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Max Financial Services Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Max Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mandeep Mehta, Chief Financial Officer, Max Financial Services Limited. Thank you, and over to you, sir.
Thank you. Good evening, ladies and gentlemen. Thank you for being part of Max Financial Services Earnings Call. My name is Mandeep, I'm CFO for Max Financial Services. Before proceeding with performance highlights, I'd like to introduce my other colleagues who are with me on this call. I have Mr. Prashant Tripathy, MD and CEO of Max Life; and Mr. Amrit Singh, CFO and Head of Strategy for Max Life. On a consolidated basis, our revenue excluding investment income are at INR 14,160 crores, growing at 21% in 9 months in FY '22 in the most challenging business environment. As you are aware, the COVID has put in some specific business challenges. The consolidated pretax profit for 9 months FY '22 is at 236 lower than last year, primarily on account of the provisions or the reserves created for pandemic and certain one-offs that were recorded in the same period last year. Moving on to the key business highlights for Max Life. Next slide, individual APE has grown by 23% to INR 3,700 crores in 9 months of financial year '22. Market share is at 10%. On 2 years CAGR basis, Max Life grew by 16%, while private industry grew by 11%, achieving Q3 growth of 28%, driven by growth across channels. Proprietary channel grew by 28% in Q3 and 15% in 9 months. Strong growth of 27% in Banca channel has also been recorded in this period. NBM for period ending December stand at 25.1%, an expansion of 18% over a period from financial year '16 to financial year '21.And VNB grew at 20% year-on-year basis at INR 942 crores. For the last 5 years, the VNB has grown by 27%. Next slide, MCEV rose 18% year-on-year at INR 13,412 crores. MCEV on operating basis have grown at 18.1% annualized, which increases to 19.2% after excluding one-off impact of COVID-19, including nonoperating variance ROA is 18.2%. Gross payment grew by 21% to INR 14,415 crores and renewal premium grew by 19% to INR 9,128 crores. 13-month persistency improved by 270 basis points to 85.3 and 61-month persistency by 55 basis points to 54.2. Debt claim run rate has came down since September '21 after peak in July '21 and unutilized pandemic reserve at the end of December are at INR 208 crores. Individual [indiscernible] of new business has grown to 17% in Q3 of FY '22, led by growth in protection, solvency surplus of 150 -- over 150% of RSM is at INR 1,842 crores, with solvency ratio at 207%. AUM at the end of December '21 is at INR 102,471 crores. And with this, Max Life is now the 4th largest managers of private life insurance AUM, power funds rise more than INR 52,000 crores. We continue to maintain our rank of 18 in great basis to work in FY '21, which is -- we are also rank 55 among the Great Places to Work in Asia. And continuing from FY '21 survey that we reported earlier, we have ranked #1 in customer loyalty as well. During the quarter, Max Life has also received ID permission to set up a new company for pension fund management and that formation of that company is underway. Max Life has also launched a new power product called Smart Wealth Income Plan in Q3 of FY '22. We also conducted India retirement index study in partnership with Karvy Insights. India's retirement index stands at 44, health and financial repayments are key retirement concern around Indians. MLIC has formulated and launched a ESG strategy comprising of 4 pillars, which is work ethically and sustainably, care for people and community, financial responsibility, and green operations. Detail of this ESG journey is included in the investor release deck. To sum up, next slide, we continue its trajectory of driving strong shareholder outcomes with Axis as a new JV partner, good progress made on 5 pillars of Max Life strategy, vis-à-vis predictable and sustainable growth, product innovation to drive margins, customer center to gross value chain, digitization and analytics and as foundation and augmentation of human capital, as mentioned earlier. On that note, I'll hand over to the moderator to open the floor for Q&A.
[Operator Instructions] The first question is from the line of Arnab Mukerji from BNP Securities.
So a couple of questions from my side. First one was on the product mix. So sir, for this quarter, what I see is that a larger contribution has come from ULIP. Now is it the only factor that has impacted your U&D margin as given in the change in mix or is there anything else to read into that? And then in addition to that, on the traditional side, as we mentioned, with the launch of the product and the -- also the longer variant of this module plan, wht is the traction that we are seeing now because [indiscernible] towards the end of the quarter. So that will be my first question.
Thank you very much for your question. This is Prashant. And thanks to everybody for taking out time. We recognize that's Friday 7:00. So we really appreciate your interest in our financials. Your observation is right. I think if you recall my guidance last quarter, we did speak about being in the range of 25, 26, we are in near about. And it was very important for us to recognize that there's a balance needed between sales momentum, sales growth, market share and product mix. And we took that tactical call. Also, if you notice the -- in product mix predominantly is in our partnership channels back to back. And at the end of the year, typically, there is a contest around this year-end goes about MDRT and that contest actually also resulted into higher share of ULIP. But if you are asking the question about why we are lower than last year on new business margin, that's the only reason why we are lower. The product mix was a bit traditional focus, more nonpar focus last year. And this year, it is mix fit. But the good part is we saw a lot of traction on our new sales. Our new sales are up 28%. Our proprietary channels have also grown 28%, which is really fantastic. So both relationship and home channels grew 28%. That was quite good about the quarter. On the question that you asked about margins, Amrit, do you want to take that?
Yes. So I think, Prashant did answer that the decline in margin profile is largely because of product mix. But if you look at the subsegment level, actually, our margins have held steady, whether it is nonpar savings protection for ULIP. In fact, for the quarter 3, we have seen an improvement in the margin profile of our participating business, given the new launch of the product that we saw for ourselves. This product actually has had a very successful launch. We crossed INR 100 crores in the shortest time ever for any product launch that we have done for ourselves. And you can see the increase in par mix that you can see, which has kind of come through and the growth in par business continues to be very robust in this particular financial year.
Sure, sir. Any comments on the Smart Wealth longer variant or any additional traction that you were seeing from that thing?
So I'm giving you referring to the participating Smart Wealth Income Plan that we have launched, which actually has a longer waiting. Are you referring to that?
Referring to the guaranteed product, guaranteed sale.
So we -- I mean, if the question is that on non-par, again, we have -- it's a very healthy mix of both long income and short income. So it's a very healthy mix. This product has now been live for over 1.5 year kind of a period actually. And we have been doing quite well on this particular product.We just added a couple of variance, which were more in the 7 and 8 day kind of a variety, which is more, I would say, mix kind of a thing. Those have also been adopted and invest quite smartly within the channel.
Okay. All right. So that's helpful. Another question was on the distribution sequence. If you could share the contribution of Axis bank in the 18 -- for the 9 months or Q3?
So it's around 67% is what will be the Axis bank contribution.
If I may allow to squeeze in one more question on the individual protection. So your plans on the pricing going forward from this segment? And if you can throw some color on the retention levels that you have on these products.
On protection.
Yes. So protection, actually, we took some calls in the first half of the year, really driven by what was happening during Delta variants and took some call around our underwriting loans that, of course, caused our retail as well as group protection to go down, and that's quite well mentioned. But what we have done is now we are increasing the proportion. And as I have been saying, this is a very strategic area for Max Life Insurance, we do want to grow -- and in quarter 4, we have started to grow our total protection level. We have started to grow as every month passed on the retail book also. And we are going to look at -- we have been in discussions with reinsurance partners as time has passed. Of course, there are some increases, which are anticipated because the insurance rates will go up in their experience. And we are outlooking a price increase. Right now as things stand, we are in negotiation with them. So it will be hard for me to tell you exactly what number. But it is -- it will be a nominal price increase that we're outlooking. That price hike should come as soon as we finalize our negotiations with our reinsurance partners. We are going to protect our margins. So whatever increase comes out as we are going to pass it on through the price. As far as retention is concerned, that's a normal trend, which is happening. I think out of experience that COVID forced to everybody and to the insurance partners, there is a requirement to -- for Max Life insurance like all other life insurance companies to retain more. I'm expecting that our current retention, which is today at around INR 20 lakhs, that will go up. I think it will go up to more in between INR 30 lakhs to INR 35 lakhs. So that's the retention that we will have. And we are quite pleased about it because it is a strategic area. We have a lot of learning behind us. So in a way, it's a very positive move because that creates better alignment of purpose as well as better understanding between the reinsurance provider and the license. That's the extent of price hike as well as retention that we're out looking.
[Operator Instructions] The next question is from the line of Madhukar Ladha from Elara Capital.
First, on the non-par business and the business mix that can shape up. So what I'm understanding is that the non-par business is now getting very competitive with other players offering competitive IRRs. And margins have sort of come off, that's what some of the feedback that I have got. So what has been our experience? Second is, in an environment where short-term rates sort of rise and you see a flattening of yield curve, do we think that we will be able to sell the same level of non-par protection that we have been doing for much of this year? Or do you think that the mix will again sort of start gravitating towards par and ULIP?And last question, just sort of on the COVID hit, can you tell me what the COVID hit has been for 9 months, per hit in the P&L. Yes, those would be my questions.
This is Amrit. Firstly, non-par margin profile for us, YTD, actually has improved. And even in the last call, we had indicated that last year, we had a new launch of the product, which has now run full cycle. So on a YTD basis, the non-par design product actually has improved for us. Now taking a cross-section of quarter 3, the margins are stable as compared to last year quarter 3. So this summary that you said there is a shrinkage of margin, we haven't experienced that. And also, you remember that a non-par design is a mix of many things. You have various income points, various payment times that you have, which you can kind of play with and optimize for ensuring the margin remains protected. So that's what has happened in quarter 3. Now coming to your question around what's the movement on the spreads effectively, let's say, the short term versus the long term. I think so far, we monitor this very closely. It is an important pricing decision for us of how we kind of moderate pricing and consumer variance. So far, we have seen, in fact, the long term move faster than the short-term charter has also increased, but the increase of long term is higher. So it is so far supporting us. In future, obviously, India, I mean, historically, the yield cost has been more flattish, and that's how it used to be before COVID era. And as and when that happens, I think a couple of things happened. Firstly, an increase of interest rate also gives you an opportunity to increase because the margin sensitivity is that if increase goes up, which actually helps us. So we will take the right call of how to moderate this particular number of where the IRR can move up or down. That's a moderation that we'll do whenever the cost move in that different direction.
And Amrit, just one thing. Sorry, do you think the supply of FRA can get impacted? Because if, let's say, the yield curve flattens then it would be less attractive for the banks to write that many sale, right? I mean because the spreads for them would reduce. Is my understanding correct on this?
I mean given the docking FRA rate that will come to us will become lower. It does -- I mean from their attractiveness perspective, obviously, there is a difference between the short and long. So just that the FRA rate that we lock in or we get for ourselves potentially can come off a little bit, the spread that we're getting over that can come on a bit of a pressure for us. And that's how you offset it by offsetting the IRR of the customer.
Got it. Right. Understood. Go ahead on the COVID thing.
On COVID, we don't disclose specifically COVID debt and COVID value separately. We took INR 100 crore P&L impact for breaking up the provision last quarter, which we are aware of. Apart from that, we have not done anything in this particular quarter with respect to COVID. And our closing position moving in at INR 208 crores.
INR 208 crores, okay. So the additional for 9 months is INR 100 crores on the P&L.
That's right.
And the closing is INR 208 crores.
And because when we look at our position and the types of claims that we're receiving, notwithstanding any of the variant coming our way with how we see Omicron, I think we are sufficiently provisioned and I don't see any risk to our balance sheet unless the new form of coronavirus comes out there.This INR 208 crores does not include IBNR. IBNR is separate for us, 208 is clearly the mark of pandemic issues.
The next question is from the line of Sanketh Godha from Spark Capital.
I just wanted to understand on protection business broken down into ROP and pure term. And the retention, what you are trying to highlight that it will increase to INR 30 lakhs to INR 35 lakhs will be applicable to both the products in the same way or will have a differentiated approach with respect to ROP and pure term. That's my first question.
Yes, I think it will -- it gets applied to some insured. So I suppose it will get applied to both forms.
Okay. And what would be our ROP contribution to the total term, whatever we do right now?
About 1/4 of total.
Okay. And just -- the second thing, which I wanted to understand is that there's a new par product in general given -- you are always including par. The new par product will come with a better margin profile because it's an income plan. Will it come with a better margin profile compared to the existing par we had. So within the par, it will be margin accretive?
Yes, it is. Thank you for highlighting, yes. That's correct.
Okay. And finally, one last one, if I can squeeze in. 67 percentage is the tax impact contribution. And then if I do a back calculation, it seems that the non-access bank have declined sharply in the 9 months, around 25 to 30-odd percentage. So just wondering the channel...
Let me just interrupt you here. I think our 67 was -- I gave you a quarter 3 view, 9-month if you have done it, the number is 65 so...
Okay. Fair enough. Then probably great. And finally, on an annuity business, if you can keep -- put an update on that because every player has become decently very aggressive with [indiscernible]. We are a little behind there. On the scale of how much you ideally should be contributing to the total EV. If you can give your inputs, how you want to build this business and what can -- how -- because now you even applied for NPS license and NPS is going to form. So just wanted to understand how you want this product to drive the growth? And how -- any lever can come from this particular product from some margin expansion point of view if you are going with it.
That's correct. I mean definitely is an area of focus and basically we did participate in the call that we had done in the month of December to talk about Max Life insurances, 4 years -- next 4-year strategy, you would have seen that this area is the most important and we are doing multiple things. So this is going to become -- retirement is going to become a business unit within the organization currently is driven all through the channels. We are, of course, setting up the pension fund management business. There will be people dedicated to not just in our own channels, but also separately source annuities. We did start to focus on it earlier this year, actually the end of last year, and we have about 49% growth on our annuity business this year. If we were to look at 2-year CAGR, it is upwards of 100%. So we are one of the fastest growing over the last 2 years CAGR around the analytics business, and we hope to accelerate this. We are, of course, late in the game. If you look at our overall proportion, it comes only close to 1% versus 3%, 4% for the last year, but we hope to catch up very quickly.
Got it. And probably a last one, credit as you see it's doubled almost in 9 months numbers year-on-year, so from INR 26-odd crores to INR 51 crores. So still, it remains a tactical call or we have changed our focus to make it more of a margin driver or the core business to be part of the [indiscernible].
No. Like we have already contained. I mean, rather than giving you any name of tacticals, strategic. This is an important area for us, but we are selective about margin-accretive business. And hence, we will pick and choose. So we are not out looking very significant growth in this area. We will only focus on those relationships, which give us a better margin profile.
The next question is from the line of Avinash Singh from Emkay Global.
Two questions. First, on an individual protection. If we see in terms of number of policies, almost it has declined by 30% in the first 9 months. Of course, the price hike. Now again, going forward because there's some sort of a price hike imminent. Now what sort of growth you would see in maybe FY '23, what do you expect to see in terms of how this individual policy, number of policy trends will behave or you expect them to behave? That's one. And secondly, sorry, I forget, I don't know if you added -- but is there any update on the 2 fronts that are 5%, I guess, that you have that option to buy from Mitsui Sumitomo a stake in Max Life. And another is Axis Bank incremental, I mean, beyond that initial note, you had often to go up to 20% of what [indiscernible].
And Avinash, always a pleasure to hear from you, and hope you're doing well. In our individual retail business of last 5 years, we've grown over 49% year-on-year. And we have a very strong view on protection. Last 2 years were unusual, you would agree. The first year, we were writing a lot of business but came the Delta variant and of course, the supply side constraints emerge because as the number of policies actually went down. I'm hoping that in quarter 4, we will start to see growth, not just on the AP basis but also on a number of policies basis. So the big reason of reduction in number of policies that you see is only because of protection. And we are -- like I mentioned to you, we are on growth part now. In December, we grew on retail protection. So in quarter 4, I'm reasonably sure you will start to see growth on the number of policies. On the other 2 questions that you asked, as we mentioned to you, we have filed for approval, and that approval is pending with the regulator. And in due course, we hope to receive this approval. Of course, the regulator has at this point in time is on timelines to approve it, and it is taking a bit longer, which I appreciate. And we are in touch with the regulator, we respond to all the questions. We're very optimist that will come our way. On the other one, I think is consequential subsequent to this approval, I think, over the next 12 months, further approval request would be sent to IRDAI. So we are only -- on the path to get the approval, and as we will update you as and when we receive the approvals from IRDAI .
Okay. If I can just follow on the first again. Because now the protection, of course, because of pricing catching up with diverse and mortality trend on the individual protection and price is going up. Do you incrementally see the behavioral aspect of customers changing as sort of again -- I mean, going more towards or demand for ROP products increasing because, I mean, the ticket sizes of protection is increasing. So I mean, simply for risk cover, of course, ROP that also has a higher premium for that return of premium product at par, but do you see the heavily sort of a demand for ROP increasing at the prices for pure production is increasing?
So ROP, Avinash, actually off-line channels typically are the ones which sell ROP in higher quantum largely because it also optimizes for the ticket size or an off-line incentive to be write for them. And given that in the first 6 months, 7 months, we were very cautious about protection business and once the way was behind us, we have started pressing the pedal on protection business. It will take some time for the offline channel to start picking it up. So till that time, the ROP business contribution will appear low interest and indicated the ROP number at around 25%, which actually has come up a little bit largely because a very strong momentum is being experienced in the e-commerce side and the online channel, where ROP is not necessarily the favor product. ROP becomes a favor product from an off-line channel. And you will see once off-line start coming back in line, even the ROP contributions are increasing. So that's what I'll say from a consumer -- it's a bit of both consumer and a distributor-led play. which kind of causes the kind of increase.
The next question is from the line of Harshit Toshniwal from Premji Invest.
Just 2 questions.
Sorry to interrupt you Mr. Toshniwal your audio is quite low. May I request you to speak louder or come closer to the phone?
Is it better now?
Yes.
Yes. Okay. Just 2 questions, Amrit. So I mean, clearly, when we look at our business mix and possibly, as we look at FY '23, so one that unit is doing well at an overall level. And at the same part of time, I just want to understand that the non-par is now at a much reasonable mix of 24, 25 percent. So I wanted to reinforce and get your sense on the margin guidance, that should 24, 25 be a more sustainable level on a medium-term basis? And the second question is on the non-par piece. So if I'm not wrong, I mean, 1, 1.5 years ago, we had a lot of a new database, which give us the benefit on the non-par with respect to margins. And I just want to understand that, is it that our construct and our FRA arrangements allow us to make slightly better than industry margin in that segment, north of 30%, 35% kind of margin. And I just want to understand, if the products are slightly different than what industry can start to play?
Yes. Let me first take the -- your first question. On margin guidance, like I've been saying, our guidance will be anywhere between 25% to 26%. While you see the unit mix for this quarter to be -- like always, we try to balance it, and you will see that happen. So it will be a an optimal mix between growth and margin that we drive. So my guidance would be about 25%, 26%. And as time passes over the next 3 to 4 years, we do expect it to go upwards to in the range of 27% to 28% because we have huge aspirations to towards growth, towards focus on protection, annuities. So we are anticipating that margin should trend up starting from 25%, 26%. On your second question, I don't think there is any differentiation. I think most of the players in the market are working with FRA. So the only data that can emerge is your ability to negotiate and find the best rates and play with the margin. So we make reasonably good margin is what I can confirm to you on non-par book. I feel very optimistic. And we hope that if everything works well, we should be in the range of about 30% to 35% as a target. We could land up in quarters at around 25%, but the target would be to be between 30% to 35%.
So just on one thing on the last piece, Amrit. So that 30%, 35% margin on non-par, that's large. I mean, we had an advantage on the FRAs because I think in Feb, March '20, we had agreed on to a lot of FRA rates, which were favorable for us and give us a benefit for sales over last 1, 1.5 years. So this 30%, 35% is sustainable even at a more normal level of operations and even if it's flattish rate environment?
Sorry, Harshit. I didn't talk about margin at 35%. I said 30% to 35% of APE. That's what I said.
Okay. Got it. Sure. Okay. This 25%, 26% margin, just off curiosity. So in 9 months, we are at 25%. Obviously, Q2 is generally a unit heavy quarter for us again in by the nature of...
Sorry to interrupt you Mr. Toshniwal. Your voice is breaking up. I would just request you to check...
Just if you look at last quarter, it was a unit every quarter. We landed out with almost close to 25%. So we are hoping that it's quite real because in the last quarter, sales is also more, which gives you an advantage on better margin. So hopefully we will end up between at 25%, 26%.
The next question is from the line of Adarsh Parasrampuria from CLSA.
Prashant, Amrit, question is that just trying to understand the duration of this product across the sector, right, which is non-par, more non-par, more par on the longer duration has increased over the last 2, 3 years, which obviously comes with higher margins as well. Just trying to understand, obviously, you partly answered it in the non-par mix target that you have. But overall, just wanted to understand how that plays out if you take the whole traditional business together?
So yes. Adarsh, basically, if you look at our target mix, we generally try for a 60% traditional, 40% mix. I mean that will be something is closer to ideal. I mean better will be perhaps 2/3, traditional 1/3 mix. In some quarters, it may go up or down. And within the traditional side, of course, there -- it's a good mix of short term and long term. There is, of course, a desire to move more and more towards long term, provided we manage the risk well. Definitely, that is kept in mind so that it's matched. But ideally, one would like to have a good balance between long term and short term. If you sell short term a bit more, you're able to drive the businesses more and you can get good growth because long term actually requires the commitment to pay over a long period of time. So basically, it's always a right balance or optimal point that one is looking for between short term and long term. Yes, you're right, the long term gives better margin, but at the same time, the risk management, hedging, et cetera, instruments or mechanisms that one should always keep in mind.
And related question, Prashant, is that given that the large mix shift between this long term is short term happened in '21, and you did talk about maybe investing in '22, but then recouping a part of operational efficiency in margins over '23 and '24. Where are we on that? So should one expect product mix margin improvement will be lesser next 2 years, but we will be able to squeeze something on the OpEx?
I think we did squeeze a lot on OpEx last couple of years that an operating -- of course, there is an increase in OpEx that you see, but I can confirm to you that it's all variable to sales. So really at -- on ground level, we have been quite tough on expenses. We have been trying to control the expenses quite considerably. Last year, definitely, many things around compensation decisions, number of people deployed, et cetera, also helped us, and we are on that journey. I think -- if you were to look at us, our sales versus maybe top 3 players, there is a delta between us, if you were to look at our renewals versus top 3 players in the delta. So I think a large part of margin upside that we might end up getting will also be out of scale because the expenses are not going to -- especially the fixed expenses are not going to increase in the same proportion. So as I mentioned that from a 25%, 26% or maybe 25-ish percent to 27%, 28% journey that we should see over the next 3, 4 years. That will happen maybe 60%, 70% because of more focus on annuities, riders, protection and about 30% because of expense leverage that we might end up with.
Got it, Prashant. And maybe just one last question. You did mention about what kind of protection that your expansion would retain. But some of your peers are -- have indicated about retaining like close to a crore and then after that reinsurance. I can spin it both ways when they could be that there is an underwriting issue and the other is that reinsurance that we are getting on the other side of pricing. And now the pricing is quite adequate. So -- do you think now after all the hikes...
I'm so sorry. You're a bit fumble. Do you mind just repeating your question?
Sorry. So yes, I repeat just got up to speaker. So Prashant, what I was trying to say is one of the peers was saying that we will reinsure only beyond the crore, right? So I can -- anybody can spin it both those. One could be that there's a little bit of riskiness hence you need to retain a little bit more. And the second aspect could be that overall, the pricing of reinsurance has got a lot same. So -- or on the other extreme, quite expensive. So I'd rather retain it in my books and give me more profitable, right? So I wanted to check, after this hike or whatever you are negotiating, are we it or there is more to come in terms of tightening?
I think this increase one has to see in 2 contexts. I think, the first one was all of first, we are pricing very aggressively to start with a few years ago, 4, 5 years ago. The island table that we’d use will be early 20s, that kind of a number. But as time pass, you'll realize that the kind of target segments that we're all going to, the mortality experience was a bit higher. Unfortunately, a big part of that burden goes to -- was carried on or carried by the insurance providers and then came COVID. And after COVID, there was further impact now. If you look at the reinsurance providers, I think the rate increase, they are trying to recoup some of the losses that they have had. But more so it's tactical over 1 or 2 years. And we need to just include that and make that as a part. They will, of course, increase over a long period of time. But the way it will come in pricing will be far more moderate than the recoup that they're trying. Now in that context, I think expectation of the reinsurance provider that you take -- you also take a bit more risk is very logical. Now we -- in our understanding, going up to -- I mean retaining all risks, absolutely, it doesn't make sense because it creates food burden on your capital requirement. It adds to risk. And at the end of the day, this is a game of risk sharing. You're in the business, customer is sharing risk with us, we share risk with somebody else. I think a marginal increase of this kind that we're talking about gives a good exposure to the outside party as well as retain some risk in our books, it optimizes for capital requirements. So I'm very comfortable. And I am of opinion that as much as possible one should share it. I don't think by keeping too much risk in our books, there is a huge opportunity to make tons of money because if that were the case, the insurance companies would be making a lot of money right now, but they're not. So I think we are -- what we are trying to do is find the right balance. If the price increase, it looks like based on our experience looks like I think if things were to improve, which I hope they improve, it may go down. So I'm just keeping my fingers crossed. It's a very long-term contract to be honest, Adarsh. So we don't have experience of what will happen after 10 years and 15 years or somebody being the book. We are just learning through it. But hopefully, I think we have hit the high point.
Got it. And the last one is, as an outsider, how do I track the underwriting experiences that reinsurers are having with each company because eventually, that will come to the far right. Today, it's just about that we are, as an outsider, I see it's an APE growth, right? But beyond the point, it's also a lot to do the underwriting. How are we placed basis, how you would benchmark or the feedback you get from reinsurers? And any way we can track this from the outside?
Yes. I mean basically, 2 ways we could track. First, look at how the claims are -- the continuity in claims and the claims are coming much higher than, of course, there is higher than expected run rate. So very crude way of looking at that. Another way is when companies talk about operating variances, you could dig deeper to find out the root cause and really operating variances come out of either persistent related issues or claims-related issues. So that's the other way you could find out. As far as we are concerned, we are pretty comfortable. I think we all had a tough time one-off, hopefully, to manage through COVID. So it would really -- it doesn't make sense to look at operating variance or whatever over last 8 months, 6, 7 months. But hopefully, going forward, that would be one marker that analyst community in general to dig deeper.
The next question is from the line of Nidhesh Jain from Investec.
Sir, can you speak about some -- how the trends on the digital initiatives that we have put out and how the trends of the sales from our own website or from the aggregators that we have tied up.
So that's really one of the fastest-growing areas of Max Life Insurance. As you know last quarter, we grew whopping 44% maybe more -- sorry, Nidhesh, close to 70% year-on-year. So we are seeing tremendous growth there, not just from the aggregator platforms but on to our platform so that's really doing wonders. We also took a decision -- like we mentioned, we hold 30% of the market at this point of time on the aggregator as well as direct platform sales for protection. So that part is going really well. We also started in a small way of selling savings and capital guarantee kind of design. So very quickly, our share went up on aggregator platform, the larger aggregator platform performed from 1% to 10%. So the entire part is doing very well. We are also working on many initiatives and projects. You would have seen in media that we have come up with a very innovative solution for homemakers, a segment which will not cater to. So we are going to go in other plans of very innovative designs that are going to come up. So that part is working very well. And you may remember, Nidhesh, that our -- one of the top priorities for next 4, 5 years to grow that area. So we are well on that journey. As far as the other elements of digitization is concerned, again, we have made very good progress. There is work that we've done in the digital area for our agency channel. We have very recently launched state-of-the-art activity management solution, which has also dropped up our overall productivity. That is working very well. The total push towards cloud, we have moved and picking from maybe 18% to 39% over last 9 months. That's also worked very well. We have integration with Axis marketplace, which is called Panels. And that we are just trying to put more and more products on the Axis marketplace, and that's another area of focus we have within our HR area as well as the investment area. We implemented SAP just now to take care of future growth. So there's 360-degree work taking place at this point of time around digitization. And hopefully, next time we have a meeting like we did in the month of December, we will also update you as to how we are making progress.
Sure. And can you say what is the contribution of this channel to our overall APE as of now?
Okay. It will be a smaller number, to be honest. We do -- we have done about more than INR 3,700 crores APEs. So in that context, maybe 2%, 3%, perhaps my sense, 3%. What is the number? We're just digging the number out, Nidhesh, give us a second. That is the number, Nidhesh, 4%. On VNB basis, it will be significantly more. We don't disclose margin at channel level, so I won't be able to do that but it will be...
And then on the operating expenses, how should we think about from a next 2- to 3-year perspective? What portion of our expenses are fixed where we will get the benefit of scale? And if you can quantify what could be the impact on our margins because of the operating leverage over the next, let's say, 2 to 3 years?
So I think the operating leverage will come, but we -- like we shared that time in the -- not in the analyst call, but separately as management. We are on a very ambitious journey to increase sales on our e-commerce platforms, our OE channels through protection, annuity, et cetera. So I think next year is the year where we will have to make investments in people, setting up teams, enlarging leadership capacity, which we'll do that, maybe keep consulting here. So I think you will see some increase next year. But hopefully, once we do that and the same starts to come true, you will start to see operating leverage. So I'm saying over the next 12 months, I won't give a picture that there will be a lot of operating leverage, but beyond of that, most definitely.
Understood. And then lastly, on the Axis Bank channel now, it has become -- it is already an open architecture for the last 2 to 3 years. So are we seeing some -- how the market share trends in that channel? And how are we preparing ourselves if they completely open up for the other life insurance company?
So it is an open architecture. And the open architecture is already with 2 other people along with us. So it's fully open architecture to the level of regulatory permissible number of players. And we have learned how to play in open architecture, which is great. But at the same time, Axis Bank being our promoter and shareholder is hugely supportive of all the aspirations that Max Life has,and will be working along with us to make sure that we continue to grow through Axis channel at a very healthy pace.Unlike other open architecture platforms, the only difference that you have to keep in mind is there is shareholder relationship -- direct shareholding relationship also, which is not common with other second architecture.
The next question is from the line of Nilesh Jethani from BOI AXA Mutual Funds.
So my first question was on the protection side of the business. So I've been hearing from last now 2 to 3 calls that we are going slow on protection due to supply side pressure testing, et cetera, not available. This quarter, we saw around 11% Y-o-Y growth. So going ahead, are we seeing the supply side pressures in the back seat and protection individual can steer growth from here on? Or still the policy remains same, we'll go slow considering wave 3, et cetera, are still in transition?
No, actually the first one. Going forward, I think we have a view on omicron. And we believe that it is not going to be as negatively impactful for any kind of business, especially around protection. So we are very positive. We do want to grow. This is specifically yes. So across all elements of protection, which is pure term, riders, health, we are hugely bullish and it is going to be an area of investment for Max Life Insurance. I must say, going forward, I'm quite optimistic that we will start to see growth in that area.
Got it. And one question on the margin side ahead. So you guided that we would like to be the VNB margins in the range of 25%, 26%. So the background from which I come from is ULIP considering the strong equity market performance, will see a decent growth, whether you try to pull it off or whatever, it will try to continue to grow. Interest rates expected to go up, so banking products may or may not, but in general case have become competitive. So non-par will see some shakiness over there. So by and large, the high margin -- sorry, low margin, you see a decent growth that is high-margin business may take a backseat. So what confidence it gives you to maintain that 25%, 26% VNB margin?
Yes. I mean if you look at our mix in quarter 2, we had a margin of 28%, which was more skewed towards writing for non-par business, which we really rebalance. And if you look at our mix in quarter 3, there is reasonable rebalancing that has taken place between ULIP and traditional side of the business. And despite doing that, our margin is about 24.9%. So I think the business will work towards finding optimal point between growth and margins. And I'm very hopeful that we will be able to hit the sweet spot with about -- if we write too much of ULIP like we have written in quarter 3, maybe more towards 20, 25, 24.8, those kind of numbers. And if we are able to balance it better, maybe towards 26. That's where the confidence comes from because as every quarter passes, as you know the -- it's a seasonal business. So we do more and more sales. And that also has a benefit on overall leverage and that also drives margin. So I'm very hopeful that we should be able to -- on a longer period basis, which means about full year basis, maintain a overall profile of about 25%, 26%.
Got it. Got it. And then last question on the online side. So you said that online is growing upwards of 50%, 60%, 70%. So I wanted to understand, let me sell it on plan online. So requirement for testing, et cetera are curtailed or the conditions remain the same? Or do you have a policy of summer shot, we won't go for investing, et cetera.So what's the purpose of that growing 70% and...
Yes. Max Life Insurance has 100% health checkout, 100%. So everybody who buys from us protection has to go through the health, but what we have done is, we have eased the journey, which means our ability actually to get the health take a gun, have the results come quickly, et cetera, et cetera. It's also higher order. And I think -- that's the way we will go. That's the guidance also from the insurance providers. And at this point of time, they're not anywhere close to finding tons of flexibility around it, especially for high insured places. So we do 100% testing at this point of time.
Got it, sir. All the best for the future contest.
The next question is from the line of Neeraj Toshniwal from UBS.
My question is on riders. Just wanted to get some sense that compared in last quarter, you have seen improving or rather attachment rates and whether just agreement in protection or also, as you mentioned, that launched with ULIP. So that is ULIP is also seeing the improvement with sale prices and there are margins within that portfolio has increased specifically.
Neeraj, again, you were a bit fumbled. If you could just repeat, it will be better. I could sense that you're asking something on riders, but if you could say one more time.
Yes. So hopefully it's better now. The question is on riders. So just wanted to get some sense on that. Our attachment rate is improving the past quarter. And whether we're just sending riders to protection or also ULIP as some people within that and there are margin for that portfolio in unit has been green.
Okay. So if I got your question, your question is where are we attaching riders. So riders are being attached all across. Actually, now our entire product portfolio suite is in such a manner that riders can get attached all across. So even in ULIPs, the riders are getting attached. But I must say the proprietary channels actually have been far quicker to embrace it. And wherever the proprietary channel is actually attaching a rider on ULIP design, there is a margin augmentation which has happened on the ULIP as well. But because overall volumes are still low. The -- I mean, from an overall margin perspective, in percent, a small contribution number. But I think we are picking up good healthy momentum. For example, for the last quarter, we have grown over 100% on our rider base. And for the year, we are somewhere around 45% kind of levels actually with respect to our growth rate, so there is momentum that we are seeing. And slowly, some of those practices are also going to get shifted towards nonproprietary channels.
The next question is from the line of Haresh Kapoor from IIFL Asset Management.
Just a couple of questions. One is even your retention for the protection business has gone up from INR 20 lakhs to INR 30 lakhs to INR 35 lakhs. Could you answer that question in terms of summer shot? What is our average summer shot? What percentage of the overall business gets retained now compared to previously?
Our average summer shot is in the range of INR 80 lakhs to INR 90 lakhs. That's how the range has remained. Now what Prashant mentioned is actually, we are in the process of negotiating and in discussions actually. Today, we are retaining around INR 20 lakhs on our books. And in our negotiations with our insurers, this is likely to increase, as Prashant actually highlighted earlier during the call, more in the range of 30%, 35% kind of retention levels.
So it will be broadly around 20%, 30% right now, the current number?
It is around 25%. Yes, 25% current number.
25%. And if it goes to INR 30 lakhs, INR 35 lakhs, then that will become 35%, 40% of the business or higher?
It will be in that range but more -- I don't want to give a specific number because it's still under negotiation.
Yes. So you can just speak about range should be fine. So it will be around 35, 40 or 40, 50.
No, no, no, no, no. So it will be lesser than 40, more I think between -- anywhere between 30 to 40.
The other part is just we're talking about margins for the business maybe this year around 25%, 26%. Maybe next year itself is in that range. So the growth from a VNB standpoint will broadly come from APE. So if you can comment a little bit around that. First is that December growth has been pretty strong for you and the industry as well. So how much of that growth has come from new product introduction? And what has been the pros there? Do you see growth again being strong in January? I do know that last month of the quarter is stronger and January is not really comparable from a December number. But do you see growth rate good? And how should the year shape up. And maybe anything for next year as well because when we look at your numbers, it's broadly been in that INR 350 crores to INR 450 crore number for multiple months during the year. So from June to November, so there is a lot of base which is favoring you. So next year, how do you see that growth if you can stack broadly will be helpful and even January, December.
I mean it will be hard for me to give you a number, but I think we are -- last 5 years, our growth rate by year CAGR is 19%. We've grown last 5 years, 19%. So one would look at accelerating that a little bit and doing better than the 5-year CAGR. Quarters will go up or down for a variety of reasons, so I will quite be driven. As far as this quarter is concerned, of course, we have had January because of Omicron variant, et cetera, we have seen impact on footfalls, we have seen impact on people falling sick. So we just need to see how can we please them. But one would work hard towards maintaining the growth trajectory and do well. Let's keep it at that level. But over a long period of time, like we mentioned in the month of December also when we met with many of you. We are out looking robust growth of better than 5-year CAGR kind of numbers over the next 4 or 5 years.
Yes. And can you just answer that question in December, how much of the growth was from new product introduction?
I don't have those numbers. Maybe we could provide that to you separately. But we have 2 new products that we launched, one in non-par and one in par but I must say a large part of growth also came from ULIP, which is no doubt a new product too.
Sure. And last thing from my end is your market share in Axis Bank channel, if you can comment on that.
Yes. I mean it goes up or down, but currently closer to maybe 80%.
We'll take the next question, which is from the line of Mr. Nischint Chawathe from Kotak Securities.
Most of my questions are answered. Just one clarification. And this was essentially on the rate hikes for protection policies. I think what you mentioned is that currently, you are in negotiations with the reinsurer and whatever is the hike that comes in, you will pass it on -- you will fully pass it on to your customers. And I think you also kind of mentioned that you're going to look at increasing the retention rates. So does it mean that the overall margins of the protection business go up after this?
Yes. I mean one will try to. But at the end, it's a combination of many things, market forces, how much margin can we debate, but one thing is very sure that the margin is not yet diluted on that area.
Sure. And just one last -- sorry, one more question is on the Axis Bank. I don't know if you mentioned it, but would you have some kind of a medium-term outlook or guidance from the bank in terms of where your market share which set I think you mentioned somewhere close to 80%.
We don't even know the market share. So what I told you is my high-level estimate. What I can tell you is the growth journey that we have crafted for ourselves, which is a very strong growth overall as well as from Banca channels, has been presented to the Board. Most of the members of top management are there on the board. So we have a common understanding of and blessing from Axis Bank towards driving the growth of Max Life Insurance. And I think they are very optimistic that we will continue to get the support which will be required to travel this on.
Thank you. Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for closing comments.
Thank you. Thank you, ladies and gentlemen, for joining on Max Financial's earnings call. We look forward to such interaction in the future. Wishing you a nice weekend -- nice and safe weekend. Thank you very much once again. Thank you.
Ladies and gentlemen, with this, we conclude today's conference call. On behalf of Max Financial Services Limited, we thank you for joining us, and you may now disconnect your lines.