HDFC Standard Life Insurance Co. Ltd and Max Life Insurance Co. Ltd called off their proposed merger this July 2017, a union that would have created an insurance giant with Rs. 1.1 trillion in assets. Reportedly, Analjit Singh led Max Financial Services is currently in talks with Aditya Birla Group to explore a merger of their life insurance businesses.
Their aim is to create one of the top 3 private life insurers in the country. Birla Sun Life is a 51:49 JV between Aditya Birla Capital Limited (ABCL) and Canada's Sun Life. Max Financial Services (MFS) was formed in January 2016, as the result of a three-way demerger of Max India. MFS is the holding company for Max Life, India's largest non-bank promoted private life insurance company. MFS currently holds 69% stake in Max Life, its Japanese partner Mitsui Sumitomo which owns 25% with Axis Bank owning 4.9% of the venture. The remaining 1% is held through management ESOPs.
Birla's have been on the lookout for scaling their franchise for long. The primary reason for exploring this merger is the large bank partners associated with Max i.e. Axis and Yes Bank, the third and fourth largest private bank in the country.
In the last one year, Birla Sun Life has managed to tie up with six banks, which are all much smaller. The absence of a strong Banca partner has been hurting Birla Sun Life's distribution with premium mix shifting towards group business (62% contribution in FY17). In Q1FY18, as per its management, new business premium saw 33-34% growth driven by retail segment.
On the other hand, Singh has been open to monetising his investments. Parallelly, he is also believed to be negotiating with UK-based Northern Trust which manages a trillion dollar of assets and PE firm Apax Partners to sell his promoter stake of 30 per cent in Max Financial Services.
Max Life, India's fourth largest private life insurer has a 7.9 per cent market share with assets under management (AUM) of Rs. 44,370 crores as on 31st March 2017, growing 24% over last year. In FY2017, the company reported individual adjusted sales of Rs. 2,639 crores, growing 25% and revenues of Rs. 12,937 crores growing 19%. Its embedded value stood at Rs. 6,590 crores as on 31st March 2017 with an operating return on EV (RoEV) of 20%. The Value of New Business (VNB) written during FY2017 was Rs. 499 crores, growing 29% over the previous year, and the new business margin stood at 18.8%.
Birla Sun Life Insurance has a 7.1% market share, the total premium it collected stood at Rs. 5700 crores in 2017 versus Rs. 5200 crores in FY2013, whereas profit before tax has gone down from 540 crores in 2013 to just 120 crores in FY2017. Birla Sun Life has embedded value of 3400 Crores in FY2017.
Cyril Amarchand Mangaldas is believed to be involved as a legal advisor in the ongoing Birla-Max negotiations.