With a strategy to tap the potential market growth, India’s largest mortgage financier, HDFC Ltd, announced on Wednesday that it will acquire a 51.2% stake in Apollo Munich Health Insurance, the insurance arm of Apollo Hospitals. It will be followed by a second stage merger with HDFC Ergo, a joint venture between HDFC Ltd. and ERGO International AG.
HDFC will pay Rs. 1,336 crore to Apollo Hospitals for the pact. Also, it will pay an additional Rs. 10.84 crore to the employees of Apollo Munich Health Insurance Co. Ltd to purchase their 0.4% stake in the company.
Commenting on the acquisition, Deepak Parekh, chairman of HDFC said, “In a two-stage transaction, HDFC will first acquire the 51.2% in Apollo Munich, subject to approvals by the National Housing Bank, insurance regulator Insurance Regulatory and Development Authority of India (Irdai) and the Competition Commission of India. Thus, Apollo Munich will be held as a subsidiary of HDFC.”
“In the second stage, there will be a merger of Apollo Munich with HDFC Ergo, subject to the approval of the National Company Law Tribunal and final approval of Irdai. Post the scheme of amalgamation, HDFC Ergo and Apollo Munich will merge into one entity under the HDFC Ergo brand,” he added.
The merged entity will have a gross premium of ₹10,807 crore and a market share of 6.4% in India’s non-life insurance market. In the accident and health insurance space, it will be ranked number two with an 8.2% market share.
Stating the relationship between the two entities, Markus Riess, chairman of Ergo Group and member of the board of Munich Re said, “Over the years, Munich Re Group has enjoyed an excellent relationship with the Apollo group, in building a powerful franchise in health insurance. With this transaction, we are very much looking forward to further strengthening our ties with HDFC Group and consolidating our presence in India.”
With health insurance expected to become the ruling product in the future, the non-life insurance industry is seeing structural change and accordingly HDFC is seeking for opportunities in the similar space.
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Parekh opines, “In the general insurance space, it is expected that the share of accident and health insurance will rise from 30% currently to 39% in the next five years. This growth means that accident and health will have a larger share and overtake motor insurance, which currently accounts for the largest component in general insurance,” said Parekh.
HDFC currently runs HDFC Ergo General Insurance Co., a joint venture with Ergo International AG, the primary insurance entity of Munich Re. Separately, Munich holds a 49% stake in Apollo Munich Health Insurance.