MSADY MS and AD Insurance Group Holdings Inc (PK)

MUMBAI—HDFC Standard Life Insurance Co. Ltd. is in talks to acquire Max Financial Services Ltd. and its insurance unit, a deal that would create India's largest private life insurer.

The companies said Friday the talks will focus on a potential deal that sees Max Financial and its insurance unit Max Life Insurance Co. Ltd. merge into HDFC Standard Life.

Shares of Max Financial Services, which has a market capitalization of about $2 billion, rose 10% on Mumbai's main stock exchange Friday.

If a deal is struck, it would allow HDFC Standard Life—a joint venture between Indian housing finance lender Housing Development Finance Corp. Ltd. and U.K. insurer Standard Life PLC— to sharply increase its share of the life-insurance market in the world's second-most populous country.

"We hope that the growth of the combined entity will be much higher," said Deepak Parekh, chairman of Housing Development Finance, in a news conference. He said Standard Life, as well as Japan's Mitsui Sumitomo Insurance Co. Ltd, which owns a minority stake in Max Life, have given the talks their "blessings."

Earlier this year, Standard Life raised its stake in HDFC Standard Life to 35% from 29%.

"We believe that consolidation in the private sector would enable the creation of large companies, which can then drive economies of scale" said Mr. Parekh, adding that he expects more consolidation in the insurance industry.

The deal could also allow HDFC Standard Life to trade its shares on an Indian stock exchange, because Max Financial is already listed. "It's a very neat way of getting the listing without going through the hassle," said Mr. Parekh.

Insurance premiums as a proportion of gross domestic product were 3.9% in the year ended March 31, 2014, according to a study by research firm Crisil and trade body Assocham, down from 5.2% in the 2009 fiscal year.

Private-sector companies have struggled to compete against India's large state-run insurers. In the life-insurance industry, state-owned Life Insurance Corp. of India has more than half of the market share.

Last year, India allowed foreign investors to raise their stakes in Indian insurance joint ventures from 26% to 49%.

Many major global insurers, including MetLife Inc. and Prudential PLC, have entered India's market since it was opened to foreign investment in 2000.

Write to Shefali Anand at shefali.anand@wsj.com

(END) Dow Jones Newswires

June 17, 2016 12:35 ET (16:35 GMT)

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