Max Financial Services shares rallied nearly 20 percent and HDFC gained 2 percent intraday Friday after a media report indicated there are merger talks between both companies for their life insurance business. Axis Bank gained 2 percent as it holds 5.99 percent stake in Max Life.
"HDFC Life and Max Life are in talks to create the country's biggest private life insurer as stiff competition and regulatory hurdles force firms to find new ways of growing market share and profitability," a media report said quoting sources familiar with the talks.
Both companies confirmed saying board of directors of both firms are agreed to evaluate merger of Max Life & Max Financial into HDFC Standard."Board of Directors of HDFC Standard Life Insurance Company, Max Life Insurance Company and Max Financial Services at their respective meetings held today, approved entering into a confidentiality, exclusivity and standstill agreement to evaluate a potential combination through a merger of Max Life and Max Financial Services into HDFC Life by way of a scheme of arrangement," companies said in their release.
Max Life is indirectly listed via Max Financial Services. Max Financial holds 68.01 percent & Mitsui Sumitomo 26 percent in Max Life and the rest 5.99 percent is held by Axis Bank.
Now the point to watch out for is whether Axis Bank continuing with its shareholding or not.
"If the merger were to happen then it needs to be seen if Axis Bank continues with its equity ownership and also if Axis Bank continues to be a bancassurance partner for the new combined entity," Deutsche Bank says in its note.
Bancassurance is the partnership between insurance company and a bank, wherein the insurance company uses bank's client base for selling its insurance products.
In terms of distribution for HDFC Life, bancassurance (HDFC Bank) accounts for more than 70 percent of individual business whereas for Max Life bancassurance is 67 percent (of which Axis Bank is 58 percent).
The brokerage says HDFC Life has a higher share of linked products (ULIPs) where as Max Life has a higher non-linked portfolio.
For FY16, HDFC Life product mix was unit linked (55 percent), participating (30 percent) and non-participating (15 percent) and that for Max Life was ULIP (28 percent), participating (58 percent) and non-participating (14 percent).
If both companies (HDFC Life & Max Life) gets merged then that will be bigger private life insurance company than ICICI Prudential.
For FY16, HDFC Life had individual annual premium equivalent (APE) market share (among private players) of 14.7 percent and Max Life had a market share of 9.3 percent. State-run LIC is the biggest life insurance company in India with 70 percent market share.
HDFC Standard Life Insurance Company (HDFC Life) is a partnership between HDFC and Standard Life. Currently HDFC holds 61.63 percent and Standard Life (Mauritius Holdings) 2006 Limited holds 35 percent of equity in HDFC Life. HDFC has already announced its intention for doing an IPO of HDFC Life.
At 10:44 hours IST, the scrip of Max Financial Services was quoting at Rs 497.70, up 16.10 percent and HDFC was at Rs 1,219.55, up 1.52 percent on Bombay Stock Exchange. Axis Bank was trading at 531.50, up 1.50 percent.
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