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Steady performance; VNB margin moderates on seasonal factors

Non-PAR growth and Persistency trends robust

* MAX Life Insurance (MAXLIFE) continued to demonstrate a resilient performance in a challenging macro environment, led by healthy 32% APE growth. This was owing to robust growth in Non-PAR Savings and recovery in ULIP. However, Protection growth has moderated, similar to that for peers. On the distribution front, the strong push via the bancassurance channel has aided premium growth, while proprietary channel growth was impacted by COVID 2.0.

* The VNB margin declined to ~19.7% in 1QFY22 (v/s 24% in 4QFY21), largely affected by seasonality due to the drag from operating cost and rising ULIP mix. Overall, we expect the VNB margin trajectory to remain stable and estimate a 21% CAGR in APE over FY21–23E. This would enable a 23% VNB CAGR over FY21–23E. Maintain Buy.

Healthy APE trends led by Non-PAR/ULIP; VNB margin moderates on seasonal factors

* GWP grew ~27% YoY, led by 29%/56%/~21% growth in firstyear/single/renewal premium. However, shareholders’ pre-tax profit declined 44% YoY to ~INR770m.

* In 1QFY22, individual APE grew 31% YoY, with total APE growth at 32%, aided by strong trends in Non-PAR Savings (~99%) and healthy recovery in ULIP (~40%). On the other hand, Protection trends were sluggish (flat). The share of Protection stood at 19% (v/s 25% in 1QFY21 and 14% in FY21), while Non-PAR increased to 27% (v/s 18% in 1QFY21). MAX increased pricing for individual protection products in July’21.

* COVID-19 update: Total claims increased to 1.3x in 1QFY22 from the peak of the first COVID wave in 3QFY21. Gross/Net claims settled stood at INR10.3b/INR5.6b (2.1x/1.6x from 3QFY21). It utilized COVID-related provisions of INR2.3b in 1QFY22.

* Absolute VNB growth was strong at 53% YoY to INR1.7b (18% miss), while the margin declined to ~19.7% in 1QFY22 (v/s 24% in 4QFY21). This was largely attributable to the seasonality witnessed due to the drag from operating costs. Also, rising ULIP mix dragged margins. EV growth stood at 15% YoY, while operating RoEV declined to 13.5%.

* On the distribution front, banca APE reported robust trends and grew 49% YoY, while growth in the proprietary channel moderated due to the second COVID wave impact (grew 5%). Axis Bank constituted 63% of the total APE over 1QFY22 (v/s 56% in 1QFY21).

* Persistency improved 300bp/200bp to 85%/54% in the 13th/61st month, while trends remained stable in other cohorts. On the cost front, the opexto-GWP ratio rose to 23.4% (v/s 21.9% in 1QFY21).

Highlights from management commentary

* A COVID-19 provision buffer of ~INR2.3b was utilized towards COVID-19 claims settlements while maintaining an excess COVID provision buffer of ~INR2.7b against potential future claims. Overall, it expects the P&L impact to remain neutral, and if required, would use the excess provisions available on the balance sheet.

* Over the near term, it has adopted a cautious approach to the Group Term business and adjusted pricing due to COVID-19 uncertainties.

Valuation and view

MAXLIFE reported healthy operating business trends, with strong premium growth in the Non-PAR business, and the ULIP business also showed recovery. The strong push via the bancassurance channel supported premium growth. Persistency trends also improved. The VNB margin moderated on a sequential basis due to seasonal factors, but the outlook remains stable.

Over the near term, MAX remains cautious on group term products due to higher COVID-19 uncertainties. We estimate a 21% APE CAGR over FY21–23, with the VNB margin remaining stable at ~26% in FY23. This would enable a 23% VNB CAGR over FY21–23E, while operating RoEV would sustain at ~22%. We maintain our BUY rating, with TP of INR1,250 (4.0x FY23E EV with 20% Holdco discount).

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