International Business Case Study

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International Business Case Study
Sun Life Financial and Indian Economic Surge

How is the Insurance market in India changing? Why is India an attractive market for investment?

The insurance market in India has undergone significant changes over the past few years

The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business.

Life insurance in India was completely nationalized on January 19, 1956, through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country were merged into one entity, the Life Insurance Corporation of India

1972 - The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India with effect from 1st January 1973.

Till end of FY 1999-2000, two state-run insurance companies, namely Life Insurance Corporation (LIC) and General Insurance Corporation (GIC) were the monopoly insurance providers in India. Under GIC there were four subsidiaries

• National Insurance Company Ltd.
• Oriental Insurance Company Ltd.
• New India Assurance Company Ltd.
• United India Assurance Company Ltd.

In the fiscal year 2000-01, the Indian federal government lifted all entry restrictions for private sector investors. Foreign investment insurance market was also allowed with 26 percent cap. GIC was converted into India's national reinsure from December, 2000 .All the subsidiaries working under the GIC umbrella were restructured as independent insurance companies. Since opening up of the insurance sector 21 private companies have been granted licenses.

With the de-regulation in Indian Insurance industry, the monopoly of public sector companies in life insurance and general insurance has come to an end. This has augmented the innovative practices initiated by the private players. Growth in the interactive technology such as internet has further created a wave of excitement in the insurance market. Indian economy and Indian Insurance sector is committed to a double digit growth.

Huge population base and large untapped market are key reasons why insurance industry is a big opportunity area in India for national as well as foreign investors. India is the fifth largest life insurance market in the emerging insurance economies globally and is growing at 32-34% annually. The strong growth potential of the country has also made international players to look at the Indian insurance market. Moreover, saturation in insurance markets in many developed economies has made the Indian market more attractive for international insurance players. OUTLOOK

• The Indian Insurance market is expected to be around US$52 billion by 2010
o Expected CAGR of over 30% p.a.
• Largely untapped market with 17% of the world’s population o Nearly 80% of the Indian population is without Life, Health and Non-life insurance o Life Insurance penetration is low at 4.1% in 2006-07 o Non-life penetration is even lower at 0.6% in 2006-07 o The per capita spend on Life and Non-Life Insurance is US$33.2 and US$5.2 (2006-07), respectively compared to a world average of US$330 and US$224 o Strong economic growth with increase in affluence and rising risk awareness leading to rapid growth in the insurance sector • Investment opportunities exist in both life and non-life segments • Total estimated investment opportunity of US$14-15 billion The current FDI in this sector stands at around Rs 2500 crores and market experts expects FDI to zoom by about 2.5 times once the FDI cap is raised by another 23 percent to 49 percent.

Why did Sun Life Financials enter the Indian Market?

India's economic development made it a most lucrative Insurance market in the world. Before the year 1999, there was monopoly state run LIC transacting life business and the General Insurance Corporation...
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