Axis Bank, the country’s third-largest private-sector lender, said on Thursday it is exploring a long-term strategic partnership with Max Life Insurance Company Ltd, a subsidiary of publicly listed Max Financial Services Ltd.
Max Life is India’s largest private-sector life insurer that’s not owned by a bank. It is 72.5% owned by Max Financial with Japan’s Mitsui Sumitomo Insurance and Axis Bank holding a 25.5% and 2% stake, respectively.
Axis Bank did not specify the nature of the strategic partnership being mulled but it has had a bancassurance arrangement with Max Life for nearly a decade. The new premium generated through this arrangement has aggregated to more than Rs 12,000 crore over this period.
It did not give any further details but The Economic Times had previously reported, citing people it didn’t name, that Axis Bank may pick up a 20% stake in Max Life.
“We constantly keep assessing various strategic opportunities and we see a potential for greater participation in the under-penetrated life insurance space,” said Amitabh Chaudhry, MD and CEO at Axis Bank.
Axis Bank and YES Bank are two of the top five private-sector lenders that don’t run their own life insurance ventures.
Analjit Singh, founder and chairman, Max Group, said that Axis Bank’s “strategic interest” in Max Life will allow both companies “to work towards an enduring future for policyholders and other stakeholders”.
The transaction will be subject to applicable regulatory approvals, satisfactory completion of due diligence, execution of definitive documentation and satisfaction of other conditions.
For Max Life, in the first nine months of 2019-20, the proprietary and bancassurance channels grew 22% and 20%, respectively. The value of new business written during the nine months through December 2019 was Rs 576 crore, up 24% from a year earlier, arising from a shift in the product mix towards non-participating products.
Total first-year premium increased 19% year-on-year to Rs 3,693 crore. Renewal premium for the April-December 2019 period was recorded at Rs 6,618 crore, up 11% from a year earlier, while new business margin widened 60 basis point to 21%.
Max Life's embedded value (EV) based on the market consistent methodology was Rs 10,077 crore, with operating return on EV (annualised) at 18.4%.
Axis Bank had originally picked up a 4% stake in what was then Max New York Life Insurance for Rs 72 crore in 2011. A year later Max Group struck a deal to buy back the stake in tranches to be completed by October 2020.
This deal came at a time when Japan’s Mitsui Sumitomo Insurance was completing its purchase of a 26% stake in Max New York for Rs 2,731 crore ($530 million), in a two-tiered transaction that marked the exit of the US-based New York Life Insurance Co from the joint venture.
However, instead of buying back the entire stake over time, Max itself sold a stake to Axis Bank in 2016. Axis Bank later raised its stake in Max Life to 5.99%, buying 3.99% from Max Financial and 1% from Mitsui Sumitomo.
Soon thereafter, Max entered into negotiations with HDFC to merge Max Life with HDFC Standard Life. This deal could have created India’s biggest life insurer in the private sector. But this came unstuck after the Insurance and Regulatory Development Authority of India objected to the transaction structure.
The two companies tried to tweak certain terms and conditions of the deal but couldn’t convince the industry watchdog. Later, Axis Bank trimmed its stake in Max Life by selling some shares to Max Financial.