The merger of HDFC Life and Max Life, which was announced in August 2016, ran into rough weather after the Insurance Regulatory and Development Authority of India (Irdai) sent it to the attorney general (AG) for approval.
In November, Max Financial Services informed the BSE that “Irdai has expressed reservations to accept the scheme of amalgamation in its current form. The company believes that the scheme of arrangement as submitted to Irdai is in compliance with all applicable laws and proposes to represent and clarify the matter to Irdai”.
The three-stage deal had envisaged that Max Life was to merge with Max Financial Services, which would in turn merge with HDFC Life. The deal structure was designed in this manner so that HDFC Life would automatically get listed on the stock exchanges since Max Financial Services is already listed.
The insurance regulator raised its concerns on the last stage, said industry sources, as Max Financial Services is the holding company of Max Life Insurance and the merger was happening between a holding company and a life insurance company. For HDFC Life, a merger with Max would mean that it would automatically get listed on the bourses.
According to 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. Irdai, consequently, had sought the approval of the AG for the deal.
On Tuesday, television channels reported that the HDFC Life- Max Life deal proposal had been returned by the AG to Irdai without any comment. While both the companies
did not confirm the development, in a joint statement, they said: “We have heard media reports about this development but don’t have an independent confirmation. HDFC and Max Group remain strongly committed to concluding this proposed merger and will be working with the insurance regulator to do so.”
The AG’s move seems to have stumped both insurers as they were expecting some kind of closure soon. According to investment bankers, many in the insurance industry are closely following this deal as there are many players who are not doing too well, and there are strong chances of consolidation in the industry.