The deal will involve Axis Bank acquiring a significant stake in the life insurer but the quantum has not been finalised yet.
According to Insurance Regulatory and Development Authority (Irdai) norms, any entity holding more than 10 per cent stake in a life insurance company will be termed as a promoter. If the stake is less than 10 per cent, the entity will hold the status of an investor.
Axis Bank already holds 2 per cent in Max Life Insurance Company. Max Financial, which is the holding company of Max Life, holds 72.5 per cent in the life insurer, with Mitsui Sumitomo holding 25.5 per cent stake in the life insurer. Max Life is the largest non-bank-owned life insurer in the country.
Axis Bank is a bancassurance partner of Max Life Insurance, wherein it sells Max Life’s products as a corporate agent. The new premium generated through this arrangement has aggregated to over Rs 12,000 crore over a period of 10 years, while maintaining high persistency.
Apart from Axis Bank, Max Life’s bancassurance partners include YES Bank and Lakshmi Vilas Bank. Axis also has similar partnerships with state-owned life insurance behemoth Life Insurance Corporation and Bajaj Allianz Life Insurance Company.
Amitabh Chaudhry, managing director and chief executive officer of Axis Bank, said: “We constantly keep assessing strategic opportunities and we see a potential for greater participation in the under-penetrated life insurance space.”
He added: “We have had a long-standing bancassurance relationship with Max Life and the ongoing 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.”
Max Group Founder and Chairman Analjit Singh 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.”
The proposed transaction will be subject to regulatory approvals and corporate authorisations, satisfactory completion of due diligence, and execution of definitive documentations.
According to sources, Max Life and Axis Bank had earlier approached Irdai for a deal, but it did not materialise as the insurance regulator had some reservations.
HDFC Life and Max Life had agreed to merge in 2016, but the deal did not go through.
In the first nine months of FY20, the value of new business written by Max Life stood at Rs 576 crore, with year-on-year (YoY) growth of 24 per cent. The first year premium increased 19 per cent YoY to Rs 3,693 crore and renewal premium was up 11 per cent to Rs 6,618 crore.
The new business margin, a measure of profitability for life insurers, of Max Life stood at 21.0 per cent, increasing 60 basis points over last year. However, the pre-tax profit of the insurers fell 6 per cent to Rs 353 crore due to an increase in non-par business and strategic investments in proprietary channels, which are positive for long-term business health.