Stock Fundamentals

Maximum value from insurance

Radhika Merwin | Updated on November 19, 2014 Published on August 02, 2014



Higher FDI should help unlock value from its strong life insurance business

Both the life and general insurance sectors in the country have gone though a series of regulatory changes over the last couple of years.

Most players have been focussing on cost efficiencies and rebalancing their product portfolio to meet the regulatory requirements.

With most of the structural changes done with and a possible recovery in the economy, insurance players are likely to get a leg up.

Also, the Cabinet’s recent proposal to increase the FDI limit in the insurance sector from 26 per cent to 49 per cent, if approved, will provide Indian players access to the much-needed capital to grow.

Among the likely beneficiaries is Max India which has interests across life and heath insurance, as well the healthcare business. Max Life (in which Max India holds 71 per cent stake) is among the top five private life insurers in the country — it has delivered strong performance and gained market share, despite regulatory uncertainties. Its annualised premium equivalent (new business) grew 17 per cent in 2013-14.

Max Bupa (the health insurance business in which Max India holds 74 per cent stake) is also picking up fast, with net premium growth of 85 per cent in 2013-14.

Max Healthcare, that operates a network of hospitals in North India, has clocked a cash profit of ₹24 crore in 2013-14.

The value of Max India on a sum-of-the-parts (SOTP) basis works out to ₹367 a share, up 21 per cent from its current levels.


The life insurance business is valued at ₹272 a share, based on the appraisal value method. The health insurance business (Bupa) is valued based on the capital infused by Max India, which works out to about ₹19 per share.

The healthcare business is a joint venture between Max India (66 per cent stake) and South African player Life Healthcare (26 per cent). Recently, Life Healthcare announced that it will infuse ₹794 crore, and increase its stake to about 46.5 per cent (bringing it on a par with Max India).

This deal pegs the enterprise value of the healthcare business at ₹3,650 crore and Max India’s per share value works out to about ₹56.

Max India also has a specialty films business, which though unrelated to its other businesses, may see some value unlocking if hived off. This business can be valued at six times its operating earnings (FY 2016) at ₹20 per share.

Investors with two-three years horizon can invest in Max India, which holds significant value in its insurance businesses.

Healthy performance

Despite a weak economic environment and regulatory uncertainties, Max Life’s new business premium in 2013-14 grew 17 per cent while total premium increased 10 per cent. Private insurers on an average saw premiums decline by about 1-2 per cent in 2013-14.

Among private players, Max Life’s market share rose to about 10 per cent, up from 8.5 per cent in the previous year.

Persistency in life insurance policies, which measures the number of policies retained with an insurer across different time periods, is a critical factor.

Changes in product structures led by regulatory changes have been one of the main reasons for low persistency for most life insurance companies.

Max Life however has been one of the top private life insurers maintaining steady persistency. The share of policies renewed each year, for instance, has been about 70-75 per cent in the last three years. Due to regulatory changes in 2013-14, many life insurers, including Max Life, had to withdraw non-par policies (bonuses clearly defined; pegged to an index) which command higher margins, and shifted the product mix towards par and ULIPs.

Max Life expects to rebalance its portfolio this year, with 60-65 per cent in par policies and the balance split between non-par and ULIPs. This should aid margin improvement.

The company is expected to grow its premium by 15-20 per cent over the next two-threeyears, given its healthy market share and product mix.

Gaining market share

Max Bupa is one of the four pure play health insurers in the country. Given the increasing medical costs and growing awareness of medical insurance products, this market is expected to grow at a healthy pace in the coming years.

Max Bupa has delivered a strong performance, with net premium growth of 85 per cent in 2013-14.

Among private players, the company’s market share has increased from 6.2 per cent in 2012-13 to 8.2 per cent in 2013-14. The company is expected to break-even in two-three years.

Healthcare to grow

Max Healthcare operates 12 hospitals in North India. The company’s revenue grew 22 per cent in 2013-14. It currently has about 1,500 operational beds, and plans to add another 1,500-2,000 over the next five years. The company expects to generate profits in 2014-15.

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Published on August 02, 2014
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