FDI: Higher FDI limit gives us an option in India: Mark FitzPatrick – Blue Barrows

Prudential Plc. is a global financial conglomerate running successful Indian joint ventures in life insurance and asset management. As the storied 175-year-old institution pivots to Asia, its Group Chief Executive Officer Mark FitzPatrick tells Joel Rebello, Bodhisatva Ganguli and MC Govardhana Rangan why India – now the world’s fifth-biggest economy – could emerge as a long-term growth driver amid a visible economic slowdown in the developed world. Edited excerpts:

Prudential has undergone a fundamental restructuring over the last few years with the major pivot toward Asia. Is it mostly China focused?

It is Asia focused. Prudential will be 175 years in existence next year, with 100 years in Asia. We started in Kolkata in 1923. Over the last 11 years, we have invested over $11 billion in our Asian business, but very little in the US and the UK. So we decided to spin off those businesses to effectively create a business that was a pure Asia play. About 50% of our sales and new business and profit are from Southeast Asia, and 50%, from Greater China. The opportunity in Southeast Asia is very real, the opportunity in North Asia in Greater China, etc, is very real as well because the level of insurance penetration is very low in all the markets in which we operate – maybe with the exception of Singapore. For example, in India, we paid out about $4 billion of claims through I-Pru Life during the course of last year.

But you have taken the step at a time when the world may be about to embark on a second cold war…

No one knows how long this one would last. But these projects and programmes are many years in gestation. The creation and the decision to start the element of the demergers were taken nearly five years ago. We do not believe that the underlying imperative of the opportunity in Asia is changing. The demographics are still going to improve. Geopolitics is far more complex and that we have seen for many, many years. The underlying factors are that people still have children that they want to educate, still have health concerns, still have families to look after, still have aspirations for great careers, still have pensions to save for all of those factors we think are unchanged. We have seen recessions; we have survived. We know how to adjust our business.

In India, regulations now allow you to increase your stake to 74% in insurance. What do you intend to do?

We are very pleased with the fact that the FDI rules have changed, and that we now have the option. We’re looking to spend greater time understanding the market and opportunity. The team has confidence in their ability to double the VNB (value of new business) from 2019 levels by the end of the next financial year. We want to understand and get a better appreciation for what’s happening for the future of regulation, so that we can continue to explore that option because we didn’t have before. We will continue to explore how best to make value from the business. But for now, our focus is on supporting the business and growth. We are pleased at the ability of this government to be able to truly open up and deliver on its promises, which is really encouraging.

You have listed the insurer. What about listing the AMC business?

The business is doing very well and I see no need to do a listing of it anytime immediately. If we were to list a business, there will be some liquidity requirements in the market. And I think ICCI and ourselves really enjoy the business and enjoy the benefits of that business. And while that business is growing, we don’t see a need to list the business.

In your earnings call, we don’t even see India being mentioned. Where does India stand and your pivot to Asia?

Investors in meetings on results day spend 75% of their time on China and Hong Kong. Over the course of the last four or five years, we have outgrown the GDP in Southeast Asia by a factor of nearly four times. We have four super growth markets in Asia, and one of them is India. So it’s India, Indonesia, Thailand, and China. And the size and scale of those markets are such that if we get them right, in the fullness of time, that can move the needle and completely transform our business. Over the last year, we spent more time with Kannan (CEO insurance JV) and Nimesh (CEO Mutual Fund JV) than we had in the last few years, because with the FDI rules, now there’s a need to understand it better. India is a big long-term play. The new regulator Mr Debasish Panda’s (chairman, Irdai) aspirations will cause the industry to have to think about things in a different way. We think that it is a great way to increase penetration and coverage.

What is it that you could do more – and better – in India?

We have broader health offerings and we know that there was some discussion about potentially opening the health offerings in India to life insurance companies. It is going to increase channels for Indian consumers to get more protection and more coverage. We have in many of our markets made a strong pivot to health.

Across Asia, we have sold significantly more health and protection products than we ever sold before. In 2021, we sold 41% more health and protection products than we sold the previous year. And in the first-half of 2022, we effectively sold 13% more health and protection products across the region. COVID changed the way regulators and our agents thought – or bancassurance partners, and our own people thought – of how to work together. So regulators previously wouldn’t let you sell through a phone. Now, they would let you sell through an iPad. The element of our ability to speed up and facilitate things is huge, through digital capability.

What changes would you like to see from the regulatory point of view?

The risk-based capital regime is a key component the regulator is talking about. We can make it easier for people by using simple language to help them understand what the policy is going to do and not giving false comfort from the vast amount of documentation. In India, how the UID is going to be used to help speed things up is going to be valuable. Then in the asset management industry right now, you have to do a KYC. But the money comes from a bank account which has already done the KYC. That regulatory environment could catch up with the new digital environment and make it easier for people to transact.

India has more insurers than required. Would you buy a life insurance company in India or a health insurer?

Buying insurance companies is non-trivial because you are buying a back book of many years of business within which there could be problems; so for a quality business like I-Pru Life with the quality of the team, infrastructure and the brand, there is no need to buy another business, because organically, it has got such a great opportunity ahead of itself. I would rather have the team spend its focus on organic opportunities. To me, the opportunity here in India is IPru Life continuing to do what it is doing and putting it on steroids to do more.

The markets are turning volatile. How does your Asia concentration position you?

The deterioration in the expected GDP of developed countries is significant, compared to the level of growth expected from Asia – India, China and Southeast Asia. Inflation in the West is also going to be much higher. The fact is there are structural opportunities in Asia whereas in Europe and the US, the markets are mature, concentrated, with very little growth. Insurance companies grow by buying other insurance companies in Europe. In Asia, the organic growth opportunity is very real. So for example, for every dollar of new business that we invest in Asia, we’ve created $4 of new business profit; there is nowhere else in the world that you can get that type of return. We had some dollar headwinds during the course of the first-half because of dollar strengthening and some of the translation components, but when your average policy is between 15 and 20 years, you ride that out.