PRIVATE Life insurer Max New York Life has given a 4% stake worth Rs 400 crore to Axis Bank for just under Rs 80 crore in exchange for a 10-year exclusive bancassurance agreement as it looks to break into the league of top five insurance players by leveraging the bankâ€™s distribution network.
Bancassurance is the process by which insurance products are sold to customers at their local banks. This is the first time an insurer has paid such a huge fee, although indirectly, to enter into an agreement with a bank to sell policies through the bancassurance route. The bank will also get the usual 35-40% commission on firstyear premiums to sell the products.
â€œIt is a game changer for both the companies,â€ says Max India director (corporate development) Mohit Bhalla, which owns a 74% stake in Max New York Life (MYNL). Mr Bhalla did not divulge details of the financial transaction. Under the agreement, MNYL, a 74:26 joint venture between Max India and New York Life, will issue fresh shares aggregating to 4% of its expanded capital at par to Axis Bank, says a senior executive with the Axis Bank involved in the transaction.
The current valuation of MNYL is between Rs 10,000 crore and Rs 12,000 crore, and a 4% stake will be worth Rs 400-480 crore, according to a senior investment banker tracking the sector. All insurance companies are expected to list, and Axis Bank may strike gold when it exits MNYL at a premium. The current paid-up capital of MNYL is at Rs 1,900 crore. For a 4% stake, MNYL will issue a little less than 8 crore shares of Rs 10 each, to Axis Bank.
The partnership may give the insurer, among the earliest entrants to the business, new business of around Rs 500 crore. Currently at No 7 in the insurance rankings, the company has not been able to break into the top five due to its inability to partner a bank with a strong distribution franchise.
In the first 11 months of current fiscal, MNYL generated a new income of Rs 1,603 crore. Axis Bank, however, had a three-year bancassurance agreement with Met Life which ended early this year. The bank was a key distributor for Met Life, and brought in close to Rs 1,100 crore of new business premium. It also earned a total distribution revenue of little over Rs 400 crore over the three years. The deal is likely to set an example for other bancassurance agreements, says a chief executive of a leading insurance firm who did not wish to be named. It will also push up the cost of selling insurance through banks when the agreements come up for renewal, says the CEO.
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