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HDFC Life CEO explains rationale behind Exide Life Insurance merger –

Vibha Padalkar, MD & CEO, HDFC Life Insurance

HDFC Life Insurance, on September 3, announced that it would acquire the 100 percent stake in Exide Life Insurance from Exide Insurance.

HDFC Life’s MD & CEO Vibha Padalkar, in a media call, said the amalgamation would unlock significant value for all the stakeholders.

The acquisition is via issuance of 87 million shares at an issue price of Rs 685 per share and a cash payout of Rs 726 crore.

Exide Life has a strong proprietary agent network and has a strong presence in the southern states especially in tier 2 and 3 towns. The acquisition bumps up HDFC Life’s presence in the southern states.

HDFC Life has a significant presence in the bancassurance channel and its focus has been on growing proprietary channels.

“Our state objective is to have balance in everything we do whether in product or distribution,” said Vibha.

HDFC Life share price falls on acquisition of Exide Life

“We have been growing our proprietary channel organically by 20 percent on a CAGR basis but growing at 40 percent will tantamount to post the merger that would’ve taken us two-three years,” she added.

Currently, the proprietary channel constitutes 15 percent of the business for HDFC Life.

“We want that to be 30-35 percent of business, if you look at other parts of Asia, proprietary channels dominate. The reliance on bancassurance has gone down and companies have built their own models and that is the objective and core rationale of the deal to grow our proprietary channel,” she added.

The acquisition will strengthen HDFC Life’s growth of agency channel and other distribution channels like brokers, direct and co-operative banks.

“We don’t chase market share as an outcome, we will continue to build good quality and profitable business, chasing market share and top line isn’t that difficult,” said Vibha.

On the impact of solvency ratio due to acquisition, Vibha said – as and when the cash payout of Rs 726 crore happens – it will become a subsidiary.

“Our solvency will go down by 15 percent and is likely to happen five-six months down the line. Till then our profits are likely to get generated and will add to solvency,” she added.

The regulatory requirement for all insurance companies is to maintain a solvency margin of 150 percent.

On a standalone basis without adding profits HDFC Life’s solvency ratio will go down by 15 percent, its current solvency ratio is at 203 percent.

“Our solvency would be close to 180 percent and we have articulated in the past that we will stay between 180-200 percent, we will take a view largely due to COVID-19 position whether we want to strengthen our solvency position but nothing on cards to raise funds,” Vibha said.

She also said, once the transaction was over, they would continue to scout for M&A opportunities.