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Axis Bank, Max Life eye strategic partnership, pact signed 

Max Financial Services holds a 72.5% stake in Max Life while Mitsui Sumitomo Insurance and Axis Bank hold 25.5% and 2% respectively.

Axis Bank, Max Life eye strategic partnership, pact signed 

Max Financial Services and Axis Bank disclosed to the exchanges on Thursday they had signed a confidentiality and exclusivity arrangement to explore the possibility of the bank entering into a long-term strategic partnership with Max Life.

Max Financial Services holds a 72.5% stake in Max Life while Mitsui Sumitomo Insurance and Axis Bank hold 25.5% and 2% respectively.

Shares of Max Financial rose by over 15% during Thursday’s trading session.

Although the firms did not disclose details, there is speculation the lender may be looking to to acquire a stake of around 20% stake in the life insurer.

Axis Bank and Max Life have had a successful bancassurance arrangement for nearly a decade. The new premium generated through this arrangement has aggregated to over Rs 12,000 crore over this period, while maintaining high persistency, a press statement noted.

This is not the first time that Max group entities have been in the news over a proposed transaction. A few years back, HDFC Life and Max group had announced a proposed merger of their life insurance businesses. However, both the entities later pulled out of the proposed deal as they did not receive the necessary regulatory approvals. This time, since the proposed transaction would be with a bank, Reserve Bank of India’s (RBI) stand on the matter would be crucial.

Amitabh Chaudhry, MD and CEO at Axis Bank, said the lender sees 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,” Chaudhry indicated.

The Value of New Business (VNB) of Max Life Insurance written during the first nine months of fiscal year 2020 (FY2020) was Rs 576 crore at post-overrun costs, growing 24% over the previous year. VNB is used to measure profitability of the new business written in a period. It is present value of all future profits to shareholders measured at the time of writing of the new business contract. While the total first year premium increased 19% year-on-year to Rs 3,693 crore, renewal premium for nine-months into FY2020 was recorded at Rs 6,618 crore, an increase of 11% from the previous year.

The data from Insurance Regulatory and Development Authority of India (Irdai) shows that first year premiums for Max Life Insurance for this financial year till January was Rs 4,248.32 crore compared to Rs 3,561.12 crore in previous year, a growth of 19.3%. Market share of Max Life Insurance was at 1.98% as on January in the life insurance industry. The company in its press release stated that Max Life’s Embedded Value (EV) based on market consistent methodology (MCEV), stood at Rs 10,077 crore, with an operating return on EV (annualised) at 18.4%.

Analjit Singh, founder and chairman at Max Group, said 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. “We also believe that the potential transaction will provide a fillip to the life insurance sector overall,” he said.

Shares of Max Financial Services ended the day’s session up 9.41% at Rs 565.05 on the BSE. At the end of December 2019, promoters of Max Financial Services held 28.31% in the company of which 71.5% is pledged. In the last one year, the Max Financial Services stock have given a return of 43.21%.

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