Max Financial Services Ltd

NSE:MFSL

Earnings Call Analysis

Max Financial Services Q1 FY25 Growth Outpaces Sector

Max Financial Services reported a strong start to FY '25, with individual adjusted first-year premium growth of 27%, surpassing the private sector's 24% and the industry's 20%. Total APE for Q1 grew by 31%, and policies increased by 27%. The consolidated PAT rose by 54% to INR 156 crores, while gross premium and renewal premium both saw 11% and 10% growth, respectively. The solvency margin stands at 203%. The company continues to focus on scaling proprietary channels and direct sales, while new digital and bancassurance channels have also shown significant growth.

Strong Start to FY '25

Max Financial Services has made a robust beginning for FY '25 with significant growth in new sales. The company saw a 27% growth in individual adjusted first-year premium, beating private sector and industry averages of 24% and 20%, respectively. By July, this growth further accelerated to 32%, enabling the company to capture 44 basis points of private market share.

Outstanding Sales Performance

Total Annualized Premium Equivalent (APE) grew by an impressive 31%, with a 27% increase in the number of policies for Q1 FY '25. One of the key drivers behind this growth has been the proprietary channels, which now account for 49% of total sales, growing at an impressive rate of 60%. Notably, the online channel experienced over 200% growth, driven by strong demand for new fund offers.

Recognition and Employee Commitment

Max Life Insurance has been recognized as one of India’s Best Companies To Work For, securing a Laureate Distinction by the Great Place to Work Institute. It has also been ranked 28th among 1,750 organizations, reflecting its commitment to being a people-centric organization. The company achieved an impressive claim settlement ratio of 99.65% for FY '24.

Bancassurance and Product Expansion

Though bancassurance showed a slower APE growth rate of 9% in Q1, bank channels have considerably picked up momentum in July, particularly led by Axis Bank with a 45% growth rate in that month. The company also signed a new agreement with Catholic Syrian Bank, anticipating further growth from this partnership. New product launches such as Smart Wealth Annuity Guaranteed Pension Plan contributed to a 42% growth in the retail annuity segment.

Financial Performance Highlights

Max Financial Services Limited posted consolidated revenue excluding investment income of INR 5,235 crores for the quarter, representing an 11% growth. The consolidated Profit After Tax (PAT) increased by 54% to INR 156 crores. Renewal premium for Max Life rose by 10% to INR 3,323 crores, while the Gross Premium grew by 11% to INR 5,399 crores. The embedded value stood at INR 22,043 crores as of June 30, 2024.

Guidance and Regulatory Changes

Despite regulatory changes by IRDAI regarding surrender value, which could affect margins by 100 to 200 basis points during this transitional phase, the leadership remains optimistic about maintaining robust margin performance. The latest guidance projects a full-year margin between 25-26%, anticipating VNB growth in the mid-teens.

Focus on Efficiency and Digital Transformation

The company continues to invest in digital initiatives to enhance operational efficiency. AI-driven approaches have improved risk management and decision-making processes. Automation in onboarding and customer service has resulted in better conversion rates, quicker payout, and higher customer engagement.

Future Outlook

Max Financial Services aims to focus on scaling proprietary channels, building strong partnerships, and reaching newer customer segments to create lasting value for its customers and shareholders. Despite regulatory challenges, the company remains confident in its ability to navigate changes and sustain growth.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Max Financial Services Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] 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.

[Amrit Singh, executive]

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. And today, as always, I'm joined by Prashant Tripathy, Managing Director and CEO of Max Insurance. I'll hand it over to him to share key developments and insights from the first quarter.

[Prashant Tripathy, executive]

Thank you, Amrit. Good morning, everyone, and thanks for being on the call. We've had a remarkable start of FY '25 as far as overall new sales growth is concerned, building on the strong foundation laid in FY '24. Our focus on enhancing our sales growth engines across all strategic areas were paid off with continued investment driving excellent growth in the first quarter FY '25. But before I come to our sales performance, let me just share good news with you. I'm very proud to share increasement that underscores our commitment to being a people-centric organization. Max Life Insurance has been honored with a Laureate Distinction by Great Place to Work Institute, and accolade reserve for organization 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 #28 among 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 compelling with promises to its customer's succeeding best-in-industry claim settlement ratio of 99.65% for FY '24. And these two really underscore our commitment not just on growth, but also towards 2 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 1 FY '25. 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 [ FYT ] July. Our total APE for quarter 1 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 1, growing at 60%. We have relentlessly pursued new business models to bolster growth from traditional proprietary channels and these models has become the bedrock of our recent success. Our off-line proprietary channels grew by 24%, supported by recent activations and an expanded 2 [ low-top ] performing agents. Thanks to enhanced governance rhythm as well as many new initiatives that we take into the agency channel. 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 segment. 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 bonds in the market, and it has been driven predominantly through online channels.

We continue to demonstrate our capability to scale digital business rapidly, exceeding the top ranking across all digital platforms in both protections as well as savings. And we have been quite diligent about growth, not just in the savings side, which comes with a unique proposition of capital guarantees. Regulators kind of mixed up with non-PAR to achieve reasonably good margin, but 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 banks -- especially driven by Axis Bank has been the key driver of growth for us for the first 4 months. Just to give you a sense of number by the time we finished 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 1 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 bank, and I'm very hopeful that our partnership will start to bear a fruit for both the partners as we go along. In addition, we also signed up with 6 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 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 benefits of driving growth through ULIP channels, especially in the digital space as well as at the banker space. Our commitment to product innovation remains very strong and we launched the Smart Wealth Annuity Guaranteed Pension Plan. Limited Pay Variants and industry-first initiatives designed to personalize retirement planning, which led to 42% growth in our retail annuity segment. So just want to underscore that we're growing our annuity which was one of the strategic initiatives for Max Life Insurance.

In addition, our efforts in the protection segment have resulted an impressive growth of 53% in retail for [ technical skills ], highlight again 53% in retail protection and 49% in credit protection, the two areas where we are extremely focused. To capitalize on the percentage in the equity market, we'll launch the Flexicap fund, predominantly targeting e-commerce and life insurance customers, which launched little more than 100% growth in ULIP segments, shifting [ half-half ] mix towards the segment from 25% total APE to 39% of APE in Quarter 1 '25. 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 contribution result in Quarter 1 FY '25 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 to 24 months.

We view the equity market as a tactical opportunity, and we recalibrate our 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 questions 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. And I'm very -- I remain very optimistic. And then -- whenever such changes come, it just expands the pie, and I'm hopeful that this will be a tailwind 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, commercial, realigned, maturing and surrender customer proposition. And we estimate that the current impact will be in the range of 100, 200 basis points at company level for the transitory period, and we will work hard 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 -- the regulations do change on 1 October, I think it will take us 3 to 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 operation angle, which is one of the values of Max Life Insurance. At Max Life Insurance, certain operation is the core of everything we do, driving us to deliver unparalleled value interest on our customers. Over the past 5 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 a statistics. It reflects our unwavering commitment to putting customers first, leveraging advanced digitization and intelligence systems. We proactively come back broad, identify high-risk areas and accurately assess claims validity. The holistic approach ensures that we're 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 industrial leadership and customer experience at the prestigious 5th 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 NPAs, within the combination of transaction in NPAs, which has improved by 5 points from 74% to 79% and relationship NPA, which has improved by 2 points from 44 to 46. Hence, overall NPA is growing from 56 to 59 between March '24 through June 2024.

Max Life also proudly maintains its leadership in 13th month presently on the number of policy basis from our PAT. 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 13th month percentage for regular and limited pay premium reached the highest ever at 87%, an improvement about 20 basis points, while our first month stood at 58% for the period ending June 2024.

The last area, which is of too significant 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 training calendars and ensuring required outcomes. The rollout of Phase 1 of Msales, which is our sales superapp, has integrated end-to-end tunnel view of our BSS direct sales force channels, which is where we have -- was piloted it, and I'm very optimistic that through the year of FY '24-'25, we'll take it to every channel and will 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 risk, including cost avoidance through the shield program and claims awarded through Meditech with our [ govern engine ] achieving an impressive underwriting claims accuracy of -- 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 had streamline operations, resulting in improved conversion rates, faster payout and increase customer engagement. Our focus on data-driven intelligence exemplified by the centralization of human shops and 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 1 results, which highlights the effectiveness of our strategic priorities, scaling our proprietary channels, building strong partnerships and reaching newer customer segments.

I'm satisfied with our margin outcome. And I'm sure there are more opportunities to improve. But like I mentioned to you, these are tactical moves that one has to pay in the smallest quarter of the year to ensure that we are preparing well and giving us 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.

[Amrit Singh, executive]

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 Tower Watson 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% to 12% ranges across different durations and different types of shapes of growth.

In summary, the Willis Tower 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 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 crores, a growth of 11% in the quarter. The consolidated PAT at MFSL level is INR 156 crores, up by 54%. Renewal premium for Max Life has grown by 10% to INR 3,323 crores. Gross premium grew by 11% to INR 5,399 crores. Value of new business, as Prashant said, stands at INR 254 crores for the quarter in comparison to INR 247 crores last year with an NBM of 17.5%. The embedded value as at end of 30 June 2024, is INR 22,043 crores, also aided by the capital infusion, which was consummated in the quarter by access of INR 1,612 crores. The annualized total return on EV of Quarter 1 FY '25, excluding the capital infusion of INR 1,612 crores 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 nonoperating variance stands at [ INR 276 crores ] 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 head count in the distribution policies. Max Life Quarter 1 FY '25 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 '24.

The overall asset management for the company has crossed INR 1.61 lakh crores and a year-on-year growth of 25%. We continue to remain dedicated to our mission of inspiring people to enhance the value of the life. And we are confident in our ability to harness a strength and continue delivering on a consumer 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.

[Operator]

[Operator Instructions] The first question is from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

One question. I mean, given the way you sort of do account cost for the quarter, your margin trajectory is increased kind of stepping up over the quarters and eventually the full year margin is higher and different than Q1, that has been a trend. Now I mean in few recent years, it was also an outcome that I mean, like in FY '23, you had very, very strong non-PAR trading in FY '22, the growth were 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 to the implementation of the new products in this post-surrender sort of new surrender regulation regime -- so how do you see margin trajectory sort of progressing this year? I mean your high growth lead by some not so profitable product. And in the second half, the newer products getting introduced. So how confident are you sort of the margin trajectory panning out over the year?

[Prashant Tripathy, executive]

Avinash, you raised a very good question. And if you go to the Page #12 of our investor release, you'll find that we have given Quarter 1 and Quarter 4 numbers for last 4, 5 years, just to give you the confidence that because we -- some of these 2 margins, which means we take all the cost for the quarter. And because Quarter 1 generally is the lowest in terms of sales, generally margins are subdued and they range between 17% to 20%, 21%. That means the trajectory for last many years. As every quarter passes, because the leverage that we get on this business, and I would like to highlight to everybody that our fourth quarter VNB is INR 254 crores. If you had to look at our last year's total VNB is INR 2,000 crores. So we're talking about 10% to 12% VNB in Quarter 1 only.

Hence, 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 2? I think I did mention to you about Quarter 2 numbers. It is going to be an industry thing. So Max Life Insurance will play as we go along. However, I'm reasonably confident that with all the efforts that 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 capabilities. So I will just request that you all remain patient and see how it evolves. I'm very confident that it will pick up.

[Avinash Singh, analyst]

And just a small kind of related on that. This 30 September is in a way kind of a hard deadline by the regulator. 2/3 of our still the existing products, but you can introduce new products even prior to that. So how sort of are you planning to launch the product and a new product is going to be launched 1 week from 1 October or you will start sort of a phase value introduction of a new regime product earlier than that.

[Prashant Tripathy, executive]

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 30 September and the replacement product has not been filed, it will have to go through the approval process from IRDAI. It will no longer be used and filed. So we're very keen that by 30 September, we complete the entire replacement exercise. As you can understand being such a matured organization, it will take off the task. We have -- the surrender guidelines also come with different guidelines about between forms, free look cancellation period being extended, et cetera. So we have a phasing approach. We will begin replacing our products somewhere from 15 August to 30 September in different tranches. So that's how we're able to approach it, Avinash.

[Operator]

The next question is from the line of Swarnabha Mukherjee from B&K Securities.

[Swarnabha Mukherjee, analyst]

A couple of questions. First, again, just focusing on the margin part. I just wanted to understand whether your -- whether you are still confident of achieving the -- around 26% kind of a margin guidance, which you have provided earlier, because I think you highlighted that growth is fairly strong in excess in July. But access, I think whatever we have seen in the disclosure this time, banca has largely focused on ULIP as a product category. And also wanted to understand how the commission dynamics are playing out in the proprietary channel, because there the product mix is much far more balanced than [indiscernible] despite growth in retail production, we haven't seen that outcome played out in the margin. And earlier you have also mentioned on the headcount increase -- in that distribution side. So that also will -- is this cost going to remain in our P&L going forward? And give them and what can be the impact on the margin in the subsequent quarters? And on the overall guidance, if you could give some more color on that.

And secondly, on the Axis Bank part, if you could highlight however counter shares are trending right now, are we still at that range or has there been -- what is the dynamics you are seeing in the exist channel in terms of the multiple manufacturers who are now in panel, what is the situation? If you could highlight that.

[Prashant Tripathy, executive]

Thank you for the question. Let me take the easier one first, the Axis Bank counter. Like we mentioned to you, we expect ourselves to remain in the range of 65% to 70%. I'm very happy to confirm that. We are in that range, and we expect to remain in that range. So as things stand over the last month or so, our counter share has been in the range of 68% to 70%, overall for the quarter between 65% to 70%. So real inclusion of other bank partners on the counter is not really significantly impacted our counter share, and I'll keep at that level.

You may recall that for the year, our forecast was, we will hit the VNB number of teams and I remain confident about hitting that number. And I had made that forecast of share that forecast before the discussion on surrender income guidelines. So my guidance was for the year with outlook anyway between 25%, 26% margin as against 26.5% last year. And the forecast was, we will have seen 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 go very hard to come as close as possible with respect to the guidance that we gave you.

[Swarnabha Mukherjee, analyst]

Just a follow-up. Just focusing on the second quarter, if you could comment on the commission levels, how they are playing out, and also on the increased distribution and the fact that Axis is growing faster, how can we think about the margin for that?

[Prashant Tripathy, executive]

Yes. So specifically on the commissions and OpEx, Swarnabha, the OpEx has grown by 14%, as I said in my opening remarks. And of this 14%, 8% growth is largely to do with headcount increase, plus the wage will increase that happens on an inflationary basis. This headcount -- incremental headcount, where is it getting deployed? The 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 have not necessarily fired 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 year kind of progress, 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 the commissions actually have increased. Otherwise, across other partners, the commissions have remained the way -- the total cost of acquisition has remained constrained.

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 booked the actual OpEx in the quarter. And as sales build up during the quarter, we will definitely see an improving trend on margin.

[Operator]

The next question is from the line of Supratim Datta from AMBIT Capital.

[Supratim Dutta, analyst]

So I have 3 questions. Starting with the first one on Axis side. Just wanted to understand that you're seeing that 19% growth, is it for the first 4 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 counter or any change in network? That's the first point that I wanted to understand.

The second more is on the surrender charges. You talked about the impact and the movement towards new products. Just wanted to understand that you're talking about the 100 to 200 basis points. Does it take into account the current surrender trends that you are seeing? Or does it take into account also that post the new product launches, there could be increase in surrender, which is that factored into this 100 to 200 basis points, that would be another question.

And thirdly, when I look at your product mix, obviously, there has been an adverse product mix, which shift towards you -- completely on the same -- the strategy there. However, if I compare your first half, I mean, the first quarter FY '25 product mix with first quarter FY '23 product mix, it was broadly similar, but the margin is roughly around 350 basis points, 360 basis points lower. So just wanted to understand, is this 350 basis points, 360 basis points lower margins? Is it a function of only the OpEx investments that we have made in the last 2 years, which will deliver productivity gains, say, over the next 12 to 18 months or is there something else also that is actually easier?

[Prashant Tripathy, executive]

Thank you, Supratim. I'll take the first 2 questions, and I'll let somebody 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 July is 19%. The 8% number that we have reported for fourth 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 market partners did.

On the question on surrenders, it's a bit of crystal ball gazing. Whether surrender charges will increase, surrender or not. I mean we will see how it goes. But inclusively speaking, surrender might increase a little bit if the surrender benefits have improved for the customers. There will be two things that will happen. I think there will be very significant efforts towards 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 newer 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 to 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 an estimate. That's the best foot forward and we have to see how it goes. But it does stands and lack of inquiry or they assume that the surrenders remain at the same level. 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...

[Amrit Singh, executive]

I might not ask [ Prachi ] at this point in time, the exact FY '23 to '25, but I can give you some directional answers. Yes, your operation is correct, that 1 part of the answer definitely is the increase in OpEx that has actually happened over the last 2 years. But then there are levers 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 design. 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 products as well, which comes in play. And as we have been speaking about protection margins to some bit of a shape out there. So it's a combination of deals 3, 4 attributes of the correlation that you're trying to drive. But the large answer stays in OpEx and also the fact that unit linked design is being sold in proprietary versus partnerships.

[Operator]

We'll take the next question from the line of Shreya Shivani from CLSA.

[Shreya Shivani, analyst]

I have 2 questions. First is on -- you just mentioned about refiling these products between or pulling these products back between 15 August to 25 September. So last year second quarter was already a high base for you -- on total APE 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 quarters 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 1 quarter -- first quarter?

[Prashant Tripathy, executive]

I think, of course, I do agree that the base is very high, but we are seeing great sales momentum across all the channels. 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, rate agency, with direct, with e-commerce, with the new banks that we have signed, Yes Bank, Axis Bank has seen growth across. So I'm very optimistic about the growth outcome for Quarter 2. It's very hard for me to tell you exactly where we land up, but we are going to leverage every potential opportunities to drive growth.

With respect to channel mix, last year, of course, we have seen good growth in the e-commerce channel, but, I mean, if you have access to what were the mixes last year we have...

[Amrit Singh, executive]

So 20% e-commerce within the proprietary sales, which she mentioned, 37% for this quarter, that number was 20% last year.

[Shreya Shivani, analyst]

Okay. And direct towards, of the 18, how much was there last year in this quarter?

[Amrit Singh, executive]

Just allow me. It has remained at 20% approximately.

[Shreya Shivani, analyst]

Okay. And just one last question. On the agency count, you were at 1,02,000 something as of March '24. Have we had any substantial agent addition this quarter? Or are we focusing more on agent activation of all those have already been [ handled ]?

[Prashant Tripathy, executive]

I mean, generally, the focus on agent activation and I, at my level, focus more on active agents and top performing agents and the total agent count. But overall...

[Amrit Singh, executive]

1,26,000 is the active headcount as we end June '24. 1,26,200 agents. Sorry, 1,06,000.

[Prashant Tripathy, executive]

1,06,860.

[Operator]

We'll take the next question from the line of Madhukar Ladha from Nuvama Wealth Management.

[Madhukar Ladha, analyst]

So just quickly, first, on your overall growth guidance. So as I understand, we're seeing in the beginning of the year, VNB growth you are saying mid-teen sort of a number and -- but obviously the surrender value stand had some impact on the margins. And from a top line perspective, how are we seeing their play out?

Second, on your -- 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, and what is really causing that?

And third, on -- sort of our calculations indicated that if nothing is done on the new surrender value and the company level margin impact could be in the range of 300 to 400 basis points. But what you're talking about is letter rank about 100 to 200 basis points. So I wanted to understand what are you exactly building in [indiscernible]. And what the difference can be between our understanding or my understanding and your understanding. So maybe you could help them please with the question.

[Prashant Tripathy, executive]

Like always you ask very sharp questions. So let me try to answer number 1, number 2, and then Amrit is going to talk about number -- sorry, number 1, number 3, and Amrit will give you the EV variance on nonoperating.

I think the VNB growth was expected to be mid-teens and without surrender. So I'll stick to that. And if we end up being at a lower margin, I think we'll cover it out with higher sales growth. That's our current position. And 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 read in quarter 1 numbers, like I mentioned to you. This is 12% VNB month for us of the total gains. I think, we tell you, it's wrong, and 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 pick up from the industry, it will have impacts on the industry with respect to several things. And just to clarify, it remains something which is 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 ] shared with the distribution partner. It may mean some changes on maturity, maturity policyholders returns. It may mean for us to, of course, 3 lakh, 5 lakh 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 nonfinancial. They does the business. And hence, I will say that 100 to 200 basis point is the serial thing that 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're going to make, we'll be able to modify. So that's our position.

With your estimate of 3% to 4% and me saying 1% to 2%, like I mentioned to you, of course, there is pieces of work that all the businesses will undertake, being a life insurance person, I must say, these are changes that will be industry-wide, like it happened in 2009, when new regulations changed, they will have changes in the industry. And overall, I think the impact at the end of the day when we have made many changes are expected over the next 1 or 2 quarters to be in the range of 100 to 200 basis points. But again, as I mentioned to you, so these changes are nonfinancial, they test the business and making those changes in the business has a lead time. And everybody is going to pay 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, identified the impact over 6 to 12 months period post the implementation date.

On your question on embedded value and economic impact, Amrit, do you want to take that?

[Amrit Singh, executive]

So as I mentioned in the opening remark as well, that on the nonoperating side, we have a positive nonoperating variance of INR 276 crores. 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 and nonoperating variance is positive, and a total of INR 276 crores. Even on the operating side, even though you didn't ask, reiterating that operating side as well as the operating variance is a positive -- the margin is positive number.

[Operator]

We'll take the next question from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Firstly just extending the point on surrender charges. So you have the best in class persistency, especially on the 1-year, the 13-month, in terms of number of policies. In spite of that, we have 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 -- certain profit assumptions in our numbers, VNB numbers? Or is it coming from the product mix? Or is it coming from the IRR that you offered? So that would be my first question.

Second is, 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, and your ULIP share going lower. And in case we sustain the kind of growth momentum that we've seen in the month of July for the other 2 months as well. What kind of VNB margins can we look at in Q2?

And my last question is on the 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, if some of the other players kind of grow faster, there could be some volume share loss add access? Or is it fair to assume that the focus will still be on growing Axis Bank and maintaining that wallet share between 65% to 70%. Those are my questions.

[Prashant Tripathy, executive]

You asked 2 or 3 questions. So let me just say, 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 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 last part of impact is going to come from the allowance on surrenders in year 1, which until now was not there. And if people are in the similar ranges on persistency, in fact, we're being at the better place. I would expect that pretty much everybody is 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 our -- majority of our policyholders who stopped paying premium chose to remain 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. There are impact on annuities, there are impact on return on premium protection plans and all that has to be taken care of. There are impact of growth on health policies and we drive reasonable health policies because the renewability clause on health is going away. So there are nuances on proportions, there are nuances on percentages, they are nuances on assumptions, which is how at least we have determined for ourselves. I'm reasonably sure all 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 1 more question, right? Margin in Q2. I think we're making positive progress. And at least from my perspective, the first thing is to reserve the counter share. We don't do all those counter share. And we are -- for example, there are 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, on a run rate basis, we are trending at 68% to 70%, which is the good part. I think Max Life Insurance is not new to open architecture. We have been on open architecture counters now for 4 years. For a large part of these 4 years, we have maintained our counters. So I'm reasonably confident that we will remain at 65% to 70%, while it does take effort, of course, with the support of Axis Bank, not just as our distribution partner, but also our promoter, 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 is a bias towards ULIP, which has been a key driver. But overall industry itself is growing so far, so fast. So 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 with 6 or 7 new bank partners that we had signed up. Our overall counter share cumulatively on those counters have 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 suffice it to say that this growth is pervasive and it is in the prop-channel, it is in the bank channel, it is everywhere.

[Prayesh Jain, analyst]

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 purchased, what are you seeing and the product mix also remains similar, what would be the Q2 level margins?

[Prashant Tripathy, executive]

I will see a policy 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 I'll request that we review that as we conclude Quarter 2.

[Operator]

The next question is from the line of Ajox Frederick from Sundaram Mutual Fund.

[Ajox Frederick, analyst]

You mentioned about a tactical push which you paid in 1Q. So I'm assuming that's running ULIPs, I just wanted to clarify on that.

[Amrit Singh, executive]

Predominantly, yes.

[Ajox Frederick, analyst]

Okay. And sequentially, has product margins come off for ULIPs 4Q versus 1Q?

[Amrit Singh, executive]

So it's a bit of a factor of which channel it sells the product, Ajox. If you ask apples-to-apples, Banca versus Banca, then the margins are actually only marginally improved largely to do with the rider attachment that we are doing in our products. But because of the weak mix of the e-commerce ULIP sales that we have done, there is a sequential decline, but that's more to do with channel product combination.

And as Prashant also mentioned in the opening remarks, the way we sell our unit linked in the e-commerce channel is a combination of a capital guarantee for the initial design, which will be seen in a holistic perspective. And that combination itself is a margin accretive combination.

[Ajox Frederick, analyst]

Second question is on -- regarding your 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 are they exactly?

[Amrit Singh, executive]

This chart actually just kind of speaks about that we are not only just investing on a traditional way of how bancassurance has been run, but also have been investing over the last 2 years in various verticals, which are beyond the traditional transbanking vertical, which could mean the telecalling setup, the virtual calling setup, 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 -- these are 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. And they're becoming a meaningful contributor to the overall sales mix and actually demonstrating robust outcome. That's what the Axis emerging channels mean.

Agency new model is actually -- we have -- we incubate -- this is new capacity that we have. We have created certain farming construct within the agency models. We have the variable agency channel construct. We have a specific proposition for top advisers in the market for which we have created specific capacity. So it's a mix of capacity plus new tiles of actually approaching the agents, which is actually adding in the overall mix of agency growth.

[Ajox Frederick, analyst]

Got it, sir. So these are slightly non-lenient versus what the underlying distributor channel is?

[Amrit Singh, executive]

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 has every sequential quarters improving, how improvement in these particular investments is coming through.

[Ajox Frederick, analyst]

But I'm assuming this must be very small at this point in time within the [ specialty items ]?

[Amrit Singh, executive]

It will be around 10% for the -- from an Axis perspective around 5% for the agency channel.

[Operator]

The next question is from the line of Sanketh Godha from Avendus Spark.

[Sanketh Godha, analyst]

Amrit, you highlighted that the products what you sell on e-commerce channel are capital guarantee -- capital guarantee ULIP in nature. So if these products are -- I mean I just wanted to clarify, again, you mentioned this product has invariably a better margin profile than overall rate what you sell. Is it my understanding right?

[Amrit Singh, executive]

Say that again, sorry, Sanketh, I missed the last part.

[Sanketh Godha, analyst]

I think you alluded to the point that the capital guarantee products of ULIP nature, what you sell in e-commerce channel are better than the overall company average to the ULIP margin products?

[Amrit Singh, executive]

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.

[Sanketh Godha, analyst]

Sir, 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 all 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?

[Amrit Singh, executive]

[ Without ] getting to 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 at it.

[Sanketh Godha, analyst]

Got it. And 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 a little relatively compared to the old traditional ones. And therefore -- I guess just wondering if e-commerce is a little lower than the margin profile because of the channel mix should play out going in subsequent quarters?

[Amrit Singh, executive]

This is a proprietary momentum of growth is maintained. Obviously, there will be 1 month over another month, whereas 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 lower. I mean they come down from 200, but still very, very respectable growth momentum. But overall proprietary momentum for the month of July is also holding up.

For the month of July, both the proprietary momentum has been maintained from a growth perspective and the banker momentum actually has picked up, which has ensured that -- now whatever you were seeing as 9%, 10% growth on banca has actually got proved up to 19% level.

[Sanketh Godha, analyst]

Sir, sorry, why I am asking this question persistently is for the simple reason that given the mix in the distribution mode in the favor of prop in the current quarter and margins took a hit. And 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.

[Amrit Singh, executive]

Look that answer is actually yes for Max Life always because every consequent quarter, even at the same product mix, I will keep lifting up the margin profile. There's a big operating leverage [ ticket ] that we always get. So the question is that if I went up, I run the same product mix that I ran in Quarter 1 and Quarter 2, will the margins improve? Answer is yes.

[Sanketh Godha, analyst]

My question, Amrit, is not that. That I understand that it will improve the margins in second quarter because of the optimum leverage. My question was that even if mix also moves, distribution mix moves away from prop and moves in favor of banca, which we said in July, the growth is really strong, not just because of the optimum leverage, do we see...

[Amrit Singh, executive]

Yes, that also has a supporting effect.

[Sanketh Godha, analyst]

Got it. And you indirectly alluded to the point that the surrender rules will have somewhere between 100 to 200 basis point impact on the margin, if you don't do any change. This 100 to 200 basis point impact, what we're highlighting is largely related to the first year payout. You have also factored gaining a behavior change of the customer with respect to paid-up behavior from subsequent there onwards.

[Amrit Singh, executive]

I think the question was asked and we did respond that when we have given you an estimate of 100 to 200 basis points, we have assumed an increase surrender rate as well than what we are actually experiencing today because there is a value that is agreeing in the first year itself. So we have made that assumption when we have given you that. But I am reiterating that and which is what our Slide #30 actually shows that for the non-participating designed 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 to 200 basis points. Now it can be argued both ways that maybe it might not worsen given the kind of controls and the deferment of the commission structure that will come into picture. But at this point in time, just doing a simplistic view of the fact that there is an increase surrender value, which could create incentive for higher surrenders. We have assumed that in the computation at a wider view.

[Sanketh Godha, analyst]

Got it. And one more, just this additional 1% Axis Bank stake increase or 0.98%, which will be primary nature or it will be secondary.

[Amrit Singh, executive]

So right now this has to be secondary.

[Sanketh Godha, analyst]

Last one. The full year guidance -- last year, 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 keeping problems with respect to traditional plan, it is naturally to assume that ULIP will drive that mid-teen growth or a little high mid-teen growth for the current year?

[Prashant Tripathy, executive]

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 over there at the industry level. I'm 100% sure that within the period of 3 to 6 months, we'll be able to completely mitigate the native impact of these regulatory changes. But because the situation is going to be well done, I mean, it is very hard for me to tell you exactly where we will end up. We will try to come as close as possible to the guidance that was given at the beginning of the year.

[Operator]

The next question is from the line of Nischint Chawathe from Kotak Institutional Equities.

[Nischint Chawathe, analyst]

You mentioned that Axis, the emerging vertical was up around 37% 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?

[Amrit Singh, executive]

So we are not breaking it at such granular mentioned. The only idea and that's the reason you see we are 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.

[Nischint Chawathe, analyst]

I mean, the only point is that, Axis is somewhere sort of guided that you will kind of have a similar counter share. But at the same time, they're adding new partners. So does it mean that you are kind of maintaining that counter share by because of the fact that we are adding these channels? Or is it something that your counter shares in the traditional channels is going to be important.

[Amrit Singh, executive]

So I think that's a fair question that you asked. So if I exclude this channel and kind of speak about branch banking, liability verticals, the core verticals where the sales happen, the counter share has remained stable. And remained at the 65% to 70%.

[Prashant Tripathy, executive]

Yes, we have been in the range of 65% to 70%, Nischint. At least at my level, I meant, I review it by every different channel. And by the way, this -- earlier we have seen 27% growth of whatever growth in the overall channel. This is just a 10% share, 10% to 12% share of the total sales. It is growing fast and we want to build it, but at this point of time in the overall sales number, it is a smaller number.

[Nischint Chawathe, analyst]

And can you talk a little bit about the new agency model? I mean, are these variable cost agency models overtime?

[Prashant Tripathy, executive]

Here we are experimenting with several new things. So going to Tier 2 cities with a slightly different model of servicing as well as training, it is also APC, which is a variable cost model. We have added 2 or 3 -- we added 2 or 3 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.

[Nischint Chawathe, analyst]

Now I think Axis is almost closer to 20% or 19%. So what happens, like would you want to give some update on the time line when you are approaching the regulators?

[Prashant Tripathy, executive]

I think we'll wait until they go up to 20%, and we'll come back separately with an update as and when it is available.

[Nischint Chawathe, analyst]

Sure. And one final, just data keeping question. You mentioned the breakup of proprietary between direct informers and other agencies essentially at 18%, 37% and 45% for first quarter this year.

[Amrit Singh, executive]

That's in the presentation itself, actually on the slide -- we have provided you on slide number...

[Prashant Tripathy, executive]

It is there as a part of presentation, Nischint.

[Nischint Chawathe, analyst]

No, I'm just asking what was it last year? Did you say 20%, 20%...

[Prashant Tripathy, executive]

I will provide it to you -- will give you separately, but the e-comm was 20%. E-com direct, both were 20%, 20% each and that agency was 60%.

[Operator]

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.

[Amrit Singh, executive]

Thank you, everyone, ladies and gentlemen, for being on our call and for your interest. We do look forward to such more interaction. Have a good day. Thank you.

[Operator]

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.