Axis-Max valuation under Irdai scrutiny

The sharp discount in the proposed valuation of Max Life Insurance Co. Ltd has attracted the attention of the country’s insurance regulator, which has decided to seek more details of the transaction.

In March, Mitsui Sumitomo Insurance agreed to sell its Max Life shares at ₹108 per share. A month later, Axis Bank agreed to increase its Max Life stake from 1% to 30% at ₹28.61, pricing the same shares at a steep discount.

The Insurance Regulatory and Development Authority of India (Irdai) plans to seek details of the deal pricing to understand the rationale behind the discount, two people aware of the matter said. “Even though the pricing has been decided bilaterally between promoters of Max Life and Axis Bank, Irdai’s contention is that when a recent deal (in March) valued Max Life at ₹108 per share, in April, what was the basis of valuing the same set of shares at ₹28.16 apiece," said one of the two people, both of whom spoke on condition of anonymity.

The March deal involved Max Financial Services Ltd, the promoter of Max Life, entering into an agreement with Japan’s Mitsui Sumitomo Insurance Co. Ltd to swap its shareholding in Max Life Insurance for a stake in parent Max Financial. As part of the deal, Max Financial, the parent of Max Life, agreed to issue 75.4 million preferential shares to the Japanese firm at ₹565.11. In return, Mitsui Sumitomo agreed to transfer 394.8 million shares, or a 20.57% stake, of Max Life Insurance at ₹108.02 to Max Financial.

On 28 April, Axis Bank agreed to buy 29% in Max Life and form a joint venture with Max Financial, in which the bank’s total holding would be 30%. However, the deal structure was revised last week, with Axis Bank now proposing to buy only 17% in Max Life to form the JV. If completed, this will result in Axis Bank holding a total of more than 18% in Max Life, since it already holds a little over 1% in the insurer and is the latter’s bancassurance partner.

Emails and messages sent to Irdai, Max Life and Axis Bank remained unanswered. In the June quarter, Max Life, the fifth-largest private life insurer, collected new business premium of ₹899.42 crore, 1.1% lower than the ₹909.4 crore it collected a year ago.

Axis Bank is Max Life’s bancassurance partner. But, in the wake of the pandemic, India’s life insurance industry, which has been traditionally dependent on physical distribution through agencies and bancassurance, is shifting its focus to digital modes of distribution, while augmenting product offerings on digital platforms and selling more protection-oriented policies as it seeks to arrest the steady fall in premium earnings.

Source: Live Mint