Max Financial VNB margin expansion and protection growth underpin APE outlook

1QFY27 Performance Highlights

Motilal Oswal Financial Services (MOFSL) reiterated its Buy view on Max Financial Services following a strong 1QFY27 performance by Axis Max Life Insurance. Annualised premium equivalent (APE) grew 15 per cent year-on-year to Rs 19.2 billion, in line with MOFSL’s estimate, while value of new business (VNB) rose 33 per cent to Rs 4.5 billion, 14 per cent above estimate.

The improvement in VNB margin reflected a more favourable product mix, operating leverage and favourable yield-curve movement. Management indicated that around 30 per cent of the margin expansion came from product mix and operating leverage, while around 70 per cent was attributable to favourable yield-curve movement.

Product Mix and Distribution Momentum

Protection contributed 25 per cent of APE in 1QFY27, compared with 23 per cent in 1QFY26, while ULIP contribution increased to about 34 per cent from about 33 per cent. Individual protection and participating products each grew 44 per cent year-on-year and together contributed about 15 per cent of APE, versus 12 per cent a year earlier.

• Retail protection and health APE rose 44 per cent.
• Rider APE grew more than 57 per cent.
• Group credit life grew 57 per cent.
• Annuity APE surged 116 per cent.
• Non-participating savings APE declined 9 per cent, with its share of APE falling to 26 per cent from 29 per cent.

Distribution remained a central growth driver. The proprietary channel grew 15 per cent year-on-year and represented about 47 per cent of APE. Its offline and online channels grew 9 per cent and 27 per cent, respectively. Partnership-channel APE grew 17 per cent and contributed about 53 per cent of total APE. Axis Bank APE increased 14 per cent, while other partnerships grew 21 per cent.

Axis Max Life has distribution reach through more than 690 Axis branches and 2,700 non-Axis bank branches. MOFSL believes this network provides scope for deeper penetration in Tier-2 and smaller markets.

Operating Metrics and Capital Position

Operating metrics were mixed but broadly supportive. The operating-expense-to-gross-written-premium ratio declined 185 basis points year-on-year to 16.0 per cent. Assets under management rose 11 per cent year-on-year to about Rs 2.0 trillion, while the solvency ratio stood at 198 per cent, well above the regulatory requirement of 150 per cent.

Long-term persistency improved, with 37th-month persistency increasing 400 basis points to 67 per cent and 61st-month persistency rising 500 basis points to 59 per cent. However, 13th-month and 25th-month persistency declined to 83 per cent and 74 per cent, respectively. Management attributed the persistency issue to a product variant that was discontinued in March 2026.

Axis Bank infused Rs 3.8 billion during the quarter. The QIP approval remains valid until May 2027, although management indicated that there is no immediate capital requirement.

Forecasts and Valuation

MOFSL believes Axis Max Life can sustain better-than-industry APE growth, supported by protection and annuity traction, non-linked product launches, proprietary-channel growth and improving bancassurance momentum. The broker raised its VNB margin estimates by 50 basis points for FY27E and 100 basis points for FY28E and expects APE growth of about 16 per cent to continue.

MOFSL’s target price of Rs 1,860 is based on 2 times FY28E embedded value, with valuation ratios adjusted for Max Financial Services’ 80 per cent stake.

Key Risks to the Thesis

• Sustainability of yield-curve-led margin gains.
• Changes in product-mix trends.
• Persistency performance.
• Execution in Axis and non-Axis distribution partnerships.