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.