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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).

Valuation and view

MAXLIFE reported strong trends in the Non-PAR segment, while ULIP showed a recovery. VNB margin has improved sharply to ~25.9% in 9MFY21 (490bp YoY improvement). Strong push via the bancassurance channel has supported premium growth, while the proprietary channel is also recovering. With increasing focus towards high margin products and productivity improvements, we estimate APE growth at 16% CAGR over FY20-23E, while VNB margin will sustain ~24% in FY23E. This would enable 21% VNB CAGR over FY20-23E, while operating RoEV will sustain ~20%, with embedded value (EV) reflecting 18% CAGR over FY20-23E. The stock will continue to re-rate if the AXSB-MAXLIFE deal goes through and both entities forge a long term strategic partnership. We maintain our BUY rating with a TP of INR860/share (2.8x FY23E EV).

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