The insurance regulator, IRDAI, has denied approval for the proposed merger of Max Life Insurance and HDFC Standard Life Insurance (HDFC Life), saying that the structure of the deal violates the Insurance Act, which bars the merger of an insurance company with a non-insurance firm.
“Further to the representations made to IRDAI, the IRDAI has on 7 June 2017, reaffirmed its original position regarding the Insurance Act, 1938,” said Max India in a stock exchange filing yesterday.
In August last year, the boards of HDFC Standard Life Insurance, Max Life Insurance, Max Financial Services and Max India had approved a proposed structuring under which Max Life would first merge with its parent company Max Financial Services. All non-insurance businesses of Max Financial Services will be transferred to Max India, so that Max Financial Services stops to exist and Max Life becomes a standalone listed insurance firm immediately. Simultaneously, HDFC Life will be merged with Max Life; since HDFC will have a majority stake in the merged entity, HDFC Life will be automatically listed.
In November, however, IRDAI referred the deal to the Law Ministry after raising concerns that the proposed structure of the deal was in violation of Section 35 of Insurance Act, which does not allow merger of an insurance firm with a non-insurance firm. The Law Ministry, in turn, sought an opinion from Attorney General of India Mukul Rohatgi. However, last month, the Attorney General reportedly declined to give an opinion, throwing the ball back to IRDAI.
Both Max Life and HDFC Life said that they are now exploring other options as they remain committed to the merger.
According to two people directly aware of the discussions, both companies have begun reworking the structure of the deal, reported Live Mint.
“One option could be to directly merge Max Life with HDFC Life but these are mere options as of now and no final decision has been taken,” the second person said, on condition of anonymity.
HDFC Life is also looking into the possibility of listing alone.
The potential merger is expected to create India’s largest private sector life insurer, second only to state-run LIC.