Why The HDFC Life, Max Life Deal Is Stuck
Naina Lal Kidwai confident that mega insurance deal will be completed in a year.
It’s the first merger in the insurance sector, pointed out Naina Lal Kidwai, chairman of Max Financial Services Ltd., as she shrugged off the IRDAI’s objection to the deal between her company and HDFC Standard Life Insurance.
"I think regulatory hurdles will continue because it's a new space... you've not seen mergers in the life insurance space, and its really a process for the regulators and the players to work out," Kidwai said.
The merger of the two companies has hit a regulatory hurdle after the Insurance Regulatory and Development Authority of India questioned the scheme of amalgamation between the two. The Insurance Act allows for mergers between two life insurance companies but it does not make provision for the merger of a life insurance company (HDFC Life) with a Non-Banking Finance Company (Max Financial Services Limited), said a person aware of the issue. Both companies will represent their case to the regulator, said the same person cited above.
Neither company has officially disclosed why the IRDAI has raised an objection. On November 12, in a notice to the stock exchange, Max India Ltd. said, “IRDAI has expressed reservations to accept the scheme of amalgamation in its current form”.
The notification also said that Max Life and HDFC Life believe that the scheme of arrangement, as submitted to the insurance regulator, is in compliance with all applicable laws, and that the two companies propose to represent and clarify the matter to IRDAI.
"I don’t think these are major hurdles," Kidwai reiterated, insisting that the merger is on track and adding that she expects it to be completed in a year.
As per the proposed structure, Max Life Insurance, a subsidiary of the public listed Max Financial Services will be merged with the parent, and the merged entity will be combined with HDFC Life Insurance. HDFC Life Insurance will automatically list on the stock exchange.
Demonetisation Impact On Insurance Sector
Kidwai said the demonetisation decision and subsequent cash crunch have had no impact on the insurance sector as most premium payments are made online or via cheque.
She hoped that if India aims to bring the ‘cash to GDP’ ratio to 9 percent from the current 12 percent, then a portion of the money entering the formal economy will move into financial instruments like insurance and mutual funds.
Kidwai also said that it was too early to assess the impact of digital payment incentives extended by government insurance companies on the private sector.
The government on December 8 announced that state-owned insurance companies will provide a discount of up to 10 percent of the premium in general insurance policies and 8 percent in new life insurance policies of Life Insurance Corporation sold through online portals, if payments are made digitally.