India's HDFC Life reaches deal with Max Life to create $10 bln insurer

* Companies agree terms of share swap

* Relative valuation of HDFC Life 69 pct, Max Life 31 pct

* Deal to create top Indian private life insurer

By Devidutta Tripathy

MUMBAI, Aug 8 (Reuters) - India's HDFC Standard Life Insurance Co Ltd reached agreement on Monday to take over smaller rival Max Life Insurance in an all-stock deal to create the nation's top private life insurer valued at nearly $10 billion.

The companies, which began deal talks in June, said HDFC Life shareholders would own 69 percent of the new company and Max Life shareholders 31 percent.

As part of the deal, Max Life is to be merged into parent Max Financial Services, which in turn will combine its life insurance business with HDFC Life, making it a publicly traded company.

Based on the current share price of Max Financial, the combined entity will be valued at about 650 billion rupees ($9.73 billion), HDFC Life Chief Executive Amitabh Chaudhry told a news conference.

In the first stage of the transaction, Max Life shareholders will get one share of Max Financial Services for every 4.98 shares of Max Life.

In the deal to combine their life insurance businesses, Max Financial Services' shareholders will get 2.33 shares of HDFC Life for every Max Financial share held.

HDFC Life is also paying a non-compete fee totalling 8.5 billion rupees in cash to Max Financial's founders over four years, the companies said.

Indian mortgage lender Housing Development Finance Corp , which currently owns a majority of HDFC Life, will hold about 42.5 percent in the insurance company after the deal, while Britain's Standard Life Plc (LSE: SL.L - news) will have about 24 percent of HDFC Life.

Current sponsors of Max Financial will own 6.6 percent of the merged entity, while Japan's Mitsui Sumitomo Insurance Co. which currently owns a stake in Max Life will get about 7.5 percent of the combined entity.

Before the announcement, Max Financial shares closed 1.7 percent lower, while HDFC shares rose 1.9 percent in a Mumbai market that gained 0.3 percent.

The deal is expected to kick-start consolidation in India's lucrative yet crowded $50 billion insurance sector.

Insurers see plenty of room for growth in the world's second-most populous nation of 1.3 billion, where relatively few people hold insurance policies. However, strong competition and high capital requirements have seen the top players gaining market share and smaller companies struggling.

In a market dominated by state-run Life Insurance Corp, the top four of the 23 private sector insurers account for 65 percent of the private sector insurance market, according to HDFC.

HDFC Life is currently the third-biggest private sector life insurer in India, while Max Life is fourth-biggest. The companies have a combined market share of 10.8 percent based on new business premiums received for insuring individuals.

The companies expect the merger to be completed within 12 months, HDFC's Chairman Deepak Parekh said at the news conference. ($1 = 66.8205 Indian rupees) (Reporting by Devidutta Tripathy; Editing by Adrian Croft)