Analysts Explain Why HDFC Life, Max Life Insurance Are Merging

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HDFC Standard Life Insurance on Friday said it has agreed with Max Financial Services and subsidiary Max Life Insuranceto open exclusive merger talks, as the trio target an increased share of domestic insurance market. Shares of Max Financial Services and HDFC rallied sharply today.

Bhavik Hathi of A&M India told NDTV Profit than the deal shows the path that the insurance industry is going to take ahead. Max Life would be able to gain access to HDFC’s bancassurance network, he added.

Bancassurance enables insurance companies to sell their products to the bank’s client base.

“There is clear wave of consolidation happening. We have seen HDFC doing something similar on the general insurance side as well,” he said.

HDFC’s general insurance arm HDFC Ergo earlier this month agreed to buy L&T General Insurance in an all-cash deal for Rs 551 crore.

Analysts said Max Life’s and HDFC Standard Life’s businesses were complementary, which may be one reason why the two companies have decided to explore merger option.

“HDFC Life is largely a unit-link insurance player while Max Life is a traditional insurance player. From that point of view it is a good portfolio match as well,” said Mr Hathi.

Gaurang Shah of Geojit BNP Paribas told NDTV Profit that given low insurance penetration in the country, these mergers and acquisitions will help stronger players continue in business and at the same time those who are in business will have advantage of getting a bigger market share.

“This is the beginning…there is a possibility of more mergers coming through subject to approvals… It is win-win situation depending on scale of business and with this deal

Max will have the banking customer base, housing customer base and will have the positives of the diverse network of branches that both the HDFCs have,” he added.

Mahantesh Sabarad, deputy head of equity research at Mumbai-based SBI Cap Securities, told NDTV Profit that he is bullish on the insurance sector because of the value creation taking place right now.