Aditya Birla Group, South Africa firm in deal for health insurance

The Aditya Birla Group on Friday announced a joint venture with South African insurance giant ABG to enter India's health insurance market.

ABG's financial services division has signed a memorandum of understanding with MMI Holdings Ltd, in which the South African company will hold a 26-per cent stake, which will be raised to 49 per cent once India's regulatory regime allows this.

The transaction is subjected to execution of the respective legal agreements and obtaining the required regulatory approvals, MMI said.

"Health Insurance has low penetration levels in India. Given ABFSG's [Aditya Birla Financial Seervices Group] focus on building a retail presence across products, we foresee a huge potential to target the requirements of untapped customers and their families," said Ajay Srinivasan, chief executive, Financial Services, of Aditya Birla Group, in a statement.

MMI chief executive officer Nicolaas Kruger said the company would initially target the "ideal" client base of 20 million in India's larger cities, where health insurance penetration was less than 3 per cent.

Kruger said MMI considered India to be an important market for its international growth strategy.

With 1.3 billion rand available for acquisitions, Kruger said the company was comfortable putting in capital in line with its stake in the joint venture, but would not put a value to this deal as it was not an acquisition but a new venture.

"Each party will put in intellectual property and expertise and we will each contribute a relative portion to the share of capital required by the joint venture," Kruger said.

"ABG is a household name in India and a respected and trusted business group and we are extremely pleased to enter into a partnership with them," Kruger added.

The company had set up an office in India three years ago to look at opportunities in the rising middle class in the country.

The joint venture decision had been buoyed by a recent report indicating that the rising Indian middle class would lead to greater demand for insurance products, growing from USD 66.4 billion in 2013 to an expected US$ 350 to US$ 400 billion in 2020.

MMI is the third South African insurer to enter India, with the country's two oldest insurance companies after Old Mutual and Sanlam.