Its solvency ratio stood at 1.66 instances towards the regulatory requirement of 1.5. It reported a web lack of Rs 131 crore in FY24, narrowing from Rs 200 crore within the earlier 12 months. Its mixed ratio, a key measure of profitability, improved to 110.82% in FY24, from 115.9% in FY23 and 130% in FY22. The expense ratio, which signifies the proportion of premium used for operational prices, stood at 46% in FY24.

Medical insurance protection of the inhabitants is low, with premiums accounting for simply 0.31% of GDP. Solely 38.5% of Indians have insurance coverage protection, whereas out-of-pocket bills nonetheless account for 45% of the nation’s healthcare spending.

Together with new entrant Narayana Well being, India has seven standalone well being insurers. Prudential Plc not too long ago introduced that it’s partnering with the HCL Group’s Vama Sundari Investments to launch a standalone medical insurance enterprise in India.

“With banks lowering their bancassurance footprint because of regulatory pressures and unified licence that provides an insurer the flexibleness, that is the most effective time to scope out alternatives,” mentioned an insurance coverage CEO who didn’t wish to be named. “ManipalCigna will get massively rerated with LIC and may leverage their community. It’s a win-win for all.”

LIC, the sixteenth largest insurer globally by web premiums of $57 billion as of FY22, has largely caught to life insurance coverage in contrast to US-headquartered UnitedHealth Group, the world’s largest insurer by web premiums at $257 billion.