Nippon Life has agreed to pick up a 26% stake in Reliance Life Insurance for Rs 3,602 crore which values the life insurance company at Rs 11,500 crore. The deal is the single largest foreign direct investment in the insurance sector and the first M&A transaction after the regulator capped life insurance charges in October 2010, impacting their earnings. Sam Ghosh, MD, Reliance Capital, said that the a large part of the capital was by way of stake sale by Reliance Life Insurance which has a 100% economic interest in the life company in which it has invested around Rs 3,000 crore. Nippon Life is the sixth largest life insurer and the top life company in Asia and Japan. The valuation of Reliance Life was marginally below the market capitalization of Reliance Life before the deal was announced. However, following the announcement, shares of Reliance Capital jumped 9.72% to touch Rs 561.8, resulting in a market cap of Rs 13,800 crore. “The deal shows that Reliance Capital is considerably undervalued,” said Ghosh. He added that besides life insurance there was substantial value in consumer finance and asset management businesses. Nippon Life will get a board representation on the company and will work with Reliance Life. The company would also use its contacts to get business for the life venture. The partners have not finalized their stance on change in shareholding should the limit on foreign investment be raised from 26% to 49% as proposed.