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HSBC will offer a range of management services, which may include providing executives for senior roles and experience in products and distribution channels like bancassurance, a business line where it has capabilities in over 40 countries.
It will hold a 26% interest in the new firm and provide approximately $40 million of the entire $73 million capitalisation of the new life insurance.
Canara Bank, based in Bangalore, will be the primary stakeholder with 51% of the as-yet-unnamed venture and will provide $23 of capitalisation to the new life insurer. The New Delhi-based OCB will contribute approximately $10 million in capital and take a 23% stake in the firm.
The key to this new alliance appears to be the distribution that each partner brings to the table. Between Canara Bank and OBC, which are both state-owned, and HSBC, which has a significant branch network in India, the new venture will be able to distribute to a nationwide network of 3,600 branches.
Canara Bank already distributes insurance products for companies like Aviva Life Insurance in India and has an established domestic presence in the mutual fund business. OBC, on the other hand, uses the bancassurance distribution channel to sell policies by big players like the Life Insurance Corporation of India (LIC).
The MOU marks the first time that HSBC has entered into the Indian life insurance space. It currently has operations in Hong Kong, Singapore and a joint venture in Malaysia known as HSBC Amanah Takaful with domestic partners Jerneh Asia and the Employees Provident Fund. The firm also has representative offices in Beijing, Shanghai and Guangzhou.
Its entrance into the Indian life insurance space with Canara Bank and OBC comes at a particularly strong time for this domestic segment. Premiums in the worldÆs second most populated nation have grown annually by an average of 21% in the past six years, following the entrance of private players to the sector. What is perhaps more positive for new entrants into this market is the fact that life insurance use is still well-below other markets in Asia, with a penetration rate of roughly 2.5%.
The venture will likely launch this year and would be expected to include products a full line of insurance products available for sale in India.
This latest development for HSBC comes after the firm has recently made significant moves in its regional life insurance business. Earlier this year, HSBC Insurance appointed Paul Arrowsmith of its Singapore business and transferred its former Singapore head, Jason Sadler, to take on the reins of its Hong Kong franchise in a newly created role.
In late 2006, HSBC Insurance made another major executive move, appointing David Fried as regional head of HSBC Insurance Asia Pacific and transferring CF Choy to develop its mainland China business.
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