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Max Financial Services Ltd
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Ladies and gentlemen, good day, and welcome to Max Financial Services Limited Q4 and Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Jatin Khanna, CFO, Max Financial Services Limited. Thank you, and over to you, sir.
Thank you. Good morning, ladies and gentlemen, thank you for being part of Max Financial Services Earnings Call. My name is Jatin Khanna, the CFO for Max Financial Services. Before proceeding with the performance highlights, I'd like to introduce my other colleagues on the call with me. I have with me Mr. Prashant Tripathy, who is the MD and CEO for Max Life; Mr. Amrit Singh, who is the CFO and [ EVP ] for Max Life ; Mr. Ashish Taneja who is a senior leader from our actuarial function. We're delighted to be hosting this call after a pause of few quarters. As you know, we were in middle of a [ seminal ] transaction, which will shape up the course of Max Life for the future, so we had to pause for a while. Glad to be back to our quarterly rhythm. I'm also glad that Axis has become the co-promoter of Max Life with 13% stake. And the [ system ] received about 736 crore on [indiscernible] to Axis Bank, and Axis has a right to acquire an additional 7% stake. This deal disclosure marks the new phase of growth and stability for Max Life. We've now gone on to the third step of the transaction and filed an application with [ IRDAI ] for acquiring residual stake of 5.17% from MSI in Max Life, which will entail an outflow of about around 843 crore. We have around 894 crore in our balance sheet to take care of this requirement. So we are well covered. We are hopeful that concluding this transaction in the coming quarter, we're also hopeful of concluding the 7% state sale transaction to Axis in the next 12 to 18 months. I'd imagine you'll have some further nuanced questions on the transaction structure. However, since we have to still conclude many other steps of the transaction, my request will be to refrain from seeking any further details of the transaction structure at this stage. We will be happy to address those at an appropriate time. I will request you to restrict your questions on the call for the performance of MFS and Max Life. Now quick highlights of our business performance for FY '21. Our consolidated revenue, excluding investment income for FY '21 was at 18,815 crore, a strong growth of 18% in the most challenging business environment. Consolidated tax at 560 crore has grown at a strong 105%. Our growth in profits was largely aided by one off factors. Such as reversion of provision for impairment and financial assets and lower tax expense. These one-off gains were partly offset by higher new business strain due shift in product mix towards non-PAR business. Now moving on to the key business highlights for Max Life. Despite COVID-made challenges, FY '21 was the most successful year for Max Life. Our successful closure of Axis transaction and renewal of [ the bank's ] partnership for 5 years, sets the stage for a sustainable and profitable growth trajectory of Max Life. Better high new business market share of 10.8% improved by 107 basis points. Most importantly, Max Life achieved one of the industry-leading value of new business growth of 39%. We only almost doubled in the last 3 years to 249 crore in FY '21. [ MTM ] also expanded by 360 bps to an 25.2%, primarily driven by increased non-PAR and protection business and cost-saving initiatives. Max Life NPV grows by 19% year-on-year to about 11,834 crores. NPV on an operating basis has grown at 18.5% annualized, impacted by COVID provisions. However, including nonoperating variances, our NPV is at 22.4%. Max Life individual APE has grown by 19% to [ 4718 crores ] in FY '21. Our Q4 sales grew by 36%, driven by both proprietary and partnership channels. Max Life has outperformed the industry growth on new sales individual by growing 19% in FY '21 versus a private insurance growth of 8%. Highest-ever individual sum assured showed at 2.2 lakh crore. Individual new business sum assured grew by 22% versus 6% for private sector. The market churn on sum assured touched about 15.6% and very pleased to share that we enjoy a third rank in the industry when it comes to the sum assured. So really, our protection focus comes out of this vector. Our overall protection sales grew 28% year-on-year, higher than the overall company growth. Individual protection sales has grown by 40% year-on-year, and contribution to overall sales has improved from 8% in previous year to 9% in the current year. Group protection sales grew by 10% year-on-year, ranked #1 on e-commerce, whereas online and web [indiscernible] marketplace or protection based on our market intelligence. So very happy to share that. Our gross premium grew by 19% to 19,018 crore in FY '21 with Q4 growth of 21%. Renewal premiums also grew by 15% to 12,192 crore. There has been an improvement in 13-month purchase currency by 80 bps to 84.1% and [ 61st month ] versus '20 by 190 bps to 54%. Strong roots and investments in digital platforms enable transition to fully digital sales, recruitment, training and governance in 4 weeks during the lockdown period. Agility and technology enabled faster new product launches, so we launched [ 14 ] new stock projects or modified some products, and there -- and we launched some riders as well over the last 12 months. It's enabled sales momentum and margin improvement. During FY '21, company experienced 121 crore of net claims on account of COVID-19, which was utilized at the provision held at the start of the year. We have made further provisions in excess of 500 crores to utilize any adverse impact of COVID going forward. Our claims rate ratio improved by further 13 bps to 99.35% despite all the difficulties faced in this current environment and the propensity of claims also went higher because of the COVID implication. Very happy to share that we were ranked #1 in customer loyalty as per the annual syndicated survey of the policyholders by Kantar. We were ranked #2 in customer grievance incident rate, as quarter 3 disclosure with [indiscernible] movement [indiscernible] count and incident rates. We've been extremely efficient in our capital management, where our ROE is consistently hovering around 20%, which is, again, best-in-class. Our solvency surplus is at 1,341 crores, a solvency ratio of around 196%. Our AUM as of March '21 stood at 90,000 crore, growing at 32% year-on-year. And our PAR AUM has grown by about 36% year-on-year. We are now the fourth largest asset manager of life insurances. We also improved the ranking by 10 places to get to 24 amongst the great places to work for, and was among the best workplaces in BFSI space. So to really sum up, Max Life will continue its trajectory of driving strong shareholder outcomes with Axis as a new JV partner. With partnership with Axis, [indiscernible] will be strengthened and the [indiscernible] bancassurance renewed for another 5 years. Significant investments in proprietary and digital channels, razor sharp focus towards cost and improvement in protection mix. We are progressing well despite the current challenges. Good progress made in 5 pillars where MaxLife's strategy with predictable and sustainable growth, product innovation to drive margins, customer centricity across the value chain, digitization and analytics as a foundation and augmentation of human capital, as I had detailed above. So on that note, we'll hand over to the moderator to open the floor for Q&A.
[Operator Instructions] The first question is from the line of Nitin Aggarwal from Motilal Oswal Securities.
Congratulations on good results. So my first question is like how sufficient do you think will this provision be towards the COVID claims that we have prepared, 500-odd crores? Or put in other words, like what sort of increase in mortality claims are you prepared for while making this [indiscernible]? And how much of these provisions have actually flown through the P&L, because a lot of it has flown through the EV. So any number that has gone to the P&L also.
Thank you, Nitin. We feel confident about the provisions that we are carrying. Like I mentioned to you, throughout the year last year, we had about 121 crores, as Jatin mentioned, of claims.So as a reference point, we are carrying out 4x lower, 4x more to our P&L as it relates to our embedded value. So I feel quite confident. However, sitting today with the numbers coming down now, there is reasonable confidence that we'll be able to manage. But as you know, there is a bit of unpredictability. So this is our best judgment at this point of time. I'm reasonably sure we will be able to manage it within this number. But one, of course, needs to be [ mindful ] about it also.
Okay, and how much of these [ provision ] have flown through the payment?
So this is provision. Actually, we have been a prudent organization, and we always carried a pandemic result, et cetera. So we just re-classed that, and will consume that. So have not taken it through the P&L because it was already available. It's a part of prudent balance sheet planning for a life insurance company, and very happy that we were always prepared for any pandemic.
Okay. So second is, are we now likely to see an increase in pricing of term products, especially the group term? And any steps that we are taking to mitigate that?
Yes. I mean one is mindful about COVID claim experiences, and honestly, a large part of that is reinsured also. And we might see price increases, but one -- because we play in marketplace, and we are one of the largest players on aggregators counters, we will attempt to be competitive and balance it out. So to answer your question, is there a price increase on individual business, there might be some. On the group side. I think the prices are being increased on the GTL side, which is employer-employee kind of areas. That's where we have seen higher instances of claims. So those are 2 areas where we are reviewing the prices. And as you know, the group side is yearly renewable contracts. So it keeps changing depending on the instances of claims. That's a very normal thing, the way it's planned. But to summarize, we'll be dynamic. We do see protection as a long-term [ best ] of insurance. There is a lot of penetration still to happen. So we will take those calls to optimize for customers, to optimize for growth and also to optimize for our margin.
Okay. Sure. And lastly, like, a question on the persistency. Now the -- I see that we have made good progress on claims through our customer loyalty scores recently. All of these indicators are improving. But on a comparative basis, we are still a little lower on the persistency numbers. So why is this so versus the peers? And where do you see this persistency in the medium term?
Yes. In the medium term, you will see an upside. As for our models, we do expect the numbers to go up closer to about 86-odd percent. So you should see about 12 basis points. We are on a journey to increase our persistency, there's a lot of underlying work which is taking place. At the end of the day, it is a combination of historical product mix, approach to how the channels have performed. So there's a lot of planning with goes behind it, and I'm hoping that over a medium-term basis, where you will see growth. We had a rather difficult first half, where you would have seen through our reports last year that we had a bit of a persistency decline year-on-year. We worked on it, and that's been covered. Now both 13th month as well as 16th [ first month ] persistency are about 100 to 200 basis points higher than how they were the year before. And I think we will be on an upward trajectory from here on.
And just to clarify here. Is it possible to share like how much indicator this number will be, including the growth period? Because now month is over? We are already past that 30 days over the quarter end. So because last year, we reported 87% on FY '20. So...
Yes. I mean the -- if we want -- if we were to compare apple-to-apple because grace period means nothing, actually. I mean you compute persistency, but if you were to kind of eliminate the impact of grace period, this year, we will be significantly better than last year.
So [ 87 ] was what you get [indiscernible] into it?
Let's say, 87 was taking into account the impact of grace period. Assuming that there was no grace period, it wouldn't have been 87, it would have been a lower number. So wherever today we are versus eliminating the impact of grace period, we are significantly higher than last year.
The next question is from the line of Sangeeta Purushottam from Cogito Advisors.
Yes, this is [indiscernible], Sangeeta's partner. Congratulations for a great set of numbers. I had 2 sets of questions. The first set of questions is really related to marketing, and what I wanted to understand in some detail is that -- what has really led to your increase in market share? What is your hypothesis? And if you could link it to your IMRB results from consumer loyalty. If you can help give some detail as to what were the measures of loyalty on which you have emerged higher than the other. And correlate this to the question of having increased market share or -- and/or any other reasons that you have for -- getting a fundamental site, and why do you think that you have gained market share?
So a direct mathematical correlation typically is very hard, but let me kind of break down first the Kantar survey and then our overall growth. Kantar's survey is the survey which is done on the customers of respective companies, which means the company -- the research company will go to customers of different life insurance companies and they will seek -- or run a questionnaire with respect to how they feel about owning the policy of that particular company. How happy they are, how engaged do they believe, et cetera. It's a composite score that they come up with. They ask the questions the questionnaire [indiscernible]. On that basis, Max Life Insurance is the top company, the top private company based on customer loyalty. It indicates that our customers are most loyal compared to how the customers of other companies feel. That's the -- that's point number one. When you look at it in terms of growth, I think growth is a combination of 2 things: acquiring new customers, as well as upselling to your existing customers. Now by having more loyal customers, the ability to upsell is pretty high, and we have seen increase in our upsell ratio. But a very large part of growth is also contributed by acquisition of new customers and acquisition of new customers happens because of many things, because of expansion through distribution network, it happens because of new product categories, which you end up launching. And the normal marketing efforts that is put in, in terms of promoting the brand and reaching out to the customers. So in a way, they are linked, but not in a direct way. The ability to or the propensity for the customers to buy because they are more loyal does contribute to growth, but there are many other factors which also contribute to growth, including acquisition of new customers.
Okay. Let me just rephrase my question. If I were to, let's say, ask the Hindustan leader employee as to why has he gained share versus Procter & Gamble [ investment ] [indiscernible] or [ referring ] to something. He may see that we have -- because we have a better product or we have better distribution or something else. [indiscernible] insight as to what is making you a gainer in the market share? The fact that you gained market share, you growth is there for us to see. I was trying to understand what you think is the why.
Okay. Three or 4 reasons, actually. One, most important reasons is strangle hold distribution, predominantly being caused by our promoter Axis Bank. It was a key reason. Axis Bank demonstrated very high rate of acquisition of our own -- of customers. Through our progress in expanding our product through protection and non-PAR sales, that also caused the market share to go up. Those are 2 categories where we saw disproportionate growth come through. Number three is the strength of the brand. That -- our contribution score has jumped quite significantly, and that has led to more customer traction. And last but not the least, I think overall, focus on our distributed or diversified channel mix. While on one side, Axis did very well. Towards the second half of the year, we also found our own channels as well as Yes Bank channel to grow quite considerably versus the market average. Those are reasons why we believe we gained market share.
If I could ask a second question. In terms of the product we have going forward, see I was thinking, what are we...
Hello?
Sir, you're breaking in between.
Yes. You're breaking in between. Can you repeat?
Would you like to join back the queue?
Join back.
Okay. All right. All right. Okay.
We can't hear you.
Yes. We can't hear you, unfortunately.
The next question is from the line of Ajox Frederick from B&K Securities.
Congrats on a good set of numbers, sir. Sir, I have a question -- it's a very different question on taking a provisioning on VNB, particularly the margin impact we saw. So -- for COVID [ just to be clear ]. So does this mean that this is factoring in the unexpected COVID claims of FY '21 and pricing was not done for COVID when we started selling these products? Is my understanding right?
Amrit, you want to take this?
Yes. So Ajox, thank you for the question. Ajox, this is -- you will say, tightening of mortality rate assumption that you can see on COVID. And largely, it is -- this tightening is being done in duration 1 and duration 2. So whatever we sold in FY '21, obviously, the claims coming in the same year are always little lower, but the claim that could come in FY '22 or probably next FY '23 given how -- and when the waves kind of settle, this is that additional tightening of the mortality once that we have done. I hope that's clear.
Yes. Yes. That's very clear, sir. And sir, my second question is on the channel. Some of which we do indicates again a focus towards traditional business PAR for business, basically. Is it a strategy to diversify this mix and basically normalize the PAR -- I mean non-PAR not going beyond a point. So is this the strategy to divest it [indiscernible] PAR...
Yes. Yes to both the questions. It's a constant effort to remain diversified. You will notice that our mix on non-PAR actually went up this year, but you would also notice that it will -- it was in the range of 30% to 35%. We didn't allow it to go beyond of that. And you will also find that there is a distinct bias towards writing more and more traditional plans within that savings and PAR savings and protection through our own channels. And you will see that we write a little bit more non-PAR and [ unit ] through our partner channel. So that's the part of the strategy to remain diversified, align the product mix to the channel for reaching out to the customers and meeting the demands as well as optimizing the overall margins for the company.
Got it, sir. Just one additional question again on some of the checks were indicating that focus was slightly on the lower end for Smart Secure Plus. Usually, when a new product is launched there is very strong focus in that product. And like we saw for [indiscernible] plan. But this Max Secure Plus is a very innovative product out there, but push is not very aggressive. And now that we're expecting one more round of price hike on protection side, what is the broad sense that -- like if you can answer me [indiscernible] like category is one is some protection demand out there. And two is, why are we slightly more cautious on this product?
So it's -- let me answer the second question first. I have -- we have always maintained that Max Life believes in a diversified product mix. We don't like to put all eggs in 1 basket, and ever since the evolution of the industry you would have found that Max Life has maintained a market -- a product mix, which is a bit away from how the normal market will be. Even during the peak period when the entire industry was selling more and more ULIP, we were selling more traditional plans. So we always like to remain balanced. And it is for the purposes of ensuring that we are meeting the different customer segments because these products are important for different segments, and we make sure that we meet a variety of needs for the customers. So that's the second question. On the first part...
I think the question was he -- sorry to interject. I think Ajox's question is on our new protection plan. Is that correct, Ajox?
Yes. Yes.
Yes.
Yes, Amrit, sir, you're right.
So on the new protection plan, there has -- I mean we have launched it, and there's a price increase, which is planned for. We are fairly aggressive about running it. Just to give you a sense, the sales are similar or better than last year. There is -- the demand has picked up in the month of April and May. There are, of course, some underwriting level controls that in consultation with reinsurance companies that we've institutionalized. So it's not as if we are not promoting the product. It's just that we are a bit more cautious in view of what is happening because of pandemic.
Okay, sir. So probably once everything settles down, we'll...
Yes, absolutely. Like I mentioned to you, Protection is a long-term bet for Max Life Insurance. We have done a very good job. Our growth in the last 5 years has been closer to 50%, and once things around COVID settle down, we continue to maintain that momentum.
The next question is from the line of [ Rahul Bhangadia ] from Lucky Investment.
Just a little bit on the 88 crores that you have taken in the VNB margin. Is it totally a part of the Q4 number itself? Or how do you look at it? And correspondingly, what is the impact on -- what is your sense of what the margins are and going ahead?
You will take this, Amrit?
Yes. So this 88 crores was actually provided for in the quarter 4. So the hit with respect to the 88 crores on -- has kind of come on to this particular quarter 4. But the view has been taken for the full year, and I will kind of reiterate, this is a prudent measure of ensuring that we are actually tightening the underlying implications of COVID into the VNB that we sell fro -- sold for this particular year. VNB also the factor of multiple things, how you price it and how the reinsurance prices just kind of pan out. And if COVID is behind us, obviously, this is a one-off hit that has been taken. But over a long horizon, once COVID is behind us, you will see this kind of being -- accruing, if other conditions around pricing and reinsurance kind of stays in place.
So just to clarify. But for this sake, your are -- 88 crores would have been -- the VNB would have been higher by 88 crore, right?
That's correct. Yes.
That's correct.
And your sense of margins going ahead, sir? for FY '22, '23?
That's a good question. Actually, the outlook is perhaps similar to over short period and it's a bit of this ball giving, especially in view of COVID. I mean honestly, we must understand that what this country and the entire world is going through is hugely unusual. In view of that, forecasting something over a short period of time will be difficult. But assuming that things will recover well, I think over a short period of time, similar to what we have delivered this year. Over a long period of time, a long period, meaning next 2, 3 years, I think you should see a 100 to 200 basis upside from where we sit.
Okay. Okay. And sir, you've already mentioned because of the situation, it's a little bit tricky here. But any sense on what kind of growth you are planning out here over the next few [indiscernible]?
So I mean growth of Max Life is quite bullish with respect to growth. I mean just to give you a sense of numbers, we just went past April and May months, very, very 2 difficult months. For the first 2 months, the cumulative growth rates for year-on-year growth rates on [ Axis ] will be 67%, which is also on a 2-year CAGR basis, we are strong double-digit growth number. So we continue to grow. But maybe a very strong double-digit kind of a growth rate is what we will target. Maybe closer to about 20%. Between 15% to 20%, that will be my number at this point of time. That's what we are targeting.
Next question is from the line of Shreya Shivani from CLSA.
[indiscernible] Question is if I just look about the VNB performance for this year, excluding the 88 crore impact, margins have accrued by north of 500 basis points, 120 to 127 this year. And obviously, there's been a pickup in non-PAR mix, about a 10%, 12% increase, and then there is some pickup in our protection share. Even if I adjust for the margin gap of this product vis-Ã -vis some of the lower savings products, the 500 bps VNB margin expansion is still large. So now we could have got more margin benefit either from OpEx or within a category. Certain margins of certain products are better this year than where they would have been last year to lead to this kind of VNB impact. So if you can just try and walk through from under 22 to 27, how does it stack up?
So Shreya, I will give you a very high level answer. Maybe separately, you could talk to Amrit, and we could give you that walk, because there's no -- I may find it very hard to actually explain. But I think the mix increases of protection as well as non-PAR savings, they will be the strongest contributors to our margin expansion. We also -- there was tight control on expense, which would have added to the overall margin profile. So you're right, I think we just have been very tight on expenses and we have altered the product mix more in share of protection as well as non-PAR sales. That would have caused all of margin enhancement. But Amrit will reach out to you separately, and then we will be able to share with you. Amrit, do you want to respond to anything further?
Yes. I'll just add, actually, in the others actually. Others, the -- given the product that we launched, the new non-PAR, which was launched in FY '21, that product, fundamentally, it was of a better margin profile than what we saw, what used to exist in our previous products. So that's also an additional [indiscernible]. So it's not just that 10% delta from 20% to 32% momentum in the non-PAR component. Even the 20% itself also came out with a better margin profile.
Yes. Yes, that probably explains. So you're saying the non-PAR margin or profile in '21 was better than '20?
Yes. It's a new product that we launched, others. We launched it in the month of July, actually. It's a new product that we launched. It was not the same profile of non-PAR that we used to have in '19, '20 or before that.
Awesome. This is useful. And second question, a little more longer-term question, and probably was a continuation of the -- one of the earlier questions was from a brand perspective, right, we've done well in terms of market share gain. But just as a financial brand, your top 3 peers have a larger umbrella financial services brand. And now obviously, we have access as a partner. How do you see that play out? Because we still accreted market share with not having a big umbrella brand like an ICICI, [ FBIR ], HDFC. But now we have access which can get co-branded a little bit. So how do you see that journey? Does it help? Or we've been extracting whatever we could with Max itself?
So considering the current structure and ownership, et cetera, and the shareholder arrangement, the first step is to add Axis Bank's name. So in our tagline, we're able to say, a joint venture between Max Financial and Axis Bank. We're able to promote -- all our holdings are going to get changed. We are incurring branding expenses, actually, to promote that. That will definitely have an upside. The other upside I definitely see is for Axis Bank customers. And Axis Bank does anywhere between 55% to 60% of the sales. I think that's going to be a very strong foundational affiliation because the Axis Bank will be able to promote Max Life products being a joint venture company of Axis Bank, and that's also a big rub off that we'll get. So for a very large part, I think the brand will start to play a -- kick in and start to play a big role. And as things evolve, et cetera, at a later date, we'll consider if there is a bigger robust impact, possibility in this or not. But over a short period of time, this is how we are going to approach it. We have -- just to conclude, we also saw a distinctly big shift in brand consideration, others from about late 40s to we -- our consolidation actually jumped up to late 60s, which was one of the sharpest consideration increases that we have seen in the evolution of Max Life Insurance, predominantly because of a, COVID, where insurance itself hard to find. But for a variety of pieces of work that we've done around protection sales, around being this more prominent by -- through mass media or published material, I think the brand has already strengthened quite considerably, especially in the last 12 months. We feel good about that.
The next question is from the line of Sanket Godha from Spark Capital.
My first question is on EV work. So the operating variance number of 80 crores what we see other than the non-COVID -- other than the COVID provisions is largely related to the tax refund, what we got in the first quarter, right? So we did not have any significant positive operating variance coming either from persistency or OpEx in the current year, because this 80 crores seems to be exactly kind of the tax refund that we got in the first quarter. Is my understanding right?
Sanketh, you're right. As we had disclosed even in the first quarter, we had a tax refund of 63 crore. So 80 crore has a tax refund of 63 crore, and then the rest is actually some positive variances.
Okay. Perfect. And the second question which I had was that right now, what are we in the [indiscernible] which we report around [ 25.2 ] is based on effective tax rate. Formally, we pay a significant amount of dividend in the current -- we paid a significant amount of dividend in the current year. So we got a huge ATM benefit. So the margin there, it is on the higher side. So sir, as active bank relationship has now become permanent, our dividend payout will substantially come down going ahead and presuming so. So then will it have a bearing on the VNB margins because of effective tax rate going up because section [ 80 ] and benefit will be relatively lower going ahead?
Yes, so effective tax rate actually, has a methodology. We don't necessarily take a short-term view. There is a defined methodology of taking a longer horizon view on how the tax structures and dividend flows will be. Maybe in the short period, the dividends will be of a lower order to support growth. But over a longer horizon, obviously, there will be dividends which will be coming through in the business. So effective tax rate, actually, we haven't altered the effective tax rate in this particular year as compared to last year.
Okay. So sir, you mean to say that the effective tax rate, what we bake in, in our VNB margin calculation is based on long-term dividend strategy. Therefore than, this current effective tax is what we have?
Correct, correct.
I mean you can't take one year views on how you're changing effective tax rate. There's a set methodology which [ acuity ] uses and which actually takes a longer view around how we complete the effective tax rate.
So, basically 25.2 is more on a normalized basis rather than the onetime benefit than we have in the [indiscernible] basis?
Correct.
Correct. Yes.
Okay, perfect. Perfect. And finally, just work on one question. The unwind rate in the current year seems to be a little lower at, around 8.6 percentage compared to 9 plus what we usually have. So it because we did a lot of non-PAR business and striped away the [indiscernible] significantly? And therefore, we did tend to be [ all ] profit pool. And therefore, the unwind rate was lower. Should we look at it that way? And also if you can tell me how the unwind rate ahead would be?
So unwind, actually unwind rate that you've seen the EV walk, is the management expectation of how the interest rate view will be at the start of the year. So -- and you will recall at that point -- and I think that continues to be the case, that the view at the point of time was of low interest rate. And that is what you see actually kind of come through when you see that our unwind from FY '20, which was a 9.1, came down to 8.6 in FY '21. So it's a view. In actual reality, what happens is you will have the performance of the funds kind of come through where you will get actual return income on the fund, which actually has been significantly higher than our expectation. And part of that goes and sits in the nonoperating basis, and that's how it is done. With respect to the view for the future, I think it will remain range now, maybe a few basis points lower, then there -- how it was at the start of previous year, given the interest environment that we see at this point in time.
Okay, perfect. And finally, on protection business. So somewhere in the [indiscernible] it was mentioned that we have made [indiscernible] compulsory for 45 plus [ guys ] where we most -- for taking the protection business. Sir, I just wanted to know the impact -- likely impact on the growth of protection business in the near-term because we [ increased ] by 40-odd percentage, and even if I look at fourth quarter growth around 17%, it looks very healthy compared to the industry average. Sir, I just wanted to know the impact of it on the numbers. And this vaccination requirement and making compulsory, more of an insurance requirement? Or are we optionally -- just the choice of making vaccination compulsory to the low term insurance incrementally.
We -- just to clarify, we have not made it -- to that extent, the representation in that article isn't correct. We haven't made vaccination compulsory. That's a clarification. However, at the front end, there are several underwriting controls that the company has deployed in consultation with the reinsurance organization so that we are selecting lives where we are almost sure about the quality of life, et cetera. Those are things that most of the reinsurance companies have recommended. Life insurance companies showed up and almost all players have done that. So we have done that, too. However, we have seen an upside in the demand for protection. And despite those controls, I think our overall mix for the first 2 months is higher than the mix that we are seeing in quarter 3, quarter 4. The overall mix is closer to about 15%.
Okay. Got it. Okay. Okay. Maybe final -- if one more I can squeeze in. This unit business, I wanted to understand that our ticket size seems to be a little on the higher side compared to industry average, around 1.5 lakhs of ticket size. Do you -- have you seen any impact? Or do you foresee any impact of the new tax [ loans ] with respect to it [indiscernible] given our [indiscernible] on the little higher side compared to maybe other players?
To be honest not so far actually, Sanketh.
The next question is from the line of Abhishek Saraf from Jeffries.
Yes. Am I audible?
Yes, Abhishek.
So most of my questions have been answered. Just wanted to understand on the reserving part. So we mentioned that we are carrying around 500 crores plus of export reserving. But in the EV walk, if I see that it's around 340 crore on the EV operating assumption change and 88 crores on the VNB side. So what am I missing? Is it -- it doesn't add up. So just wanted to understand that part. And secondly, was that relative to the claim size, which is -- it seems that our reserving is much higher than what other peers who reported earlier have done. So what is making us provide more on the COVID reserve part?
I will answer the second question first, and then I'll let Amrit give you the recon. The bulk of the business [indiscernible] Abhishek, you are there?
Yes. I'm there. I'm there.
See, the answer to your second question is, when we saw the size of wave 2 versus wave 1, we just thought it would be prudent to be more conservative. So the claims in the first wave and the best rates and the infection rates are much lower actually. Wave 2 appears to be higher. So we have gone to be a little more conservative just to see how we can buy. So in times like, it is good to be conservative. That is why you would have seen us build conservatism in our balance sheet, in our EV, in our VNB also to that extent, just to make sure that we are protected, and we don't come up with surprises as we hit FY '22. That's the reason. If we perform better, of course, it will unwind and come back to our financials. Amrit, if you could just talk about how the balance sheet reconciles to the EV?
Yes. So Abhishek, you're absolutely right, 340 crores in the EV plus 88 crores and then you also gross up for tax as well. And the data still is actually -- is our old [ tax ] and pandemic results. So in our last interactions, whenever it has happened, we had indicated that we have been carrying a very -- a reasonable sized pandemic reserve, even though in FY -- end of April '20, we created 10 crore small reserve. But beyond this 10 crore, we are carrying in excess of 200 crores, plus kind of a number with respect to our [ time line ] business. So a part of it, we did use up in FY '21 to neutralize the 121 COVID claims that we kind of saw for ourselves. And the rest is what the differential is between the 500 and the [indiscernible] that you do [indiscernible] [ 30, 40 ].
Okay, okay. Got it. One last bit, if you can just -- on the Yes Bank site. So should -- is it possible to share to me what kind of share Yes Bank will now be accounting for in our business? And what kind of products are being sold on that counter? Can you just give some kind of understanding on that?
It's a very important relationship, and we are absolutely immensely proud of the relationship that we share with Yes Bank. They have been a part of our growth, both organizations have evolved together. And this -- we just concluded 16 years of our journey with Yes Bank. It's a very, very important relationship. It's -- [indiscernible] if I look at last 2, 3 years, the contribution from Yes Bank has been anywhere between 7% to 10%. And we expect that it will continue to grow at the same pace -- at least at the same pace as we grow as an organization. So we expect to grow. At this point of time, Yes Bank is growing. It is contributing positively. And while Yes Bank is going down the path of open architecture, as we all know, we really hope sincerely and wish that we continue to maintain the count of share of -- our significant count of share of Yes Bank counter.
Sure. If it's possible to share which could be the product mix of Yes Bank?
Yes. Sorry, I missed it. The product mix will be pretty similar to the product mix that we will sell at broader bank level. But it's -- the margin up or down, we'll be able to share that with you. But predominantly, ULIP as well as non-PAR. Those 2 will make the large part of product mix that we sell at Yes Bank.
The next question is from the line of Nidhesh Jain from Investec Capital.
So firstly on the [indiscernible] payout and the [ accident ] position at solvency has now been below 200%. What is the comfortable solvency margin that we would like to maintain? And how will the dividend payout -- dividend payout policy will be there going forward?
So we are -- Nidhesh, thank you very much, always a pleasure to connect with you. On the dividend side, of course, as you know, last few years, we had the -- we had to declare dividend for facilitation of buyback from Axis Bank, et cetera. All that is now behind us, so there is no need to declare the dividend. There is marginal dividends that we may be declaring the organization, hence, retaining most of the capital in the business to grow. In addition, we anticipate to maintain a solvency ratio anywhere between 180% to 200%, that will be our target over the next few years. And hence, we will, at an appropriate time during this financial year, we will look at the need to raise any capital. It's not summed up yet. It will go through several approval processes. But there's a desire to actually buffer up the capital position by raising that.
Sure. With respect to Axis Bank, do you see further synergies on -- we have very well oiled relationship. We have been there for last -- almost 10 years plus. So do you think after this tie-up, there is definitely a [ probability ] of -- that we are getting in terms of [indiscernible]? But in addition to that, do you see any other synergies which are coming to Max Life?
Yes. I'm very optimistic. I'm very optimistic. Being a part of their group company or their joint venture, I think there are definitely significant synergies, synergies, like I mentioned to you in governance. Already, we see a few of their business leaders coming and sitting in our Board. That adds to the heft, that adds to the knowledge and a few of them are very, very experienced in life insurance space as well. So overall, strategically, their contribution to Max Life Insurance is going to go high. Brand, robust. We were just talking about little [indiscernible] that's a big contribution. We are also discussing how Max Life Insurance will participate in the new channels or new verticals that they're adding. The teams are discussing how we could work together to inject more analytics in overall sales process and improve penetration. Refinement in what we sell. Product mix, especially in the area of selling more annuity or selling more protection, is going to get more weight. And needless to say, being such a large financial services organization, we do anticipate that we will be able to leverage some synergies with respect to procurement or people practices et cetera, et cetera. So really, we are looking at leveraging this relationship in a 360 manner, and I'm very optimistic, Nidhesh, that it will be a plus-plus from where we have been so far.
Sure, sir. Actually, on the credit life, we have not been a very -- we have not consciously focusing on that segment. But has any thought process changed with respect to that segment? And also, Axis Bank would also be having significant retail lending operations. So are we -- is there a possibility to scale up credit like business from that channel?
Yes. Amrit, do you want to take this?
So there is credit life, we have always indicated from -- as a strategic initial business that we have been working towards, and that's where the granularity of business comes, sustainability and margin profile comes. And actually, we have participated in credit life. And even within the bank, we do participate in credit like. Actually for the full year '21, it ended up growing at a pace of 45% growth, we saw in the credit life business. Overall, you'll see the growth business at 30% [indiscernible] term loan business was largely held flat. And this credit life growth has come out of better penetration and activation across many companies that we run, including Axis Bank. As you will be aware, within the credit life space, Axis Bank actually runs an open architecture models, and it has been the case for a couple of years now. We will evaluate tactically as and when any opportunity when it comes through. But the margin profile of this particular category, especially in background of mortality, again, becomes extremely important for us to kind of keep a view on.
The next question is from the line of Nischint Chawathe from Kotak Securities.
This is Nischint here. Two questions. One was really on your channel mix. And you have invested a lot in your proprietary channel. You have guided sometime back that probably the channel mix will kind of get a little bit more balanced with the ratio of Axis Bank coming down over time. But is if anything, we can see the share of Axis is going up this year. So what do you think should be the channel mix maybe in '23 -- FY '23?
So that's correct. Actually, we've been -- made investment, and you would have noticed that the contribution of own channel has been growing. Last year was a blip year. I must share that with you because of the model. I mean industry-wide, if you see the growth of banker channel is higher than agency or proprietary channels. That has happened because agency, as a channel, where agents go and meet with the customer and the profile of agents where many times homemakers or retired people are also agent advisers, they are reluctant to work out as against the bankcard model where it is more dependent on bank customers or footfalls. So proprietary channels did take a hit, and you would have noticed that even in our growth, a significant part of the growth is also contributed by banks. Our own channels actually grew 10%. So hopefully, as COVID settles, we will be able to rebalance that. We have yet to see it because as this year has begun, again, they have been covered. As long as COVID lasts, the impact on proprietary pretty channels will be a bit more than how it is on bank channel. But assuming that COVID will be out of our way through this year, I anticipate that our own channels will start to grow, at least as fast as the bank channels, and that will be the objective. So we will maintain or expand the proportion of home channels going forward.
And any particular visual guidance you could give in terms of where the assets [indiscernible]?
Yes. I mean we have been historically in the last few years, we have been close to 30%. So at least that level is -- one would definitely [ thrive ].
Sure. And I think you also mentioned that you're looking at around 100 to 200 -- I think 100 to 200 basis of guidance on margins...
Over a longer period. Over a longer period, Nischint.
Okay. And what are the immediate results for -- if -- I mean trying to look at the margin profile for next year. [indiscernible] So what are the immediate results? Or do you think that probably VNB growth next year will be driven by volumes and [ not ] by the margin expansion?
So it will be a combination of sales growth and a bit on margin expansion. Really, if you were to look at our product mix, we have optimized our product mix. There are some thoughts on how we could enhance the margins better. But I think what will also start to kick in is this is our size, some bit of scale benefit. We saw that come last year, and we will continue to see in next 2 to 3 years. And that will be one of the biggest sources of margin expansion.
The next question is from the line of Rishi Jhunjhunwala from IIFL.
I have a couple of questions. Firstly, on your non-PAR portfolio, right, around the guaranteed return products. I just wanted to understand how has our taking exposure changed over the last couple of years? And as a result, the consequent impact on the margins that we are driving from these products.
So actually, we changed our view a little bit with respect to non-PAR savings, predominantly after FRA we're allowed somewhere in 2019. But before that, we had a different view. You would have seen our overall exposure to non-PAR was a bit limited. But with FRA coming onboard, which is a much more efficient design to hedge, one was more comfortable to go ahead and increase the proportion. So we increased the proportion from 20-odd percent to about 30%. And I think we do intend to keep this ratio in the range of -- or similar ranges. So you will not see us go 40%, 50%, but yes, one would take the exposure of 25% to 30%, 35%, that kind of range. And that's our view on non-PAR savings because we can hedge it better.
And the trend on profitability as a result -- I mean margin?
Of course it has had a positive bearing on margins. And definitely, one of the biggest contributors of margin enhancement of about close to about [ 350 ] basis point has been increasing non-PAR savings.
Great. The second question is on the protection side. Sir, some of your larger peers are suggesting that the market is not looking that great. And as a result, they are kind of pulling back in terms of selling retail term protection. I just wanted to understand your thought process. Do you see it as a tactical opportunity to gain higher market share? Or do you really think that some of those concerns are probably justified?
So in times like these, of course, there are several forces that we need to be cognizant of. One big force is, of course, your relationship with reinsurance companies. As things stand, reinsurance companies have had to take losses on account of COVID. And hence, some of the norms around underwriting will be a bit more stringent. But our view is that we will be cautious over a short period of time. But protection is a long-term growth area for us, and we will continue to operate with competitive product designs, improvement in our processes, making sure our pricing is competitive in the market, et cetera, et cetera. To win over a long period of time, we do intend to remain a potentially strong player in the protection space.
Understood. And just one last quick one. Can you give us some sense of our share of business in Axis Bank channel, given that it's an [indiscernible] architecture and how we can see [indiscernible]...
About 85% is our share on the counter. It may go up or down, depending on how it moves, but about 85%. Over the last few years, it's -- at some stage, we were 100%, then we were about 95%. So there's a rebalancing which is taking place. But we hope to remain the -- to have the lion's share on the counter.
That next question is from the line of Manoj Bahety from Carnelian Capital.
First of all, let me congratulate you for consistently reporting a good set of numbers. I have couple of questions. First one is like if I see like over last 3, 4 years, the margin improvement of Max, and along with that, if I look at the product mix change, it appears that a sizable proportion of this margin improvement is contributed by a rising share of protection business. And also on the protection business, like one thing which I was seeing like when I was seeing the financial reporting of one of your peers, that the lion's share of the profitability is contributed by the protection business. I assume that the same will be in your case, too. So how do you see the sustainability of margin of protection business? I understand that it will be a high-growth vertical for the industry as well as for you. But along with that high growth, whether these kind of margin on protection are going to sustain and how it compares this is, let's say, international insurance companies protection margins. Yes, these are like a couple of questions from myself.
Amrit, do you mind taking this?
Sure. So Manoj, your observation is correct. The margin improvement, there are 2 levers. There is obviously the product mix lever, which is the non-PAR protection, non-PAR savings, along with the inefficiency, which kind of keeps coming through as the business arises in scale. Specifically coming to protection, margins and protection profiles. Actually, protection margins have been falling sharply in the last few years. And consequently, you have also been seeing the protection prices actually increasing. Now if you really go back in time and see the history of how protection -- of popularity and protection prices move, it used to be quite expensive product design. Then the popularity started rising, there was competitiveness with respect to pricing. Everyone started taking actions around pricing. There was emergence of experiences which started coming through both for the life insurers and for the reinsurers, because this product category is largely reinsured, and the reinsurance support is extremely important. And we are at a point in time where there, there is now a resetting of the pricing expectations around protection. And hence, the consequent last 1, 1.5, 2 years, we have seen a price rise which actually happen, which is happening both from reinsuring that you are on this particular category trying to protect your margins as well. So even for us also, I think beyond -- if you look beyond COVID, there will be a right place and right play of where the margins still have to move towards where you will have to optimize for market penetration, market shares, along with margin mathematics. This is a product category which is important for us to drive margins. It comes with the associated risk. And hence, consequently, the reward assessment by the insurer also has to be equally strong. And we will keep a view of these things when we are pricing our platforms.
Yes. How do you see protection margins in India? Which are these like international players? I think India is abnormally high, and if it starts like as the category side which starts growing. And if these margins starts normalizing, then how do you see the sustainable margin going forward?
That may not be correct, actually. The margins may not be higher than international margins. Actually, India, across the board, operates on the lower side of margin, including protection. It's a competitive -- more competitive space where even the pricing is quite competitive. So I think a large part of normalization basis experience, et cetera, has happened now. I don't anticipate that the margins will continue to fall. If there is any experience, new experience which is coming out, it will get reflected in the pricing. So my expectation is that companies will try to protect their margins by increasing prices.
Is it possible to share the protection higher margins separately?
Actually, we don't. It's not a part of our disclosure.
The next question is from the line of Vinod Rajamani from HSBC.
Yes. Just on this, the additional reserving that you have done for COVID, just a hypothetical question. But just wanted to know, at what level of additional reserving will the solvency get impacted? That's is that -- that is question number one. And then can you give some color on how much of the reserving buffer that you've created, how much of it you would have utilized, say, up to date? I mean if that is possible. These were the 2 questions.
So basically, on first one, really, really far away. We have closed about 200% solvency on 96% or 97% solvency. The breach on solvency happens at 150%. And every percent for us is close to about 30 crores. So we are talking about 50% in 30 crores, which is 1,500 crores. So really, really far away. On the second question. On the results, we -- last year, as you can see, we saw only 121 crore. So versus that, this provision is significantly larger, and we hope that we'll be able to manage in this [ result ].
Right. How much would you have used, Prashant, in this period from the year-end reporting to date? I mean some color on that, if it is possible.
I mean a fraction of that, actually. And why I'm not giving you a number is, the claims have started to come. So I don't want to prematurely share the number. But it looks, at this point of time, sitting -- considering that the numbers come down and India gets vaccinated, et cetera, I'm reasonably confident that we'll be able to manage in a lower number than what we have provided for.
The next question is from the line of Mira [indiscernible] from UBS Securities.
Congrats on good set of numbers. So 2 questions, one is in the [ deleverage ] strategy or [indiscernible] around. And second, on the protection price, we've already taken some. How much is that? And how much is in pipeline if at all?
Thanks, Mira. I'll request somebody else take this question. Amrit?
Sorry, Mira. I actually couldn't hear your first question so well. If you could just state that again.
What would be the deleverage basically on the pledge, anything happening around...
Okay. I think I'm going to ask Jatin for that first question.
Yes. Sorry. Yes. So on this -- on the deleveraging, actually, the thing is that [indiscernible] have always been committed to sort of deleverage at different points in time. As you could see that they have monetized a significant part of their ownership in both Max Financial as well as the rest of their entire shareholding in Max Life to that effect, and they monetize some other assets as well outside of the listed companies. So that is one thing. The second thing is the pledge level, as it is, has been very comfortable -- is now in a very comfortable zone. We know -- I'm not on the private side or the family side. But what I know is that there are a few things which are happening or have happened which will -- at the current share prices, will reduce the price level to maybe around 60%. So to that extent, I think the pledge level is quite comfortable. Having said that, they intend to monetize at the right -- sort of at the right time some of their other assets as well -- continues and so you will see them continuing with the deleveraging initiatives. As it is the price level will be quite comfortable. I think shortly, if it's already not at those levels.
Yes. On your second question, which was around price hike, when we launched the new product in April, there was an inbuilt price hike in the product. As you are aware, the product has multiple forms and multiple ages. So I would say anywhere between 5% to 10% was the hike that actually happened with this new product launch. With respect to future product price hike, I think we will take a conservative call in keeping all the aspects around the pricing environment and also the reinsurance implication before we decide on the price hike.
Got it. And recently, you had some digital initiatives in terms of with some start-ups. Anything happening around -- anything interesting coming out of that?
So. Prashant? So I'll take that, Mira.
Yes, please.
We -- immediate actually every year annually, we do run an escalator program, wherein we go out and outreach to various start-ups. And in FY '21, we have the second cohort of this particular start-up sign-up coming through. We, again, ran the program. There were 6, 7 use cases, which were specifically given out in the market. We saw upwards of 150 start-ups kind of applying. We have shortlisted a total of 4 or 5 start-ups with whom proof of concepts are actually being done, and these are across value chain dimensions of a more health engaging platform, underwriting capabilities, capabilities to reprocess documents actually more effectively are more better. So those POCs are actually in various stages with some of these providers, some of them actually come and become mainstream. But it's our structured effort of actually outreaching in the market to ensure we are kind of scouting for new technology changes that are happening in the environment.
And just to conclude this, Mira. We take this very seriously. So on that day, where the team short list many people, everybody in the leadership team, me; [ Vishi ] who is our DMD; our head of -- our CEO; Amrit, at least 5 or 6 of us spend about the full day going through the presentation. On one side, it gives an opportunity for the companies who we select to come and work with us. But on the other side, it just creates some sense of awareness for us to know what is happening in the marketplace and constantly evolve ourselves.
The next question is from the line of Prateek Poddar from Nippon India Mutual Fund.
Sir, just one question, this 88 crores of provision on the VNB walk, is this onetime?
Yes, Prateek. As I said, this is -- actually, we have kind of tightened some bit of mortality which might come out of the sale that we have done in FY '21, due to COVID, which could come out probably in duration 1, duration 2 of those policies. So it -- you can call it onetime, yes.
So fundamentally, we have not altered the mortality assumption, right?
No. We have not.
Just so I understand.
No. Not for the long term, yes.
Yes. For the long term, you have not, right?
No.
No.
The next question is from the line of Abhishek Saraf from Jefferies.
I had one small question. What were our total debt claims in FY '21 gross? And net of [indiscernible], if you can provide that, please?
So gross for FY '21 was 1,349 crore, and net was 1,009 crores.
And the 121 crores number that we've provided for COVID is a [indiscernible] net of reinsurance, right?
No, no. I mean within 1,009 crores, 121 crores is also [ sitting ]. And 121 crores is net of the insurance, correct.
The next question is from the line of Abhishek Saraf from Jefferies.
Yes. My question has been answered.
Yes, we just did.
The next question is from the line of Mayank Bukrediwala from Franklin Templeton.
[ To harp ] on that same 88 crores on the VNB and the close to 300 crores on the EV. So what you're essentially saying is that this INR 88 crores is something that you expect to pay out in the next 1 year. And would it be fair to assume that even the close to 300 crores that you have played then on the EV, even that is something that you expect to pay out in the next 1 year? Or is -- are these numbers a part of your value in [indiscernible]? As in are these -- are you arriving at the [ 388 ] post discounting over a period of years?
So Mayank, this is a COVID-related provision, keeping a view of what kind of an implication can come through during this pandemic. And now pandemic time line is very difficult to kind of predict. It's a fairly evolving time frame. So this is a pandemic reserve that we have created for ourselves. We'll use it, we may not use it also. It all depends upon how -- and how much of the debt will kind of come through. As Prashant kind of indicated, he was kind of giving a sense that 121 was a number...
Are you there, Amrit?
Yes. Hello?
Yes. You dropped off a little while.
Oh, sorry. I wasn't -- okay, let me just reiterate again, Mayank. What I was saying is 500 crores is a provision that we have created for a pandemic, and at this point in time, we are undergoing a pandemic situation. Now, are -- is there a definitive view that we will end up using that in this year? The answer is no. It's a pandemic reserve, as and how long the pandemic lasts and what is the implication of that pandemic, it might get used or might not get used as well. And it's extremely difficult at this point in time to kind of give a very definitive sense of how and what it would be. It's a constantly evolving situation. Very closely, we are monitoring it. But we feel comfortable that I think we have adequately and very prudently reserved that.
Have we lost him again?
Sure [indiscernible] changes this is quite prudent. This can be over 1 year, this can be over many years, but what we have thought through is that this is what the results should be and therefore, we have provision for everything sufficiently.
So Jatin, so the 88 crores is not essentially a discounted number. It's a one-off. And so my question is that if I adjust for this one-off, your margins for the full year look closer to 27%. And so when you're giving a guidance of an increase of about 100 to 150 bps over a period of years, are you giving this guidance over the 25%? Or over the 27%?
Over the 25%, actually. And any number is not a static number. There are many moving pieces. The number of 27% could become 25%, depending on change in product mix, our view on protection, et cetera. So a more conservative number or a base number from our perspective is broadly reported. We definitely see an upside from here on of about 200 basis points over a medium-term basis.
Understood. And just one last question. One is, if you could just give me the OpEx number for the quarter, the noncommission OpEx. And the other question is more on the outlook of OpEx. Now I see that you've got about after 2, 3 years of increasing the employee count, we are at about 15,000 employees. So for whatever growth we are forecasting for the next 2, 3 years, what sort of OpEx investments you will be able to do? And will we have to increase our employee count from the 15,000 level further from here over the next 2, 3 years?
There will be increase, but it will not be a step increase. There will continue to be increase, because as we continue to grow as a business, we'll have to deploy more resources. So in the same way like it has grown for the last few years, we will see employee count going up. As far as expense is concerned, I think it will be a part of disclosure. Amrit, I don't have that number in front of me. If you could share what was the expense? Or maybe if you could write to us, we'll be able to give you that number. As far as expense increase is concerned, I think expense increase will be circa 10% year-on-year is what we have planned for. We just need to review that. As we stand, we are looking at our business very differently. And throughout this year, we are going to look at a new strategy for Max Life Insurance, which we will roll forward from next year. And once we do that, we will be able to give you a clearer view on how the expense increase will look like. Sitting today, the plan is about 10% expense increase year-on-year.
Got it. But [ ideally it means ] if it's a 10% OpEx increase, one should assume a small amount of operating leverage playing out every year. Is that right?
Yes, it will. Yes, it will. Yes.
The next question is from the line of Sangeeta Purushottam from Cogito Advisors.
[indiscernible], again. This is Sangeeta's partner. Now is my understanding correct that the -- you production product is higher in terms of margin...
This is the operator. I'm sorry to interrupt, but your audio is not clear, sir. It's breaking up. Requesting you to please try using the handset more while speaking.
Okay. Hello? Can you hear me now?
Yes. Yes.
Yes. Please...
Is my understanding correct that your pure protection product is better in terms of margins, but lower in terms of ROE? And if this -- whether or not this is correct or not, could you tell us in terms of your financial metrics, how do you balance your ROE aspirations and your margin aspirations? And how does that influence your product mix going forward?
That's a very good question you asked. Typically, we will target ROEs, healthy ROEs in the range of about 20-odd percent. And protection is no different. Protection is good in terms of margin, but it is also reasonably good in terms of ROE, is the straight answer. When we make the decision on products, there are 3 or 4 vectors which are kept in mind. Number one is customer value proposition. That's the starting point. Whether this particular product has customer demand or not or what are customers looking at. And we determine that based on some research, based on talking to distributors, based on talking to sales people, to find out if this product will do well or not. Once that is done, then you start to look at the financial outcomes, including the features. And the financial outcomes will be seen in terms of margin. Also in terms of strain as well as ROE. Those are factors which are kept in mind, and we kind of optimize it depending on trying to hit a sweet spot, actually, to put it simply. Try to hit a sweet spot. And once those are all triangulated, we go ahead and launch the product.
Sorry, so you said your pure protection products are not lower in terms of ROE?
Not really. They're not.
So this is Amrit. Sorry, Prashant and everyone. I'll reiterate it. I think we have a hurdle rate that we look even from an ROE perspective, keeping the [ strain ] in place. And what Prashant is indicating is that there is a base [ minimum ] ROE that we'll try to do. And generally, protection products that are again healthy from an ROE perspective also. They're not any different actually are not treated any differently.
The next question is from the line of Ajox Frederick from B&K Securities.
Just one data-seeking question, sir. Out of this 121 crores, if we can be specific across individually credit life and [ actuary ], that is helpful.
Amrit, do you have that number?
I don't have it handy. But Ajox, I will provide that with you.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments. Over to you all.
Thank you. Thank you, ladies and gentlemen, for being on the Max Financial earnings call. We wish you good health and fitness in these unusual times. We look forward to more interaction in the future. Thank you once again, and goodbye, and have a good day.
Thank you. On behalf of Max Financial Services Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.