With the Insurance Regulatory and Development Authority of India (Irdai) turning down the mega merger plan of HDFC Standard Life and Max Life Insurance, both the entities said they are “committed to the merger and are evaluating various options”. Though HDFC Life and Max Life made representations to the regulator again, IRDAI has refused to back down from its stance of not clearing the merger in the current form. “Further to the representations made to IRDA, the IRDA has on June 7, 2017, reaffirmed its original position regarding Section 35 of the Insurance Act, 1938. HDFC Life and Max Life remain committed to the merger and are evaluating various options,” HDFC Life said.
Under Section 35 of the Insurance Act, “no life insurance business of an insurer shall be transferred to any person transferred or amalgamated with the life insurance business of any other insurer except in accordance with a scheme prepared under this section and 37.” IRDAI made it clear it wants merger between two life insurance companies and not merger of a life insurance company with a non-life insurance firm. However, HDFC Life did not specify the options they are working on.
In August last year, the boards of HDFC Standard Life Insurance Company, Max Life Insurance Company, Max Financial Services and Max India Ltd approved entering into definitive agreements for amalgamation of business between the entities through a composite Scheme of Arrangement. As part of the proposed transaction, the life insurance business of Max Financial Services, currently held in Max Life, would demerge into HDFC Life. For the merger of Max Life into Max Financial Services, shareholders of Max Life will get one share of Max Financial Services for every 4.98 shares of Max Life. For the demerger of the life insurance undertaking from Max Financial Services 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.
Senior officials close in the industry said that, there were some differences in the interpretation of Section 35 of the Insurance Act. 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. Speculation is now rife that HDFC Standard Life would now go for listing of its shares through an IPO.