HDFC Life – the third largest private sector life insurer – has entered into an exclusive discussion with Analjit Singh’s life insurance arm, Max Life, for the merger of the entities that would create the largest private sector life insurance company in the country.

The two will decide on the share swap ratio within the next two months. However, there will be no cash involved, HDFC Chairman Deepak Parekh said. To complete the deal with all necessary approvals, it would take another 10 months, he added.

Since Max Financial Services is the holding company for Max Life, the latter will first be merged with the former and then the combined entity will be merged into HDFC Life, according to Analjit Singh, Chairman Emeritus of the Max Group. Post merger, Max Financial services would cease to exists, Mr. Singh clarified.

No IPO now

As Max Financial Services is a listed entity, the merger entity would enable HDFC Life to list automatically on the stock exchanges. As a result, HDFC Life, which was contemplating an initial public offer (IPO), had decided to put the plan on hold, Mr. Parekh said.

“I have known Mr. Analjit Singh for many years … We hope this works out,” Mr Parekh said.

Only evaluating

The merged entity will have 24 per cent market share among private life insurers and 12 per cent overall, in terms of first-year premium. While Max Life is the fifth largest private sector life insurers but it is less than half the size of HDFC Life.

Mr Parekh said that consolidation in the private sector would enable the creation of large companies which could then drive economies of scale, thereby servicing customer interests better.

The top four private insurers constitute 65 per cent of the private insurance market, and the rest 19 private insurers have a combined share of 35 per cent.