Max Financial Services Ltd

NSE:MFSL

Earnings Call Transcript 2023-Q3

[Operator]

[Operator Instructions] Ladies and gentlemen, good day, and welcome to Max Financial Services Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Amrit Singh, Chief Financial Officer, Max Financial Services Limited and Max Life Insurance Company Limited. Thank you, and over to you, sir.

[Amrit Singh, executive]

Thank you. Good evening, everyone, and welcome to the earnings call of Max Financial Services for the quarter ended December '22. Results have been made available on our website as well as on stock exchange a few minutes back. I'm joined by Prashant Tripathy, MD and CEO of Max Life Insurance, will request Prashant to share key developments of the last quarter.

[Prashant Tripathy, executive]

Good evening, everyone. I will start with the developments with respect to sale of up to 20% of equity share capital of Max Life to Axis Bank and subsidiaries. Our plan included a series of steps to be taken to and the second last step of Max Financial Services acquiring balance 5.17% of MLI, Max Life Insurance stake from MSI has been concluded. Post this transaction, MSSL holding in MLI stands at 87%. Now as the next and last step, Axis and its subsidiaries have a right to acquire additional 7% stake in Max Life Insurance. In this regard, we would like to inform you that the parties had incurred into revised agreements. In terms of which Axis Bank and its subsidiaries have the right to purchase the balance 7% equity stake of Max Life from the company at fair market value using discounted cash flow method instead of valuation as per rule 11UA of the income tax rules 1962. This revision has been done consequent to the guidance received by Max Life from IRDAI. Moving to the major -- other major developments on our key strategic areas. Firstly, let's talk about our distribution and growth. In quarter 2, we had announced a series of tie-ups with new distribution partners, and we continue to successfully navigate the trajectory of enhancing our distribution capability in this quarter as well. In quarter 3, we have tied up with Ujjivan Small Finance Bank and have entered into a relationship with 2 new brokers from renowned financial services group. The contribution of business from these partners will become meaningful in coming years, and thus, we are hopeful and confident of projecting a sustainable growth for Max Life. In first 9 months, our new business -- total new business premium grew by 7% to INR 5,640 crores. Our proprietary channel APE resulted in a growth of 19% for the first 9 months, led by strong growth in both online and offline crop channels. Within online channels, we grew by 26%. In Protection category, we entered into new segments of NRI, homemakers and self-employed customers, which now contribute about 20%, 20% of term business on a run rate basis and has strengthened our leadership position in protection market, both on our website and partner's channels. In online savings market, we launched an industry-first short-term savings product with best-in-class returns to fuel our ambitions of becoming leaders in this market. This led to about 100% growth in savings run rate and enabled us to grow online savings portfolio by 4x year-on-year in the first 9 months of FY '23. Within the off-line channels, we saw a growth of 18% in the first 9 months, supported by growth in agency and direct channels. Within core agency, we have launched a program called "Way of Working" (WoW) with our consulting partner and we are trying to build discipline on input vectors with 38% year-on-year improvement in recruitment and 21% improvement in new agents performance in quarter 3. Our direct customer acquisition channels also witnessed improvement in frontline seller productivity of 17% down [ crores ] of 11%. Within the banca space, our overall banca channel degrew by about 9% in the 9 months of financial year '23 due to full-blown impact of open architecture and overall general slowdown observed in banking channels. The base impact of counter share is now almost ended, and we expect growth to come back in quarter 4, in line with the overall [ dregrowth ] in bank channels. Max Life share in Axis Bank is being maintained at close to about 70% since January of 2022. On product innovation front, which has been a key vector in driving our margins, Max Life has successfully created a new product category in online savings, homemaker segment, NRI, self-employed and has accelerated product innovation agenda. Product mix in the first 9 months of FY '23 is a PAR of 16%, Non PAR at 45%, ULIP at 32% and individual protection 7% on individual APE basis. In quarter 3, Max Life launched a new Non PAR offering named Smart Wealth Advantage Guarantee, which is also called SWAG, with first [ to ] industry features, giving the customer flexibility to collect [ customizing terms ], policy term, income start date and income period, et cetera. The product received a stellar response across all distribution channels. It became the most successful product in Max Life history as it was fastest to scale up to about INR 300 crores. This Non PAR offering supported in navigating our margins and VNB growth outlook for the year. However, because this new product launch, you will also notice that a mix of non-PAR within our product portfolio is artificially higher for the quarter. We launched 2 new protection plans in quarter 2, focusing on self-employed individuals, which continue to help us make further inroads into protection business. Our confidence in this category is further instilled both our recently concluded India Protection Quotient 5.0 survey conducted in association with Kantar. In a positive urban India has made huge strides with 5 percentage point increase in knowledge index over the last 5 years. However, term insurance ownership remains to be at only 30% signifying existence of a very wide opportunity for protection business. In line with our strategy to focus on retirement business, we have strengthened our current annuity offering, flexibility of premium payment term as well as extended entry ages to broad-based new customers. Our annuity business has grown substantially by more than 300% in 9 months of FY '23 as we advance on our trajectory of increasing penetration in this segment. Max Life Pension Fund Management has now received point-of-purchase, POP license, which will further accentuate the growth of retirement business. Coming to our commitment to customers and customer obsession as a theme across all the value chain, very happy to share that we remain committed to provide a significant value proposition to our customers and continuously work towards enhancing their overall experience. And to assess that, we measure our performance on customer experience through a globally established metric, Net Promoter Score. During the first 9 months of FY '23, we witnessed an improvement 3 points from 49 in March 22 to 52 in December '22 in the overall company NPS score. Max Life continues to be the market leader on 13th month persistency in terms of number of policies. In terms of premium 13-month persistency of regular limited paid premium was 83% and 61st month persistency at 51% for the period ending December '22. Max Life also bagged best customer initiative and Best Use of Relationship marketing at the Customer Fest Award 2022. Talking about digitization for efficiency intelligence, Max Life has been making significant investments in cloud in the quest of becoming a truly digital enterprise. We have migrated 54% of our entire infrastructure on cloud now. We have strengthened our underwriting capability further and launch --with the launch of AI-backed smart [ Go1 ] solution. It is an underwriting decision and normally the identifications to it to enhance decision accuracy. [Go 1] is integrated to Dolphin, which is our policy issuance and underwriting workflow to provide real-time anomaly in underwriting decision-making and prompts the underwriter to take corrective actions before submitting case decision. We are continuously digitizing the sales force to improve productivity and better the [ governance ], to enable better activity, traction and conversion, we have launched mSMART the sales management and activity monitoring tools launched across all channels. Customer servicing has been a special focus area for the company, and our work on digitization of [ POS ] processes has led to increase in straight-through process from 37% to 51%. Automation or advanced payouts for traditional policyholders has led to improvement in [ TAC ] from 7 days to 1 day and website revamp with new age homepage leading to reduced bounce rate by 19% and improved [ H2L ] by 15%. Our digital capability has stood the testimony of agility in integration, technology and new partners as we are able to onboard new brokers and banca partners in the [ core ] times. Overall, from a margin perspective, this quarter has been pretty satisfying. There are – there were, of course, some issues with respect to our new premium growth, but I'm very hopeful that as the impact of open architecture settles and the momentum at our banks reverses, we will be able to be back on the growth trajectory as far as new premium is concerned. With the optimism for quarter 4, I'm going to hand it over to Amrit Singh to talk about some of the numbers.

[Amrit Singh, executive]

Moving on to some key financial metrics. Consolidated revenue excluding [ investment ] income stands at INR 15,890 crores, a growth of 12% in the first 9 months FY '23. Consolidated PAT is at INR 399 crores, up 129%. Renewal premium grew by 16% to INR 10,548 crores for Max Life Insurance. Gross premium grew by 12% to INR 16,188 crores. The value of new business written over the period 9 months FY '23 stands at INR 1.79 crores versus INR 942 crores last year, representing a growth of approximately 25%. New business margins have improved from 25.1% to 31.8% for the period 9 months FY '23. Just for the quarter 3, VNB stands at INR 593 crores, which is an increase of 49% over previous quarter last year. Embedded value for 31st December 2022 is at INR 15,547 crores, which implies an operating return on EV on an annualized basis of 19.5%. Policyholder OpEx continues to improve to 14.3% from 15.1% year-on-year. The 9 months FY '23 profit before tax for Max Life is INR 438 crores, an improvement of 66% and profit after tax of Max Life is INR 376 crores. Max Life solvency ratio stands at 200%, and overall AUM as on 31st December '22 is at approximately INR 1.18 lakh crores, a growth of 16%. We continue to remain committed to our focus on inspiring people to increase value of their lives and are working across all areas of business to make this happen. We are happy to now take any questions that you may have, and I will hand over to the moderator to open the floor for questions.

[Operator]

[Operator Instructions] We have a post question from the line of Adarsh from CLSA.

[Adarsh Parasrampuria, analyst]

Is this better now.

[Operator]

Yes. Please go ahead.

[Adarsh Parasrampuria, analyst]

Hello.

[Operator]

Yes, sir. We can hear you.

[Adarsh Parasrampuria, analyst]

Okay. So question first on this Axis transaction that you all have repriced. Just wanted to understand, Prashant, is the first 13% done deal? Or is there any scope where that can get revised as well? And number two, if the pricing has changed from an Axis Bank perspective and given that the regulator wants to provide more flexibility around commission structures, would that involve some giveaway in terms of payouts over the medium term?

[Prashant Tripathy, executive]

So let me first give you the answer around 13%. I think 13% is already done and it's gone through the balance, 7% has to happen. It is proposed as per the guidance from regulators that we should be in pricing 7% on a discounted cash flow basis. Axis Bank has agreed to do that and is desirous from this perspective of long term because they believe that it is indeed a great investment, and it is their own entity that they would like to remain invested over a long period of time. So the methodology is going to get changed. In terms of commission guidelines, et cetera, it's quite conjecture at this point in time because no commission guideline has changed. At this point in time, as it stands, Axis Bank wants to make investment in Axis Bank -- in Max Life to acquire balance 7% at fair market value.

[Adarsh Parasrampuria, analyst]

Got it. Prashant, we can't quantify the change in cash flows for them? Or would it be possible for you to talk about it?

[Prashant Tripathy, executive]

No, it is -- currently, as no such discussion has taken place. It's the -- at the time when they're ready to acquire, we'll go ahead and do the cash flow -- the [ current ] cash flow valuation, whatever is the valuation they will acquire the 7% on that price.

[Adarsh Parasrampuria, analyst]

Perfect. Prashant, second question is, you did mention that the wallet share has now stabilized at 70%. Just wanted to understand in terms of the way one would look forward on this number, what do you need to do to remain at 70%? Do you see a scope to get back to 80, if you do something better at their counters? Or this should be the wallet share, one should expect is a more sustainable number? What's the risk to that?

[Prashant Tripathy, executive]

I would say you should expect that around 70% plus/minus 2%, 3% here and there. Otherwise, it doesn't look like that we will go back to 80%. So the sales number has been here about 70%.

[Adarsh Parasrampuria, analyst]

And last question is obviously on the Non PAR mix launches for products in both the mix and the margins change in the quarter. If you think a little more sustainably from the mix, either you want to keep a particular mix or if there are sales on a particular product over a period of time, do you want to take Non PAR higher even if not at this quarter level. Just wanted to understand Non PAR sales across the system has been going up, right, and the threshold various management at times have said 30% and the number goes up. So just wanted to understand, not only for this quarter, but over a medium term, is there any target mix? Or you just sell what is selling in the market, what customer wants?

[Prashant Tripathy, executive]

So basically, the Non PAR mix, we have desirous to keep in the range of 35% to 40%. That's our stated positions. And -- and a part of that is annuity, which is 6%. So I will say, around 40% is what will be our estimate over a medium-term basis, and we kind of benchmark our sales read with some of the other players. We appear to be in the same range. And I think our risk appetite will allow us. If we need to hold more capital for that and look at our solvency ratio, we will be open to that. What you see for this quarter is really an impact of a product launch, and it happens quite often that when you launch your product in the quarter. It has happened in past that ULIPs will go up. Generally, the new product take-up is very high across distribution channels. And hence, the -- the impact that you see of higher Non PAR and a consequent higher margin is something that will get reversed. When we look at next year or maybe a couple of quarters down the line, we do anticipate that our Non PAR mix will fall back to near about so 40%. And we will rebalance it with more diversion towards participating and some bit towards ULIP also.

[Adarsh Parasrampuria, analyst]

Got it. So from a trajectory of VNB margins, it should be a more smoother curve if you take 2 to 3 years. So any guidance that you all want to give on a steadier with your product mix steadier margin trajectory that you would aim for over the next couple of years?

[Prashant Tripathy, executive]

Yes. I could give you a range. I think the range will be similar to – we've landed anywhere between 27%, 28% will be a kind of range. And I would highlight to you that the life insurance industry is growing. And hence, there will be a [ bias ] towards making investments and increasing the investments towards building more distribution channels. So over a short period of time, and then a short 12 to 18 months, if we were to compromise a little bit of margin to achieve higher growth via buildup of offline distribution channel, our own proprietary distribution channel. The company will have a bias to do that.

[Operator]

[Operator Instructions] We have our next question from the line of Swarnabha Mukherjee from Batlivala & Karani Securities.

[Swarnabha Mukherjee, analyst]

Congrats first, for a good set of numbers. So first question, again, on the margins. So thank you for that change, 27%, 28%. But if I try to delineate this 39% margin this quarter. So just wanted to understand, I mean, how to think about the margin for the new product? Is it significantly higher than the blended level that we are seeing right now because of which we have landed up to this? Or is there any one-off, maybe more in terms of, say, nonoperating kind of numbers and interest rate movement or something like that, that is also behind this margin trajectory going up so significantly this quarter. So that would be the first question. And the second would be in terms of what you are seeing. So in the -- almost the month of January is now gone. So how have you seen the momentum at the banks you have alluded to that the future growth will depend on how the overall savings growth in the banking channel is. So in excess, what is the trend that you are seeing in terms of say insurance sales vis-à-vis deposits, how [ many ] they're focusing on deposits, if you can give some color?

[Amrit Singh, executive]

So I think on your question on product mix and margin, it's a result of higher than expected Non PAR mix, which is causing the overall margin to be high for this quarter. As you know, we generally target anywhere between 35% to 40% Non PAR as against that, our Non PAR mix actually increased upwards of 55%. Again, I will repeat that it is tactical and we will rebalance that going forward. It is the result of a new product launch, which has been fairly successful. And we find that when a new product launch happens for a couple of quarters, there could be a bias towards selling or picking up that new product. So that's the answer. And hence, the 39% that you see is artificially high this quarter. And hopefully, as we move forward, it will get rebalanced. So 39% is not a sustainable number going forward. On bank, I think suffice is to say that bank has been a big vector for growth for Max Life Insurance over the last 12 years. And -- there have been -- there will be periods where the bank will prioritize their core banking related subjects, which is what has happened over the last few quarters. We're very optimistic that as we move into FY '23, '24. So that will get rebalanced. And with open architecture or the deep impact of open architecture behind us, we are very hopeful that growth will start to come back. As we go through our business planning process, which is a common exercise done between us and the bank leadership team, we will discuss some of those things. And when our planning period is complete, I'll be in a better position to give you any guidance.

[Swarnabha Mukherjee, analyst]

Sure, sir. And just a follow-up on this margin thing again. The new product, which has come, is it, is the margin profile significantly different from the [indiscernible] plan Non PAR plan? And what would be, say, on a sustainable basis, how do you think the mix of these 2 products would be going [ ahead ]?

[Amrit Singh, executive]

So Swarnabha, as we've been highlighting our calls, there are many levers within the Non PAR designs that can be leveraged upon, which is a mix of the PPT variants, endowment income and all of those elements around there. So using some of those mix and levers is what we kind of improve upon the margin profile – we -- needless to say we have held on to the margin profile, there is no deterioration in the margin proposed as Prashant kind of spoke about, it is coming out of the mix, which is driving the margins of the quarter.

[Swarnabha Mukherjee, analyst]

Sure, sir. Very helpful. Sir, last one quickly. In terms of individual protection, we have seen some growth in this category in this quarter. So what is driving that is largely [ pure term ] or ROP, how that mix has been? Some comments on that would be very helpful.

[Amrit Singh, executive]

Yes. I think the ROP element of it has been very static for us over the quarters. We have been more around 15% in our mix as ROP for a couple of quarters. And that actually is -- it's a reduction over last year period. So that's not necessarily the [ shift ]. And I won't say it healthy, I think it's still flattish is how I will see it. There are much more opportunities. And as Prashant spoke is to remark that the we concluded survey, which we actually do over many cities and many customers continues to give us that belief of saying that there is huge underpenetration in protection. And as time is progressing, both the elements of demand and supply are actually improving upon and that we continue to be very optimistic on this long-term [ opportunity of ] protection.

[Operator]

We have our next question from the line of Rajesh Mittal from HDFC Securities.

[Sahej Mittal, analyst]

Am I audible?

[Operator]

Yes.

[Amrit Singh, executive]

Yes, Sahej. Go ahead, please.

[Sahej Mittal, analyst]

So 2 questions. So VNB margins have been -- so you stated that VNB margins have been better on account of better profitability even within products, right? So if you can just give us some color around which all are these products where we are seeing improved margins [ ex ] of the mix change. So that is one. Second is on the agency side. So how should we look at the benefits which will flowing from new initiatives which we have taken on the agency side? That's second.And do you anticipate any risk flowing in from the new regulation, which is allowing 9 partners to [ impaneled ] with a single bank. So even earlier when [indiscernible] with Axis Bank, we saw as [ Max Life's ] slowing out of Max Life. So is there a possibility, how are we looking at it?

[Amrit Singh, executive]

So on -- I'll take the first question, and I'll request to Prashant to come in for the remaining 2 questions that you've asked. I think on margins, the reality is that all our products, underlying products. There is some early improvements in the margin. For example, our participating design margin profiles are better. This is largely because of the product that we had launched last financial year, which is now running through in the full year. So there is that positive [ just ] coming in that margin profile. Our Non PAR design, because of all the various factors that we put in place is demonstrating a better profile. Protection because of repricing that we have done has holding or slightly better margin profiles. So these are some reasons, but the dominant reason for margins to improve is actually a mix as an answer.

[Prashant Tripathy, executive]

On your other 2 questions. First question on the agency. Max Life Insurance has a core belief in agency and in the first decade of our existence, we were an agency-led player. And historically, we have been known for higher than industry productivity, and we have run a fairly successful agency [ modeling part ]. As we move forward, the desire is to expand agency and increase the productivity as well as make investments in creating more units of agency. And we are quite committed to doing that. We are actually -- we embarked a couple of quarters ago on a long-term program with one of the renowned consulting partners to work for 3 years to grow agency. And hence, as the outlook agency, please expect that the fruits of that program will start to appear. And it is very hard for me to give you a number, but one would be desirous to have a very strong growth from agency coming forward. So the guidance from the shareholders and board is to make investment in agency, and that's what we are going to [ over next ] a few quarters. So that's the answer on agency.On your question on counter share and [ 3 to 9 ]. I think we should see this as more opportunity than risk. We are signing up with new banks, with Axis Bank becoming our promoters and they telling you what you should expect in terms of counter share. I am not anticipating that there will be big depletion of the counter share at Axis Bank. We are working very closely with other bank partners to protect our counter share on those stocks. So at the same time, it is an opportunity that has opened from our perspective to acquire also we are very aggressively working on our business development efforts to partner with as many banks as possible. So my guidance with respect to this is, I don't anticipate significant risk from 3 to 9 and [ those ] things should remain stable.

[Sahej Mittal, analyst]

Right. And lastly, what would be the proportion of sales per channel deployed in Axis Bank branches between Max and our counterpart? And the second is, how should we look at segment-wise growth for the next 2 years? Maybe if you can give us some sense around maybe Non PAR or a retail protection given that we are seeing some uptake -- some recovery in the retail protection as well.

[Amrit Singh, executive]

Yes. In terms of people deployed, we are currently at about [ 60-40 ], and we intend to improve that. We have committed to make more and more investments. We are also making investment in the alternate channels of Axis Bank, where our team is being built. So from an investment perspective and deployment perspective, we will always be -- always double down in terms of our resources, which are deployed in Axis Bank. With respect to your question on where the growth will come, despite not huge growth in protection as a company, we are quite committed to protection as a category and as the outlook, we definitely feel that growth will be come our way. It needs to we have the last 3, 2, 3 quarters, we have been working quite meticulously or looking out at our process, looking at issuance, looking at underwriting, looking at our relationship with our reinsurance partners, new product categories, new segments. And I think all that hopefully will come together for us to deliver good growth in Protection segment. So that area is -- is strategic to us, both protection and retirement are strategic to us, and we will make all strides to deliver good growth in those 2 areas. Very hard for me to give you growth rates by par and Non PAR, [ UL ], et cetera, at this point of time, predominantly because of the rebalance that will take place, and that will be quite artificial. So we look at growth from -- at a total level. And then within that, we try to optimize our margins, and that will be the strategy we will continue to follow.

[Sahej Mittal, analyst]

And any plans to increase this to 60-40 proportion?

[Amrit Singh, executive]

Yes, it will be on the base of discussion. But yes, there is a plan to increase.

[Operator]

We have a next question from the line of Neeraj Toshniwal from UBS India. Mr. Niraj Toshniwal, can you please unmute your line?

[Neeraj Toshniwal, analyst]

Hello. Can you hear me?

[Operator]

I can hear you. Yes.

[Neeraj Toshniwal, analyst]

So first question is on protection. So peers have reported a [ mid-term ] sequential growth. So [ far that ] you know we have been quite steady. So any new trends you're picking up or the conversations with insurers which you might be sounding more positive given some of your payer has kind of mentioned that. So [ what are ] trends where we can keep prediction moving from this [indiscernible] in FY '24, particularly?

[Amrit Singh, executive]

So some of those discussions are going Neeraj, and hence it will be hard for me to give you the detail, but at this point in time, I can only share my optimism with respect to potential growth.

[Neeraj Toshniwal, analyst]

Sir, any relaxations you can... see from these [indiscernible] happening?

[Amrit Singh, executive]

Yes. I mean there's generally a balance that one needs to strike between price relaxation, underwriting [ grid ], et cetera. And we need to hit the sweet spot, which is what we are trying to do.

[Neeraj Toshniwal, analyst]

Got it. And in terms of Non Par saving, obviously, we have been phenomenally well here, but I wanted to know the trajectory, as you mentioned, 35% to 40% that includes annuity also, right? I mean, the kind of mix we are targeting? And where are we in terms of annuity right now, if you can give in terms of absolute numbers will be more [ comparable ]?

[Amrit Singh, executive]

So I can't correct it. My team just informed me that the Non PAR, which is the savings part is going to be between 35% to 40% and plus annuities of -- about 6% over and above [indiscernible] of our individual APE is right now annuity approximately 6%, which -- on [ AFIP ] basis, unadjusted is around INR 950 crores of annuity.

[Neeraj Toshniwal, analyst]

And our last question will be on the online, how much of this Non Par savings would have come from online kind of growth -- actually because I think you mentioned we have so new economic growth in online. So if you can give that number?

[Amrit Singh, executive]

So this is -- annuity growth is coming mostly from our off-line channels.

[Neeraj Toshniwal, analyst]

No, annuity, Non par savings or the new products [indiscernible] driven or online as well.

[Prashant Tripathy, executive]

Neeraj, there are multiple new products. There is a product that we call as smart fixed return product. And then there is a -- which largely is an online product, which is -- and then we also have a smart wealth advantage guarantee product, the [indiscernible] product, which is offline product. All the growth that we spoke of, there is a large acceptance of these [indiscernible]products in our off-line channel. The online channel also has leveraged [ risk ], smart FD product there, our premiums have grown quite robust on the savings side to drive that growth. But there are 2 different segments of products that we're talking about here.

[Neeraj Toshniwal, analyst]

Got it. And if I look at the last year Q4, the [ leases ] are strong in terms of Non Par savings [indiscernible] product we did last year. So I want to think about the mix for this year? Because right now, obviously, look like Non PAR savings is quite heavy. So you kind of start correcting from Q4 itself or it will be a couple of quarters to kind of post credit or maybe [indiscernible] target too.

[Amrit Singh, executive]

It will take a couple of quarters firstly. But the sharp number of quarter 3 that you saw, there is always a waning of [ effect ] that will happen. But quarter 4 will also be a bit higher on the nonparticipating side.

[Operator]

We have next question from the line of Avinash Singh from Emkay Global Financial Services.

[Avinash Singh, analyst]

Yes. operating a strong set of numbers. Question one, I don't know if I missed it. Considering now is the process, the new agreement with Axis Bank regarding this 7% [indiscernible]. Any sort of a time line in mind and considering that now whatever amount, but the cash outgo for Axis Bank increases, will this 7% acquisition be likely happening in one go or maybe multiple tranche? And I mean, that's the first question.

[Amrit Singh, executive]

I think Prashant answered, you probably joined a bit late. So there is keen interest at Axis Bank to do it as fast as possible, but there are internal process that they are working towards. At this point in time, it will be very difficult for us to indicate any time line to you, except for the fact that Axis as a shareholder, there is a keen interest to do it as quickly as they can.

[Operator]

We have a next question from the line of Madhukar Ladha from Novama.

[Madhukar Ladha, analyst]

First, I think can you clarify what you mentioned on the Non PAR sort of mix that you want? I think you first mentioned that you would target about 40% in the mix, and that will include annuity. And then was there some division to it?

[Amrit Singh, executive]

Yes. So Prashant mentioned 35% to 40% is our Non PAR, which actually in our mind doesn't include the annuity business. Annuity businesses in incremental [ rate operation and annuity is ] [indiscernible] we keep building.

[Madhukar Ladha, analyst]

Okay. So 35% to 40% is excluding annuity, so then there will be plus annuity in addition to [indiscernible]. Okay. Second, you mentioned in the PPT that -- the VNB margin also improved because of lower new business strain. I wanted to understand -- and that's quite visible as well in the disclosure. And especially if you look at Q3, then the total APE has declined, I think, about 5% year-over-year, but we see a very sharp reduction in new business strain. And this probably is because of which channel, something to do with [ Tanamix ]. Can you like sort of give us some explanation as to how this is happening?

[Amrit Singh, executive]

I am unable to relate to your comment that you're saying which part of the slide are you referring where we have mentioned VNB margin and new business strain to come together?

[Madhukar Ladha, analyst]

So if you look at your [indiscernible].

[Amrit Singh, executive]

Madhukar, margin improvement is a mixed play.

[Madhukar Ladha, analyst]

So achieved new business margin. No, I understand that, but I think there was also some on the another slide.

[Amrit Singh, executive]

But we saw profit. I think if you're asking profit profile as the business growth has been lower. So there is a lower business strain, which kind of comes into.

[Madhukar Ladha, analyst]

But if you look at the business growth, that it seems that the new business strain reduction is much larger than the decline in new business, right, decline in APE. So there seems to be some channels, some product where we are -- yes, sorry, where we are paying lower commissions or there is some advantage of this.

[Amrit Singh, executive]

Yes. Actually, Madhukar, maybe we should speak offline because I'm unable to understand the question that you're asking in which specific area that you're pointing because we don't see -- there is no reduction in commission or anything like that. It's a fairly product mix channel kind of a play which is supporting it. Maybe I'll understand it a bit better from you, but I'm unable to understand the question at this point in time.

[Operator]

We have our next question from the line of Pratik Pota from Nippon India Mutual Fund.

[Prateek Poddar, analyst]

Sir, just words. A couple of questions. One is when I see your distribution mix. Propriety channels seems to have done much better versus banka. I would have thought a part of this would have played into the margins, but the margin is only a function of product mix as you've explained. So am I missing something here?

[Amrit Singh, executive]

It's actually not -- it's largely pretty coming out of Non PAR because this product has also got picked up by our bank partners as well. So even though the sales volumes are lower, but because the overall Non PAR is higher, it is actually supporting the margin profile.

[Prateek Poddar, analyst]

Got it. And second, sir, I was a bit surprised when you said that you would maintain market share at 70%. Our understanding was that when we lost a bit of market share in the Axis channel, we had ramped up the number of employees in that channel, but to get back or at least gain a bit of market share. And with the base now coming into effect, I would have thought that you would start gaining market share, right? So why are we saying that we would...

[Prashant Tripathy, executive]

I think the market share is was going down. We need to -- in the quarter 2, it came below 70%. So that investment was needed. You need to understand that when a new player comes on board as the people deployed become more and more mature, productivity of those [ sources ] become better. So the threat actually over next 18 months with an open architecture competitor is higher and [ on ] to deploy more resources as we counter that. Very happy with the fact that we have been able to maintain the counter share at 70% level. And going forward, there will be attempt made to keep it at that level.

[Prateek Poddar, analyst]

So, Prashant, but as your new manpower deployed becomes more mature, you will claw back market share, right, isn't it?

[Prashant Tripathy, executive]

I think you have to look at perhaps the industry on how it works. I think we have seen that the counter share and people deployment kind of go hand in hand. And with a 60% 60 to 40 ratio, achieving a 70% target is quite credible. And it talks about good execution on ground.

[Prateek Poddar, analyst]

And lastly, I don't know whether you guys can answer this question, but the promoter pledge, despite whatever selling has happened and the recent disclosures on the exchanges seem to suggest that the promoter pledge is not going down. How should I think about that?

[Amrit Singh, executive]

I think it will be a question that we should back outside of this [indiscernible] that is I honestly don't know.

[Operator]

We have our next question from the line of Varun [indiscernible] from Kotak Securities.

[Unknown Analyst]

I just wanted to ask a question too the new business stream. So if I look at the numbers for this quarter, it is down like 38%, while APE was down 5%. Can you give any particular reason why this has happened something regarding there?

[Amrit Singh, executive]

Why don't can you say this question again? Sorry, I didn't pick up the question.

[Unknown Analyst]

Okay. My question is on new business strain. It's down 38% this quarter, if I'm not wrong, while APE was down 5%. Is there any driver for this?

[Amrit Singh, executive]

You're saying the strain for the quarter is down to 38%, whereas the APE was only down 5%. So it would be a mix of the channel elements included some bit of improvement in the strain profile of our Non PAR designs as well, which we are getting a benefit as the new product that we have launched.

[Operator]

We have our next question from the line of Sanketh Godha from Spark Capital.

[Sanketh Godha, analyst]

Thank you for the opportunity. With respect to the margin, just -- just wanted to understand that -- I mean, other than the margin mix -- sorry, product exchange, whether there is any assumption change which has happened either with respect to persistency or cost [indiscernible], anything which has driven that margin expansion? Or it's [ similar ] what we have assumed in FY '22?

[Amrit Singh, executive]

So assumption review process, we have concluded our review process of assumptions for this financial year and in this particular quarter that has been accounted for and tested for. There is no gain coming out of assumption change. Sanketh if your question is that we have done assumption change is just creating an gain. Overall, the assumption changes have not changed the margin profiles materially. There have been certain pluses and minus, but overall, it has been...

[Sanketh Godha, analyst]

Neutral... Yes. Okay. Got it. One sec. And another question, I just wanted to understand, is that -- you said that we deployed more people relatively compared to the last year in bank, Axis Bank. But still, we have managed to control the cost resistance. Obviously, the cost ratio has improved compared to what it was last year. Sir, I just wanted to understand which way those low-hanging forces were available, where you have managed to cut the cost despite deploying more people are hiring more people.

[Amrit Singh, executive]

So on distribution front, we have continued to remain committed to our investment. In fact, the distribution OpEx levels has increased in line with how we had kind of thought. It's some of the benefits on the nondistribution side, some variable sales element, overall sales being lower. Those have actually health and protection [ in you're aware ] medical cost and [ stamp duties ] and some of those things are involved. These are some areas which is helping us overall.

[Sanketh Godha, analyst]

Okay. And last one, the 2 questions I have. One is to understand if you can quantify the economic variance number for the 9 months? And second, is that – annuity you said [indiscernible] I mean if you -- I believe the regular pay was launched in the current quarter. So any color with respect to the mix in APE terms with [indiscernible] premiums you can do? And finally, what is our dividend strategy going ahead? [indiscernible] We will -- given solvency at [ 200 ], we -- how we will relook at our dividend payment strategy or [indiscernible] structure that can happen, probably we will not start paying dividend?

[Amrit Singh, executive]

So you have asked 3 questions, actually. One is the nonoperating variance -- that largely that was around INR 657 crores for the 9-month period, largely coming out of negative impact of interest rates. Okay.

[Sanketh Godha, analyst]

Okay. And if the mix, which you said 6% is individual APE?

[Amrit Singh, executive]

Yes, [indiscernible] annuity APE mix. I think of the 6% individual APE that I said, around 2% -- 2% to 3% is single premium and 3% to 4% is regular premium.

[Sanketh Godha, analyst]

Okay. And dividend?

[Amrit Singh, executive]

So on dividend, we are not intending – Max Life is not intending to give any dividends to Max Financial Services. We would like to retain the profit profiles. So as to continue supporting the growth aspiration of [ function ].

[Operator]

We have a next question from the line of Madhukar Ladha from Novama.

[Madhukar Ladha, analyst]

Hi. Thank you again for taking my question. So see, you mentioned also that you would try and develop some alternate channels within Axis. I wanted to understand that statement better within Axis or so – is there a thought process also to grow the [ credit ] protect business over there?

[Amrit Singh, executive]

I think beyond our credit protect, as we look at branch banking, there are several other areas where we need to perhaps do a better job, and they were not as focused on, which are as follows i.e. from the corporate banking group, where we believe that we could sell a lot of business insurance, which is where we are ramping up, the call center, where the inbound and outbound calls are taking place, generating the leads and fulfilling them. Bharat banking is another area where we intend to work with the bank. They're also setting up a fulfillment center or direct sales [ source ] kind of team for selling to the customers who are -- who don't have any relationship managers. So setting up that team. There is a lot of work that we are doing on launching a D2C capability and products on Axis Bank counters. When I refer to alternate channels, these are channels. These channels this year are expected to deliver anywhere between [ 200 to 250 ], and we are hoping that with focus and attention, we should be able to grow it at significantly higher pace. So that's [ good thing ].

[Operator]

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Amrit Singh for closing comments. Over to you, sir.

[Amrit Singh, executive]

Thank you. Thank you, ladies and gentlemen, for being so late on the Max Life's earnings call. We look forward to more interaction in the future. Thank you, and good night.

[Operator]

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