Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA+/Stable' rating on the subordinated debt of Max Life Insurance Company Ltd (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/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 costs 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 with MFSL holding majority shareholding of 87%. Axis Bank along with its subsidiaries (Axis Capital Ltd and Axis Securities Ltd) holds 12.99% stake in Max Life. The Axis group also has the option to acquire additional stake of  up to 7% in one or more tranches. The timely completion of the remaining stake acquisition will remain key monitorable.

 

Max Life has been among the top five players in the industry for many years. The growth in net premium (new business and renewals) was 13% in fiscal 2023 as compared to 17% in the previous fiscal.

 

The rating also factors in the adequate capital position, reflected in the healthy solvency margin maintained over the past five fiscals (190% as on March 31, 2023), comfortably above the regulatory requirement of 150%. The value of new business (VNB) margin has maintained an improving trend and stood at 31.2% in fiscal 2023, versus 27.4% in fiscal 2022 primarily due to higher share of non-participatory products.

 

The insurer’s operating cost remains high compared to larger private peers. Operating cost (including commission) as a proportion to net premiums has remained around 20-21% during past five fiscals due to higher commissions payout as compared to other larger players.

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 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 6.5% during fiscal 2023 as against 6.8% during fiscal 2022. 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 2023, with ULIPs (unit-linked insurance plans) and traditional products accounting for 26% and 74%, respectively, of the gross premium and 27% and 73% of annualised premium equivalent (APE. The company witnessed higher one-time spike in non-par segment in fiscal 2023 due to the tax announcement made in the recent budget. The company is working on attaining a healthy mix and bringing down the non-par share in the overall mix over the next few years.  

 

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 8,100 partner branches, around 70 distribution partners and around 70,000 agents and its well-known bancassurance partners. It also has around 8,500 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 55% 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[1] was Rs 3,540 crore as on March 31, 2023 (Rs 3,195 crore as on March 31, 2022). The capital position is being maintained through internal cash accrual, and expectation of support from Axis Bank and MSFL. 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, 2023, the solvency ratio was 190%, which is well above the regulatory requirement of 150%.

 

Steady increase in internal cash accrual enabled the company to maintain its capital position while achieving healthy business growth. Given the company’s plans to enhance its share in protection business over medium term, the quantum of capital required would increase given the nature of the product and is expected to be supported by Axis Bank and MFSL.

 

Healthy profitability

Return on equity has been healthy; however, in fiscal 2022 and 2023 it deteriorated owing to higher claims and increase in provisions made by the company. The new-business margin for fiscal 2023 was 31.2% (post cost overrun) compared with 27.4% in fiscal 2022 (20.2% in fiscal 2018). The VNB written has increased to Rs 1,949 crore representing a hike of 28% in fiscal 2023, largely driven by increased share of non-par products. This resulted in a healthy growth in the embedded value to Rs 16,263 crore as on March 31, 2023, from Rs 14,174 crore as on March 31, 2022. The company has maintained a stable persistency ratio (regular premium/ limited premium). For fiscal 2023, the company witnessed marginal decline in 13th month persistency ratio to 83% while 61st month improved to 51% as compared to previous fiscal.

 

Weaknesses:

High operating costs as compared with peers

As a proportion of net premium, the operating costs (including commission), though improving, have been higher than other top peers and is largely due to higher commissions payout which was around 6-9% over the last five fiscals. Thus, the overall operating costs as a proportion to net premiums remained at 20-21% during the same period. Furthermore, in terms of new business premium, the operating expense ratio (excluding commissions) has remained at 38-42%. 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.

[1] As per CRISIL Ratings calculation

Liquidity: Superior

As on March 31, 2023, the book value of debt investment (non-ULIP) was Rs 74,777 crore; of which over 97.5% was in sovereign and 'AAA' rated instruments. The major outflow is benefits to claimants (net of reinsurance), which was at Rs 9,977 crore for fiscal 2023. 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

• Material increase in shareholding (beyond 19.99%) of Axis Bank along with its group companies.
• Improvement in the market position with a steady increase in market share

 

Downward factors

• Revision in the rating or outlook of co-promoter Axis Bank
• Any change in the strategic importance to Axis Bank or inability to increase stake to 19.99% over a period of time

• Significant reduction in cushion in the solvency ratio, taking it below 170%

About the Company

Max Life, a joint venture between MFSL and Axis Bank, is among India’s top five players in the industry. 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 4 million. Assets under management stood at Rs 1.2 lakh crore as on March 31, 2023, an increase of 14% over the previous year.

Key Financial Indicators

As on / for the period ended		2023	2022
Gross direct premium/Gross written premium	Rs crore	25,342	22,414
Profit after tax	Rs crore	435	387
Persistency ratio* (13th month)	%	83	84
Persistency ratio* (61st month)	%	51	49
Solvency ratio	%	190	201

*Persistency ratio is computed for regular premium/ limited premium

Any other information: Not applicable