HDFC Life and Max Life are in talks to create India’s biggest private Life insurer, the two companies recently announced the plans at a conference in Mumbai. The merger is set to be completed in a two-leg transaction where Max Life will first merge with the listed holding company Max Financial Services, which owns 68% in the insurer. Subsequently, HDFC Life will merge with Max Life.
The merger will enable listing of HDFC Life, negate the need for an IPO, and also mitigate consolidation hurdles.
The two companies will work on the valuation and seek regulatory and legal permissions within next two months. Max Financial Services chief Analjit Singh and Deepak Parekh, chairman of HDFC, the promoter of HDFC Life have known each other for a long period and share a cordial relationship.
"We will have many challenges on the way," said Deepak Parekh, adding that "I have known Analjit for 30 years. We have a trust factor. It didn't take time. Hope it works out." He also added “the macro environment in India is very conducive. Favorable demographics provide a big opportunity for insurers. I expect new business premium to grow at 15% over the next 5 years”.
Insurance sector is a tough pie to break as it is completely dominated by state-run LIC which has 70% share of the Rs 25 lakh crore industry. The merger will bring the joint firm on a value of Rs.50000 crore ahead of ICICI Prudential.
Since the two companies have different holding structures, it is not clear what the final holding pattern would be. Max Life is a joint venture with Mitsui Sumitomo Insurance Company. Max Financial owns 68% stake in Max Life, while Mitsui Sumitomo and Axis Banks own 26% and 5.99%, respectively. Max Life's total premium collection for year ended March was Rs 9,216 crore and AUM was at Rs 35,824 crore. In HDFC Life, HDFC owns 61.63% and UK's Standard Life 35%. About 1% is owned by Azim Premji.
Both the firms are optimistic of the future of the merger and plans to keep top management in both companies. The entire transaction will be done via share-swap so the IPO of the HDFC Life has been put on hold to see if the deal goes through diligently.
For the successful merger both the companies will be looking at the distributions networks. Private insurance firms have relied on their bank networks to sell their policies and consolidation will depend on enhancing the low-cost distribution network.