HDFC Standard Life Insurance Co. Ltd and Max Life Insurance Co. Ltd have called off their proposed merger after failing to win regulatory approval for a union that would have created an insurance giant with Rs1.1 trillion in assets.

In a statement on Monday, Max Financial Services Ltd, Max India Ltd and Max Life confirmed that the proposed merger with HDFC Life has been called off.

The exclusivity agreement with HDFC Life was valid until 31 July 2017 (Monday), and will not be renewed, Max said.

In November, the Insurance Regulatory and Development Authority of India (IRDA) referred the deal to the Union law ministry after raising concerns about its structure being in violation of a section of the Insurance Act.

Max Financial Services was created in 2016, after a demerger of the erstwhile Max India. Both firms had initially proposed the merger of Max Life with Max Financial Services.

This structure was found to be in violation of Section 35 of the Insurance Act, which does not allow merger of an insurance firm with a non-insurance firm.

The law ministry, in turn, sought an opinion from then attorney general Mukul Rohatgi. As per the original scheme, the deadline for IRDA approval was to expire in June, while that for court approval was to end in February 2018. When Rohatgi declined to give his view on the matter, IRDA in its final decision refused to give the go-ahead to the transaction.

“The prospective partners had evaluated several alternative structures over the last month. However, the inordinate time associated with finalization and approval of these structures led to this decision," the statement said.

Mint reported in June that both companies had begun working on an alternative structure while HDFC Life had also simultaneously begun working on its proposed initial public offering (IPO).

In July, HDFC Life’s board approved a proposal to sell as much as 20% of the insurer through an IPO even as it reiterated its commitment to a potential merger with Max Life at a later date.

While both sides could not subsequently agree on an alternative structure, Mint reported in June that the approval process for a new structure could potentially take another 12 to 18 months, which some HDFC Life investors were not amenable to.

HDFC Life and Max Life had announced their merger plans in August last year. The potential merger would have created India’s largest private sector life insurer, surpassing ICICI Prudential Life Insurance Co. Ltd, and second only to state-run Life Insurance Corp. of India, which has a 70% share of new business premiums in the country.

The merger had been seen as the first sign of a long-awaited consolidation in an industry with assets under management of Rs22.4 trillion, of which the 23 private sector insurers account for only Rs4.61 trillion, according to IRDA.

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