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TRANSCRIPT
Max Financial Services Limited
Investor Presentation
June 2020
Max Financial Services
SECTION I
Max Group Vision“To be the most admired corporate for service excellence”
3
Sevabhav
Excellence
Credibility
• Positive social impact
• Helpfulness
• Culture of Service
• Mindfulness
• Expertise
• Dependability
• Entrepreneurship
• Business performance
• Transparency
• Integrity
• Respect
• Governance
Max Group – Overview
4
49.7%40.9%
Senior Living and
Skilling businesses
Max Group - Sponsors
Real Estate, Manufacturing & Other businesses
72.52%^51%
28.3%
100%
100%
100%
100%
Life Insurance BusinessHo
ldin
g C
om
pan
ies
Op
era
tin
g C
om
pan
ies
Relatively stable, profitable and dividend
payingGrowth businesses Entrepreneurial Ventures
^ Max Life to be 70:30 JV with Axis Bank post series of transactions
• Independent living - Residencies• Assisted Living - Care Homes• Homecare - Care@Home
100%
Evolution of Max Group
5
Started its journey with
Manufacturing & trading
businesses
• Pharma: Penicillin-based drug
• Packaging Films: Max Speciality Films
• Electronics: Partnered with Avnet
• Cellular services: JV with Hutchison
• Paging services: Tie-up with Motorola
• Communication & Satellite: Comsat JV
• Printed Circuit Board: JV with Atotech
• Divestment: Divested 40% stake in
Telecom business for a gain of 488 Cr
Acquisitions, Demerger, Wider world of
businesses through MVIL & Portfolio
rebalancing :
• Demerger: Spilt into 3 entities, Max Financial,
Max India & Max Ventures
• Wider world of businesses : MVIL forays into
Real Estate; NYL acquires 22.5% stake in MVIL;
Toppan inducted as JV partner in Max
Speciality Films
• Re-balancing Portfolio: MHC merged with
Radiant to create 3rd largest Hospital chain;
True North acquired Max’s stake (51%) in Max
Bupa for Rs 543 Cr
• Holistic Senior care service provider: Antara
aspires to create an ecosystem for seniors
offering a blend of lifecare & lifestyle products.
First wave: Early years,
Started with Manufacturing
Businesses (1982 – 2000)
Reinvented itself … Shifted from B2B
to B2C :
• Life Insurance: JV with NYL in 2001, new
JV partner MSI in 2012
• Health Insurance: JV with Bupa in 2009
• Healthcare: JV with LHC in 2012, LHC
equalize stake in 2014 invested 766 Cr
• Senior Living: Launched first community
in Doon in 2013
• Fund Raised: Warburg invested 340 Cr in
2005; 1000 Cr QIP in 2007; IFC invested
450 Cr till 2009; GS invested 522 Cr in
2010
Second wave: Group reinvented
from a B2B conglomerate to a B2C
company (2000 – 2014)
Third wave: Corporate restructuring to
unlock value & Portfolio Rebalancing
(2015-20)
Journey of Successful Partnerships
6
Past JV Partners
Current JV Partners Marquee Investors
MFS – Board of Directors
7
Chairman and FounderMr. Analjit Singh
Founder and Chairman of Max Group. Awarded with highest civilian honor, the Padma Bhushan
Independent DirectorMr. Aman Mehta
Former CEO of HSBC Asia Pacific with 35 yrs of experience. Serving on the Board of Vedanta, TCS, Tata Steel, Wockhardt & Godrej Consumer
Independent DirectorMr. D. K. Mittal
Former IAS officer of 1977 batch and has served the government of India in various capacities
Managing Director
Mr. Mohit Talwar
Seasoned professional with 36 years of experience in Corporate Finance and Banking
DirectorMr. Sahil Vachani
CEO & Managing Director of Max Ventures andIndustries Limited. Responsible for the overall strategic vision and direction of the company
Independent DirectorSir Charles Richard Vernon Stagg
Currently the Chairman of Rothschild and Co, India. He is a Director of the JP Morgan AsianInvestment Trust
Independent DirectorMr. Jai Arya
Seasoned professional with 37 years experience with Bank of New York Mellon and Bank of America
Independent Director Mrs. Naina Lal Kidwai
Former Chairman of HSBC India. Serving on the Board of L&T, Cipla, Nayara Energy, LafarageHolicim
Max Group – Senior Management
8
Rajit Mehta
• Managing Director& CEO, Antara Senior Living
• Group role to oversee Max India New Growth Initiatives
and Advisor for Max Group’s Human Capital
Tara Singh Vachani
• Executive Chairman, Antara Senior Living
• Director in Max India & Max Healthcare
Ramneek Jain
• CEO, Max Specialty Films
Sahil Vachani
• MD & CEO, Max Ventures and Industries Limited
• Director in Max Financial & Max Life Insurance
Rajender Sud
• CEO, Max Skill First Limited
Prashant Tripathy
• Managing Director & CEO, Max Life Insurance
Mohit Talwar
• Vice-Chairman, Max Group
• Managing Director, Max India Limited
• Managing Director, Max Financial Services
• Vice-Chairman, Max Ventures and Industries Ltd
• Chairman, Max Specialty Films
Max Group Overview
9
USD 2.5 billion Revenues… 4 Mn Customers… 16,000 Employees… ~46,000 Agents
Strong growth trajectory even in challenging times; a resilient & diversified business model
Steady revenue growth and cost rationalization leads to strong financial performance
Well established board governance….internationally acclaimed domain experts inducted
Diversified ownership…..marquee investor base
Superior brand recall with a proven track record of service excellence
Strong history of entrepreneurship and nurturing successful business partnerships
1
2
3
4
5
6
7
basis FY20 numbers for conversion assumed 1 USD = INR 75
High pedigree of long-term investor base
10
Promoter28.3%
KKR6.7%
Mutual Funds27.2%
FII- Others23.9%
Public13.9%
Shareholding Patternas on 31st Mar 20
▪ KKR
▪ Baron Emerging Market Fund
▪ Ward ferry
▪ New York Life
▪ Vanguard
▪ Norway Government Pension Fund
▪ Jupiter
▪ Blackrock
▪ Neuberger Berman
▪ Eastspring
▪ Dimension
▪ Mirae Mutual Fund
▪ HDFC Mutual Fund
▪ Reliance Mutual Fund
▪ Kotak Mutual Fund
▪ ICICI Prudential Mutual Fund
▪ Aditya Birla Sunlife Mutual Fund
▪ DSP Mutual Fund
Shareholding concentrated with Marquee Investors
Number of outstanding shares: 26.95 Cr.
Recent Developments in Max Financial & Max Life
SECTION II
MSI & Axis Transaction Summary
12
MSI Transaction
▪Preferential allotment to MSI in MFS against swap of shares held by MSI in Max Life
▪MFS to acquire balance 5.17% stake from MSI at Rs 85 per share for cash consideration of Rs 843 Cr
▪Transaction expected to be completed by Jun’20, subject to receipt of all regulatory approvals (DEA, IRDAI & CCI)
Axis Transaction
▪ Axis Bank to acquire 29% stake in Max Life from MFS at a valuation as per Tax Book value (currently at Rs 28.62/sh^; ~ Rs 1,600 Cr)
▪ Post completion of series of transactions Max Life will be a 70:30 JV between MFS and Axis Bank
▪ This transaction brings together the 3rd largest private bank and 4th largest private life insurer in the country
▪ It will significantly improve Max Life’s competitive position vis a vis its Peers, including other large bank owned private life insurers
▪ Axis & Max Life had a successful business relationship with 19 lacs customers and premium generated over Rs. 38,000 Cr
▪ This JV will govern this in the spirit of equal partnership. Max Life will have 4 directors nominated by MFS and 3 by Axis
▪Transaction expected to be completed by Dec’20, subject to receipt of all regulatory approvals (RBI, IRDAI & CCI)
Transaction Structure
13
Max Financial
(MFSL)
Max Promoter Public
28.31% 71.69%
Max Life
(MLIC)^
Max Financial
(MFSL)
Mitsui
SumitomoAxis Bank
72.52% 25.48% 1.99%
Max Financial
(MFSL)
Max Promoter Public
22.11% 56.02%
Mitsui
Sumitomo
21.87%
Final structure (Post completion of series of transactions
step wise detail given below )Current Structure
Note: MFS Shareholding on undiluted basis
Max Life
(MLIC)
Max Financial
(MFSL)Axis Bank
70% 30%
▪ Step 1: MSI to hold 21.87% stake of MFS stake in exchange of 20.57% of Max Life through a Share SWAP transaction
▪ Step 2: MFS & MSI to acquire 1% stake in Max Life from Axis in the ratio of 74: 26
▪ Step 3: MFS to sell 29% stake in Max Life to Axis at Tax Book Value
▪ Step 4: MFS to acquire balance 5.17% stake from MSI
Max Life Insurance – Insurance Opportunity
SECTION III
Retail wealth in India - Increasing preference for avenues other than cash and bank deposits
Household Savings flow - ~3% de-growth in financial assets flow in 2019 -Lowest in last 5 years
Weak macroeconomic environment led to de-growth in financial assets flow; Life Insurance is among preferred asset class in India
Amount in INR Bn
X% CAGR
59% 53% 45% 53% 50% 52% 48%
41% 47% 55% 47% 50% 48% 52%
2008 2010 2015 2016 2017 2018 2019
Financial Assets Physical Assets
2015 – 2019CAGR
10%
12%
Cash
Bank Deposits
Direct Equities
Insurance AUM
Mutual Funds
13%20%
10%
9%4%
6%10%
7%
17%
16%
46%42%
2015 2019
Growth2019 Vs 2015
Others
10%
4%
26%
9%
24%
12%
Source: Karvy India Wealth Report 2015/2016/2017/2018/2019Direct Equities only for retail investor class; Bank Deposits include FD, CA deposits, SA deposits, NRI deposits
Source: Handbook of Statistics on Indian Economy 2016/2017/18/19
15
` 226 lakh cr
High Savings Culture though savings rate slowing due to consumption
Amount in INR Trillion
Source: Handbook of Statistics on Indian Economy 2016/2017/18/19
9.3 10.6 11.9 12.6 15.0 16.1 20.6 20.013.9 14.7 14.2 15.1 13.2 15.9
19.1 21.80.3 0.4 0.4 0.5 0.5
0.50.4
0.4
-2.9 -3.3 -3.6 -3.8 -3.9 -4.7 -7.4 -7.7
24%22% 20% 20% 18% 18% 19% 18%
FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 FY'19
Gross Financial Savings Savings in Physical Assets Gold and Silver
Financial Liabilities Household savings/ GDP (%)
Significant opportunity for Life Insurance to grow in India on the plank of ensuring disciplined savings over a long term – Only asset class which is effective in addressing the gap
Gap between other countries and India is significant for Life Insurance density
India lags behind other developed countries on Life Insurance penetration
Source: IRDAI Annual Report 2016/17/18/19, ̂ AUM under equity finds by retail investors from AMFI website
Life Insurance Penetration (Premium as % of GDP), CY 2018
Life Insurance Density (Premium per capita – USD), CY 2018
17.5%16.8%
6.7%6.1%
2.7% 2.3%
Taiwan Hong Kong Japan South Korea India China
~ 2 Bps decline from 2017
8,204
4,320
2,629 221
55
Hong Kong Taiwan Japan China India
Long Term Nature of Savings
• Life Insurance inculcates disciplined savings mindset which help retain AUM for longer– For the mutual fund industry, only 40-45%^ of the assets are more than 2 years old– For better Asset Liability management, Banks preference remains for shorter tenure deposits– Investment in direct equities impacted by performance of stock market and does not ensure discipline
16
Urbanization, improving affluence, emergence of nuclear families will continue providing impetus to the Life Insurance industry
Source: Nielsen Analytics, Mumbai, India. MME: Metro, Town & Rural Skyline of India 2015-16
India has witnessed rapid urbanization, aids affluence and emergence of nuclear families
18%
20%
23%
26%
28%
31%
43%
53%
1961
1971
1981
1991
2001
2011
2035
2050
Urban Population (%)
Middle class is likely to increase rapidly, especially in Top 150 cities; Top 19 cities continue to hold bulk of household savings as well affluent households
Source: World Urbanization Prospects: The 2018 Revision, United Nations
^ Source: BCG: The New Indian 17
Savings
Tier 119 cities with 2 Mn+ pop.
Tier 235 cities with 1-2
Mn+ pop.
Tier 356 cities with 0.5-1 Mn+
pop.
Tier 4415 cities with 0.1-0.5
Mn+ pop.
Next billion(0.15 – 0.5
Mn)
Aspirers(0.5 – 1 Mn)
Affluent(>1 Mn)
2 Mn
2 Mn
4 Mn
5 Mn 3 Mn
1 Mn
1 Mn
2 Mn
7 Mn
2 Mn
1 Mn
2 Mn
Strugglers(<0.15 Mn)
4 Mn
4 Mn
9 Mn
8 Mn
20%30% >100%50%
Total Savings` Trillion| %
3.5 | 15%
1.5 | 7%
3.1 | 14%
9.9| 43%
Estimated no. of Households*
* Based on Annual gross household income in `
Increase (2016-25)^
2.2%
2.6%2.3%
2.5% 2.5%
4.1% 4.0% 4.0%
4.6%4.4%
3.4%3.2% 3.1%
2.6% 2.7% 2.7%2.8%
2.7%
18
Life insurance industry has seen multiple cycles since 2001. Recent structural changes in the economy have resulted in positive flow towards financial assets aiding the insurance industry
Phase 4 – Reinvigoration(2015-date)
Phase 2 –Expansion (2004-2008)
Phase 3 – Discovering New Normal (2009-2015)
▪ Global Financial crisis/ Bearish Indian Stock Market▪ Frequent regulatory interventions
– New ULIP guidelines– New product guidelines
▪ Equity Bull Run▪ ULIP introduced by private players
▪ Stock Market Revival▪ De-monetization▪ GST Implementation▪ Regulations:
– Expense of Management Guidelines
– Open Architecture for Corporate Agents
– Distributor Compensation Guidelines
Individual FYP adjusted for Single Premium (INR Billion)xx
LIC
Private Players
(Percentage of insurance premium to GDP)
Phase 1 – Joyful Entry (2001-2003)
▪ Entry of Private Players
Source: IRDAI Annual Reports, League tables
100% 98% 94% 85% 75% 66%
64%
50% 43%48%
54% 63% 62% 62% 51% 48%46%
44%42% 43%
100 100 120 140 160210
403
527472
550504 479 470 454
408 441533
635692 735
FY02FY01 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY14FY13 FY15 FY16 FY19FY17 FY18 FY20
Life insurance penetration
YoY Growth basis Individual Adjusted FYP
Industry Landscape (FY’20): Total Industry grew by 6%, while Pvt. players grew by 5% and LIC by 8%)
Source: Life Insurance Council | IRDAI
21%
19%
9%
6%
25%
22%21%
5%
Industry
Max Life
Max Life’s privatemarket share
FY’17 FY’18 FY’20
9% 10%
Private Industry YoY growth 24%14% 5%
Max Life’s totalmarket share
5% 6%
Max Life grew at 17% till YTD Feb, more than the private industry growth rate of 14%. Full year growth impacted by COVID-19 in Mar’20
FY19
26%
10%
6%
9%
5%
19
Max Life Insurance – Business Overview
SECTION IV
Max Life has an extensive presence across India through its own offices and distribution partners and is the 4th largest private Life Insurance player in the country
356 Own Branch Units
6000+ Partner
Branches
4th Largest AUM
Max Life has more ~6500 Point of Sales across the country
~9L Crores Sum Assured
#3 Claims Paid ratio in industry*
4th Largest
Private Life Insurer^
~68K CrAssets Under Management
~1 Cr+ Lives Insured** Till Date
35 Lacs+ Active Customers**
~46K Agents~60 Distribution
Partners~9.7% Private Market Share^
^By Individual New Sales **Individual customers *As per IRDAI report 2018-19 21
Max Life Insurance’s road map to becoming India’s most admired life insurance company
To be the most admired life insurance company by securing the financial future of our customers
Quality of Advice
Superior Human Capital
Financial Strength
Service Excellence
Value Driven Culture
Corporate Governance
Inspire People to increase the Value of their Life
“I am the Difference”
Caring: Respect people, Act with compassion
Collaboration: Stronger together
Customer Obsession: Customer at the core
Growth Mindset: Curious to learn, Hungry to win
Vision
Integrity
Purpose
We Stand for
Values
22
Highly experienced and versatile Board of Directors providing strong and secure foundation
Chairman and FounderMr. Analjit Singh
Founder and Chairman of Max India. Awarded with highest civilian honor, the Padma Bhushan
DirectorMs. Marielle Theron
Fellow of the Society of Actuary (FSA). She is a Principal of Erlen Street Corporation, Switzerland
DirectorMr. D. K. Mittal
Former IAS officer of 1977 batch and has served the government of India in various capacities
DirectorMr. Hideaki Nomura
Seasoned professional with 29 years experience in financial industries
Managing Directorand CEOMr. Prashant Tripathy
A seasoned professional with over two decades of experience. Appointed as Managing Director and CEO in January 2019
DirectorMr. Sahil Vachani
Responsible for the overall strategic vision and direction of the company
DirectorMr. Mohit Talwar
Seasoned professional with 24 years of experience in Corporate Finance and Investment Banking
DirectorMr. Rajit Mehta
Currently the CEO and MD of Max Healthcare Institute and also the founding member of Max Life
DirectorMr. Deepak Bhattasali
An academic associated with Georgetown University and has also worked extensively with the World Bank
Deputy Managing DirectorMr. V Viswanand
An industry veteran with a dynamic presence in the financial services sector.
Director Mr. K. NarasimhaMurthy
Serving on the Board of ONGC, LIC Housing, STCI, Infiniti Retail‚ APSFC, Max Bupa and NABARD
DirectorMr. Pradeep Pant
Seasoned business leader with experience in leading FMCG companies like Mondelez, Gillette and Nestle
23
DirectorMr. Naoyuki Sakaki
Associated with MSI since 1987 and has more than 30 years experience in insurance industry.
Executive Management Team has rich insurance experience and spent ~100 years at Max Life combined
5+ years
23+ years
Yahoo, Sapient
<1 year
23+ years
ITC, Cognizant, BrillioTechnologies-IncendoTechnologies
8+ years
28+ years
Standard Chartered Bank, ABN AMRO, RBS
11+ years
20+ years
Prudential UK Metlife UK
8+ years
28+ years
GE, SRF Finance, EicherTractors
19+ years
28+ years
ANZ GrindlaysBank
4+ years
25+ years
Global Logic, MetLife, paternoster, JLT, Aviva Life, DCM
7+ years
16+ years
PwC, Infosys, ReligareEnterprises
Stint in Max
Total Exp.
Previous Org.
Director & Chief Investment Officer
Director &Appointed Actuary
Director & Chief OperationsOfficer
Director - Legal - Compliance & Regulatory Affairs
Director & Chief Marketing Officer
SVP & Head –Strategy, Analytics & Investor Relations
Director & Chief People Officer
V Viswanand
EVP & Deputy Chief Financial Officer
Deputy Managing Director
Manu Lavanya Aalok Bhan Jose John Mihir Vora Shailesh Singh Amitabh Lal Das Amrit SinghMandeep Mehta
5+ years
26+ years
HSBC Global Asset Management, ICICI Prudential‚ Birla Sun Life AMC
13+ years
17+ years
Accenture, Cognizant, ICICI Prudential
SVP & Chief Risk Officer
Sachin Saxena
▪ Stint in Max : 13+ years
▪ Total Experience: 24+ years
▪ Previous Organizations: Tata Steel, GE
Prashant TripathyManaging Director & CEO
Max Life Management Team
24
Pvt Market Share
10%[10%]
Individual APE
Rs 4,116 Cr[Rs 3,917 Cr]
Gross Written Premium
Rs 16,184 Cr[Rs 14,575 Cr]
AUM
Rs 68,471 Cr[Rs 62,798 Cr]
Profit Before tax
Rs 595 Cr[Rs 623 Cr]
Net Worth
Rs 2,570 Cr[Rs 2,761 Cr]
Policyholder Cost to GWP Ratio
20.8% [20.0%]
Policyholder Expense to GWP Ratio
14.5%[13.2%]
New Business Margins RoEV
20.3%[21.9%]
Embedded Value*
9,977[8,938]
Solvency
207% [242%]
VNB
897#
[856]
Policies Sold (‘000)
597[645]
Claim Settlement Ratio
99.22%[98.74%]
Protection Mix**
Financial Performance Summary FY20
5%9%
5%
10 bps
-4%
11%
126 bps
Individual Group Total
8%[6%]
5%[4%]
13%[10%]
340 bps
4 bps
Structural Actual
24.3%[22.5%]
21.6%#
[21.7%]
20.3%
*Embedded Value is pre-dividend, Growth on Embedded value is operating RoEV, **Group protection (incl. Group credit life adjusted for 10% for single premium and term business);
Figures in [brackets] are for previous year numbers # VNB and Margins are post adjustment for effective tax rate
160 bps 35%
48 bps
25
-7% 80 bps
-8%
Max Life has delivered strong performance on both new business and renewal business; Maintained 4th rank in the private industry
Individual Sum Assured of New business- 7% growth in FY20 is lower due to introduction of limited pay protection products
7,081 8,108
9,415 10,600
FY17 FY18 FY19 FY20
Renewal Income
88,451
122,036
171,063 183,019
FY17 FY18 FY19 FY20
10,780 12,501
14,575 16,184
FY17 FY18 FY19 FY20
2,657 3,248
3,950 4,149
FY17 FY18 FY19 FY20
Mkt Share#
Gross Written Premium
New Business Premiums (on APE basis)
Pvt Ind Rank 4 4 44
9.0% 9.7% 9.7%9.2%
Amount in INR Cr Amount in INR Cr
Amount in INR Cr Amount in INR Cr
X% CAGR Total APE includes Individual and GCL APE. It excludes Group term Loan # on Adj FYP basis
5% 13%
11%
26
7%
Margins (post-overrun)#
VNB (post over-run)#
Product Mix – Shifting towards a balanced product mix
Shift in product mix towards NPAR resulted in 180 bps improvement in structural margin; Current cost VNB growth in line with the sales growth owing to investments in growth and COVID impact
18.8%
20.2%
21.7% 21.6%
FY17 FY18 FY19 FY20
499
656
856 897
FY 17 FY 18 FY 19 FY 20
Amount in INR Cr
X% CAGR
54%43% 40%
30%
4%
4% 6%8%
3% 4% 4%5%
9%
8% 9%18%
30%41% 42% 38%
FY 17 FY 18 FY 19 FY 20
PAR Individual Protection Group Protection Non PAR- Savings ULIP
7%
280 bps
5%
8% 10%13%
27
Margins (Structural)
18.0%20.2%
22.5%24.3%
FY17 FY18 FY19 FY20
630 bps
#VNB and margins for FY19 and FY20 are post the adjustment of effective tax rate. YTD Feb VNB(post overrun) growth was at ~18%
Solvency Ratio (pre dividend) - maintained well above the regulatory requirement
Return on Equity (RoE)# - maintained at consistently more than 20%
Opex to GWP*- Increase in FY20 ratio largely on account of investments in proprietary channels, growth initiatives and slowdown impact of COVID
Efficient capital management with consistent RoE of 20%+… best in class among financial services
14.8%
12.9%13.2%
14.5%
FY17 FY18 FY19 FY20
30%
22% 21% 20%
FY 17 FY 18 FY 19 FY 20
309%
275%242%
207%
FY17 FY18 FY19 FY20
150% Solvency Limit
27bps
* Refers to the policyholder expense to GWP ratio; # ROE is PAT as a ratio of average Net worth during the year 28
-206 -336 -587 -761
761 7261015 1189
FY17 FY18 FY19 FY20
NB Strain BackBook Surplus
Underwriting Profits - Growth in FY20 inforce profits surpassed strain net of overruns
SH Surplus 105 138 128 111
Amount in INR Cr
Sensitivity
Operating Return on Embedded Value
Operating Variance - has been generally positive over the years
Embedded Value (EV)
Embedded value compounds at 15% with operating RoEV for FY20 at 20.3%
65907509
8938
9977
FY17 FY18 FY19 FY20
19.9% 20.6%21.9%
20.3%
FY17 FY18 FY19 FY20
86
62
126
103
FY 17 FY 18 FY 19 FY 20
Amount in INR Cr
Amount in INR Cr
ItemEmbedded Value Value of New Business
-10% 10% -10% 10%
Lapse / Surrender 1% -1% 4% -4%
Mortality 2% -2% 5% -5%
Expense 1% -1% 7% -7%
** EV is Post-dividend
12%
29
Max Life has consistently grown its Asset Under Management
ULIP: Healthy mix of Debt and EquityAssets Under Management - MLI is the 4th largest manager of private LI AUMs*
30
16 17 20 19
29 35
43 49
44
52
63
68
FY17 FY18 FY19 FY20
ULIP Controlled Fund
46% 49% 49% 57%
54% 51% 51% 43%
FY 17 FY 18 FY 19 FY 20
Debt Equity
Amount in INR ‘000 Cr
92% 92% 91% 93%
8% 8% 9% 7%
FY 17 FY 18 FY 19 FY 20
9%
Par fund size ~38K and controlled fund crossed 50K as on 30th April
More than 95% of debt investments is in sovereign papers and AAA rated securities
Controlled: Healthy mix of Debt and Equity
* AUM growth till YTD Feb was at 17%
Headcount - In line with the growth aspirations, headcount has been ramped up by 24% in FY20, largely towards distribution buildup
Employee Engagement^ - Consistently amongst top decile
Leadership Experience – Almost half of the leadership has been with the company for more than a decade*
Great Place to Work Survey - Only Life insurance Company amongst Top 100 India’s best place to work for in 2019; rank improved since 2015
Unwavering focus on leadership strength and has a vintage employee pool, both of which are critical for success in long term businesses such as Life Insurance
5146 43
35
2015 2016 2018 2019
83% 83%
97% 96%
2016 2018 2019 2020
<217%
2-514%
5-1022%
>1047%
9446 1022612082
15020
FY17 FY18 FY19 FY20
24%
*Leadership defined as Vice President and above, Data as of Mar 31, 2020 ^ Conducted by IBM Kenexa till 2018 and Willis Tower Watson in 2019 and 2020. 2019 score is adjusted for methodology change done in 2020
Top 15 BFSI#1 in LI
Total leadership count is 270
31
Max Life has been recognised by a number of Indian and foreign business bodies for its excellence in business, customer service and focus on people
Business Excellence Leaders in Quality Focus on People▪ Winner of CII Industry Innovation Award
▪ Outlook Money Award- Best Life Insurer
▪ Most Admired Brand By White Paper International
▪ BFSI Smart Tech Awards 2019 - IPQ won the Best Use of Data and Analytics
▪ Golden Peacock award for Corporate Governance
▪ Silver Award at the ACEF 8th Global Customer Engagement Awards 2019 in the BTL Activities Category.
▪ Best Use Innovation In Loyalty Marketing -Virtual Reality at Customer Fest Show 2020
▪ Smart Term Plan as Product of the Year award under the Term Life Insurance category, Nielsen Survey 2020
▪ No. 1 in Customer Loyalty survey by IMRB
▪ Gold at ASQ World Conference
▪ Winner of IMC Ramkrishna Bajaj National Quality Award
▪ Winner of CII Industry Innovation Award
▪ Asia Pacific Quality Organization (APQO) award for global performance excellence
▪ Silver Award in ASQ ITEA 2019 for Sell Right for Customer Delight at Axis Bank
▪ Silver Award in the 12th QCI-DL Shah Quality Awards for Enhancing S2R Conversion% Select 60 offices in Agency.
▪ At CMO Asia Awards , won Best Term Plan Company of the Year
▪ Ranked 35th – India’s Best Companies to work for in 2019. Best in Insurance industry
▪ Top 25 BFSI companies to work for by Great Place to Work Institute, India in 2020
▪ India’s Top 75 Workplaces for Women by Great Place to Work Institute
▪ Employee Engagement Leadership Award for “Best use of the Employee Award”
▪ Employee Engagement Leadership Award for “Best Social Responsibility”
32
Max Life Insurance – COVID Response
SECTION V
Max Life responded immediately to COVID situation across key dimensions; All key processes were functional within 4 days of lock down initiation
Employees
▪ Established BCP protocols across organization
▪ HR guidelines on Do’s and Don’ts, continuous communication, facility readiness for PPEs and sanitization
▪ Almost all employees enabled for work from home
▪ ~2k users enabled on VDI\VPN since Work from home kick-off
▪ Most outsourced vendors operating now at pre-covid efficiency
Customers
▪ Continuous communication with customers to provide reassurance regarding claims & existing policies
▪ 14% YoY increase in website customer service traffic in April, 37% decline in inbound calls at customer service helpline; website transactions up by 50%+ YoY for online payment in April
▪ More than 24 different mechanisms exist for paying premiums
▪ Enabled new liquidity options on website to strengthen customer retention
▪ Significantly increased digital touchpoints and work types to service customer
Distributors
▪ 100% enabled end to end digital sellingacross all distribution channels
▪ Frictionless journey
▪ 100% paperless, signature free journey
▪ Enhanced telemedicals grids and currently 1400+ functional diagnostic centers for physical medicals
▪ Overcame barriers to new agent licensing through innovative means – Top of the funnel interest up by ~50%
▪ ‘Max Life Suraksha Kavach’ launched for Agents to support on mortality, morbidity & liquidity during COVID
34
Guiding
principles
Immediate
action taken
▪ Health and safety paramount▪ Proactive customer communication
▪ No disruption in customer service
▪ Health and safety paramount
▪ Adequate support to Agents
▪ Enable distribution to continue working remotely
Key programs initiated to navigate through current situation and emerge stronger
COVID19
35
Digital Sales Products and Underwriting Cost rationalization Close to customer
▪ Distribution enablement for remote protection selling
▪ Enablement of Medical diagnostic network
▪ Product innovations for new opportunities
▪ Simplified and 100% digitized sales process enabled by digital tools
▪ Digital agent recruitment, training and onboarding
▪ Cross selling and virtual engagement with prospects
▪ Paperless onboarding
▪ Virtual sales governance
▪ Tactical and structural long term cost take out
▪ Reimagine the futuristic operating model
▪ Digitization for efficient backend operations
▪ Proactive communication around reassuring customers
▪ Enablement of service / request types on self-service / digital modes (non-physical)
▪ Customer enablers for premium payment
1 2 3 4
Risk monitoring framework for emerging operational and IT risk, credit risk, liquidity risk
Furthering Human capital
▪ Engagement initiatives to keep employee morale high
▪ Infrastructure enablement and collaboration tools for work form home option
▪ Leverage existing virtual learning platforms for continuous learning
5
We also assessed how the current situation will effect our financial strength and asset portfolio; no immediate and medium term stress expected
Solvency
Key areas Results
Interest rate risk & Asset Liability Management
Credit risk
▪ Manageable credit risk given high credit quality of bonds held; 95% & 99% exposure in AA+ and above bonds in PH & SH funds respectively (excl. YBL and Fixed-deposits)
▪ Limited exposure to sectors which may see stress over next 6-12 months from COVID19
▪ No securities being impaired in the debt portfolio
▪ Strong solvency position at 207% as on March 31st, 2020. Stressed solvency in a 1-in-100 year event is also above internal thresholds. No immediate and medium term concerns on solvency given PAR & UL heavy portfolio
▪ Non-par savings products were assessed on lower interest rates and current FRA rates
▪ Even with the volatile market conditions, no material impact foreseen on the ALM position given there are sufficient net investments (based on in-force projections) expected over the long period
Market risk
▪ Unit Linked: Robust performance both against the benchmark as well as that relative to the peers, on back of timely asset allocation bets along with high quality securities
▪ Controlled Fund: No equity securities qualifying for impairment, as of Mar’20 as well as Apr’20; increased frequency of monitoring impairment to fortnightly given current volatility
36
Liquidity risk
▪ Comfortable liquidity position in Policyholder funds (as on 31st Mar’20) over both short and medium term. Extreme stress testing of liquidity also depicts no concerns with >100% liquidity ratio given high level of investments in G-sec bonds
▪ Reasonable liquidity in the Shareholder fund (as on 31st Mar’20) to manage business expenses even with no renewal or new business
Max Life Insurance – Strategy FY19-22
SECTION VI
Digital
▪ Increase protection penetration
▪ Drive Non PAR saving
▪ Tap into new growth opportunities like health and retirements
▪ Enhanced investment and mortality risk management
Product innovation to drive margins
▪ Deepen Bancassurance partnerships
▪ On-board new distribution partners
▪ Scale up existing proprietary channels
▪ Opportunistic play for inorganic growth
Predictable & Sustainable growth
▪ Continue with digitization agenda across the organisation
▪ Build intelligence (AI) in all digital assets
▪ Minimize back-office costs
Digitization for efficiency and intelligence
▪ #1 position in 13M and 61M persistency
▪ Highest Relationship Net Promoter Score (NPS) in the industry
Customer centricity across the value chain
Significant progress made across key strategic priorities
A B DC
▪ Focus on increasing Protection penetration and NPAR savings contributed to increase structural margins from 22.5% to 24.3%
▪ Supplement retirement offering through ‘deferred annuity’
▪ Executed FRA contracts to augment non-par appetite
▪ Entered into definitive agreements with Axis Bank*
▪ Extended corporate agency agreement with Yes Bank for 5 years
▪ Increase share of proprietary channels sales to ~31% from 29%
▪ Signed up with 28 new partners
▪ 98% of all policies digitally sourced -Achieved 71%+ Insta-issuance
▪ Revamped customer service website –80% requests enabled through digital self service means
▪ Launch of Max Life Innovations Lab –Working with 7 startups
▪ Among the best website page load time in the industry
▪ Progressing well on AI and modernizing IT journey
▪ Claim paid ratio at 99.22% among the best in class
▪ Continued Improvement in NPS and among the best in class
▪ Focus required on persistency measures
▪ Improved brand consideration scoreP
rogr
ess
in F
Y20
INIT
IATI
VES
38*subject to regulatory approvals
28% 27% 29% 31%
71% 72% 70% 68%
1% 1% 1% 1%
FY17 FY18 FY19 FY20
Proprietary Banca Others
752
891
1162
1282
FY17 FY18 FY19 FY20
Bancassurance Channel (APE) - Growth in Banca channels has been ~15%, YTD Feb growth was ~16%
Proprietary Channels New Business (APE) - Sales has grown at 19% CAGR since FY17, YTD Feb growth was ~20%
Channel Mix - Max Life has focused on maintaining a balanced distribution mix
Max Life has focused on ensuring growth in both its Proprietary and Bancassurance channels
1,882
2,335
2,760 2,838
FY17 FY18 FY19 FY20
Amount in INR Cr
Amount in INR Cr
10%
3%
A
39
Axis’s Share 60% 57% 57%59%
Bancassurance Product Mix - has been biased towards ULIPs to cater to target customer segments
Proprietary Channels Product mix - biased towards traditional products and protection for driving margins
Product mix in proprietary and Bancassurance channels aligned to customer needs; Strategic focus on NPAR share increase to further strengthen the balanced mix
48%39% 34%
25%
1%
2%2%
4%
12%
11%12% 24%
39%49% 52% 47%
FY17 FY18 FY19 FY20
ULIP
NPAR-S
NPAR-P
PAR
73%
60% 58%47%
10%
11% 14%
17%
2%
0% 3%10%
15%
29% 26% 26%
FY17 FY18 FY19 FY20
ULIP
NPAR-S
NPAR-P
PAR
A
40
Focus has also been on ensuring that agents contribute atleast INR 50K per annum
Recruitment growth rate slowed down in FY20, with the Agency initiative requiring a shift in new ADMs focus areas
Agency: Strategic focus on increasing agent productivity and retention (1/2)
26,096 25,497 30,355 31,296
FY17 FY18 FY19 FY20
Branch Units
203 205
22,039 22,177
26,052
23,432
FY17 FY18 FY19 FY20
FY20 Progress
▪ Engaged with consultants (ex-New York Life (NYL) to drive Agency Transformation Program
▪ Continued focus to increase top agent count
▪ Investment in alternate Agency models yielding results
– 2-3x growth in all initiatives
334
A
777
1,104
1,356 1,274
FY17 FY18 FY19 FY20
Consistent focus on increasing the number of agents doing business of more than INR 10 lacs per annum
Active agent productivity increasing year on year; dip in FY19 due to new offices
0.69 0.84 0.88 1.03
2.933.23
2.43 2.17
3.23
3.793.71
FY17 FY18 FY19 FY20
Active Agent Productivity
Branch Prod (in Cr)
ADM and Active agent productivity in INR Lacs per month
BAU Agency
Number of agents with greater than Rs 10 lacs annual business*
Number of agents doing business of more than Rs 50,000 per annum*
Number of agents recruited
Investor Release 41
391
Total Adj. MFYP by an agent in the same store offices
Focus has also been on ensuring that agents contribute atleast INR 50K per annum
Agency: Strategic focus on increasing agent productivity and retention
26,096 25,497
30,355
26,562
29,290
FY17 FY18 FY19 YTD Feb19 YTD Feb20
Branch Units 203 205
22,039 22,177
26,052
19,440
23,125
FY17 FY18 FY19 YTD Feb19 YTD Feb20
FY20 Progress
▪ Engaged with consultants (ex-New York Life (NYL) to drive Agency Transformation Program
▪ Continued focus to increase top agent count
▪ Investment in alternate Agency models yielding results
– 2-3x growth in all initiatives
334
A
777
1,104
1,356
751
1,010
FY17 FY18 FY19 YTD Feb19 YTD Feb20
Consistent focus on increasing the number of agents doing business of more than INR 10 lacs per annum
Active agent productivity increasing year on year; dip in FY19 due to new offices
0.69 0.84 0.88 0.83 1.01
2.933.23
2.431.94 1.90
3.23
3.793.05
3.26
FY17 FY18 FY19 YTD Feb19 YTD Feb20
Active Agent Productivity
Branch Prod (in Cr)
Branch and Active agent productivity in INR Lacs per month
BAU Agency
Number of agents with greater than Rs 10 lacs annual business*
Number of agents doing business of more than Rs 50,000 per annum*
Number of agents recruited
42
391
Total Adj. MFYP by an agent in the same store offices
Recruitment growth rate, FY20 impacted due to COVID
334
Other Bancassurance Partnerships: YTD Feb growth was ~16%
Axis Bank: YTD Feb growth was ~16%
Bancassurance partners continue to contribute strongly
Banca channels have grown at CAGR of 15% while increasing branch productivity, YTD Feb growth was ~16%
38 42 4034
6,170 6,521 6,9565,608
1,882
2,335
2,760 2,838
FY17 FY18 FY19 FY20
1,564
1,936 2,262 2,366
FY17 FY18 FY19 FY20
318399
498 472
FY17 FY18 FY19 FY20
2,467 2,583 2,6052,304
16 19 1814
Branches (#) 3,703 3,938 4,3513,304
Branch Productivity (lacs per annum)
52 57 5447
Amount in INR Cr
Amount in INR Cr
Amount in INR Cr
Branches (#)
Branch Productivity (lacs per annum)
Branches (#)
Branch Productivity (lacs per annum)
3%
5%
-5%
A
43
E-commerce: Max Life has focused it efforts in online towards driving protection
120 123
218
370
FY17 FY18 FY19 FY20
100
193
374445
FY17 FY18 FY19 FY20
37.8
56.9
75.167.0
FY17 FY18 FY19 FY20
19.4
25.229.3
37.3
FY17 FY18 FY19 FY20
Brand Search Queries - have increased significantly over the years
Online Leads - Due to deployment of technology smarts, leads have increased by ~350% in 3 years
Website Traffic - Annual traffic to Max Life’s website has seen a significant increase over the last 4 years
Policies – Steady growth in NOP contribution, drop in FY20 is driven by limited pay protection launch
FY20 Progress
▪ Robust growth in Direct business on back of Brand Search Queries
▪ Deployed frictionless journey with no document requirement for over 40% of B2C customers
▪ Increased contribution from affluent customer segments
▪ Launched industry-first initiative - “Buy Now Pay Later”
In Lacs
8% 10% 12%
Website Traffic in Lacs
A
Policies in ‘000s
Leads in FY16 baselined to 100
44
12%
Cross-selling Direct Channels: Max Life has set up a channel focused exclusively on cross-selling
FY20 Progress
▪ Launched various digital assets and 100% adoption of tools increased efficiency
▪ Contribution of affluent customers increased in both in value and number of policies terms
▪ High focus on protection led to significant increase in protection penetration
▪ Launched alternate modelslike Business Insurance
Cross-sell Policies - Strong growth in number of cross-sell policies
New Business Premium from direct channels
Amount in INR Cr
Policies sold in FY16 baselined to 100
90
124
182
245
FY17 FY18 FY19 FY20
100123
169184
FY17 FY18 FY19 FY20
A
Frontline Productivity
Productivity in INR Lacs per month
1.4
1.61.6 1.6
FY17 FY18 FY19 FY20
45
9%
Max Life has a complete suite of products and focus is on selling longer term products along with improving penetration of pure protection offerings
Product Type
Endowment
ULIP
Whole Life
Money back
Pure Term
Guaranteedproducts
Health
Cancer Insurance
Pension
Annuity
As on 31st Mar 2020
Average Average Average
36 25 16
Average Policy Term(Years)
Average Policyholder Age (Years)
Average PPT(Years)
22
14
64
17
35
19
19
29
23
57
11
10
51
16
34
9
19
29
23
1
35
38
36
27
35
43
39
38
34
63
Current portfolio1 biased towards traditional products
Max Life has products across all categories
1 Health plan
1 Annuity plan
1 Retirement ULIP
4 Riders
1 Whole life
4 Protection plans
3 Income plans
3 Endowment plans
2 Child plans
3 ULIP plans
Retirement, 0.2%
Endowment, 53.3%
Guaranteed Products, 4.1%
Money back, 2.3%
Term, 11.5%
Whole Life, 7.4%
UL, 19.4%
Cancer/ Health, 1.8%
(1) Based on all policies sold till date
B
46
Focus on Protection: 49% increase in individual protection APE and 31% of total individual policies are pure protection
Figures in Rs. Cr. Figures in ‘000.
96 137
227
339 93
120
176
232
FY 17 FY18 FY19 FY20
Individual Group
78
114
175 183
FY 17 FY 18 FY 19 FY 20
Individual
189
403
256
Total APE (incl. Group credit life adjusted for 10% for single premium and term business)
B
No of Protection Policies (Individual)- limited growth in FY20 policies, protection growth led by introduction of limited pay
Total APE (Individual + Group)
47
571
Strong focus towards customer measures has helped deliver superior performance across health parameters and will continue to remain an important priority
Surrender to GWP
Persistency*Claims Paid Ratio- One of the best claims paid ratio in the industry
Conservation Ratio
89% 90% 89%85%
FY'17 FY'18 FY'19 FY'20
97.81% 98.26% 98.74% 99.22%
FY'17 FY'18 FY'19 FY'20
179 bps141 bps
C
80%
70%
60%55% 53%
80%72%
62%57%
53%
83%
71%64%
58%53%
83%
71%63%
59%52%
13th Month 25th Month 37th Month 49th Month 61st Month
FY17 FY 18 FY19 11M FY20
290 70 320 420 -90
XX Change in persistency from FY17 to FY20 (in bps) *FY 20 persistency is reported for 11M as full year reporting accounts for grace period extension which may not be appropriate for comparison from last yearFull year persistency disclosure as follows: 13th month- 87%, 25th month- 73%, 37th month- 64%, 49th month- 60%, 61th month- 53% 48
21% 20%19% 19%
2%
FY17 FY18 FY19 FY20
2% due to UL discontinuance
49
Significant progress in driving adoption of digital assets & embedding intelligence across insurance value chain aiding in effectiveness and efficiency (1/2)
Digital Assets
Embedded
intelligence
Impact
Recruitment Prospecting Fulfilment
▪ Psychometric based scoring and selection
▪ Predictive sales propensity models
▪ AI based pre-approved sum assured engines to generate customized offers for customers
▪ OCR for document parsing to enable real time identification and verification of documents to reduce discrepancies
▪ Upfront persistency risk model-integration with various Bureaus & external databases to identify risk of lapsation
▪ Fraud checks on customer photographs
▪ 100% Policies issued digitally
▪ 75% FTR
▪ 71% Insta issuance (1 day)
Form filling, document collection and post sales verification in a seamless mannerCSG/one CRM – Sales CRM tool
for lead management
Cross sell and up sell tool
Products illustration generation tool
End-to-end agent recruitment platform facilitating faster agent prospecting and onboarding
▪ 100% need analysis digitally▪ 100% recruitment digitally
Integration with Bank partners for customer data
D
50
Significant progress in driving adoption of digital assets & embedding intelligence across insurance value chain aiding in effectiveness and efficiency (2/2)
Digital Assets
Embedded
intelligence
Impact
Underwriting Renewal Servicing
▪ Model to identify early mortality risk -highlights risky policies and reduces overall issuance time
▪ Integration with fraud database to identify and flag risky customers
▪ Automated Underwriting: 65% clear cases
▪ Propensity to lapse model using Deep Learning
▪ Early warning system to enable upfront persistency check
▪ 70% digital payments
▪ Email Bot for customer queries
▪ Linguistic speech analyzer to extract meaningful information from customer calls
▪ Smart Conversational IVR
▪ 80% digital self serve adoption
▪ > 50 lacs self service transactions
▪ 24X7 query resolution using chatbot
Rule-based underwriting engine for policy issuance
Customer Servicing tool
Milli – chatbot for query resolution
Whatsapp for customer query and servicing
Self service options on website
CRM system for One view of customer
Multiple digital payment options
Easy revival options on website
Click to call and Robo call functionality
Scheduled customer reminders
D
51
Max Life continues to drive technology transformation agenda in FY20D
BUY FOR EFFICIENCY, BUILD
FOR DIFFERENTIATION
FLUID ARCHITECTURE
COGNITIVE ENTERPRISE
MODERNIZING LEGACY
FY22 Target
▪ Migration to Open Source technology
▪ All applications to be on cloud
▪ Omni-channel enterprise
▪ Migration of all identified processes to in-house applications
▪ Phasing out of all proprietary business platforms to off the shelf packages
▪ AI enabled cognitive workflows across the value chain
▪ 360 degree view of customer
▪ Open source based analytics architecture
Progress in FY 20
▪ Moved to cloud native, modular architecture customer onboarding solutions
▪ Moving underwriting and New Business platform to modern scalable architecture
▪ Replacing proprietary UW platform with differentiated modular solution
▪ Building Intelligent lead management system for E-Comm fulfilment
▪ Internal AI Works teams aiding development of cognitive intelligence across Vision – Speech –Conversations in addition to multiple Deep Learning and Machine learning algorithms
▪ Building a modern Data Lake based Enterprise Data Architecture for scaling analytics
▪ 83% of business processes enabled through API
▪ Modernize all lines of business
▪ Adapt critical legacy systems to provide partners with the facilities and services the require
Max Life Insurance – ESG
SECTION VII
ESG Framework: Setting benchmarks for inclusivity and sustainability
53
Replace▪ End to end digital solutions for our business
activities▪ Live plants to improve air quality; 2,600 live
plants placed in Head Office
Reduce▪ Energy reduction by using energy efficient
cooling and lighting across branches▪ Water conservation through sensor based
taps and urinals; 100% water gets recycled in Head Office
▪ >1 lac water saving nozzles distributed▪ Managed print services and stationery▪ Food wastage awareness drive in Head
Office; food wastage reduced to half
Reuse & Recycle▪ Waste management: segregation of waste▪ E-waste disposal through certified vendors▪ Saved 2 lacs paper cups in 6 months in Head
Office by using ceramic cups
Community Service▪ Plantation Drive: >35,000 trees planted in
FY20 across offices▪ Joy of Giving: Provided sanitizers and masks
to police officials during Covid 19 outbreak, provided soaps and ration to underprivileged families, blood donation and health check-up camps
▪ Financial Literacy: >5,400 employee volunteers; ~3 lac people connected
Customers▪ Digital enablers provide 24x7 service▪ COVID-19: Un-interrupted service & claims
Employees▪ Diversity & Inclusion: 22% women
employees overall, 31% women employees in non-distribution roles
▪ Employee health and wellbeing - flexi working hours, paid paternity leave, paid maternity leave, 100% Work from home
Supervisory Board▪ Diverse Board composition▪ 30% Independent Directors▪ Corporate Governance Policy; code of
conduct policy▪ Average board experience > 30 years
Risk Management▪ Risk management policy and enterprise risk
management (ERM) framework▪ Sensitivity analysis and stress testing -
conducted periodically
Compliance▪ Information security and cyber security
compliant with ISO guidelines ▪ Data privacy policy
Ethical Practices▪ Policies on AML, whistleblower, POSH, anti-
bribery, corruption, gifts acceptance
SocialEnvironmental Governance
Max Life Insurance – MCEV Disclosures: FY’20
SECTION VIII
The Embedded Value1 (EV) as at 31st March 2020 (post allowing for the total shareholder dividend payout for FY20) is Rs 9,977 Cr.
The Operating Return on EV (RoEV2) over FY20 is 20.3%. Including non-operating variances, the RoEV is 16.7%.
The New Business Margin (NBM) for FY20 is 24.3% (before allowing for acquisition operating cost overrun) and 21.6% (post overrun), with Valueof New Business (VNB) written over the period being Rs 897 Cr (post overrun).
Key Results
55
Notes:
1 Max Life’s Embedded Value (EV) is based on a market consistent methodology. However, they are not intended to be compliant with the MCEV Principles issued by theStitching CFO Forum Foundation (CFO Forum) or the Actuarial Practice Standard 10 (APS10) as issued by the Institute of Actuaries of India.2 The Return on EV is calculated before capital movements during the year, example dividends.
Overview of the components of the EV as at 31st March 2020
Net worth and EVVIF
Note: Figures in Rs Cr. And may not add up due to rounding 56
Present Value of Future Profits
(PVFP) Rs 8,335 Cr
Value of Inforce(VIF)
Rs 7,432 Cr
Time value of financial options and guarantees
Frictional costNet WorthRs 2,545 Cr
Market value of Shareholders’ owned assets over liabilities
EVRs 9,977 Cr
Cost of residual non-hedgeable risks
1. The deductions for risks to arrive at the VIF represent a reduction of ~11% in the PVFP. The largest deduction is in respect of CRNHR.
2. Within CRNHR, persistency risk constitutes the largest risk component.
TVFOG Rs 60 Cr
CRNHR Rs 713 Cr
FC Rs 130 Cr
Value of New Business and New Business Margins as at 31st March 2020
Note: Figures in Rs Cr. 57
▪ The New Business Margin (NBM) before cost overrun has increased by circa 180 bps to 24.3% for FY20 compared to 22.5% for FY19.
▪ The increase in margins (before cost overrun) is primarily driven by increase in proportion of non-par business.
▪ Post allowing for acquisition operating cost overrun chargeable to shareholders, the NBM reduces to 21.6% for FY20 compared to 21.7% for FY19.
1 Annual Premium Equivalent (APE) is calculated as 100% of regular premium + 10% of single premium.2 The VNB is accumulated from the point of sale to the end of the reporting period (i.e. 31st March 2020), using the beginning of quarters’ risk free yield curve.
Description FY19 FY20 Y-o-Y growth
APE 1 3,950 4,149 5%
New Business Margin (NBM)(before cost overrun)
22.5% 24.3% +180 bps
New Business Margin (NBM)(post cost overrun)
21.7% 21.6% -10 bps
Value of New Business2 (VNB) (before cost overrun)
887 1,010 14%
Value of New Business (VNB) (post cost overrun)
856 897 5%
EV movement analysis: March 2019 to March 2020Figures in Rs Cr.
58
▪ Operating return on EV of 20.3% is mainly driven by new business growth and unwind.
▪ Non-operating variances are mainly driven by negative economic variance during the year.
NAV2,397
NAV2,545
VIF6,541
VIF7,432
897813 103 317
456
Opening EV Value ofNew Business
Unwind OperatingVariance
Non-OperatingVariance
Dividend paid during theyear
Closing EV
EV8,938
EV9,977
Operating RoEV: 20.3%
Value of New Business (VNB) and New Business Margin (NBM) Walk
59
21.7% 21.6%- 2.0% -0.1%-1.9%NBM -->
Figures in Rs Cr.
Sensitivity analysis as at 31st March 2020Figures in Rs Cr.
60
1. Reduction in interest rate curve leads to an increase in the value of assets which offsets the loss in the value of future profits.
2. Risk free rate sensitivities under new business allow for the change in the value of assets as at the date of valuation.
SensitivityEV New business
Value (Rs Cr) % change VNB (Rs Cr) | NBM % change
Base Case 9,977 - 897 | 21.6% -
Lapse/Surrender - 10% increase 9,854 (1%) 864 | 20.8% (4%)
Lapse/Surrender - 10% decrease 10,103 1% 930 | 22.4% 4%
Mortality - 10% increase 9,800 (2%) 852 | 20.5% (5%)
Mortality - 10% decrease 10,154 2% 942 | 22.7% 5%
Expenses - 10% increase 9,880 (1%) 831 | 20.0% (7%)
Expenses - 10% decrease 10,073 1% 963 | 23.2% 7%
Risk free rates - 1% increase 9,728 (2%) 911 | 22.0% 2%
Risk free rates - 1% reduction 10,154 2% 847 |20.4% (6%)
Equity values - 10% immediate rise 10,040 1% 897 | 21.6% Negligible
Equity values - 10% immediate fall 9,914 (1%) 897 | 21.6% Negligible
Corporate tax Rate - 2% increase 9,793 (2%) 871 | 21.0% (3%)
Corporate tax Rate - 2% decrease 10,161 2% 923 | 22.3% 3%
Corporate tax rate increased to 25% 8,762 (12%) 722 | 17.4% (20%)
ANNEXURES
Definitions of the EV and VNB
Market consistent methodology
Covered Business
Components of EV
63
▪ The EV and VNB have been determined using a market consistent methodology which differs from the traditional EV approach in respect of the way in which allowance for the risks in the business is made.
▪ For the market consistent methodology, an explicit allowance for the risks is made through the estimation of the Time Value of Financial Options and Guarantees (TVFOG), Cost of Residual Non-Hedgeable Risks (CRNHR) and Frictional Cost (FC) whereas for the traditional EV approach, the allowance for the risk is made through the Risk Discount Rate (RDR).
The EV is calculated to be the sum of:
▪ Net Asset value (NAV) or Net Worth: It represents the market value of assets attributable to shareholders and is calculated as the adjusted net worth of the company (being the net shareholders’ funds as shown in the audited financial statements adjusted to allow for all shareholder assets on a market value basis, net of tax).
▪ Value of In-force (VIF): This component represents the Present Value of Future expected post-tax Profits (PVFP) attributable to shareholders from the in-force business as at the valuation date, after deducting allowances for TVFOG, CRNHR and FC. Thus, VIF = PVFP – TVFOG – CRNHR – FC.
▪ All business of Max Life is covered in the assessment except one-year renewable group term business and group fund business which are excluded due to their immateriality to the overall EV.
Components of VIF (1/2)
Cost of Residual Non-Hedgeable Risks (CRNHR)
Present Value of Future Profits (PVFP)
64
▪ Best estimate cash flows are projected and discounted at risk free investment returns.
▪ PVFP for all lines of business except participating business is derived as the present value of post-tax shareholder profits from the in-force covered business.
▪ PVFP for participating business is derived as the present value of shareholder transfers arising from the policyholder bonuses plus one-tenth of the present value of future transfers to the participating fund estate and one-tenth of the participating fund estate as at the valuation date.
▪ Appropriate allowance for mark-to-market adjustments to policyholders’ assets (net of tax) have been made in PVFP calculations to ensure that the market value of assets is taken into account.
▪ PVFP is also adjusted for the cost of derivative arrangements in place as at the valuation date.
▪ The CRNHR is calculated based on a cost of capital approach as the discounted value of an annual charge applied to the projected risk bearing capital for all non-hedgeable risks.
▪ The risk bearing capital has been calculated based on 99.5 percentile stress events for all non-hedgeable risks over a one-year time horizon. The cost of capital charge applied is 4% per annum. The approach adopted is approximate.
▪ The stress factors applied in calculating the projected risk capital in the future are based on the latest EU Solvency II directives recalibrated for Indian and Company specific conditions.
Components of VIF (2/2)
Time Value Of Options and Guarantees (TVFOG)
Frictional Cost (FC)
65
▪ The TVFOG for participating business is calculated using stochastic simulations which are based on 5,000 stochastic scenarios.
▪ Given that the shareholder payout is likely to be symmetrical for guaranteed non-participating products in both positive and negative scenarios, the TVFOG for these products is taken as zero.
▪ The cost associated with investment guarantees in the interest sensitive life non-participating products are allowed for in the PVFP calculation and hence an explicit TVFOG allowance has not been calculated.
▪ For all unit-linked products with investment guarantees, extra statutory reserves have been kept for which no release has been taken in PVFP and hence an explicit TVFOG allowance has not been calculated.
▪ The FC is calculated as the discounted value of tax on investment returns and dealing costs on assets backing the required capital over the lifetime of the in-force business. Required capital has been set at 170% of the Required Solvency Margin (RSM) which is the internal target level of capital, which is higher than the regulatory minimum requirement of 150%.
▪ While calculating the FC, the required capital for non-participating products is funded from the shareholders’ fund and is not lowered by other sources of funding available such as the excess capital in the participating business (i.e. participating fund estate).
Key Assumptions for the EV and VNB (1/2)
Economic Assumptions
Demographic Assumptions
1 Financial Benchmark India Pvt. Ltd. 66
▪ The EV is calculated using risk free (government bond) spot rate yield curve taken from FBIL1 as at 31st March 2020. The VNB is calculated using the beginning of respective quarter’s risk free yield curve (i.e. 31st March 2019, 30th June 2019, 30th September 2019 and 31st December 2019 respectively).
▪ No allowance has been made for liquidity premium because of lack of credible information on liquidity spreads in the Indian market.
▪ Samples from 31st March 2020 and 31st March 2019 spot rate yield curves used are:
The lapse and mortality assumptions are approved by Board committee and are set by product line and distribution channel on a best estimate basis, based on the following principles:
▪ Assumptions are based on last one year experience and expectations of future experience given the likely impact of current and proposed management actions on such
assumptions.
▪ Aims to avoid arbitrary changes, discontinuities and volatility where it can be justified.
▪ Aims to exclude the impacts of non-recurring factors.
Year 1 2 3 4 5 10 15 20 25 30
Mar 20 4.82% 5.16% 5.40% 5.72% 6.24% 6.95% 6.97% 6.81% 6.95% 6.68%
Mar 19 6.43% 6.56% 6.66% 6.87% 6.99% 7.40% 7.83% 7.78% 7.73% 7.72%
Change -1.61% -1.40% -1.26% -1.15% -0.75% -0.45% -0.86% -0.96% -0.78% -1.04%
Key Assumptions for the EV and VNB (2/2)
Expense and Inflation
▪ Maintenance expenses are based on the recent expense studies performed internally by the Company. The VIF is reduced for the value of any maintenance expense overrun in the future. The overrun represents the excess maintenance expenses expected to be incurred by the Company over the expense loadings assumed in the calculation of PVFP.
▪ Future CSR related expenses have been taken to be 2% of post tax (risk adjusted) profits emerging each year.
▪ Expenses denominated in fixed rupee terms are inflated at 6.0% per annum.
▪ The commission rates are based on the actual commission payable, if any.
Tax
67
▪ The Corporate tax rate is the effective tax rate, post allowing for exemption available on dividend income. Tax rate is nil for pension business.
▪ For participating business, the transfers to shareholders resulting from surplus distribution are not taxed as tax is assumed to be deducted before surplus is distributed to policyholders and shareholders.
▪ Goods and Service tax is assumed to be 18%.
▪ The mark to market adjustments are also adjusted for tax.
Delivering consistent growth in top line and renewals coupled with driving cost efficiencies
Individual APE
Renewal Premium
Gross Premium
FY 17
2,657
7,114
FY18
3,217
8,152
10,780 12,501
21%
15%
16%
Policyholder expense to GWP
Ratio12.9%14.8% 187 bps
Expense to average AUM
(Policyholder)4.3% 3.6%70 bps
Policyholder Cost to GWP Ratio 20.0%23.5% 341 bps
3,917
9,415
14,575
22%
15%
17%
13.2%34 bps
3.6%
20.0%
FY19Financial Performance
Note: Figures in Rs Cr. 68
4,116
10,600
16,184
14.5%
3.8%
20.8%
FY20
5%
13%
11%
126 bps
80 bps
21 bps
Profit(before Tax)
AUM
New Business Margin (Post
Overrun)
FY 17 FY18
MCEV (pre dividend)^
Solvency Ratio
Operating RoEV
FY19Financial Performance
Healthy and consistent profitability creating value to all the stakeholders while maintaining solvency above required levels
Figures in Rs. Cr.
309%
768 615
275%
44,370 52,237
20%
18%
Abs 34%
6,739
19.9% 20.6%
7,706
18.8% 20.2%140 bps
70 bps
14%
623
242%
62,798
21.9%
9,257
21.7%
^Arrow represents growth in Operating RoEV
1%
20%
33%
150 bps
130 bps
22%
69
FY19
595
242%
68,471
10,433
9%
35%
10 bps
160 bps
20%
20.3%
207%
21.6%
4%
Performance update- Q4’FY20 and FY20
Key Business Drivers Unit Quarter Ended Q-o-Q
Growth
Year Ended Y-o-Y GrowthMar’19 Mar’20 FY19 FY20
a) Individual APE Rs. Crore 1,634 1,398 -15% 3,917 4,116 5%
b) Gross written premium income Rs. Crore 5,521 5,873 6% 14,575 16,184 11%
First year premium 1,631 1,391 -15% 3,873 4,088 6%
Renewal premium 3,459 3,983 15% 9,415 10,600 13%
Single premium 431 499 16% 1,287 1,495 16%
c) Shareholder Profit (Pre Tax)^ Rs. Crore 247 242 -2% 623 595 -4%
d) Policy Holder Expense to Gross Premium % 11.2% 11.4% -18 bps 13.2% 14.5% -126 bps
e) Conservation ratio % 86.6% 86.4% -18 bps 88.6% 84.7% -394 bps
f) Average case size(Agency) Rs. 57,873 70,415 22% 56,007 65,815 18%
g) Share Capital Rs. Crore 1,919 1,919 0%
h) Individual Policies in force No. Lacs 43.20 43.90 2%
i) Sum insured in force Rs. Crore 703,972 913,660 30%
j) Grievance RatioPer Ten
thousand59 48 -19%
70^Profit declined from previous year due to increase in new business strain from higher NPAR (protection and savings), however offset to some extent by gains from introducing FRA and unwinding of IRS
71
Case size continues to expand across the board; Almost 50% growth in Protection Plans
85 88 96
49 53 59
11 13
19
114
139
156
FY18 FY19 FY20
Non PAR- Saving PAR Ind Protection ULIP
69
61
57
Case Size (INR’000)
30 40 84
296 307 224
114
175
183
121
123
106
FY18 FY19 FY20
Non PAR- Saving PAR Ind Protection ULIP
597645
561 -14%
NoPs (INR’000)
