Max Financial Services Ltd

NSE:MFSL

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day and welcome to the Max Financial Services Limited Q2 FY '23 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, everyone, and welcome to the earnings call of Max Financial Services for the quarter. Our results were made available on the website and Stock Exchange last evening. Today, I'm also joined by Prashant Tripathy, MD and CEO of Max Life Insurance.

I would request Prashant to share the first half business update. Over to you, Prashant.

[Prashant Tripathy, executive]

Thank you, Amrit. Good morning, everyone. Let me just share the developments of first half, as well as for the quarter on the key priority area or key strategic areas that we share with you always.

Let me first begin with distribution. In the first half of the year, as we had shared earlier, we continue to invest in building our distribution capability and our focus in last quarter to expand our distribution footprint was of a very high order. It gives me a great pleasure to announce that we have also tied up with a new banca partner TamilNad Mercantile Bank and signed an MOU with a small finance bank, the name of which will be disclosed at a later date. So we just had 2 successes in form of finding new banca partners. Additionally, we have also entered into agreement with offline insurance broker ecosystem with renowned brokers like BlueChip, Muthoot, Turtlemint, NJ and Vkover. With these relationships on board and several others underway, we remain confident of projecting a sustainable growth for Max Life.

In the first half of the year, the new business premium grew by 9% to INR 3,378 crores and total APE grew by 2% to INR 2,200 crores. Our prop channels grew 23% in H1, led by strong growth in both online, as well as offline prop channels. Offline channels grew 21% and online channels grew by 35%.

Talking about online, we continue to dominate online protection market both on our website and partner channels as we penetrated deeper into existing customer segments and entered into new segments of NRI, homemaker and self-employed. With an ambition of becoming leaders in online savings market, we've launched an industry-first short-term savings product with best-in-class returns. This led to 100% growth in savings run rate and enabled us to grow online savings portfolio by 7 times year-on-year in H1 FY '23.

In the offline channels, the growth is driven by 15% improvement in productivity of active advisors; 15% growth in prop advisors count and 31% growth in Life Advisor activation, which in turn, is driven by positive changes and simplification in advisor reward programs. Our direct customer acquisition channels also witnessed improvement in frontline sales productivity of 14% and headcount growth of 23%.

Within banca space, the banca channel degrew by 7%. We had negative 7% in the first half '23 due to full-blown impact of open architecture and general slowness observed in banking channels, predominantly because banks focus on building liability business, which is the core part of their business. The base impact of counter-share is expected to run-off by the end of quarter 3 of FY '23. And I do want to again share that Max Life share in Axis Bank counter is maintained since January of '22. So we have not lost any incremental counter. We are maintaining on average plus-minus 1% is where we are.

Product innovation front was also very important, and that's one of the reasons why our margin looks a bit promising compared to last year, as well as first half, first quarter. It remained balanced with PAR being 19%, non-PAR savings at 36%, ULIP at 38% and Protection at 8% on individual APE basis in the first half of the year. Max Life has successfully created new product categories in online savings, homemaker segment, NRI, self-employed and has accelerated product innovation agenda. The culmination of all this has led to increase in profitable product mix and resulted into a margin expansion of 140 bps year-on-year.

In line with our strategy to focus on retirement business, we have commenced business in our wholly-owned subsidiary, Max Life Pension Fund management. This has strengthened our existing retirement offering comprising of Annuity and Smart Wealth long-term income savings plans. We now cater to customers at each of their life seasons, when they are accumulating funds for retiring, planning for retirement and also post-retirement. We also have enhanced our annuity offerings with flexibility of premium payment term, as well as extended NPAs to broad-based new customers. This led to a growth of 86% in Annuity business in first half of FY '23.

Retail protection, which has been a matter of discussion over last few quarters also saw an uptake and grew by 11% in quarter 2 and witnessed 22% sequential growth from quarter one to quarter 2 as we forayed into new segment of self-employed individuals to buy protection with launch of 2 new plants, smart, secure EV solutions with 4 pre-packaged solutions and frictionless onboarding, smart flexi protection solutions, which is an investment cum income protection solution launched for primarily self-employed segments with smooth onboarding.

This bounce back of protection growth and entry into new segments further strengthens our belief in the long-term opportunity of protection business. With an objective of increasing penetration in online savings market of smart fixed return digital plan has seen huge positive uptake in building the savings category on both website and web aggregators space.

Talking about customers and our commitment to them, at Max Life, customer satisfaction is an organizational priority. It's a part of management goal sheet and our best-in-class claims paid ratio of 99.34% is a testimony of our focus towards customer obsession. The first half of FY '23, thirteenth month persistency of regular limited pay premium was 84% and sixty-first month persistency at 50%, which is more or less stable. Happy to share that in quarter one of the current financial year, Max Life Thirteenth month persistency ranked number one in number of policy basis. Performance on customer experience is also measured through a globally established metric called net promoter score. During the first half of the year, we witnessed an improvement of 2 points from 49% in March '22 to 51% in September '22 in the overall Company NPS scores. Max Life also bagged Best Customer Initiative and Best Use of Relationship Marketing at the Customer Fest Awards in FY '22 for 2022.

And the last one, which is our commitment to digitize this organization for efficiency and intelligence, in FY '23 first half, we have strengthened our underwriting practices with an industry first launch of in-house underwriting AI model called Meditech for fraud prevention. The objective is to curb diagnostic center-related frauds through an in-house intelligence model. This model has helped us delist 388 medical centers till September, where we suspected fraudulent activities.

In e-commerce, we launched multiple initiatives, including new-age, do-it-yourself savings journey with enhanced customer experience, leading to improvement in lead-to-court by 80% and WhatsApp bot journey, enabling 63% query resolutions and improvements in user engagement. mSMART, which is a sales management and activity monitoring tool was launched for Axis and APC channels. As I have shared in my previous conversations, we are on a rapid journey to fully digitize our sales management processes and this year has seen very active work in that area and Axis and APC are 2 channels that got done last quarter. This will enable better activity traction, leading to increased conversion.

QR code launch for customer servicing; this will enable friction-less do-it-yourself digital transactions. Our digital capability has stood the testament of agility in integration of technology with new partners as we took less than a week's time in onboarding 3 brokers and 1 new banca partner. We also launched our pension fund management business with digital-first approach as treasury systems, website and finance systems are hosted on cloud.

To summarize, there's very active work taking place in all of the strategic areas. And I'm going to just hand it over to Amrit Singh to talk about the financial outcomes from the first half of FY '23.

[Amrit Singh, executive]

Thank you, Prashant. Moving on to key financial metrics. On the consolidated basis for MFSL, the revenue excluding investment income stands at INR 9,720 crores, a growth of 30% in H1 FY '23. The consolidated profit after tax is at INR 130 crores, up by 56%, primarily due to lower tax expenses in the corresponding period. Renewal premium grew by 14% to INR 6,526 crores for Max Life and gross premium grew by 12% to INR 9,904 crores. Value of new business stands at INR 586 crores versus INR 546 crores in the previous year, representing a growth of 7%. The NBMs have improved from 25.3% to 26.7% in H1 FY '23. Embedded value as on September 30th '22, stands at INR 14,704 crores.

Operating ROE over H1 FY '23 on annualized basis is at 15.7%. Policyholder OpEx to GWP ratio improved to 15.1% from 15.5% last year. H1 FY '23 profit before tax is INR 144 crores, a decline of 3% year-on-year. Profit after tax is INR 123 crores for Max Life Insurance. Solvency of Max Life Insurance stands stable at 196% and overall assets under management at end of 30th September 2022 were around INR 1.13 lakhs crore, a growth of 13% year-on-year.

Lastly, before I hand over to the moderator for Q&A, as you would be aware, that recently in relations to the transaction involving Axis Bank and Max Financial Services Limited with respect to transfer of shares of Max Life, which were all duly approved by the Board and shareholders of Max Life and MFSL, IRDAI vide an order has issued a penalty aggregating to INR 3 crores for [ leveraging ] noncompliance on certain items, terms of its approvals granted.

To pave the way forward for the future, including strengthening the long-term strategic partnership with Axis Bank and avoiding unnecessary and long legal escalations, Max Life has paid the penalty imposed by IRDAI, while it is our belief of not committing any wrongdoing. Given the discussions are currently underway with the regulator and the above mentioned transactions, including the MSA transactions, we will request you to refrain from questions on this matter and keep your questions within the scope of operating performance. On behalf of our JV partner Axis Bank, we would like to indicate that Axis Bank is committed to its long-term association with Max Life as its promoter and bancassurance partner.

So, in summary, to conclude, we remain committed to our purpose of inspiring people to increase value of their life and work across all possible areas of business to make it happen.

We are now happy to take any questions that you may have. And I will now hand over 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]

First question is on growth. I mean, you know the base numbers and the current macro reality also the individual channel dynamics. In this backdrop, can you provide some sort of a guidance how the growth is going to look in H2, particularly, and coming back, your last year Q3 was also very, very strong, because you had some kind of a good offtake of ULIP products. So, I mean, balancing all these factors, how do you see growth in H2? So that is my first question.

And second question would be on embedded value. If you can provide some color on what had been the amount of investment and economic variance, probably that would have had some negative impact, so what extent of that? These are my 2 questions.

[Amrit Singh, executive]

Let me answer the first question. If you look at our performance, any performance is a combination of the internal issues, as well as external macroeconomic issues. Firstly, talking about the internal issues, we've been updating you that we are going through a process of open architecture on both our bank counters. I'm very hopeful that through the second half of the year, some of those internal issues will get resolved as the base settles in, which will be a positive thing for Max Life Insurance. However, you highlight pertinent issue with respect to macroeconomic challenges and we have seen that in the second quarter, the industry has grown much slower than how the first quarter was.

In view of that, at this point of time, giving a guidance or forecast is going to be quite difficult for me. However, I will say, we will do the best that we can. I'm very optimistic that with all the initiatives that we've taken in our own channels, proprietary channel, the investments that we're making to build distribution capabilities with new sign-ups as we've done with our banks, as well as brokers, as well as the effect of open architecture stabilizing and settling. I'm optimistic that second quarter we will do as best as possible.

The second question, I think, Avinash you asked on the non-operating variance in the EV, that is a negative of INR 545 crores, largely because of the interest rate movement, bulk of it is around INR 502 crores is because of interest rate movements, which you are aware, it's transitory in nature, because generally our portfolio is also at maturity.

[Operator]

The next question is from the line of [ Yash Jain ] from [ Sunrise Capital ].

[Unknown Analyst]

I just wanted to understand something. I mean, not taking questions on the transaction, how fair do you think it is in the conference call, since it's a meaningful deal for both Axis Bank and Max Life. I still have 2 questions on the transaction, the management can choose not to have them and not answer.

But my first question is, with respect to the transaction, there was a report yesterday, which suggested that the regulator may look at only allowing the balance 7% acquisition at a fair market value and a uniform price, which understanding, of course, is that will be much higher. My question to the management is that, is the management in talks with Axis Bank on arriving at a fair market value and is Axis Bank ready to buy that stake at a fair market value? If not then what happens with this transaction?

And the second thing, can the management please explain the recent 8 transactions that have happened, except for the 3 transactions which happened with Axis Bank, they have happened at price points per share which are far from each other. In fact 15 days ago, before the main transaction, the transaction happened at INR 166, then straightaway went down to INR 31. Why should it not be open to investigation and assessment from various regulators, including SEBI.

[Prashant Tripathy, executive]

Max Financial Services and Axis Bank are listed companies and anything, which is worth disclosure, which is a material information to investors, we will absolutely disclose as soon as it comes to our notice. At this point of time, we have no communication from the regulator around any valuation recommendation or guidance. So hence, we are staying away from any disclosures; number one.

Number two, Max Life Insurance is an unlisted company and Max Financial Services is the owner. There are several valuation methodologies recommended. And all the valuations, which were done were as per the legally permissible valuation techniques. So while I do appreciate the question that you asked, it is a transaction which has happened in a private company between 2 shareholders. And all the valuation methodologies, which were used were as per approved legal valuation techniques. So I hear you, I understand you, but at the same time, let the other regulators decide, let the overall ecosystem decide rather than we being judgmental about the valuation methodologies.

[Unknown Analyst]

Just one clarification. The regulators order does mention that the necessary changes, which the regulator thinks are not the previous transactions, not at a fair market value and uniform price, the necessary changes should be incorporated in future transactions. Should that not be interpreted as that whatever happens, even the balance part of the deal that is 7%, the necessary wrongdoings will have to be corrected and will have to be implemented?

[Prashant Tripathy, executive]

I think the words that you use, Yash, again, have a bit of judgment in it. The wrongdoings, we have gone public to communicate to everybody that we don't believe that there is a wrongdoing, but at the same time, we want to move forward with the transaction and hence we have paid the penalty. There could be several interpretations. And then let the process get followed. The process is, we are waiting for the MSI approval subsequently, we will apply for the 7% share transfer, in which case we will see what the regulator has to say.

At this point of time, both Axis Bank and Max Financial Services, Max Life will remain committed. Axis Bank has reaffirmed their commitment to being the promoter, as well as distribution partner for Max Life Insurance. Let's leave it at that level. And as I mentioned to you, both the companies are listed companies, if there is any information which is worth investors information, we will promptly come back and inform.

[Operator]

The next question is from the line of Sahej Mittal from HDFC Securities.

[Sahej Mittal, analyst]

So a couple of questions from my side, sir. So, firstly, if you can comment on the sharp increase in the non-PAR savings in the mix to about 36%, 37%, right. So how sustainable do you think is this, because even in the last year we saw the share of non-PAR savings shot up in 1 quarter and then again it means there were 25%, 26% levels. So, if you can talk about the on-ground demand in terms of the non-PAR savings. And how do the margins look like on the new short-term savings product, which we have launched. And I missed on the growth bit on this product.

And also for Max, I mean, retail protection has grown quite well, which is contrary to the industry trend. So what is sort of driving this? And are we still maintaining our guidelines on the 26%, 27% VNB margins for FY '23-'24, are we recalibrating this number?

And fourthly on the wallet share in the Axis Bank channel, how does Max Life share look like in the Axis Bank Wallet right now and where are we in terms of the sales percent deployment in Axis Bank channel, if you can comment on these questions?

[Amrit Singh, executive]

You asked 4 questions. The first one I think is on non-PAR mix, the stability, as you rightly pointed out that for the quarter, we have seen the mix improve and it's very similar to how it was for last year. And where is this mix improvement coming from in the overall non-PAR category is also success that we are experiencing on the annuity side. Our annuity business has grown 86% for the first half. That is also sitting in the non-PAR line as well.

And with respect to how on the ground things look like for future quarters. I think, the non-PAR mix is holding steady and stable. And again, you're pointing out last year quarter 3 was very high in ULIPs as we have entered this particular quarter. The non-PAR mix is actually far more steadier as it was in this quarter, quarter 2, and we are quite hopeful that it will remain steady in these lines and we will continue enabling this particular product categories.

The second question you asked was on protection. As you rightly pointed out, we have experienced growth of protection up around 11%, 12% for the quarter. Though this is still quite less as compared to how we would have anticipated and expected, and largely because of some bit of demand moderation after COVID fear actually abating in the consumers' mind.

But in our assessment of prediction is a long-term opportunity there is severe under penetration. And as both the life insurers and reinsurers also start easing out supply side constraints, we will see the momentum kind of start building up. So we continue to remain positive on protection. I think, for us, it's an important category. We have to ensure that we're focusing on it all across all channels. So that is what has called help us drive this particular growth number.

The third question you had was on the short-term digital plan that we have launched with very attractive rates. It's a good shareholder IRR product, it might be a bit lower from a margin profile perspective, but overall it's part of our portfolio strategy, wherein we will continue appraising that particular product for Millennials and more savvy consumers often in this kind of rates guarantee.

The last question you asked was on wallet share. As Prashant mentioned, the wallet share has remained stable since January. And why January important is, because that's when the [indiscernible] is completely scaled up at Axis Bank. We have remained stable in the ranges of 69% to 70% and that's the level that we are today at.

[Sahej Mittal, analyst]

And there we in terms of the sales percent deployment in the Axis Bank channel, are we done with it or how is it looking right now?

[Amrit Singh, executive]

We are over-indexing in investing ahead of time with respect to manpower. We are ramping up as we had planned and we will continue doing so, because the moment you know the business volumes are slowing, the benefit of that will get amplified towards us. So we are on that trajectory.

[Sahej Mittal, analyst]

Could you quantify the number of the salesperson we have right now in the Axis Bank channel as of date?

[Prashant Tripathy, executive]

It is around near about 6,000 is the levels of front-line sales team members that we have.

[Sahej Mittal, analyst]

And this compared to our competitor in the Axis Bank channel would be?

[Prashant Tripathy, executive]

So I won't have their specific details. We are higher than them. And our deployment is actually on schedule and is on plan.

[Sahej Mittal, analyst]

Right. And sir, just one clarification. On the non-PAR saving side, so how should we look at the full year number in terms of the business mix from non-PAR savings and...

[Prashant Tripathy, executive]

So, we would likely to remain in this range bound that you are seeing at this point in time. And you should see that actually also pan-out in the full year basis.

[Operator]

The next question is from the line of Manoj Bahety from Carnelian Capital.

[Manoj Bahety, analyst]

So sir, a couple of questions. In fact, first is that the way we have given away in taxes some of our market share, I understand with open architecture and a new entry. But my question is that what gives us confidence that our wallet share in Axis will remain at 70%. The way initially your competitor has gained some market share from you, it may continue. So is there -- means -- anything which gives you confidence that your wallet share in Axis will remain at 70%. So that is my first question. I have a couple of more questions once you answered this or shall I put all my questions together.

[Prashant Tripathy, executive]

Yes, Please go ahead.

[Manoj Bahety, analyst]

Yes. So my second question is along with this, if you can also touch upon the new partnership agreement, which you have done with leading broker, as well as with TamilNad Mercantile Bank. So if you can just give us an update how you are seeing this partnership helping you going ahead?

And lastly, if you can give us update on stake purchase or the swap with Sumitomo, which we have filed with the regulator, but I think that thing, because of some changes -- lot of changes in [indiscernible]. So if you can give update on that one also? These are my questions.

[Prashant Tripathy, executive]

Let me first talk about the open architecture. It's very common that an open architecture gets implemented, the incumbent loses anywhere between 30% to 40% of the counter-share. In our case, we lost about close to 28% to 30% as the full-blown open architecture comes in May. So while I do appreciate your question, but it is very, very common. It is very hard to retain 80%, 90% of counter-share with a full-blown open architecture.

What gives me the confidence that we will be able to maintain or grow is the confidence of last 9 months. So last 9 months, our counter-share has remained at the same level more or less and there are 10 structures made, it's a competitive play where the attempts made to keep it at the same level or grow. However, the experience of last 9 months gives me the confidence that we will be able to maintain that or take it forward.

On your second question on new partnerships, yes, any banca relationship in the context of life insurance is very important and we were very happy that we were able to get into a relationship with TamilNad Mercantile Bank, has very strong presence, especially in Tamil Nadu, and being a reputed bank with very loyal customer franchise and I'm very hopeful that when we launch it, we will have reasonably good success.

So this is an open architecture counter again. And the new partner, the name of which we will disclose at the right time, will also be an open architecture counter. These are compared to Axis Bank or Yes Bank, there'll be smaller counters, but the approach that we're taking is to increase our bouquet of bancassurance relationships. I will assume that both these will add to the distribution muscle that we're trying to build.

On the third question that you asked about swap with Sumitomo, yes I am very, very hopeful that in reasonably near future, we should have the approval, we are yet to hear from IRDAI on that one, but like we stated in our disclosures that in view of moving forward with the period of transactions, which are expected to happen first with MSI and then with Axis Bank, we've gone ahead and paid the penalty. So I'm sincerely hoping that in near future, we will have the approvals.

[Manoj Bahety, analyst]

Sir, just one small question I have. We have got now Max Life Pension Fund Management. Earlier I think this part was missing on our bouquet. If you can touch upon like how you see this is going to help you in terms of growing your business. And if you can touch upon the strategy on that side, that will be helpful.

[Prashant Tripathy, executive]

Since last year, we have been articulating that 2 areas are very important for us and we believe that those segments have the potential to become really large; one of them is retirement and the other one is health protection and well-being. And in both areas, we are taking solid steps, and setting up the Pension Fund Management business was a step in that direction. We have sharp focus on all solutions pertaining to retirement. So in our own business, we have lot of focus on trying to drive annuity to some extent, even the non-par portfolio that we have, especially the income-based solutions, target the retirement segment or retiring segments.

We have just launched another product within the annuity deferred annuity space. So while on one side, we are trying to enrich very -- our product portfolio was very competing product solutions, we are also trying to be sharply added to the ecosystem of retirement. And the NBFC is one of them with a view of that we are setting up -- or we have set up a Pension Fund Management business.

In addition, Max Life Insurance is an annuity service provider, which is another license, and we have also applied for the POP license, so that we can become a full suite provider in the NBF space. So there are series of activities that we're doing. Of course, it's a long-term play, but one is trying to penetrate deeper into the retirement solutions and the ecosystem to make sure that we remain a dominant player and we become a part of the retirement business as this particular segment evolve and grow with time where we have a very high level of belief.

[Operator]

The next question is from the line of Adarsh from CLSA.

[Adarsh Parasrampuria, analyst]

Prashant and Amrit, question is on the higher…

[Operator]

Adarsh, I'm so sorry, but we cannot hear you.

[Adarsh Parasrampuria, analyst]

I hope this is better.

[Operator]

You are sounding from a distance actually.

[Adarsh Parasrampuria, analyst]

Let me try this otherwise and come back. So I was asking in terms of the higher guaranteed product, what part of the non-PAR sales is that now the 7%-plus guarantees.

[Prashant Tripathy, executive]

Adarsh, we can barely hear you actually. Very sorry.

[Adarsh Parasrampuria, analyst]

Okay. Let me just come back or I'll take it offline.

[Operator]

The next question is from the line of Madhukar Ladha from Elara Capital.

[Madhukar Ladha, analyst]

First question, just belaboring on your share in the Axis Bank channel. Now, we have about a 69%, 70% share in that channel. Is there any commitment from Axis Bank that it will not allow our share to fall below a particular threshold or is it sort of completely takes whatever any insurer can take whatever it wants from that channel. So I'd like to understand if there is any such implicit embedded understanding of that in that channel.

Second, the margin has done quite well this quarter. And it seems that if your non-PAR share in the mix continues this way, you'll probably be higher than what you guided for. Your earlier guidance was between 25%, 26% VNB margin. Would you want to sort of change that right now or restate that right now?

And lastly, I see your new business strain has increased quite a bit in the first half of this year. I'm guessing this is because of strong sales of these non-PAR and the Individual Protection growth also that we are seeing. Is that assessment correct? Yes, those would be my 3 questions.

[Prashant Tripathy, executive]

I will take the first 2 and Amrit will take the last one. On the first one with respect to counter-share, I mean, the one part of Axis Bank is our shareholder, we sit together where board meetings that take place with very senior officials, being in our Board. So it is something which is retained as the power contract that we have to be 70% answer to that is, but of course, there are some underlying sales assumptions on which we have agreements.

And one is of a higher belief that we will be able to maintain and Axis Bank will be supportive in the counter-share. At the same time, the inputs that are required to maintain the counter-share; A, product; B, types and quality of resources; C, presence. I think Max Life Insurance will do whatever it takes to maintain that counter-share. And over the experience of last many quarters, there is a reasonable confidence in the management team, as well as at Board level that we are able to sustain it.

On your question on non-PAR, yes, the guidance was to be in the range of closer to 26%. But at the same time, what we are witnessing is a much richer product mix. And as a result of that, in this quarter, margin looks reasonably healthy. I think I'm not going to really take a bet on what the margin numbers will be, but I'm very hopeful that through the year, we'll be able to maintain a healthy product mix, and hence I remain optimistic about our margin outcome.

On the third one, Amrit, you want to take that?

[Amrit Singh, executive]

So your observation is correct. Actually the strains has increased and the reason for strain increase comes from non-PAR designs and more specifically annuity designs. The annuity is -- single payment designed the same is higher, which gets recognized is the reason why the strain is higher. And with a non-PAR long-term income mix also can cause it. These are the 2 reasons why the strain is higher indexed.

[Madhukar Ladha, analyst]

Just a follow-up on that. Have we increased any sort of commission payout to any of our partners?

[Amrit Singh, executive]

I mean, commissions to specifically partner to our agents we are always optimizing of how and who is kind of rewarding-awarding what kind of product mix they are selling. So it's a link factor of what is the variance that we are selling and the product mix that they're selling. So I'm not sure where this question is coming from. The commission structures have remained stable over the years that if you pick up a particular design, if you say, let's say protection, regulations and I'll get you off a 40% current share, those kind of constructs have always remained.

[Madhukar Ladha, analyst]

Right. And we are probably paying closer to the max that what we are allowed to pay. So the new business strain would not be because of...

[Amrit Singh, executive]

No. No. If we are linking that with commission increase, no, that is definitely not the case.

[Madhukar Ladha, analyst]

Okay. Can you throw some color on what sort of expense line items are these?

[Amrit Singh, executive]

I said the strain increase is because of reserving requirements of these products, because you're assuming more risk on to the books. So the reserving requirement of these products is higher. With higher component of annuity in my non-PAR, the strain will increase. That's the reason for the increase of strains.

[Madhukar Ladha, analyst]

Understood. More because of that than because of actual expenditures.

[Amrit Singh, executive]

That is correct.

[Prashant Tripathy, executive]

Yes, the expenses are not the reason for any strain.

[Operator]

The next question is from the line of Nidhesh Jain from Investec.

[Nidhesh Jain, analyst]

Sir, firstly, why do you have seen a sharp decline in group term business in Q2? Has there been a change in strategy there?

[Amrit Singh, executive]

Sorry, can you just repeat the question, we lost you at our end, sorry.

[Nidhesh Jain, analyst]

Yes. So the first question is on group term business. There has been a sharp decline in this quarter Y-o-Y; what drove that decline?

[Amrit Singh, executive]

The Group term life decline is largely happened because of you will recall last year was the COVID year, and because these are annual contracts and we were all going through COVID assumptions, the pricing to the corporate were actually much higher. And as the COVID year is behind and mortality has come back. So the pricing to the corporate have reduced, so it's largely coming out of the pricing to the corporates reducing over-time and that's driving this decline.

[Nidhesh Jain, analyst]

Sure. Secondly, if I look at the margin expansion YoY for H1 versus last year, the product mix has not materially changed. In fact, I think ULIP share has gone up a bit for H1 this year. So does it mean that the margins on product level has increased and what has led to that?

[Amrit Singh, executive]

Yes, your observation again is correct. There is some attribution of product mix, but that's passed smaller. Largely it is every line of product, there has been an improvement in margin, because of the new product categories that were launched during you can say the second half of last year. So whether it is participating design, whether it is protection, where all sorts of repricing actually happens or whether it is either non-par savings design, all of these have fundamentally gone a structural margin improvement that we have seen for us.

[Nidhesh Jain, analyst]

So is it on account of increasing tenure of the product, if you can elaborate what is the change in product design, that would be helpful?

[Amrit Singh, executive]

It has elements of design, and it has elements of tenure as well and it has elements of pricing to consumer as well.

[Nidhesh Jain, analyst]

Sure. And lastly, how the expenses have moved in this quarter, I mean first half operating expenses for Max Life given that we have articulated that we will ramp-up the distribution. But I think the expense ratio has improved for the company. So will it be back-ended or how should we think about expense ratios.

[Amrit Singh, executive]

So, you would have observed that OpEx actually has increased by 9%. The reason for improvement is -- the gross written premiums have actually increased higher than the expense increase and that's happened, but if you see our expense line quarter-over-quarter, you will see on the quarter 2, the extent is actually have increased to around 19% and large part of this expense is in line with our stated objective of investing in distribution, whether it is our own branch offices, whether it is our resources in our proprietary channels or whether it is resources in non-proprietary channels. So you will see that come in the trend line.

[Operator]

[Operator Instructions] The next question is from the line of Dhaval from DSP.

[Dhaval Gada, analyst]

Prashant, for benefit of all and if you could just repeat the transaction with Sumitomo as well as the residual stake with Axis Bank. What's the timeline and in your interpretation, at what price the deal is likely to go through. So your version of it, that would be very useful.

[Prashant Tripathy, executive]

Yes. While we said we were not going to take questions, but Dhaval, I'll definitely try to give the best shot. We are hoping that after this order, which has come from IRDAI, several reports actually suggested that now we will move ahead and perhaps approval will be forthcoming on the MSI transaction, which was filed about a year ago.

So I'm very hopeful that over the next few weeks we should have the approval for the MSI transaction, which will be between Max Financial Services and MSI and that will clean up the overall structure at the operating company level. Subsequent to that, we will file for approval for the balance 7% for Axis Bank and we're hopeful that we will secure approval like last time, that is our belief. And we will keep you updated as we go along through the process.

[Dhaval Gada, analyst]

Prashant, any clarity on the pricing of it. I think there's a lot of debate around it. Anything that you could sort of -- will it be the same price at which you had agreed previously in both the cases or in your version, is there any change that is likely?

[Prashant Tripathy, executive]

I can speak on behalf of the shareholders on Axis Bank, as well as Max Financial Services. We are quite committed to moving ahead with the transaction with the methodology that was followed earlier, and that's the approach that we'll take.

[Dhaval Gada, analyst]

Okay. And just last point in terms of probability of any of these steps getting delayed beyond this financial year, is there a probability, which is reasonably high that some of these steps could get delayed beyond this financial year or you are very hopeful of completing these steps in the current financial year?

[Prashant Tripathy, executive]

Yes. In October, actually. And I'm very hopeful that the first part of the transaction, which is MSI transaction was happening in this financial year. On the second part, even last time it took longer. So it is very hard actually to commit that it will happen this financial year,, but it is highly likely that we'll make the application in this financial year.

[Dhaval Gada, analyst]

Just one last data-keeping question. If you could just split the Bancassurance APE for the first half, the INR 1,411 crores between Axis and other banks and a similar like-to-like number for the INR 15 crore, INR 18 crore of last financial year. Just trying to see the performance between Axis and other banks, that would be useful.

[Prashant Tripathy, executive]

Individual partner level details, we are refraining from sharing going forward. However, with respect to the de-growth that you have seen, it's similar actually, is how I've seen and largely because of the reason that open architecture scale-up is very similar in its timing for us across both the partners.

[Operator]

The next question is from the line of Neeraj Toshniwal from UBS India.

[Neeraj Toshniwal, analyst]

Wanted to understand, as you mentioned that there has been some improvement in margin in each category, but are we seeing some change in the margin from the first quarter to second quarter between especially for retail protection, given I think there have been some pricing revision which has happened.

[Prashant Tripathy, executive]

This is quarter 1 to quarter 2 you're asking or quarter 2 to quarter 3, which quarter?

[Neeraj Toshniwal, analyst]

Last quarter to this quarter, because I think we have taken some price cut in retail protection.

[Prashant Tripathy, executive]

Neeraj, you would have historically seen Max Life, because our methodology of expense allocation is on actual basis or whatever gets spent and typically quarter 1 is lower on sales volume and quarter 2 is higher on sales volume and subsequently the [ respective ] quarters also. There is always this historical improvement that happens. So it's not coming out of any specific changes that are happening in the margin profile of the product or the pricing of the product. I mean, obviously we will tactically keep changing our IRRs, et cetera, for the non-participating designer products, but over the quarters, the reason largely is on the expense base and the methodology that we follow, and then product mix, obviously, product mix, quarter 2, of course it's very different than quarter one.

[Neeraj Toshniwal, analyst]

And for retail protection specifically, I think, some competition has also reduced prices. So does it impact in anyway growth going ahead or it will come at a lower margin. So that is what I want to understand.

[Prashant Tripathy, executive]

Price movements in the industry is part of, now a very active year of how we've strategically managed your portfolio. And we will take certain calls, but now there are much finer nuances actually, various cuts or pricing at various AJs and all of those comes into picture, but nothing in the horizon, which between quarter 1 and quarter 2, the margins have remained fairly stable…

[Neeraj Toshniwal, analyst]

Any decision in terms of pricing of a product level driven through the competition at the Axis Bank channel, because Bajaj have been quite active in terms of be it IRR offering with lower protecting pricing, which is impacting many things or it's very short?

[Prashant Tripathy, executive]

Despite that actually because in counter-share right now we share and talk about at an aggregate level, but there are finer nuances to counter-share, specifically you pointed out this question that our competitor has a lower pricing on protection than us, but according to your assumption that didn't -- our counter-share should have been lower. But in fact, our counter-share is much higher than the average counter-share of the 70% that we spoke off on protection design specifically.

[Neeraj Toshniwal, analyst]

Right. So the sustainability is what I was actually pointing out to.

[Prashant Tripathy, executive]

Pricing actually, so our counter-share on protection being sold in that channel is higher despite the fact that our pricing is higher. There are many other elements of execution, the trust in the brand, the claims paid ratio position that we hold and how that gets manifest in the minds of consumers and then the entire experience process of undergoing a term buying journey.

[Neeraj Toshniwal, analyst]

And one more question on the non-PAR, the new product we have launched. So with the expected rise in fixed deposit rates, how actually will this typically short-term saving product will have an impact or both will have a continued strong, because the channels you're targeting is online here than banca and more proprietary, and I think 100% [indiscernible] which you talked about is largely online, which is coming through. And so 35% online growth within proprietary for online, how do we split between savings and protection that is one and the future growth outlook on that.

[Prashant Tripathy, executive]

I think I lost you in the question, the question is that if the rate changes that are undergoing what is implication on this digital every product that we have launched...

[Neeraj Toshniwal, analyst]

Right. That is one. And the growth rates for both the online protection and online savings.

[Prashant Tripathy, executive]

Okay. So on the first one, look everywhere as an individual Investor, you are exposed to the tax element of it, and that way our offering will always remain superior tax-adjusted. So there is that advantage that we will continue to have with us. So even if the rates move up for FD, but still tax adjusted our rate will continue to be superior, it is how we actually see it sitting inside.

On the questions around where is the growth coming from whether there is a protection growth in online and savings. The question protection actually overall minus 5%, but for online channel it is flattish. So it's kind of remained there has been no de-growth. It's around 0% growth, so bulk of the growth in online has come from the savings entry that we have done as a conscious play which we decided last year.

[Neeraj Toshniwal, analyst]

Okay. And that number would be, if you can quantify?

[Prashant Tripathy, executive]

So the ratio now would more in the 70% protection, 30% savings.

[Operator]

[Operator Instructions] The next question is from the line of Nischint Chawathe from Kotak.

[Nischint Chawathe, analyst]

Just one from my side. Do we have a sense in terms of the growth rate by Axis Bank in the first half? I'm not saying from Max, but for the overall bank? I believe last year you had mentioned a number of little to 25% for the entire year.

[Prashant Tripathy, executive]

So Nischint, I think the question you're asking on Axis Bank overall growth in our estimation it is single-digit, a bit lower than the single-digit number, a bit lower than the double-digit number. So more in the ranges of 7 to 9 kind of percent number.

[Nischint Chawathe, analyst]

I believe it was around 25% last year is what you had guided. So anything that you're hearing from Axis as to why is it we, what is it that they're targeting?

[Amrit Singh, executive]

I think, by the way, it's not just Axis specifically. I think, all Prashant spoke about in his opening remarks that across the banks there has been a slowdown with respect to the focus towards life insurance sales, largely because of the focus towards deposit has increased, has this in the past, yes it has happened in the past. But over a longer horizon, if you try to see, these growth rates are still upwards of 25%, 30% for our partner bank. And I'm talking about 2-year, 3-year, 4-year any views that you'll try to put.

[Nischint Chawathe, analyst]

So my sense is, I think what I'm picking up is that in the near-term, it's sort of remains a little volatile and kind of comparable to the 25% EBITDA loss.

[Amrit Singh, executive]

Nischint, what did you say, the last line?

[Nischint Chawathe, analyst]

Sorry. The point I'm trying to say is that over the next couple of months or in the near-term, I mean, in all probability it remains sort of a little weak and nowhere comparable to the 25%-ish kind of what you reported last year.

[Prashant Tripathy, executive]

This is Prashant. I think it will be the broader bank ecosystem in terms of variability or their focus on selling life insurance. I think there is some much push for Amrit ready to speaking up and that has really propelled the need to have more liabilities, which is a trend that we're seeing. And in view of that maybe for some time, we can see that to have some bigger impact on life insurance sales. However, with our bank partners we are doing a variety of things collectively, starting from new products to incentive came to R&R, et ceterae, to propel the growth of life insurance.

[Operator]

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

[Prashant Tripathy, executive]

Thank you. Thank you, ladies and gentlemen for being on the Max Financial earnings call. We look forward to more such interaction in future and I wish each one of you a happy and a prosperous Diwali in advance. Thank you and have a good day.

[Operator]

Thank you. On behalf of Max Financial Services Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.

[Amrit Singh, executive]

Thank you.