Jio Financial shares: What CLSA says on JFS future plans
Life insurance is a long-term product with cash flow of both premiums and claims spanning many years. In addition, this is a heavily regulated industry.
- Aug 21, 2023,
- Updated Aug 21, 2023 12:37 PM IST
Foreign brokerage CLSA, while citing media reports of Jio Financial Services Ltd (JFS) entering into life and general insurance space, said covering more lives could be a key focus area for the demerged entity of Reliance Industries Ltd. In its latest research note on Monday, CLSA said insurance distribution may present an opportunity as it remains a fragmented segment with the presence of few large players only, adding that JFS already has a broking business in place with over 17 insurance partners, which may help JFS scale up faster.
JFS reportedly has plans to apply for life and non-life insurance licenses. CLSA cited media reports suggesting the company has set aside a capital base of Rs 1,000 crore each for the businesses. It cited another media article that suggested JFS has started hiring for both companies with a few former PSU officers joining JFS.
There are over 55 players in India’s insurance sector, out of which 26 are life insurers and 31 general insurers (including five standalone health insurers). Total premiums written in FY23 by Indian life insurer was $98 billion and general insurers was at $32 billion.
Life insurance is a long-term product with cash flow of both premiums and claims spanning many years. In addition, this is a heavily regulated industry with various norms around products and investments, it said, JFS has the ability to raise awareness for insurance as an investment product in deeper/wider geographies along with better pricing to improve protection penetration. CLSA said it would be interesting to see the impact JFS can make on pricing in the industry.
"We estimate that an Rs 1,000 crore net worth could a imply sum assured of about Rs 1,20,000 crore-Rs 1,80,000 crore, assuming 2.5 times-1.5 times solvency ratios. In comparison, SBI Life has a sum assured of Rs 18 lakh crore as of March 2023," CLSA said.
In the general insurance space, the insurance industry is made of up of unique subsectors, each having a business model quite distinct from the other. Motor is a highly competitive segment and has been low hanging fruit or an entry point for many new general insurers, CLSA said adding that health insurance is a compounding growth story with competition incrementally rising but is an intensive business that takes time to scale. The commercial segment is a reinsurer dependent large ticket segment that is driven by corporate relationships, the foreign brokerage said.
"We believe Jio’s entry point could be corporate-relationship-driven segments such as group health and commercial insurance. We estimate that an Rs 1,000 crore net-worth implies a gross premium size of about Rs 2,500-Rs 3,500 crore. Assuming 2.2-1.5 times solvency ratios. This is about 1/10th of ICICI Lombard’s FY23 premiums," CLSA said.
CLSA also talked about Reliance Retail Insurance Broking, which was established in 2006 and recently renamed to Jio Retail Insurance Broking.
"The company had a net worth of Rs 3.3 crore with net profit of Rs 16 crore in FY23. Assuming a normalised take rate we estimate the company has sold +Rs 300 crore of premiums versus Rs7000 crore in premiums sold by PB Fintech in FY22. We do not have any detail on Jio’s plans regarding its broking business. However, its existent partnerships with 17 insurers means this business could be scaled up faster under Jio Financial Services," it said.
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Also read: JFS shares list at Rs 265 on BSE; m-cap stands at Rs 1.68 lakh crore
Foreign brokerage CLSA, while citing media reports of Jio Financial Services Ltd (JFS) entering into life and general insurance space, said covering more lives could be a key focus area for the demerged entity of Reliance Industries Ltd. In its latest research note on Monday, CLSA said insurance distribution may present an opportunity as it remains a fragmented segment with the presence of few large players only, adding that JFS already has a broking business in place with over 17 insurance partners, which may help JFS scale up faster.
JFS reportedly has plans to apply for life and non-life insurance licenses. CLSA cited media reports suggesting the company has set aside a capital base of Rs 1,000 crore each for the businesses. It cited another media article that suggested JFS has started hiring for both companies with a few former PSU officers joining JFS.
There are over 55 players in India’s insurance sector, out of which 26 are life insurers and 31 general insurers (including five standalone health insurers). Total premiums written in FY23 by Indian life insurer was $98 billion and general insurers was at $32 billion.
Life insurance is a long-term product with cash flow of both premiums and claims spanning many years. In addition, this is a heavily regulated industry with various norms around products and investments, it said, JFS has the ability to raise awareness for insurance as an investment product in deeper/wider geographies along with better pricing to improve protection penetration. CLSA said it would be interesting to see the impact JFS can make on pricing in the industry.
"We estimate that an Rs 1,000 crore net worth could a imply sum assured of about Rs 1,20,000 crore-Rs 1,80,000 crore, assuming 2.5 times-1.5 times solvency ratios. In comparison, SBI Life has a sum assured of Rs 18 lakh crore as of March 2023," CLSA said.
In the general insurance space, the insurance industry is made of up of unique subsectors, each having a business model quite distinct from the other. Motor is a highly competitive segment and has been low hanging fruit or an entry point for many new general insurers, CLSA said adding that health insurance is a compounding growth story with competition incrementally rising but is an intensive business that takes time to scale. The commercial segment is a reinsurer dependent large ticket segment that is driven by corporate relationships, the foreign brokerage said.
"We believe Jio’s entry point could be corporate-relationship-driven segments such as group health and commercial insurance. We estimate that an Rs 1,000 crore net-worth implies a gross premium size of about Rs 2,500-Rs 3,500 crore. Assuming 2.2-1.5 times solvency ratios. This is about 1/10th of ICICI Lombard’s FY23 premiums," CLSA said.
CLSA also talked about Reliance Retail Insurance Broking, which was established in 2006 and recently renamed to Jio Retail Insurance Broking.
"The company had a net worth of Rs 3.3 crore with net profit of Rs 16 crore in FY23. Assuming a normalised take rate we estimate the company has sold +Rs 300 crore of premiums versus Rs7000 crore in premiums sold by PB Fintech in FY22. We do not have any detail on Jio’s plans regarding its broking business. However, its existent partnerships with 17 insurers means this business could be scaled up faster under Jio Financial Services," it said.
Also read: Titan shares: Caratlane stake purchase EPS dilutive in near term. Stock price targets & more
Also read: JFS shares list at Rs 265 on BSE; m-cap stands at Rs 1.68 lakh crore