Home > Markets > Mark To Market > Max Life’s dream comes true, gets Axis Bank an insurance exposure

In India’s under-penetrated market, the edge for life insurers depends on their distribution system, and a robust network ensures growth for the future. Max Financial Services Ltd’s deal with Axis Bank Ltd offers this, and more.

Max Financial entered into an exclusivity deal with Axis Bank, wherein the lender will have a long-term bancassurance partnership with Max Life Insurance Co. Ltd, the firm said in a bourse filing on Thursday. This means that Max Life need not compete with other insurers for Axis Bank’s attention, or sweeten it with more commission.

This puts to rest the uncertainties surrounding Max Life, as the bancassurance arrangement with Axis Bank would have been up for review in September 2021. Concerns had increased of late, when Axis Bank tied up with the largest insurer, Life Insurance Corporation of India, along with Bajaj Allianz Life Insurance Co. Ltd. Banks can sell products of three insurance firms through their branches.

Max Life cannot afford to lose Axis Bank as the lender’s network contributes 54% to its business. “The biggest differentiator, however, is the fact that a bank with skin in the insurer’s game would invest time in renewal efforts, which are unlikely in a truly ‘free-agent’ distribution set-up," said Edelweiss Securities Ltd in a sector report in November.

Graphic by Naveen Kumar Saini/Mint
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Graphic by Naveen Kumar Saini/Mint

Shareholders of Max Financial have gotten more than a bancassurance partner in Axis Bank now. According to media reports, Axis Bank is looking to increase its stake in Max Life from the existing 2% to 20%. The elation among the company’s investors was evident from the 9% surge in Max Financial’s shares on Thursday.

To be sure, the promoters of Max Financial have been trying to sell a stake for long now. An effort to do so through a deal with HDFC Life Insurance Co. Ltd in 2016 had fallen through after regulators refused to give approval.

Ergo, the contours of the deal with Axis Bank need to be conducive for regulatory approval, say analysts.

For Axis bank, insurance tie-ups will not only give an exposure to a fast-growing industry, but would boost fee income as well. “The pricing of the stake sale is important, but considering that Max Life trades at a modest multiple versus competition, the investors could get a good deal," said an analyst requesting anonymity.

Analysts are keen on the likely pricing at which Axis Bank will acquire the stake in the insurer. Valuations of Max Financial look modest, say analysts, as they imply a multiple of 1.5 times embedded value for subsidiary Max Life Insurance, adjusted for holding company discount. This is far lower than the multiples of 3 and 4.5 at which peers such as SBI Life Insurance Co. Ltd and HDFC Life trade, respectively.

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