Why this 24-year partnership just ended!
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In today’s edition of The Daily Brief:
Why Bajaj and Allianz are getting a divorce
A tale of two Chinas
Why Bajaj and Allianz are getting a divorce
There’s a huge piece of news from the insurance industry. After a partnership that lasted for almost a quarter-century, Bajaj and Allianz are going their separate ways.
Allianz, the German insurance heavyweight, is pulling out its 26% stake in both its joint ventures with Bajaj Finserv — Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance. Bajaj Finserv will buy both its stakes for about ₹24,180 crore (or €2.6 billion). Once this is through, both insurers will come under complete control of the Bajaj group.
If it isn’t obvious to you already, this is a big deal. Decade-old partnerships don’t just break apart for nothing. Deals for tens of thousands of crores don’t just appear out of nowhere. This story has been many years in the making. It is the culmination of regulatory developments that go back many decades, and might signal a wider trend that you might, over time, see playing out across the industry.
So, why is this happening? For that, we need to go back to the start — when foreign insurers first set foot in India.
The initial romance
For many decades, India’s insurance sector was held by government monopolies — like the Life Insurance Corporation, or the General Insurance Corporation. In the 1990s, however, during the era of liberalisation, India considered a new approach. Instead of controlling the market itself, it set up an insurance regulator — the Insurance Regulatory and Development Authority — to look after the market’s overall stability, and then threw the market itself open to private players.
There was, however, a major gap. After decades of government control, Indians no longer knew how to run a modern, private insurance business — and very few business houses had the money for it either. The sector desperately needed two things: know-how and capital. Neither were available in India. And so, India cautiously allowed foreign investment into the sector. The stake they could take was limited — just 26% — which gave them little control over these companies. Even so, many foreign insurers rushed in.
Allianz was one of the first foreign insurance companies to come to India. In 2001, it announced two partnerships with Bajaj — to enter the general insurance business and the life insurance business respectively. It was a marriage made in heaven: Bajaj brought in local knowledge and a wide distribution network. Allianz brought in technical expertise. Both their JV companies would soon grow into some of India’s pioneering insurance entities.
Interestingly, even back then, it appears that Allianz had anticipated increasing its presence in these joint ventures some day. Its original investment agreements gave Allianz the call option, letting it increase its stake in the entities at a predetermined price — at any point in the next 15 years. Only, for almost all of that time, the law simply didn’t allow it to do so.
A changing landscape
As the partnership matured, Allianz increasingly found itself in a corner.
In the era that it came in, it was limited to a 26% stake. Back then, there was nothing for it to do but exist as a junior partner, bringing in expertise and capital for the benefit of its Indian partner. For years, it seemed like there was no scope for change: politically, allowing more foreign participation in the sector was simply too unpopular. But that was changing. Over time, the industry was opening up to greater foreign presence.
In 2015, after years of industry lobbying, the government decided to let foreign insurers take a greater role in their Indian operations. It allowed them to take up a 49% stake in Indian insurers. While their Indian partners would retain majority control, they could almost become 50-50 partners. Then, in 2021, the government liberalised things even further. With a new amendment, it let foreign insurers control 74% of Indian insurance companies. In essence, these companies no longer had to merely behave like investors — they could own their India operations.
A series of European insurers had jumped at this new opportunity. They pushed their Indian partners to sell them a greater stake, allowing them taking over the reigns at their respective joint ventures:
In early 2022, Italy’s Generali announced that it was taking a 74% stake in both its insurance JVs with the Future Group.
In September 2022, the Belgian insurer Ageas International bought an extra 25% stake in Ageas Federal LIfe Insurance — its joint venture with Federal Bank — to hit the cap of 74%.
The British Aviva PLC followed a week later, taking up 74% of Aviva Life Insurance Company India Limited, its joint venture with Dabur India.
Allianz, too, wanted a greater part of its insurance businesses. But increasingly, it was clear that there was no real way it could get there.
Frictions soar
According to some reports, Allianz had been asking for a greater share of the two JVs since 2014, when the government first mooted relaxing foreign investment norms. With these new regulatory changes, it made no sense to remain a junior partner – why stick with 26% when you could potentially own much more? Allianz explored exercising its call options in the company. But because of an RBI directive, the pricing just didn’t work out. And so, even back in 2016, there were discussions around how Bajaj might buy out a frustrated Allianz.
This became a recurring theme over the years, as Allianz made many attempts to increase its stakes. But unlike other Indian companies, Bajaj saw no reason to play along. Its insurance plays were doing phenomenally well, and it saw no reason to give up control over them.
Financially, both their JV companies were in the pink of health. In FY 24, their general insurance entity held 7.3% of the market, while their life insurance business held 5.8%. They were seeing robust growth as well. In FY 24, their general insurance entity saw new business premiums jump by 33%, while their life insurance business increased new business premiums by 21%. In fact, in FY 24, their general insurance business was the most profitable non-life player in India. Both entities were resilient as well, with solvency ratios of 349% and 432%. Their Chairman and Managing Director, Sanjiv Bajaj, called them “two of the strongest insurance companies in India.”
But if the prospects of these companies were bright, Allianz stood to gain little of that upside. Bajaj was firmly in the driving seat in both JVs. Its majority stake gave it complete control over key decisions over both businesses. As per Bloomberg, Allianz increasingly felt like it didn’t have “a say in strategic decisions”. And Bajaj refused to let it buy its way into a greater say. As per reports, Allianz was looking to buy a greater stake at a ‘discounted price’ — a request that Bajaj saw no reason to accede to.
By October last year, the dispute was out in the open. The entities had hit a complete impasse. With no clear agreement on the way ahead, the partnership was on its last legs. Allianz informed Bajaj that it was actively considering an exit from both businesses. It had also begun assessing other options. Some reports, for instance, suggested that it was in talks with Jio Financial for a new partnership. Others suggested that it was hunting for newly established insurance entities that it could acquire.
By the time January rolled around, the partnership had all but ended. All that remained was a decision on the terms of Allianz’ exit. Those terms, it appears, have now been finalised.
What comes next?
Bajaj and Allianz have now signed a binding Share Purchase Agreement to formalise Allianz’ exit. Their divorce, in essence, has now been formalised. All that’s left, now, is the blessing of regulators like CCI and IRDAI.
This situation isn’t unprecedented. Many other foreign insurers have recently struggled to increase their share in Indian companies. Even while regulations now permit foreign insurers to increase their stake in Indian entities, there’s no guarantee that their Indian counterparts will play along. After all, unlike the early 2000s, Indian entities are now old hands in the sector. They no longer see a need for more foreign hand-holding.
Many multi-decade partnerships have come to an end in the last few years. In 2023, for instance, the Bharti group acquired the stake of their French partner, AXA, in their combined life insurance entity. In the same year, Abrdn Plc. exited HDFC Standard Life Insurance, closing a 22-year old partnership.
As foreign insurers eye a greater role in their India businesses, you could see more such splits arise.
But even though Allianz is pulling out of its India JV, it doesn’t seem like it’s pulling out of India altogether. According to a statement by the company:
“Allianz will explore new opportunities that strengthen its position in the market and expand its potential to serve not only as an investor but also as an operator.”
The subtext is clear. Allianz wants to run an insurance operation in India. It’s no longer content watching from the sidelines. It wants to take full advantage of the liberalised foreign investment regime. All the money it unlocks from the sale of its stake, it says, will be redirected to a new India presence. In the words of Allianz:
“As the proceeds become available, Allianz will consider options for their deployment that support the company’s strategic ambitions, in particular the reinvestment of sale proceeds into potential new opportunities in India.”
If anything, the opportunity for Allianz could only get bigger. India’s in the process of floating new amendments to its insurance laws. These will allow 100% foreign investment into Indian insurance businesses. It will also start giving out “composite licenses” — obviating the need for separate life and general insurance entities.
Meanwhile, Bajaj will soon enjoy complete ownership over its insurance businesses. That could potentially allow it to tie these businesses closer to its other financial services offerings. As per Chairman and Managing Director, Sanjiv Bajaj:
“Given the advantage of a single ownership in both companies, we are confident the acquisition will become a big driver of value for our stakeholders in the years to come.”
A tale of two Chinas
Today, we're tackling China yet again. Now, we know that we do this almost too often: we had a China story for you as recently as yesterday. But in all honesty, China, and its rivalry with the United States, is perhaps the defining story of our era. Whatever China does shapes global markets. What happens in China reverberates everywhere, from tech supply chains to commodity prices. So please bear with us, because the ideas we’re covering are fascinating — at least in our opinion.
Today, we’re talking about the two separate, and contradictory, tracks of China’s economic growth.
See, in the last few months, three super-smart commentators — Gerard DiPippo from the think tank RAND, Yuen Yuen Ang of the Johns Hopkins' university, and Louis Vincet Gave of Gavekal Research — have given three very interesting takes on the Chinese economy. All three have fascinating perspectives on what they're calling "China's economic paradox" — even as the country sees its worst growth slump in decades, it’s also seeing a simultaneous tech boom. China effectively has two separate economies that are operating in parallel: one that’s struggling, and another that’s thriving.
That’s what we’re going to dive into today.
China’s growth slowdown?
When you look at broad economic data, China’s economy looks depressing. China's GDP growth has slowed significantly. In 2024, China reported 5% real GDP growth, but the more telling figure is nominal growth of just 4.2% – the lowest in decades outside the pandemic.
Some independent analyses suggest that the actual growth may have been even lower. For instance, the Rhodium Group estimates that China's GDP grew between 2.4% and 2.8% in 2024, significantly below the official figures.
As a result, China's GDP is no longer catching up to the US — something that, not very long ago, was simply taken for granted. If anything, the gap between them is opening wider. China’s GDP has fallen from 77% of US GDP in 2021 to 64% last year. Pre-COVID forecasts expected China to overtake the US within a decade. Current projections push that to the 2040s, if ever.
But there's a twist. DiPippo highlights an important nuance, here: despite its slower growth, China's manufacturing sector, value-added, remains more than 1.5 times as big as that of the United States.
In fact, there's one key reason behind China’s economic troubles: its property sector. The sector's recent collapse is the primary drag on its growth. Before COVID, property accounted for over 25% of China’s GDP. But then, in 2020, Beijing introduced its "three red lines" policy — which was aimed to control China’s unsustainable debt-fueled construction boom. Sadly for them, the costs of doing so turned out to be much too high. They triggered a painful correction without a plan to manage the fallout.
The new economy's rise
But here’s the thing: once you dig deeper, it’s clear that there are still major bright spots in China’s economy. While China’s traditional sectors struggle, its high-tech industries are thriving. DiPippo's data shows that China’s high-tech manufacturing is growing faster than overall GDP. In fact, fixed asset investment in high-tech industries has shown compound annual growth rates as high as 10-15% since 2019, even as real estate investment fell 3.7%.
There are particular segments where this growth really shows up. For instance, China now dominates global exports of what DiPippo calls the "new trio" – electric vehicles, lithium-ion batteries, and solar panels. China is also threatening export controls on critical minerals partly to discourage increased US tariffs.
So, here’s the big question: How important are these? Is the growth in these new age sectors enough to off-set the deterioration across the rest of China’s economy? DiPippio does not think so. China's "new economy" comprises less than 20% of its GDP — and has contributed just over 20% of growth in recent years. While this spurt of growth is impressive, it’s simply not large enough yet to offset the weakness in traditional sectors.
Yuen Yuen Ang's political economy framework
So, why does this gap exist? Why has China abandoned its old economy, in favour of a few sectors that can barely make up for its fall? And why isn’t it doing anything to pull itself out of its slump?
Yuen Yuen Ang offers a compelling explanation for this divergence. She challenges the perception of China as a “command economy,” where leaders issue precise orders. Instead, she describes its system as one of "directed improvisation" – central leaders signal priorities while China's vast bureaucracy interprets and acts on these signals based on political incentives.
That’s what we’re seeing play out right now. President Xi has clearly signaled that his legacy should be a new economy focused on "high-quality development" and "new quality productive forces." He's distanced himself from the old economy of infrastructure and real estate that his predecessors championed. You see the effects of his statements play out in the country’s economic approach.
Statements like his create a powerful dynamic: officials have little incentive to rescue the old economy, even if that might be good for the Chinese people that are suffering the worst of this fall. It simply would not help their careers to do so. That explains the lackluster response to the real estate slump. Conversely, local authorities over-invest in Xi's favored sectors like EVs and solar panels.
This approach is marked by severe wastage. As per Ang and her fellow researchers, when the central government set ambitious patent targets, local officials tried to game that metric, because they had no direct way of sparking genuinely innovative research. They inflated numbers with "junk patents." Instead of a boom in innovation, this resulted in what she calls a "low-productivity innovation drive."
The EV industry exemplifies this approach – China has over 450 car factories, yet one-third operate at less than 20% capacity. Most will eventually fail, with the industry consolidating around giants like BYD.
But for all its failings, this method has advantages. Central leaders tolerate inefficiency as long as champions emerge. Local governments used every tool from venture capital to attracting scientific talent deterred by American restrictions. Even while many of those failed, it simultaneously created many success stories. For instance, China gained over 2,400 scientists in 2021, even as the US experienced a net loss.
Louis-Vincent Gave's market insights
Louis-Vincent Gave provides a market perspective on the duality of China’s economy. He identifies 2018 as the pivotal moment, when China began its industrial transformation, in response to Western sanctions. As he describes it: "Bank loans to real estate absolutely collapsed, while loans to industry went parabolic."
For instance, when Western countries slapped semiconductor restrictions on China, the country was suddenly terrified that other sectors would follow. As a result, China redirected capital toward self-sufficiency across many industrial verticals. The results are striking – China now leads in producing cars, industrial robots, solar panels, and batteries.
Gave highlights the remarkable success of Chinese automakers like BYD, XPENG, and Xiaomi. Their advances are unmatched in the rest of the world. XPENG, for instance, is literally trying to market flying cars. He describes China's approach as "Hunger Games capitalism". When the country’s 130 competing carmakers engage in brutal competition, that will eventually throw up a few champions.
The results are striking. China now leads in all sorts of advanced technology – creating what Gave calls an industrial "ecosystem" where specialized workers train others and spin off new companies. This ecosystem now delivers both higher volume and increasingly higher quality than Western alternatives.
But what about the rest of the economy? Is China destined to go in the direction of Japan, with a few cool gizmos, but a stagnant economy? Addressing China's collapsing bond yields — which are now at 1.6% — Gave offers a counter-narrative to the "Japan in the 1990s" comparison.
He argues this reflects China being "probably the most competitive economy that the world has ever seen." This is evidenced by its record $1.1 trillion trade surplus. This trade surplus brings money into China. But businessmen are holding on to this money, since their confidence has been crushed by many factors, including the threats of tariffs. Rather than investing in housing or stocks, entrepreneurs are parking money in banks. With low credit demand, banks buy bonds, pushing yields lower.
Closing thoughts
China, in short, defies simplistic narratives. Its property sector struggles, but its tech sector innovates rapidly. Its GDP growth disappoints, but it dominates the world in emerging industries. Its consumer confidence hits record lows, while its stock market has recently started booming.
So, is China in decline? As Yuen Yuen Ang puts it: "The answer is both yes and no." The country’s growth has most certainly slowed. Even so, China is building a green, high-tech economy — and remains the world's second-largest consumer market. This has all come about through brutal competition and wasteful investment, but the results are hard to argue with.
All of this points to a duality at the heart of China’s economy. And understanding this duality isn't just academically interesting. It's essential for navigating global markets in the coming decades, as you try and make sense of vibrant companies that exist inside a tepid economy.
Tidbits
SpiceJet’s promoter Ajay Singh is injecting ₹294 crore into the airline by converting 13.14 crore warrants into equity shares, raising the promoter group’s stake from 29.11% to 33.47%. Simultaneously, Singh has offloaded 2 crore shares in the open market for ₹90 crore at an average price of ₹45 per share and is in the process of selling an additional 3.15 crore shares to partly fund the remaining 75% of the warrant conversion cost. The fresh capital aims to strengthen SpiceJet’s financial position and support its ongoing restructuring efforts.
State Bank of India has postponed its planned ₹15,000 crore ($1.7 billion) fundraising to FY26, citing elevated bond yields. The bank had approval to raise ₹5,000 crore through additional Tier-I perpetual bonds and ₹10,000 crore via 15-year infrastructure bonds but decided to delay due to a 15-basis-point rise in AAA-rated 10-year corporate bond yields since February. Despite a 25-basis-point repo rate cut and liquidity measures by the RBI, borrowing costs remain high. The decision suggests cautious capital-raising strategies among banks, with potential implications for lending capacity and bond market activity. Investors tracking SBI and the broader banking sector may see a shift in issuance trends to the next fiscal year.
Tata Sons has acquired an additional 10% stake in Tata Play from Temasek Holdings’ affiliate, Baytree Investments (Mauritius) Pte, raising its total stake to 70%, while Walt Disney retains the remaining 30%. The move comes as Tata Play and Airtel Digital TV explore a potential merger, which could create a $1.6 billion entity in India's 60-million DTH market. Together, Tata Play and Airtel Digital TV already account for over 35 million subscribers, controlling more than half of the sector. With regulatory approval from the Competition Commission of India (CCI), this consolidation could significantly reshape the DTH industry amid increasing competition from digital streaming platforms.
- This edition of the newsletter was written by Pranav and Bhuvan
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