HDFC Life Insurance Company Limited (HDFCLIFE.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the H1 FY '26 Earnings Conference Call of HDFC Life Insurance Company. [Operator Instructions] I now hand the conference over to Ms. Vibha Padalkar, MD and CEO of HDFC Life. Thank you, and over to you, ma'am.

Thank you, Steve. Good evening all, and thank you for joining us for our earnings conference call for half year ended September 30, 2025. Our results, along with the investor presentation, press release and regulatory disclosures have been made available on our website and the stock exchanges. Joining me on today's call are Niraj Shah, Executive Director and CFO; Vineet Arora, Executive Director and Chief Business Officer; Eshwari Murugan, Appointed Actuary; and Kunal Jain, Head, Investor Relations, Business Planning and ESG. FY '26 has progressed on a stable footing for life insurance, even amidst persistent global uncertainty driven by geopolitical tensions, trade disruptions and uneven growth across economies. Closer home, the Indian economy continues to demonstrate resilience, supported by stable GDP growth and encouraging signals from rural markets helped by a generally good monsoon and improving farm income. While early festive trends have lifted sentiment, high-frequency indicators present a mixed picture, urban demand remains patchy and some consumption indicators have moderated. In this evolving macro environment, we remain focused on disciplined execution and delivering sustainable long-term growth. The recent GST revisions are a constructive structural shift aimed at simplifying compliance and improving affordability. We have ensured that the full benefits of the GST exemption are passed on to our customers. With product pricing now more attractive to customers across segments, we expect to see stronger demand over the medium to long-term. While the withdrawal of input tax credit may result in short-term margin pressure, we are confident similar to the surrender value regulation changes of managing this effectively over the next 2 to 3 quarters through operational adjustments and close distributor engagement. Stepping back, the life insurance sector remains structurally well positioned anchored by long-term savings demand, increasing financial awareness and a deepening protection mindset. Our diversified product suite and balanced distribution architecture equip us well to navigate near-term transitions while staying aligned with the sector's robust long-term growth potential. Moving on to business performance. H1 FY '26 concluded with top line performance broadly in line with expectations. Annualized -- APE or annualized premium equivalent, this is individual, grew 10% year-on-year, translating into a healthy 2-year CAGR of 20%. We outperformed both the overall industry and the private sector, resulting in a 90 basis point increase in overall market share to 11.9% and a 30 basis point gain in private market share to 16.6% for H1 FY '26. Growth was broad-based with several encouraging trends. Tier 2 and 3 markets clock faster growth compared to Tier 1 cities, reflecting our continued success in expanding reach beyond metros. Over 70% of new customers acquired in H1 were first-time buyers with HDFC Life, reflecting our ability to deepen reach and tap into new customer segments as we incorporate our learnings into our customer onboarding process, underwriting approach and product offerings. Business momentum was driven by a combination of factors, i.e., higher average ticket sizes, sustained traction in ULIP and par products and resilient demand across income segments. Growth in the number of policies remains at a healthy 2-year CAGR of 9%. Renewal collections grew by 18% year-on-year. Persistency ratios were stable with 13 months and 61st month persistency at 86% and 62%, respectively. These trends reflect the underlying product and tier mix. Next, on product mix. It was fairly well balanced in H1 and aligned with evolving customer preferences and market dynamics with ULIPs contributing 42%, participating products at 29%, non-par savings at 18% and term at 7% with annuity at 4%. ULIPs continued to witness strong inflows driven by a combination of positive equity market sentiment and the steady customer appetite for market-linked returns. Our ULIP offerings are designed not only to capture this demand, but also to provide enhanced protection benefits via higher sum-assured multiples and flexible rider options. Participating products remained -- maintained steady demand, supported by recent launches and the preference among customers for low-risk instruments amidst macroeconomic uncertainty. We are beginning to see a pickup in demand for non-par savings products supported by the steepening yield curve and higher customer appreciation for long-term guaranteed solutions. While we have seen varied pricing approaches across the industry in recent months, we expect a more balanced environment going forward particularly as stakeholders absorb the full implications of the GST changes. Our own approach remains grounded in long-term sustainability and customer value. The Annuities segment meanwhile continued its strong momentum, delivering 16% growth in overall new business premium. Retail protection grew 27% year-on-year, outpacing overall company growth. Our newly launched Click 2 Protect Supreme combines comprehensive life, illness and disability protection with flexible payout options and value-added features like Smart Exit and Income Boost. We are also seeing early signs of improved demand post-GST changes and are working on multiple initiatives to drive awareness and adoption of affordable protection. While it's early days on retail protection, growth post-GST changes was more than 50% in the month of September. In Credit Protect, trends in the MFI segment showed signs of revival with growth resuming in September. Other segments continued to see steady progress driven by improved attachment rates, wider coverage across lending partners and new partner additions. Retail sum assured grew at a healthy 22% in H1 and a 26% CAGR over 2 years. We continue to maintain leadership in overall sum assured underscoring our strength and protection led proposition. Next on financial and operating metrics. Our new business margin for H1 prior to factoring the GST impact was 25%. Post-GST, new business margin for H1 was broadly at FY '25 levels at 24.5%. This translates to VNB growth of 12% pre-GST and reported growth of 10% on a Y-o-Y basis. And a 2-year CAGR of 14% for H1 FY '26. New business margin in H1 was impacted as expected by the withdrawal of input tax credit under the revised GST regime. Around 80% of business in September was issued post 21st September. This, along with the effect of surrender regulation changes from previous year also weighed on margins versus the previous year. The margin impact was partially offset by higher share of protection and improvement in inherent product margins. We are actively implementing a series of measures to neutralize the GST-related impact on a run rate basis over the next 2 to 3 quarters. We expect to see restoration of a more normalized VNB growth next year, i.e., FY '27, led primarily by top line expansion. In our view, the GST reform is a momentous forward-looking change with the potential to structurally expand long-term demand and deepen life insurance penetration in India. Profit after tax in H1 rose 9% year-on-year to INR 994 crores. Embedded value stood at INR 59,540 crores with an operating return on embedded value of 15.8% on a rolling 12-month basis. Our solvency ratio was at 175%, reflecting a combination of dividend payout, repayment of INR 600 crores of subordinated debt in quarter 2, writing more protection business and the GST impact. We plan to raise up to INR 750 crores in subordinated debt in one or more tranches in H2. The fundraise is expected to enhance solvency by around 7%. We are pleased to share that our assets under management, including that of our wholly owned subsidiary, HDFC Pension Fund Management has crossed the INR 5 trillion milestone, a significant landmark in our 25-year journey. Moving on to other distribution highlights. All channels recorded healthy growth during the period. Our counter share with HDFC Bank remains stable, while partnerships with other banks also showed healthy expansion. The proprietary channel achieved strong double-digit growth in quarter 2. Agency channel has delivered a robust 2-year CAGR of nearly 20% in H1 FY '26, maintaining a healthy double-digit protection mix and driving profitable growth. Agent addition remained healthy with over 50,000 new agents onboarded on a gross basis in H1 FY 26 of which 80% were from Tier 2 and 3 geographies. Our focus continues to be on enhancing profitability at the branch level alongside broader agent activation initiatives. Other updates, our Indian subsidiary, HDFC Pension Fund Management continued to deliver robust performance, registering a 37% year-on-year growth in assets under management and maintaining its leadership over 43% market share. Its AUM nearly reached INR 1.4 lakh crores as on 30th September 2025. Our people remain central to our sustained success. We continue to invest in nurturing a supportive inclusive and empowering workplace, one that fosters innovation, collaboration and a strong sense of belonging. We are proud to be recognized for our employee-centric practices and have been named amongst the best companies for women in India 2024, BFSI sector. honored as an exemplar of inclusion in the most inclusive companies index 2025 by Avtar and Seramount for the second consecutive year. These actually reflect the culture we are building one where every individual can thrive. To sum up, as the external environment evolves, we remain confident of the long-term growth potential of life insurance in India. The recent GST reforms while necessitating some recalibrating -- calibration for industry stakeholders is a structurally positive sense. It makes life insurance products more affordable for customers. We remain optimistic about our growth trajectory for H2 with sustained demand across segments and improving customer sentiment. With the resilient business model, a trusted brand and a history of disciplined growth across cycles, HDFC Life is well positioned to grow ahead of the industry. As we mark 25 years of serving Indian households, our commitment to providing financial protection and building lasting value is stronger than ever. We thank you for your continued trust and support. For a detailed overview of our results, please refer to our investor presentation. We are now open to any questions from the participants.

[Operator Instructions] First question comes from the line of Avinash Singh with Emkay Global.

Two questions. First one is on capital. If I see sequentially solvency ratio has dropped 17 percentage points, I would think nearly 6, 7 basis percentage point impact coming from some retirement of your sub-debt or reduction in sub-debt, some part of it will be growth. And partly, it could also be due to maybe yield curve movement led MTM adjustments on some of the hedging positions. Are there any other elements here? And more importantly, I mean, to fund further growth is this -- I mean, the capital level comfortable and organic capital generation support your growth? Or do you have any plan to raise sub-debt or AI, I mean any other way to augment the capital. So that's on capital and growth. Second, on the GST and margin, if I were to just glance through the sensitivity given, I mean, how VNB changes if there is a 10% increase in acquisition cost and maintenance. Of course, that is a kind of a [indiscernible] basis. But the impact, just I mean it looks sort of a meaningful, assuming that, okay, 18% kind of a cost increase on yearly 15% to 16% kind of a cost that is non-salary thing. So there is a reasonable amount of increase in cost and maintenance going up. So that is where -- my question is that, okay, as you pointed out that over the next 2, 3 quarters, you will be kind of doing the adjustment to overcome this impact. I mean, so coming to that, is there kind of a possible way out unless -- I mean, the distributor also become or are ready to sort of share the burden? Because I mean, this burden to be absorbed only by maybe product change contract are to be absorbed by you. It looks a bit, I would say, on the higher side. So, are distributors going to part of -- I mean, this burden sharing will they sort of a share some bit of this load as well?

So I'll take the second question first, Avinash, on the distributors, quick conversations. See, it's not only the distributor, it is four or five things that we will do to neutralize it. And we have to be equitable between different stakeholders to be able to do it. You've mentioned distributors. And I think some -- given changed economics, some of that will certainly happen. And we've demonstrated that with surrender charges also. At the same time, we will be pragmatic about it. There will also be conversations with all our vendors, because only -- around 50% of the input tax issue is due to commissions, there are others of outsourcing cost, technology cost and so on. And then we will have these conversations with those vendors also. Then we also have a focus, along with the distributors, not only about commercial, but also on what product mix is something that we can jointly focus on and even more so than what we were doing perhaps before GST. So that's an uplift in terms of unit linked with higher levels of mortality, riders, a longer-term par. Every product has some further that we can extract on margin. So that also will happen. We will also look at -- how can we look at new products? Is there something that is topical, variable annuities, for example, so there might be some new-to-market products that can also get us that flip. And the last point is that overall on growth, because what we are missing in all of this is that, you said ceteris paribus, but really, the whole point is that growth comes in a big way. We've already seen that 50%-plus growth in the month of September on individual retail term. And as we start evangelizing as to the monumental impact to the customer, hopefully, even in other parts of our business, we start seeing that kind of uptick. So it's all of this. Obviously, we can't get into each of the specifics because these are all inter se conversations. But all of this is something that we've already started working on and many of these things we already have are done and dusted. Over to you, Niraj, on the solvency.

Yes. So as far as solvency is concerned, the starting position of, say, 192% in June. You mentioned a couple of elements, there are a couple of others which we'd like to just highlight. Starting with the dividend payout that we had done earlier in the year, that has about a 4.5% impact. Subordinated debt, we retired about INR 600 crores. So that has around a 6% impact as a consequence of that as well. The GST impact, we've articulated about 150 basis points impact on solvency. And as far as the rest of it is concerned, it's a function of more -- higher growth on the longer-term individual protection products. That has what has really caused this, as well as the new business strain that is basically embedded into this number. So as such, historically, if you look at our solvency levels, they have been in the 180%, 185% band, we're reasonably comfortable running at that level. We do plan to raise about INR 750 crores of subordinated debt in this quarter. So that should kind of get us to the levels that we are reasonably comfortable with. And as we know that this is a fairly conservative solvency regime. As we graduate to the risk-based capital solvency regime over the next 12 to 18 months, I think the solvency position will appear to be a lot more robust than what it appears at this level. While the regulatory requirement is 150%, we believe 170% to 185% is a fairly good number to operate with. To your early point also on the sensitivities that you referred to on acquisition costs. I think the numbers all kind of tie in. We've talked about a 0.5% impact for half year. That's basically -- it's about 15% of the period's business. So you could actually take a gross impact of around 3-odd percent for the year on a gross basis. That's what we basically have indicated with our disclosures. And if you were to tie in the acquisition cost sensitivities given what Vibha spoke about, not all the costs are impacted from an input tax credit perspective. So keeping in mind the composition of our business in individual and group as well as some of the acquisition costs not having got impacted at all, it kind of ties in with impact that we are talking about on an annualized basis of 3% with a 10% increase in acquisition costs. So that's broadly our thought process around this number.

The next question comes from the line of MW Kim with JPMorgan.

I have two questions. The first question is about the business growth opportunities in Tier 2 and Tier 3 cities. So following the GST tax removal, the insurance products have become more affordable to the public and the company has been an early mover in developing the business in Tier 2 and Tier 3 cities. With growing the brand awareness and initial success in this region, what is the company's target for the sales contribution from those regions over the next 5 years? Yes. So I just want to do a little bit more to quantify on this impact. Next question is about the asset liability management. We have observed that the company's embedded value and new business value margin sensitivity to the interest rate movement has decreased over the past 6 months. So given the macro volatility, could you elaborate on whether this reduced the sensitivity to have come at a higher cost? Or if it remains manageable through the asset management, the duration solutions. Additionally, if the bond for the market sufficiently developed to serve as an effective hedging tool for your asset liability management needs?

Yes. On the first question, Tier 2 and 3 is about 2/3 to 70%, somewhere in that range on an APE basis. On number of policies its slightly higher. We expect it to continue similarly because if we were to look at the underlying growth rates, while Tier 2 and 3 is slightly at a higher slip, but ticket sizes are smaller, a little bit lesser. So that's how I think we will see it panning out as -- over the time horizon that you talked about. You want to add anything?

Yes. I'd just add up. So I think you also asked about impact of GST on this mix. So clearly, we also -- we have seen a lot of traction happening because of GST, more so in our term business and the protection business. And we do expect that trend to continue, though it will be normalized from kind of increase that we saw towards the end of September. We do believe it will get normalized as things become more BAU. But definitely, in a product like protection in which the GST impact is quite large and very visible, we expect that to contribute to this continued growth of protection business.

And then to your second point in terms of the asset liability management, like you rightly mentioned, the sensitivities have been fairly range bound and maybe even going down in the recent periods. It's basically a consequence of a couple of things. One is our hedging approach hasn't really changed too much. It has been broad-based in terms of duration matching single premium products and cash flow matching regular premium guaranteed products. Through a combination of external and internal instruments. So that hasn't really changed too much in the past 5 to 6 years. What has happened is that like you alluded to in terms of is it coming at a higher cost? Not necessarily. The reason for that is as interest rates move, we alter our pricing and the cost of hedging is intrinsic part of that pricing decision as well. So it's not something that causes an additional dent to any of our economic metrics. Also, broad-basing this hedging approach allows us to decide between each of these instruments from point -- different points in time depending on how the economic aspect of, let's say, a forward rate agreement works from time-to-time. So I think that's broadly how things have been, usually.

Just to add to that, the sensitivity captures the impact of the interest rate movements on the shareholder assets and the assets of the policy holder, which are over and above the best estimate liabilities because on a statutory basis we're required to hold higher assets. And depending upon where these assets are invested and depending upon the shape as well as the level of the yield curve, the sensitivity will be slightly different. But as Niraj mentioned, it's always been range bound. And very important to note that in an interest rate down scenario, the values are going to be higher, which is what we finally look at when we are hedging or matching our liabilities under the non-par guaranteed product. So the interest rate up is adverse impact on the [ EV and NVA ], that is because the assets are invested in bonds and when the interest rates go up, the value of the bonds reduces. So the only the excess assets are exposed to the risk. On the policyholder liabilities, they are perfectly matched by cash flow matching or by duration matching as mentioned in our Slide 17.

[Operator Instructions] The next question comes from the line of Shreya Shivani with Nomura.

My questions -- both my questions are around the GST only. So can you help me understand which products get impacted the most because of the GST bit, in descending order. So protection, you let non-par, par whatever it is. My second is, I wanted the clarity on had -- if you do nothing, how much of a VNB margin hit on an annualized basis comes for you? And how much time should we build in for expecting that all the negotiations, et cetera, would get completed in? Those are my questions. Just one data keeping question. In your VNB walk, can you explain what is that impact of delay in pricing that first bit in that chart? Yes, those are my questions.

Yes. So we'll just start with the last bit on the VNB walk. The starting position on a reported basis was 24.6%, and if you recollect in the previous quarters, what -- there was a point in time when we had articulated the gap in margin due to lag in repricing. That is what we wanted to just restate here to basically say that once you neutralize that, the margin would have been 25% at the beginning of the period and end of the period is 24.5%. But on a reported basis, it's 24.6% to 24.5%. That was just a representation of...

Just to interject here, Shreya, we didn't want to start off with 24.6% is a limited point. We wanted to say that last year was -- should have been 25% in quarter 2, and that's what Niraj said.

Yes. Yes. I remember there was a -- you didn't reprice the product, that happens, correct.

Yes, which is why we are saying that it is higher. So actually, the starting point is higher.

So that is one. Second is you asked about the annualized impact. I just spoke about it a while back where we said that 0.9% for the quarter or 0.5% for the half year, basically is representative of about, say, 1/6 of the business. So annualized basis, you would expect the gross impact of about 3-odd percent, which ties in with the earlier question around acquisition expense sensitivity. So that's on a gross basis. Of course, that's not something that we would want to maintain or stay with. So our objective is to try and neutralize that over the next couple of quarters. On a run rate basis, we would be very close to where we want to be by end of the year. So that's something that we would endeavor. Lastly, in terms of impact of different product segments, I think at least from our perspective, given the dynamics -- market dynamics that we operate in, the biggest impact for us is on unit linked products. And the rest of the products are, in some sense, fairly benign compared to the impact that we have on unit linked products given the cap on charges. And that's something that we'll try and solve for -- compared to some of the other business lines.

Right. Just a follow-up. You said by the end of the -- by fourth quarter end probably you would be closer to a more normalized VNB, because you would have neutralized all the regulations that we are doing, right? That's what you mentioned.

Yes. So FY '27, we would expect a fully normalized delivery. End of this year and beginning of next year is where we would like -- the levels would be very close to where we would like them to be.

So we will -- while we have said 2 to 3 quarters, it's -- we will try and wrap this up in 2 quarters.

The next question is from the line of Prayesh Jain with Motilal Oswal.

Just extending that -- extending the previous question on GST front, you said gross impact is 3%. Now that obviously doesn't factor in the growth that can come in from this, right? So if I look at the second half, even if you take the gross impact, it's about 3%. But obviously, if you -- even if you don't make any alterations to products or alterations to commissions, you still will have some net benefit coming in from the growth, right? Is that a fair way to look at it?

Yes, you're right. It's just that we'll again take you back to what we discussed at the beginning of the year. We -- if you look at our VNB work for quarter 1 as well as for H1, you do see a negative on the fixed cost absorption. Now that is because we are -- like we've discussed in the past, capacitized for 16% to 18% growth. But currently, we are -- while growing faster than the sector still at 10%. So we do expect some of this to kind of linger in the second half as well, but we do hope to close the gap, but we expect this to be a drag still. So while the H2 is likely to be higher growth compared to H1, there could still be some lag there, but we'll see where we end given how things are right now.

Got that. And second question is on the non-par side, while you mentioned that the ULIP demand has been strong, but is this a non-par as a strategy also that you -- given that the competitive intensity has been high, because we've seen with some other players that the demand on the non-par share has been going up and there has been recently strong demand on the ground for non-par. So is there a strategy wherein you are letting go of the business given the competitive intensity? And how do you kind of see this panning out with the non-par share where we are today in the first half, do you see the second half to be significantly higher? How should we think about this?

Yes. So I think we do expect some pickup in non-par to happen in the second half. And everything that you mentioned is right. We do see some sort of aggression in pricing, which we try and stay away from. We obviously will try and continue to innovate on the product front to try and bring more relevant and interesting propositions to customers. While we do that, in our case, I think last year -- till last year, the product mix was in the 30-odd percent range. It has come off from there. I think for some of the peers that you're referring to, probably they started on a much lower base compared to where we did. So I think that's also something to consider. Having said that, it's definitely a category that we expect to pick up in the second half from a business -- from a demand perspective, especially given the way the interest rates have moved in the last 3-odd months. It just makes the category more attractive.

The next question comes from the line of Madhukar Ladha with Nuvama Wealth Management.

So on this -- so just to sort of emphasize this -- so you are saying that the overall sort of if you don't do anything, 300 basis point impact because of GST, that will partly probably had offset with volume growth. However, fixed cost absorption may still be a little bit negative until the end of the year. So that drag may still continue as far as the margins are concerned. Is that the right understanding?

Yes. So I just want to interject. So if you -- before all this GST happened on 3rd of September, what we had alluded to is that last year's, FY '25, we ended at 25.6%. And we said that margins will be more or less range-bound. And VNB growth will be in line with top line growth because of investments in two areas that we had talked about, right? So that was the starting point. Now GST impact is this, and we have called it out. And we are saying that we will end this year over the next 2 quarters, neutralizing that impact. So that's really the -- so intrinsically, when we have said that we are going to hold the margins, also this negative impact is due to lower growth, so we're capacitized to grow at about 16%, 17%, 18%, but we've said growth is in the early teens and hence, this is the carrying cost. So nothing changes on that front. Unless, of course, because of GST in the second half, overall growth starts seeing a material uptick. We are seeing that in protection, it's early days. But if that were to come in sooner rather than later, even on some elements of savings, then yes, that differential should go down fairly rapidly. But we're not factoring it as of now. We'll watch this space very closely.

Got it. Got it. And see -- I also see that actually, if you see your product mix that's moved more towards par and more towards ULIP, still with the change in business profile is still resulting into a positive impact on the margins. So what exactly are we doing over here? Some sense on that. And you had mentioned that we still have further levers on discount. So I wanted to get a sense of how much further margin improvement can come as a result of this? And over, let's say, the next 6-odd months what sort of driver could that be? And second, there is a good -- sorry, on persistency, 13th and 37th month, you are seeing some dip in persistency. So what would be the reason for that?

Yes. To your first point in terms of the levers as well as the product mix implication on margins. So if you were to just look at from the broad categories perspective, protection has grown at 27-odd percent, which is almost 3x that of the overall company growth. That obviously has played a significant role in terms of improving the margin profile from a product mix perspective. Annuities has grown at about 16-odd percent. So I think that also is a fairly significant contributor to that. Par mix has gone up, which is a little lower than company average margins, but I think it's not really creating any dent. The biggest change that has happened is on the unit link front, where about 1/4 of the business that we now do is on higher sum assured. And that is something that absolutely meaningfully alters the margin profile of this product category for us. And that has actually more than made up for some of the product mix that you -- product mix impact that you would impute from unit linked is going up and non-par going down. It's got fairly -- it's more than got neutralized by this factor apart from the protection growth and the annuity growth. In addition to this, we have been -- the flip side of non-par mix going down is basically a pricing discipline, which adds to the inherent margin of the product. Of course, that's got helped with the way the interest rates have moved as well. So all of these things have got the product profile to improve in spite of the product mix appearing the way it is. Vineet, do you want to add?

I'll just add one point here. I think you also spoke about what is the further runway for this margin increase. Now one of the parameters that we're looking at and when we are talking to distribution partners, et cetera, is also to enhance the contribution of this high sum assured and higher-margin ULIP to compensate for, let's say, the entire GST impact. And as that discussion goes forward and we are closing certain counters with those kind of discussions, we do expect this 14% number to even go up further. So the mix of ULIP between the normal ULIP and, let's say, the high margin ULIP, that mix will also alter.

Another point is that, we've been investing and we've talked about it in our agency channel and growth for the quarter has been materially higher than overall company level growth. And margins from agency channel are comfortably also higher because of better product mix, so just as that even apart from product mix, even as channel mix continues to move in favor of agency channel, some of that uplift should also come over the next 6, 9 months.

On persistency, I think just the headline number, it's impact is really that of the mix shift in terms of ticket size. That's really the biggest delta between what you see on the 13 months at this point of time, apart from the mix shift that we've spoken about in terms of geographies. So that is something that we're now kind of building into our business model, and we'll work towards looking -- improving on that as we go forward.

The next question comes from the line of Sanketh Godha with Avendus Spark.

Sir, my first question, if you want to deliver, say, 15%, 16% growth for the full year, the back calculated growth for the second half comes to around 19% to 20% you need to deliver. So I just wanted to understand that the 19% to 20% growth, how confident you are to deliver in the second half, so that the 60 bps negative impact of fixed cost absorption can be fully neutralized. So just wanted to understand the growth color there, given you might be going through a kind of disruption phase when you are negotiating commissions with the distributors. So that's point number one. And the second thing I want to check is that your Banca channel growth seems to be flat for half year-on-year, bulk of the business comes from HDFC Bank. So is it fair to say that the market share gain story largely played out until last year. Now, even to that extent, bank is still struggling to contribute anything to grow because the NOP or number of policies on premium, in general, is not growing in that channel? And if it is the case, when you see the revival in the particular channel to happen? So those are my questions. One more thing, if I can add. See, the yield curve benefit, I believe, will play out in second half. So is it fair to say that the non-par margins might look a little better in second half compared to first half. And therefore, that could be a negating factor to all the GST-related issues on the margins. So these are my three questions.

Yes. So on the first point on growth, Sanketh, I don't think we have alluded to the numbers that you talked about, 16%, 18%, 19% kind of growth. We have talked about early teens because we're coming off a big base. And also, like we explained in quarter 1, we can't be decoupled with whatever is happening in the lending environment, in bank growth, overall system led growth in the BFSI sector and even otherwise. So we are holding on to what we said, which is in early teens growth, and we are on track. We have also said that we will grow faster than the sector. And that we have comfortably done with the market share expansion, like I mentioned on the call. So I think your calculation is backward calculation to say if we have to eliminate the drag due to lower -- the fixed cost absorption, then yes, of course, and that's exactly what we're saying that because of the overall system led -- our macro environment led somewhat of a drag. And that's why we have this -- the under-absorption of cost. So we are retaining our outlook of what we said in first quarter and not factoring in any upside that could come through because of GST. We have factored in whatever downside, we have explained that, and there can only be an upside due to higher volumes. That's on point number one. On point number two, on HDFC Bank, we have more or less retained our share. See, like I mentioned in the past also, it's not difficult at all. It is apparent for us to get to 70% or whatever that x-percentage share. But really, what we are focused on is in terms of improving our margins while retaining the current share. And of course, down the line, we are getting more and more nuanced. Now HDFC Bank also has grown in line with company level growth. So it is not really a drag. And on a 2-year CAGR, it is a very respectable 20% growth. Also, we are very selective in terms of what parts of what the bank sells. We want to have a share in and 40% growth has -- the channel has delivered on retail protection. So we are getting more and more nuanced as to what do we want to sell rather than INR 100 of unit linked to INR 100 of protection that we are agnostic on just to show a higher wallet share. So that's as far as the HDFC Bank relationship is concerned. I think last question was on non-par. On non-par, yes, you're right, the margins will be better given the increase in the yields at the longer end. So yes, that's the right conclusion.

So sorry, if you can say that if the yield curve holds up at the current level, maybe any positive ruboff you will have on margin delta because of the current shape of the curve, if it holds up for the entire half -- second half?

Yes, if it holds up, yes, we will have a margin delta. But you also have to look at balance to competitive...

Exactly. So a lot of these things, yes, if everything else remains the same, and that is the only factor that margins would improve. But however, there is competitive pressure to bring pass this on, then margins would come back.

And also some of the negating of the GST. So many things like this will be in fray. But on a stand-alone basis, what you're saying is technically correct.

[Operator Instructions] The next question is from the line of Dipanjan Ghosh from Citi.

So just two questions from my side. One, in terms of your non-Hbank partnerships on the Banca side, can you give some color on how your counter share has been changing over the past, let's say, 12 to 24 months? And just one small question in terms of time lines for the launch of the variable annuity product?

Hi this is Vineet. I'll take your first question. So on the banks beyond HDFC Bank, we have seen a lower growth for the first 6 months. I would say, first quarter, we had a lower counter share in few of these banks. But towards the second quarter, we have been able to retain our counter share back to what it used to be. And as you know, things are panning out, we are now pretty confident of retaining our counter share in these banks.

And also, some of these banks added more partners. So it is not that we per se lost counter share, just that more partners are there in the open architecture construct, but it's settled down.

Yes. But I think, exactly it has settled down now. And second is, if you also look at our 2-year CAGR on these bank counters, it's a healthy 22% 2-year CAGR.

On variable annuity, we are in conversations with the regulator. Hopefully, we should be able to launch it in the last quarter of this year.

The next question comes from the line of Nischint Chawathe with Kotak Institutional Equities.

This is essentially on solvency, how much leeway do we really have beyond the proposed issuance or further capital raise. I mean, if growth in the protection business continues to remain high, especially after getting some tailwinds from GST exemption? To what extent can we support growth? And is there going to be any need to raise equity? I think that's my -- so what are the tools available out there? So that's the first question. The second is, essentially, if I look at your P&L statement, there is a decline in -- or a reasonably sharp year-on-year decline in policyholder surplus. So what's driving this? And just a tiny one over there is your single premium commission rate has again significantly increased on a year-on-year basis. So those are my two questions or three questions.

So on solvency, Nischint, I think like we've maintained, I think, a level close to 180-odd-percent is reasonably comfortable for us to continue growing at 175%, adding sub-debt of 750 will take us to that level. Regulatory requirement is 150%. So I think with this level of growth and product mix, I think we have a significant runway we can go a couple of years and not require equity capital. Having said that, you are aware that risk-based capital regime is likely to get implemented in this period which will significantly alter the solvency profile of not just our company, but the industry in a positive way. So I think capital is unlikely to be a constraint for growth unless the growth trajectory is dramatically different. And the product mix changes a lot faster than we think at this point in time. So it should not be an issue from that perspective. On policyholder surplus impact is largely a function of how the segments have done. On the participating front, it's been fairly stable. As far as on-par is concerned, I think the lower business has actually improved their position there on the individual business. Credit life, which sits in the non-par segment has grown at over 15%. So that will cause a strain in the shorter term. That is something that is reflecting here. Similarly, protection, individual protection has grown at 27-odd percent. So that also causes a strain on the P&L. But that is something that will obviously be accretive from an economic perspective, but it will cause strain in this artificial P&L construct in which we don't have a matching concept. Similarly, the artificial solvency construct in which the requirements are not as per the risk in the product.

And just single premium commissions here -- the single premium commission.

I'll take that question. So I think, Vibha also spoken in our opening remarks, we did see good growth coming in our CP business. And we have also seen some green shoots in the last month on the MFI part of the CP business. So that has shown us some good growth and also the growth in annuity has been healthy. Both of these would have contributed to that single premium increase.

The next question is from the line of Nidhesh Jain with Investec.

My question is on distribution mix. Within distribution, we have seen very strong growth in the broker channel. So what is driving that? And how sustainable are the current run rate?

So our growth in the broker channel has been -- maintaining our share in some of the broker shops as well as a large growth in the production business happening through some of the counters. So these two things have been contributing to our growth in the broker channel. And we do believe it's a very sustainable growth. Even the product mix at the broker channel is reasonably healthy and giving us good margins, better than company level margins. So that also is a sustainable business for us to continue.

So the share of broker channel has now become around, I think, 9% of APE, so you think that this share you will be able to sustain going forward?

Yes.

The next question is from the line of [ Vinod Rajamani ] with Nirmal Bang.

Yes. So you spoke about changes that you can make on the product, whether it is tenor extension, attaching riders or higher sum assured and so on, also some channel repricing and so on. But just in terms of rider attachment, any data that you can share? How many products currently do you have which you have a rider attached and what is the plan going forward as far as rider attachment is concerned? The second question I had was on the group side. The way I see it, group can be a natural hedge in terms of this input tax credit. So is there something we can do on the group side to kind of mitigate some of the impact of this GST? These were the two questions I had.

So like we discussed at our inherent margin on the products have gone up. And largely, it's about adding -- elements of adding rider, higher sum assured and a combination of all of these factors, which help us in taking the inherent margin up. Also the factor that more longer-term products are being sold now as compared to, let's say, earlier, and you can see that our sum assured growth has been healthy, and these are the ones which has really contributed to that happening. The second point around...

Any data on around how many riders are attached like to your products? And what is the -- do you have a target in mind and so on?

So I think how many riders are attached is not really a straightforward answer because there could be multiple riders of different kind of products which have different abilities for riders and some of the products have in-built riders, some of have in-built protection, higher protection. So there's no straight answer for saying that how many riders are attached. But like we said that to enhance our margins, we do focus on a higher build of protections around the savings piece. And the protection could come through higher sum assured through riders or any of these elements.

And on the group side?

So group side -- sorry, if you could repeat that question, this was around the GST?

Yes, that's right.

So the group is excluded from GST, and it stays that way. There is no other implication on the group from GST perspective.

No. So my question was around whether -- since it acts as a kind of hedge, is there any strategy there to kind of -- to mitigate the impact of this GST? Is there -- what are we planning in the remainder of the year?

So there is no mitigation for that. It is -- that group business itself is growing at a healthy pace. And that business is, let's say, immune from this GST change.

The next question is from the line of Neeraj Toshniwal with UBS.

So first question on the -- just wanted to recheck on the guidance. Already Vibha kind of mentioned that the starting point we were at comparing and probably guiding for a flattish margin by the year-end. Adjusting the impact for GST, if we are able to kind of pass on, are we still sticking to that particular guidance? That is first question. And second is on the like-to-like basis, obviously, the product level margin seems to have increased significantly because if I look at the product mix, has it only driven by ULIP, higher sum assured, particularly in ULIP or it is across the board in all the product category you're seeing margin uptick or the major delta is coming only from ULIP?

So we are seeing an uptick throughout. And there's something on the other in terms of features that we do try and be very nuanced upon and also work very closely with the distributors and construct products that will be meaningful to customers. So there is -- we keep finding ways and regulations also changed and so on. So it's fairly dynamic. So yes, we have -- ex-GST, we're not changing guidance. What -- I mean, we don't like giving per se guidance given so much of volatility. But yes, whatever we had mentioned in the first quarter, that holds, and not taking into account any upside due to positive impact of GST.

Got it. And on the yield curve movement, are we looking to just our IRRs basis upward smoothing curve or we are not looking to fully pass on or here also it will drive in to competitive dynamics at play. How should one think about the growth of non-par savings in that construct in the coming quarters?

Yes. So we launched this category, I think, about 6.5 years back. We keep repricing, I think upwards of 20x in this period with -- in line with the way interest rates move. And of course, like we discussed on the call, Vineet also mentioned competitive dynamics also play a role there. And -- so all of these things, I mean, will function on a BAU basis, we will see what is feasible given the interest rate environment, what we're able to earn as well as where the competitive pressures are in the category. So all of that will continue on a BAU basis. Nothing different that we will do in this period.

The next question comes from the line of Gaurav Sharma with HSBC.

So first question is on the product mix of the agency channel. I'm seeing a sharp decline in the contribution of non-par savings from 40% last year to 21%. So what explains this? And going forward, like can we see the shift in the product mix that will support the margins also? That is number one. And second is on the GST cut, changes in commission structure. So just wanted to know that if changes connected to distributor, whether it will be the similar type of cuts to all the distributors or it will be aligned to product mix. Like if a bank is doing more of ULIPS, the cuts would be higher, that's right? So these two questions.

So the first point on non-par, I think I have explained also in the first quarter with the non-par pricing or underwriting in term, pricing in term. It's all similar. We'll continue to build business at a pricing and underwriting in terms of quality, both on mortality and persistency, the way we think will be the right level. And we'll continue to withdraw a little bit when it gets somewhat what we think is irrational and we will, of course, regain lost ground when we think there's a little bit more rationality. I think given GST, some of the rational behavior hopefully should percolate down. We've certainly seen that in term. And we have -- like Niraj alluded to, we have really grown well on retail term, almost 27%, and sum assured and so on. So we'll replicate the same on non-par and we will -- of course, we -- our overall growth in non-par in H2 should be higher than in H1. As regards all these conversations with our partners, of course, these are all one-on-one conversations and there are so many things in the mix. Nothing is one size fits all, and it will be just inter se between us and them.

The next question comes from the line of Mohit Mangal with Centrum.

I've got two questions. My first question is that we started Project Inspire about a couple of years back. So will we continue to invest in that in the future like we did in like financial year '24 and financial year '25. So that's point number one. Point number two, we saw a marginal decline in individual policies sold. So do you see an uptick in H2?

Yes. So I'll take your first question first, which is about Project Inspire. So we have been on that road now for more than 12 months of groundwork and maybe 18 months of including design. We have seen the first few outputs coming, the employees internally operational team who started using the platform also for, let's say, group business first. We will continue to do that investment, take it to a logical milestones of rolling out new journeys and everything else over the next 12 to 18 months. Your second question was around NOP -- individual NOP. On the NOP side, we have consciously done a reduction of NOPs or new business policies from our lower ticket size segment where we had lower persistency, et cetera. So that's a conscious call. All other segments, which is greater than let's say, 50,000 have been growing healthy on the NOP. And we do expect this to play over the next 6 months.

Ladies and gentlemen, this is our last question. It's from the line of Harshal with Asian Markets Securities.

Two questions from my end. So firstly, on new business strain. So this quarter, we have seen a very sharp increase in the new business strain, which has led to decline in underwriting profits. So do we expect that trend to continue further in the near future also? And secondly, in terms of renegotiation with distributors. So how do we see that playing across channels, particularly to give you some color on the online channels. These are my 2 questions.

Yes. The new business strain has grown higher than the CPI growth. That is mainly because of the GST impact on the business that was returned in the last 8 days, which contributed about 15% of the H1. Since this business has return without any changes in the discount or commission or any other features, this strain is little higher. But going forward, we expect that the strain will reduce because of all the factors that we discussed on how to mitigate the impact of the GST changes. Without the impact, the NB strain would have grown at a similar rate to the business growth.

I'll take the question on the online channel. Online channels largely contribute a lot of protection business to us, and we have seen a clear uptick in the production business from all the online channels as well as from the other channels as well. In fact, in the GST, the increase in the protection business and the interest of the customers also in the protection business has been quite healthy. I think we need to monitor this for the next maybe 60 days to see where does this normalize.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Ms. Vibha Padalkar for closing comments.

Yes. Thank you for joining us today. Should you have any follow-up questions, please free to contact our Investor Relations team. Wishing you all a happy festive season. Good night.

Thank you. On behalf of HDFC Life Insurance Company, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.