M&A deals perk up in health insurance

Mortgage lender HDFC Ltd has completed the acquisition of a majority stake in Chennai-based Apollo Munich Health Insurance Company Ltd for Rs 1,495.81 crore. Last year, TTK Group had exited from the Cigna TTK Health Insurance joint venture by selling its 31.5% stake to Manipal Group for Rs 500 crore. Similarly, Max India has sold its 51 per cent stake in Max Bupa Health Insurance Company to private equity firm True North.

The consolidation in the health insurance business is perking up. Four out of six standalone health insurance companies in the country have seen either full buyouts or stake sale being bought by private equity investors or strategic players. There were actually seven standalone health insurance companies, but the Insurance Regulatory and Development Authority of India (IRDA) had directed Reliance Health Insurance in November last year to transfer its entire portfolio to Reliance General Insurance and stopped it from selling new policies as the company's solvency ratio dropped below the regulatory norm. Private equity deals are gaining momentum which is helping in consolidation in the Indian health insurance sector.

While the health insurance sector is steadily gaining momentum, the gross direct premium income underwritten by health insurance grew 15% year-on-year (y-o-y) to $4.5 billion till November 2019. The country is grossly under-penetrated when it comes to health insurance. As per the National Family Health Survey, less than one-third (29%) of the households have at least one member covered under health insurance. Two-third of the total health care expenses are financed from own sources and the rest is through insurance and public spending.

The market of health insurance is gradually growing across the country. Deepak Parekh, chairman of HDFC had underlined that 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. So, this growth means that premium collected from health and accident insurance will be more than motor insurance, which accounts for the largest component in general insurance.

HDFC completes acquisition of Apollo Munich

On June 19, 2019, HDFC had announced acquisition of 51.16% equity stake of Apollo Munich Health Insurance for Rs 1,495.81 crore (includes 0.36% of employees stake for Rs 10.67 crore). Munich will hold 49% stake in the merged entity. The German insurer will pay Rs 294 crore to Apollo Hospitals Enterprise and Apollo Energy for terminating their joint venture.

It has recently received all requisite approvals from Competition Commission of India, Reserve Bank of India and IRDA. After receiving the approval, the company has been named as HDFC ERGO Health Insurance Ltd and will operate as a subsidiary of HDFC Ltd. The acquisition will help the company to expand its agency network and premium book in health insurance segment.