MaxLife appears to be looking for a new suitor as its marriage with HDFC Life came to a naught due to structural challenges of merging with bank and hence lack of IRDA approval on the same. Now MaxLife has approached BSLI and the later is not minding a few weeks of dating before saying that big ‘Yes’! As of now, it is the courtship period but will the marriage work? Will it make sense for Birla Sun Life?
We did a little analysis, a more quick & dirty type to see whether their is any synergy/ benefit that can be derived. Consolidation in Indian life insurance is a foregone conclusion as last few years data shows that market share of top 7 LI players have soared from 59% in FY11 to 76% in FY17. For sure the merger will take BSLI to the big league of life insurance player as illustrated below and will make the merged entity 4th largest player.
The most significant advantage for BSLI would come from a more balanced channel distribution. MaxLife has a strong Bancassurance channel compared to BSLI which has been struggling on its Banca relationships. While as of FY17, Banca contributed only 10% to new business premium of BSLI, the combined entity can take that to 50%.
Similarly BSLI can gain significantly from MaxLife greater rural penetration. BSLI has very low rural penetration (< 1%) and that can change significantly post merger (> 13%).
Also owing to MaxLife strong presence in Individual customer segment, BSLI can have a healthier business mix as an outcome of the merger. Basically the merger will complement BSLI both on the singe premium as well as on the Individual segment category.
One of the most significant advantage that the merger can bring to the table is rationalization of physical infrastructure and human resources because there seems to be significant synergy in the geographical dispersion of the new business between these 2 players. The same can be observed in the below chart. Maharashtra, UP, WB, Delhi, Gujarat, Haryana seems to be the states with large contribution for both. Hence the merged entity can benefit from lower operating expense by optimizing sales force, sales offices & operational infrastructure.
To summarize, BSLI can leap immediately to the big league in Indian LI market, significantly gain on Bancassurance channel, improve rural penetration and improve operational margin from the product and the geo dispersion synergies. We are hoping that MaxLife will have better luck this time but this makes sense for BSLI as well. MaxLife is talking to other suitors as well (a PE fund) but best bet is with BSLI. Although merger may not augur so well for many of the employees due to potential rationalization of workforce (which is not a great signal for the economy in current state) but a merger with an existing insurance player makes much better sense.
For the more inquisitive folks, ending with a comparison of their analytical ratios.
Public disclosures of BSLI and MaxLife for FY1617
All data are for Year ended FY1617 (March 2017 end)