bajaj finserv ... huge value unlocking...!! + only pvt insurance sector company to make profit.. guys!!! just accumlate this stock...

Bajaj Auto Finz.   42% holding
Allianz Life           75% holding
Alianze General   75% holding
Aliance Mutual     50% joint venture
windmill             100% holding
i

i have wondered for some time how one can participate in the insurance industry. out of the direct plays, there does not seem to be a management that inspires confidence. also being a high growth industry, there is a lot of "gain market share at all cost" mentality. also at this point this industry had 24 players. does anyone know the industry structure in other countries and how many players it is likely to support, before it erupts into a price war (i believe these industries are oligopolies by nature).

i believe this is a capital intensive industry. i have also seen the analyst presentation from Bajaj Allianz and it claims to have the best capital utilization in the industry (written premium / capital). Bajaj Allianz could be an interesting play but theoretically one only gets 24% exposure to Life Insurance, so that is a put off.

another thing I am trying to understand is - how much capital is required to be invested to achieve the scale that makes the venture profitable. for that i studied the annual report of Bajaj Allianz (since they claim to have the best capital utilization and have just become profitable). I find that the book value is 1200 crores odd. Now i assume they invested more than 1200 crores, because if the first 8 years were loss making, then the the losses would have been carried over to the balance sheet. Does anyone know how much capital was invested by Bajaj Allianz over the 8 year period? For the sake of analysis, let us assume that is was 1200 crores. I read an analyst report on the Insurance sector valuing Bajaj Allianz Life Insurance at 2 Billion dollars. If both these assumptions are true, then this is a very profitable sector (lets not worry about one or two years of low growth). That is an eight bagger for the equity that was invested over the 8 year period, and that equity investment was spread over 8 years (mostly after 2004), which makes it better than an eight bagger. Ofcourse this analysis will change if we were to know the actual equity that was invested in the 8 year period (losses + book value).

the reason i have started wondering more about all this is that, edelweiss recently announced that it will enter the insurance sector. religare is another company which is a recent entrant but i don't think the management is really upto it (they ran a pharmaceutical company which is very different from a financial firm). edelweiss also announced that they will invest 500 crores (along with tokio) on this venture. suppose the competition is rational over the next 10 year horizon (no price war and companies focusing on segmentation, expense ratios and productivity) can we assume that edelweiss will be able to make a 10 bagger of this 500 crore equity investment?

Originally posted by FutureBull i don't think it is so simple to make money in insurance industry.. there are various valuation methods. as per one latest estimate Embedded value of Bajaj Allianz is not worth more than $1.5 Bn..in fact you don't have to chose leader in this industry.. the single most criteria to make money in Insurance is to have quality mgmt. who THINK long term.. they do require lots of investment in initial yrs but but once they start churning profit, they do make hell lots of money in long term

i agree with your point. what would be your criteria be for choosing quality management? are there any examples ...

Originally posted by FutureBull there is no one sureshot way...you have to take lots of things into account > what kind of premium income they are after: long vs short > quality of products and service > hunger or no hunger for marketshare > cost structure > quality of agents > branding etc etc i like Max India and would like to invest in HDFC standard life if it comes out with IPO.. Bajaj is good too but i like being with conservative folks

all valid points. i would also look for those if i was able to access the information.

i don't think one can compare bajaj to max because max has 76% share and bajaj has only 24% (theoretically).

on the issue of being conservative - why do you think bajaj is not conservative and max is?

i have not done ground research, but i know a relative who was 69 years old and looking for life insurance. for those above the age of 65, he could not find any company to insure him other than max (it was a ULIP product). i found that a risky strategy by max, given the average age of indian males should not be much more than 70.