HDFC, Max Financial in talks to merge life insurance biz

The deal, if happens, could lead to a consolidation in the Indian insurance sector.

NSE had earlier sought clarification from Housing Development Finance Corporation on the “life merger” report. This is the firm’s second major insurance advisory work after the HDFC Ergo-L&T General Insurance transaction. HDFC Life reported a profit after tax of Rs 818 crore for FY16 against Rs 786 crore in the previous year. “We believe there are significant benefits of a potential combination and if this materialises, it could make the consolidated entity the largest private life insurer in the country”.

Although there are no details on valuation, going by past transactions, the merged entity could be valued at around Rs 50,000 crore.

Standard Life’s (LON:SL) joint venture in India is now in merger talks with Max Financial Services and subsidiary Max Life, the London-listed company has disclosed. Their joint venture partners, Mitsui Sumitomo Insurance of Japan and Standard Life of the United Kingdom, have also given the nod for the proposal.

In London, Standard Life shares were trading at 305.80 pence, up 2.55 percent.

India’s investment norms now permit 49% foreign direct investment in an insurance sector company.

As per the deal, there would be two schemes of amalgamation. Under this arrangement, Max Life will first merge with Max Financial Services which in turn will merge with HDFC Life.

“We have made a decision to talk to the Max Group to see whether a merger is possible”, HDFC chairman Deepak Parekh told the media, adding that the new entity would be automatically listed. At its last public filing on 31 March, HDFC Standard Life had ₹742.5bn (£7.7bn, $11.1bn) in assets under management. This is considerably lower than other Asian peers which gives players like HDFC an opportunity to expand their business by both organic and in organic growth.

Max and HDFC are qualitatively two of the best in insurance and the merged entity will boast of a strong book quality as well as distribution, Singh added.

“We said we have three options – stay where you are, go out and consolidate or acquire a smaller company with less operating experience/merger performance”.