Rotterdam-based Insurance giant – AON BV, which had a JV with Global Insurance Brokers Pvt. Ltd., has announced its decision to exit the India market citing regulatory issues.
AON BV had been in trading relationship with its existing Indian partner for several decades. However, with a view of establishing a long-term commitment in India to tap the market potential, a formal 26%?74% JV was inked with its Indian partner in 2003.
It is not clear as to what could be the reason for its abrupt exit. But speculation is rife that the exit could be due to the on-going tussle over “fair and reasonable” pricing and valuation for hiking the stake and the offer price in case of an exit. Adding to the woes has been the latest IRDAI guidelines, according to which the right to appoint the Chief Executive Officer or Managing Director or Principal Officer has been bestowed upon the Indian partners.
The RBI circular on transfer of share involving FDI states, “Where the shares of an Indian company are not listed on a recognized stock exchange in India, the transfer of shares shall be at a price not less than the fair value worked out as per any internationally accepted pricing methodology for valuation of shares on arm’s length basis which should be duly certified by a Chartered Accountant or a Sebi registered merchant banker.
As far as the exit price is concerned, it says “the guiding principle will be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/ agreement and shall exit at a fair price computed as above at the time of exit subject to lock-in period requirement”.
According to the Insurance Laws (Amendment) Act 2015, the foreign investment cap in the insurance sector has been increased to 49 per cent from the earlier level of 26 per cent to accelerate growth in the insurance sector. However, how does the exit impact the insurance sector is yet to be seen. Since the opening up the sector, at least six insurance companies have expressed interest in raising the stake of their foreign partners from present 26 % to 49 %.
