I feel both a sense of heightened responsibility and a real pleasure in writing this letter to you. The past year has been as much about closing old chapters as it has been about exploring newer horizons. While much of the previous year was spent maintaining status quo on our various planned growth initiatives because of our exclusivity agreement with HDFC Life, FY 2018 was spent not only on reviving those plans, but as much on defining a new sense of purpose for Max Life.
In addition, to reaffirm my continued commitment to India and all our businesses here, the Board of Max Financial Services (MFS) and I concurred that it would be in the best interest of the Company and our shareholders, that as the principal sponsor of the Company, I should assume the role of Chairman of the Board, and I thus took over the role of Chairman of MFS from Naina Lal Kidwai on 23rd July 2018.
I have known Naina for over four decades. I have immense regard for her at a personal and professional level and commend her for her invaluable support and guidance to MFS and Max Life over the past two years. I am glad that she continues to be an integral part of the MFS Board.
Before I discuss some of the key developments from the previous year and share our future plans, allow me to briefly share a snapshot of the Company’s performance in FY 2018.
MFS reported consolidated revenues of ₹ 14,967 crore in FY 2018, growing 15% over the previous year. Our consolidated net profit of ₹ 296 crore was 25% lower than the previous year due to certain one-off investment gains and reserve changes in FY 2017.
The Company’s sole operating business, Max Life demonstrated broad-based growth across channels with Individual Adjusted Sales of ₹ 3,215 crore, growing 22%. This was primarily driven by improvement in productivity and increased demand for unit-linked products across channels. Max Life’s Gross Written Premium in FY 2018 was ₹ 12,501 crore, growing 16% over the previous year.
Max Life’s Embedded Value as per the Market Consistent (MCEV) methodology stood at ₹ 7,509 crore, with an Operating Return on EV (RoEV) of 20.6%. The Value of New Business (VNB) written during FY 2018 was ₹ 656 crore, growing 31% over the previous year, and the New Business Margin stood at 20.2%, 40 bps higher compared to the previous year.
This year also marked the first time that Max Life’s Assets under Management (AUM) crossed the ₹ 50,000-crore mark with an AUM of ₹ 52,237 crore as on 31st March 2018, 18% higher compared to the previous year. I am pleased to share that the performance of both traditional and unit-linked funds has been commensurate with the risks assumed in respective funds. Overall, the funds outperformed the benchmarks during the year.
It is not only the financials that attest to the quality of this business, but the multitudes of national and international accolades the company has won over the years.
Earlier this year, Max Life became the first Indian financial services company ever to win Gold at the prestigious World Conference organised by the American Society for Quality (ASQ) in Seattle USA. Max Life beat 23 teams from 16 companies across 8 countries (including USA, UAE, Japan, China, Argentina, Mexico, and Malaysia) to win the Gold award. For the second time in three years, Max Life Insurance was recognised as Life Insurer of the Year at Outlook Money Awards, which indicates the high standards of corporate performance consistently maintained by the company.
Some of the other awards won by Max Life in FY 2018 and over the last few months include:
Ranked as No. 1 amongst Life Insurance Companies, Top 15 in the BFSI sector and amongst Top 50 overall by the Great Place to Work® India
No. 1 in Customer Loyalty in Insurance India 2018, an independent survey by Kantar IMRB
Prestigious Effie Award for Communication Effectiveness for protection campaign
Fintelekt Insurance Award for e-Business Leader
Best Customer Service Initiative Award for shortest policy issuance time for digital customers
These wins are an unequivocal recognition of the strong foundation of processes and commitment to ethics and quality that our business has built over the past few years. Full credit goes to the leadership, management and employees of Max Life, whose efforts continue to garner multiple accolades year after year.
Max Life operates in a fast-growing industry with strong growth potential. 21 out of 23 private industry players have witnessed growth in FY 2018 out of which the top 10 private industry players have delivered more than 10% growth. For the last 6 quarters, the private industry has outperformed Life Insurance Corporation (LIC) in terms of new sales growth, which is driven by increase in both the number of policies as well as the case size. The private industry has gained +232 bps market share in the last financial year.
Part of the reason for this is the Government’s focus on formalisation of the economy – which is manifest in various initiatives such as demonetisation, introduction of the GST and overall push on Digitisation.
This has resulted in a tangible shift from physical to financial savings in Indian households. Within FY 2017 itself, there was an approximately 20% growth in the flow of household savings into financial assets. This is the highest in the last 7 years. The life insurance industry has and will continue to benefit from this shift and is expected to grow 15-17% over the next 3 years.
There is also a clear and evident shift in consumer preferences towards private life insurance companies, but in a cluttered market with 23 players, consolidation is inevitable.
We are acutely cognisant of this and as you are all aware, Max Life has often expressed its intent to grow inorganically by acquiring high quality bank-owned life insurance assets which would enable us to offer our product portfolio to a much wider customer base.
With that intent, earlier this year Max Life entered a bid to acquire a majority stake in IDBI Federal Life Insurance. As we were confident about the asset, especially with respect to the access the acquisition would give us to its wide network of bank branches across the country, we made a competitive bid and it was widely reported in the media that Max Life was the front runner for the acquisition.
While both the parties were in the midst of negotiations, it emerged that the Government was mulling over a variety of plans for restructuring of IDBI Bank, including a possible sale of the Government’s stake. This directly challenged some of our assumptions and pre-conditions which would have assured the sanctity of our business case. Such assumptions and pre-conditions were an integral part of our negotiations with IDBI Federal.
Since IDBI Federal was unable to accede to our conditions, we decided that the risk-reward equation was not in Max Life’s favour or in the favour of MFS shareholders and it would be best that we withdraw our bid for IDBI Federal.
We continue to search for quality assets for good consolidation opportunities.
Over the years, Max Life has built a reputation for having one of the highest performing agency channels in the industry. The Boards of MFS and Max Life have reaffirmed our commitment to re-invigorate our proprietary channels by significantly adding to our agency force and offices, while continuing to develop our digital and direct sales channels. Over the next 3 years, Max Life plans to add 36,000 agents each year, and will make investments of ₹ 250 crore over the next 12 months to add 145 new branches.
This is a significant step in re-building and re-energising our proprietary channels. The logic for this expansion is anchored in the strategy to diversify our distribution footprint, and implementing new models with better profit signatures.
We also continue to focus strongly on Digital and direct online sales, which is evident from the 112% growth in this channel in FY 2018. 95% of Max Life’s proposals are processed digitally which has helped reduce policy issuance turnaround time by almost 50%. We are already market leaders in term plan sales and have started operating in the savings space as well.
Our Bancassurance channel currently contributes 60% of overall new sales each year. We are focussed on retaining and growing our existing relationships with Axis Bank and Yes Bank, which are highly productive and continue to grow stronger year-on-year, delivering over 25% growth in the previous year. Our relationship with Axis Bank remains strong, stable and mutually rewarding as an alliance that is a win-win for both parties, respectively delivering value that is superior to other alternatives.
Max Life and Axis Bank have achieved a new milestone in building one of the most admired bancassurance partnerships in India by crossing ₹ 10,000 crore in New Premium (individual and group) since the inception of this partnership in FY 2010. The partnership has now provided financial security to more than 15 lakh customers by providing a total individual sum assured of over ₹ 88,960 crore. In new business premium, this partnership has delivered a CAGR of 26% since its inception and has collected a total premium of over ₹ 24,000 crore since inception.
Our alliance with Yes Bank continued its strong growth performance during the year and retained its position as one of the fastest growing bancassurance relationships in the Indian life insurance sector. The Lakshmi Vilas Bank alliance also witnessed growth in new business in line with management expectations and we continued to be the dominant life insurance partner for the Bank. We will continue all efforts to deepen these relationships by integrating systems, improving customer experience and providing relevant solutions all of which are even more critical in an open architecture environment.
Max Life has also won several partnerships for Group Term Life and Group Credit Life in the last financial year, and is consistently looking for new corporate agency partnerships.
Finally, with a healthy solvency ratio of 275% and fund-raising capabilities, as I mentioned earlier, we have the appetite as well as the ability to aggressively pursue inorganic growth. Acquiring a high quality bank-owned life insurance asset would enable us to offer our product portfolio to a much wider customer base. However, we will focus first and foremost on the quality of the target asset and will not proceed with any such transaction until we are convinced that it will be in the ultimate interest of our customers and stakeholders.
We have always been and continue to be guided by our core values of Sevabhav, Excellence and Credibility, which have helped us establish new benchmarks of service quality, honesty and ethics. Earning and keeping your trust has always been essential to this leadership team. I thank you for putting your faith in our endeavours.
With best wishes,
Chairman, Max Financial Services Limited