Australian health insurers HCF and HBF have agreed in principle to merge their operations that would create an A$4bn insurance company.

Together, the two companies would have nearly 18.4% market share and serving 2.5 million customers.

The combined entity would emerge as the Australia’s third biggest private health insurer, behind Medibank and Bupa.

Post-merger, both HBF and HCF will retain their individual identities and continue to manage by their own management under a new umbrella company headed by a common board of 10 directors.

HBF CEO and managing director John Van Der Wielen said HBF had been reviewing its strategy to ensure it could continue to provide its policyholders with the best possible health cover in a competitive market.

“Up to now HBF and HCF have been strong in different states. HBF is one of Western Australia’s best loved brands but is much less recognized in other states. The merger would give us a truly national presence,” Van Der Wielen added.

Commenting on the deal, HBF chairman Tony Crawford said: “In combining Australia’s two largest not for profit health funds, this merger would bring together two companies with common values and a shared commitment to put members first.

“We wanted to be sure that under the terms of any merger the iconic HBF brand would be retained in WA, employees would be looked after and, crucially, HBF’s not-for-profit status would remain, meaning we continue to put members first, not shareholders.”

Upon receiving regulatory approvals from ACCC and APRA, as well as approvals from the councillors of HCF and HBF, the merger is scheduled to be concluded by mid 2018.