HDFC Standard Life Insurance Company (HDFC Life), Max Life and Max Financial Services have entered into a discussion to merge their businesses, which will give birth to India’s largest private life insurance company.

Assets under management of the combined entity will touch ₹1.10-lakh crore and new premiums will almost touch ₹9,400 crore. ICICI Prudential Life is the current market leader among private life insurers with total assets under management of ₹1.04-lakh crore.

Announcing the deal, Deepak Parekh, Chairman, HDFC Ltd, said, “Both HDFC Life and Max Life have over the years followed a strategy of consistent and responsible growth to create value for their respective customers and stakeholders.

“We believe there are significant benefits to a potential combination, and if this materialises, it could make the consolidated entity the largest private life insurer in the country.”

While the contours of the deal are being worked out, industry sources said that HDFC along with Standard Life could own 60-65 per cent stake in the merged entity; the balance would be owned by Analjit Singh-led Max group and Mitsui Sumitomo Insurance.

“The detailed merger and integration contours have not been decided yet. At this juncture, all we can say is that both the brands have a strong recall and trust factor across policyholders and stakeholders.

“The companies are contemplating a merger under the scheme of amalgamation under the Companies Act and hence we do not foresee any open offer,” Parekh added.

For HDFC, this will be the second such merger announcement this month. It had recently announced that HDFC ERGO General Insurance will acquire 100 per cent stake in L&T General Insurance Company. The deal between HDFC and Max will be the first major consolidation in the life insurance space after the government liberalised foreign direct investment in the insurance sector. Follow-up announcement would be made as necessary, said HDFC.

Analjit Singh, Founder and Chairman Emeritus, Max Group, said: “We said we have three options — stay where you are; go out and consolidate; or acquire a smaller company with less operating experience. If you draw a line after the first six or seven companies in the sector, others sort of fall away. The best thing for the company is to trade up and merge with an iconic brand name such as HDFC.”

The mechanics The deal will be done as follows: there will be two schemes of amalgamation to be approved by the High Court. First, Max Life will merge into Max Financial Services (the listed entity) and then this entity will merge into HDFC Life Insurance. Following this, HDFC Life will automatically get listed. No cash will change hands in the deal as it a pure share swap. The ratio will be determined after the valuation has been done.

“The IPO plans of HDFC Life have been temporarily kept on hold until the due diligence of this deal is done to ascertain whether it will go through or not,” Parekh said.

Speaking on the synergies and complementary strengths of both the players, Parekh said, “ Both have strong new business margins (HDFC Life’s new business margins is 19.8 per cent and Max Life’s is 17.9 per cent). Both have strong bancassurance platforms; the product mix of the potential combined entity will be well-diversified; and, most importantly, both companies have strong customer-centric business models.”

As at March-end 2016, HDFC Life and Max Life had assets under management of ₹74,247 crore and ₹35,824 crore, respectively.

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