PFRDA’s board okays sponsor licence for Tata Asset, Max Life

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Pension regulator PFRDA’s board has given the nod to award licences to Tata Asset Management Company and Max Life Insurance to become sponsors of a pension fund to manage the National Pension System (NPS).

The letter of awarding licences, however, is yet to be formally sent to both of them, said sources close to the development.

Once the licence-award process is completed, there will be 10 Pension Fund Managers in the country to manage the NPS. It maybe recalled that Tata Asset Management Company was among the 10 applicants who had responded to PFRDA’s Request for Proposal (RFP) for the selection of sponsors of pension funds.

Post the RFP, eight fund managers, including Axis Asset Management (new one), were awarded licences this year. The other seven were the pension arms of SBI, UTI, LIC, ICICI, HDFC, Aditya Birla SunLife and Kotak. All these seven were fund managers of NPS in the erstwhile regime.

Besides throwing open the door to more pension fund managers, the RFP had introduced at least five-fold jump in their fees, making it lucrative to undertake this activity.

The revamp of the pension funds management structure is part of PFRDA’s efforts to position the industry for strong decadal growth that could take the overall assets under management (AUM) of NPS to ₹30-lakh crore by 2030.

Pension AUM

As of last week, India’s pension AUM had crossed the ₹6.5-lakh crore mark. With India’s pension assets growing at a frenetic pace of over 30 per cent, the PFRDA expects the overall AUM at this growth rate to touch ₹30-lakh crore by 2030. By March-end 2022, PFRDA expects pension AUM to touch ₹7.5-lakh crore.

Meanwhile, PFRDA is expected to firm up by this month-end the consultant who will help design a Minimum Assured Return Scheme (MARS) under the National Pension System, said sources.

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Max Financial Services net profit falls 80 pc to Rs 36 crore in Jun qtr, BFSI News, ET BFSI

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Max Financial Services on Tuesday reported an 80 per cent decline in its consolidated net profit to Rs 35.81 crore for the first quarter ended June 30, mainly on higher expenses. The company had posted a net profit of Rs 181.53 crore in the quarter ended June 2020.

The total income during the quarter was Rs 5,943 crore as against Rs 5,517 crore in the year-ago period, the company said in a regulatory filing.

Sequentially, it was down from Rs 9,760 crore in the March 2021 quarter.

The company’s total expenses during the period stood at Rs 5,859 crore, compared to Rs 5,367 crore a year ago. However, it came down from Rs 9,693 crore in the March quarter.

The company’s subsidiary Max Life reported a 32 per cent jump in new business premium during the quarter at Rs 875 crore, as against Rs 661 crore in the year-ago period.

The renewal premium income (including group) rose 21 per cent to Rs 2,244 crore, taking the gross written premium to Rs 3,484 crore, a spurt of 27 per cent over the first quarter of the previous fiscal, the company said.

“This was despite a nearly 3-4x more severe impact of the second wave of COVID-19 compared with the first wave. Claim experiences were higher than expected across all lines of businesses with significantly higher variance for protection and group businesses.”

The partnership with Axis Bank and the longstanding bancassurance with Yes Bank helped partnership channels grow 52 per cent in the first quarter of FY22, Mohit Talwar, Managing Director, Max Financial Services, said.

In April this year, Axis Bank alongside its two entities, became a co-promoter of Max Life by picking up a 12.99 per cent stake in the insurer.

The Axis entities have a right to acquire an additional stake of up to 7 per cent in Max Life in one or more tranches.

Shares of Max Financial closed at Rs 1,026.55 apiece on BSE, down 3.73 per cent from the previous close. PTI KPM BAL



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Axis Bank stake in Max Life likely to rise to 20 per cent in 12-18 months, BFSI News, ET BFSI

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In line with the proposed deal, Axis Bank is likely to raise its stake in Max Life Insurance to about 20 per cent over the next 12-18 months, said the insurance company’s CEO Prashant Tripathy said. Currently, Axis Bank and its two subsidiaries — Axis Capital Ltd and Axis Securities Ltd — collectively own 12.99 per cent in Max Life Insurance post approval of the deal in April this year.

With this, Axis entities have now become co-promoters of Max Life with three board seats.

“Axis Bank is to increase to 19.99 per cent in tranches. Thirteen per cent is already done over the next two quarters, we will seek approval for the balance seven per cent. So, it will reach about 20 per cent and that will be the ownership of Axis Bank,” Tripathy told.

When asked about the timeline for the completion of the remaining stake transfer, he said: “It should happen in the next 12 to 18 months.”

Under the deal, the Axis entities also have the right to acquire an additional stake of up to seven per cent in Max Life, in one or more tranches, subject to regulatory approvals.

Tripathy said there is no change in brand but the tagline will have the name of Axis Bank as the joint venture partner.

Talking about synergy, he said, “We are coming up with a new strategy for future growth. We are working together as a common team to ensure that Max Insurance life grows faster than the industry. We are working together to look at product mix to drive Axis channel so outcome is favourable for both customers and the company.”

Besides, he said working on analytics areas to leverage on each other’s capabilities.

He said the company launched 14 products or product variants last year and increased the margin by 3.60 per cent in 2020-21.

Max Life Insurance recorded a 22 per cent rise in its total new business premium (individual and group) to Rs 6,826 crore in the financial year ended March 2021.

The renewal premium income of the insurer rose 15 per cent to Rs 12,192 crore, taking the gross premium to Rs 19,018 crore, up by 18 per cent from a year ago.

In terms of individual APE (adjusted premium equivalent), the company witnessed a growth of 19 per cent to Rs 4,907 crore.

Max Life’s post-tax shareholders’ profit fell six per cent to Rs 523 crore in 2020-21 as compared to Rs 539 crore in the previous year.



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Max LifeSmart Secure Plus: Should you go for this multiple-frills policy?

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Max Life Insurance recently launched Smart Secure Plus Plan, a non-linked, non-participating, term life policy. While the loss of a family member is hard to cope with, a term cover can offer financial support to the surviving members. Max Life’s new plan, in addition to providing a risk cover, comes with multiple frills and riders. Should you go for this plan?

Basics

The policy is available for those from 18 to 65 years of age, with minimum sum assured (SA) of ₹20 lakh (minimum SA for joint life is ₹10 lakh). It provides cover up to 85 years of age. The policy offers different premium payment term options — 5, 10, 12, 15 years, and one where you can pay premium till 60 years. Apart from this, regular pay option (where you can pay premium till the end of the policy term) and single premium payment option, too, are available.

Unlike most policies in the market where the policyholder chooses the pay-out (death benefit) for the nominee, Smart Secure Plus allows the nominee to select from three pay-out options — lump sum payment or monthly pay-out or part lump sum and part monthly pay-out. In addition to the death benefit, the policy provides coverage against diagnosis of terminal illness (pay-out subject to maximum of ₹1 crore), post which the policy terminates.

Similar to most term plans, this policy too offers two SA options, to be chosen by the policyholder at the inception of the policy. These are level SA (where the life cover remains constant for the duration of the policy) and increasing SA, where the cover increases 5 per cent every policy year, subject to a maximum of 200 per cent of the base SA.

The policy also offers enhanced features for additional premium, such as joint life cover, return of premium, premium break option, voluntary top-up of SA, accelerated critical illness, accident cover, waiver of premium and critical illness and disability rider.

What’s new

While Smart Secure Plus Plan is, by and large, similar to other term plans with respect to coverage and riders, it has two new features — special exit value option and premium break option.

Under the special exit value feature, a policyholder may choose to exit the policy and receive the premiums paid. That is, you can receive the entire premium paid for the base policy if you are 65 years or you have reached the 25th year (applicable for policy term from 40 years to 44 years) or the 30th policy year (applicable for policy terms greater than 44 years), whichever is earlier.

Though special exit value is offered in-built in the policy (without payment of additional premium), there are certain points to keep in mind. It is not available if the policyholder has opted for return of premium rider. It is also not available if the policy term is less than 40 years. Lastly, when a policyholder opts for special exit value, then only the premium applicable on the base cover has to be paid and not the premium additionally paid on riders or optional covers.

The second feature is premium break, where the policyholder can take a break from premium payment and still stay covered. The policyholder will be allowed to take this break twice during the policy term. If the premium break option is not exercised, the insurer will waive the last two policy year premiums. But the option is available only for policies with a policy term greater than 30 years and premium payment term greater than 21 years. The feature is available only under the regular pay and premium payment term till 60 years options.

Do keep in mind that this feature is available only on the payment of additional premium. Further, the first break is available only after the completion of 10 policy years and the premium waived includes base cover premium, accelerated critical illness benefit premium and accident cover premium. The second premium break can be exercised after a minimum gap of 10 years from the first premium break.

Both features have to be opted for at the inception of the policy.

Our take

When it comes to life insurance, it is best to go for a basic term plan, which is the cheapest life cover available in the market today. You can consider adding accidental death benefit and critical illness riders to your base plan and go for the ones available at a suitable premium.

When other riders like return of premium and waiver of premium are added to the policy, including Smart Secure Plus, the premium becomes steep. So for a 30-year old for SA of ₹1 crore (40-year term), with return of premium, the premium works out to ₹18,658 per year (including tax). But, a pure term life cover for the same person will cost about ₹7,300-12,000 a year.

The premium break option may not be useful for many as the income of an individual is likely to increase as he/she ages. Further, if there is any financial strain, he/she might as well go the special exit or early exit option instead of selecting premium break (for extra cost).

While it is advisable to stay covered for maximum number of years, the policy’s special exit options come in handy, particularly if you are in need of money. But you may not be able to avail this exit if you miss the said timeline (25th or 30th year). However, if you still want to exit the policy earlier, the insurer provides an option for early exit as well, but you may not receive the entire premium paid.

To sum up, you could go for this policy for its pure vanilla cover and special exit option. But if you want to go for online term plans, there’s a wider basket of policies to choose from.

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Reuters, BFSI News, ET BFSI

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India’s central bank wants banks to limit ownership stakes in capital intensive insurance companies at a maximum 20%, less than half of what the current regulations permit, three sources with knowledge of the discussions told Reuters.

Reserve Bank of India (RBI) rules allow banks to hold up to 50% stakes in insurers and on a selective basis equity holdings can be higher but must eventually be brought down within a certain period.

The sources, who asked not to be named as the discussions are private, however said the central bank in 2019 unofficially advised banks seeking to acquire stakes in insurers, to limit such stakes to a maximum of 30%, and more recently directed them to cap stake purchases in insurers at 20%.

“Unofficially, banks have been told that the regulator is not comfortable with lenders increasing their stakes because the insurance business is seen as a money guzzler,” one source said.

The RBI wants banks to focus on their main areas of business instead of locking away capital in non-core sectors. The central bank did not respond to a request seeking comment.

The unofficial push suggests the RBI is looking for uniformity around ownership rules for lenders with exposure in the sector, following suggestions made in a working paper by an internal group released in November.

Some lenders such as Kotak Mahindra Bank and State Bank of India have wholly-owned or majority owned insurance subsidiaries, and the paper had suggested that if any lender had more than a 20% stake in an insurer, they should follow a non-operative financial holding company (NOFHC) structure which will ring fence ownership.

Most lenders are not keen to adopt such a structure on concerns it will hurt shareholder value and limit their capital raising ability, one of the sources said.

Recommendations made by the working paper are under consideration by the RBI and it is not clear when the central bank will act on or implement the suggestions. In light of this, the sources said the RBI was likely to stall on any requests by banks to boost or acquire new stakes in insurers.

The move comes at a time when India is keen to woo foreign investment in its insurance sector. Last month, the government said it would allow foreign direct investment of up to 74% in insurers, up from 49%. Many foreign insurers are expected to explore the opportunity as insurance penetration continues to be low in India.

With fears that banks’ bad loans could double amid the COVID-19 pandemic, the RBI does not want banks to lock up money in capital intensive businesses, the sources said.

The RBI may have reservations about banks having more than 20% stakes in any non-core companies, one of the sources said.

Federal Bank, which sought permission from the RBI to increase its stake in Ageas Federal Life insurance after its board approved the deal about a year ago, has still not received RBI approval, one of the sources said.

Federal Bank did not respond to a request seeking comment.

Last year, the RBI had also rejected Axis Bank’s application to directly purchase a 17% stake in Max Life.

The transaction was only approved after Axis restructured it and agreed to purchase the stake with two subsidiaries, bringing down the bank’s direct ownership share to less than 10%.

Axis Bank did not respond to a request seeking comment on whether it restructured the deal on the advice of the RBI.



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