July 15, 2021

Max Life Insurance Company Limited: [ICRA]AA+(Stable) assigned to subordinated debt

programme
Summary of rating action

Current Rated Amount

Instrument* Rating Action
(Rs. crore)
Subordinated Debt Programme 496.00 [ICRA]AA+(Stable); Assigned
Total 496.00
*Instrument details are provided in Annexure-1

Rationale
The assigned rating considers Max Life Insurance Company Limited’s (Max Life) strong promoter profile, with Axis Bank (rated
[ICRA]AAA(Stable)/[ICRA]A1+) holding a 12.99% stake along with its subsidiaries (Axis Capital and Axis Securities) in the
company. Moreover, the Axis Group (Axis) has a right to acquire an additional 7% stake in Max Life. The rating factors in Max
Life’s strategic importance to Axis and the expectation of support from Axis as and when required. Axis has been associated
with Max Life as a distributing partner with a high share of 63% in its individual annualised premium equivalent (APE) for
FY2021. With the stake acquisition, Axis has strong board representation in Max Life (three directors appointed by Axis along
with a right to Chairmanship on a rotation basis). While Axis has a presence across the financial services segment, Max Life will
help improve its foothold in the insurance business as well and is of strategic importance to Axis. Apart from the Axis Group,
Max Financial Services and Mitsui Sumitomo Insurance Company Limited (MSI; rated A1/A3[hyb]/Stable by Moody’s) held
81.83% and 5.17%, respectively, in Max Life as on June 30, 2021.
The rating also factors in Max Life’s established presence in the individual life insurance segment with a market share of 7.3%
on new business premium (NBP) basis in the private sector (6.9% in FY2020). The growth in Max Life’s gross premium written
was much higher in FY2021 at 17.5% YoY compared to 11.0% in FY2020, supported by both new business and renewal
premium. The company’s new business growth in FY2021 was driven by the increasing share of non-participatory (non-par)
products (30.2%) and protection (9.2%) products in the APE. Apart from non-par and protection, unit linked insurance plans
(ULIPs) had a high share of 36.6% in the APE of FY2021.
The rating also takes into account the company’s comfortable solvency and healthy profitability. Max Life has a comfortable
capitalisation profile with a solvency ratio of 202% as on March 31, 2021, higher than the regulatory requirement of 150%.
Max Life’s profitability has been healthy with a return on average equity (RoE) of ~19% and above in the last five years. Further,
the value of new business (VNB) margin witnessed substantial growth to 25.2% in FY2021 from 18.8% in FY2017. The
company’s profitability has also been supported by its improving persistency ratio with a 13th month persistency of 84.0% in
FY2021 (80.4% in FY2017).
The rating is partially offset by the high operating expense of the company compared to peers. Further, the growth in the VNB
margin and profitability would depend on Max Life’s ability to improve its operating efficiency. The impact of the Covid-19
pandemic on the profitability and solvency of life insurance entities with increasing death claims would be a key monitorable.
ICRA does note that Max Life has created a buffer reserve of over Rs. 500 crore for Covid-19 related implications. ICRA also
takes note of the competition in the life insurance segment. The ability to profitably grow its business in light of the intense
competition and the ever-evolving regulatory framework would be a key monitorable.

The rating also factors in the key features of the subordinated debt instrument:

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 • Servicing of interest is contingent on the company maintaining a solvency ratio above the levels stipulated by the
regulator1
• In case the interest payouts lead to a net loss or an increase in the net loss, prior approval of the regulator would be
required to service the debt

Key rating drivers and their description

Credit strengths

Strong promoter profile – The Axis Group held a 12.99% stake in Max Life as on June 30, 2021 and has the right to acquire an
additional 7%. Axis Bank is the third largest private bank in India. With the completion of the 7% acquisition, Axis’ stake of
~20% will be higher than the stakes held by the Max promoters and MSI. Although Axis Bank has a diversified presence in the
financial services segment spanning asset management, securities broking, and investment banking through its subsidiaries,
in addition to lending, Max Life will help improve its foothold in the insurance business as well. Axis already had a well-
established relationship with Max Life as a bancassurance (banca) partner. This has now been extended with Axis being a co-
promoter of Max Life and having a strong representation on the board of Max Life along with Max Financial Services. The
existing branding of Max Life has been strengthened further as a joint venture between Axis Bank and Max Financial.

As Axis Bank is a co-promoter of Max Life, ICRA expects strategic and capital support from the bank to be forthcoming. Further,
Axis’ wide distribution network is likely to provide impetus for the company’s additional growth. The share of banca
distribution has been in the range of 68-72% of the individual APE in the last four years, which predominantly includes
contribution from Axis Bank (57-63%). With the strategic acquisition by Axis Bank, the relationship is likely to strengthen
further.

Established player in individual segment among private peers – Max Life, which started its operations in 2000, is a well-
established player in the life insurance space. It is the fourth largest private life insurer with an NBP market share of 7.3% in
the private sector in FY2021 (6.9% in FY2020). Max Life’s market share, in terms of individual NBP, stood higher at 10.8% within
the private sector as of March 2021 (10.2% as of March 2020). Its product suite constitutes products in the savings as well as
the protection segments. While the company’s product mix has historically been concentrated towards participatory products,
it has been focusing on growing its higher-margin non-par products and protection plans as a part of a conscious strategy to
ensure a more balanced product mix. The share of non-par in the APE increased to as much as 30.2% in FY2021 from 8.3% in
FY2017. Apart from non-par, individual protection has been a focus area with its share in the APE improving to 9.2% in FY2021
from 3.4% in FY2017.

The company’s persistency ratio, while marginally impacted by the pandemic, improved over the last few years with a 13th
month persistency of 84.0% in FY2021 (80.4% in FY2017). Going forward, Max Life plans to maintain a balanced mix of
protection, participating, non-par and ULIP products within the individual segment.

Comfortable capitalisation supported by internal accruals – Max Life’s solvency stood at 202% as on March 31, 2021 (207%
as on March 31, 2020) compared to the regulatory requirement of 150%. With the high growth in business underwritten and
high dividend payouts, the solvency has been reducing over the years. However, it remains well above the regulatory
requirements. The company’s backbook surplus (surplus accumulated from historical business written) exceeds the new
business strain, thereby supporting its solvency to an extent.

Healthy profitability metrics with rising VNB margins – Max Life reported healthy profitability with RoE of 19% in FY2021 (20%
in FY2020). The profitability has been supported by the healthy persistency ratios (13 th month and 61st month persistency of
84% and 53%, respectively, in FY2021) and product mix. The company paid Covid-related net death claims of Rs. 121 crore in
FY2021, though the same was offset against the pandemic reserves held at the start of the year. While the claims are likely to
increase in FY2022 on account of the pandemic, the company has carved out a pandemic reserve of over Rs. 500 crore (more

1 As per IRDAI regulations, insurers are required to maintain a minimum solvency ratio of 150%

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 than 4x of the net Covid claims in FY2021) as on March 31, 2021. The impact of the pandemic on the profitability and solvency
of life insurance entities with increasing death claims would be a key monitorable.

Max Life witnessed a compound annual growth rate (CAGR) of 25.8% in the VNB during FY2017-FY2021. The embedded value
(EV) stood at Rs. 11,834 crore as on March 31, 2021 (compared to Rs. 6,590 crore as on March 31, 2017). The VNB margin
(calculated as VNB divided by APE) has consistently increased in the last five years to 25.2% in FY2021 from 18.9% in FY2017,
primarily driven by the healthy growth in the higher-margin non-par and protection businesses.

Credit challenges

Operating expenses relatively higher than peers – Max Life’s operating efficiency (excluding commissions) improved in FY2021
(14.9%2 of gross written premium (GWP)) compared to the previous year, though it was higher than pre-covid FY2019 (13.4%).
The improvement in FY2021 was largely driven by the containment of other expenses due to the lockdown. ICRA notes that
the company’s operating expense ratio (excluding commissions) is higher compared to peers primarily due to relative lower
scale of the renewal book, however, the profitability has been maintained as a result of the healthy product mix. While its VNB
margins have been growing over the years, Max Life’s ability to improve the operating efficiency is likely to further aid the
margins.

Liquidity position: Strong

Max Life reported liquid assets of Rs. 57,796 crore (calculated as liquid investments3, adjusted for haircuts, and cash & bank
balance) as of March 31, 2021. In FY2021, the actual benefits/claims paid stood at Rs. 6,998 crore. ICRA does not foresee any
liquidity risk in the near term.

Rating sensitivities

Positive factors – The outlook or the rating could be revised if there is a sustained increase in Max Life’s market share and
profitability.

Negative factors – The outlook or the rating could be revised in case of a revision in the rating of the co-promoter (Axis Bank),
a decline in the Axis Group’s stake in Max Life to below 20% or in its strategic importance to the Axis Group. Pressure could
also arise if the company’s solvency ratio deteriorates to less than 170% on a sustained basis.

Analytical approach

Analytical Approach Comments

Applicable Rating Methodologies
Parent/Group Support
Consolidation/Standalone
Issuer Rating Methodology for Life Insurance Companies
ICRA’s Credit Rating Methodology for Rating Hybrid Debt Instruments Issued by
Insurance Companies
Impact of Parent or Group Support on an Issuer’s Credit Rating
Parent/Group Company: Axis Bank
The rating takes into account management support, given Axis’ board
representation, and the company’s ability to leverage Axis Bank’s wide branch
network for the distribution of its insurance policies.
For arriving at the rating, ICRA has used the standalone financials of Max Life.

2 Includes diminution in value of investments and shareholder expenses

3 Excluding linked investments

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 About the company
Max Life is a joint venture (JV) between Max Financial Services Limited and Axis Bank, holding a stake of 81.83% and 12.99%,
respectively, as on June 30, 2021. Max Financial Services is a listed entity held by the Max group and Mitsui Sumitomo
Insurance holding 16.99% and 21.87% respectively as on March 31, 2021. Launched in 2000, Max Life provides life insurance,
savings, investment and annuity to individuals and groups. The products are offered under the protection, participating, non-
participating and unit-linked lines of business with a presence across the country through 277 branches (own branches) and
distribution partners.

Key financial indicators (audited)

Max Life FY2019 FY2020 FY2021
Gross Written Premium 14,575 16,184 19,018
Income from Investment and Fees^ 5,116 2,412 12,455
Total Operating Expense* 2,943 3,564 4,061
PAT 556 539 523
Total Net Worth 2,761 2,574 3,008
Total Policyholders’ + Shareholders’ Investments@ 62,798 68,471 90,407
Operating Expense Ratio (excluding commissions) 13.4% 15.7% 14.9%
Net Commission / Net Premium Written 6.9% 6.4% 6.5%
Return on Equity& 20.4% 20.2% 18.7%
13th Month Persistency Ratio 83% 87% 84%
61st Month Persistency Ratio 53% 53% 53%
Regulatory Solvency Ratio 242% 207% 202%
Note: Amount in Rs. crore; All calculations are as per ICRA research
Source: Company, ICRA research
^ Income from investment and fees includes other income
* Total operating expense includes commission expenses, Includes diminution in value of investments and shareholder expenses
@ Investments exclude linked investments

& Return on equity is calculated as profit after tax divided by average equity

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Chronology of Rating History
Current Rating (FY2022)
for the Past 3 Years
Amount
Instrument Amount Outstanding Date & Rating in Date & Rating in Date & Rating Date & Rating
Type Rated as of Jul 13, FY2022 FY2021 in FY2020 in FY2019
(Rs. crore) 2021
(Rs. crore) Jul 15, 2021 - - -
Subordinated
1 Long Term 496.0 - [ICRA]AA+(Stable) - - -
Debt Programme

Complexity level of the rated instruments

Instrument Complexity Indicator
Subordinated Debt Programme Moderately Complex

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 The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: www.icra.in

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 Annexure-1: Instrument details
ISIN Instrument Name Date of Issuance Coupon Maturity Date Amount Rated Current Rating and
/ Sanction Rate (Rs. crore) Outlook

NA Subordinated Debt NA NA NA 496.00 [ICRA]AA+(Stable)

Programme*
Source: Company
*Yet to be placed

Annexure-2: List of entities considered for consolidated analysis

Company Name Ownership Consolidation Approach
NA NA NA

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 ANALYST CONTACTS
Karthik Srinivasan Sahil Udani
+91 22 6114 3444 +91 22 6114 3429
karthiks@icraindia.com sahil.udani@icraindia.com

Neha Parikh Niraj Jalan

+91 22 6114 3426 +91 33 7150 1146
neha.parikh @icraindia.com nniraj.jalan@icraindia.com

Gaurav Sharma
+91 75680 48765
gaurav.sharma@icraindia.com

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
shivakumar@icraindia.com

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communications@icraindia.com

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
info@icraindia.com

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