Axis looks to buy up to 30% stake in Max Life
Deal is likely to value the insurer at around ₹18,000 crore
nMUMBAI: Axis Bank Ltd is looking to buy more than 20% in Max Life Insurance Co. Ltd, the life insurance unit of Max Financial Services Ltd, three people aware of the development said, requesting anonymity.
Max group on Thursday said that Axis Bank, Max Financial Services and its subsidiary Max Life Insurance are in exclusive talks to explore the possibility of Axis Bank entering into a longterm strategic partnership with Max Life. The companies, however, did not disclose any financial details of the proposed transaction.
According to two of the three people cited above, the transaction is likely to involve the sale of 20-30% stake in Max Life, and could happen at a valuation of nearly ₹17,000-₹18,000 crore. “The eventual deal structure, however, would involve a portion of share swap or warrants, for up to 10% stake, in order to compensate for the bancassurance tie-up,” the second person cited above said.
Max Financial Services holds 72.5% stake in Max Life, while Mitsui Sumitomo Insurance and Axis Bank hold 25.5% and 2% respectively.
Currently, Axis Bank contributes nearly 60% of Max Life’s individual annualized premium equivalent, which is the total premium income of a life insurer on an annualised basis. Max Life depends on the bancassurance channel for nearly 70% of its premium income, of which Yes Bank contributes nearly 10%. The decade-long bancassurance arrangement between Axis Bank and
Max Life is due for renewal in 2021.
“The Max Life-axis Bank partnership is a natural. The partnership has already set multiple benchmarks in the life insurance industry for policy sales, customer retention, rigorous training to ensure need-based policy writing, (and) technology integration,” Analjit Singh, founder and chairman of Max Group, said in a statement to the exchanges.
“The strategic interest of Axis Bank in Max Life will lead to the much awaited permanence and allow both companies to work towards an enduring future for policyholders and other stakeholders,” he added.
Max Life’s total individual sales rose 21% to ₹3,880 crore in fiscal year 2019, compared to the previous fiscal. The insurer’s renewal premium stood at ₹9,415 crore, growing 15% on a year-onyear basis. During the period, the insurer’s embedded value (EV) stood at ₹10,077 crore, with an operating return on EV (annualised) at 18.4%.
“At the bank, we constantly keep assessing various strategic opportunities and we see a potential for greater participation in the under-penetrated life insurance space. We have had a long standing bancassurance relationship with Max Life and the on-going discussions are a step further to deepen and strengthen this strategic partnership. The successful completion of the proposed transaction is expected to create significant value for all stakeholders,” said Amitabh Chaudhry, managing director and chief executive of Axis Bank.
“The deal struck by Max Life and Axis Bank is a win-win situation wherein the former gets the support of the long-term bancassurance partner and the latter is able to participate inorganically in the insurance story. We believe that this is an extremely positive outcome, though we still await clarity on the details of the deal,” said Neeraj Toshniwal, research analyst at the brokerage firm Emkay Global.
The Axis Bank-max Life deal comes at a time when the central bank has raised caution on banks owning large stakes in insurance companies.
On December 27, 2019, Mint reported that RBI had asked lenders to cut their stakes in insurers to 30%, as the banking regulator looked to shield banks from risks arising out of their nonbanking businesses and steer focus to boosting credit growth in a slowing economy.