Merger Between HDFC Life, Max Life May Lead To Job Cuts

The proposed merger between two leading private insurers HDFC Life and Max Life has left employees of the latter in a state of uncertainty. Reason? Well, even as both are among the top four private players in the grossly under-penetrated insurance market in the country, HDFC Life is a bigger player than Max Life. So once the merger process is completed, many employees from Max Life will have to make an exit, said industry insiders tracking the sector.

“Job cuts are inevitable in a merger like this and it is natural that all employees of both the companies will not be retained in the new formed entity,” said a source familiar with the development. A merger screening committee has already been formed to gauge the employee situation and suit the requirement of both the companies,” the person added.

Rajesh Sud, who is currently the Executive Vice Chairman & Managing Director at Max Life may also step down over time as the headquarters of the newly merged entity will move to Mumbai if the deal fructifies. When contacted, the company spokesman said: “Any discussion on Rajesh Sud’s role post merger would be speculative in nature and it would not be appropriate to comment on it.” Over the last 15 years, Sud and the management team have played a critical role in delivering organisational goals and going forward in FY17 and beyond, they will be providing products and service to Max Life customers and sellers and enabling successful completion of the proposed merger.

HDFC Life and Max Life made headlines in the middle of June with talks of a proposed merger, which if materialises will not only go on to create the biggest private insurance company in the domestic market , but will also open up floodgates for more such deals. Going forward, the merger process between the two entities will take at least a year to complete and take place in a two-legged transaction. First Max Life will first merge with Max Financial Services, the holding company which is listed and owns 68 per cent in the insurer. Thereafter, Max Financial Services will merge into HDFC Life.

“At this stage, the companies are in the process of completing the due diligence further to the confidentiality, exclusivity and standstill agreement. The proposed merger is subject to regulatory and court approvals and the transition process will commence once the merger is approved,” said the spokesperson.

This is first of a kind deal in domestic life insurance market. “The life insurance industry in India is at a cusp. Conventional business models with traditional customer-product segmentation and channel strategies may not be relevant anymore. This has compelled insurers to re-evaluate their business models to build a competitive advantage. As part of this endeavour, some players shall surely look at the inorganic options like mergers and acquisitions,” said Shashwat Sharma, Partner – Financial Services, KPMG in India.

As it is, public sector behemoth Life Insurance Corporation controls the life insurance market. As far as the private industry is concerned, there are currently too many life insurers operating in the country, while the life insurance penetration is abysmally low at 3.4 per cent of the GDP. In nations such Hong Kong and Japan, it is over 10 per cent. Both HDFC Life and Max Life are among the top 4 private insurers. So the merger, if goes through, will pose a threat to the smaller private insurance companies, which naturally will try to undergo mergers to retain their marketshare.

Currently, there are 23 private insures operating the domestic market and they collected a total premium of Rs 5,342.94 crore in the first two months of this fiscal compared to Rs 4,267.21 crore. LIC during the said period this fiscal collected premium worth Rs 13,239.70 crore. In April, May 2015, it’s premium collection stood at Rs 9,383.74 crore.