The annualised growth in EV for H1 FY2017 is an impressive 22% before accounting for interim shareholder dividend.
The Value of New Business (VNB) written during H1 FY2017 is Rs 183 Cr with the new business margin at a strong 19.2%, before cost overrun, and 18.5%, after cost overrun. The improvement in the new business margin to 19.2% from 18.3% reported as at 31st March 2016, is primarily due to an increase in the proportion of non-participating products.
Commenting on the growth in EV, Rahul Khosla, President, Max Group said, “The robust EV and new business margin reflect strong fundamentals both on the existing business as well as a continued focus on profitable new business, further strengthening Max Life’s position as the best-in-class provider of long-term savings and protection products.”
Mohit Talwar, Managing Director, MFS said, “The EV and Value of New Business are important metrics for the valuation of any life insurance business as the company is generally valued at a multiple to its EV. A robust growth in Value of New Business was the primary driver of the increase in Max Life’s EV. It was also aided by gains from favourable equity and interest rate movements.”
The EV of a life insurance company comprises two key elements:
a) Net Asset Value or the Net Worth of the company, which represents the market value of the company’s assets attributable to the shareholders, and
b) the Present Value of the company’s future expected profits from its existing business portfolio as at the date of valuation.
Max Life had transitioned its EV calculation to a Market Consistent methodology from the earlier traditional approach (Traditional Embedded Value - TEV) in FY2015. This follows market practice in developed markets, where life insurers have moved to adopt market consistent methodologies.
A market consistent methodology approach better reflects the embedded value of an insurance company by explicitly and specifically allowing for insurance and economic risks rather than using an implicit overall allowance for risks through a Risk Discount Rate (RDR) in the traditional approach. In addition, the market-consistent approach is more objective where asset and liability cash flows are valued using assumptions consistent with those applied to similar cash flows in the capital markets, thus more accurately reflecting the health of the business.