Amity Journal of Commerce and Financial Review Jasuja, D.
Axis-Max Life Strategic Partnership: Will it be a Win-Win Game for Both Players?
1 Deepmala Jasuja
Abstract
Max Life, one of the prominent life insurer in Indian Insurance space was always considered as an outcast in the league of hallowed names but was never allowed to dictate its terms. Now, the fortunes seem to have changed. After failed merger attempt with HDFC LIFE in 2017, Max Life finally rolled its dice well. Recently, Axis Bank signed a pact with Max Life to strengthen their decade old relationship by acquiring 29% stake in its shareholding. This exclusive agreement is set to enter into a long time strategic relationship. The mentioned stake costs for a consideration of about 1600 crores, priced at the book value of Max Life. The boards of both the companies have given a green signal. Experts wondered if this alliance would succeed. Will this strategic move of Bancassurance partnership make Max life an impregnable lead in the Indian life insurance market space? Will it be a win-win game for both the players?
Keywords: Max Life, HDFC Life, strategic partnership
A Case Study: The Indian insurance sector seems to be in a state of transition. While there has been a significant change in the operations after opening up of FDI in insurance sector, still India largely remains an under-explored market. The competitive edge of life insurers is largely dependent on their distribution network system, adoption of modern technology like block chain, IOT and Artificial Intelligence to foster sustainable growth in future. To exploit the opportunity and to become the competitive player in the market, Bancassurance can be the feasible and the defended alternatives for players, Life Insurer and the bank itself.
The largest non-bank owned private life insurer in India is Max Life Insurance Co. which is a subsidiary of Max Financial Services Ltd with a market value of over 10,077 crores. With ₹68471 Crores worth of assets under management and 207% as solvency ratio, Max Life has a significant space in Indian Insurance sector. It was
1 Assistant Professor, Amity Global Business School, Amity University Uttar Pradesh, Noida
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Amity Journal of Commerce and Financial Review Jasuja, D. always considered as an ideal to take upon but was never allowed to dictate. So, to see long term growth and sustainability, Max Financial with Axis Bank, entered into an especial agreement wherein the bank will have a strategic partnership to sell the life insurance policies of Max Life Insurance Co. Ltd at Axis Bank counters.
Max Life Insurance -Axis Bank is one of the prominent Bancassurance partnerships in India. The new policy premium generated through this partnership has crossed the edge of ₹12000 crores with maintaining highest persistency. This exclusive partnership has gathered a total of ₹24000 Crores since the deal has been done. Spokesperson of Max Life Insurance said "Every milestone we achieve in our partnership with Axis Bank echoes the commitment of both partners towards their customer base. Together, both the partners have a constant focus on giving their customers; superior products, best of best services and delivering value.
Apprehensions were surrounding Max Life for Bancassurance relationships, as Axis Bank has also partnered with Life Insurance Corporation of India (LIC) which is the India’s largest and the most trusted life insurer for Bancassurance channel leading to more competition for Max life. Uncertainties were also ignited as the arrangement between Max and Axis Bank was due to be reviewed in September 2021. It would have been a great loss if Max Life loses Axis Bank as the later contributes around 54% to its business. Axis Bank’s branch network contributes more than half of the business of Max Life Insurance (Exhibit I)
Exhibit I
Source: Livemint, February 23, 2020
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Amity Journal of Commerce and Financial Review Jasuja, D.
All the worries were put aside when Axis Bank decided to take over approximately 30% stake of Max Life Insurance Co. from Max Financial Services, which is the parent company of Max Life Insurance for 1600 crores removing key stock overhang and providing a big jump to the Market value of the life insurer. Axis Bank, India’s fourth largest private sector lender will become long standing partner of the life insurance company. In the sale transaction of financial market, Max Financial services will divest 28.6% of its share in Max Life Insurance Co. to Axis Bank. So, Axis Bank who was holding only 2% in Max Life Insurance Co. will now be a partner of 30%. (Exhibit II) Mitsui Sumitomo Insurance, which owns 25.5 percent, will swap its 20.6 percent in Max Life for a 21.9 percent stake in Max Financial Services, which will purchase the remaining Japanese partner’s stake with the proceeds received from Axis Bank.
Exhibit II
Source: Livemint, April 29, 2020
Axis Bank will purchase around 556 million shares worth ₹28.61 per share after signing shareholders’ agreement and a share purchase agreement. Max Financial services will have the full right to propose four directors on the corporate board of Max Life Insurance, and on the other hand, Bank will have the right to recommend three directors for board. After completion of all these transactions, Max Life will become 70:30 joint venture having the stake of Max Financial services & Axis Bank respectively. 60 | P a g e Volume 3 Issue 2, 2021
Amity Journal of Commerce and Financial Review Jasuja, D.
This particular Bancassurance partnership will place Axis Bank in the race of prominent private and nationalized bank loan providers including HDFC Bank, Kotak Mahindra Bank, ICICI Bank, and State Bank of India who have strategic relationships between life insurance providers. The deal is yet to be approved from the Competent Authorities: RBI, CCI & IRDA.
Value of new business
Value of new business (VNB) is used to calculate the magnitude of how much profitable is new business in a said duration. So, the Value of New Business of Max Life Insurance written during first nine months of fiscal year ending March, 2020 was ₹576 Crores which is 24% higher than previous year. While the total first year premium increased 19% year-on-year to ₹3,693 Crores, renewal premium for nine- months into FY2020 was recorded at ₹6,618 Crores.
Business opportunities for both the players
This joint venture is seen to be creating immense customer value and new horizons for stakeholders, given the consistent market performance, high-performing and profitable relationship with Max Life,” said Amitabh Chaudhry, spokesperson of Axis Bank. The Bancassurance channel forms the most integral part of a distribution mix for all the other listed insurance companies. By getting unrestricted access to Axis Bank branches and strong customer base, Max Life may have finally completed its journey from being an outcast to a crucial insider of the insurance industry. Max Life and Axis Bank had over a decade long business relationship, but this Bancassurance arrangement is expected to give a business opportunity for both the parties. Bank as a differentiator would put some time & efforts for renewals and selling of new policy which is comparatively less in other agency arrangements whereas Max Life may get preferential treatment over Axis Bank Counters.
IRDA’S Concerns over proposed Joint Venture
IRDA has raised concerns over four clauses written in the proposed joint venture agreement. Those 4 proposals were put option for Bank to sell its stake, an observer as Board of Directors on the Max Financial Board, Merger with the parent company and the rights to appoint auditors in Max Life. The probable reason for concerns would be the violation of Section 35, which bars the merger of Insurance Firm with Non-Insurance Business.
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Will Max Life become impregnable in Indian Insurance Space? Will there be an impact of this transaction on the shareholders’ wealth? It remained to be seen how this joint venture will turn as a win-win game for both the players.
References
Aparna Iyer,” Max Life’s dream comes true, gets Axis Bank an insurance exposure”, https://www.livemint.com/market/mark-to-market/max-life-s-dream-comes-true-gets- axis-bank-an- insurance-exposure-11582473201149.html, February 23rd,2020
FE Bureau, “Axis Bank, Max Life eye strategic partnership, pact signed”, February 21st, 2020
Panda S., “Axis Bank set to acquire 29% stake in Max Life Insurance for ₹1,592 Crores”, https://www.business-standard.com/article/finance/axis-bank-to-acquire-an- additional-29-stake-in- max-life-for-rs-1-592-cr-120042801575_1.html” April 29th,2020
Kumar, A. “Axis Bank to acquire 30% of Max Life for ₹1,600 Crores”, https://economictimes.indiatimes.com/industry/banking/finance/banking/axis-to- acquire-30-of-max- life-for-1600-crore/articleshow/75416011.cms?from=mdr,April 28,2020
ENS Economic Bureau, “Axis Bank inks deal to explore stake purchase in Max Life”, https://indianexpress.com/article/business/banking-and-finance/axis-bank-inks-deal- to-explore- stake-purchase-in-max-life-6278751/,February 21st,2020
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