This will make HDFC ERGO the third largest private general insurer in the country
Mortgage major HDFC Ltd will acquire Apollo Hospital's entire 50.8% stake in Apollo Munich Health Insurance Ltd and 0.4% stake held by a few employees for Rs 1,336 crore and Rs 10.84 crore, respectively, the company said in a release. This will make HDFC ERGO the third largest private general insurer in the country. The deal is expected to be completed in the next 9-12 months. Munich Health Germany will pay Rs 294 crore to Apollo Hospitals Enterprise Ltd and Apollo Energy Ltd to support the transaction.
The merger will be effected in two stages. In the first stage, HDFC would acquire the entire equity stake of Apollo Hospitals Group and the equity stake of some employees totalling 51.2% in Apollo Munich. In the second stage, there will be a merger of Apollo Munich with HDFC ERGO, subject to regulatory approvals. Post the scheme of amalgamation, HDFC ERGO and Apollo Munich will merge into one entity under the HDFC ERGO brand.
Deepak Parekh, chairman, HDFC Ltd and HDFC ERGO General Insurance Company Ltd, said, "When the Apollo group indicated that it wanted to exit the business, it seemed a perfect fit for HDFC to have Munich Re as our partner."
The combined entity, which will have a gross premium of Rs 10,807 crore, will have a market share of 6.4% in the country's non-life insurance market. "The merger, HDFC said in a statement, "is subject to regulatory approvals."
'HDFC had raised capital for their investments in associate and subsidiary companies. Of the capital raised, we deployed Rs 8,500 crore in HDFC Bank Ltd to retain our shareholding in the bank. We had also indicated that some of the capital would be utilised towards widening our footprint in the health insurance sector, "Parekh added.
Apollo Munich Health Insurance, which was formed in 2007, is a 51:49 joint venture between Chennai-based Apollo Hospitals and German reinsurer Munich Re.
Apollo Hospitals holds approximately 10% and Apollo Energy holds 40.4% in Apollo Munich. Three years back, Apollo Hospitals had raised its equity in the health insurance arm from 24% to 51%. ERGO, a subsidiary of Munich Re, has been the joint venture partner in HDFC ERGO since 2008. ERGO International AG, the primary insurance entity of the Munich Re Group, has been on the lookout for a health insurer for the past two years.
Apollo Munich employs 3,949 people. Its pan-India distribution platform includes 186 offices, 73,000 individual agents and 39 corporate agents as of March 2019, including Canara Bank, Axis Bank, HDFC Bank, Citibank and Bandhan Bank.
Consolidation in the insurance sector will improve insurance penetration in the country, which is now just at 0.93% of GDP (2017), significantly lower than the global insurance penetration (2.8%) and even lower than the Asian markets, which is at 1.9% representing a long-term growth potential. The Indian general insurance market is currently about Rs 1,70,000 crore and has grown at 17% for nearly two decades.
This will be the third acquisition in the insurance sector over the last one year. Private equity firm True North bought Max India's controlling stake in Max Bupa Health Insurance Company Ltd in December 2018 for Rs 2,000 crore. Earlier in August 2018, Star Health and Allied Insurance Co Ltd, India's largest standalone health insurer, said private equity firms WestBridge Capital and Madison Capital and billionaire investor Rakesh Jhunjhunwala had jointly agreed to buy Star Health.
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