Max Financial Services Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Growth outperformance, margin reset: 9M individual adjusted first-year premium grew 25% (private sector 19%), but Q3 VNB margin fell to 23.2% from 27.2% YoY, driven by product mix and surrender regulations.
• ULIP mix spike is the margin story: ULIP share jumped to 44% (from 35% YoY), contributing ~300 bps of the ~400 bps margin decline; management aims to bring it back to 35–40% without draconian growth trade-offs.
• Surrender impact contained at the low end: The new surrender guidelines hit margins by ~100 bps, the lowest end of the guided 100–200 bps range, after compensation and product design adjustments.
• Brand and distribution bets placed: The Axis Max Life rebrand is live, proprietary channels grew 41% in 9M, and 8 new partners were onboarded; the merger listing path now waits on the Insurance Amendment Bill.
• What to watch next quarter: Whether ULIP mix begins reverting toward 35–40%, the pace of non-PAR recovery, and any progress on the Section 35 amendment that unlocks the merger timeline.

Margin Walk: Product Mix and Surrender Rules

• Product mix drove most of the decline: Of the ~400 bps YoY margin drop in Q3, ~300 bps came from a higher ULIP share (44% vs 35% last year) and a lower non-PAR share. The remaining ~100 bps is the net surrender-guideline impact after mitigation.
• Q3 lacked volume leverage: Q3 APE of ₹2,108 cr was ~₹62 cr lower than Q2, partly from agency sales preponement (₹20–30 cr) and partly from an industry-wide Q3 slowdown. Without the typical Q3-over-Q2 volume step-up, operating leverage did not help margins.
• Non-PAR share was an additional drag: Management noted that if non-PAR share in Q3 had been similar to Q2, margins would have improved.
• Surrender mitigation was multi-pronged: Actions included tweaking customer IRRs, adjusting distribution compensation (upfront reductions or deferral constructs depending on the partner), enhancing product margin profiles in other segments, adding riders, and optimizing variances. The net impact was held to ~100 bps.
• Mitigation granularity withheld: Management declined to break down the surrender-impact offset between commission changes and policyholder benefit changes, calling that level of detail inappropriate to share.
• Economic variance turned negative in Q3: Economic variance fell from ₹660 cr in H1 to ₹537 cr in 9M, entirely due to equity market movements.

Tripathy: "Very happy to share with you that it remains at the lowest end of the guideline that we have been given. It is close to about 100 basis point impact."

Product Mix: The ULIP Overweight and the Path Back

• ULIP grew 49% in Q3 despite recent equity market declines, supported by the new Sustainable Wealth 50 Index fund for e-commerce customers. PAR grew 10%. Non-ULIP segments (non-PAR, annuity, protection, credit life) showed weakness.
• Management’s comfort zone is 35–40% ULIP: The current ~44% share is acknowledged as too high. The target is to return to that range “as things stabilize and we move forward a couple of quarters.”
• No forced rebalancing: Management will not take actions that significantly hurt growth; the aim is to grow faster than the market while letting mix normalize. Market corrections also tend to readjust ULIP mix with a lag of a few months.
• Q4 mix assumptions are conservative: Management does not assume a significant shift from ULIP to non-PAR in Q4; margin improvement is expected to come mainly from operating leverage. If non-PAR improves significantly, outcomes will be better.
• Rider attachment is a margin lever: Riders are attached across term plans, non-PAR, and ULIPs, with an attachment rate of ~45% of sales volume. Rider penetration was one of the actions taken to neutralize the surrender income effect.

Tripathy: “At our level, the product mix of, you know, upwards of 45%, close to 45% ULIP at a total level is on the higher side. We will typically like to be in the range of 35 to 40%.”

Growth Engine: Channels, Brand, and Persistency

• Proprietary channels are the standout: Grew 24% in Q3 and 41% over 9M, driven by both offline and online. The online segment is strengthening its leadership position.
• Banca grew 12% in Q3: Axis Bank growth was lower than other bank channels, but management calls this tactical and points to significantly higher growth from Axis Bank in the new calendar year.
• Axis Max Life rebrand is live: Completed in December 2024; early Kantar survey data (January 2025) shows positive impact already in Tier-2 and Tier-3 cities. Management expects the stronger combined brand to improve pricing power over the medium to long term.
• Persistency hit a milestone: 13th month regular limited pay persistency (value) rose 240 bps to 87%; the company is the market leader in 13th month persistency (NOP terms) and across the five-year cohort. NPS rose from 56 to 61.
• Digital efficiency gains: A new product configurator cut product launch time by ~50%. Risk analytics engines avoided ~₹700 crore in claim risk over 9M.
• New partnerships scaling: 8 new partners onboarded in Q3 (5 group credit life, 2 brokers, 1 corporate agent); they have already crossed the ₹100 crore mark.

Merger, Listing, and Axis Ownership

• Listing path depends on Section 35: The Board has approved the listing roadmap. Once the Insurance Amendment Bill is passed, the company will file with the regulator. Regulatory approval may be shortened by the Act’s clarification, but the NCLT process will still take about one year.
• No alternative route under consideration: When asked if there is a Plan B if the amendment is delayed, management said they are not considering alternatives and remain optimistic the amendment will pass.
• Axis ownership pending a final tranche: Axis Group holds 19.02% in Max Life; a 0.98% option is pending regulatory approvals at Axis’ end. The Board has already approved it. Management did not explicitly address whether this is linked to the merger.

Tripathy: “Hopefully, a few months lower, but it is not going to be crunched to, you know, coming in one or two quarters. It will take its own time.”

Guidance, Targets, and the Medium-Term View

• FY25 full-year targets: Close to 20% growth on sales (20% is the lower end; 25% may not hold given Q4 is the largest quarter) and high single-digit growth for VNB.
• VNB margin guidance maintained: Despite current trends, management expects to meet the 23–24% margin guidance for the year. Over longer horizons, the target is a 25% margin profile.
• Growth ambition: Continue to grow 300–500 bps above the market rate. Medium-term priority is accelerating proprietary channels (online, agency, direct selling) while bank channels grow in line with bank growth at stable counter-share.
• Rate-cut view: No significant change expected in product IRRs in the next few months if rate cuts occur; repricing is based on longer-term yield curve trends, not immediate repo rate moves.
• Long-range planning initiated: The three-year strategy process has just begun; specific medium-term growth and VNB targets will be shared at the next meeting.

Tripathy: “Hopefully, as we fix the product mix, we will come in the range that we typically like to be, which is around 25% or plus.”

Risks and Open Questions

• New tax regime uncertainty: Management says they have not seen an impact, citing a syndicated survey where tax fell beyond the top 10 reasons for buying insurance, and noted they do not capture data on whether customers buy for 80C purposes. Growth has occurred across all ticket sizes this year.
• Mutual fund plus term insurance threat: Management called it “very hard to predict” how this will evolve and does not expect huge impacts, but acknowledged it is a development the industry should understand and prepare for.
• New business strain rose 57% in Q3: Driven by faster-growing unit-linked designs, new surrender regulations, and allocation movements. ULIPs cause slightly higher strain than savings-design non-PAR; protection and annuity cause higher strain still.
• Surrender behavior assumptions are modeled, not observed: Per an analyst’s question, the 100 bps surrender impact is a mathematical estimate based on existing product forms and historical surrender behavior. Management does not expect a sudden surge because initial premiums do not break even quickly.

Singh: “It is very mathematically identifiable that how much is the margin implication. And what we have shared is actually basis what we have seen in that product form with the increased surrender regulations and the fact that we have adjusted for things around expense, commissions and returns, etc.”

Guidance & Commitments

Key Metrics