Fresh capital from IPO will be channelled to adding distribution and expanding bank presence: Niva Bupa CEO

The idea is to put in place a permanent shareholding structure for the company. The FDI (foreign direct investment) restrictions, by design, caps foreign holding at 74 percent. We have to solve for the balance 26 percent stake, which can be done in a permanent way by being a public company.

To your point on market reception, timing, etc., the reality is that we're building the business for the long term. Capital markets globally and in India have become mature enough to recognise companies that are growing. In the capital markets, we have enough examples of companies that are still in investment mode and are high-growth companies despite not yet demonstrating profits from an accounting standpoint. Nevertheless, the markets are mature enough to understand, assess and value these companies similarly. We are profitable, even in an accounting sense, and we've had an improving profit trajectory. On an (accounting standard) IFRS basis, our results will be smooth.

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At what point would you say you have crossed the growth phase?

The entire health insurance industry is still growing at 17-18 percent. You can build a business like Amazon in health insurance, which is continuously investing to capture the opportunity. But I think the balanced approach that we’ve taken along with our shareholders is that we will continue to grow faster than the market.

When you are well placed on the solvency ratio front, why are you raising fresh capital?

The idea is to fund growth and make sure that we are adequately capitalised from a solvency standpoint.

You have had quite a few rounds of rights issues in the last three or four years. Won’t a fresh issue further dilute valuations?

It will depress earnings in the near term. But we believe that with this capital raise, we will be self-sufficient as a company. Secondly, we're building a company for the long term. We have a superb long-term shareholder in Bupa, and a few more like True North, Temasek, Motilas Oswal, SBI Life Insurance, Paragon Partners. We are hopeful that we will onboard a great set of new investors through this (IPO) process who are there for the long haul.

How would you channelise this capital?

We will strengthen distribution. Our distribution landscape is agency-driven, which requires investments. Second is the bancassurance channel. We are looking to acquire more banks and strengthen our presence within the banks we already have. The direct-to-consumer business also requires us to invest in branding, marketing to draw customers to our website. We want to make sure that there's a certain run rate of investments in brand building. With Rs 800 crore from the fresh issue, we feel it will make us self-sustaining as we move along our journey.

What's the mix you would target between retail and group insurance?

On the group side, we will be opportunistic. If the pricing environment supports, we will write more business. It's purely a function of how much business we are able to write at a 100 percent combined ratio. The pricing has very much improved.

One of your competitors said that with the new expenses of management guidelines coming up, revenues have gone down, whereas costs have shot up. What is your take on this?

The objective of our retail business model is that as you become larger, the proportion of the renewal book becomes higher, and operating leverage kicks in. There is cost to acquire a new customer. On an existing customer, there is not much cost other than serving the customer with technology and automation.  As we move ahead and the size of our renewal book becomes larger, operational expenses are a small fraction. Our ability to comply (with expense of management) is a function of our business model, which is 70 percent retail and 30 percent group insurance. The operating expenses are lower because we don’t have to invest in infrastructure like offices and large sales teams. The good part is that the business is broker-driven where broker commissions are capped at 7.5 percent on the corporate business. Our business model is much more retail and much less reliant on wholesale, so we have a different view on this.

Do you plan to remain a standalone health insurance entity?

Yes, we plan to remain a specialist. My own belief is that this business is complex and it requires you to double down and build the expertise.