Is consolidation on the cards for insurance industry?

Chaitanya Gudipatymoneycontrol.comIf the fortnight gone by is any indication, two big-ticket deals can mark the beginning of consolidation in the country’s insurance sector. What started as the sector's maiden buyout with Housing Development Finance Corporation (HDFC)-promoted HDFC Ergo general insurance company agreeing to acquire L&T General Insurance for Rs 551 crore on June 3 seems to be paving way for further mergers in the insurance segment.On June 17, the board of three companies — HDFC Standard Life, Max Life and Max Life Insurance — agreed to a merger of their businesses, and announced that they will be conducting due dilligence before they create a separate insurance entity.

The deal is set to make HDFC Life the country’s largest private insurance company by individual premium market share. Max Life is expected to be merged with Max Financial Services (MFS) following which MFS will be merged with HDFC Life. The combined entity will be called HDFC Life which, according to industry estimates, could be valued at Rs 50,000 crore.

Deepak Parekh, Chairman of HDFC, told CNBC-TV18 that he expects the combined business to be more accretive in terms of profit. Since Max Financial Services is a listed company, Parekh said HDFC will have to give Max a premium for their distribution and quality products. Distributors of insurance products — HDFC Bank, Axis Bank and Yes Bank — will contribute more to the combined entity's growth, he said.

Similarly, reports have emerged about a potential buyout of Allianz SE's stake by Bajaj Finserv in two joint ventures — Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance. Industry experts peg the deal at Rs 10,000 crore with total valuation of life and general insurance business expected to be around Rs 40-45,000 crore.