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Max Financial Services Ltd
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Good afternoon, ladies and gentlemen. Firstly, apologies for the delay in the disseminating results. We had a sort of a technical glitch because of which the results would have just come to you 5, 10 minutes back and not in advance as they normally come. So now I'll move over to the call. So thank you for being part of Max Financial Services earnings call. My name is Jatin Khanna, and I'm CFO for Max Financial Services. Before proceeding with the performance highlights, I'd like to introduce my other colleagues who are with me on this call. I have with me Mr. Prashant Tripathy, who is the Managing Director and CEO for Max Life. And Mr. Amrit Singh, who's the Head of Strategy for Max Life. I'll first talk about the key highlights for first -- for 9 months FY '20 and then briefly recap the strategic priorities outlined in the last few calls. Max Financial had a robust revenue growth of 13% to INR 14,000 crore. Our consolidated profits at INR 266 crore were up 23%, but that's predominantly due to one-off gains from successful transition and hedging strategy. We've moved away from interest rate swaps and gotten into the forward rate agreements to cover up our interest rate risk. Now this is -- this has been aided, therefore, higher investment income, but has been offset by a shift in product mix towards non-PAR savings as well as our investment in proprietary channels. So a combination of product mix shift and investments has pulled our profits down year-on-year, but for this one-off item. Moving on to the Max Life performance. Very happy to report that our embedded value has crossed the INR 10,000 crore mark, with MCEV at INR 10,077 crore, growing by about 22% year-on-year. MCEV on an operating basis, has grown at an 18.4% annualized and including nonoperating ranges, about 18.7%. But as you will all know that the larger part of the life insurance sales happen in quarter 4. So really, the year-on-year growth of 22% is more representative of how our embedded value is likely -- growth is likely to shape up for the full year. Now on value of new business. We've grown by about 24% to INR 576 crores. Our structural new business margins on a pre-overrun basis have expanded by about 150 bps to 24.3%, and our actual NBMs on post-overrun basis have expanded by 60 bps to 21%. This has been driven by our increased focus on non-participating products. Max Life's individual APE has grown by a strong 20% to INR 2,718 crore, with an increased contribution from protection and non-PAR savings products. Now Max Life has outperformed the industry growth on new sales by growing 20% versus the private insurers growth of 16%. So our market share has expanded by about 30 bps to about 9%. Proprietary channel growth at 22% for 9 months and 19% for quarter 3 is faster than our banca channel growth of 20% and 14%, respectively, which is in line with our strategy to grow our proprietary channels -- or outgrow the third-party channels relative to the proprietary channel growth. So Max Life agency channel is one of the few agency channels that deliver positive margin. Our margins of proprietary channels and nonproprietary channels are almost similar. Axis Bank has been delivering 18% growth and YES Bank has delivered about 32% new sales growth. The overall protection sales have grown by about 38% year-on-year, higher than the company growth and the individual protection sales have grown by about 25% year-on-year, with group protection growing by 29% year-on-year. Our gross written premiums have grown by 14% to INR 10,311 crore with a renewal premium growth of about -- by about 11% to INR 6,618 crore, with a healthy [ combination ] ratio of 88%. We've achieved the second rank and third rank in 13 months and 61st month persistency, respectively, basis our results, which we just declared. The 13-month persistency has improved by about 50 bps to 85%. Max Life claims paid ratio improved by about 130 bps to 97.8%, and we have a healthy solvency of about -- surplus of about INR [ 16 25 ] crore, with solvency ratio of 220%. Our AUM as of December '19 end stood at around INR 69,000 crore and has grown by 18% year-on-year with par AUM growing by 20% year-on-year. Max Life is now the fourth largest life -- has the fourth largest life insurance AUMs and the highest or the largest par AUMs. Max Life also received an annuity service provider license from PFRDA to provide annuity service to NPA subscribers. We improved our ranking by 8 places to 35th amongst the great places to work for, and were amongst the top 20 BFSI places to work. Only life insurance company in top 100 as per Great Place to Work, a student Economic Times study. Summary. So to sum up, Max Financial Services continues on its trajectory of driving strong shareholder outcomes via its new strategic plan with significant investments in proprietary channels, sustained efforts to deepen our bancassurance relationship, razor sharp focus on cost and improvement in protection mix, we are progressing our aspirations of expanding our margin EV and VNB, on all 3 vectors over the next few years. So on that note, we'll hand over to the moderator to open the floor for Q&A.
[Operator Instructions] We take the first question from the line of Ajox Henry from B&K Securities.
First of all, obviously, the impact on budget, if you would reiterate on that? And following which, I wanted to know what is your thought on the price hike on protection, your term policies, coming next year? And my third question is, with respect to agents, how many have we added? Or what is the productivity of agents as of now?
Okay. This is Prashant here. Thanks for your question. I think budget -- the budget changes have to be seen with 2 or 3 filters. The first one was with respect to any changes in the tax slab rates and abolishing or removal of deductions as well as exemptions. So we have done the math. It appears that for a large majority of our customers they will be better off continuing with the previous regime, hence, enjoying the benefit of deductions and exemptions. And hence, the 80C would remain applicable. Also, life insurance is bought for the benefit of Section 10(10D), which is the maturity received being completely tax-free. And hence from a fiscal incentive perspective to prepare the growth of life insurance or create propensity to buy life insurance, that's not going to go away. There was another change with respect to DDT, in terms of the taxability of dividend in the hands of recipient as against deduction at source. As you know, in our effective tax rate, we take the credit for the dividend that we receive on our funds, especially ULIP funds. With these changes, of course, there may be a possibility of the effective tax rate going up. However, that has been knocked off against the dividends that we declared. And in past 5 years, we've been declaring more dividends than the dividends that we've received. So we are doing some math. The worst-case scenario, I can tell you, however, effect will be lower than that. The worst-case scenario is, our margins may undergo stress of about 50, 60 basis points because of this change, in case we are not to declare dividends. So I'll continue to mention that point. And we -- hence, there may be a consequent impact on the embedded value of the company. We are currently estimating that, again, the worst-case scenario will be in the range of about 1% to 2%. We need to see that. Again, I must repeat the impact because of DDT on the effective tax rate has to be seen in light of the dividend that the company is declaring. Now historically speaking, we have always given more dividend than we've earned. So if we were to go back and curb it or test it, what would be the impact? The impact would be 0 or positive.So really, we have to see how it plays out as -- looking at the capital situation of the company. Nevertheless, the estimate that I gave you are under the worst-case scenario. On protection strategy, we remain committed to driving protection. It's a very important part of our strategy. We are doing quite well, and we are growing our protection mix. As Jatin mentioned, we have a -- on an individual basis, we have a growth about 45%, 46%. As we speak, 8.4% on an individual basis is our mix of individual protection and at a total basis, about 13%, 14% is the mix of protection. We'll continue to work on it. If there are any specific questions that you want to ask with respect to...
Yes, sir. I was talking [indiscernible] in April, the term.
Yes, can you please repeat the question? I couldn't hear that.
Sir, the price hike we are expecting in term policies?
Yes. So, I mean, we are reviewing that situation. And of course, any pricing decision is competitive in nature. If the entire market is moving up, we will, of course, move up the price. If the large majority of our competition stays on the same pricing level, we will then absorb it in our margin and see how it plays out. The bias will be to increase the price. But at this point of time, we are just observing the market. We will see how it plays out. In case we don't -- in our prices, we will then review what is the impact. But the answer to this question is at least 3 months away from now. By then Amrit will talk of visibility, and I'll come back to you.
Okay. Sir, you were telling that majority of our customers are not taking the products for 80C benefits. But when we look at FY '19 split up tickets for retail renewable policies, our mix in premium is just 43% when we compare that with -- all the competition overall way above us. So above INR 1 lakh, so we have only 43% of our customers. And beyond INR 1 lakh, the probability of success is very low. So do we -- will we be having a higher risk in that probability of customers shifting towards the new regime?
Not quite, actually. I wouldn't quite go by the analysis that you've done because who can afford to pay INR 1 lakh of premium every year. And I don't even know that person, how many policies he holds. So in my estimate, somebody who is paying INR 1 lakh of premium really is somebody who earns INR 30 lakhs, INR 40 lakhs of income every year because at this point in time, people will be holding 4, 5 policies of this kind. So we are really talking about people who earn INR 15 lakhs or below, over and above that area of top metering. That -- there's just 2 data points that I will mention to you. Number one is, we would do this survey to find out the basic reason for people to buy life insurance. Earlier, about 8 years ago, we would find that buying life insurance because of tax reasons will be #1, #2. Increasingly, in last few quarters, I've seen that reason to become #7, #8, number one. Hence, it is not the key reason why people buy life insurance. Number two, the [indiscernible] benefits still continue. And number three, a large part of this is not because of the target segment that we're going to. It is also to do with the type of product that we're selling. Historically, we have been a bit traditional product oriented, now by design you can't say traditional product is bought by people whose income is lower. A traditional product is a product strategy that we have followed. Hence, somebody who has more than INR 1 lakh of ticket size necessarily is not reaching out to the segment, completely different from where we are reaching out. We sell about 2/3 of our premium through banks who have access to similar customer segment as other banks have. So I won't quite go down the path of doing the analysis that we're doing. I think when I do the math, my finding is that irrespective of whatever the income segment, being on the previous regime of claiming the benefits of reductions and exemption is beneficial across all segments of customers, not just people who are high net worth.
Okay. Okay. And sir, one question on my agency. How has the product continued recently? And any strategy to expand the agency cost?
So we are on the path of expanding our agency, as you know, agency growth for the first 9 months is close to about 15%, which is healthy, but we want, of course, to grow faster, and there's a lot of work that we are doing. Earlier in the year, I had updated you that we have partnered with 3 consultants from New York Life, which was our elsewise joint venture partner who have come and they are working with us, a series of recommendations that they have given, which we are in the process of implementing. We have started to measure growth of top-performing agents as the key measures, people who are contributing more than INR 1 lakh of premium every month to our business, and that number continues to grow. Even for this year, that number has grown by 20%. So our focus is to increase the number of high-performing agents, and we are not really in the game of expanding the number of agents per se. And on that, suffice it to say that the growth of such agents is quite healthy, and it is 20%.
These are above INR 1 lakh contributors?
Who contribute more than INR 1 lakh per month.
Next question is from the line of Shitesh Gulati from Haitong Securities.
This is Hitesh from Haitong. Sir, my first question is that currently, in the holding company, when we receive dividends, obviously, we are not paying tax because that is the only source revenue do we have. So is there any calculation or can you give highlight if that will change now with us receiving dividend income there. And obviously, the holding company pays a lower dividend from there to the eventual shareholder. So will there be tax there? And sir, my second question is, will there be some impact on unwinding rates because of this change in dividend taxation?
Okay. So I'll take the first one and I'll let Prashant take the second one. So on the first one, historically, the dividend we have received relative to the expenses in the holding company. Typically, and as you know, now, the new tax rates are also down to 25%. We are better off in the new regime. Now if I fast-forward this to the future, there is a trend where you can see that the holding company expenses are coming down, and we've spoken about it that we expect those expenses to come down to less than INR 50 crores range, hopefully, next year itself. But certainly, the year after, they should come to INR sub-50 crore if not next year. So as the holding company expenses come down, we are more or less neutral. But if you were to do the same analysis on historical numbers, we are better off at the holdco level.
And you're right on the second observation, the unwind rate will go up marginally.
So just to understand, one more point is that your surplus that you have on your P&L in the Max Life business I'm talking about. So on those -- at that surplus level, we do not see a taxation for you guys but we see that taxation number for other guys. So is it because there are 2 options where surplus can be paid at the time of appropriation or at the time it is paid, is that understanding correct?
So our tax position actually says that we pay tax on the shareholder transfer when the bonus is declared and the appropriation takes place towards the shareholder on which we pay the tax. On the bar side, we don't have any tax level.
So what would be -- is this just on that. Yes, sir, my question is, what would be our approximate effective tax rate because last year, we have moved from marginal to effective tax rate. So what would be the difference between those 2 numbers for us?
11.5% is our effective tax rate.
We take the next question from the line of [ Kevin Kuriakose ] from Alphaline.
Sir, is our methodology used to calculate the invent value the same as of our peers?
This is the operator. I'm so sorry to interrupt. May I please request you to speak a bit louder as your audio is not very audible?
Yes. Am I audible now?
Okay.
So my question is that is our methodology used to calculate the impact value as the same as of our peers?
Yes, it's a standard methodology. There may be marginal real time assumption, but very confident to confirm that our approach is quite conservative in terms of our assumptions.
Does that answer your question, sir?
Yes.
[Operator Instructions] Next question is from the line of Sanketh Godha from Spark Capital.
So I just wanted to know the protection in the quarter itself...
Sir, sorry to interrupt, requesting you to please speak a bit louder?
Yes. I'm -- Is it better now?
Yes.
So my question is that if you look at the individual protection business in the quarter, third quarter, it has grown by 72 percentage. So just wanted to understand why such a strong growth happened? Is it because we launched aggressively the return of premium plans, where the ticket sizes are higher? Or because we have sold a lot of limited premium paying plans, which led to this increase in individual protection business?
Actually it's both, it's the launch of the new product that we had, which had the limited pay variant, also has a term return of premium variant in it. So you're absolutely right. It's both the things actually paying out together, which has helped us improve our protection growth number in the quarter.
Sir, for the same term assured number, the difference in the ticket size for the regular premium paying plan versus the LP limited premium paying plan of the same product and also the return of premium, what would be the differential in the ticket size? Just wanted to understand the broad change in ticket size.
On regular premium to a limited pay kind of a design, it depends on whether it's a 5 or 10. It will be in the range of 3x the regular premium ticket price.
And for ROP?
That would largely be similar, actually. It won't be so different.
Okay. Okay, fine. And second question was that on the VNB margin, which we reported 21% on effective tax rate. Last year, we reported 20.3% margin on statutory tax rate. So, sir, if I do like-to-like comparison of 20.3% of last year to current year, what are the -- what is our real VNB margin? I believe it is lower than 20.3%. I just wanted to know, indicatively, what is that number?
Yes. That's a very fair observation. However, the choice is who do you want to compare us with. Do you want to compare us with who we were last year, or do you want to compare us with everybody else in the market? The reason why we made those changes was we made sure that our assumptions are consistent with everybody else. So if you look at the number of 21%, it is consistent with assumptions that our competition is making. It is relevant. However, the question is that, on a real basis, apple-to-apple, is our margin lower than last year? Yes, the answer to that is yes, too.
And that's slightly also because of the investment that we've done in proprietary, which is manifesting itself in the over acquisitions.
Yes, I think it's very important what Amrit just said. If you are investing in the business, growing the business, growing your proprietary channels, which are as profitable as any other channel. So at some stage in life, you got to make some investments. And so these are good investments reaching up into our margin and not bad investments.
Yes, I understand that point, but just wanted to understand trajectory whether it's -- whether the VNB margins, though investments are upfronted basically, which might give you fruits in subsequent years. But just wanted to understand that 20.3% could be potentially sub-20% kind of a number, basically, or a 21% [ and the ] statutory tax rate would be sub-20% kind of a number.
Between 20% and 21%, a bit lower than 21% at that tax rate.
Okay, perfect. And finally, one more question. Just wanted to know your ticket size in ULIP PAR and non-PAR, in general. So just wanted to understand what kind of customer base we are catering in all the 3 product segments?
So, I mean, we don't have those numbers upfront. Maybe if you could write to us, we'll be able to share that with you.
Okay, perfect. And finally, the question on the tax rate, which was probably previously partially addressed, but just wanted to understand. If I do your FY '19 calculation, if the tax paid was around INR 66 crores, if I divide it by the shareholder PBT, what is reported, then the tax rate comes to 10.6%. But if I include the shareholder policyholder surplus and the surplus made on the shareholder account after the pass on, then the tax rate comes to just a meager 3%. So just wanted to understand, because if you do the same exercise for the other peers, the tax rate is somewhere between 7 to 11 percentage. But for us, it is coming as low as 3%. So just wanted to understand why this anomaly is there with respect to peers?
So our tax paying rate is about 10.65% on a PBT basis. However, the 11.5%, that Prashant mentioned, is conservative tax assumption that we take for our EV and NBM calculations.
Okay. So, sir, basically, what -- I mean, so in the previous question asked, you basically don't pay tax or consider tax on the policyholder surplus. It happens as and when the payout happens. That's the way -- that's the reason why our tax liability is only calculated based on shareholders' PBT rather than on the surplus made on the policyholder account also.
That is -- actually, that interpretation is correct. In our interpretation, tax has to be paid on shareholder surplus, and that's how it's paid. And these are positions, tax positions, which have been reviewed and discussed very extensively with the tax authorities as well as IDAC. So we are very comfortable with our tax assumptions.
Okay. No, because the only question -- why I'm asking this question is because other peers, all the major 3 peers do consider the policyholder surplus also while doing the tax calculation. So in that sense, I was just asking it. We are a little different from the other [ things ]?
No, it's a very complex subject, and the complexity increases because of our portfolio. The size, the bonus that you declare, the FFA that is getting launched, et cetera, et cetera. So it's a complex subject. Our interpretation is that we pay tax on the shareholder surplus. And it's a position that has been reviewed consistently with able authorities, and we are okay with that.
Okay, got you. And finally, I mean, you -- in the previous question, you said that unwind rate will go up because of the change in DDT. So can you just give us the understanding why is it so?
So there will be -- because the underlying investments, which are actually generating that dividend, they will not be taxed, so there will be higher effective value which will be coming through in the funds, either or the -- on the participating side or on the unit linked side. So a part of which kind of will flow through. And MCV methodology uses a discrete rate and there is -- you will get a better unwind rate. So it will be very marginal, but it would be -- it will come to in your unwind rate as time progresses.
But the cash flows would be now discounted at -- because the tax rate applicable would be higher on the free cash flows when we calculate the EV for VNB. So if VNB is also coming off EBITDA, maybe 60 basis points in worst case scenario, the way Prashant has told. So in that sense, also the unwinded should have also come down, right, ideally? Because the -- I mean, you consider the future cash flows while calculating whether it is VNB or the EV, and the unwind rate will be applicable on the EV. And ultimately, the impact, what you see in VNB should be true for EV too.
Participants, requesting you all to please stay online. We've just lost the line for the management. Requesting you all to stay connected while we have the management reconnected. Ladies and gentlemen, thank you for patiently holding the line. We have the management reconnected. Also, we have the participant online. We have Sanketh.
Yes. Should I repeat my question? Or how -- I'm not sure whether you got the question or not?
Yes, you'll have to repeat it actually. We got dropped off, sorry for that. We couldn't capture your full question. Can you repeat the question?
Sure, sure, sure. So what I was trying to ask is that -- because in EV, we consider the future cash flows, and they will be now a tax rate higher rate, in worst case scenario, what Prashant said is 60 bps to us. So then the present value of VNB or the future cash flows will come down, and EV will also be impacted. So if VNBs also coming down then the unwind rate, as per my assessment, it should also come down compared to what was there. So just a little -- was not able to connect the dots, how unwind rate will go up if DDT is applicable? Is -- if the whole of DDT is applicable?
So firstly, I think Prashant made it amply clear. The current effective tax rate and our dividend paying position. On that basis, that effective tax rate is not getting changed. So the VNB number kind of remains where it is, as things stand today. It's only a matter of future. If the dividend teams get altered, there could be an implication. But you'll be aware, and if you look at our dividend that Max Life has paid out versus the dividend that we would have actually received in those -- in the funds, our payout is many, many more times than that...
Okay, okay, okay. Got it, got it. Actually, you are saying that because at the current payout is much higher than what you receive. Therefore, you are better off in the new regime, and therefore, your unwind rate would be higher, right?
Absolutely. Yes.
Got it. But in the future, because to maintain our solvency, if we lower our payout ratios gradually, then probably, theoretically, it will have a negative impact.
So that's what Prashant kind of mentioned about the worst case number that he indicated. Because there would be a few years, but over a longer period of time, and if you make a long-term assumptions because as you are aware, the EV and the VNB assumptions are over a longer period of cash flows, you will be in a dividend-paying positions at most points in time in the years.
Next question is from the line of Madhukar Ladha from HDFC Securities.
I have a few of them. So the first one is -- sir, you were saying that, obviously, most of the customers are buying life insurance product for the 10(10D) benefit rather than the 80C benefit. Can we quantify a little bit on the customer segmentation in the sense that what percentage of our premium income is from customers that have an income lower than INR 15 lakhs or some such number, and their average ticket sizes, that would be helpful.
Actually, the budget came just 2 days ago. So we are in the middle of doing that analysis. As we are ready with that analysis, we'll definitely share with you. The answers, all these answers that I gave you are -- basis our understanding of your calls, et cetera, but the detailed analysis is underway. And it will be much clearer as some of the following months start.
Right, right. Second...
I have suffice it to say, Madhukar, suffice it to say that the discussion that I have had, at least, with the industry CEOs, the peer group, et cetera, it is a common understanding across the industry.
Right. Right. Okay. And so can you give a sense of what percentage of the total individual business would be for an 80C benefit versus the 10(10D) benefit? Any number what...
Very difficult to make such guesses.
Very difficult to quantify because we don't ask those questions. A lot many times, these are things that people decide, basis their own understanding. You would expect that the salaried income people are more concerned about saving taxes as against self-employed people, but we find that in the month of January to March, the growth rate that we see for self-employed people is higher than the salaried people. So very hard to make some of those assumptions and computations.
Right. Right, sir. Why it is, I'm sure, and frankly, it would be great if you guys can provide us some numbers around this over the next few days, that will be really helpful. Second question was...
Just a heads up, actually. Madhukar, just a heads up. This analysis will be very hard because it will just be looking at numbers at a very surrogate basis. I mean, how do I know if somebody is making investment for the purpose of 80C or for the purpose of 10(10D), very hard.
Or just because he wants to protect his family.
But you have like the data in terms of the number of insurance policies that he has, you have data in terms of how many people -- what percentage of your buyers are salaried versus self-employed. What is their salary segmentation? So you have that data. So maybe if you can put out something, that will be great. I understand it is difficult, but yes, I mean, even I thought about...
It's not as if, Madhukar, we don't look at the data. We have data across...
Yes, I'm sure you have the data. Yes, sure, sure.
It's very hard then to infer whether it is for 80C or 10(10D) or nothing.
Right. Right. No, I get that. Second question is you mentioned that your margins could be lower by 50 to 60 bps. In case you not pay a dividend from Max Life to Max Life shareholders, any scenario where you envisage that there might be a lower payout ratio as of now? So do you think that can happen? Yes.
Hasn't happened in the last few years. But the only scenario will be, for example, if our dividend -- we are writing a lot of protection, and we are writing a lot of non-PARs. We need capital in the business. And we need to preserve for a few years, 2, 3 years that we are not giving dividends. So that will be for a brief period. I mean, going forward, as a profitable company, once it matures. A company of our size doing 20% VNB growth every year, healthy margin, healthy ROE. We will start to give dividends, and we'll continue to give dividends. So really, your question around the scenario when we won't give dividend could be there for a few years, but not in perpetuity.
And then if we look at VNB EV scenarios, we generally look at long-term 1 or 2 years, if a company doesn't pay dividend, it will definitely impact the tax for that particular year, but it's not a long-term assumption of dividend.
Okay. Understood. So, yes, that fairly answers my question. Third, on the margin walk, so I -- in the opening remarks, I think Jatin mentioned that part of the change in margin was also because of the move from -- move towards the FRA from swaps if I'm not wrong. Can you explain that a little bit? What -- to what percent...
Madhukar, actually what Jatin mentioned...
Sorry, I didn't say that.
I'm not sure because I logged on to the call and I probably misunderstood a bit. So...
That is fine. Margin improvement, I said, is because of the shift towards protection products and non-participating products. What I said was that statutory profits for this year or quarter or whatever, 9 months, are higher because of the shift from -- are really shifting the hedging strategy.
[Operator Instructions] Next question is from the line of Adarsh from Nomura. As there is no response from the current participant, we take the next question from the line of Hitesh Arora from Unifi Capital.
I had 2 questions. One was around the -- you had some tax litigation going on, you had mentioned the previous quarter, and you were looking to settle with the tax authorities. Wanted to know the status of that? And second, I wanted to know if anything around the -- your negotiation and the relationship with Axis that comes to maturity in 2021, I believe, if you could talk about both these things?
Sure. So firstly, on the settlement piece, we are not volunteering to get into any type of settlement because it makes no sense to sort of just waste money on an item on which we are confident that we will win. So obviously, prudence will not sort of force us into a call wherein we get into a settlement mode. So I think that's the response to your first question.
I just -- so the matter has been ancient, pending since around almost 20 years now, starting the first month at least.
You have to understand why this matter is pending for the last 20 years. In an environment wherein tax authorities are hungry to collect tax, wherein government is sort of pushing faster collections. They are also giving these windows to -- for people to settle and all, but nobody is bothered to look at this case. That gives you the answer to the question which you just asked, because the reason why for last 20 years this case is in ITAT and it's not even moved to the court is because we have a strong case. Now when you are in a situation where you have a strong case, you don't just sort of raise money for the sake of it. So that's sort of first question. Now on your second question, I think the answer lies in your own response, which is to say that your contract is till September '21. But given our partnership is deep, and we are engaged, so we are always in discussion with them to see how we can cement it to -- for a longer term, but till such time, I think, it is cemented, I don't know what to say and -- or not to say. But what I can say is that we've been engaged with them, and we continue to be engaged with them and we'll continue to be engaged with them to cement it as -- for as long a term as we can.
It's a long-term relationship. We complete 10 years this year, and we've done more than INR 10,000 crore of sales with -- new sales with them. It's a very prized relationship that we enjoy, and we have created a win-win. We are very optimistic that we will work in the direction so that sometime in near future, we have a long-term arrangement established with them, which can give the comfort to both the parties as well as to the outside world that it's a longer term relationship. So let's keep it that level, as long as we can.
Yes, sure. Understood. Understood. That's fine. But just on the -- so the first one -- last time, you had mentioned that to collapse the -- collapse or merge the -- in terms of the listed entity, you needed to get over this whole tax litigation overhang that was preventing this merger, if I remember correctly. So if this overhang still continues, to that extent this merger doesn't happen between the holdco and the listed company -- I mean between the holdco and the insurance company. Would that be a correct assessment?
What I broadly said was that one is -- I mean, I don't know whether it's an overhang or not, but it obviously needs to be sorted. But that doesn't mean you will go and start spending money where it's not required. So we are obviously wanting to sort of solve this as soon as possible. But at the same time, sort of putting significant amount of money on the table to just solve it, and it's not like we're talking about pittance here, is not the right way to go. Now we have to solve it independent of going in for settlement with the tax authority.
It is our long-term objective to collapse the 2 entities, which we can realize overall value for the shareholders. We will work in that direction. However, as we have started to make progress, we will review the tax litigation. All companies have some kind of tax litigations, and there's always a practical view that is taken by the proving authorities as well as tax authorities, and we are optimistic that with the [ law ] strength that this particular case has, we will be able to consummate it. But very hard to predict at this point in time, the roadblocks that we'll face.
First, I'll also sort of give you a little bit of a perspective, I think it's important as what holding company really does. I mean, frankly, is that in holding company, there are some costs, which I -- like I said, will be some INR 40 crores, INR 50 crores. I mean, the way our margins are trending, this year itself, these costs will be some 4%, 5% of EMV. Now if you fast-forward 2, 3 years from now, it has become 2%, 3% of EMV. So frankly, I mean, these are -- this is insignificant item from an overall scheme of things, when you think about Max Life. Max Financial and Max Life are no different. I mean, you could tomorrow be in Max Life, today in Max Financial. But that doesn't, I mean, change the overall franchise quality we have built, which is far more robust than anybody else in this industry.
Next question is from the line of Neeraj Toshniwal from Emkay Global.
So I wanted to check how much is the one-off item in this quarter?
One-off item, you mean the hedging strategy change?
Right, right.
INR 140 crore.
INR 140 crores, okay. And second, on your stake you have bought with Axis, 0.73%. You mentioned in your disclosures is that INR 189 crores. So just wanted to understand the -- I mean, if you look at the -- from last 4 years, the value per EV, I mean, the -- what you are -- value the firm by the EV you are having at the year-end is actually coming down gradually from FY '17 to FY '20 at a greater cut in terms of the multiple. Why is it so? I mean, who is devaluing this third-party or in terms of concentration of buying back? And how do we do that? Any color to that?
Well, I mean, see, the thing is that you are somewhere -- when you look at the value and things like that, the current market size also sort of fit somewhere in the equation. So you have to have that factored in, in your assessment somewhere. And therefore, I don't know whether looking at that value to derive a multiple and, therefore, say that, that multiple is coming down is the right assessment or right direction in which you are sort of looking at this item. Tomorrow is the stock -- our share price is where everyone else's is in terms of the multiple, then you will see then this value, the multiple also expanding. I think these are all very relative and subjective items when you enter into a transaction. So my request will be to sort of not read too much into it and try to -- and try not to make inferences out of what you see.
Okay, got it. And in terms of your overruns, I think when you think operating leverage will start playing from the second of the next year or when you think you'd be over with your investments thing and then operating leverage regions starts picking up because we might have some loss of market share through -- when -- as Bajaj picks up. So we need to be ready enough, with the agents gearing up with these, some extra growth coming from that angle. Any thoughts around that?
I will give us maybe a couple of years, next year and the following year by which the overruns will go away. The overruns would have been gone if we hadn't decided to make investment in our own channels. So hopefully, when you start to make investment, it takes about 3 to 4 years. And that's the timeline, I'll give to myself. We are already 18 months in that process, maybe a couple of years.
Okay. Okay. And the last question is on the bond market. So with the -- this merger, I think, it is positive on the bond side. So any strategy we have in mind in terms of selling of the products, like I think non-PAR could pick up. I mean, so what would be your sense in, if at all, you find your yields to be on your side. So any thoughts on how much non-PAR in the strategy, any change in thoughts?
No, the -- I mean, I would be very happy if we keep our non-PAR at around 20% to 25%. That's the number that is the target. I think the bank bond market definitely helps, but I don't think the benefit of the bond market will straight away pass-through the -- to the margin of market generation ability in the company. I think it will pass on more to the customers in form of better returns because it's a competitive play. But in 20% to 25% of non-PAR. When I say non-PAR, which means interest rate guaranteed design and there. So I get closer to about 10% of protection. So collectively, between 30% to 35% of non-PAR in protection.
20% to 25%? Or 30% to 33%? Didn't get you.
20% to 25% of interest rate guarantee design and add about 10% more for the protection design.
Next question is from the line of Manoj Bahety from Carnelian Asset Management.
A couple of questions. First is like, will it be possible for you to share persistency or conservation ratio between par and non-PAR? And if you can't share the exact number directionally, just wanted to understand that where persistency ratio is better, whether on par or non-PAR?
That's good question. We actually don't disclose it out to broad level. But if you are writing, again, non-PAR is multiple things. It is protection, it is non-PAR savings. So if you are writing non-PAR savings design of higher ticket size, then the persistency and conservation will be better.
Shorter tenure.
Shorter tenure and higher ticket price.
Okay, okay. And if it is non-PAR with a lower denomination and higher duration, then persistency will be lower than par?
It would -- lower than par or similar to par. Then there won't be any difference between par and non-PAR.
Okay. And in terms of protection, how you see persistency there vis-?-vis non-protection?
Pretty good. Depends on which channel it is coming from. We see highest coming from Internet channels, and from off-line channels, it is a bit lower. But collectively, it is quite healthy.
Okay. It is better than your like non-production persistency?
The persistency on protection currently is better than that.
Okay, okay. Right. And my second question is, basically, like if we see the way industry was trending and even if I've seen your business mix, last couple of years, non-PAR portion has gone up. And is it in response to the competition, like the competition has started growing aggressively on non-PAR? Or it is by choice?
It's a mixture of many things actually. A, we must know that now the norm is set that if you take more risk, you get more margin. And hence, non-PAR designs, by nature, generate a bit more margin than writing you leave in par. So slowly, everybody's understanding, and hence, there is a transition towards non-PAR, number one. Number two, overall economic cycles, I think last 1 year, people have -- they have shown the propensity towards buying more non-PAR guaranteed designs as against remaining invested in something which is volatile, like equity market, et cetera. And we have seen this trend in past. Number three is the ability to hedge for a large part of last year, RBI was not allowing us to use forward rate agreement. All that being allowed now. There is more propensity to write. So these are 2 or 3 reasons why it is happening. Of course, the competitive play, the product of the season, et cetera, is the reason, but I don't think the fourth reason is a permanent reason. I think the first 3 are the reasons. And again, slowly at some place it will stabilize. The good part for us is we are quite diversified as you'll notice. Par and non-PAR, ULIP par, broadly in 1/3, 1/3, 1/3 ratio. And again, for the competition, we always make an attempt to remain more balanced and being around 60% traditional broken half and half and about 40% ULIP is something that we are very happy with.
But if margins on non-PAR are getting better because of all these new changes, why do you want to restrict it, let's say, to 20%, 25% or 10%. It is because of higher risk on non-PAR products?
Yes. And -- generally, we are not simply in the business of giving interest rate guarantees. So as long as we are able to hedge it properly, et cetera, going up to 20%, 30% is a good solution. Of course, we don't want to be 50%. We don't want to be 50% on any product design, by the way. Because there is no point keeping all eggs in one basket. We like to be diversified. We like to be serving the customer need and work from customer need backward.
Next question is from the line of Sanketh Godha from Spark Capital.
Just one small question I had with respect to the protection business. See, if you're writing ROP, and you said that our ticket size of ROP is very similar to regular premium paying plan. Then naturally because it has a bit of savings element to it, so the margins what we are making on ROP would be lower compared to a plain-vanilla regular premium paying protection plan. So I just wanted to understand, sir, the margin dynamic differential between the -- both the products. And yes, then I have one more. I can ask after you answer this question, yes.
So I mean, really, margin profile is something which is more or less similar. It depends on the product design and ticket size also. But it depends -- I mean life insurance gets sold on the strength of the story. The story of return of premium resonates with our agent advisers and our customer segments. So we are selling that a bit more.
Okay, fine. And just wanted to understand our customer profile because I -- when I check with the other companies, probably most of the companies are saying that almost 35% to 40% of their customer base is self-employed in nature. Sir, so for us, I just wanted to understand, if we can get the broader mix from your -- from Max Life perspective. What percent of customers are self-employed? It looks little higher for us because of the previous question asked that seasonality in the fourth quarter is much higher for us compared to the peers. Sir, so in that sense, whether self-employed contribution is little on the higher side?
So actually, I don't know how you're comparing and what is the information you're hearing from competition because there are 2 parts of the business right now. There is the protection element -- or pure protection element of the business, and then there is the savings limit of the business. So far, I think, on the protection element, everyone has kind of gone towards the salaried segment because income discernibility is easier and hence, large proportions would be all salaried customers only. And if you really ask us now 30% of business is with respect to number of policies coming from the protection business. So that part of the business will have very high degree of salaried component there. When it comes to the rest of the business, I think India is largely a self-employed country. So our product mix is also -- our mix will also going to reflect how India is. Though, I would say, we will be higher indexed on salaried there as well. Now you also made an inference around the last quarter with respect to seasonality. I think it's not necessarily that the self-employees are buying it, and hence, our seasonality is very high. Even the salaried guys also experienced similar behavior. And we have looked this across income categories, even a very affluent customer also or a very nonaffluent customer also. The seasonality for us is very similar in that customer profile. So it's a reflection of how our distribution machinery is set up. How does the motivation around R&R, incentives, promotions kind of come in play.
Having said that, Sanketh, I don't know where you are finding that our sales is more seasonal than other people. I guess it may be slightly, but across the industry, sales seasonality is quite universal.
We take the next question from the line of Alok Srivastava from CLSA.
This is Shreya here from CLSA. So I have 2 questions. In the last conference -- in the last -- in quarter 2, you had mentioned that the operating RoEVs are generally better in the second half of the year. So I was just comparing the RoEVs of -- RoEV of this quarter -- this 9 months versus last -- versus 1H FY '20 and it seems to be on the same level. So I wanted some qualitative comments on that. Second question is, can you share the yield that you make on your equity AUM -- the dividend yield you make on your equity AUM, equity portfolio?
Okay. On the first question, yes, that's true. The second half RoEV is better than the first half, but a large part actually will come in the last quarter. So I will request that you wait until the end of the year. The second half is yet to play out. This year, however, the number may be similar to last year because of our investments, the investments that we have made in expanding our own channels with -- where there is about 30 basis point impact on shareholder overrun, leading into 30 basis point impact on the operating RoEV because of the overruns, which may cause it to be a bit lower or equal. So that's the reason. Last quarter is heaviest, where the overruns get quite muted and hopefully, that will start to show up on the RoEV number for the full year to be significantly better than the first half. On the first -- on the second question, you asked about the yield on equity. Honestly, I don't have that. I wish I knew this. I would be able to give you answer if you send me a question straight away.
Sure, sir, I'll mail -- I'll telephone that question. One last question. I was checking the solvency ratio, which has steadily been coming down over the years. I just want to know what is the comfortable zone that -- it's still above the requirement of -- it's decently above the requirement of 150%. I just want to know what is the range that we expect Max Life to maintain the solvency? Or do we expect it to come down?
Yes. You should expect it to be in the range of 170% to 175%. Until then, we will consume capital. So when it comes closer to 170%, we will look at several measures of stopping to give dividends or reduce the level of dividends or maybe raise equity.
Next question is from the line of Pallavi Deshpande from Sameeksha Capital.
My question has been answered.
Next question is from the line of Sachin (sic) [ Nischint ] from Kotak Securities.
This is Nischint here. So just trying to understand, if I look at the VNB margin and the product mix, I think on the non-PAR savings side, you already at around 20%. Individual protection side is at 10%? And I guess with the product that you are launching possibly kind of inches up from here on. And on the pre-overrun margin, you're already at around 24.3%. So do we kind of [ pay ] that from here on, it's the pre-overrun margins kind of broadly remains here? And it's the gap that kind of reduces here on?
I will tend to believe that. Then some of the road block in terms of how the margins on protection evolve from here on. You heard the previous question with respect to change in pricing, et cetera, and my comment. So those are road blocks, but directionally speaking, that's correct.
And just trying to understand on the 60th month -- so 61st month persistency, what really happened there?
Yes. We have seen a bit of deterioration. It is happening because of a particular product design, which is kind of flowing through, and it is coming from ULIP. Hopefully, it should go past the 61st month. So the ULIP mix of the 61st month bracket is going up from 11% to around 31%, and higher ULIP is leading to faster depletion. Hopefully, that should get settled as we move along. But next year, it should be okay. But yes, your observation is correct. We have seen about [ 260 ] to over 250 basis point, it is basically in the 61st month then.
[Operator Instructions] We take the next question from the line of Prayesh Jain from Yes Securities.
Just here on the tax change that has happened, I joined a bit late, possibly if it is answered, you can just let it go, and I'll ask later. But would that -- or even a slight change in people shifting to the newer regime would impact our persistency? Is the shorter-term persistency possibly people those who would have taken the insurance in the last couple of years, would also prefer to shift to the newer regime and possibly more of 80C. So that could impact the persistency.
Actually, this question was asked. So maybe you can take it offline.
Okay. Yes, yes yes, I will take that offline.
Secondly, in persistency, I think the bigger assumption is that how many of the people are going to shift towards new regime. Our analysis kind of indicates that the old regime -- and it's a consensus, I would say, across industry participants, that the old regime continues to be favorable. So if that is going in hypothesis then that question doesn't arise, but I'd explain to you.
Okay. And secondly, on the non-PAR portfolio, what has been your experience with respect to lapsation? And does that also forms -- my understanding is that, that also goes into the pricing of the product. So how has it been the experience so far? And what do you see going ahead?
Yes. So lapsation assumptions are very core assumptions. The lapsation/persistency assumption is 1 of the 4 basic assumption that not only goes into the pricing of non-PAR, but every product design. We are finding that the non-PAR designs have better persistency than other categories, predominantly because we are able to -- or we have been focused to sell shorter-pay, higher-ticket size product designs.
Okay. So my question was coming from the point that my understanding was that the...
It is aligned to the assumptions that we made. So nothing -- not better, not worse.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.
So thank you, ladies and gentlemen, for being on the Max Financial earnings call. We look forward to more such interactions in the future. Thank you once again, and goodbye, and have a good day.
On behalf of Max Financial Services Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.