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

Ladies and gentlemen, good day, and welcome to the HDFC Life Insurance Company Limited 9-month FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to MD and CEO Ms. Vibha Padalkar. Thank you. And over to you, ma'am.

Good evening, everyone. Thank you for joining us for the discussion on our results for the 9 months ended December 31, 2019. Our results, including the investor presentation, press release and regulatory disclosures, are already available on our website as well as that of the stock exchanges. I have with me Suresh Badami, Executive Director; Niraj Shah, CFO; Srinivasan Parthasarathy, our appointed actuary; and Kunal Jain from Investor Relations. I will run through the key highlights of our 9 months FY '20 results and would be happy to take questions post that. Starting with an update on business performance. We continue to sustain our performance across all key metrics. Our market share amongst private insurers continued to increase in both the individual and group segments. In individual WRP, our share has increased from 12.6% in 9 months FY '19 to 14.3% in 9 months FY '20, while the share in the group segment increased from 28.2% to 28.6% for the same period. Overall, new business premiums have grown at 22% in 9 months FY '20, leading to a market share of 21.4% amongst private players. Individual APE has grown at 31% in 9-month FY '20, supplemented by product innovation and growth momentum across our distribution channels. We covered over 4.5 crore lives in this period, a growth of 29% over the corresponding period. Our new business margin for 9-month FY '20 is 26.6%, an increase of 260 basis points over the same period last year. Value of new business has grown by 45%, increasing from INR 971 crores in 9 months FY '19 to INR 1,407 crores in 9 months FY '20. Our operating return on EV was 19%. Our profit after tax grew by 8% to INR 984 crores. New business strain was offset by sustained profit emergence from our back book, which grew by 27%. Next, on channel performance. We continue to see growth across all our distribution channels with our proprietary and corporate distribution channel, including our bancassurance partners, growing by 60% and 19%, respectively, based on individual APE in the 9-month FY '20. The share of proprietary channels has increased to 36% in 9-month FY '20 from 29% in the previous year. Our agency channel now contributes to 14% of our individual APE as compared to 11% in the same period last year. Our direct channel, which includes online, grew by 57% in 9 months FY '20. Our endeavor to achieve sustainable growth in the broker channel has resulted in improved quality of business and the business has almost trebled compared to previous year. We continue to diversify our mix beyond the traditional modes of distribution and have deepened our relationships across 270 partners, which includes more than 40 in the new ecosystem space. Moving on to product performance. We have recorded growth across all product segments whilst maintaining a balanced product mix. Our savings business, which includes unit linked, par and non-par segments grew by 32%. Our protection business grew by 32% in 9-month FY '20 in terms of total APE. We continue to help address longevity risk for customers through our annuity and long-term income propositions in our par and non-par savings suites. In line with our commentary in previous calls, the share of non-par savings has continued to trend downwards from 54% in H1 to 47% in 9 months and 35% in quarter 3. This is in line with our stated strategy of maintaining a balanced product mix. Our targeted non-par savings exit rate percentage for quarter 4 FY '20 has been achieved in quarter 3 itself. We have recently launched a new product Sanchay Par Advantage, which is a unique proposition in the Par segment. It provides flexibility of receiving cash bonuses from the first year of the policy term, while it's also providing whole life cover. Protection continues to be a key focus area for us and accounted for 28.1% of our business in terms of new business premiums. Total protection APE grew by 32% to INR 886 crores in 9 months FY '20 with a share at 16.7%. Individual term protection was at 6.7% of individual APE in 9 months, growing by 31% over previous year. Our Credit Protect business has grown at 21% despite a soft lending environment. Next, on operations and technology as key differentiators. 13th-month persistency has improved from 82% to 87% and 61st-month persistency has improved from 49% to 53% for individual business. Our continued investment in technology has enabled us to offer an improved customer journey whilst also helping us realize cost efficiencies. We recently hosted an event Tech Edge for research analysts to share our tech journey at HDFC Life. We have uploaded the presentation showcasing our tech capabilities on our website. To conclude, we are pleased to have maintained our performance across key metrics, while focusing on our long-term strategy to build a sustainable and a profitable business, thereby adding value to all key stakeholders. The detailed disclosure on our website -- disclosure of our results is available on our website as well as the investor presentation. In the end, I would like to thank all of you for your continued support of our company. We are happy to take questions now.

[Operator Instructions] The first question is from the line of Hitesh Gulati from Haitong Securities.

Firstly, on persistency, we are seeing quite a sharp improvement. So is there any specific product or any channel in which we are seeing this? Or this is across the board for every segment?

It's across the board, Hitesh, if you look at Slide 27. And also, if you look at across our channels. So right from agency channel, banca as well as the key segments and even if you compare this with last year's performance, it is really across. Some softening and some stress that we have seen in unit linked is, you know just given the nature and the fact that beyond 5 years, there are very little hooks to retain the policyholder. But beyond that, it's across.

Yes. And then secondly, on our unwinding rate, I believe we have probably reduced our unwinding rates. So can you just shed some light on that as well?

So Hitesh, that's basically in line with our expectation of how the interest rates will move. So we covered that last time as well. So that's nothing, nothing really different. So it's basically the rate at which the risk will unwind, that's in line with our expected rate of return. So very, very similar to what we had shared last time, Hitesh.

Okay. And just last one [Audio Gap] on OpEx. So we are seeing positive operating experience in OpEx of 1.9%, I think, on VNB margin. So this is mainly improvement in acquisition OpEx, if I'm right, if I am not wrong?

[ 1. ] -- which slide are you on, on Slide 28, right? Yes, there is a scale impact because of defraying of costs.

Okay. So this acquisition OpEx is lower this year? Is this...

Yes, that's right, because just the element of fixed costs. And the base is higher, so we would not proportionately have to increase it. So for example, some of the channels like our agency channel has done very well. So on a YTD basis, they've grown 66%. And as you know, large chunk of our agency costs are reasonably fixed in nature. So that leverage is clearly coming through here.

The next question is from the line of Harshit Toshniwal from Jefferies.

Happy New Year. One -- 2 questions. One, when we look at the mix shift for FY '19 versus FY '20 9-month, so clearly we have gained around 30% mix share in non-par savings, partly it has come from ULIP and partly par savings. But despite this shift, when we look at the margin improvement from the product mix as reported in the presentation, that is only 30 basis points. But even if I take a broad 10% margin, 10%, 15% in ULIP and par versus 25%, 30% of non-par savings, shouldn't the improvement be much higher?

I wish I was getting 10%, 15% in ULIP. I think I would be delighted. But just the product construct and the commercial economics, we would struggle to get those kind of numbers.

But in 10% -- I mean 10% in ULIP and 15% in par. But despite that, just the 30 basis points net margin improvement from product mix shift vis-?-vis a drastic shift in return guarantee. You think that the margins -- anything which we are missing in these numbers?

So there are 2 or 3 things, right? One is what Vibha just mentioned, the unit linked margins are nowhere close to this double-digit number that you've mentioned, nowhere close to that. And second is that the non-par margins also are a function of the way the interest rates are moving, and we had discussed this in terms of -- while we continue to reprice appropriately in terms of how the interest rates move, there is a bit of a lag between us being able to operationalize it, like in annuity, similarly in non-par savings as well. So that also kind of has a bearing on the non-par margins itself. So we'll have to look at it in light of all of these elements, which make that...

Yes. And also, we are building in some level of conservatism on protection. We've always maintained that it's just too early for the industry to say we have cracked it on protection. And this is the focus. We've maintained that. We were one of the early movers in this space, and we did have to do a lot of course correction on this. So we are cautious in terms of claims, in terms of what is the KYC, what is the kind of quality of underwriting in terms of information that is available. As we move into non-metro cities, again intuitively, and that's what data is also showing us, the claims experience is very different. So some level of conservatism also built in there.

Okay. And ma'am, the second question was more on the product protection itself. So as you rightly said that it's been earlier. So again, one thing which it is very difficult to project is mortality. And I just want to know that what has your experience been in terms of early buckets when it comes to the -- maybe frauds in the new policies, which we have sold or the mortality experience, which we are building in these products. How -- any qualitative comments on what your experience has been in the last 2, 3 years?

Harshit, see, most of the protection book is medically underwritten. So usually, you see a very healthy experience in the first couple of years, we call this select life's mortality. So usually first 2 years after life is medically underwritten, the experience is usually very good. So it's only after third or fourth year, you'll actually see the experience converge to the overall ultimate mortality table. So usually in a couple -- after 24 months or even in some cases up to 36 months, the experience is pretty solid.

Okay. And we are yet to see the third years for a large part of the book?

See, the market has actually evolved. So we've moved from, say, only compulsory medicals in protection book and depending on what reinsurance terms were, we were -- we sort of managed to get some relaxation. So different books are at different stages of evolution. But largely, most of the protection book is medically underwritten. And therefore we don't -- we are not really seeing experience beyond say, in the third or fourth year as much as we've seen in the first couple of years.

Okay. And -- okay.

And also in the first year, in the initial years, you'll see some fraudulent claims coming through, which usually get repudiated as well. So those sort of factors help us get fairly decent experience in the initial years.

To the point which I was...

So for the same model, we've built a fair amount of lag in terms of where to source, which channel to source through. And I think the selection even in terms of who we are going out and getting for term is fairly well balanced now.

Also we, [ suo motu ], look at with a lot of risk filters and go back to these policyholders to ask them for further KYC, the risk monitoring team does that on an active basis. And if we are not satisfied, then we would have to take some steps to intervene on what is the quality of business upfront, rather than declining a claim down the line.

Okay. And maybe your outlook on protection growth from here on? Last question.

We remain bullish. So for example, in the third quarter, we grew over 40%, but -- on a stand-alone quarter in terms of individual terms, but -- 46% to be precise. But I've always maintained that I think in India, the growth of protection will be a U curve. Everyone just jumping onto that bandwagon playing a price war is just -- and only reason I say that is that we've been there and done it. So there in the long-term story, very much intact. And because there's a underlying need for it, very clearly. And all the metrics you know about in terms of low -- the high protection gap, people living longer, all of that. But is it victory yet? I don't think so. I think with some time away, it has to be built brick by brick.

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

Firstly, on annuity. The growth has slightly tapered off this financial year. And also, we noticed that the average age of annuity has increased from 58 to 59, so is there some defocus on the annuity business because of competition or pricing? Or...

So we believe in risk management as far as annuities are concerned, because really, the single biggest factor there is annuity rates. And there's always a temptation to stay there -- out there a little bit longer when interest rates correct. On a full year basis or YTD basis, we've grown about 10%. And as you rightly say, first quarter was pretty robust, and third quarter was a very modest kind of a performance. But we will catch up. The other part is that if we were to include the long-term benefit options of Sanchay Plus and similar kind of product, then we're looking at a fairly, or almost a 2x growth than what is seen just if we were to look at the single premium annuity. So that's how we look at it. In fact, when we put out our investor presentation towards the end of the year, you will see a different kind of a classification based on the economics of the product as against only the labeling of the product.

Sure, sure. And secondly, on protection, what will be the volume growth in protection because this limited pay protector is also skewing growth for the industry in some of our peers. So what will be the volume growth, if you can get that number?

In the future, or which period are you talking?

For Q3 or 9-months at this time period.

Overall, we have grown in terms of APE basis, stand-alone Q3, we've grown 15%. On the individual, we have grown 46%. Credit life has been somewhat muted for the stand-alone quarter because of all what is happening in the macro environment. But if you look at the share of protection which is there on Slide 16, you also see some of the channels holding onto their protection share. So we remain very, very bullish about protection, but like I mentioned, in a calibrated manner. It has to be a bottoms-up strategy, which is fully [ laced ] with this management.

But can you bake this 46% growth in terms of volume and value or some assured growth? Because what is happening is that this limited pay protect product is also skewing growth.

Yes. So we have a combination of both. We were actually late to the game as far as limited pay is concerned. So we started off as a longer term. If you were to look at it just for the term, if you look at our NOP growth, it is 21%. And if you look at our ticket size growth, it is 23%. So very similar to 20s.

Sure, sure, that's it from my side.

So it's almost 50-50 versus the overall growth that you see.

Yes, I think the end objective is also to look at unique customers that we are adding. You're right in terms of the limited pay, so it has to be right sale for the customer in terms of what's right in terms of limited pay and where the customer is willing to pay a regular pay for a long period of time. And I think our strategy is more customer related in that manner.

Sure, sure. And just lastly, one more thing. Next year, do you think protection pricing may go up for the industry? Because we are hearing that reinsurers are likely to increase their rates.

A little bit early. I think companies will have to take a call as to how they overall manage their numbers, solvency, et cetera, and what is the outlook. We certainly, as you know, philosophically, do not want to write a loss-making business. And so yes, I think rates will have to go up. It's a question of when rather than if.

The next question is from the line of Ajox Henry from B&K Securities.

Ma'am, my question is continued to the earlier question on 190 bps expansion due to the expense impact. In FY '21, if -- I mean we will be competing against a very big [ pace ]. So will this benefit reverse when growth stabilizes and [ their ] OpEx costs remain as a bigger chunk of the proportion of expenses?

We have had this question last year and even the year before last. I think for us, it is nothing that in our strategy is something that is unsustainable or any windfall as such. Overall, that you see, we have a balanced product mix if you look at balanced distribution. And apart from some regulatory or macro things, which are outside and beyond our control and not visible today, it should be a smooth upward curve.

Okay. And one more question on retail term sales through HDFC Bank. What has been the trend there? Has it been an upward curve or a downward curve, or just a trend over the period of time?

It has been overall upward curve. You might not see it in the percentages. When you look at Slide 16, they might not be visible because other things might have grown faster, but -- and hence, the proportion does not look like it has changed. But when I were to look at the exit rate in -- as of December, it is a very distinct upward curve. So very, very supportive. And I think it's the right sale for the kind of HDFC Bank customer.

Okay. And how were we able to control the OpEx ratios when compared to first half, we were able to do much better for the 9-month period? So what extra steps have you taken?

So a couple of things here. One is that the leverage that I talked about. So as we sell more and which typically happens at the end of quarter 3 to the lead up of quarter 4, the fixed cost leverage does start coming in. So that's really what has happened. And also, when I sell a little bit more of par, there is some element of, as you know, the par profits are not a one-on-one in terms of expense, but the bonuses that are declared is what goes to shareholders account. So it's a combination of all of these factors. And overall, the fixed costs have been coming down. Variable costs, of course, the competitive environment is intense and every rupee is -- that we have spent on variable cost is through our P&L. And so that strain will always be there, but fixed cost leverage and having a tight lid on fixed cost is really what has managed to get us up.

Any color on FY '21 margin trajectory?

So we feel enthused to continue on this journey. And there are several levers, and that's why we feel fairly enthused by that. There is a product mix lever, then there is an expense lever just -- that we just talked about. Then the overall volume because of product innovation, that gets us to the volumes that you see us doing time and again. It is a tight control overall. And also, I think we sometimes underestimate that a lot of our partners also are quite happy to be engaged with us. So despite always having a temptation to tie up to someone else because someone else is on the fringes offering something more. I think the -- all the tech interventions that we have so that it makes the life of the partner easier in terms of integration of the journey as well as the size of our balance sheet because ultimately, say in credit protect, they do want the size of the balance sheet to be able to withstand any shocks. So it's a combination of a lot of things, wherein you start becoming an insurer of preference.

The next question is from the line of Prayesh Jain from Yes Securities.

Just a few questions. Firstly, on the non-par business, you said that you've already achieved the exit rate that you had targeted for Q4 in Q3. So first of all, what was the exit rate in Q3? And secondly, what do you target for Q4?

So if you look at Slide 16, we've given Q3 numbers. So our exit rate in Q3 as of quarter was 35%, as of December was slightly lower and balanced product mix is what we see. So we'll see our par going up slightly on the back of our new well received new product launch that I mentioned in my opening comments, Sanchay Par Advantage. And so that kind of share transfer between non-par and par to some extent, is something we would expect to see in quarter 4.

Okay. And secondly, on the VNB margin front, are there any assumption changes with regards to any of the products, which has kind of moderated VNB margins?

No, there have been no assumption changes. And also a point I want to make, is that because there are different practices, this VNB margin is fully factored in expenses and not annualized expenses.

Okay. Okay. And lastly, on the protection piece of the business, you mentioned that the re-rating or the increase in reinsurance rate is some time away. But what we understand is that the reinsurers are talking about a significant increase in terms of the reinsurance rate. So whenever that happens, how do you think that the industry would react? And how would the VNB margins then pan out if -- for HDFC in particular?

Yes. So I think you must have misunderstood. What I meant was yes, the reinsurance companies are asking life insurance -- life insurers to increase the premium, that is already upon us as an industry. My point was as to how individual companies, whether they reprice, to what extent, reprice might be a little bit away just given that we are in quarter 4. And a lot of companies might not want to rock the boat in quarter 4. I also mentioned that it is inevitable that prices will go up for term, question is when they will go up. Whether they'll go up immediately or people will wait until quarter 1 of next year. That will be an individual call. To your question as to how much there will be an impact, I think it will be a function of, if prices go up. It could also be virtually no impact, wherein you are passing on the prices because anyway term rates in India are cheaper than a lot of the developed countries. And so really, if you were to realistically see what is the risk and the underlying profile that we are covering, it would be very much in line for the quality of life versus other parts of the world. So I see this going up. We ourselves have not really firmed up as to the -- all the implications of this. We will have to see in terms of, take a holistic picture as to what is the quality of life, where are we writing, how much is metro, how much is younger people that we're writing, what are the natural hedges. So lots of aspects that we need to take into account.

Okay. Okay. And lastly, on the ULIP part of the business, what kind of growth do you see going ahead?

See, again if I were to go to Slide 16, we don't drive the product mix at a company level, it really depends on underlying channel and sub channel and some of [ the movers ], right? So on Slide 16, that's why we had put this one out years ago is to explain this concept. So if my agency channel, like it is doing now, has been one of the fastest movers and so has, for example, my online channel, then what they sell is what will influence total company growth. While -- and on another hand, my bancassurance channel does very well, then you will see a little bit of more of ULIP in the -- at the total company level. So at the company it's really an amalgamation of the underlying channel growth.

[Operator Instructions] We'll take the next question from the line of [ Raj Rishi ], who is an individual investor.

There are some proposals for life insurance to be allowed to sell health insurance. So if that's the case, in HDFC family, will it be divided between the HDFC ERGO and HDFC Life, any -- just comment on this?

Yes. So I'm not sure of such a proposal being there. Have you heard of something?

Yes, there was some IRDA chief talking about some feedback he is gathering. And then [ he can take decision accordingly ].

Yes. Not that I've heard of anything, but hypothetically speaking, really what we're looking for is to enhance our life products and not necessarily to play in the same arena as some of the other insurance sectors. So from the customer's point of view, we do believe that it is a kind of a one-stop shop, wherein he can go for -- to get his medicals done and get everything insured. So we are looking at long-term coverage and not like a general insurer who is typically looking at a short-term coverage. So this is a very different product than just, say, taking an indemnity product, and we want to play in that space. Really, our intention is to expand the health offering, and a lot of innovation can be done in the health space that doesn't exist in India today, and we're really interested in expanding the [ ply ] other than really cannibalizing just what is being [ seen ].

Okay. And ma'am another thing, the biggest insurer in China is, sort of had a ecosystem of start-ups has something to do with doctors, et cetera, apps. So you have something like that in [ your case ]?

So -- yes, we have a lot of prototypes. And as you know, from a tech perspective, it's something that we've been talking about. We feel very enthused about creating ecosystems. But I think we need to -- we are in the process of engaging even through sandbox and other means so that we have that ecosystem wherein we can connect all those dots to be able to use alternate data that is available as well as enthuse the customers to come and have a more broader conversation and engagement with us rather than a very tactical one of buying a life insurance product.

That next question is from the line of Madhukar Ladha from HDFC Securities.

Ma'am, just a question again on the margins. So given the shift in product mix, our margins don't seem to have gone up as much as we would have expected them to. And in the explanation, one of the explanations was the interest rate's also moving down. So I wanted to understand in what way does this impact the margins? Because is it that the Sanchay Plus that we sold over the last 9 months, the margin of there has got sort of reduced because our expected interest rates going into the next several years has gone down, and we'll be receiving the cash flows later. Is that what has happened?

So I'll start off, and actually, Madhukar, we have had a detailed discussion on this with one of the earlier callers. And also the fact that unit linked that you see having gone up. So quarter 3 unit linked was 33%, again in the pull of the market. So from -- well, while you see 9 months at 28%, it has gone up to 33%. And unit linked does have a tempering effect on margins. So if you will work out the math, and we also had a discussion with the earlier caller, that is nowhere in the zone of 10%, 15% that was quoted. And so that is certainly there. I also mentioned, just to recap very quickly on the earlier conversation, that on term also, we are somewhat cautious. Because of, as you move into interior India and a very different kind of risk profile that we are encountering. How do we deal with that and especially when there is not enough of data, KYC visibility, our claims experience. So there too, we are cautious. And hence the term margins in interior for us will have to be very different. Yes, it's certainly a space we are enthused by, but the margin profile can be very different to what it is in metro. So it's a combination of a lot of these aspects.

And on non-par, it's more in terms of how we are basically looking at repricing prospectively in light of where the interest rate environment is going. It's not much to do with the cash flows and the matching of the cash flows, that's a separate risk management discussion. But it's more to do with the calls that you want to take on spread and make the customer proposition viable at any point in time, it's fairly limited to that.

If we were changing our assumptions in -- for the term products and...

Sorry, just to put things into context. Quarter 2, our margin stand-alones were 25.4%, quarter 3 stand-alone is 24.7%. So you're talking about 0.7%. And given the higher uptick in unit linked, it's not way off than what optically it looked like.

Lower -- significantly lower non-par.

Yes.

Also in non-par [ and so ] annuities [ where the company ] profits actually emerged from the spread. And now with the interest rates falling, if we do not quickly reprice, like Niraj alluded to earlier, there will always be some time lag because we cannot reprice every day. So there will be some time lag, so -- before you can reprice and get back to the original margin. So there will be some leakages in the margin as interest rates fall down. So that is what has happened in the -- when we started off in the first quarter, interest rates were high, and then in the quarter 2 and quarter 3, the interest rates started falling down. But there will always be some time lag and hence a leakage. So hence you'll see a little bit of a drop in the margin of the same product.

The next question is from the line of Nischint Chawathe from Kotak Securities.

Three questions from my side. First of all, just if you could articulate your strategy to increase individual protection through the banca channel. I know there has been, I guess a fair amount of improvement in this month, but if you could just kind of explain as to what you are doing and what you intend to do? And maybe if at all you can put a ratio as to where you intend to take it, but at least some strategy around it? The second is I wanted to double check if -- which product is doing very well -- which par product is doing very well in the online and direct channel? Is it Sanchay Par or any other product? And finally, we see some negative investment [ foreigns ] in 3Q, so just trying to understand that one?

Yes. Hi, Nischint. So on your first question on banca, our exit rate in December was close to 5%. And couple of years ago, we were just about rounded off to 2%. So -- and on a pretty large base, as you know. So that is trending very well. In terms of where and what are we selling there, so we continue to sell both the regular term, which is what we have been selling as well as the more recent limited pay, which seems to be the flavor of the season nowadays. So which is fine, but we are doing more, but I just want to make the point that we have been consistently selling the more longer-term, term product that was the early mover that we were, that's what we were selling. So it's a combination of both. We're also pretty active on the VRM channel as well as some of the non-branch banking channels. Suresh, you want to add anything?

So I think what Vibha mentioned, we have managed to move the 2% term penetration to a 5%. But if you really look at what can be possible across a whole host of even our banca partners, it could be double digits in terms of what kind of term percentage share can be. Three, too I think it's also important that we continue to look at the term penetration on 3 aspects: one is, of course this premium; the second is in terms of unique life covered and also in terms of the total sum assured, right? And I do believe that look, if you are able to continue the focus in terms of taking the 5% up to 10%. And some of our partners, where we have banca, are maybe on a smaller base in double digits, that is something that we can continuously move even with our larger partners. So the work will be in terms of innovation, the work will be in terms of offering things like preapproved, easier to buy, easier to take -- click. Those kind of possibilities are there in terms of how we can take it up much higher.

Where we hesitate is that just playing the price war. Because -- and really, I had a long answer to one of the earlier callers that, that that's not really what we believe in, because term in India is very nascent, and companies have to be cautious as to that, we have very little claims experience. And we are saying that despite being one of the early movers in this space. And so even in HDFC Bank, we want to be cautious that it's overall protection that we want to give to HDFC Bank's customers and not only to see in a very fungible manner as to who is the cheapest. And hence the very calibrated brick-by-brick kind of a growth. And it has taken us 2, 3 years to go from about 1.5% to 5% as against doing that in 1 year. So that was the first question. Second is that which par product that you had for online? Now largely it is the Sanchay Par Advantage, that is picking up very well. But even in the past, we've had some of the earlier par products, we have a ClassicAssure, Super Income products. These 2 -- these couple of products have also been received very well in online. And your third question is on the negative investment variance. Do you want to take that, Niraj?

Yes, so this is, Nischint, largely about [ are they ] trying to change the shape of the yield curve through, I mean what we [ hear as in ] populations list is that's largely the reason for the negative variance in this period, as the difference between the long-term and the shorter-term interest rates are trying to be -- we're trying to bring them closer rather than getting the yield curve flatter than what it was in the previous periods. So that does affect the bond yields for us as well as the returns. So that's largely the reason.

The next question is from the line of Neeraj Toshniwal from Emkay Global.

Congrats on very strong persistency. I just wanted to know have you been build up this [ as a mission ] -- in assumption? Or it's yet to be taken up in [ year-end ] margin at the annual review?

Our annual review happens in March. So that will -- you will see that in quarter 4. Is that...

So yet we'll have the buffer right now in terms of taking up the...

Well, we haven't changed anything this year so far.

Okay, okay, okay. And the second question was on the claims paid on the P&L, it looks very high, benefits paid out. Any particular reason to that?

Yes, yes. So most of that, about INR 2,500 crores to INR 3,000 crores that you see in there is because of maturities. It is just that given that a lot of these policies were sold, say, 10, 15 years ago, and now are -- especially par products, wherein the term is over and it's payback time, that's where you see the money being paid out to them. So it's very much in the normal course of business.

Nothing lumpy experience in terms of certain claims in the -- any of the portfolio?

No, when you say lumpy, it is lumpy because an entire cohort would be ready for us to pay, but nothing that is not factored in by our actuarial team. It's under the terms of the agreement. If we were to look at actual policy terms, just to give you some numbers, so our -- about INR 9,000 crores last year became INR 13,000 crores, of which about INR 2,100 crores was as per the policy terms, the delta. And so that is just very much -- that's claims by death, which increased by INR 700 crores and money back, there is maturity payouts and so on.

[ And the ] claims are largely in line with the expectations for the book and for the entire book.

Okay. Okay. And one more question is on the credit life. I think we have grown individual protection quite smartly. But on a Y-o-Y basis, in 3Q, I think credit life has been quite muted. Any particular reason to that?

It is just overall general slowdown in terms of what is happening in terms of -- in the NBFC space. But if you were to look at overall, the growth has -- we have held onto the growth of 21% growth. Even if you look at Credit Protect itself overall, not as -- not on an APE basis, but if you were to look at Credit Protect, that has grown by 21% stand-alone Q3. So it has not really tapered off. So if you just were to read out the numbers, quarter 1 was 21%, quarter 2 was 22%, and quarter 3 was 21%, and hence YTD is 21%.

This is on an NBP basis you're talking about?

Yes.

Yes. I mean given that -- look, this business, obviously, depends majorly on the core disbursement of our partners. I think the ability for us to be able to manage at multiple fronts, we have a large cross-section of partners with multiple verticals within the partners. So we have seen a shift in terms of disbursements. Some of our large partners have done fairly well, so there has been growth there. We've managed to add a certain number of verticals with existing partners. We have added a few new partners. We've looked at value penetration across some of the verticals. We've looked at products like riders, which could be added on. We have looked at how we can cover -- increase cover through level products. So it's finally a combination of how do you take the entire sum assured back to the customer across various verticals. So even if there's been a slowdown, hopefully that will get picked up in the coming year and the core disbursement itself will increase.

And Credit Protect is more appropriate to really see it on a new business premium basis, given that APE is really just a conversion factor based on certain kinds of products that go within that. So that's what we would guide you to.

The next question is from the line of Adarsh P. from Nomura.

Congrats on a good set of numbers. On the -- on this particular year, right, we've had great success starting off with Sanchay. Just wanted to understand -- and like always, competition would have copied guaranteed return products. Just wanted to understand the pricing competition here. The question is more that most innovations that we've done over the years have either been built on distribution, branding and a lot other things. Is this year's big innovation which drove numbers a little bit based on, say, a pricing hook, which now a lot of competition would have caught up with, and how do you see the sustainable VNB there?

Frankly, Adarsh, if we did not discourage the sale of Sanchay Plus, and I say that in a right manner, this will -- Sanchay Plus will do exceedingly well, almost like it did in quarter 1, despite competition being there or not being there. So it is not because of competition coming in that Non Par Savings is now 35%. It is just because philosophically, we believe that -- believe in a balanced product mix. So that is something that -- there is a first mover innovation. It also gives us time to embed technology. So it then becomes a complete package rather than it being a very tactical kind of a conversation to say, okay, I have now copied your product, and it's one and the same. It isn't, because it's also what we sell coupled with how we sell it. And overall the brand promise in terms of your repudiation ratios, all of that put together. So that's really how we see it. And each one of our product innovations, even going back, and that's something that we also showcased in terms of whole host of products that over the life cycle, so if you -- this is on Slide 15, since you mentioned products. But if I were to pick up -- pick out a couple of products, back in the days when pension was not known, we were known as a pension company. It's all very relevant today, but we talked about pension in the year 2003, '04. And then you have YoungStar, which is a child plan; your Click 2 Invest, which was really to say, unit linked can be bought at a very low cost along with a cover; if you look at Cancer Care or even 3D -- Click 2 Protect 3D Plus, we were the first large-scale player in online space and so on. So these will always be -- first to market will always be -- will always command the kind of premium and first point of recall, so that when a customer is buying something, he or she will evaluate us, maybe take their own informed choice, but not being called to the party is something that will not happen, is something we are very, very confident of that. So to your question, these innovations, I think -- we would like to think that it's a holistic package as against just a tactical product that can be copied. And the same thing is happening, now we see with Sanchay Par Advantage.

Understood. Ma'am, just quickly, just understanding, like how would have -- like depending upon the pricing in the market, how would have our non-par or guaranteed return product margins changed from, say, start of the year to where we are today? Is it dramatically different, given that many people want to copy it? So how have the VNB margins changed [ of a ] Sanchay Plus product which you sold in April, May and where we're sitting in January today?

Pretty much similar, except for like Srini mentioned to one of the earlier callers, there's always -- there could be a time lag. And typically, repricing can't happen before a month of the last time you've repriced. So it could be that we have put out some rates on Sanchay Plus and then interest rates have changed, but we are not able to reprice it to the new norm. And hence we have, to that extent, on new business, there is some level of compression of our spreads and before we reprice and catch up. So barring that, we will hold onto it.

So barring the lead lag of repricing, the spreads are not changed in the last 8, 9 months?

Correct.

The next question is from the line of Sanketh Godha from Spark Capital.

When I look at the EVOP growth, EVOP growth is 16 percentage, which is the ultimate source of profitability or ROE is ultimate source of profitability, but the VNB growth is 46%. So just can you...

Sorry, EVOP is 19%.

Our EV is 19%, EVOP growth is 16%, if I am right there?

[ Is the ] EVOP growth.

It was INR 22 billion last 9 months.

You mean rupee value EVOP growth, yes.

Yes, yes, yes. So it is 16%, while our VNB growth is 45%. So this divergence in VNB growth and EVOP growth was never in the past, probably. But this divergence has significantly increased in the current quarter -- current 9 months, basically. So just -- because ultimately, the EVOP growth or the profit is the ultimate source of profit for an insurance company. So I just wanted to understand why this divergence is there or it will converge over a period of time? I understand the fact that unwind is a major reason for the low -- lower EVOP growth, but just I wanted to know whether this trend will continue? Or how is it going to happen going ahead?

So Sanketh, one way to -- one way of looking at it is how fast is the base expanding and what percentage of the new business value coming. So as the base starts expanding, the impact of unwind is something that is going to keep getting more and more. As far as the other buckets are concerned, if you see the operating variance, that's likely to always be a small part of this entire process, so will the assumption changes be. The growth in unwind, basically it's a function of interest rates going forward as well as the base effect. So as the base keeps expanding, the absolute rupee value of unwind will also keep increasing. The rate at which it increases depends on the interest rates going forward. The [ NBC ] in terms of absolute rupee amount, again, is a function of 2 things. It's a function of how profitable the new business that you're writing and also the growth that you will achieve going forward. So there are a lot of these factors that are at play at all points in time. But just to keep it simple, if you were to take out operating variances and assumption changes effect between the 2 components, unwind and the new business contribution, you can -- given that the interest rates over a period of time are likely to go down, you can -- you could basically almost neutralize the impact of the bigger base of -- for the unwind and the rate at which it'll unwind. So large part of the growth is likely to -- will -- large part of the growth in EVOP will continue to come from NBC.

Okay. But is it because of the asset allocation, which has internally changed towards Sanchay and Credit Protect, therefore, the unwind rate is a little lower and therefore, the EVOP growth is -- the VNB growth is not translating into EVOP growth?

Sorry, Sanketh, can you come again on that one?

So my question was that, the asset allocation between the Credit Protect and the guaranteed products, where we were running a positive ALM, which resulted into the lower unwind or the lower EVOP growth compared to what VNB growth has grown at, basically, the growth on VNB is much higher compared to -- is my understanding right there that the allocation of the assets between the products -- reallocation of the assets between the products has led to the lower EVOP growth?

Not directly, not really, Sanketh. See, the thing is, if you were to look at the Credit Protect portfolio without the non-par savings product also, the assets would largely mirror the liabilities on a stand-alone basis. If there is an opportunity to -- there, you have to basically see where the yield pickup is coming from. Now the longer assets on the government side will -- given that we are on an upward sloping curve, the longer end of the government securities are giving a higher yield than the shorter end of the government securities. The question there is only in terms of the spread that comes from the corporate bonds. Now that is something that you could look at. The spreads have been narrowing. So that's also something that plays a part in this. It's not about losing yield in the Credit Protect portfolio which is resulting in this. We have to basically look at it on a composite basis. If, for example, the Sanchay Plus wasn't there for a particular period of time, the margins would have been different from what they were in quarter 1. The Credit Protect margins are a function of both the mortality experience, the cost of acquisition as well as the yields that we are getting from the allocated assets. So it's not a direct correlation that you can draw between the 2.

See, if -- the composition of the EVOP INR 2,545 crore, if I were to look at that, the unwind is INR 1,069 crore, the new business profits are INR 1,407 crore, and you have an operating variance of INR 70 crore, that's what adds up to INR 2,546 crore. Similarly INR 2,201 crore, the unwind is INR 1,072 crore, you have your new business of last year INR 971 crore, and you had operating variances of [ INR 158 crore ]. Now you rightly said, lower unwind. That is just a macro factor. Like we have mentioned, the NBC has grown by 45% and slightly lower investment variances because whatever specifics of that particular period of last year, both are positive but slightly lower this year. So that is really the 3 items that are sitting in. Now in terms of interest rates, when -- as they're falling, you will have this lower unwind that is more in terms of structural, but it is not into perpetuity that it's going to continue. It really depends on the -- what the macro factors are. And as we see today and all the inflation-led fear that are always hovering around, to say that this is going to go into a southward interest rate scenario also is something that we don't know.

So is it fair to assume that whenever the new business premium growth or new business growth is much stronger, in that particular year, this divergence will emerge, and gradually, when the growth moderates or becomes -- become normal compared to what we have recorded in 9 months, then the convergence that's coming in the VNB growth and the EVOP growth will happen?

Yes, provided you're writing profitable products in the new business, yes. The contribution of NB -- new business value to EVOP will continue to increase with high growth, absolutely yes. But also, it's important that the new business is being written with high profitability. If that is not the case, then you can, again, have a higher contribution coming from the unwind.

Got it. Fair enough. And just 2 data points. One, 55% of our business in the 9 months was banca. So just wanted to understand the market share or the contribution of HDFC Bank in it and our market share in HDFC Bank currently? And how it has moved over a few quarters?

It's [ about ] 85% of banca.

85% of the banca. Okay. And our market share in HDFC Bank broadly?

So market share, when you say -- so this is our market share, 47. You mean, out of the bancassurance partner?

Within HDFC Bank, how much market share we enjoy right now.

Yes, about -- it'll be 2/3, 1/3.

Okay. Perfect. And just wanted to know the persistency what we report is including single premium? And given we have written a lot of annuities in the last 6, 7 quarters, the persistency has sharply improved to close to 90%. Now I just wanted to understand the trend, if I exclude the single premium, how the persistency has behaved for us?

Very similar. The -- directionally, the trends are very similar.

And if you want to quantify the absolute number, excluding single premium, what would be our 13th month persistency?

So we believe that the right way to report is the IRDA method. But if I were to exclude, then it is very similar. Same delta.

Delta of -- yes, I understand this delta would be same. But just wanted to understand that the absolute number, whether it is 80s or 82 because 90 -- same like-to-like number, what would be the number basically, if I exclude the single premium?

For us, it doesn't make sense. I'll tell you why. Because when we look at EV and we just had a conversation with EV, the same single premium products are extremely accretive, then we should be looking at EV without the single premium product. So it is all part of business.

No, the reason I...

I can understand if you're looking at low-margin group business, for example. But in our minds, it is all part of business. It's just the way the policy -- it's exactly like -- I would then say that, for example, the new flavor of the season of having limited pay on term, then we should be looking at that persistency separately, limited pay on unit-linked, we should be looking separately. So it does -- there is a disconnect with really underlying value accretion.

Yes, that's a fair argument. But just wanted to understand because we are heavy in that business. Definitely, from a margin point of view or profitability point of view, it contributes. But how we stand compared to peers because they are not that big in single premium.

So really, there we would urge that if IRDA were to come up with -- right now, we're following what IRDA has asked us to follow. So something else would be a very artificial construct. What I can assure you is that similar kind of an improvement last year versus this year has happened there, too.

Just to elaborate slightly on Vibha's point, the thing is, the argument if you were to just take the full continuum, single pay, limited pay and regular pay, whatever holds true for single premium, holds true for limited pay as well. So then you become -- then you're really getting into too many kind of categories of products on which you want to then start looking at persistency. So if you want to exclude single premium, then you'll have to exclude some part of limited pay. All of that somehow just doesn't make -- it's a question of just creating more reports around it, in our view.

Okay. Got it. And finally, the slowdown in annuity is predominantly because of the deferred annuity slowdown? Or are both deferred annuity and immediate annuity you have little control to growth, basically the interest rates not being favorable?

So largely, it's what we've mentioned earlier on the call, the growth on deferred annuity has been fairly robust, though our deferral period continues to be limited to 3 to 4 years. The growth in that has been fairly robust. If you want to call it a slowdown for immediate annuity, then a large part of the immediate annuity business has -- is basically 2 elements, like we said. The first one is, we've been very cautious on the way we price annuity products, and we're happy to lose business in a particular month or a quarter. At the same time, a significant part of that business has come through in the long-term income options of first Sanchay Plus and now Sanchay Par Advantage as well.

And to add to what Niraj said, if we were to include the long-term options of Sanchay Plus along with this, you will see a robust growth of about 87%. So for us, we are looking at a longevity solution and not only -- and we are fairly agnostic as to whether it comes in the form of annuity, which is a single premium or a regular premium long-term protection via Sanchay Plus.

But the risk management framework for a regular premium paying product versus a single premium paying product would be significantly different because with the reinvestment risk...

And smaller margins.

Yes, because the reinvestment risk in the regular premium paying product is much higher compared to a single premium product.

No, but on that front, if you had been there on our Q1 call, that reinvestment risk has been fully hedged. So theoretically, what you're saying, absolutely agree. But various hedging mechanisms that we have to ensure that, that reinvestment risk is taken care of.

The next question is from the line of Shreya Shivani from CLSA.

I just wanted the management's comments on solvency ratio. While I see that the percentage has increased in the 9 months, currently at 195%, and it's comfortably above the required 150%, though if I compare it with some of our peers in the market, we are on the lower end per se. So what is our target? Are we trying to increase it? Or are we comfortable at this level? Any comments on this?

Yes, we actually think that others are overcapitalized. And perhaps -- and each of the companies might have some specific issue as to why they need that excess capital in their company because it does really often result in dilution, which is not required. So our Board-approved policy is for us to hold a solvency of between 180% to 200%, and we are very comfortably and consistently in that zone. For us, solvency has not been a limitation to growth. And even -- I mean, in the past, we have put out some slides which show that even if we were to grow by 50%, that we have enough solvency to be able to do that.

[Operator Instructions] The next question is from the line of Rishi Jhunjhunwala from IIFL.

Vibha, you mentioned that within HDFC Bank, we have had almost about 2/3 wallet share on the premium side. Just wanted to understand, has that materially changed in the last year or 1.5 years?

Yes, because of open architecture. Before that, it was 100%. I'm not sure I understand.

No, the reason why I'm asking is like, so our growth in the banca channel has been fairly subdued. So I'm just wondering whether is it -- what is the reason behind that? Is it primarily that HDFC Bank as a channel has not been able to sell as much? Or is it something which is specific to us?

Yes. So HDFC Bank overall, if you were to look at September of last year, we also sold, if you recall, a fair amount of unit-linked via HDFC Bank. So this time, we were very keen on having a balanced product mix and also we -- and of course, markets as well. And so it is a combination of things. So we sold much lower levels of unit-linked through HDFC Bank. And so some of that big -- if I were to remove the unit-linked impact of -- that's sitting in the base, then the growth is a lot healthier kind of growth. So it's really a combination. Also, like we discussed with some of the earlier callers, we are also ramping up on our term presence through H Bank, which also has much lower ticket sizes. So that, too, wanting to engage with customers on our online term proposition. So I think it's a combination of things. And also, I think our proprietary channels have done well. So overall in the mix, as a percentage to total, it is lower than it has been in the past because of faster growth of some of the other channels.

And so going forward, I mean how do we look at product mix in your banca channel?

So in HDFC Bank and some of the other banca channels, we have -- especially in HDFC bank, given the kind of customer profile, not having a UL presence at least of about 35%, 40% is not a viable option. So that will always be there. That's why you see 36% here. And going up -- in the past few years, it's been about 60-odd percent. May not be as much, but at least in the range of about 40-odd -- 40% or 45% is something that we see with HDFC Bank. All other products, as you can see here, is also trending very well. So we expect that to continue, including the more recent Sanchay Par Advantage has also been received very well.

I think we also need to look at the context that this year, we have had 2 blockbuster products, both in terms of Sanchay Non Par as well as the Sanchay Par Advantage. Now when -- over the years, we have been looking at distributing products on the ULIP side to HDFC Bank. I think they have done a phenomenal job in terms of looking at the product shift on the -- both the non-par and par, which they can take across to the customers. So like Vibha mentioned, it's also a question of growth we get through the right product to the customer. And it's not just a question -- some years, you will probably see the base effect, which is coming in what she mentioned. So there was a time when we thought there was a good product on the ULIP side, we scaled up, and then we followed it up with one on the non-par and one on the par. So you -- and frankly, it's not really right to look at it from a quarter-to-quarter or half year. But you will find over a period of time the entire incremental growth that HDFC Bank is able to get. And we will then our share continues, we will see the overall growth at our end, which will then be pushed up by the proprietary channel growth which we are anyway getting.

Fair enough. And on persistency, would you contribute (sic) [ attribute ] the expansion, the significant expansion, that we've seen this year versus last, to an extent to the change in product mix as well, considering ULIPs for us have gone down materially and probably that was a source of lower persistency?

To some extent, yes.

The next question is from the line of Ravi Naredi from Naredi Investment.

Ma'am, we are looking every month the data of life insurance premium and it is too volatile. Sometimes HDFC getting very good growth, or for some time it is flat. Any reason?

So I think this is one of the few industries that puts out monthly numbers. And I would really urge that people -- insurance is a long-term business. So really what happens, some months somebody is up, somebody is down. Generally, I think if you were to look at holistic indicators, new business should be one part of it, important part, but also equally important should be persistency, it should be your renewal premium, it should be your profitability [ from ] claims, [ from a ] sale, attrition. So, so many stakeholders are there for a company. And it's really that kind of a score card that is, we believe, is the right way of looking at the business. So I agree that perhaps people should stop looking at this new business and especially on a month-on-month basis.

Okay, ma'am. And second, ma'am, if one pays the premium of first premium, after how many months you will transfer and they never pay the second premium onwards, when you transfer this fund to profit and loss account or any other account?

We will not transfer this to profit and loss account. We will -- this will go and sit in a -- if it is a ULIP product, it will go and sit in a discontinued policy fund and will be paid out after 5 years to policyholders.

The next question is from the line of Prakash Kapadia from Anived PMS.

On ULIP, again, could you give us some sense what is hitting the segment, not necessarily at our end? Because capital markets have been fairly buoyant and mutual fund flows are steady. And what kind of trends are we seeing as we are entering the seasonally strong quarter for ULIPs?

So for us, ULIP -- and exactly like you said, that ULIPs have always been one part of our offering, but not the most important part. To take, for example, our agency channel, our agency channel ranking in the private sector might be #4 now, and we've covered a lot of ground there. But even then, the top 3 players in the agency channel, for example, have a very significant unit-linked component. So for them -- I think this question is more directed towards them and those who sell over 50% unit linked. I think there, I would imagine 2, 3 things that kind of ail the product, which is fundamentally a good product, but what ails it is, one, is that there is a 5-year lock-in and people can't get their hands on the money, no matter what, even in a medical emergency. So my view would be similar to some PPF or something if they're able to get it. Second is that on the -- at the same time, costs incurred by the insurance company are upfront in terms of acquisition costs and insurance companies make no money if a person were to stop paying his or her premiums or exit after even 5 years. So that is the second. Third is that there is, at least as of now, which has changed in the recent products regulation, that what you can charge is also very, very restricted. And if a person -- you've spent all this money in getting the customer and then he pays only one premium or like my earlier caller said only 1 month in a monthly premium, then pretty much you have lost everything. So this is a high-risk kind of a product for the company as well. And also, persistency tends to be bad at the end of 5 years because often the policyholder has erroneously bought it as a 5-year, 5-pay product when actually it should be a long-term wealth accumulation product. So there are a lot of structural things that can be fixed for it to become a great win-win proposition for the customer as well as the company.

Yes. So just to add. I think the opportunity out there for ULIP is equally large. I think it's a question of, as a strategy, where is it that you want to place these products. So we've always believed that you need a balanced product mix. We've always looked at how do we train our people on the ground, how do we make sure there's a right sell. There is a customer for UL and there is a customer for a par or a non-par product, so is it something that we can drive in a balanced product mix and get the overall growth. And rather than just pushing out maybe a very high skew of UL, which probably, like Vibha said, has other smaller issues right now as a product. So there is a huge opportunity out there. I do believe that, look, a lot of customers who are in the mutual fund space can more than gain by looking at some of the new innovative products which are coming out through the insurance, they are like our Click 2 Invest, for instance, it's a huge opportunity or a Click 2 Wealth. So those markets are very large, and it will be a matter of time where the -- some of the mutual fund distributors and IFAs will start looking at this as a proposition that they can add on to their customers.

That is helpful. And secondly, on the government-backed schemes, is that a large part to our APE terms? Is that also driving growth, because we've been reading you are profitable on the government-backed schemes also. So what are we doing right, if you can give us some sense?

Yes. So for us, it's profitable business. It's very small. And typically, it's -- it was launched when the government launched it in the month of May. So it's also lumpy at that point in time. But it isn't really -- it hasn't grown at the same level that rest of our APE of 31-kind-of percent growth that we've seen. And it's very, very miniscule in the whole scheme of things, but profitable. If you were to ask us as to what is -- what has caused the profitability? This is a simple pure term. And the quality of life really depends on the quality of life of the customers of our partners. And in this case, the heavy lifting was done by HDFC Bank and the quality of lives of the customers of HDFC Bank have been -- has been very good and have -- the claims experience has been very much within what our actuarial team has priced it. And hence, we -- this is a profitable book for us.

I think the concern for a product like PMJJBY initially also was that you get a little bit of negative selection, which comes in. I think given that you had a very good customer base through HDFC Bank and we managed to scale the business up much larger and then actively drove it as per the Finance Ministry mandate, we got scale, we got a good selection of customers. And overall, the profitability came in. But if you were to have a smaller base on which you have sold this to a wrong customer base, obviously, it will lead to losses.

The next question is from the line of Ajay Bodke from Prabhudas Lilladher.

Ma'am, could you briefly dwell on the management's medium-term plans for the 2 wholly-owned subsidiaries? Over the medium term, how do you see the growth panning in both of them?

Yes, sure. So HDFC Pension has been going from strength to strength. We ended December 31 at about INR 7,700 crore. And if you look at the kind of trajectory, we ended March '19 at about INR 5,200 crores, so very, very steep growth that you see. And more importantly, the market share that you see in the 9 months has grown from 25% to 30%. So we are the #1 pension company in terms of the new business that is coming to -- towards pension. Also, this is a feeder system into the life company as far as annuity is concerned, et cetera. Now if -- let's see what the budget has to say, and thereafter also in terms of the government's thought process. But we have been an early believer in the humongous opportunity of pension. And this is going back to the year 2003, '04. And in fact, the Sar Utha Ke Jiyo tag line itself to some extent is very much closely linked with the entire need for longevity protection. And so we're very happy with the pace of progress. We also now have a license to -- for a point of presence. So we do not have to only depend on our partners. We have great partnerships, but now we have our own point of presence. And that's something that has happened in this year. And there too, we're growing -- going from strength to strength. And also, March tends to be a good month because 80CCD is just very, very attractive for -- and up to -- and also the INR 50,000 retail tax benefit. So that, too, we are expecting a fairly good pickup. It is a pull product, it is one of the cheapest pension products in the world. As far as our...

So just to add onto that. I think the fact that we have -- this product by itself is a separate wallet share in terms of what the customers should be looking at, given a large customer base who we can reach out to, we feel there's a huge opportunity, and we are looking at how we can look at upsell and cross-sell and take this product across to our entire base of customers. Two, even in terms of the fund performance that we have got, clearly, we stand out in the market across all lines of the particular product. As a brand, as HDFC as well as the growing awareness of pension, like how Vibha mentioned, I think all of that is coming in together, and we believe that the retail subscriber base and the corporate subscriber base will continue to grow. We've been ranked #1 on the corporate subscriber base and overall in terms of the PFMs in the net fund flow on the private business. So it's a very, very large opportunity. They're very bullish. And like Vibha said, I think the flow-through in terms of annuity down the line is probably something that is most exciting about this particular opportunity.

And the other subsidiary?

Yes. So I mean, look, we set the HDFC Life -- International Life and Re business. We have a very stable business. They have registered a good growth in terms of their revenue. They tend to -- they are continuing to trend positively both on the technical and the net profit. We -- if you read about it last year, this subsidiary of ours got rated by S&P Global Ratings on a BBB, and they have come back and maintained that rating for the outlook as stable, which by itself is an achievement. We have managed to look at expanding our partnerships and geography in that particular market. So we are fairly bullish in terms of what we can do, both in terms of reaching out to the NRI base in that respective market as well as working on the reinsurance space with the ceding insurers.

The next question is from the line of Prayesh Jain from Yes Securities.

Just one thing on the profit breakup that you shared, and I think that is a very useful information. But if I look at the way new business strain is eating up into the profits, what do you -- how do you see this trending ahead? And the way we are writing protection premiums, this would only increase. And so -- and the dividend paying capability. And so all those points, do you think that the profit growth might actually turn negative in the future, if we continue to write these kind -- this kind of protection premium?

No, not at all. And in fact, for us this is, again, a very important aspect, that we are both delivering Indian GAAP robust profits as well as growth in our new business contribution, growth in embedded value, EVOP. So it's various triangulations of all of these aspects. And it is little bit of erroneous understanding that non-par or protection is the one that causes strain and unit-linked does not cause strain. If you were to look at unit-linked, does cause strain, might not be on solvency, but certainly causes the classic strain wherein -- and especially, given that persistency for a lot of players has not been as good, it has caused even more strain. So there isn't that much difference between the different segments. It is really a function of growth, which is why you see it as INR 15.7 billion.

And if the quality of the book that has been written in the past continues to be steady, then the back book emergence will -- is likely to be higher than the new business strain. The new business strain also is a function of the base effect. As you expand in scale, you are likely to get operating leverage over a period of time, that should help contain strain. Over a period of time, the back book if -- what I just mentioned, if the quality is sustained through persistency, you will see that. The trajectory of this really depends on the kind of products that you write. Because if you were to just look at the classical lens of IRR from a shareholder perspective or payback period, some of these new high VNB margin products do have a longer payback. So that is something from an emergence perspective, it could take a little longer than some of the products which have a shorter payback period. But the trend is likely to be positive.

Thank you very much. That was the last question in queue. I would now like to hand the conference back to Ms. Vibha Padalkar for closing comments.

As mentioned earlier, the detailed disclosure on our results is available in our investor presentation. I would like to thank you all for participating in this quarterly results call. Thank you.

Thank you very much. On behalf of HDFC Life, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.