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Max Financial Services Limited (MFSL) Q3 FY23 Earnings Concall Transcript

MFSL Earnings Concall - Final Transcript

Max Financial Services Limited (NSE: MFSL) Q3 FY23 Earnings Concall dated Jan. 31, 2023

Corporate Participants:

Amrit Singh — Chief Financial Officer

Prashant Tripathy — Managing Director and Chief Executive Officer

Analysts:

Adarsh Parasrampuria — CLSA — Analyst

Swarnabha Mukherjee — Batlivala & Karani Securities — Analyst

Sahej Mittal — HDFC Securities — Analyst

Neeraj Toshniwal — UBS — Analyst

Avinash Singh — Emkay Global — Analyst

Madhukar Ladha — Nuvama — Analyst

Prateek Poddar — Nippon India Mutual Fund — Analyst

Varun Palacharla — Kotak securities — Analyst

Sanketh Godha — Spark Capital — Analyst

Presentation:

Operator

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 — Chief Financial Officer

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 — Managing Director & Chief Executive Officer

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 its 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. MFSL holding in MLI stands at 87%. Now, as a 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 have entered 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 11 UA of the Income Tax Rule 1962. This revision has been done consequent to the guidance received by Max Life from IRDI.

Moving to the other major developments on our key strategic areas. Firstly, let’s talk about our distribution and growth. In quarter two, we had announced 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 three, we have tied up with Ujjivan Small Finance Bank and have entered into a relationship with two new brokers from renowned financial services groups. 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 nine months, our new business — total new business premium grew by 7% to INR5,640 crores. Our proprietary channel APE resulted in a growth of 19% for first nine months, led by strong growth in both online and offline prop channels. Within online channels, we grew by 26%. In protection category, we entered into new segments of NRI, homemaker and self employed customers, which now contribute about 20% of term business on a run rate basis and has strengthened our leadership position in protection market both on our website and partner channels.

In online savings market, we launched an industry first short term savings product with best-in-class returns to fuel our ambition 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 four times year-on-year in the first nine months of FY ’23/

Within the offline channels, we saw a growth of 18% in the first nine 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 three.

Our direct customer acquisition channels also witnessed improvement in frontline seller productivity of 17% and strong growth of 11% [Phonetic].

Within the Banca space, our overall Banca channel degrew by about 9% in the nine 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 four in line with the overall premium growth 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 new product categories in online savings, homemaker segment, NRI, self-employed and has accelerated product innovation agenda. Product mix in the first nine months of FY ’23 is PAR of 16%, non-PAR at 45%, ULIP at 32% and individual protection 7% on individual APE basis.

In quarter three, Max Life launched a new non-PAR offering named Smart Wealth Advantage Guarantee, which is also called SWAG, with first two industry features giving the customer flexibility to select customized premium paying term, policy term, income start date and income period etc. The product received a stellar response across all distribution channels. It became the most successful product in Max Life history as it evolved fastest to scale up to about [Phonetic] INR300 crores. This non-PAR offering supported in navigating our margins and VNB growth outlook for the year. However, because this new product launched, you will also notice that the mix of non-PAR within our product portfolio is artificially higher for the quarter.

We launched two new protection plans in quarter two focusing on self employed individuals, which continue to help us make further inroads into protection business. Our confidence in this category is further instilled post 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 last five 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 nine 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 nine months of FY ’23, we witnessed an improvement three points from 49 in March ’22 to 52 in December ’22 in the overall company NPS scores. Max Life continues to be the market leader on 13th month persistency in terms of number of policies, in terms of premium 13th month persistency of regular limited pay 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 Awards 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 with the launch of AI-backed Smart Govern [Phonetic] solution. It is an underwriting decision anomaly identification suite to enhance decision accuracy. Govern 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, a sales management and activity monitoring tool launched across all channels. Customer servicing has been special focus area for the company and our work on digitization of pause [Phonetic] processes has led to increase in straight through process from 37% to 51%. Automation of advanced payouts for traditional policyholders has led to improvement in TAT from seven days to one day and website revamp with new age homepage leading to reduced bounce rate by 19% and improved SQL [Phonetic] by 15%.

Our digital capability has stood the testimony of agility in integration of technology and new partners as we are able to onboard new brokers and Banca partners in record time. Overall, from a margin perspective this quarter has been pretty satisfying. 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 four, I am going to hand it over to Amrit Singh to talk about some of the numbers.

Amrit Singh — Chief Financial Officer

Moving on to some key financial metrics. Consolidated revenue, excluding investment income, stands at INR15,890 crores, a growth of 12% in the first nine months FY ’23 Consolidated PAT is at INR399 crores, up 129%. Renewal premium grew by 16% to INR10,548 crores for Max Life Insurance; gross premium grew by 12% to INR16,188 crores. The value of new business written over the period nine-month FY ’23 stands at INR1,179 crores [Phonetic] versus INR942 crores last year, representing a growth of approximately 25%.

New business margins have improved from 25.1% to 31.8% for the period nine month FY ’23. Just for the quarter three VNB stands at INR593 crores, which is an increase of 49% over previous quarter last year. Embedded value for 31st December 2022 is at INR15,547 crores, which implies an operating return on EV on an analyzed basis of 19.5%.

Policyholder OpEx continues to improve to 14.3% from 15.1% year-on-year. The nine- month FY ’23 profit before tax for Max Life is INR438 crores, an improvement of 66% and profit after tax for Max Life is INR376 crores.

Max Life solvency ratio stands at 200% and overall AUM as on 31st December ’22 is at approximately INR1.18 lakh crores, a growth of 16%. We continue to remain committed to our purpose of 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.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We have a first question from the line of Adarsh from CLSA. Please go ahead. Mr. Adarsh, can you please unmute your line? I’m sorry, you are not audible.

Adarsh Parasrampuria — CLSA — Analyst

Okay. Is it better now?

Operator

Yes, please go ahead.

Adarsh Parasrampuria — CLSA — Analyst

Hello?

Operator

Yes, sir, we can hear you.

Adarsh Parasrampuria — CLSA — Analyst

Okay. Hi, Prashant. So question first on this Axis transaction that you all have repriced, just wanted to understand, is the first 13% a 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 — Managing Director & Chief Executive Officer

Let me first give you the answer on 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 regulator that we should be pricing 7% on a discounted cash flow basis. Axis Bank has agreed to do that and is desirous from the perspective of long term because they believe that it is indeed a great investment and it is their own entity that they will like to remain invested over a long period of time. So the methodology is going to get changed.

In terms of commission guideline etc., It’s quite conjecture at this point of time because no commission guideline has changed at this point of 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 — CLSA — Analyst

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

Prashant Tripathy — Managing Director & Chief Executive Officer

No, currently no such discussion has taken place. At the time when they’re ready to acquire, we’ll go ahead and do the cash flow — discounted cash flow valuation, whatever is the valuation, they will acquire the 7% on that price.

Adarsh Parasrampuria — CLSA — Analyst

Perfect. Prashant, second question is you did mention that the wallet share is 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 — Managing Director & Chief Executive Officer

I will say you should expect at around 70% plus/minus 2%, 3% here and there. Otherwise, it doesn’t look like that we will go back to 80%. So a safe number will be near about 70%.

Adarsh Parasrampuria — CLSA — Analyst

And last question is obviously on the non-PAR mix launch of a product and both the mix and the margins change in the quarter. If you think 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 threshold — various managements 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 — Managing Director & Chief Executive Officer

Basically the non-PAR mix, we are desirous to keep in the range of 35% to 40%. That’s our stated position and a part of that is annuity, which is 6%. So, you know, I will say around 40% is what will be our estimate over a medium-term basis. And we kind of benchmark ourselves 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 a product in a 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 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 couple of quarters down the line, we do anticipate that our non-PAR mix will fall back to near about 40% and we will rebalance it with more diversion towards participating and some bit towards ULIP also.

Adarsh Parasrampuria — CLSA — Analyst

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

Prashant Tripathy — Managing Director & Chief Executive Officer

Yeah, I could give you a range. I think the range will be similar to where we landed, anywhere between 27%, 28% will be a kind of range. And I must highlight to you that the life insurance industry is growing and hence there will be bias towards making investments and increasing the investments towards building more distribution channels.

So over a short period of time, when I say short, 20 to 18 months if we were to compromise a little bit of margin to achieve higher growth via build up of offline distribution channel, our own proprietary distribution channel, the company will have a bias to do that.

Adarsh Parasrampuria — CLSA — Analyst

Got it. This is it. All the best and congrats, sir, Prashant and team.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Swarnabha Mukherjee from Batlivala and Karani securities. Please go ahead.

Swarnabha Mukherjee — Batlivala & Karani Securities — Analyst

Yes, thank you for the opportunity and congrats, sir, for a good set of numbers. So, first question again on the margins, so thank you for that range, 27%, 28%. But if I try to delineate this 39% margin this quarter, so just wanted to understand 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 a non-operating kind of number, say any 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 were seeing 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 Axis, what is the trend that you are seeing in terms of say insurance sales vis-a-vis deposits, how much they are focusing on deposits if you can give some color.

Prashant Tripathy — Managing Director & Chief Executive Officer

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 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 a 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 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, some of that will get rebalanced and with open architecture or the deep impact of open architecture behind us, we’re 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 — Batlivala & Karani Securities — Analyst

Sure, sir. Just a follow up on this margin thing again, the new product which has come, is the margin profile significantly different from the earlier Smart Wealth plan, non-PAR plan and what would be, say, on a sustainable basis, how do you think the mix of these two products would be going at?

Amrit Singh — Chief Financial Officer

Mr. Swarnabha, as we have been highlighting over 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 profiles. Needless to say, we have held on to the margin profile. There is no deterioration on the margin profiles and, as Prashant kind of spoke about, it is coming out of the mix which is driving the margins of the quarter.

Swarnabha Mukherjee — Batlivala & Karani Securities — 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 it largely pure term or ROP, how that mix has been? Some comments on that would be very helpful. Thanks.

Amrit Singh — Chief Financial Officer

Yeah, 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 a — it’s a reduction over last year period. So that’s not necessarily the shift and I won’t say it’s healthy. I think it’s still flattish is how I will see it. There are much more opportunities. And as Prashant spoke in his opening remarks that the recently concluded survey, which we actually do over many cities with 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 we continue to be very optimistic on this long term opportunity of protection.

Swarnabha Mukherjee — Batlivala & Karani Securities — Analyst

Great, sir, thank you and all the best for coming quarters.

Operator

Thank you. We have our next question from the line of Sahej Mittal from HDFC Securities. Please go ahead.

Sahej Mittal — HDFC Securities — Analyst

Hi, good evening. Am I audible?

Prashant Tripathy — Managing Director & Chief Executive Officer

Yes, Sahej, go ahead please.

Sahej Mittal — HDFC Securities — Analyst

Hi, good evening. So, two questions. So VNB margins have been — so you have 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 flow in 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 nine partners to being empanelled with a single bank? So even earlier when BALIC was empanelled with Axis Bank, we saw massive wallet share flowing out of Max life. So is there a possibility? How are we looking at it?

Amrit Singh — Chief Financial Officer

So, I’ll take the first question and I’ll request Prashant to come in for the remaining two questions that you’ve asked, Sahej. I think on margins, the reality is that all our products, underlying products, there is some marginal improvement 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 lift coming in that margin profile. Non-PAR designs, because of all the various factors that we put in play, is demonstrating a better profile; protection because of repricing that we have done has us holding on our 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 — Managing Director & Chief Executive Officer

On your other two questions. First question on agency. You know, 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’ve been known for higher than industry productivity and we have run a fairly successful agency modeling path. As we move forward, the desire is to expand agency and increase the productivity as well as make investment in creating more units of agency and we are quite committed to doing that.

We embarked a couple of quarters ago on a long term program with one of the renowned consulting partners to work for three years to grow agency. And hence, as we 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 do over the next few quarters. So that’s the answer on agency.

On your question on counter share and three to nine, 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 me telling you what you should expect in terms of counter share, I’m not anticipating that there’ll 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 but 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 three to nine and things should remain stable.

Sahej Mittal — HDFC Securities — Analyst

Right. And lastly, what would be the proportion of sales personnel deployed in Axis Bank branches between Max and our counterpart? And second is how should we look at segment-wise growth for the next two 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.

Prashant Tripathy — Managing Director & Chief Executive Officer

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 investment. We are also making investment in the alternate channels of Axis Bank, where a team is being built. So from an investment perspective and deployment perspective, we will 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 come our way.

Last two, three quarters, we have been working quite meticulously on looking out at our process, looking at issuance, looking at underwriting, looking at our relationship with our insurance partners, new product categories, new segments and I think all that hopefully will come together for us to deliver good growth in protection segments.

So that area is strategic to us. Both protection and retirement are strategic to us and we will make all strides to deliver good growth in those two areas. Very hard for me to give you growth rates by PAR and non-PAR, UL, etc. 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 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 — HDFC Securities — Analyst

And any plans to increase this 60/40 proportion?

Amrit Singh — Chief Financial Officer

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

Sahej Mittal — HDFC Securities — Analyst

Got it. Thanks and all the best.

Operator

Thank you. We have our next question from the line of Neeraj Toshniwal from UBS, India. Please go ahead, Mr. Neeraj Toshniwa, can you please unmute your line?

Neeraj Toshniwal — UBS — Analyst

Hello, can you hear me?

Operator

Yes.

Neeraj Toshniwal — UBS — Analyst

So first question is on protection. Peers have reported decent sequential growth. So I wanted to know we have been quite stable. So any new trends you’re picking up on the conversation with the insurers, which might be sounding more positive given some of your peer has kind of mentioned that. So wanted to on growth trends where we can see protection moving from this physically to in FY ’24 particularly?

Amrit Singh — Chief Financial Officer

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

Neeraj Toshniwal — UBS — Analyst

Any relaxations we can see from the insurers happening?

Amrit Singh — Chief Financial Officer

Yeah, there’s generally a balance that one needs to strike between price relaxation, underwriting grade, etc., and we need to hit the sweet spot, which is what we are trying to do.

Neeraj Toshniwal — UBS — Analyst

Got it. And in terms of non-PAR paving, obviously we have done phenomenally well here but 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 to be more comparable.

Amrit Singh — Chief Financial Officer

So I stand corrected. My team just informed me that the non-PAR, which is the savings part, is going to be between 35% to 40% and plus annuity is of about 6% over and above that. 6% of our individual APE is right now annuity, approximately 6%, which on AFIC [Phonetic] basis unadjusted single is around INR950 crores of annuity.

Neeraj Toshniwal — UBS — Analyst

And a last question would be on the online, how much of this non-PAR savings would have come from online kind of growth you have seen because I think you mentioned we have seen economic growth in online. So if you can give that number?

Amrit Singh — Chief Financial Officer

Annuity growth is coming mostly from our offline channels.

Neeraj Toshniwal — UBS — Analyst

No, not annuity, non-PAR savings, the new product. Has it been agency driven or online as well?

Amrit Singh — Chief Financial Officer

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 and then we also have a Smart Wealth Advantage Guarantee product, the SWAG product, which is an offline product. All the growth that we spoke of, there is a large acceptance of the SWAG products in our offline channel. The online channel also has leveraged this Smart FD product where our premiums have grown quite robust on the savings side to drive that growth. But there are two different segments of products that you are talking about here.

Neeraj Toshniwal — UBS — Analyst

Got it. And if I look at the last year info the base was very strong in terms of non-PAR savings [Indecipherable] than last year. So I want to think about the mix for this year because right now obviously it looks like non-PAR savings is quite heavy. So you kind of start correcting from Q4 itself or it will take a couple of quarters to kind of course correct or maybe — the mix we target to?

Amrit Singh — Chief Financial Officer

It will take a couple of quarters firstly. But the sharp number of quarter three that you saw there is always a waning off effect that will happen. But quarter four will also be a bit higher on the non-participating side.

Neeraj Toshniwal — UBS — Analyst

Okay, thank you so much.

Operator

Thank you. We have our next question from the line of Avinash Singh from Emkay Global Financial Services. Please go ahead.

Avinash Singh — Emkay Global — Analyst

Hi, good evening. Pretty strong set of numbers. Question one. I don’t know if I missed it. Considering now this the process or new agreement with Axis Bank regarding this 7% stake acquisition, any sort of a timeline 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 tranches? That’s a first question.

Amrit Singh — Chief Financial Officer

Hi, Avinash. Good evening. 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 certain internal processes that they are working towards. At this point in time will be very difficult for us to indicate any timeline except for the fact that for Axis as a shareholder there is a keen interest to do it as quickly as they can.

Avinash Singh — Emkay Global — Analyst

Okay, thanks. Perfect.

Operator

Thank you. We have our next question from the line of Madhukar Ladha from Nuvama. Please go ahead.

Madhukar Ladha — Nuvama — Analyst

Hi. Good evening. Thank you for taking my questions. First, 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 revision to it?

Amrit Singh — Chief Financial Officer

Yeah, Prashant mentioned 35% to 40% is our non-PAR, which actually in our minds doesn’t include the annuity business. Annuity business is an incremental rate. [Speech Overlap]

Madhukar Ladha — Nuvama — Analyst

Okay. So 35% to 40% is excluding annuity. So then there’ll be plus annuity in addition to this. 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 channel mix. Can you sort of give us some explanation as to how this is happening?

Amrit Singh — Chief Financial Officer

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 strains coming together.

Madhukar Ladha — Nuvama — Analyst

So if you look at your press release —

Amrit Singh — Chief Financial Officer

Madhukar, margin improvement is a mix play.

Madhukar Ladha — Nuvama — Analyst

So to achieve new business margin — no, I understand that, but I think there was also some [Speech Overlap]

Amrit Singh — Chief Financial Officer

I think if you’re asking profit profile, the business growth has been lower, so there is a lower business strain which kind of comes into —

Madhukar Ladha — Nuvama — Analyst

But if you look at the business growth, 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 channel, some product where we are paying lower commissions or there is some advantage over there.

Amrit Singh — Chief Financial Officer

Yeah, actually, Madhukar, maybe we should speak offline because I’m unable to understand the question that you’re asking and which specific area that you’re pointing. Because 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 this

A bit better from you, but I’m unable to understand the question at this point in time.

Madhukar Ladha — Nuvama — Analyst

Okay, we can take it offline then.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Just a couple of questions. One is when I see your distribution mix, propriety channel seems to have done much better versus Banca. I would have thought a part of this would have played into the margins but the margins is only a function of product mix, as you have explained. So am I missing something here?

Amrit Singh — Chief Financial Officer

It’s largely, Prateek, 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 — Nippon India Mutual Fund — 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 so as 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 — Managing Director & Chief Executive Officer

I think the market share was going down, in the quarter two 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, the productivity of those resources become better. So the threat actually over next 18 months with an open architecture competitor is higher and one needs to deploy more resources actually to counter that. Very happy with the fact that we have been able to maintain that counter share at 70% level and going forward, there’ll be attempts made to keep it at that level.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Yeah, Prashant. But as your new manpower deployed becomes more mature, you will claw back market share, right? Isn’t it?

Prashant Tripathy — Managing Director & Chief Executive Officer

I mean, 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 to 40 ratio, achieving a 70% target is quite credible. It talks about good execution on ground.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Got it. 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?

Prashant Tripathy — Managing Director & Chief Executive Officer

I think it will be a question that we should park outside of this meeting.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Sure.

Prashant Tripathy — Managing Director & Chief Executive Officer

Because the answer to that is I honestly don’t know.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Sure. Thanks.

Operator

Thank you. We have our next question from the line of Varun Palacharla from Kotak securities. Please go ahead.

Varun Palacharla — Kotak securities — Analyst

Hi, I just want to ask a question regarding the new business strain. So if I look at the number for this quarter, it is down like 38% while APE was down 5%. Can you give any particular reason why this has happened or something regarding that?

Prashant Tripathy — Managing Director & Chief Executive Officer

Varun, can you say this question again? Sorry, I didn’t pick up the question.

Varun Palacharla — Kotak securities — Analyst

Okay. My question is regarding the 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?

Prashant Tripathy — Managing Director & Chief Executive Officer

You’re saying the strain for the quarter is down 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 as benefit as the new product that we have launched.

Varun Palacharla — Kotak securities — Analyst

Okay, thanks.

Operator

Thank you. We have our next question from the line of Sanketh Godha from Spark Capital. Please go ahead.

Sanketh Godha — Spark Capital — Analyst

Thank you for the opportunity. With respect to the margin, just wanted to understand that other than the margin mix — sorry, product change, whether there is any assumption change which has happened either with respect to persistency or cost of residual, non-residual [Phonetic] risk or anything which has driven that margin expansion or it’s similar what we have assumed in FY ’22?

Amrit Singh — Chief Financial Officer

So assumption review process, we have concluded our review process of the 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 an assumption change, which is creating a gain. Overall, the assumption changes has not changed the margin profiles materially. There have been certain pluses and minus but overall it has been net neutral.

Sanketh Godha — Spark Capital — Analyst

Okay. Another question just wanted to understand is that you said that you deployed more people relatively compared to the last year in bank, Axis Bank, but still we have managed to control the cost ratios and honestly the cost ratio has improved compared to what it was last year. So just wanted to understand which way those low hanging fruits which were available where you have managed to cut the cost despite deploying more people or hiring more people.

Amrit Singh — Chief Financial Officer

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 helped in protection being lower where medical cost and stamp duties and some of those things are involved. These are some areas which is helping us overall.

Sanketh Godha — Spark Capital — Analyst

Okay. Last one, rather two questions I have. One is to understand if you can quantify the economic variance number for the nine months and second is that annuity, you said it is 6 percentage of the total business. I believe the regular pay was launched in the current quarter. So any color with respect to the mix in APE versus regular pay and single premium which you can give. And finally, what is our dividend strategy going ahead given the solvency is at 200 how we will relook at our dividend payment strategy or till the collapse of the structure doesn’t happen, probably we will not start paying dividends?

Prashant Tripathy — Managing Director & Chief Executive Officer

So you have asked three questions actually. One is the non-operating variance. That was around INR657 crores for the nine month period, largely coming out of negative impact of interest rates.

Sanketh Godha — Spark Capital — Analyst

Okay. And annuity, APE mix which you said is six percentage of individuality.

Prashant Tripathy — Managing Director & Chief Executive Officer

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

Sanketh Godha — Spark Capital — Analyst

Okay. And dividend?

Prashant Tripathy — Managing Director & Chief Executive Officer

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 aspirations.

Sanketh Godha — Spark Capital — Analyst

Okay, perfect. That’s it from my side.

Operator

Thank you. We have our next question from the line of Madhukar Ladha from Nuvama. Please go ahead.

Madhukar Ladha — Nuvama — Analyst

Hi, thank you again for taking my question. You mentioned also that you would try and develop some alternate channels within Axis. I wanted to understand that statement better within Axis, is there a thought process also to grow the credit protect business over there?

Amrit Singh — Chief Financial Officer

I think beyond our credit protect, as you 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, 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. We are also setting up a fulfillment center or direct sales force kind of team for telling to the customers who are — who don’t have any relationship managers or setting up that team. There is a lot of work that we are doing on launching a D2C capability and products on Axis Bank counter.

So 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 a significantly higher pace. So that’s the objective.

Madhukar Ladha — Nuvama — Analyst

Understood. This is a lot clearer. Thanks a lot.

Operator

Thank you. 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 — Chief Financial Officer

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

Operator

[Operator Closing Remarks]

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