Insurance Regulatory and Development Authority of India (Irdai) has raised objections to the merger between HDFC Standard Life and Max Life Insurance. The process of the merger and the terms will need to be reworked. Senior officials in the insurance regulator, said on condition of anonymity, a formal communication regarding the same to both the parties would be sent out in a day or a two.
“What we would like to see is a merger between two life insurance companies. What was earlier proposed was not amounting to this,” the executive observed. “We had some reservations and had conveyed these to the companies but now we will send them formal communication that merger cannot go-through in current form,” said a senior member from Irdai.
In August last year, the boards of HDFC Standard Life Insurance Company, Max Life Insurance Company, Max Financial Services and Max India had approved entering into definitive agreements for amalgamation of business between the entities through a composite Scheme of Arrangement.
As a part of the proposed transaction, the life insurance business or Max Life would merge into Max Financial. Shareholders of Max Life would get 1 share of Max Financial for every 4.98 shares they hold in the insurer. Next, the insurance unit would be separated from the merged entity and folded into HDFC Life; shareholders of Max Financial Services (post the amalgamation with Max Life), will get 2.33 share of HDFC Life for each share of Max Financial Services.
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The insurance regulator had reservations about the manner in which the two insurers were proposed to be amalgamated, with particular reference to Section 35 of the Insurance Act 1938, which looks into the terms of merger of insurance companies. As per Section 35 of the Insurance Act 1938, no life insurance business of an insurer can be transferred to any person, or transferred to or amalgamated with the life insurance business of any other insurer, except in accordance with a scheme prepared under this Section and approved by the Authority.
Senior officials close in the industry said that, there were some differences in the interpretation of this particular provision. Since the deal involved Max Life merging into the listed Max Financial Services which would in turn merge with HDFC Life, there was a view that this meant the merger of one insurance business with a company which is not a life insurance company.
There are some reports that, HDFC Standard Life would now list on its own. “If HDFC lists and then wants to buy-out Max Life we would not have a problem. Our issue was on merger between life insurance company and a financial services company insurance company,” concluded the Irdai official.
In the last financial year, HDFC Life saw its new business premium at Rs 8,696.21 crore, according to the data from Life Insurance Council. The embedded value stood at Rs 12,390 crore as on March 2017 as against Rs 10,230 crore in March 2016.