Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable’ corporate credit rating on Kotak Mahindra Life Insurance Company Ltd (Kotak Life).

 

The rating continues to reflect the comfortable capital position of Kotak Life with a high cushion in solvency margin and its balanced mix of products and sourcing channels. The rating also factors in the robust support provided by Kotak Mahindra Bank Ltd (Kotak Mahindra Bank; 'Crisil AAA/Stable/Crisil A1+’) driven by the 100% ownership of the Kotak group and the shared brand. The strong linkage implies a moral obligation on Kotak Mahindra Bank to offer need-based support to Kotak Life, which is a key subsidiary, facilitating access to the insurance sector. Furthermore, given that life insurance is a vital channel for public savings and, hence, a sensitive sector, success or failure of the life insurance arm can have wide implications for the brand image of Kotak Mahindra Bank.

 

The rating also factors in the established market position of Kotak Life as one of the top 10 private life insurers (in terms of market share) and the benefits it derives from access to the wide branch network of the Kotak group. These strengths are partially offset by exposure to challenges in sustaining profitability amid rising competition.

Analytical Approach

Crisil Ratings has considered the standalone financial and business risk profiles of Kotak Life, and has factored in the company's strategic importance to, and expected support from, its parent, Kotak Mahindra Bank.

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance to, and expected support from, Kotak Mahindra Bank and the Kotak group: Kotak Life derives significant capital, managerial and operational support from Kotak Mahindra Bank. Kotak Life can raise capital whenever needed as its parent is committed to, and capable of, offering support. The Kotak group owns full stake in Kotak Life through Kotak Mahindra Bank Ltd (77%), Kotak Mahindra Capital Ltd (12.42%) and Kotak Mahindra Prime Ltd (10.58%). Kotak Mahindra Bank extends managerial support to Kotak Life. Mr. Uday Kotak is the non-executive chairman on the board of Kotak Life. Mr Dipak Gupta, managing director of Kotak Mahindra Bank up to December 31, 2023, is the non-executive director on the board of Kotak Life.
   

The parent has provided Kotak Life with access to its branch network and customers for selling insurance products. Kotak Life also has access to the group’s large employee database to facilitate sales of insurance products.
 

• Established market position among top private life insurers: Kotak Life will likely maintain its position as a top player among private life insurers. Its market share (in terms of the Individual new business premium) among private life insurers stood at around 3.6% during the first nine months of fiscal 2025. In terms of business performance, overall gross premiums for Kotak Life rose to Rs 17,708 crore in fiscal 2024 from Rs 15,320 crore in fiscal 2023 registering growth of around 15.6%. The company reported gross premium of Rs 11,137 crore during the first nine months of fiscal 2025. It has maintained a balanced product mix with PAR (participating) products at 26%, non-PAR (non-participating) products at 49% and ULIPs (unit-linked insurance plans) at 25% during the same period. Owing to prevailing market conditions in the medium term, the share of non-PAR products remained high at 49% in the first nine months of fiscal 2025. There has been a marginal decline in the 13th month persistency ratio to 86.73% in the first nine months of fiscal 2025 from 87.45% in fiscal 2024. However, the company has maintained 13th month persistency ratio over 80% consistently during the last 10 years. Furthermore, the 61st month persistency ratio has improved to 57.05% during the first nine months of fiscal 2025 from 54.57% in fiscal 2024. Strong brand image and direct access to the large customer base of Kotak Mahindra Bank provide critical support. Furthermore, high savings rate, low insurance penetration and other supportive macro factors should drive growth.

 

• Adequate capital position: Kotak Life is well capitalised, as reflected in the solvency margin of 2.5-2.8 times over the past five fiscals. In accordance with growth, the solvency position remained comfortable at 2.56 times as of December 2024 against the required solvency margin of 150% (or 1.5 times). The solvency margin has been healthy driven by steady internal accrual with no capital infusion by shareholders over the past decade. Absolute networth was Rs 6,331 crore as on December 31, 2024 (Rs 5,863 crore as on March 31, 2024). The Kotak group holds 100% of the equity shareholding in Kotak Life. The company reported embedded value of Rs 15,242 crore as on March 31, 2024 (Rs 12,511 crore a year earlier). This represents its actual capital position as it includes the expected profit from the business it has underwritten. Steady increase in internal accrual helps maintain a strong capital position while achieving healthy business growth.

 

• Strong focus on enhancing distribution network and efficiency: Kotak Life has been focusing on enhancing its distribution network as the management strongly believes insurance products cannot be sold only through the online channel. That said, over 95% of customer onboarding is done digitally through the company’s Genie mobile application. The company has a healthy network of over 1.1 lakh agents (individuals, corporates and brokers), which the management plans to enhance. Bancassurance accounted for 32% of new business premium in the nine months of fiscal 2025 and the company enjoys a direct tie-up with Kotak Mahindra Bank, which accounts for around 90% of the bancassurance business. Moreover, the company has also tied up with various other banks for distribution of insurance products.

 

Weakness:

• Increasing competition: Intense competition from other private life insurers continues to exert pressure on profitability. In terms of earnings, the company’s profit after tax (PAT) declined to Rs 688.6 crore in fiscal 2024 from Rs 1,053 crore in fiscal 2023, translating to return on net worth (RoNW)  of 12.30% in fiscal 2024, compared with 21.7% in fiscal 2023.However during the first nine months of Fiscal 2025, , profitability recovered with PAT of Rs 838 crore and RoNW of 18.3% (annualised). Due to increased competition growth in premium income declined to 16% during Fiscal 2024 compared to 18% in Fiscal 2023. Further during the first nine months of Fiscal 2025 growth in premium income declined to 9% as compared to 12% during first nine months of Fiscal 2024 mainly on account of moderation in growth of Group Insurance business With Life Insurance Corporation of India dominating the insurance industry, newer players must constantly undertake product innovation to attract and retain customers. Kotak Life will also have to manage the returns expectations of policy holders. The ability to generate underwriting profit and manage the investment portfolio to maximise returns will determine the profitability of insurers over the long term.

Outlook: Stable

Crisil Ratings believes Kotak Life will continue to receive strong financial and operational support from Kotak Mahindra Bank and benefit from the parent’s distribution channel.

Rating sensitivity factors

Downward factors:

• Downgrade in the rating of the parent, Kotak Mahindra Bank, resulting in a similar action on Kotak Life
• Decline in the shareholding of Kotak Mahindra Bank below 51%
• Reduction in the solvency margin to below 1.6 times.

About the Company

Kotak Life was set up as a joint venture of the Kotak group (Kotak Mahindra Bank being majority shareholder) and Old Mutual Fund PLC. The company commenced operations in 2001. In fiscal 2018, Kotak Mahindra Bank entered into a share purchase agreement dated April 27, 2017, to purchase the entire 26% equity stake held by Old Mutual PLC in the erstwhile Kotak Mahindra Old Mutual Life Insurance Ltd. The transaction was completed on October 13, 2017.

 

The Kotak group now holds 100% of the equity shareholding in Kotak Life. The company is uniquely positioned to tap the potential of the Indian life insurance sector by harnessing the vast branch network of Kotak Mahindra Bank. Over the years, Kotak Life has gradually increased branches and currently, almost all the bank branches of Kotak Mahindra Bank are covered under this channel. The company benefits from the expertise of the Kotak group in the wealth management space. Insurance products of Kotak Life are cross sold to several high networth individual customers of Kotak Mahindra Bank. The company has a balanced product mix and is constantly trying to increase share of the non-Par business in its overall portfolio

Key Financial Indicators

As on / for the period	Unit	9M FY25	FY24	FY23	FY22	FY21
Gross direct premium	Rs crore	11,137	17,708	15,320	13,015	11,100
Networth	Rs crore	6,331	5,863	5,327	4,389	4,045
Profit after tax	Rs crore	838*	689	1,053	425	692
13th month persistency	%	86.73	87.45	85.2	82.7	89.6
61st month persistency	%	57.05	54.57	50.5	50.3	58
Solvency margin	Times	2.56	2.56	2.83	2.73	2.9

*Includes surplus of Rs 141.51 crore reported in revenue account (set aside as funds for future appropriations) during the same period.

Any other information: Not Applicable