Max Financial Services Limited (‘MFSL’ or ‘the Company’), a part of the $ 3 Bn Max Group, is the holding company for Max Life Insurance Company Limited (Max Life). It owns and actively manages a 72.52% majority stake in Max Life - India’s largest non-bank owned, private life insurance company.
Max Life is a joint venture with Mitsui Sumitomo Insurance (MSI), a Japan-headquartered global leader in life insurance, which owns a 25.48% stake.
On March 3, 2020, Board of Directors of the Company approved a non-cash swap of 20.57% stake held by MSI in Max Life with a 21.87% stake in MFSL. MFSL also plans to purchase MSI’s balance stake in Max Life. Further on April 28, 2020, MFSL and Axis Bank announced the signing of definitive agreements to become joint venture partners in Max Life. After subsequent modifications to the agreement, Axis Bank and its subsidiaries, Axis Capital Limited & Axis Securities Limited (together called Axis Entities), would acquire up to 19% stake in Max Life, in accordance with existing laws and regulations.
The proposed transactions are subject to the approval of requisite corporate and regulatory authorities including DEA, IRDAI, RBI and CCI.
This development, which brings together India’s 3rd largest private bank and 4th largest private life insurer, will result in a mutually beneficial and enduring relationship between Axis Bank and Max Life. It also solidifies Max Life’s decade-long relationship with Axis Bank, providing long-term saving and protection products to over 20 lakh customers. This relationship will also permanently address uncertainty around Max Life distribution and significantly improve its competitive position amongst its peers. The total premium generated through this relationship has aggregated to over ₹ 40,000 Cr.
MFSL and Axis Bank will nominate four and three directors, respectively, on the Board of Max Life. Axis Bank will also have the right to appoint one director on the Board of MFSL to facilitate smoother coordination between the two companies.
Max Life’s tag line will include Axis Bank’s name, which will further enhance customer trust in the brand and highlight the strength of the partnership to bring value and stability to customers.
Subject to regulatory requisite clearances, the transaction is expected to be completed by the end of calendar year 2020.
On May 13, 2020, MFSL announced the settlement of a long-pending income tax case under the dispute resolution scheme ‘Direct Tax Vivad Se Vishwas, 2020,’ recently launched by the Indian government during the Union Budget on February 1, 2020.
MFSL paid ₹ 126.26 Cr. for settling the litigation involving capital gains from the stake sale of its erstwhile telecom joint venture Hutchison Max Telecom Ltd. With this, MFSL became the first large private sector player in India to have settled and paid under the scheme. The payment cleared a tax dues contingent liability that was being reported on the Company’s books for the past two decades. The clearing of this liability will help reduce the holding company discount attributed to the tax litigation while ascertaining fair value of the company and facilitate correct value discovery for MFSL’s investment in Max Life.
Most financial metrics for MFSL’s sole operating subsidiary, Max Life, were impacted due to the COVID-19 pandemic and a nationwide lockdown since March 2020. Despite the aberration, Max Life continued to perform in line with market standards, while maintaining its market share in the private life insurance industry at a stable 9.7%.
In April 2020, MFSL and Axis Bank announced the signing of definitive agreements to become joint venture partners in Max Life. This development brings together India’s 3rd largest private bank and 4th largest private life insurer.
Max Financial Services’ employees engage in conversation at the office premises prior to the COVID-19 pandemic and lockdown
In FY 20, MFSL reported consolidated revenues of ₹ 18,242 Cr., 7% lower compared to the previous year, due to market to market loss on debt and equity portfolio. The Company reported consolidated Profit after Tax of ₹ 273 Cr., 34% lower compared to the previous year, largely due to shift in product mix towards Non-Par business, investments in proprietary channels, provision for impairment on financial assets and one-time tax expense on settlement of tax dispute under the ‘Vivad se Vishwas’ Scheme.
In FY 20, Gross Premiums for Max Life of ₹ 16,184 Cr. grew at 11% compared to the previous year. New business and renewal premium grew marginally at 5% and 13% respectively over the previous year, due to lower collections in ULIP and COVID related grace period permitted to customers by IRDAI.
Max Life’s Individual APE was recorded at ₹ 4,116 Cr., increasing 5% over the previous year. This was driven by a growth of 10% in proprietary channels, 5% in agency channels, 32% in customer advisory team channels, and 15% in e-commerce. On the other hand, Bancassurance channel recorded a marginal growth of 3%, impacted by headwinds at Yes Bank, where the channel sales witnessed a fall of 2%, Sales through Axis Bank registered a nominal growth of 5%.
While there was an impact on new sales, particularly in the month of March, Max Life tried to cover the gap with digital sales. With a strong digital apparatus in place, the company was able to procure 100% of its policies online. Encouragingly, its CAT Channel delivered a positive growth of 5% and Axis Bank was the largest distributor of life insurance products amongst banks even in the COVID-impacted month of March 2020.
Max Life’s Shareholders’ Profit Before Tax in FY 20 was ₹ 598 Cr., 4% lower than the previous year, mainly due to an increase in Non-Par business and investments in proprietary channels.
Max Life’s Individual APE were recorded at ₹ 4,116 Cr., increasing 5% over the previous year. This was driven by a growth of 10% in proprietary channels, 5% in agency channels, 32% in customer advisory team channels, and 15% in e-commerce.
Max Life also reported Market-Consistent Embedded Value (MCEV) of ₹ 9,977 Cr., with an Operating Return on Embedded Value (RoEV) of 20.3%. The Value of New Business (VNB) written during FY 20 was ₹ 897 Cr., growing 5% over the previous year, and the New Business Margin stood at 21.6%, 10 bps lower compared to the previous year.
In February 2020, Max Life’s Assets under Management (AUM) crossed the ₹70,000 Cr. mark for the first time. The AUM as on March 31, 2020, however, stood at ₹ 68,471 Cr., growing 9%, owing to high market volatility in March 2020. Max Life’s Claims Paid Ratio improved by 48 bps, from 98.74% in Q4FY19 to 99.22% in Q4FY20.
Since the beginning of the lockdown, Max Life effectively digitised its entire sales process with a proactive business continuity plan, training over 9,000 frontline sellers and over 25,000 specified persons of banks and agents digitally, who sold 24,000 policies in March alone. It also digitised its claims management to ensure that all support documents are accepted online, and customers can submit claims in a timely manner, using self-service options available on the website such as digital bots and artificial intelligence-driven Interactive Voice.
As a result, the company processed 1,938 individual, group death claims and post-death benefit claims in the second half of March 2020, even with the majority of the company’s employees operating from home. Its performance during the period impacted by COVID has outperformed other large life insurers that Max Life competes with.
This year presented its unique set of challenges for Human Resources as COVID-19 caused multiple disruptions and unprecedented scenarios. During these times, MFSL remained committed to the safety and well-being of its workforce, while ensuring minimum disruptions in workflow. MFSL responded quickly to the situation with all management actions directed towards the health and safety of employees and agents, enabling remote working and proactive communication with employees and customers. MFSL ensured a fully digitally enabled workforce, including sales, through virtual onboarding, learning, and engagement, performance evaluation, rewards, and recognition.
Communication plays a monumental role in the smooth functioning of an organisation, especially during times of despair. The Human Resources function regularly disseminated guidelines on Dos and Don’ts during the COVID-19 pandemic, while reassuring employees of facility readiness in terms of sanitisation and hygiene to resume operations.
Max Life effectively digitised its entire sales process with a proactive business continuity plan, training over 9,000 frontline sellers and over 25,000 specified persons of banks and agents digitally, who sold 24,000 policies in March alone.
In the upcoming financial year, MFSL and Max Life will be focussed on emerging stronger and better prepared out of the COVID-19 pandemic. This will be executed through clearly defined workstreams such as Digital Sales, Efficient Operations, Navigation of Embedded Value, furthering Human Capital, Risk Monitoring among others. These renewed workstreams are closely aligned with Max Life’s goals of protection of sales, minimising renewal impact, reducing margin loss, enablement of customer requests, preventing EV deterioration, etc.
Max Life will also actively develop its financial technology and digital ecosystem to drive sales. In the upcoming financial year, the company will focus disproportionately on strengthening its digital channels through digitised recruiting, sales governance, cross selling and virtual engagement with prospects.
In the future, Max Life foresees greater demand for protection products as customers focus on safeguarding their financial future and families from any such calamities in the future.
While no immediate hit is expected for Max Life, it continues to closely monitor the pandemic’s impact on its financial strength and asset portfolio. It will also chalk out multiple impact assessment scenarios for a speedy recovery, which will heavily depend on revival in economic activity and changes in consumer behaviour. Max Life’s focus for the upcoming financial year is set on improving its agility to react and the swiftness to correct course in any scenario, rather than the correct prediction of events. It remains committed to its vision of achieving 25:25:25 growth by 2022 on the parameters of VNB, New Business Margin, and RoEV.