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

Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you.

Thank you, Faizan. Good afternoon, everyone. Apologies for the delayed start. Thank you for joining us for the discussion on our results for the year ended March 31, 2022. 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, Chief Actuary; Eshwari Murugan, our Appointed Actuary; and Kunal Jain from Investor Relations. As you know, we listed our company in FY '18, and we thought it would be good for us to share our performance over the past 4 years. We are proud to share that we have at least doubled our new business premium, renewal premium, protection APE, assets under management, value of new business and embedded value. Further details can be found on Slide 5 of our investor presentation. I will take you through the key highlights of our FY '22 results, and we'll be happy to take questions post that. We clocked a growth of 16% in individual WRP in FY '22 with a market share of 14.8% and 9.3% in the private and overall sector, respectively. Despite very trying times during the 2-year pandemic, our 2-year CAGR of 17% was almost 2x industry growth of 9%. Demand remained robust across most channels and segments, and hence, we continue to be optimistic about the growth prospects for the life insurance sector in the coming years. We are closely tracking the worrisome geopolitical situation and its potential impact on inflation and consumption trends. In our view, life-stage products, such as annuity and protection, are relatively insulated from such external factors. With the severity of COVID infections having waned , we have returned to normalized mortality experience. However, we remain watchful, and we'll continue to keep an eye on the emerging situation. Moving on to our business update. We continue to maintain a balanced and profitable product mix with nonpar savings at 33%, participating products at 30%, ULIPs at 26%, individual protection at 6% and annuity at 5% based on individual APE. Almost 1/5 of our nonpar savings business in the receipt premium terms post the launch of Sanchay FMP in the second half of the year consisted of single-pay products, and these are relatively simpler to hedge. This gives us the ability to allow for a higher proportion of nonpar savings in our business. Overall Protection grew by 24% in terms of APE and 47% in terms of new business premium. This was largely led by a 55% growth in credit life new business premiums on the back of higher disbursements. On the individual side, demand continues to be healthy in terms of number of applications locked in. However, proportion of policies actually issued still remains a constraining factor at our end on account of tighter sourcing guidelines, lack of a centralized medical database and underwriting challenges in Tier 2, 3 locations. With the combination of data analytics insights into customer profiles and calibrated risk retention, we expect to be able to grow individual protection in FY '23. Some of the initiatives taken by us in this space include development of an in-house automated underwriting engine, platform for scheduling medicals in real time, facilitating video medicals and integrating technology to measure heart rate, BMI and other vitals using video input from the customer's mobile. On the retirement side, our annuity business recorded 24% growth vis-à-vis industry growth of 3%. Annuities now contribute over 1/5 of our new business premium. We have been able to almost double our business in the last 3 years. We believe that protection and retirement solutions are multi-decade opportunities and will continue to grow faster than other segments. We covered 54 million lives in FY '22, registering an increase of 36% over FY '21. We settled close to 3.9 lakh claims during FY '22. Growth in net claims were at INR 5,804 crores and INR 4,328 crores, respectively, for FY '22. The results created during the year has been more than adequate to address increased mortality on account of COVID. As on 31 March '22, we carry reserves of INR 55 crores into FY '23 as a prudent measure towards COVID. Moving on to key operating and financial metrics. Our renewal premium recorded a steady growth of 18% with our 13-month persistency ending at 92%, up from 90% in the previous year, and our 61st month persistency ending at 58%, up from 53% in the previous year. For the 13th and 61st month persistency for limited and regular pay policies was at 87% and 54%, respectively, up from 85% and 49% in the previous year. New business margin for FY '22 was 27.4% versus 26.1% for FY '21. On the back of our robust growth and margin expansion, we delivered a value of new business for FY '22 of INR 2,675 crores, 22% higher than FY '21. Our value of new business has grown at a 24% CAGR over the past 5 years and has almost tripled in the last 5 years. Our embedded value as of March 31, 2022, was INR 3,048 crores, so INR 3-0-4-8 crores. We have been able to almost double our embedded value in the last 4 years. Operating return on embedded value after factoring excess mortality reserve, or EMR, which was created during FY '22 was at 16.6%. Excluding EMR, operating return on embedded value would have been 19% as against 18.5% for FY '21. Profit after tax for FY '22 was INR 1,208 crores, a decline of 11% versus FY '21 due to higher mortality reserve created during the year. Post Wave 2, our profit after tax in Q3 and Q4 improved steadily, with profit after tax for Q4 registering a 12% Y-o-Y growth. The Board has recommended a dividend of INR 1.70 per share, translating to a payout of 30% of our profit after tax, in line with our dividend payout ratio of FY '21 and earlier. Solvency as on March 31, 2022, stood at 176%, post the cash payout of INR 726 crores to Exide Industries as part consideration for the acquisition of Exide Life. Excluding impact of this cash payout, solvency ratio would have been 189%. Our Board has approved a sub-debt raise of INR 350 crores, which should increase solvency by around 600 basis points. In order to further strengthen solvency to fuel growth, we will continue evaluating raising capital through a mix of equity and debt. Next, on channel performance. All channels continue to perform well, with bancassurance growing by 13% this year and 21% based on 2-year CAGR. Proprietary distribution, which includes our agency, direct and online channels, grew by 18% this year and 11% based on 2-year CAGR on individual APE basis. Over the last 5 years, our share of proprietary distribution increased to 33% from 23%. Our agency channel grew by 26%. The channel added more than 40,000 agents in FY '22, which is the second highest amongst private players. Our Agency Life initiative aimed at capability development continues to see healthy participation. Moreover, we are focused on building a women's financial consultant model which we believe would give us higher activation, retention and productivity. Moving on to product innovation and sustainability. We continued with our efforts to stay relevant to customers' needs, offer new propositions and provide a seamless and pleasant customer experience. During the year, we launched nonpar savings plan Sanchay Fixed Maturity Plan, which now contributes more than 15% of our nonpar savings mix. We also rolled out our retiral product, Systematic Retirement Plan, which is a regular pay deferred annuity. Further, we introduced a bundled solution, QuickProtect, which combines our Click2Protect protection plan and riders to offer cover against the 3Ds: death, disease and disability. On the ESG front, we have signed up for the UN-supported Principles of Responsible Investment, PRI, joining a network of more than 4,800 organizations around the world that have publicly demonstrated their commitment to responsible investment. Now an update on our subsidiaries. Our pension subsidiary, HDFC Pension, ended FY '22 with an AUM of INR 28,414 crores, an uptick of 73% versus previous year. Additionally, as per national pension scheme fund performance report published in March 22, we continued to rank #1 in terms of fund performance across categories. As on 31st March 2022, HDFC Pension had a market share of 37%, retaining its #1 position as private pension fund manager in terms of NPS AUM. NPS continues to contribute significantly to our annuity business. Our wholly-owned subsidiary, HDFC International Life and Re, generated gross written premiums of USD 15.64 million, registering 18% year-on-year growth. Our third subsidiary, Exide Life, recorded a healthy growth of 22% based on individual WRP in FY '22, well above the industry's overall growth of 16%. Its embedded value as of March 31, 2022, was INR 2,910 crores. The merger process has been initiated with NCLT and is expected to be completed in the second half of this financial year. We continue to make progress in being able to seamlessly integrate both the businesses post regulatory approval. We are confident about continued margin expansion on a stand-alone basis at HDFC Life and Exide Life and aspire to be margin neutral on a consolidated basis in FY '23. However, we will prioritize value preservation and investment in expanding the franchise. On the regulatory front, our new IRDAI Chairman, Shri Debasish Panda, unveiled his vision of independent India being an insured India, as we celebrate Azadi Ka Amrit Mahotsav on our 75 years of independence. He mentioned, a, revamping regulatory framework to align with international benchmark; b, outcomes and tech-based supervision; c, simplifying regulatory processes; d, moving towards product certification by insurers as the principles laid down by IRDAI; and e, supportive of tech-led initiatives. These initiatives would help provide impetus to ease of doing business. Further, the Chairman has laid out a road map on how insurers would help drive the above with 8 thematic groups already having been constituted and having kicked started work. With these pathbreaking initiatives, we are very optimistic of the prospects of our sector. To conclude, our objective remains to bring more individuals under the financial safety net by offering multiple innovative solutions, increasing customer connect and continuing to expand our offline and online distribution. The detailed disclosure on our results is available in our investor presentation. Wishing everyone's success as we embark on a new financial year. We're happy to take questions now.

[Operator Instructions] The first question is from the line of Suresh Ganapathy from Macquarie.

Congratulations on your good full year performance. Just 3 quick questions. One is on the 80 basis point change in operating assumptions impacting margin. What exactly is that?

Niraj, go ahead.

So Suresh, this is basically the [indiscernible] at the beginning of the period, given what we've seen in the portfolio. So that's something that has put through at the beginning of the period and that's getting reflected both in the embedded value walk as well as in our VNB walk in the investor deck.

Sorry, the mortality assumptions you are saying, right?

Correct.

Yes. Okay. Now this is a recurring feature because I don't know, I mean, this can again recur next year. I mean, are you confident that this is done and dusted? Or do you feel like this can evolve?

So Suresh, I mean, the good thing is that it is done upfront, and it's not something that is left for later. As you see that the mortality experience evolves, this is something that we would continue to put through in our embedded value to take whatever charge that we have to take. But it's something that is not expected to be a routine element. As you know, the protection journey is very recent in India, right, over the last few years. We now -- they slowly started expanding from the top 10 cities and from the salary segment into Tier 2, Tier 3 and beyond the salary into self-employed and professionals. So as that happens, the mortality experience will evolve. And that is something that will change mortality experience as we go forward, and that will get reflected in new pricing as well.

Okay. Two general questions, Vibha, one is on the merger with HDFC Limited and Bank, the merger, how does it change the equation, it depends that you see more opportunities or anything which you're not doing earlier you can do it more or any challenges? That's the first generic question. And the second question is, how do you see LIC's IPO changing the equation? In the sense, have you seen them on the ground getting more aggressive on the nonpar segment? Are they launching new products, how the competitive environment will change? And any perspective on that would be great?

Right. Yes, very valid. On the first one, while HDFC Bank is always part of the group, now with this merger going through, we will become a subsidiary of HDFC Bank or at least eventually as -- with enforced regulatory approval. So there will be a direct alignment. That is number one. Number two is that cross-sell opportunities, I think every group is looking at -- every major business group is looking at cross-sell opportunities in a very structured manner, which has somewhat -- probably the focus has not been there so far because there was enough that was happening in our respective individual companies. So that is number two. And with the use of digital and the data protection, we will see as to someone who is anyway well disposed towards buying from HDFC group of companies that whatever you need in terms of one-stop shop, you can get it from this.

It's more of limited selling credit product policies of life in a big way?

Yes. Yes, Suresh. Yes. We were selling it, but we would not probably have a lot of upsell or cross-sell to them in terms of other products. So there would be a loan taken, there would be a coverage of the loan and then loan is repaid, cover is closed. So these are all affording customers. So -- and we are known as a product innovator. So for us to keep going back and say, have you thought of this? For example, deferred you may have not known maybe 4 years ago, our nonpar was -- the ones who launched nonpar the way it is, understood as a category today and so on and will continue with more. So that kind of an upsell, cross-sell, more of that can happen. Also product innovation in terms of solutioning whether it is a combination with HDFC ERGO and -- not that we were not doing it, but a lot more can happen with, again, alignment, all of it sitting under HDFC Bank. So this is just the beginning, Suresh. We are, of course, brainstorming with CEOs of respective companies, that's already more than started happening. So I think, certainly, the intention is very clear that how do we leverage the power of the group to be able to give solutions to the customer. Of course, it will be done, respectively, in terms of how the customer is looking to be serviced, but there's still a lot that can be done within that arena. So that is on the first question. If I can move to the second question, Suresh?

Yes, yes , please. On the LIC.

On LIC, see the way I see it is that, just from an India Inc. perspective, the largest financial institution not being listed was probably not really comfortable. It's good that they're listening. It is good that there will be a lot more disclosure. Ultimately, the shareholders and your customers, hopefully, there's an overlap, and that's all a good thing, I think. Yes, there might be some short-term turbulence in terms of FII, maybe repositioning, reallocations and so on, but I do believe that, that's a short term. Now from what I read, it is INR 21,000 crore outlay as against maybe a 2x of that again anecdotally that we read earlier. So it's not enormous in the scheme of things. But I think overall, the positives are certainly there. I think you also talked about growth and so on. For some reason, I think that growth has lagged overall industry private sector growth, but they are akin to the large public sector insurers. And I'm sure there's enough -- we should focus on expanding the pie rather than just trying to cannibalize from one another. They also operate in a slightly different segment where ATS, the ticket size is about 1/4 of our ticket size is slightly different segments of operations, but it is -- nevertheless, it's -- I think there's enough -- when you triangulate that with life insurance penetration, pension as a percentage of GDP and so on, I think there's enough for everyone.

Any feedback from your agency source on the ground, I mean, from competition standpoint, what they are doing or trying to do?

Yes. Suresh, I have a monthly business review of my zones, okay, zones and regions. And I can tell you, and that's when my daylong meeting starts out with financial consultants that I meet. Up till, in none of my meetings have they every cribbed that so and so is happening on the ground. And as you know, this would definitely be on their agenda if it was really consuming them or it was really topical. That's not to say it's not happening -- I'm sure it's happening in bits and pieces, but it's not consuming their mind on it.

The next question is from the line of Arav Sangai from VT Capital.

Ma'am, first question is on the growth part. Like, if we see the last couple of months and when the basis started getting higher and even the base might remain high for the, say, next couple of months, the growth for the industry as a whole has moderated. And even in a rising interest rate environment and a tough macro situation, how do you see the narrative changing around some of our savings products? Or how do people react to like, historically, when we have approached them for these products, like how do you see the growth panning out for the industry because this is a very big concern among investors right now?

So I think that concern -- I just want to put that into perspective because, optically, it looks like growth has in quarter 4 for the sector has waned somewhat. But if you look at the base effect for us, we, for example, grew 40% in quarter 4 of last year. We were just coming out of 1 wave of pandemic and so on. But if I were to look at -- on a CAGR basis, if you're looking at the growth of 17% 2 years CAGR, I don't think that's a bad growth against a pandemic. Yes, industry growth was 9%, but it's not very bad. Also, if you were to look at stand-alone quarter 4, the 2-year CAGR was 23% for us. For the total industry, it was 19%. So even for the total industry, very close to 20% kind of a 2-year CAGR was not -- you'll agree that it's not any -- by no means a tepid growth. But yes, optically, it looks like that because of high growth on a stand-alone basis in Q4 of last year. So not really worried. Also, if you triangulate that with GDP, say, 8%, 8.5%, one can scribble, maybe it is 100 basis points lesser or whatever. But I think you'll agree that it's not unlikely to be 4% GDP growth. So at 7%, 8%, 8.5%, we should grow 2x of that, and that has been a trend all these years.

My second question is on expense run. I think one of our other peers also, they also mentioned that they will be investing a little much more in this year to maybe expand their franchise and all. So is it a trend, like, if you're spending extra, will it affect our margins in the order of our acquisition expenses increasing? Is there any effect on our margins in the next year?

So our margins will continue in -- on a stand-alone basis, it will continue to trend upwards, like we have consistently done over the past several years. Along with Exide Life as a combined margin, what we hope to and is to be flat against our FY '22 margins, that will be a good outcome. But on a stand-alone basis, expansion. So -- see, expenses, unless there is something very unusual like an acquisition that is happening, it will be very much part and parcel of what we're doing.

Okay. Just one last question, ma'am, bookkeeping, like, since we increased the retention last quarter, will it affect the mortality sensitivity going ahead as the new mix becomes a bigger proportion of our overall protection product?

I'll hand this over to Srini?

So the mortality retention and on the new business should be slightly higher. But the EV sensitivity should not really change materially because the retention is applicable only to the new business.

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

Vibha ma'am, fantastic results so far, the growth is there. My point is that, what is the profit from unrealized investment gains as on 31st March '22?

So this is nothing but the mark-to-market of our equity, and there's also debt component in that, but simply mark-to-market. So as on 31st March, whatever is the market rate, that is what -- and the underlying assets under management, that will be mark-to-market. And there will be a mirror -- in the unit-linked book, for example, there will be a mirror entry. So from 100, you go up to, say, 120, you will have a similar movement in reserves, and it will be neutral on the profitability, in terms of fact.

Okay. And then can you tell in one entity of HDFC and HDFC Bank, how much equity HDFC Bank may hold in HDFC Life?

So volume is currently 47.6%, which HDFC is holding. That is what will go to HDFC Bank to hold the same. Now they have asked for regulatory approval to take it up to 50%.

And after merger, how the working of HDFC Bank will enhance our business growth when compared to HDFC at present?

Yes. So like I mentioned to the earlier question, but -- there will be a complete alignment because of the subsidiary of HDFC Bank, and therefore, also paying a lot of attention on how do we give the customer a one-stop shop for all financial services solutions right from perhaps opening up a small savings account when he or she just starts a job to subsequently giving a mortgage when you get married or thereabouts in terms of lifestyle, you get your first insurance when you're having a kid, health insurance, a top-up mortgage and thereafter some fixed deposits, retirement solutions, so everything -- mutual funds in terms of your surplus that you want to reinvest. So all of that, how does one do it in terms of harnessing the power of HDFC Group, a lot more work is -- has commenced on that now.

[Operator Instructions] The next question is from the line of Deepika Mundra from JPMorgan.

Firstly, just can you walk us through capital requirements for the business going forward? I mean savings are already at a fairly balanced mix with protection expected to go up, like you mentioned and higher retention. How should we view the solvency requirement for next year? And at what levels would you be comfortable with the solvency?

So I'll just start off on this question, Deepika, and I will hand over to Niraj and Srini. We started off with our solvency of 190% as of 31st of March. There was a cash payout to Exide Life of -- and that is back to 13%, the INR 726 crores. We ended at 176% as of 31st of March. Now we will be raising sub-debt. We typically have said that we will hover around the 180% in terms of solvency. So I just want to set context. And over to you -- Niraj, do you want to add?

So Deepika, I think each of these business segments have their own considerations in terms of capital. And as the existing business continues to become larger and larger, that funds the new business growth, as you're aware. And that's the reason why the sales efficiency in the model is really working that way. As far as protection business is concerned, yes, it will require more capital compared to some of the savings components. But as you are aware, even within savings products, for example, apart from the solvency capital, there's also a fair bit of gap between the cost of acquisition and the product charge. So that is something which consumes a fair bit of capital as well. Over a period of time, as you're aware, that we would -- we are expecting to move to a risk-based capital growth, and that will release significant capital for the industry. And that's something that we need to keep in mind over the next maybe a 3-year period as well. So for us, clearly, given where we are as a company and the stand that the promoters have taken, we do not expect capital to be a constraint for growth, which is the way we look at it. And on retention, as such, it doesn't really impact so much because the retention really has gone up from INR 30 lakh to INR 40 lakh and that's only for new business going forward. A large part of the solvency, when asked, really come from the back book which is still at the retention levels of the past. So that's how we need to look at it. And a lot of these things will progress over a period of time and things will evolve. And for us, the bottom line really is that where there is an opportunity to grow and create value, we will not let capital be a constraint.

Okay. That's very clear. Sir, if I may just follow-up with one more question, I'm not sure if I missed it, but what would be the total back book exposure now to guarantee products in total? And again, over here, do you have a level in mind in which you're comfortable with?

So Deepika, if you were to look at our new business product mix across each of the segments today, nonpar is about 33% of our total new business. And the way to kind of look at it would be in terms of how much would this really -- what does this really mean in terms of -- either in terms of profitability or in terms of risk or in terms of capital requirements. That's how we look at managing product mix going forward. Of course, it all really depends in terms of how the customer demand is really looking at in each of these areas. So we've launched a product in the last couple of quarters, Sanchay Fixed Maturity Plan. A large part of that product category, as we discussed last time as well, is coming through in shorter premiums, including single premium. The risk management on that is reasonably straightforward, as you could expect. And from a hedging perspective also it works fairly well. It helps us actually hedge the business that we've written at the longer end as well. So the capacity to write nonpar is probably only going to increase from here on, given the way our business has created for diversification and also the external support that is available through hedging instruments.

The next question is from the line of Swarna Mukherjee from B&K Securities.

So my first question is related to the par products. If you could highlight the trend, why the degrowth has been so because is there a conscious effort to manage the product mix? Or is there some kind of demand softness that you see at the end of some of the category may be cannibalizing on this if you could highlight?

This is Suresh here. I mean just to add, it's not clearly that we are trying to push one particular product. I think like we have mentioned in many other earlier forums, the product mix that we have been looking at is in terms of, one, what will be -- one, what is good for the customer, which value proposition we want to pay across; two, the capability of each of our channels to be able to sell that particular product across on to whichever segment we were looking at; and three, the internal drive to make sure that every channel is profitable as well as make sure that, look, we have a balanced product mix. So we really can't look at it in a quarter-on-quarter basis. On an annualized basis, if you really look at it, we have got a very clear balance and very similar to the kind of product mix that we had over last year.

Ladies and gentlemen, the line for the management has got disconnected. Request you all to please stay online while we reconnect them. Ladies and gentlemen, thank you for patience for waiting. The line for the management has got reconnected. Thank you, and over to you, sir.

Sorry, I don't know where I got disconnected. But just to kind of share with you that, look, we are looking -- last year, there was a higher growth in par and that was the base of which had come in. So our whole objective is to make sure that we balance between what the customer needs, what has been the base. And you will find that typically our 2-year CAGR of par has been fairly good. If you were to look at it, it is almost 44% with innovative products. It also depends on what new products have been launched. Especially at that time, the new product of Sanchay Par had got launched, we had kind of ensured that everybody on the field whether it was the SPs of our partner banks, whether it was the SPs, or whether it was our own direct employees, had a much greater focus and attention to launch something in the market, and that led to us to growth. So these things tend to normalize over a period of time. And now we are focusing, for instance, on some JFMP, we are focusing on some of those new products. So I wouldn't read too much to say par has come down. I think our market share has grown on par. We managed to maintain an overall product-wise market share on par, and we will continue to do that. So for instance, there was a time we slowed down on term in terms of taking a calibrated approach, but now that we believe with things are normalizing, you will find us coming back in terms of term growth.

Okay. That's helpful, sir. So then in terms of the margin guidance that was mentioned that it will sequentially improve. Then do we then -- are we then looking at individual protection as an incremental lever for margin improvement because higher other -- I think higher VNB margin kind of products now have quite a sizable base. So if we look at the nonpar savings or the Credit Protect book, they have grown quite well over the last couple of years and the base is quite high. So if the incremental VNB growth and VNB margin, where do you expect it to come from?

A couple of things here. One is growth itself because as we continue to do well on growth like we have done, our costs are not going to increase in the same proportion. So that becomes an additive point in terms of margin. Second is on nonpar itself, in the past, we have said that about 1/3 will be around nonpar. Now we're getting more nuance. It's also there in our presentation, wherein the new nonpar product, the Sanchay FMP, has a shorter tenure. And so we are seeing that in a different light than some of the other longer tenure nonpar. And so there -- really, there are no constraint in how much we're going to sell that. It is as much as we are able to sell it. That also will and should lead to margin expansion. Credit Protect also is continuing to do well. And hopefully, all our partners will continue to do well, and we will piggyback on that growth and continuing to give relevant products there. So it's a combination of all of these things wherein we will see that increase. And finally, and to your point on [indiscernible] protection, for the past couple of years, for various reasons, especially pandemic, reinsurers, repricing, all of that, was meant that we have remained more or less flat. Some quarters, we have grown well, but largely, these remained flat. We are targeting at least a double-digit -- comfortable double-digit growth in retail protection, and we are reasonably optimistic of being able to get there. So that also will add to accretion in the margin. So all of this will contribute to it.

So ma'am, if I understood you correctly, then on the nonpar bit, what you mentioned that you actually now intend to sell slightly higher tenure product for incremental margin. Is that a correct understanding?

No. on the other hand, so lower and medium tenure. So that -- if hedging becomes easier, either single premium or limited premium.

All right. That's very helpful. One quick bookkeeping question, if I may ask. So if you could give the breakup of the operating variance that is there in the EV walk of around INR 150 crores and the reason for the negative economic variance?

Yes. So the operating variance is broadly 2/3 it will be positive for successive variance and about 1/3 is expense variance positive. So that's broadly the breakup of the operating variances. Economic variance largely 2 things. Over the years, things have moved in different directions. But overall, from the equity perspective, it has been a positive. And largely on the interest rate side because of the increase of interest rates at the shorter end -- at higher increase at shorter end and longer end has resulted in a negative variance. So that in balance as such for the year, it's been fairly flat. The 2 have, in some sense, canceled out each other. So different quarters are different -- behave differently. But for the year, broadly, this is really the summary.

[Operator Instructions] The next question is from the line of Jayant Kharote from Crédit Suisse.

I wanted to understand about the guarantees of the longer-term product. There were some new articles about regulators not being comfortable with some of these products. I think there's no element of bond forward with them. So what would be your view? And I mean basis that, what would be the mix for our hedging? And then how much would FRS be contributing to the overall guarantee the, let's say, heading team?

So first of all, we did look at their article, and we've, in fact, interacted with all the counterparties that we are working with. And we believe that it's really unfounded in terms of what the facts really are because if you recollect, RBI allowed the structure of FRAs towards the end of 2019, after doing a lot of -- getting a lot of comfort around the structure and what it really means both in terms of risk as well as in terms of what it means for the counterparties, which is basically the banks. And after that, the approval was given for this structure. We don't believe there has been any change in that regard. In fact, there is a thought of further liberalization on that front. So we do not believe there is any issue at hand as far as that is concerned. Having said that, from our perspective, as you know, that we have started writing nonpar products prior to RBI allowing us to do forward rate agreements, and we had this internal hedging capacity, which continues to date, given the way our CD book has grown. And added to that, there are other instruments as well and also for new products that we've launched actually help us move with this cross hedge internally itself. So our dependence on FRA is probably a lot lower than maybe overall at an industry level. And we manage dynamically in terms of how -- which hedging instrument is going to be more effective from multiple fronts at the back end at regular intervals. So it is an effective instrument. As we go forward, we believe that with a very forward thinking regulator, we may, in fact, get ability to actually borrow directly from the market as well. And that would further expand the way in which this business can be return. So nothing really of any concern as far as the ability to hedge or in terms of instruments that may be available and options that may be available going forward.

So as we speak, you deal with banks on an FRA?

Yes, absolutely.

Okay. And secondly, a couple of quarters back, Mr. Parthasarathy had spoken about the longevity assumptions on the protection side and eventually has come down from around 92 to around 85, 87, if I'm not wrong. If you can update us where is that number right now? And directionally, where it should be stabilized?

These numbers actually are fairly stable. It doesn't change quarter-on-quarter. So I think whatever numbers that I talked about was based on a report published by the actual profession. It gets updated probably once in 3 years, 4 years. So there's no more -- any more recent update than what I spoke a couple of quarters ago with you.

And those numbers for us -- I mean I think you spoke about the industry level. So for us number would be similar?

Yes. it's actually ballpark, yes.

The next question is from the line of Hitesh Gulati from Haitong Securities.

I just had a question on economic variance. I just wanted to understand, last -- in the last call, you mentioned that unwind above 8.5%, we will be showing above or below 8.5% will be showing it to investment variance. Is that one of the reasons that the economic variance is so low, just negative INR 50 crores despite rising yield?

Yes. So Hitesh, a couple of things, right, the equity movements have canceled out the slope change on account of the interest rate. And also, yes, I mean, we can't completely take credit for taking the unwind rate at very close to where we are at the end of the year. But yes, I mean, there was a fair bit of -- there's a fair bit of thought that goes into what is likely to happen, which goes into the unwind rate at the beginning of the year. It so happens that the economic variance is basically almost 0 because the 2 movements are actually canceled out each other. So both of these things are, I guess, in a way, playing a role. The equity and the debt changes kind of canceling out each other and the expected rate being fairly close to what we actually realized.

Yes. And do FRA levels significant impact on how we look in economic variance because some of the peer companies have shown quite a negative impact on economic raising. So just trying to understand that.

No, no, Hitesh. That would not really play a role at all. Yes, I mean if you are completely hedged, this should not really play a role at all. As far as the economic variance is concerned. Economic variances will only be really in terms of the actual movements, which are different from what you anticipated both on the equity side and on the debt side.

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

Just one question from my side. And what really explains margin expansion if you look at the business from a fourth quarter basis, which is -- rather than a quarter-on-quarter and a year-on-year basis?

So, Nischint, if you look at Q-on-Q really, I mean, apart from the assumption change on mortality, which we did discuss. Large part of it is largely coming through in terms of the product mix shift, we've written more annuities in this period. And the CP business continues to do reasonably well. We managed to reprice a large part of the business over the last 12 to 18 months, and that is something that helped us as well. And as such, even in terms of the group business composition, margin business is lower this year compared to same time last year. So it's a combination of these 2 or 3 facts. On the nonpar side, there has been a slight expansion in the quarter from 32% to 35%. So each of these 3 or 4 things have played a role in the expansion.

And have the duration of policies on the nonpar also gone up?

No, not -- okay. So just sorry before that. The last bit is also in terms of some sort of leverage that has come through in terms of scale. So that also has played a role in the expansion. So not really, Nischint. What's happened is that if you recollect we've launched Sanchay Fixed Maturity Plan, which basically is a 10-year product, give or take. And the last part of that business is single premium. So it's 1/10. Some of the business is 5/10. So that, in fact, in fact, has actually, on an overall basis would have actually reduced the policy term on nonpar .

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

My questions have been answered.

The next question is from the line of Dhaval Gada from DSP Mutual Fund.

I had two questions. First one was on margin. So I understand the guidance of maintaining margin on merge basis. Just wanted to understand from a medium-term perspective, can the margins move closer to 30%? And the context is if you look at the last 4 years, we've seen a large part of the margin increase being driven by product mix change. And this has come despite sort of negative assumption changes, which Suresh also alluded earlier. So just how much more headroom is available to sort of take the margins higher, closer to 30% in the next 3 to 4 years, which effectively means...

Dhaval, it should be possible. In all things being equal on regulations, so it should be possible, and that's what we will be working towards. It will kind of stabilize around that, and this is, of course, with the caveat that we don't drop a market share. Assuming that we hold our #3 position amongst all the listed companies, including LIC. So without dropping that, without dropping our market share, but yes, we still are running for getting close to 30%. And thereafter, if there are no further regulatory relaxations or enablers then having a compounding story of about 20% year-on-year or close to that in terms of value of new business. Having said that, we are hopeful given the tone set by the new IRDAI Chairman about a lot of things on technology, on ecosystems, on use and file, a lot of speed to market, collaboration perhaps with other regulated entities, pension, general insurer, health insurance and so -- and many, many more, I don't personally think that it's going to be status quo. It will be an enabler. I'm not counting that in because I don't know in what form or shape. So all things being equal, yes, we should be getting towards 30% in the medium term.

Perfect. And just one final thing on the sort of capital -- just again. So if you look at the free surplus movement, if you could explain that in the last year, I mean, it's dropped about INR 350-odd crores. So -- and just within -- and related to this is, what will trigger an equity raise? I mean, if you could just help me understand what one should look for in terms of your willingness to go towards an equity raise, that would be helpful?

So while -- I'll leave the first part of the question to Niraj on the net growth. But we will, over a period of time, in order whatever we need to support growth and opportunities, we will have to have adequate capital. And yes, we will not rule out equity -- combination of equity or debt, like I had mentioned in my opening remarks. Niraj, go ahead.

Just to add that, we are fairly close to the levels that we want to be, like Vibha mentioned. So we have 176%, we want like to be in the 180%, 190% range given what is expected going forward. So the distance between where we are and where we need to be is not very high. So the number that we're talking about is not going to be very significant, that is one. On the network front, of course, as you are aware, multiple things have happened on an ongoing basis, typically, you add your accretion from the back end, which is your PAT that comes through, then you have any sort of capital movements largely in terms of dividend payouts in the beginning of the period after the AGM and any sort of capital that comes through in terms of the ESOP that exercised. Apart from that, largely, the big movements are in terms of any sort of NPA movements on the shareholder funds. And in our case, this time, the big movement really was in terms of the cash that went out because of the Exide Life acquisition. So these are 4 or 5 aspects which go into how the network has -- how the free surplus has moved in this period.

Mr. Dhaval, we request that you return to the question queue for follow-up questions. The next question is from the line of Avinash Singh from Emkay Global.

A couple of questions. First, if you can just help us understand the supply side and demand side on the retail products. So how do you see sort of growth and margin in this business? That's first. And second, again, going on the free surplus part. If I recall your sort of required capital level what we set in your EV around 180%, so I mean just if you help with 176% sort of how will sort of the free surplus coming in?

So Avinash on your first point, just to understand, you're saying margins on health, is it?

No, no. I was saying that considering the supply side and demand side changes that has happened over the years, how do you see retail products taking out in FY '23, both from the growth and margin perspective of retail products?

Right. Understand. So we are very flat so far because of, like you mentioned, pandemic and reinsurer and pricing and all that, we are fairly optimistic of being able to grow double digit. And as against last year, industry was also -- did not grow. We also were flattish. From HDFC Life's point of view, while following -- and continuing to follow our risk-calibrated approach, we are hoping to grow double digits from individual protection. And this is without necessarily keep retaining a lot more on our books and so on. We have said that we will retain about 40 lakhs in our books. We'll continue with that. But nuance approach, we hope to grow. That is number one. Credit Protect should continue to grow well. We grew about 55%. We hope to continuing to see that traction. We've also repriced quite a few relationships in light of pandemic. That's an ongoing exercise and part and parcel of how we are covering mortality risk. Both these put together, we should grow. We have grown about 26%. But on an overall protection basis, we are -- we remain fairly optimistic of our ability to continue to grow.

And any price changes in retail protection you were getting in FY '23 or not?

Nothing that is on the cards right now.

Okay. And my question on the free surplus?

Yes, Avinash, on the free surplus, if I understood you, you're referring to the level of solvency. So as you're aware, regulator solvency 150%. For the process of EV, we basically take 170%. So right now, we have something in excess of that. So that's...

Yes, that's very clear. I was confused with 170%, 180%.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just laboring on retail protection, I think in opening remarks, Vibha, you mentioned about video checks and stuff, right? You're connecting to the customer mobile. If you can elaborate how that can -- and just tying it to your original comment that while applications come through, we are still not able to process. So where is -- that number I recollect some quarters back was like 60%. So just help us understand how debottlenecking some of your own processes could help you improve growth, specifically related to retail protection?

Right. So one is that looking at it out of every 100, like we've mentioned in the past, we're converting about 61. So we are taking a reasonably realistic targets to, say, instead of 61, even if I convert it till 70 or 75, that will get break to that answer. So that's what we are looking at is that we are trying to solve for the entire process. So we've launched Medi Easy. This you'll find on Slide 21 of our investor PPT. What it does is that it walks our frontline sales person and -- step-by-step because what we did find is that the rules keep changing because of pandemic, because of reinsurer, because of what we ourselves are looking at in terms of addressing new and emerging risks and so on. So all the right reasons. However, the guy on the field is very confused. There is attrition, whether we like it or not, there is a people movement. And then there's a lot of back and forth and the customer gives us all -- the frontline salesperson gives us a combination of these aspects. So that -- so how can we have this iteration wherein the first step is to say, "Okay, we need this document, okay?" So don't have this document or rather the customer doesn't have this document, then we have a call center, which has an assisted call center with chartered accountant to say, "Okay, instead of this, especially for the nonsalaried, this should be fine or this proxy can be fine and so on." So because the guy is sitting with the customer and or sitting virtually with the customer and he is able to get that rather than he's coming back to central operations going back and forth and so on. Similarly, looking at what are the data points were resulting in us in that same 100 minus 61, why is -- why has there been a drop off and is there some other ways of getting to the same answer? For example, today, we don't have a deduping between our credit life database and our individual database. Now with the use of technology, if we can try and see personas of what is behind this person in terms of both financial risk as well as medical risk. That, again, could help us address some of the drop off that we are seeing currently. Similarly, with reinsurers, we are finding that reinsurers -- we've been partnering with reinsurers, and that has been well appreciated. In fact, reinsurers have come back to us to say that we are earning a little bit on this side of caution and obviously very pleased about that and willing to look at certain personas. If you also look at Meditech, for example, whole host of things again on Slide 21 on the bottom right-hand side, how do we get a proxy for diabetes, how do we get a fee for any heart-related illness without that individual going in for a medical, which obviously under given the pandemic, she is hesitant to do that and we understand that. So for us to be again able to triangulate that with age, with various other data points and his or her resistance to go in to get a medical being able to use Meditech to be able to solve that. Another point -- and we've just gone live on this, wherein underwriting engine, which, although we only right now launch for savings, but that is now -- that has an error rate of 0.001% now. And it's an ML. So it's a machine learning tool, which is getting even better as we speak. So we rolled that out where in human underwriters have been substituted so that the customer can be given as straight-through processing, can be given much better experience and so on. Now the next phase is to start taking baby steps to look at our terms as well. What this will do is that, again, how do we reduce the dropoff rate. Yes, we need to increase the funnel also admittedly, but that is one part of it. We are saying that people have come in -- out of my example of 100, people have paid money building the proposal and we're not able to issue them with a policy and we returned their money. So let us focus on the dropoff first, and that's what we'll be giving and have been giving disproportionate management bandwidth to reducing drop offs.

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

Sir, the simple question what I have is that the -- I just wanted to understand how much FMP contributes to the total individual total nonpar is 33 percentage. So I just wanted to understand, if the incremental focus is on this particular product from risk management point of view, how much this 33 contribution of nonpar can potentially go to, say, 40, 45 kind of number? Any number you have in your mind which could be the margin driver going ahead? So that's the first question what I had. And the second...

Can I take the first question first, Sanketh, and then you can move on to the second question?

Sure. Sure. Go ahead.

Yes. So on the first one, what you're saying is that long-tenured policies that we sell, we will have overall cap which we have had. But on shorter tenure, we have no capital.

So basically, you mean to say that if there is a decent demand for single premium FMP plan, then you even take the total nonpar even beyond 40, 50 kind of a number if...

Yes, hypothetically. Yes.

And the margin of single premium FMP will be better than the company average?

It will definitely be better than some of the other segments like par and UL, obviously. So there will be a substitute -- there could be a substitution to that and thereby taking it up because of that substitution.

Got it. Got it. Perfect. And the second thing was that just from the HDFC Bank merger perspective, so we make an advertisement spend in HDFC Bank as a channel of around INR 800 crores, which we did in 9 months FY '22. Sir, just wondering how this will play out if it becomes a direct BD of HDFC Bank that given its direct subsidiary now, then do we expect these advertisement spends coming off? And if it happens, will this be a very big lever for margin expansion? How do we read this to play out?

A little bit premature, Sanketh, because it has been announced. I think over a period of time, we will work very closely with HDFC Bank folks to see how, as a parent subsidiary, we can -- the dynamic obviously will change, but a little bit early in the day. Now the advertisement is really -- what happens is there is multi-tie. And the reason for the advertising budget is that when people walk into the 6,000 branches and engage with them virtually and so on, we need to be out there. We need to be able to say, this is Sanchay FMP, retirement -- new retirement plan and so on. And that visibility has to be there, and that's why the advertising. Now how things will change down the line, we'll have to see. There will always be some advertising to -- because the bank has said they will be multi-tie. And multi-tie, we believe is good for the customer. Yes, there could be how much of multi-tie is different, say, some level of multi-tie, wherein you're giving customers the choice to buy various products. And I also personally believe that most banks eventually will open enough to multi-tie. And for some level of this will be there. We'll have to see in terms of how things span up. However, what is important is how do we expand the pie rather than just fixed costs might not be there and those sort of things. The focus will be on how do we cross-sell because that just hasn't been done in a systematic manner as of today. And like I mentioned in one of the earlier caller, it has been in somewhat in a stand-alone company view rather than a financial conglomerate. And that lens will change. We will look at our balanced product mix. We will look at how can we, like I mentioned earlier, upsell relevant to the customers' needs, and that itself will give us the kind of uplift.

Got it. Got it. Can you tell me the current SMT contribution to the total APE, if you're okay to disclose that number -- exact number?

Value on -- it will makes sense not on...

So Sanketh, this has been launched a few months back. So since launch, it's about 15% of the business.

The next question is from the line of Abhishek Saraf from Jefferies.

I just had 2 quick questions pertaining to Exide Life, real quick one. If you can just give me some number on what could be the VNB margin post overall? In fact, I joined lately probably, I might have missed that if you had mentioned. And secondly, if you can give some color on the cost savings that we are doing. So if any number around the utilization of branches or other numbers that you can share where you are able to save cost? And then I have one follow-up question after this.

On the margins that you are talking about, we are on the low [indiscernible] -- pardon. We do believe that we will be able to scale this up in the natural course of business once it merges with us. And over certain 36- to 48-month period, we should be able to -- and maybe even lesser than that, we should be able to bring it close to our kind of margins. So that should not really be a problem. On the other piece in terms of how the integration and how we are trying to get the value capture and synergies, let me tell you that, look, there are some 23 work streams working on every aspect of the business between both the teams. And we are looking at the best practices across both the companies. There is a clear focus in terms of where we will be able to get wider distribution focus. We are looking at the entire product portfolio between what Exide has and what we have got. Also in terms of how we will be able to take some of our technology and digital tools across to their set of -- so branch rationalization is one of the pieces. Obviously, there are a few branches which we look at, which are close to each other. We are open to look at which are the Exide branches are probably better fit and better catchments, and we'll probably be able to merge. So on both sides, we are looking at finally as a merged entity, which are the best resources. We do believe that we will get scale for the entity and will be able to expand into markets. The good thing like we mentioned earlier in many forums was, look, in Exide, a lot of the business that they do is in south in some of the Tier 2, Tier 3 markets, which is clearly expansion for us. So we do believe that some of that we will be able to scale up, we'll be able to expand our geographic presence. And similarly based on their agency model, we'll be able to expand it to other parts of the country.

Sure. So any comments -- did we do any branch rationalization in the last 3 months that has happened and...

Now what we have done is, we have just looked at [indiscernible] Like, we clearly mentioned that we're going to run as a separate entity subsidy till we receive the NCLT approvals. As of now, we are just looking at back-end exercise in terms of what we can do. There are a few branches which you have understood, but we have not done any rationalization as of now. But we do believe we understand which are the markets that we are able to cater to. And our objective has been clearly mentioned, is to make sure that we continue to get the upside from the Exide merger over the short to midterm and then look at how synergistically we can grow as a merged entity.

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

I have 2 questions. First on the peer protection, are we sensing any change in stance on the reinsurers as of now? Are they becoming more open to doing business the way they were doing pre-COVID? Or still they remain as strict as what we have seen last year?

It's I think a little bit too early. My personal sense is, down the line, I don't know what time frame, I think, depending on Wave 4 and so on, till that is out of the way, I think there will be some level of concern in their mind. I don't see that happening immediately now. But over a period of time, yes, the high-alert situation that we have been in that should ease off a little bit, but still some way away.

Sure. So what was the conversion rate before COVID the 50% conversion rate that we have today, what was that before COVID?

We used to convert maybe around out of 100 convert at least 75.

Sure. And second -- lastly, on nonpar product, in a rising rate environment, so in the last 3 years, interest rates have been declining and demand for nonpar products was very, very strong. Probably the alternated savings instruments have seen significant decline in the yields that they were offering. But in a rising interest rate environment, how do we see demand for the nonpar product? And since we are hedging the bulk of the nonpar internally, does it disadvantage us in any way versus FRA hedging where our peers may be able to offer a better IRR than us? And these are the 2 questions on nonpar.

So Nidhesh, as far as demand is concerned, we've seen interest rates only increase in this year, right, and both at the shorter end as well as the longer end. While that has happened, the business demand continues even as we speak, the demand far exceeds what we are writing as a company as far as this product line is concerned. So that really is not absolute rates. It's a relative proposition to what other instruments are available. And I mean, if we were to compare it to shorter-term instrument, typically, the returns on that are very, very different from what we are able to offer because the last part of the product is in the -- at the longer end. Even in Sanchay Fixed Maturity Plan, the term is 10 years. So that is very different from a typical short-term fixed income instrument that people buy. So relative to what is available in the market, it continues to be attractive whichever way the interest rate is. That is the one. And second, also the tax advantage on top of that is something that definitely is helpful. As far as hedging is concerned, we are fairly -- we monitor this fairly closely, and it is fairly dynamic. We are fortunate to have this internal capacity, which we use depending on how the external environment is as well. We don't want to be overly dependent on any one instrument, whether it's an external or internal capacity. So that's the reason why it's a multipronged hedging strategy at the back end. As far as FRAs are concerned and relative disadvantage to anybody else, I don't believe so because so far, there is only a yield pickup that we get on account of forward rate agreements because of the way the term structure is in terms of the interest rates. If that changes, that will again be clearly applicable to everybody. So it's not that the terms that we get are indifferent from anyone else. And if there is any advantage to be had out of writing more hedging more through FRAs, we would take that call without being excessively dependent on that category.

The next question is from the line of Mayank Gulgulia from LCD Life.

My question is related to...

Sorry, I can't hear you very well.

Is it better now?

Yes, it is.

Okay. So I have a question related to sensitivity equity analysis. So basically impact of equity market return on EV. So equity market downward movement of 10% would have 1.4% negative impact on EV. So this 10% is overall return on equity portfolio or this 10% is over and above, like, we might have assumed some return from equity? So it is over and above that.

It's basically -- it's a difference between what is expected and what is actually -- so for example, if you take any of the sensitivities, you have a base, which is the expectation. So in persistency, mortality or equity, you have a base. Anything over and above that is what is captured in the sensitivity. So if your expected return is, say, 10% and 10% delta from that means 11% or 9% return. And the impact of that is what is captured in the sensitivities.

Okay. So this 10% is of return expected. So not 10% plus or minus 10%. This is 10% of 10%?

Just to clarify the equity sensitivity, it implies that the equity values fall on the date of the capital paid. If the equity value fall by 10%, what would be the impact on EV, what is captured in the sensitivity.

Okay. Let's say, just to clarify further. The assumption is 10%. So if equity market rise by 15% next year, so can you say like 5% exercise done, so delta of 1.4%, we can divide by 2 and broadly ballpark number is 0.7% positive return on EV. Is that the right way to look at?

So this is instantaneous shock. So whatever the valuation date or whatever the valued assets were, if they were to fall instantaneously by 10% on that very day, what to see movement in each 1%.

Okay, okay. Got it. And like the next question is what is the impact of like a lower reinsurance on our protection business? So what kind of margin impact is there on retail protection?

Sorry, I didn't follow your question.

Yes. So like of lower reinsurance on retail protection, so how it is impacting our margins on the stand-alone retail protection business?

So there is no impact really. As you know, reinsurance cost is basically one of the components of the overall cost and risk charges. And we would -- we retain on our books, we will obviously need to capture that risk charge ourselves in addition to everything else, and the same would hold for the reinsurers. And there isn't much of a gap between what the reinsurers are charging today versus what our assessment of the risk charge would be. That would have been -- the delta between that would have been higher before the reinsurers increase their prices.

And we also increase it thereby nullifying some of the impact.

Yes.

The next question is from the line of Rishi Jhunjhunwala from IIFL.

Just quickly on the agency, what was like [indiscernible] getting integrated, can you give some sense in terms of what are our targets in terms of total EV strength that we want to maintain, what kind of increase we are looking at? And also just a sense in terms of what are -- what is the proportion of active pay chains and what kind of retention rates are there?

Sorry, I couldn't catch your second question. I'll ask you to repeat. But on your first question in terms of the agency business and what kind of growth we are looking at Exide Life? Very clearly, we have had a very strong growth. This has been repeated earlier. We had a fairly decent growth in line and slightly higher than the industry. We do believe that given the brand that they will now benefit of HDFC Life as well as our ability to invest in branches, infrastructure and many other resources, which are available, we should be able to get a much higher throughput in terms of actually recruiting financial consultants, in terms of activating more consultants, as well as recruiting the exercise of kind of products that we want to sell through HDFC Life. But in our -- in mutual interaction with a lot of these financial consultants, advisers at Exide Life, we have found that they are eagerly looking forward to the kind of products that HDFC Life. So we're fairly optimistic in terms of growth, but we'll be able to continue in terms of what we have been able to have a very strong franchise. They have a fair amount of financial [indiscernible] leaders who have been there with them for a very long period of time. We do believe that if our agency business were to grow at a certain pace, the combined entity of the agency business of what Exide financial consultants comes in should be able to do that and maybe a little bit higher. So that should not be really a problem. There is actually, trust me, not just the synergy that we see only on the agency business, I think we are enthusiastic about the growth in all the channels of Exide Life. We do believe that the cooperative bank as well as some of the broking relationships that they have got are fairly incremental and complementary to our business growth. So we do believe that we should be able to grow that. Also a fairly large customer base on which they have cross-sell and upsell on that direct business, we believe that we will be able to -- with our analytic skills, with our along SMPs, along what they bring in terms of their campaigns, it will be incremental for us to be able to grow that line of business also. So actually, across the direct business, broking business, bancassurance of those much smaller than us on bancassurance and on the agency business, we shouldn't see any slowdown, and which is one of the primary reasons why we said we will work -- we'll look at Exide in terms of the company, which will come in and add complementary to us. Sorry, on the second question, the sound was not very clear, so I couldn't hear.

Yes, I repeat, sir. So basically, the question was how many active agents now we have? And what kind of retention rates have been put?

At Exide Life? So they have around 40,000 FCUs, which are there right now and which is something that -- and they have a fairly active base which is there. So we do believe that we will be able to further activate. Their activation is in line with actually the industry activation. So it is not that they're off in terms of the number of agents which are active. We haven't lost any major. In fact, if you have looked at the quarter 4 numbers, they have been absolutely on target in terms of what the agency team has been delivered. So even there, we believe that if we are able to look at a number of new financial consultants and agents we will be able to recruit that will be in line. And in fact, they have been concentrating on their growth because of their capital and many other thresholds that they have not been able to invest in that business. I think a lot of those hindrances will go away once they become part of the HDFC Group. So they've actually shown almost a 22% growth last year, if you were to look at them at overall as Exide.

Thank you. Ladies and gentlemen, we will take last 2 questions. The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.

My questions have been answered.

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

Sir, last one from my side. I just wanted to understand FRA exposure, which was INR 137 million at the end of FY '21. What is the current exposure we have at the end of FY '22? And given the current solvency calculation regime, if yield curve becomes steeper -- sorry, flatter compared to what it was, then most of the derivative contracts might go out of money, notional loss. So likely impact of it on it on the solvency if it plays out?

The FRA exposure is close to about 18,000, 19,000. I think it will be there in the report in any case. But to your second point in terms of the impact of the flattening curve, there are 2 things here. One is, as of now, the whole slapping thing is something which is a little maybe overplayed. I think if you look at the way the interest rates have moved, they've not moved only at the shorter end, they moved longer end as well. So the curve continues to be fairly steep even today. Having said that, if there is further flattening that happens, what will happen to start with is that the spreads that are there currently available will probably shrink further as they have since the inception of FRAs. And when the yield curve starts getting inverted is that when you're talking about the situation that you just spoke about. Now if that were to happen, we will do a couple of things. One, as of now, at any point in time, if you have a fairly significant equity portfolio, there are equity gains that are sitting in your books scope, which you don't take solvency credit because of the regulations. A lot of that is used to actually offset any sort of impact of interest rates movement in the wrong direction from an FRA perspective. So that usually covers for most scenarios as far as, in fact, solvency is concerned. And beyond FRAs, I mean, it get reiterating, we don't want to be overly dependent on forward-rate agreements either, given our risk management strategy. So that is also something that allows us to mitigate the impact of any of these situations that could happen. Over a period of time, we are expecting more liberalization in the regulatory framework, both in terms of the way solvency is calculated, which currently penalizes you for being economically hedged. But on the accounting side, you end up creating that solvency impact. Over time, we expect that to kind of go away with RBC coming in for sure. And also in terms of -- if you allow to borrow directly, then you get rid of this problem altogether. So if you take a 2- to 3-year view, then a lot of these developments will happen, which will actually help us tide over any of these situations that you're talking about.

Got it. Sir, the equivalent RBC solvency for INR 176 million currently calculated would be how much, if you have internally done that math?

So we have Sanketh. It will be fairly significant. I mean not really sharing the numbers, but I mean it will be fairly significant, Sanketh.

The next question is from the line of Anand Bhavnani from White Oak Capital.

Just a quick clarification on Exide Life. You made a comment that due to the solvency, you had some growth caution. In the PPT, actually, the debt solvency is 217%, which is higher than us. So why would that be a reason for any growth challenges in Exide?

Yes. I think the constraints on their end have been more in terms of the expense of management because of which they -- which goes away once they come in with us. So if [indiscernible] merge with us in terms of their ability to be able to invest further in agency grown that is where they have been struggling. So I think that is one part which we'll be able to solve with this merger and their agency business will be good to grow and not on solvency.

Okay. Okay. And for our solvency, our current preferred route of Tier 2 raising debt, which helped in by 6%, do we anticipate that would be the primary source rather than any equity rates?

No. It's a combination of both. Like I mentioned in my earlier comments, it will be both. Right now, we are raising Tier 2. But over a period of time, we'll assess the need for capital. And we will -- it is always possible that we might raise a small amount of [indiscernible] at that point in time.

Okay. Any particular variables you kind of use to decide which tool to use, which tool to use to address solvency?

See, with solvency, there is an overall gap based on regulatory formula. So what we're doing right now, we raised INR 600 crores earlier, we are raising further now. As our back book increases, we will be able to raise more. We will look at overall the weighted average cost of capital to see what works for us and then the WACC as well as how much do we need, how soon do we need. So a few factors like we take a call down the line.

As there are no further questions, I would now like to hand the conference over to Ms. Vibha Padalkar for closing comments.

Thank you, Faizan. We would like to thank all of you for participating in our results call. Further details can be found in our investor presentation on both our book as well as out of the exchanges. Thank you, and have a good day.

Thank you. Ladies and gentlemen, on behalf of HDFC Life Insurance, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.