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VNB margin buoyant; Non-PAR growth remains robust

Growth momentum reviving in the proprietary channel

* MAX Life Insurance (MAXLIFE) has demonstrated a resilient performance amid a challenging macro environment, with 21% APE growth, led by robust growth in Non-PAR savings and a recovery in ULIP. After witnessing robust Protection growth over 1HFY21, the same has moderated during 3Q. Shareholders’ PAT grew at 43% YoY during 3QFY21.

* Absolute VNB growth stood robust (65% YoY), led by a VNB margin of 28.6%. This has been supported by robust trends in Non-PAR savings and cost improvement. Strong push via the bancassurance channel has aided premium growth, while proprietary channel is also showing a recovery.

* We expect 16% CAGR in APE growth over FY20-23E, while VNB margin remains ~24%. This would enable 21% VNB CAGR over FY20-23E, while operating RoEV sustains ~20%. Maintain Buy.

VNB margin buoyant; APE grows 21% YoY

* Gross premium income grew ~19% YoY, led by a 20%/36% growth in the first year/single premium. Renewal premium grew ~16% YoY. Shareholders’ PAT in 3QFY21 grew by 43% YoY to ~INR2.2b.

* In 3QFY21, Individual APE grew at 21% YoY and thus, total APE growth also stood at 21% YoY, aided by strong trends in the Non-PAR savings (118% YoY) with the launch of new products, while ULIP saw a recovery (8% YoY). Protection growth moderated to 17% YoY during 3Q after witnessing robust growth in 1HFY21 (50% YoY). The share of Non-PAR savings increased to 36% v/s 20% in 3QFY20 (33% in 9MFY21 v/s 20% in 9MFY20). The share of Protection stood at 12% in 3QFY21 v/s 17% in 2Q (16% in 9M v/s 20% in 1H).

* Absolute VNB growth stood at 65% YoY, led by buoyant (28.6%) margin. This was supported by strong trends in the Non-PAR segment. In 9MFY21, VNB grew at 37% YoY, aided by business mix change towards high margin products. VNB margin improved sharply (490bp YoY) to 25.9%.

* During 3QFY21, death claims have seen a sharp rise on account of COVID intimations, with the highest seen in Oct’20. Total death claims increased to 10,525 (v/s 7,313 in 3QFY20). We have seen a similar rise in death claims in HDFCLIFE as well. Both managements guided at declining trends in claims intimations from Nov’20 onwards.

* On a sequential basis, persistency trends stood stable with 13th month persistency at 83%, while 61st month persistency improved 100bp to 54%. On a YoY basis, persistency is still lower with 13th/25th month declining 200bp/300bp to 83%/69%.

* On the distribution side, banca APE reported robust trends and grew at 29% YoY, while proprietary channel APE witnessed a gradual recovery at 9% during 3QFY21 (v/s a 4% decline in 2Q). Thus, the share of banca improved to 69% in 9MFY21 (v/s 67% in 9MFY20) while the share of proprietary stood at 30% in 9MFY21.

* On the cost front, opex-to-GWP ratio declined to 21.7% over 9MFY21 (v/s 22.7% in 9MFY20).

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