| MAX Life Insurance Company Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AA+/Stable' rating on the subordinated debt of MAX Life Insurance Company Limited (Max Life).
The rating continues to centrally factor in the strategic importance to, and expectation of support, if required, from the co-promoter, Axis Bank Ltd (Axis Bank; ‘CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+’) both on an ongoing basis and in the event of distress. The rating also factors in Max Life's established market position in the life insurance industry, adequate capitalisation, and healthy profitability. These strengths are partially offset by high operating cost as compared with peers, exposure to inherent competition in the insurance business, and associated challenges.
Max Life is a joint venture between Max Financial Services Ltd (MFSL) and Axis Bank. Axis Bank along with its subsidiaries (Axis Capital Ltd and Axis Securities Ltd) holds 12.99% stake in Max Life. The Axis group that had reserved the option to acquire the remaining up to 7% stake in one or more tranches was expected to get completed during the first half of fiscal 2022. Since the necessary regulatory approvals are yet awaited, there is a delay in execution of the transaction. Timely completion of the remaining stake acquisition will remain key monitorables. MFSL and Mitsui Sumitomo Insurance Company Ltd (MSI) hold stakes of 81.84% and 5.17%, respectively.
Max Life is the fourth-largest private life insurer in India and has been among the top five players in the industry for many years. The growth in net premium (new business and renewals) for fiscals 2022 and 2021 stood stable at 17.3%. The growth in new business premium and renewal premium in fiscal 2022 stood at 15.8% and 19.0%, respectively, as compared to 22.3% and 15.0% in fiscal 2021.
The rating also factors in the adequate capital position, reflected in the healthy solvency margin of 200-275% maintained over the past five fiscals (201% as on March 31, 2022), comfortably above the regulatory requirement of 150%. The value of new business (VNB) margin has improved steadily to 27.4% in fiscal 2022, from 25.2% in fiscal 2021.
The operating cost structure has been high compared with some of the large peers. The operating cost (including commission) as a proportion to net premiums has remained close to 20% during past five fiscals.
In fiscal 2022, the company settled total gross and net death claims of Rs 3,170 crore and Rs 1,964 crore, respectively. At the beginning of the fiscal, the company had reserve of Rs 500 crore appropriated to settle the Covid-19 pandemic-related claims. During fiscal 2022, the company took impact of approximately Rs 100 crore on their profit and loss account to settle the excess death claims. And, as a prudent risk management framework, the company continues to maintain pandemic reserve of Rs 500 crore for any unforeseen pandemic-like events. |
Analytical approach CRISIL Ratings has first assessed the corporate credit rating of Max Life. CRISIL Ratings has factored in Max Life's business, financial, and management risk profiles and the company's strategic importance to, and expectation of strong support from, Axis Bank, for arriving at the corporate credit rating. Additionally, the extent of cushion that the company intends to maintain in the solvency ratio over and above the regulatory stipulation on a steady-state basis is taken into consideration for arriving at the rating on the subordinated debt instrument. |
Key Rating Drivers & Detailed Description Strengths Strategic importance to, and expectation of support from, Axis Bank The strategic importance to Axis Bank is reflected in the sizeable representation of the latter’s directors on Max Life’s board. Axis Bank and MFSL (excluding MSI) have equal representation on the board. Axis Bank representatives include two executive directors and one group executive. The company also benefits from the shared brand name with Axis Bank, which is the third-largest private sector bank in India with a solid brand image, established franchise, and large customer base.
The company’s strong linkage with Axis Bank is evidenced by the latter being the largest bancassurance channel partner for over a decade and shared brand name with, the former. Axis Bank's presence in the life insurance sector is largely through Max Life, which is, therefore, one of the critical entities for the bank. Further, Axis Bank provides Max Life access to its network of branches and customers for selling insurance products. In the case of Axis Bank, while it has embraced an open architecture for life insurance distribution, Max Life continues to garner a significant share of business. Given the strong managerial and business linkages, Axis Bank should continue to support the growth plans of Max Life
Established market position within the life insurance industry The company is expected to maintain its market position as one of the top five players within the life insurance industry. Its market share in terms of new business premiums among private life insurers stood at 6.8% during fiscal 2022 as against 7.3% during fiscal 2020. It has been in operation since 2000 and has a good pan-India presence. Furthermore, the company continues to benefit from its industry expertise over the past two decades and has presence across all the states and union territories in India. Diversification of sourcing channels over the years led to strong business growth. Further, a strong brand image and direct access to the large customer base of Axis Bank, provides critical support to business growth. In terms of business strategy, the company continues to maintain a customer-centric, balanced, and profitable suite, with focus on sourcing through multiple channels. That is reflected in the product mix for fiscal 2022, with ULIPs (unit-linked insurance plans) and traditional products accounting for 29% and 71%, respectively, of the gross premium and 37% and 63% of annualised premium equivalent (APE). The company witnessed slow growth in protection business owing to the Covid-19 pandemic; however, it is picking up pace now and is expected to grow from current levels. The non-participating and participating products growth was strengthened on account of focus on long-term income plans and new product innovation i.e., Max Life Smart Wealth Income Plan, respectively, for both segments. The company will continue to be focused toward protection and annuity segments, however ensuring balanced product mix across all categories.
The company has wide presence across India through its own offices and distribution partners. It has a diversified distribution mix along with 269 offices, providing an extensive reach. The company also leverages the access to over 6,000 partner branches, over 60 distribution partners and around 60,000 agents and its well-known bancassurance partners. It also has more than 6,500 points of sales across the country. It has a diverse mix of sourcing channels but the proportion of business from the bancassurance channel has been the highest. This business benefits from the long association with the co-promoter, Axis Bank. Even though the bank embraces an open architecture model, it alone contributes above 60% of the total individual new business APE in Max Life.
Adequate capital position A healthy solvency margin has been maintained at over 190% in the past 10 years. Absolute networth was Rs 3,196 crore as on March 31, 2022 (Rs 3,008 crore as on March 31, 2021). The capital position is being maintained through internal cash accrual, not necessitating any capital support. Although there has been no incremental capital infusion during the past decade, a solvency margin of above 190% has been maintained and aligns with the stance of the board members. As on March 31, 2022, the solvency ratio was 201%, which is well above the regulatory requirement of 150%.
Given the company has plans to enhance its share in protection business over medium term, the quantum of capital required would increase given the nature of the product. Steady increase in internal cash accrual enabled the company to maintain its capital position while achieving healthy business growth.
Healthy profitability Return on equity has been over 18% in the five fiscals through 2021; however, in fiscal 2022 it deteriorated to 12.5% owing to excessive claims and increase in provisions made by the company. The new-business margin for fiscal 2022 was 27.4% (post cost overrun) compared with 25.2% in fiscal 2021 (20.2% in fiscal 2018). The VNB written has increased to Rs 1,528 crore representing a hike of 22% in fiscal 2022, driven by strong APE growth and balanced product mix. Additionally, there was healthy growth in the embedded value to Rs 14,174 crore as on March 31, 2022, from Rs 11,834 crore as on March 31, 2021. The company has maintained a stable persistency ratio (regular premium/ limited premium) over the past four fiscals. For fiscal 2022, the company witnessed improvement in its 13th, which stood at 84% whereas the 61st-month persistency ratios remained stable at 49% as compared with the previous fiscal.
Weaknesses High operating costs as compared with peers The operating costs (including commission), though improving, have been higher than most peers. The overall operating costs as a proportion to net premiums remained at 20-21% during the past five fiscals. For new business premium, the operating expense ratio (excluding commissions) has remained within 38-42%, whereas for net premiums the ratio has been 13-15% for the past three fiscals. In terms of policy tenure, the company typically underwrites products of long- to very long-term, resulting in relatively higher payouts. However, the VNB margin and return on embedded value remain intact.
Exposure to inherent competition in the insurance business, and associated challenges Intense competition from other private life insurers can make it challenging for the company to maintain profitability. Moreover, with the dominant position of Life Insurance Corporation of India in the domestic market, private players need to continuously innovate to attract customers, and manage the returns expectation of policy holders. Top players have had the early mover advantage and captured a larger market share while others are continuously focusing on innovative products and increasing persistency to get a better market share. Hence, the ability to continue gaining on new business, generate profit and manage the investment portfolio to earn adequate returns, will determine profitability and market position in the long term. |
Liquidity: Superior As on March 31, 2022, the book value of debt investment (non-ULIP) was Rs 64,529 crore; of which over 97% was in sovereign and 'AAA' rated instruments. The major outflow is benefits to claimants (net of reinsurance), which was at Rs 9.273 crore for fiscal 2022. Since life insurance is an inherently highly granular and stable business, liquidity should remain comfortable. |
Outlook: Stable The company will continue to derive strong support and oversight from Axis Bank over the medium term, on an ongoing basis and will maintain adequate cushion in solvency ratio over and above regulatory minimum on a steady-state basis. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Max Life, a joint venture between MFSL and Axis Bank, is India’s fourth-largest private life insurance company. Launched in 2000, Max Life offers comprehensive life insurance and retirement solutions for long-term savings and protection to customers. The company has a pan-India presence and had a customer base of more than 3.5 million. Assets under management stood at Rs 107,510 crore as on March 31, 2022, an increase of 19% over the previous year. |
Key Financial Indicators
*Persistency ratio is computed for regular premium/ limited premium
Any other information: Not Applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of instrument
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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