India’s largest insurance merger between HDFC Life Insurance and Max Life Insurance came to a standstill as it failed to receive IRDAI’s go ahead on Thursday.
As per the insurance regulator, the merger deal violates section 35 of the Insurance Act, 1938 that says, “No life insurance business of an insurer can be transferred to any person, or transferred to or amalgamated with the life insurance business of any other insurer, except in accordance with a scheme prepared under this Section and approved by the Authority.” Here, HDFC Life was merging with Max Financial Services, a non-insurance business firm which is why it failed to receive a green signal from IRDAI.
In June 2016, Max Financial Services and HDFC Life announced their merger plans through a three-step merger process where Max Life would first merge with its parent company Max Financial Services, a listed entity and subsequently de-merge itself to merge with HDFC Life. The proposed transaction would have to led automatic listing of HDFC Life post the merger. However, the insurance regulator had expressed its dissent over the merger at that time.
After IRDAI turning down the merger plan, both the entities are now looking out for alternative options to carry out the merger. In a recent regulatory filing to the exchanges, HDFC Life said, “The Authority on June 7 reaffirmed its original position regarding section 35 of the Insurance Act, 1938. HDFC Life and Max India remain committed to merger and evaluating various options.”
In a recent article published by ET now, Amitabh Chaudhry, MD & CEO, HDFC Life said if the regulatory norms would take too long to clear, HDFC Life would go for an IPO first and then go ahead with the merger of both the life insurance companies later.