After a year of negotiations, insurance giants HDFC Life and Max Life Insurance have put on the backburner their proposed plans for a merger, having failed to get the requisite approvals from the Insurance Regulatory and Development Authority of India (Irdai).
This has prompted HDFC Life to go ahead with its listing first. It plans to divest up to 20 percent stake through an IPO.
With reference to the proposed merger, HDFC Ltd, in a disclosure to the stock exchanges, said: “We continue to believe that such a transaction, if it can obtain the necessary approvals, would create strategic value for both the companies. At present, no structure prior to an IPO of HDFC Life has been identified… HDFC Life Board and its promoters would be willing to re-evaluate the option of a merger with Max Life in due course.”
The plans for a merger between the insurance companies were announced in June last year wherein Max Life was first supposed to merge with the publicly-held Max Financial Services Ltd which in turn would have merged with HDFC Life, offering it an automatic listing route. It was supposed to be a three-way merger.
However, Irdai rejected the proposed deal citing Section 35 of the Insurance Act, 1938, wherein an insurance firm is not allowed to merge with a non-insurance firm. Max Financial is not technically considered a life insurance firm.
What it means for the industry
If the merger between HDFC Life and Max Life had materialised, it would have created the biggest private sector insurance company in the country. In fact, it would have also paved the way for more such transactions in a grossly under-penetrated insurance market in the country, where mergers and acquisitions (M&As) are key.
This is the time for insurance companies to introspect, integrate and consolidate—in this lies their mantra for sustainable growth: Monish Chatrath, managing partner at MGC & KNAV Global Risk Advisory