Private sector life insurer HDFC Life on Friday said it will acquire a 100 per cent stake in Exide Life Insurance Company for Rs 6,887 crore from Exide Industries Ltd (EIL) and subsequently, it will be merged with HDFC Life, subject to regulatory approvals.
This marks one of the first and the largest acquisitions in the life insurance space, which has 23 private players and one state-owned insurer – Life Insurance Corporation (LIC). Previously, HDFC Life had intended to acquire Max Life but the deal did not go through because of regulatory hurdles. Experts said this deal will, however, is not expected to face any such regulatory hurdles.Earlier, Reliance Capital, the NBFC arm of the Anil Dhirubhai Ambani Group, had acquired the entire stake in AMP Sanmar from Australian insurer AMP and the Sanmar group in October 2005 for a little over Rs 100 crore. HDFC Life’s proposed acquisition will mark the first acquisition in the past 16 years in the life insurance space.
Of the Rs 6,887 crore that HDFC Life will be paying to acquire Exide Life Insurance, Rs 725 crore will be payable in cash, and the balance by issuing 87.02 million equity shares of face value of Rs 10 of the company issued at a price of Rs 685 per share to Exide Industries Limited, the holding company of Exide Life Insurance. EIL’s total investment in Exide Life as on date was Rs 1679.59 crore.
Post the acquisition, Exide Industries will hold a 4.1 per cent stake in HDFC Life and mortgage lender HDFC Ltd, which holds 49.9 per cent stake in HDFC Life, will see its stake come down to 47.9 per cent.
In a statement, HDFC Life, one of the largest private insurers in the life insurance space, said, “The proposed transaction will accelerate the growth of the agency business of HDFC Life. Exide Life complements HDFC Life’s geographical presence and has a strong foothold in South India, especially in Tier 2 and 3 towns, thus providing access to a wider market”.
HDFC Life’s agent base will get augmented by 36,700 agents post the acquisition and its agent base will grow to 144,605 from the current 107,895 agents.
Also, the good quality of predominantly traditional and protection focussed business will augment the existing embedded value of HDFC Life by approximately 10 per cent. As of June 30, the embedded value of Exide Life is Rs. 2,711 crore and
The date of completion of the sale depends on the time taken for receiving all approvals, including those from concerned regulators. However, it is estimated that the sale will be completed before June 2022.
“The proposed transaction will give customers access to a wider bouquet of products and service touchpoints. Employees and agents will benefit from a larger, stronger organisation that realises the synergies arising out of complementary business models built on similar ethos”, HDFC Life said in a statement.
In FY21, Exide Life Insurance earned premiums to the tune of Rs 3,325 crore. It’s asset under management was to the tune of Rs 18,870 crore as of June 30, 2021. Exide life reported revenue of Rs 4,937.46 crore in the year ended March 2021 with a net worth of Rs 1,481.42 crore.
On the proposed acquisition, Deepak Parekh, chairman, HDFC Life said, “This is a landmark transaction, first of its kind, in the Indian life insurance space. It would enhance insurance penetration and further our purpose of providing financial protection to a wider customer base.”
Vibha Padalkar, MD&CEO, HDFC Life said, “We believe that this amalgamation can result in value creation for customers, employees, shareholders and distribution partners. It gives us an opportunity to realise synergies arising out of complementary business models, and further bolster our proprietary distribution network”.
Shares of HDFC Life are trading 3 per cent lower at Rs 735.90 post the announcement of the acquisition.
HDFC Life had reported a 33 per cent decline in standalone net profits at Rs 302 crore in Q1FY22 due to higher claim payout by the company and higher provisions being set aside to mitigate the impact of higher claims because of the pandemic. It has set up an additional reserve of Rs 700 crore to service further claims. The solvency ratio of the insurer at the end of Q1FY22 stood at 203 per cent, higher than the regulatory requirement of 150 per cent.
An industry expert said insurance by nature is a capital-guzzling business so it’s the management’s call whether to infuse capital in the company at regular intervals or exit the company completely by selling it lock, stock, and barrel. With foreign direct investment in the insurance sector increased to 74 per cent, we may see promoters of smaller companies exit the space by selling their stake to foreign companies.