Ladies and gentlemen, good day, and welcome to Max Financial Services Limited Q1 FY 2025 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amrit Singh, Chief Financial Officer, Max Financial Services Limited, and Max Life Insurance Company Limited. Thank you, and over to you, sir.
Thank you. Good morning to everyone, and welcome to Max Financial Services earnings call for the quarter ended June 2024. Our results were made available on our website and on the stock exchanges last evening. Today, as always, I'm joined by Prashant Tripathy, Managing Director and CEO of Max Life Insurance. I'll hand it over to him to share key developments and insights from the first quarter.
Thank you, Amrit. Good morning, everyone, and thanks for being on the call. We've had a remarkable start of FY 2025 as far as, overall new sales growth is concerned, building on the strong foundation laid in FY 2024. Our focus on enhancing our sales growth engines across all strategic areas has paid off, with continued investment driving excellent growth in the first quarter of FY 2025. But before I come to our sales performance, let me just share a good news with you. I'm very proud to share an achievement that underscores our commitment to being a people-centric organization. Max Life Insurance has been honored with the Laureate distinction by Great Place to Work Institute, an accolade reserved for organizations that have been recognized as one of the India's best companies to work for, for 10 consecutive years.
Additionally, Max Life Insurance has been ranked number 28 amongst 1,750 organizations that participated in the survey in the prestigious 100 Best Companies to Work for in India and placed among top 25 in India best places for the BFSI. Max Life Insurance has again demonstrated its commitment to excellence in fulfilling its promises to its customers, achieving best in the industry claims paid ratios, 99.65% for FY 2024. And these two really underscore our commitment not just on growth, but also towards two very important constituents, our customers as well as our employees. Coming to the overall growth numbers. On full year, individual adjusted first year premium basis, we saw a growth of robust 27%, outpacing both the private sector and overall industry growth rates of 24% and 20%, respectively, for quarter one, FY 2025.
I'm very happy to share that July numbers just came out, and this number has accelerated further for the month ending July. YTD, our growth has increased from 27% to 32%. Hence, enabling us to capture about 44 basis points of private market, by FYTD July. Our total APE for quarter one saw a growth of 31%, with a significant 27% increase in the number of policies. This growth was driven by strong performance in our prop channels, which now accounts for 49% of our total sales in quarter one, growing at 60%. We have relentlessly pursued new business models to bolster growth from traditional proprietary channels, and these models have become the bedrock of our recent success.
Our offline proprietary channels grew by 24%, supported by agent activation and an expanded pool of top-performing agents, thanks to enhanced governance rhythm, as well as many new initiatives that we have taken within agency channels. Direct channels, driven by new cross-sell verticals, have also contributed significantly towards our growth. One of the key drivers of our prop channel growth has been our online channel, which expanded more than 200% in quarter 1 2025, fueled by strong demand for our new fund offers targeting the online savings segments. Through our reporting, you would have noticed that the ULIP mix in our prop channels have gone up, and this has been intentionally done to take out the benefits or tactical benefit of the buoyancy in the market, and it has been driven predominantly through online channels.
We continue to demonstrate our capability to scale digital business rapidly, achieving the top ranking across all digital platforms in both protections as well as savings. We have been quite diligent about growth, not just in the savings side, which comes with a unique proposition of capital guarantees, where ULIP is kind of mixed up with non-par to achieve reasonably good margin. We have been equally focused on protection business, which again, in a combined way, yields an outcome which is quite acceptable to us. Our bancassurance channel, you would have noticed, grew at APE of 9%, which is a bit slower than prop channels.
However, I'm very happy to share that things have significantly accelerated in the month of July, and our bank channel, especially driven by Axis Bank, has been the key driver of growth for us for the first four months. Just to give you a sense of number, by the time we finish July, we are seeing about 19% growth from Axis Bank. Additionally, our group credit life, which is another area of focus for us, grew at 49% in quarter one, despite heightened competition, and this is almost double the growth rate of the industry while maintaining profitability targets. I'm also very happy to share that recently, we just signed an agreement with Catholic Syrian Bank, one of the quickly expanding ambitious banks, and I'm very hopeful that our partnership will start to bear-...
Fruitful for both the partners as we go along. In addition, we also signed up six new partners in the quarter. We remain committed to delivering consistent, sustainable business outcomes, as can be seen in July sales numbers like I mentioned to you. We have not only maintained the pace of our growth in prop channels, but also sales momentum again back in bank channels, as I mentioned to you, with 43% growth in the month of July. Product innovations to drive margins, of course, you would have noticed that our margin is a bit lower than last year, and that's because we want to take tactical benefit of driving growth through ULIP channels, especially in the digital space as well as at the Banca space .
Our commitment to product innovation remains very strong, and we launched the Smart Wealth Annuity Guaranteed Pension Plan, a limited pay variant and industry-first initiative designed to personalize retirement planning, which led to 42% growth in our retail annuity segment. So just want to underscore that we are growing our annuity, which was one of the strategic initiatives for Max Life Insurance. In addition, our efforts in the protection segment have resulted in an impressive growth of 53% in retail protection. Just to highlight again, 53% in retail protection and 49% in credit protection, the two areas where we are extremely focused. To capitalize on opportunities in the equity market, we launched a Flexicap Fund predominantly targeting e-commerce and Max Life Insurance customers.
This launch led to more than 100% growth in ULIP segments, shifting our product mix towards this segment from 25% total APE to 39% of APE in quarter one 2025. Again, just to highlight, these are moves that we made tactically to garner new sales opportunities which were otherwise not being captured. I would like to again underscore at this point in time that Max Life Insurance intends and remains focused on growing our VNB as we go along. Increased ULIP and lower non-par contributions result in quarter one FY 2025 NBM of 17.5, lower than previous year. However, VNB grew by 3%, and as we go along, VNB is going to be a key measure.
We try to balance this growth with our margin, as we have tried to do in the last 18-24 months. We view the equity market as a tactical opportunity, and we'll recalibrate our product mix towards more profitable designs as we go forward. Additionally, I would like to share an update regarding the recent changes in surrender regulations by IRDAI, a matter which has been of concern and question from many of you. These changes make our product offerings more attractive to customers by increasing the surrender value in the initial years, thereby enhancing the life insurance proposition. I remain very optimistic that whenever such changes come, it just expands the pie, and I'm hopeful that this will give tailwinds for the industry growth with higher or better proposition for our customers.
While these guidelines have impact on margins of traditional products which are impacted by surrender regulations, the impact will be mitigated with multiple elements, such as restructuring of distribution, commercials, realigned, maturing and surrender customer propositions. We estimate that the final impact will be in the range of 100-200 basis points at the company level for the transitory period, and we will work hard at figuring out more ideas so that we are able to tide through these changes, unaffected. Which we intend to mitigate over a period of time, and it will take us, you know, as the regulations do change, on first of October, I think it will take us 3-6 months to implement all the changes or mitigating actions.
Our aim is to ensure that the impact is balanced across all stakeholders, namely shareholders, customers, and distributors. Talking about the customer obsession angle, which is one of the values of Max Life Insurance, at Max Life Insurance, customer obsession is the core of everything we do, driving us to deliver unparalleled value and trust in our customers. Over the past five years, our claims paid ratio has improved from 99.22% to 99.65%, and the claims paid ratio is a hallmark in the life insurance industry, as demonstrated by Max Life Insurance. Over the years, we have seen many players make improvements, but we continue to lead the pack. This achievement is more than just statistics. It reflects our unwavering commitment to putting customers first.
Leveraging advanced digitization and intelligence systems, we proactively combat fraud, identify high-risk areas, and accurately assess claims validity. This holistic approach ensures that we are not only there for our customers in the time of need, but also empower them with reliability and security every step of the way. Additionally, Max Life Insurance has been recognized for the industry leadership and customer experience at the prestigious fifth ET Now Customer Experience Summit. We also measure customer loyalty through the Net Promoter Score, and I'm pleased to share that we have reported 3 points increase in our overall company-level NPS. It is generally a combination of transaction NPS, which has improved by 5 points from 74 to 79, and relationship NPS, which has improved by 2 points from 44 to 46. Hence, overall NPS growing from 56 to 59 between March 2024 to June 2024.
Max Life also proudly maintains its leadership in thirteenth-month persistency on the number of policies basis. From our past, you would have noticed across all cohorts, we have made progress on both number of policies as well as premium basis. In terms of premium, our thirteenth-month persistency for regular and limited pay premium reached its highest ever at 87%, an improvement of about 10, 20 basis points, while our 60-month persistency stood at 58% for the period ending June 2024. The last area, which is of huge significance to Max Life Insurance, is how quickly are we digitizing for efficiency and intelligence. Our ongoing digitization initiatives have significantly enhanced efficiency across multiple business functions, driving both cost savings and customer satisfaction.
Our training management system, called mSaarthi, has been adopted across all channels, enabling enforcement of training calendars and ensuring required outcomes. The rollout of phase one of mSpace, which is our sales super app, has integrated end-to-end funnel view of our DSF, direct sales force channel, which is where we have first piloted it, and I'm very optimistic that through the year of FY 2024-2025, we'll take it to every channel, and we'll reap the benefit of bringing the different elements of sales on just one app, which will be hugely beneficial to our sellers. Additionally, our AI-driven approach has played a pivotal role in risk management decision-making processes through AI-based sourcing risk avoidance.
We have successfully mitigated risks, including cost avoidance through the Shield program and claims avoidance through MediCheck, with our govern engine achieving an impressive underwriting accuracy of 99.86%. Our automation optimization efforts in onboarding and customer service, such as the Insurance Bureau integration in the purchase journey and enhanced IVR capabilities, have streamlined operations, resulting in improved conversion rates, faster payouts, and increased customer engagement. Our focus on data-driven intelligence, exemplified by the centralization of email ops a nd expansion of digital NPS coverage, continues to provide valuable insights for improving service delivery and customer experience. To summarize, I'm very happy with our quarter one results, which highlights the effectiveness of our strategic priorities, the scaling of proprietary channels, building strong partnerships, and reaching newer customer segments.
I am satisfied with our margin outcomes, and I'm sure there are more opportunities to improve. But like I mentioned to you, these are tactical moves that one has to take in the smallest quarter of the year to ensure that we are preparing well and giving enough confidence to our sellers as the year starts. As we move forward, we remain dedicated to creating lasting value for our customers, shareholders, and partners. Now I'm going to hand it over to Amrit, who will provide an update on our financial performance. Over to you, Amrit.
Thank you, Prashant. Before we get into the performance on key financial metrics, I just wanted to share an update on the asset liability management strategy. Willis Towers recently concluded a review for us and our ALM strategy. The scope and the results of the study are presented on slide 29 of the presentation. The review included testing cash flow against 5,000 interest scenarios, where interest rates are varied from 2%-12% ranges across different durations and different types of shapes of curves. In summary, the Willis Towers Watson team has concluded that the ALM framework and the asset liability position of Max Life as of 30 June 2024 are appropriate to meet Max Life's stated objective of protecting shareholder value and fulfilling policyholder obligations.
Moving to some key financial metrics, Max Financial Services Limited consolidated revenue, excluding investment income, stands at INR 5,235 crore, a growth of 11% in the quarter. The consolidated PAT at MFSL level is INR 156 crore, up by 54%. Renewal premium for Max Life has grown by 10% to INR 3,323 crore. Gross premium grew by 11% to INR 5,399 crore. Value of new business, as Prashant shared, stands at INR 254 crore for the quarter, in comparison to INR 247 crore last year, with an NBM of 17.5%.
The embedded value as at end of 30 June 2024 is INR 22,043 crore, also aided by the capital infusion, which was consummated in the quarter by Axis of INR 1,612 crore. The annualized total return on EV, quarter one FY 2025, excluding the capital infusion of INR 1,612 crore, is 20.6%, and the annualized operating ROE stands at 14.2%. So we don't do detailed EV movement analysis during the quarter. However, operating ROE 14.2% consists of contribution from unwind, VNB, and also a positive operating variance coming out of both persistency and mortality trends. Further, the non-operating variance stands at INR 276 crore, due to movements in interest rates and the equity market.
Policyholder OpEx to GWP is 17.9%, and total cost to GWP is 26.3%. Policyholder OpEx have grown by 14%, largely due to increase in headcount in the distribution functions. Max Life quarter one FY 2025 profit before tax is INR 151 crore, a growth of 46%. With the infusion of capital, which was completed during the quarter, the solvency margin stands now at 203% as at end of June 2024. The overall assets management for the company have crossed INR 161,000 crore and a year-on-year growth of 35%. We continue to remain dedicated to our mission of inspiring people to enhance the value of their lives.
And we are confident in our ability to harness the strength and continue delivering on sustainable value to both our shareholders and customers. We're now happy to take any questions that you may have, and I'll hand over the call to the moderator to open the floor for Q&A.
Thank you very much, sir. We will now begin the question-and-answer session. Anyone who wishes to ask questions may press star and one on their touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, hi. Good morning. Thanks for the opportunity. One question, I mean, given the way you sort of do account costs for the quarter, your margin trajectory is kind of, you know, stepping up over the quarters, and eventually the full year margin is far higher and different than Q1. That has been the trend. Now, I mean, in a few recent years, it was also an outcome that, I mean, like in FY 2023, you had very, very strong non-par savings. In FY 2022, the growth was slightly weaker.
Now, this year, I mean, given that the growth trajectory is very strong, the product mix is not so favorable so far, and also in H2, the implementation of the new products in this post surrender, sort of, a new surrender, revision regime. So how do you see margin trajectory sort of progressing this year? I mean, your high growth led by some not so profitable product, and in the second half, you know, that newer product getting introduced. So how confident are you sort of of the margin trajectory, panning out over the year? That's it.
Avinash, you raise a very good question, and if you go to the page number 12 of our investor release, you will find that we have given quarter one and quarter four numbers for last four, five years. This will give you the confidence that because we come up with true margins, which means we take all the costs for the quarter, and because quarter one generally is the lowest in terms of sales, generally margins are subdued, and they are, they range between 17%-21%. That's been the trajectory for last many years. As every quarter passes, because the leverage that we get on the business, and I would like to highlight to everybody that our first quarter VNB is INR 254 crore. If you were to look at our last year, total VNB is INR 2,000 crore.
So you know, we're talking about 10%-12% VNB in quarter one only. Hence, you know, I will tend to not read too much into this margin drop, because as we go along, the leverage will kick in and the margins will improve. You asked a question about what's going to be the impact of quarter two. I think I did mention to you about quarter two numbers. It is going to be an industry thing, so, you know, Max Life Insurance will play as we go along. However, I'm reasonably confident that with all the efforts that we are, we are putting, the product mix will get rebalanced. And, I'm not really hinting at any permanent shift or permanent impact on our overall margin delivery capability.
You know, I will just request that you all remain patient, patient and see how it evolves. I'm very confident that it will pick up.
Thanks. And just a small kind of related on that. This 30th September is in a way, kind of a hard deadline by the regulator, to sort of sell the existing product, but you can introduce new product even prior to that. So how sort of are you planning to launch the product? I mean, new product is going to be launched only from 1st October, or you will start sort of a phase-wise introduction of a new regime product earlier than that?
We have a game plan, actually. We have multiple products that need to be refiled. I don't know if you know that, but if the product which has been withdrawn on thirtieth September, and the replacement product has not been filed, it will have to go through the you know, approval process from IRDAI. It will no longer be you know, use and file. So we're very keen that by thirtieth of September, we complete the entire replacement exercise. As you can understand, being such a mature organization, it is heck of a task. We have... You know, the surrender guidelines also come with different guidelines about different forms, free look, cancellation period being extended, et cetera. So we have a phasing approach.
We will begin replacing our products somewhere from fifteenth of August to thirtieth of September in different tranches. So that's how we are going to approach it, Avinash.
Perfect, sir. Thank you.
Thank you. The next question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.
Thank you for the opportunity.
I'm sorry to interrupt, sir. There is a disturbance on your line. Can you use your handset, please?
Sure. One second.
Thank you.
Yeah. Is this better? Hello?
Yes, sir. Please proceed.
Yeah. Hi. Hi, sir. So thanks for the opportunity. Couple of questions. First, again, you know, just focusing on the margin part, I just wanted to understand whether you're, you know, whether you are still confident of achieving the around a 26% kind of a margin guidance which you had provided earlier. Because, I think, you know, you highlighted that, you know, growth is fairly strong in Axis in July, but Axis Bank, I think whatever we have seen in the disclosure this time, Bank has largely focused on ULIP as a product category....
And also, you know, wanted to understand how the commission dynamics are playing out in the proprietary channel, because there the product mix is much far more balanced, and yet despite growth in retail protection, we haven't seen that outcome playing out in the margin. And thirdly, you have also mentioned on the headcount increase in the distribution side. So that also will is this cost going to remain in our P&L going forward? And if then, then what can be the impact on the margin in the subsequent quarters, and hence on the overall guidance, if you could give some more color on? And secondly, on the Axis Bank part, if you could highlight how our counter shares are trending right now.
Are we still at that range or, you know, has there been, you know, what is, what is the dynamics you are seeing in the Axis channel in terms of the multiple, manufacturers who are now in panel? What is the situation, if you could highlight that? These are my questions.
Thank you. Thank you for the question. Let me take the easier one first, the Axis Bank counter. Like we mentioned to you, we, we expect ourselves to remain in the range of 65%-70%. I'm very happy to confirm that we are in that range, and, we expect to remain that, in that range. So, you know, as things stand, over last, you know, month or so, we, our, our counter share has been in the range of 68%-70%. Overall, for the quarter, between 65%-70%. So, really, inclusion of, other bank partners on the counter is not really significantly impacted our counter share, and, you know, I'll keep it at that level.
You may recall that, for the year, our forecast was we will hit a VNB number of teens, and I remain confident about hitting that number. And I had made that forecast or shared that forecast before the discussion on surrender income guidelines. So, you know, my guidance was for the year, for the year, we'll outlook anywhere between 25%-26% margin as against 26.5% last year. And the forecast was we will have teens kind of VNB growth for the year. Now, of course, things have changed since then. If there was no surrender income guideline change, I would have perhaps reconfirmed the same guidance, and I am pretty confident that we'll get there.
But, we have to navigate the regulatory changes, which is not just a financial change, but also a significant change with respect to administrative effort, which needs to be put in with respect to product filing or change in commission structures, et cetera. So we have to see how it goes, and hence, I will say it will be a bit dynamic, but we are going to work very hard to come as close as possible with respect to the guidance that we gave you.
Understood, sir. Just a follow-up, just focusing on the second quarter, if you could, you know, comment on the commissions, levels, how they are playing out, and also on the increased distribution and, you know, the fact that Axis is growing faster, how can we think about, you know, the margin, for that?
Yeah. So, specifically on the commissions and OpEx, Swarnabha so OpEx has grown by 14%, as I said in my opening remarks. And of this 14%, 8% growth is largely to do with an headcount increase, plus the wage bill increase that happens on an inflationary basis. This headcount, incremental headcount, where is it getting deployed? A significant portion of this headcount is getting deployed in our own channels, whether to expand the agency channel or to expand the direct selling team, plus supporting all the new partners that we have been actually signing up. Now, the new partners are not necessarily prior to the full potential at this point in time, and that will take time, but that investment is required in the distribution side to build that momentum.
We have done a fair bit of investment, and I think, as the years kind of progress by, there will be a productivity improvement trend that we'll start seeing for Max Life. With respect to commission, the first-year commission has increased by around 60% for the quarter, for the first quarter. Large part of this commission increase is actually coming out of two areas. One is because of the superlative performance in the e-commerce channel. We have seen an increase in associated commissions come through. And also the new partners in the group credit life segment that we are actually building and making our portfolio more robust on that side as well. So that's largely the areas where, you know, the commissions actually have increased.
Otherwise, across other partners, the commissions have remained, you know, the way the total cost of acquisition has remained constant. The operating leverage benefit does play out, I think, as in the opening remarks, as in the first question that was asked, we have an effect where we actually book the actual OpEx in the quarter, and as sales build up during the quarter, we will definitely see an improvement in trends and margins.
Understood, sir. Very helpful. Thank you so much, and I'll come back in the queue.
Thank you.
Thank you, sir. The next question is from the line of Supratim Datta from Ambit Capital. Please go ahead.
Thanks a lot for the opportunity. So I have three questions, starting with the first one on Axis Bank. Just wanted to understand when you're saying that 90% growth, is it for the first four months, or is it only for July? And the improvement in the momentum in July, is it driven by any particular product launch in that quarter or, you know, any change in efforts? That's the first point that I wanted to understand. The second was on, you know, the surrender charges. You know, you talked about, you know, the impact and the movement towards new products.
Just wanted to understand when you were talking about the 100 - 200 basis points, does it take into account the current surrender trends that you are seeing, or does it take into account also that, you know, post-Holi, you know, the new product launches, there could be an increase in surrender? Is that factored into this 100- 200 basis points? That would be, you know, another pressing question. And thirdly, you know, when I look at your product mix, obviously, you know, there has been an adverse product mix, you know, which shift towards ULIPs, and I completely understand the strategy there.
However, if I compare your first half, you know, first quarter FY 2025 product mix with first quarter FY 2023 product mix, it was broadly similar, but the margin is, you know, roughly around 350, 360 basis points lower. So just wanted to understand, is this 350 basis points, 360 basis points lower margin, is it a function of only the OpEx investments that you have made in the last two years, which will deliver productivity gains, say, over the next 12, 18 months? Or is there something else also that, you know, is at play here? Thank you. Those are my three questions.
Thank you, Supratim. I'll take the first two questions, and I'll request Amrit to take the third one. The 19% growth rate on adjusted sales basis is YTD July for Axis Bank. They grew about 45% in the month of July, so we saw increased momentum. As a result, YTD, the YTD July is 19%. The 8% number that we have reported for first quarter has increased to 19%. There is a good surge. Of course, it came at the back of some new product interventions that the open architecture partners did. On the question on surrenders, it's a bit of crystal ball gazing, whether higher surrender charges will increase surrender or not.
I mean, we will see how it goes, but intuitively speaking, surrender might increase a little bit if the surrender benefits are improved for the customers. There will be two things that will happen. I think there will be very significant efforts towards, you know, validation at the time of sale, ensuring that the customer is going to continue. So all the players I expect will ramp up their efforts to ensure that, people who are buying, policies are extremely serious about continuing, number one. And I think, the retention efforts or renewal efforts will become significantly higher. So because of that, my sense is that the overall impact will be limited. But, just to confirm to you, the 100-200 basis point delta that I'm mentioning does assume, some increase in surrenders.
So we have factored that in just to be conservative while giving you an estimate. You know, that's the best foot forward, and we have to see how it goes, but it does sense, lack of increase or say, assume that the surrenders remain at the same levels, this guidance will be on the lower side. That's the way I'll put it. Amrit, if you could take the third question about, the shift.
Yeah. I might not have actually, at this point in time, the exact FY 2023 to 2025, but I can give you some directional answers, Supratim. The, yes, your observation is correct, that one part of the answer definitely is the increase in, OpEx that has actually happened over the last two years. But then there are slivers of additional, plays also which are happening. So, there is a sliver of, the channel and product mix being sold, during that quarter and this quarter, especially on the unit-linked designs. There's a sliver of that as well. And then inherently, at that point in time, the annuity contribution largely in the business was coming out of single premium.
As we have diversified the overall annuity mix, there is an intrinsic reduction in the margin of the annuity product as well, which comes in play. And as we have been speaking about protection margins, so some bit of a shave off there. So it's a combination of these three, four attributes of the correlation that you're trying to derive. But the large answer stays in OpEx and also the fact that unit link designs being sold, you know, in proprietary versus partnerships.
Got it. That's very helpful. Thank you.
Thank you. We'll take the next question from the line of Shreya Shivani from CLSA. Please go ahead.
Hi, thank you for the opportunity. I have two questions. First is on, you just mentioned about, you know, refiling these products between or pulling back these products back between fifteenth August to twenty-fifth September. So last year, second quarter was already a high base for you. It was, on total AP basis, it was a 36% year-on-year growth quarter. So should we expect some disruption in growth in this quarter going ahead? How are you looking at it? Will majority of the growth in the coming quarter be completely driven by ULIPs and protection, and par and non-par will remain very subdued? That's first.
Second, you've shared a data point on, breakup of the proprietary channel, that e-commerce is now 37% of the mix there, and direct is 18%. What was this in 1Q 20%, last year, first quarter? Yeah.
Okay. I think the, of course, I do agree that the base was very high, but, we are seeing great sales momentum across all the channels. You know, if you have to go by the data of July, I think I'm very happy to share with you that we saw growth across all channels, not just bank channels, so be it agency, be it direct, be it e-commerce, be it the new banks that we have signed, Yes Bank, Axis Bank, we've seen growth across. So I'm very optimistic about the growth outcomes of quarter two, it's very hard to for me to tell you exactly where we'll land up, but we are going to leverage every potential opportunities to drive growth.
With respect to, you know, channel mix, last year, of course, we have seen good growth in the e-commerce channel. But Amrit, if you have access to what were the mixes, last year, do you have the data?
So 20% e-commerce within the proprietary sales, which, she mentioned 37% for this quarter. That number was 20% last year. Yes.
Okay. And, direct was, of the 18, how much was direct last, last year in this quarter?
Just allow me.
20%. 20%.
It has remained at 20% approximately.
Okay. Okay. Just one last question. On the agency count, you were at INR 102,000 something in, as of March 2024. Have we had any substantial agent addition this quarter, or are we focusing more on agent activation of all those who have already been added?
I think generally just focus on agent activation, and I, at my level, focus more on active agents and top-performing agents than the total agent count. But, overall,
INR 126,000 is the agent headcount as we end June 2024. INR 126,208.
Got it. Got it. Thank you so much. This is very useful.
Sorry. INR 106,000.
INR 106,868.
Okay. Okay, okay. Thank you. Yeah.
Thank you. We'll take the next question from the line of Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
Hi, hello, good morning. So just quickly, you know, first on your overall growth guidance, so as I understand, you're saying in the beginning of the year, VNB growth, you're saying mid-teens sort of a number and, but obviously, the surrender values can have some impact on the margins. And from a top-line perspective, how are we seeing, you know, the year play out? Second, on your EV, can you quantify what is the magnitude of economic variance in Q1? Because, back of the envelope, there seems to be another negative variance in this quarter. Can you confirm if that is correct, and if that is the case, then what is really causing that?
And, third, on, you know, sort of our calculations indicated that, if nothing is done on the, on the new surrender values, then the company level margin impact could be, in the range of 300-400 basis points, but what you're talking about is, lesser at about 100-200 basis points. So, I wanted to understand, you know, what are you exactly, building in over here? And, what the, what the difference can be between, you know, our understanding or my understanding and your understanding. But, yeah, so maybe you could help in these questions.
Madhukar, like always, you ask very sharp questions. So let me try to answer one, number one, number two, and then Amrit is going to talk about number, number. Sorry, number one, number three, and Amrit will give you the EV variance on non-operating. I think the VNB growth was expected to be mid-teens, and you know, without surrender. So I, I, I stick to that. And if we end up being at a lower margin, I think we'll cover it up with higher sales growth. That's our current position. And you know, as every quarter moves, you will see some of that play out. The second thing that I'll definitely make is, there's only so much that has to be there in quarter one numbers.
Like I mentioned to you, this is 12% VNB month for us, of the total VNB, so I think the journey is long, and we are good. We are quite focused on ensuring that the overall margin numbers pick up, and we are in the range that we've given as guidance. When surrender guidelines come, you would have picked up from the industry, it will have impacts on the industry with respect to several things changing. And just to clarify, it may mean some changes on distribution compensation, not just in terms of volume, but the phasing, to ensure that we are protected with respect to lapses, and the burden is shared with the distribution partners. It may mean some changes on maturity policyholders' returns. It may mean for us to, of course, refine, add new features.
It may mean that overall, we look at our expenses with a different light. And some of those actions, like I mentioned to you, are quite non-financial. They touch the business. And hence, I will say that 100-200 basis points is the residual thing that you know, I'm expecting to be there, which is the run rate that we should hit by the end of this year. However, I'm reasonably sure that with the series of changes that we are going to make, we'll be able to nullify. So, yeah, that's our position. With your estimate of 3%-4% and me saying 1%-2%, like I mentioned to you, of course, there is pieces of work that all the businesses will undertake.
You know, being a life insurance person, I must say, these are changes that will be industry-wide, like it happened in 2009 when ULIP regulation changed. They will have changes in the industry. Overall, I think, the impact at the end of the day when we have impact, you know, made many changes, are expected over the next, you know, one o r two quarters to be in the range of 100-200 basis point. But again, as I mentioned to you, some of these changes are non-financial. They touch the business, and making those changes in the business has a lead time, and we, you know, everybody is going to take that lead time.
So, very optimistic at this point in time that we'll be able to nullify with the set of initiatives that we've identified already and nullify the impact over 6-12 months period post the implementation date. On your question on embedded value and economic impact, Amrit, do you want to take that?
Yeah. So as I mentioned in the opening remark as well, that, on the, non-operating side, we have a positive non-operating variance of INR 276 crore. Predominant portion of this is coming out of equities, but there is a positive on the debt side as well. So both equities and debt, the non-operating variance is positive and a total of INR 276 crore. Even on the operating side, even though you didn't ask, reiterating that operating side as well, the operating variance is a positive, a marginally positive number.
Understood. All right. All the best. Thank you, sir.
Thank you.
Thank you.
We'll take the next question from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah. Hi, good morning, everyone. Thanks for the opportunity. Firstly, just, you know, extending the point on, surrender charges. So, you have the best-in-class persistency, especially on the one-year, on the 13th-month, in terms of number of policies. In spite of that, we have a, a relatively larger impact as compared to some of the other peers that have, mentioned the impact. I just wanted to understand where is this higher magnitude coming in from, whether it is our persistency, profit assumptions in our--surrender profit assumptions in our numbers, you know, VNB numbers, or is it coming from the product mix, or is, is it coming from the IRRs that we offer? So that would be my first question.
Second is, you know, from a product mix standpoint, how is July being compared to the first quarter? Has it been any meaningful difference in terms of non-par shares, again, moving higher, yeah, and ULIP share going lower? And in case, you know, we sustain the kind of growth momentum that we've seen in the month of July for the other two months as well, what kind of VNB margins can we look at in Q2? And my last question is on the, you know, the bancassurance mix of partners that we have at Axis Bank today. So, are you seeing a similar level of growth across partners?
Because at some point, you know, if some of the other players kind of grow faster, there could be some wallet share lost, at Axis. Or is it fair to assume that, you know, the focus will still be on growing Axis Bank and maintaining that wallet share between 65 %-7 0%? Yeah, that would be my, those would be my questions. Thanks.
Thank you. You asked just two or three questions, so let me just say, you know, it's very hard for me, as you can understand, for me to comment on the impact on other people. Of course, being in the industry, I have a view, but, you know, it's very hard for me to comment on the impact on other people. My estimate is impacts are more or less similar, because the large part of the impact is going to come from the allowance on surrenders in year one, which until now was not there. And, if people are in the similar ranges on persistency, in fact, we being at the better place, I would expect that pretty much everybody being reasonably impacted. Just to highlight that our IRR is not very aggressive.
They are in line with the market, and the assumptions are in line with our experiences. Our assumptions are already with respect to, in our experience, majority of our policyholders who stop paying premium choose to remain in a paid-up mode. And on slide 30, we have given you a guidance or the actual data on how it looks. So, there are, of course, multiple elements of the business. You know, there are impact on annuities, there are impact on you know, return of premium protection plans, and all that has to be taken care of. There are impact, of course, on health policies, and we write reasonable health policies because the renewability clause on health is going away.
So, there are, there are nuances on proportions, there are nuances on percentages, there are nuances on assumptions, which is how, at least we have determined for ourselves. I'm reasonably sure on the numbers that I'm telling you, it's very hard for me to take a guess on other people. I think on your question, there was one more question, right?
Margin in Q2.
Margin in Q2.
Yeah.
I think we're making positive progress. Or at least from my perspective, the first thing is to preserve the counter shares. We don't want to cede counter shares. And we are, for example, there are products, product interventions. I mean, if you really look at how it operates on open architecture counters, every day is a new day. You have to really fight it out. I'm very happy that with all the interventions, we on a run rate basis, we are trending at 68%-70%, which is, you know, the good part. I think Max Life Insurance is not new to open architecture. We have been on open architecture counters now for four years. For a large part of these four years, we have maintained our counter shares.
So I'm reasonably confident that we will remain at 65%-70%. While it does take effort, of course, wit t he support of Axis Bank, not just as our distribution partners, but also our promoters, as well as the good work that we do, we'll be able to preserve. I'm seeing good growth on the other bank counters also. I mean, if you look at until July, the industry growth rate is 26%, private industry growth rate is 26%, while there's a bias towards ULIP, which has been a, a key driver. But overall, industry itself is growing so far, so, so fast. All the bank partners are growing so fast. And, in the other bank partners, that we've signed up, month-on-month, we are increasing our share on counter. The six or seven new bank, partners that we had, signed up, our overall counter share cumulatively on those counters has gone up to close to 22%.
Every month, I have been seeing our counter share increase by 1% or 1.5%, and I'm seeing good growth because of low base effect. So, you know, suffices to say that, this growth is, is pervasive, and, you know, it is in the prop channel, it is in the bank channel, it is everywhere.
And just on my second question, which was more specific to second quarter, what is the kind of mix that you would have done in July? Would it be similar to first quarter? And in case the growth kind of persists, what you're seeing and the product mix also remains similar, what would be the Q2 level margins?
I will see a positive movement, however, it will be unwise for me to get into the product mix issue, which is not a market information. Market information is sales, because those numbers are published by IRDAI. So, you know, I request that we review that as we conclude quarter two.
Sure. Thanks, and all the best.
Thank you. The next question is from the line of Ajox Frederick from Sundaram Mutual Fund. Please go ahead.
Hi, sir. Thanks for the opportunity. So you mentioned about a tactical push which you made in 1Q . So I'm assuming that's regarding ULIPs? Just wanted to clarify on that.
Predominantly, yes.
Okay. And sequentially, has product margins come off for ULIPs, sir, 4 Q versus 1Q ?
So, it's a bit of a factor of which channel sells the product, Ajox. If you ask apples to apples, banca versus banca, then the margins have actually only marginally improved-
Okay.
Largely to do with, you know, the rider attachment that we are doing in our products. Uh. But because of the mix of the e-commerce ULIP sales that we have done- Uh. There is a sequential decline, but that's more to do with channel product combination.
I understand.
As Prashant also mentioned in the opening remark, the way we sell our unit links in the e-commerce channel is a combination of a capital guarantee plus a unit link design.
Mm-hmm.
So it needs to be seen in a holistic perspective. On that combination itself is a margin accretive combination.
Got it, sir. Second question is on regarding our slide 19, where you mentioned about Axis Emerging Vertical and Agency New Models . So what are these specifically within Axis? Are they different distribution styles or what, what are they exactly?
So this chart actually just kind of speaks about that, you know, we are not only just investing on the traditional way of how bancassurance has been run, but also have been investing over the last two years in various verticals which are beyond the traditional branch banking vertical. Which could mean you know, the telecalling setups, the virtual calling setups. It could mean the direct to consumer businesses that the bank actually runs. It has an approach towards corporate salary and small and medium enterprises. So these are traditional channels where traditionally we have not been present as an insurance seller, but we have kind of created muscle and capability to go and start selling in these channels as well.
They're becoming meaningful contributor to the overall sales mix and actually demonstrating robust outcomes. That's what, you know, the Axis emerging channels mean. Agency New Models is actually we have. We incubate this new capacity that we have. We have created certain farming constructs within the agency models. We have the variable agency channel constructs. We have, you know, a specific proposition for top advisors in the market, for which we have created specific capacity. So it's a mix of, you know, capacity plus new styles of actually approaching the agents, which is actually aiding in the overall mix of agency growth.
Got it, sir. So these are slightly nonlinear versus what the underlying distribution channel is?
That's right. This is also, I mean, this is also to demonstrate to you where the distribution capacity is being invested, how is that momentum of growth picking up, and how that as every, you know, sequential quarter is improving, our improvement in those—these particular investments is coming through.
But I'm assuming this must be very small at this point in time, within the distribution channels?
It will be around, around 10% for the... from an Axis perspective, around 5% for the agency channels.
Okay.
So today.
Good. Yeah. Great, sir. Thanks. That's it from me.
Thank you. The next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Yeah, thank you for the opportunity. See, Amrit, you highlighted that the products what you sell on e-commerce channel are capital guarantee, and capital guarantee ULIP in nature. So, if these products are, I mean, just wanted to clarify again, you mentioned this product has invariably a better margin profile than overall ULIP what you sell. Is it my understanding right?
... say that again. Sorry, Sanketh, I missed the last part.
I think you alluded to the point that the capital guarantee products of ULIP nature, what you're selling on e-commerce channel, are better than the overall company average ULIP margin products?
Okay. So look, okay, all ULIP is not necessarily capital guarantee. There is a significant portion of ULIP, which is capital guarantee. That capital guarantee proposition is better.
So, the reason why I'm asking this question is that, the predominant portion of the growth in ULIP seems to have come from e-commerce channel. So what growth you have delivered in first quarter in ULIP in the e-commerce channel, whether that channel itself is having a better margin profile compared to what ULIP you do in other channels? And, and-
I won't get into the specifics of channel and their specific margin profile, but I can confirm to you that the e-commerce channel as a whole actually has a strong margin profile, despite the proportion of ULIP that is running in it.
Got it. Got it. And so if you said that the 45% growth has come from Axis Bank in the month of July, and that is our overall growth also for the month. So, which means that you have defocused on this e-commerce channel little relatively compared to the old traditional ones. And therefore, I'm just wondering if e-commerce is little lower than the margin profile because of the channel mixture should play out going in subsequent quarters?
So the proprietary momentum of growth has maintained. Obviously, you know, there will be one month over another month where, in the previous quarter we had a launch of a fund offer, which actually helped galvanize momentum. So far, we haven't done it, so the e-commerce numbers have become slower. I mean, they've come down from 200, but still very, very respectable growth momentum. But overall, proprietary momentum for the month of July is also holding up.
Got it. So, so again, this question is-
For the month of July, both the proprietary momentum has been maintained from a growth perspective, and the banca momentum actually has picked up, which has ensured that, you know, now whatever you were seeing as 9%-10% growth on banca has actually got tuned up to 19% levels.
Sir, sorry, why I'm asking this question persistently is for the simple reason that, given the mix in the distribution moved in the favor of prop in the current quarter and margins took a hit. If it reverses in subsequent quarter, which means banca comes back little meaningfully, compared to prop channel, whether the margin profile will look better, even if the same product mix you do in the current quarter?
Look, that answer is actually a yes for Max Life always, because every consequent quarter, even at the same product mix, I will keep lifting up the margin profiles. There's a big operating leverage kicker that we always get. So if the question is that if I, even if I run the same product mix that I ran in quarter one, in quarter two, will the margins improve? Answer is yes.
No, my question, Amrit, is not that. That I understand that it will improve the margin structure in second quarter because of the operating leverage. My question was that even if mix also moves, distribution mix moves away from prop and moves in favor of banca, which you said in July, the growth is very strong. Not just because of the operating leverage, you will see-
That also does have... Yes, that also has a supporting effect.
Okay. Okay, got it. And you indirectly alluded to the point that the surrender rules will have somewhere between 100 - 200 basis points impact on the margins if you don't do any change. This 100 - 200 basis points, in fact, what you are highlighting is largely related to the first-year payout, or you have also factored in a behavior change of the customer with respect to paid-up behavior from subsequently onwards.
Question was asked and we did respond, that when we have given you an estimate of 100-200 basis points, we have assumed an increased surrender rate as well than what we are actually experiencing today, because there is a value that is accruing in the first year itself. So we have made that assumption when we have given you that.
Okay.
But I'm reiterating that, and which is what, you know, our slide number 30 actually shows, that for the non-participating design products, our experience of persistency is 91% in the first year, and then subsequent to that, 90% of them are still, they stay with us, and we've shown that particular trend. On this, we have assumed a worsening when we have given you 100-200 basis points. Now, it is- it can be argued both ways, that, maybe it might not worsen, given the kind of, controls and the deferment of commission success that will come into picture.
But at this point in time, just doing a simplistic view of the fact that there is an increased surrender value which could create an incentive for higher surrenders, we have assumed that in the computation I provided to you.
Got it, got it. And one more. Just this additional 1% Axis Bank stake increase, or 0.98%, this will be primary in nature or it will be secondary?
So it's right now, we said to be secondary.
Oh, okay. Okay. Sorry, last one. Full year guidance, last year, you in, at the end of the fourth quarter, you gave it to be in mid-teens to high teens. So, given the surrender thing will have its own nuances, you believe that the growth guidance will be maintained? And if you intend to maintain the growth guidance, given there will be teething problems with respect to traditional plans, it is natural to assume that ULIP will drive that mid-teen growth or little high mid-teen growth for you in the current year?
I will stay away from giving guidance. If there were no changes, regulatory changes, the guidance is what the guidance which was given at the beginning of the year, which was the close to 25-26% margin mid-teen kind of VNB growth rate. It's a large-scale change coming our way at the, you know, at industry levels. I'm 100% sure that within a period of 3-6 months, we'll be able to completely mitigate the negative impact of these regulatory changes, but because the situation is going to be very dynamic, it is very hard for me to tell you exactly where we will land up. We will try to come as close as possible to the guidance that was given at the beginning of the year.
Perfect. Perfect. That's it from my side. Thank you very much.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi. Thanks for taking my question. You know, you mentioned that Axis, the emerging vertical was up around 37%, you know, in this quarter. So just trying to understand, what would have been growth in the rest of the Axis, and would it be like a decline?
So we are not breaking it at, you know, such granularity, Nischint. The only idea, and that's the reason you see we have not necessarily put a number there, but needless to say, obviously that growth is lower than the average growth that has been indicated for the channel, in the presentation.
I mean, the only point is that, you know, Axis is somewhere, sort of, you know, guided that, you know, you will kind of, you know, have a similar counter share, but at the same time, they are adding new partners. So does it mean that, you know, you are kind of maintaining that counter share by because of the fact that they are adding new channels, or is it something that your counter share in the traditional channels is going to be what it is?
Okay. So I think that's a fair question that you ask. So if I exclude this channel and kind of speak about branch banking liability verticals, the core verticals where the sale happened, the counter share has remained stable.
It has remained in the range of 65%-70%?
Yeah, we have been in the range of 65%-70%, Nischint. And I, at least at my level, I mean I review it by every different channel, and by the way, this, while we've seen 27% growth or whatever growth in the overall channel, this is just a 10% share, or 10%-12% share of the total sales. It is growing fast, and we want to build it. By this point of time, in the overall sales number, it is a smaller number.
Sure. And can you talk a little bit about the new agency models? I mean, are these variable cost agency models or what are these?
Yeah, we are experimenting with several new things. So, you know, going to tier two cities, with a slightly different model of servicing, as well as training. It is also APC, which is, a variable cost model. So we have added two or three... We added two or three different things, to our main agency channel, and these are actually those subsidiary or additional agency models. A bit different from the core agency model that we have put in.
Sure. Now, I think Axis is almost closer to 20% or further at 19%. So what happens next? Would you want to give some update on the timelines, you know, when you are approaching the regulators?
I think we'll wait until they, they go up to 20%, and we'll come back separately with an update as and when it is available.
Sure. And one final, just data keeping question. You know, you mentioned the breakup of proprietary between direct, e-commerce and others or agency, essentially at 18%, 37%, and 45% for first quarter this year.
That's in the presentation itself, actually, on the slide, we have provided you on slide number... It is there as a part of presentation, Nischint.
No, no, I'm just asking, what was it last year? Did you say 20%, 20%?
I will provide it to you. Let me give you separately, but the e-com was 20%.
Yeah, e-com was-
E-com, direct, both were 20%, 20% each, and that agency was 60%.
Okay, got it. I just wanted to reconfirm that. Thank you very much.
Yes.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you. Thank you, everyone, ladies and gentlemen, for being on our call and for your interest. We do look forward to such more interactions. Have a good day. Thank you.
Thank you very much, sir. On behalf of Max Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.