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

Ladies and gentlemen, good day, and welcome to HDFC Life Insurance Company Limited's Conference Call to discuss the company's full year results. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vibha Padalkar, MD and CEO of HDFC Life Insurance Company's Limited, thank you, and over to you, ma'am.

Thank you, Sagar. Good evening, everyone. Thank you for joining this conference call to discuss our company's results for the year ended March 31, 2024. Our results, which include the investor presentation, press release and regulatory disclosures have already been made available on both our website and the stock exchanges. Joining me are Suresh Badami, Deputy Managing Director; Niraj Shah, ED and CFO; Eshwari Murugan, our appointed Actuary and Kunal Jain representing Investor Relations. Let's delve into the key business updates for the fiscal year 2024, starting with operating performance. Despite the budget changes impacting high ticket size business this year, we delivered a healthy growth of 20% for Q4 after adjusting for the one-off business of INR 1,000 crores in March 2023, which we had guided for. Our stated aspiration of a double-digit growth for the full year was achieved with us clocking an 11% growth for FY '24 on a normalized basis. We achieved individual APE growth of 1% on an unadjusted basis. During the first 11 months, we have grown faster than the overall industry growth of 9%. During the same period, our private market share stood at 15.4% and we maintain our position amongst the top 3 life insurers across individual and group businesses. On a full year basis, our premiums reflect a healthy 2-year CAGR of 13% despite the headwinds during this period. We have established a sustainable foundation for FY '25 through targeted initiatives aimed at key growth metrics as follows. Growth momentum continued across ticket sizes, up to INR 500,000 with robust growth of over 22% in quarter 4 and 19% for full year. Tier 2, 3 markets recorded a growth of 13% against overall company growth of 1%. In line with our intent to broaden the customer base, the number of policies for the year increased by 11%, which is almost 3x overall industry growth based on first 11 months data. In quarter 4, NOP growth was 14%. On a 2-year CAGR, average ticket size has grown by 5%. We insured 6.6 crore lives during FY '24. More than 70% of the retail customers onboarded are new to HDFC Life and almost half of these are below the age of 35 years. Sum assured witnessed robust growth of 47%, aided by growth in pure term, return of premium, high protection cover embedded in savings products and riders. With product innovation across product segments, our average sum assured per policy has increased by 33% on an overall basis and 39% for savings business. Annuity and protection put together contributed to nearly half of overall new business premium in FY '24. Retail protection grew by 27% based on individual APE, and we believe that the momentum will sustain into FY '25. Credit Protect recorded 13% growth in spite of a cautious lending environment in H2 and increased competitive intensity in certain segments. We continue to be a market leader in this segment. Moving forward, we remain committed to pursuing sustainable and profitable growth in this segment. We remain optimistic about the growth potential of the annuity segment in India, considering its nascent stage and believe that the long-term opportunity remains promising. While we observed aggressive pricing strategies with certain peers, we will continue to pursue a balanced approach to growth by enhancing our product offerings and maintaining pricing discipline. We maintained a healthy balance in terms of product mix with UL or unit-linked policies at 35%, non-par savings at 30%, participating products at 23%, retail term at 5% and annuity at 6%. Unit-linked products continue to see a strong traction driven by buoyant equity market with a surge in popularity even in higher than INR 2.5 lakh segment, which is taxable. Click2Achieve, our first DIY non-par saving solution has been received well across channels, leading to a healthy increase in the non-par savings proportion in the last quarter. FY '24 has been another landmark year for product launches fueled by relentless product innovation. We are committed to delivering products that are relevant and tailored to meet our customers' evolving requirements. Moving on to key financial and operating metrics. Our new business margins are 26.3% compared to 27.6% last year. The drop of 130 basis points was primarily due to 2 reasons. The first one amounting to 70 basis points being the operating leverage gap caused by the onetime INR 1,000 crore additional APE received in FY '23 due to the budget changes. And the second one, amounting to 40 basis points due to higher unit-linked proportion, thanks to buoyant equity markets. Higher product level margin profile on account of longer tenure, higher sum assured multiples and rider attachments has helped us counter the impact of product mix to some degree. The current business mix sets a strong platform for us to continue delivering robust top line and VNB growth in FY '25 and beyond. Our business objectives entail further enhancing our presence across geographies and customer segments and maximizing the potential of our distribution channels. In line with this long-term strategy, we will sustain investments in infrastructure, people and technology with a forward-looking 3- to 4-year perspective on the business. We believe that VNB growth will continue to be led by APE growth. If we see significant incremental growth opportunities, we will be flexible to trade-off margins while maximizing VNB growth. Value of new business is INR 3,501 crores, implying a year-on-year degrowth of 5% and a 2-year CAGR of 14%. Embedded value stands at INR 47,468 crores with an operating return on embedded value of 17.5%. We have delivered a strong profit after tax of INR 1,569 crores, implying a year-on-year increase of 15%, fueled by 18% increase in profit emergence from back book. Solvency continues to be healthy at 187%. The Board has recommended a final dividend of INR 2 per share, aggregating to payout of about INR 430 crores. Renewal collections remained strong at 18% year-on-year, demonstrating our customers' continued trust in us. Persistency for the 13th month and 61st month was 87% and 53%, respectively. We anticipate a shift in 13-month persistency going forward, influenced by product mix and prevalent customer segments in FY '24. We are committed to maintaining persistency levels across all relevant cohorts. Moving on to distribution. The bancassurance channel has grown 17% year-on-year on an unadjusted basis. HDFC Bank counter share continues to trend well. We are happy to report that we have ended the year at 63% counter share against 56% same time last year. We maintained close collaboration with all our bancassurance partners to tailor our innovative products to meet the needs of their specific customer segments. Furthermore, we consistently refine our product offering, service quality and technological capabilities to enhance our partnerships, ensuring a mutually beneficial relationship. While our agency channel growth was slower due to a high base last year, it has shown a robust growth of 14% on a 2-year CAGR basis. We are steadfast in our efforts to build capacity for future growth. Our agency channel is ranked #2 in the industry in terms of distribution expansion for the first 11 months with over 80,000 agents added during the year. Moreover, we opened 75 new branches in FY '24 and anticipate our presence to exceed 600 touch points in the next fiscal year. Our objective is to broaden our footprint and enhance our reach through a multifaceted approach which includes strategically adding branches, attracting high-performing distributors and continually investing in technology and capability enhancement. Moving on to our subsidiaries. Our subsidiary, HDFC Pension Management company achieved a milestone by crossing the INR 75,000 crores AUM mark, showcasing remarkable growth of 70%. We have maintained our market leadership in the pension category, commanding a market share of 43%. Additionally, we are actively advancing our expansion plan for the GIFT City business with the introduction of innovative U.S. dollar-denominated life and health insurance products like US Dollar Global Education Plan and Global Student Health Care plan, et cetera, which are available from GIFT City. We are already making strides in penetrating the NRI segment. Additionally, we have plans to roll out further offerings to continue strengthening our presence in this space. Turning to tech. We are currently implementing Project Inspire, a comprehensive technological transformation. This project aims to enhance customer, distributor and employee experiences while increasing operational efficiency. It focuses on faster product launches, flexible partner onboarding with shorter turnaround time, digital customer acquisition journeys, intuitive zero-touch services, plug-and-play integration environment, among other features. We are likely to see a gradual rise in technology expenses over the year, which will be accompanied by corresponding benefits to the business. Moving on to key announcements. We would like to inform that Mr. Deepak Parekh has decided to step down as Chairman and Non-Executive Director of the company with effect from close of business hours on April 18, 2024 to comply with regulatory requirements. Being the Founder Chairman of our company, Mr. Parekh has been instrumental in guiding and nurturing the company over the past 24-odd years. We thank Mr. Parekh for the immense contributions made by him and wish him the very best for the future. We are also pleased to inform that our Board has unanimously approved the appointment of Mr. Keki Mistry as the Chairman of the Board. Mr. Mistry has been associated with the company since December 2000 and is currently Non-Executive Director on our Board. Under his stewardship, we aim to achieve many more remarkable milestones and emerge stronger and more resilient than ever before. Lastly, we are proud to share that we have been recognized as the Best Organization for Women in 2024 by the Economic Times. This is a testament of the progress we have made in creating a supportive work environment for women and our unwavering belief in the power of diversity, equity and inclusion. In conclusion, the vast unmet need of protection in our country speaks of a compelling opportunity. We aim to be at the forefront of developing innovative solutions to bridge this gap. We have delivered consistent, predictable and sustained performance by doubling all key metrics over the last 4 years, and we'll continue to move ahead with this aspiration while prioritizing VNB growth to build profitable business in the long run. We also appreciate the efforts of our regulator for introducing enabling measures aimed at broadening accessibility of life insurance, improving customer experience and enhancing ease of doing business. The detailed disclosure on our results is available in our investor presentation. We now invite any questions from the audience.

[Operator Instructions] The first question is from the line of MW Kim from JPMorgan.

I have here the 1 big picture, the cash related accounting. So firstly, could you please confirm the fixed time line of IFRS 17 adoption schedule? Then secondly, the company's presentation, Page 11 and also the historical product mix would suggest that HDFC Life have differentiated liability reserve structure compared to other private peers. So my question would be on the IFRS 17, do you expect relatively the different CSM lease rate or the CSM amortization rate among life insurers? And lastly, what could be the expected major tailwind and then headwind under the new accounting standard, please.

Over to you, Niraj.

So to your first point in terms of the time lines, we are in regular touch with the regulatory authority. We still await directions from the Indian accounting boards and from IRDAI as far as the specific time lines are concerned. Of course, there is a Phase 1 in terms of GAAP assessment is something that all the companies that were required to be a part of Phase 1 have submitted. And it's -- IRDAI would be looking at the readiness of various companies around that. And we believe that this implementation is likely to happen in a phased manner. The time lines, as we speak today, there is no time line that we are completely aware of. I think it would -- looks like it could be in the next 24 months to 36 months. That could be one time line that we could be looking at. But if we hear something different from the regulator, of course, we will keep everyone posted as far as that is concerned. Our readiness is going to be ready ahead of time. We have engaged external expertise to be able to transition to the new accounting standard over a period of time. As we speak, we are looking at any significant changes or shifts in our business according to the new standard, we believe not. We do not expect any significant change in the way we conduct our business. So that is not something that we are looking at, at this point in time. To your specific question around the business mix that we have and the emergence of CSM, I think it's a little early, MW, to answer that specifically. What we would definitely want to do is that once we get more clarity on the time lines, we would want to put some bridging disclosures out in the open to be able to guide you to what you can expect once the new guidelines come into -- once they are implemented.

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

My question is on the regulatory front. Now...

Mr. Hitesh Gulati, your voice is sounding a lot muffled. So if you're using the speaker phone, may we request to use the handset mode, please.

Is this better now?

Yes, sir, please.

Yes. My question is on the regulatory front. Now with the surrender draft kind of behind us, are we seeing anything more that could probably be in the regulator's mind? Something on the lines of what the finance minister spoke in one of the interviews recently where she touched upon the topic of insurance misselling. So have we seen the regulator or some notification or some draft that has been communicated on this front, just if you could throw some light on that?

Yes. Hitesh. So the notified set of surrender regulations, I think those are a good outcome and there were a few changes in there. Those are not having any material impact on the company. In terms of what else could be out there? Here's our view and also a lot of our peers share this view, is as follows, and this is something that we have engaged with the regulators and continue to do that. Wherever there is misselling, we certainly return money. And I'm sure some of our other peers also do that. So we need to get the misselling out of this conversation. Wherever it is -- other than misselling, people just say that I wanted something else, I've changed my mind. For those people, I think we have a slightly different view as against the more popular narrative in media that is emerging, because there are no other long-term guaranteed products at all. So if somebody wants liquidity after 1 year, especially discerning customers, and I think we can take a proxy to say if 1 lakh ticket size is there, then the customer is by no means someone who is unable to understand and -- or not in a position or in a weak position to understand what is being sold to him or her. And there, the dangers are that there is more a flip rather than any other purpose as to why they want to withdraw. So rather than changing the architecture of the product, for us to have enough guardrails so that people are made aware that if you want liquidity -- early liquidity, and by that, I mean 1, 2, 3 years, then perhaps this is not the product for you. However, if you want certainty of outcomes, especially in your golden years, then it's not very dissimilar to PPF. Wherein all of us, hopefully have accounts with PPF. And the first time we ever get to see any money at the end of 7th year and that too there's an evolved formula and we are fine with that. So these products are no different. Plus you have a life cover, which PPF doesn't have and so on. Now worst case situation, what this could -- if it's misguided and there's early exit, then it could change the construct of the product and make it very unattractive and/or also put the organization at some level of threat because of ALM not being robust enough because of early exits, especially with sharp interest rate movements. So the regulator see the matter. And that's why let us possibly look at the construct of the product, the objectives that we're trying to -- also the fact that persistency -- early persistency is fairly high in the '90s with the customer. So really, it is a few people who are complaining and so on. So that's where it is -- we continue to engage with -- at various levels with the regulator. Ongoing dialogues do happen. And the notification has recently come in, and that's where it is at this point in time.

The next question is from the line of Avinash Singh from Emkay Global.

A couple of questions. The first one is particularly on the margins that if I were to look, say, 3 years, so FY '21 margin and FY '24 margins are broadly of flat. Within that -- I mean, in terms of product composition, yes, I mean, in FY '21, par used to be slightly higher, now ULIP got higher here. But then -- I mean, the scale of operation today is very different, nearly at least 50% higher APE. So some part of operating levers could have played out. So I mean what is that -- I mean the margin -- I mean, of course, I'm cognizant of the fact when I'm comparing with the last year. But if I look at the 3-year horizon also, why sort of despite this still getting better certain annuity segment are bit increasing, protection holding up where it used to be -- still margins sort of have a struggle. So I mean, why the operating lever is not playing out? Or is it something different that I'm missing in this entire margin picture. That's number one. Second, in terms of now looking ahead, I can sort of hear and read what you're saying that, okay, now you're more going to chase growth even if it comes with some kind of a compromise on margins. In this backdrop, at this juncture, what kind of anomaly is behind? And also there is more sort of regulatory clarity, so in that backdrop, what kind of growth you would be looking in FY '25? We have a 2 questions, I guess.

Avinash. you're absolutely right in terms of operating leverage. However, the other angle here is the product mix. So you mentioned FY '21. So why you were taking -- I was just looking at some data. And in FY '21, FY '22 and FY '23, our unit-linked business was range-bound in about 1/5 to 1/4 in that zone, right? While if you were to look at FY '24, it is 35%. So more than 1/3 of our business is now unit-linked business. Is that always going to be the case? Possibly not. But we have to remember that we, as a sector, went through a fairly material shift because of the tax change. And we will slowly start inching up -- like we have done quarter-on-quarter, we will start inching up in terms of our other than unit-linked business. And that clearly, if you were to look at stand-alone quarter 4 for us, our unit-linked business is now comfortably about 30% after being in the mid-20s. So that shift is happening, but it will take some time. So it is two-pronged in terms of -- or three-pronged, so there is your scale of the business itself. Then your unit cost that if they continue to trend southward, which is the case for us, and then the third is the product mix. I think all 3 need to be in the zone and for margins to move up. But you will admit that the sector over the last 2, 3 years have gone through a fair bit of change and we also forget COVID in all of this. So given all of that, I think the fact that the -- at least some of the participants in the sector, including us have not dropped margins, say, below 25%, I think, is reasonably commendable while continuing to steer the company through a fairly tectonic shift in terms of attractiveness and moving a lot more in terms of inroads into [indiscernible]. So 2/3 of our business -- new business that we've written this year has come from non-Tier 1 cities. Or another way of looking at it is that while overall unadjusted growth is 1%, but growth from Tier 2 and 3 is 13%. If you were to look at number of policies, it was flat for the last 3 years, which was bothering us to some extent. But if you were to look at this year, we have managed to -- perhaps thanks to the tax merger, we have managed to really grow the number of people that we sell to, and that's a very healthy 14% growth in quarter 4 stand-alone. In many such data points to say that the engine is getting a lot more granular in terms of retail growth and away from only high-ticket cases. Niraj, do you want to add anything?

Yes. Just a couple of things to that. One is if you were to look at FY '21 and today, across different segments, one of the challenges has been to maintain inherent margins of each of the segments. And I mean -- there has been, I mean, enough examples of that, especially starting with protection. We've seen where protection pricing is versus where we believe it should be especially as we get deeper into India. So while the margins on protection are fairly healthy still, they are obviously lower than what they were 3 to 4 years ago. So that is something that we are -- I mean from a real-world perspective, that's something that we have to acknowledge as a sector. Also, if you were to look at some of the other product categories, whether it's annuities, nonparticipating products, there is intense competition as far as rates are concerned. Well, some of us have managed to adhere to some sort of pricing discipline, and that is also visible in terms of data comparison that you could make. And that is also a factor in terms of where the margins are today versus where they probably were 3 years back, adjusting for everything else that we are talking about, whether it's product mix, or even in terms of -- you yourselves mentioned we are 50% higher than what we were at that time. We've also expanded our resourcing to be able to get to this kind of scale. And a lot of this investment, especially in proprietary, is upfront. The benefits are coming, but some of them will come with a lag as well. Also, technology is something that we need to keep investing in every block of 3 to 4 years. That is also something that we don't want to really back out of. We want to ensure that our operating model stays relevant and current, and that also requires significant continued investments. So we are basically maintaining our margins and have delivered VNB growth of about 17-odd percent in this period, 14% on a 2-year basis and higher on a 4-year basis. That is, in some sense, in spite of a lot of these aspects that are being seen in the market. And while the market continues to grow, these are certain things that we need to acknowledge as well.

And I want to add there, see if I'm a bank and I compete, I'm competing with mostly listed banks. That's not the case in insurance for various reasons. So apart from 3 or 4 companies, you don't have listed entities. And the reason I'm calling that out is there is a very little disclosure in terms of actuarial walk, embedded value walk, sensitivity analysis and the rest of it. So the competitive intensity will only continue to go up until the road map to listing starts happening. Are there such plans? I think, I'm sure that they used to be earlier, but that's the natural culmination is a matter of when and not if that road map starts panning out. And there's a little bit more 4 corners within which most of the senior players operate.

Yes. And my second question on the growth guidance for FY '25 and particularly, if you can just give some color around channels or volume growth, yes.

Right. So we don't really give guidance, except for saying that historically, the private sector has grown in the range of 12% to 15%. So we should grow at least by that, if not a shade higher than that. And we could comfortably grow higher if -- again, if you're looking at listed players. But if we were to look at overall, at least this kind of -- the upper end of this kind of band is what we should grow and VNB should grow, just preempting your next question. And on channels -- all our channels should grow. In my comments, I talked about HDFC Bank counter share. That's already reached in less than 9 months' time frame. Since the merger, it's reached [indiscernible]. We'll continue to make further inroads. And so that should grow faster than company level growth. And our agency channel, that agency and broking channel that were disproportionately hit on the higher ticket size cases, that too, with the base reset, should grow fairly robustly. I think -- and some of the new partnerships that are completely nascent, that also the new tie-ups and so on, that should also grow. So really, all of the channels should do well in FY '25.

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

I'll have 3 questions. First one is on the agency side. Your agency business was down around 11% for the year and around almost down 30% in the fourth quarter. Now what we see over here is that ULIP in agency has grown handsomely, but it's the traditional business that's down. So we're just trying to understand the trend as to why this has happened. And I believe a chunk of the agency would have come from Exide, which probably was not focusing so much on the high-ticket business. That's the first question .

This is Suresh here. So it's not that our agency channel also did not have the base effect of greater than 5 lakhs. I think if you looked at our agency institution, there were a fair number of the large financial product distributors as well as the MDRT distributors who did operate in Tier 1 on a greater than 5 lakhs. So on a 2-year basis, of course, our agency business has been growing at almost 14%. So we see the trajectory over a longer. There has been a 1-year effect of the greater than 5 lakhs. Now there are 2, 3 things that we do believe that agency will. One, of course, is we are increasing the distribution presence across. We're adding a lot of branches. We are expanding into Tier 2, Tier 3. Second, if you look at the number of new FC -- new consultant additions that we've done, it's been the second best in the industry with more than 80,000 agents. And on your question on the Exide, that particular business has been growing. Yes, they may not have been because they're primarily present in the Tier 2, Tier 3 and in some of the south markets. They're not present in the higher ticket size. But there, we are actually looking at a retail NOP growth strategy, where we'll be expanding into many more markets in the Tier 2, Tier 3 and grow on that basis. So really, it's a question of how does the regular agency grow in terms of the retail penetration, as we expand to Tier 2, Tier 3, and the fact that the new agents were coming on board. The quality of our top agents in terms of people who are qualifying for MDRT that has been increasing fairly bit over -- year-over-year. So we do believe that with our focus on new agent recruitment in terms of the productivity, the product mix that we are selling, over a period of time, some of the product through the agency channel will also correct to the balanced product mix that we normally do.

And Nischint, to add, if I were to reconstruct the numbers, up to 5 lakh agency channel grown reasonably -- almost 8x company-level growth. So 8% is the growth in terms of -- up to 5 lakhs. If -- the drag has been the above 5 lakhs, which is why for next year with this base[indiscernible], it should get back on it's feet.

Sure. Got it. The second question is on new business strain as a percentage of APE, and this ratio has gone up from 34% last year to 40% this year despite the fact that share of ULIP has gone up. So I was just trying to understand the trend.

Yes, go ahead.

So the strain depends on the product composition and the expenses. As we already mentioned on the call, the operating leverage in FY '24 has been -- there has been an impact of expenses on the new business strain. And since the -- UL mix has increased significantly from 19% in FY '23 to 35% in FY '24 and UL is the highest strain because the reserves are linked to the value of the fund value -- value of the fund and hence, the strain is the highest. That is one of the main reasons for the increase in the strain from last year to this year.

And just to add there Nischint, we are typically capacitized in terms of manpower and so on and our branches to grow at between 15% to 18%. But we have grown -- on an unadjusted basis, we have grown 1%, so that's what I think Eshwari means in terms of the operating leverage not coming through or in other words, impacting the strain on new business.

Got it. Just a last one to squeeze in and this is on the VNB walk trajectory. We can see the fixed cost absorption being negative at around 70 basis points. Is that for the same reason? Or is it something because of the IT expense...

No, this is the same reason. It's absolutely nothing else. Just the same INR 1,000 crores, and the uplift that we have given. I say for you to triangulate this is, if I were to look at my VNB last year, the VNB growth in FY '23 in quarter 4 was 69%, right? So a large chunk of this also came from that INR 1,000 crores because we have never grown 69% -- rarely, I think, from my memory, that 69%. So that, again, is manifesting in the same -- the margin is because of that 70 bps -- impact of the 130 bps is just that INR 1,000 crores.

But actually, if I look at the VNB work last year, even then fixed cost absorption was a negative, when, I think, your growth was really pretty good.

That must have been maybe Exide Life because we were in the close of the merger and the margin profile was significantly lower than us, post which we have done a lot of rationalization in people and branches. There was also a Project Inspire that we talked about in terms of the INR 50 crores investment that we did at that time.

So this is -- the question I think essentially is that if this is Project Inspire and it kind of continues for next year, then in all possibilities, there might be a similar drag next year. I think that's what I'm coming to or is it something that we go at 15%, it won't be there?

So see, the biggest drag really is in terms of the gap between capacity and actual growth, which is that 15%, 17% number that we're talking about. That is something that is in some sense, if the growth comes back to where we want it to be next year, a lot of this number could actually go away. Some part of it will stay because of the continued investments that we do, but a large part of this drag is going to be addressed to the growth coming back in FY '25.

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

I have 2, 3 questions rather. So, the first question, obviously, Vibha, you said that you will grow broadly in line with the private sector, which you expect to be 12% to 15%. But given we are at 63% market share in HDFC Bank and potentially, it goes to 70% next year, then ideally your growth guidance or growth expectations should be better than the private sector. So I just wanted to understand that your growth will be around 15%-ish or it could be better than that because of the market share gain in the bank? That's my first question.

Yes. On that Sanketh, see, it's very difficult to know relative as -- so somebody else might have had some other tie-up with some other bank and so on. And that's why things will unfold as we see some of the other relationships. That's why. But yes, as far as we are concerned, our growth -- HDFC Bank clearly is like you articulated. And other channels also in -- as we discussed in a couple of earlier questions, given agency rebasing and some of our other channels like direct channel rebasing, some of our newer partnerships beginning to take shape, it should be, but relative growth becomes difficult to know.

Okay. Perfect. And the second question is, basically, you made the initial remarks that you are okay to trade off margin for growth, then related to 2 questions, which means that you will be okay to breach ULIP more than 35% of the total APE what you have today. . And if ULIP grows, as you highlighted, it creates a new business stream, then do you expect solvency should go further down? Or it will cap your ability to do ULIP even if the demand is there?

So Sanketh, I think on unit linked, even while it is at 35% historically, for the past 5 years, it has been in the 20%, 25% zone. So -- and ULIP in a particular quarter be higher? The answer is yes. Was it higher in quarter 4, if you were to look at the full year numbers, 35% versus 19% of last year, obviously, quarter 4 ULIP was higher, right? So that is practically the situation. So we've also maintained always that we don't want to micromanage this on a quarterly basis. We definitely want to take cognizance of the demand where it's coming from and whether we can actually balance our objectives in terms of can we sell more protection on unit linked? Can we sell more riders? Can we improve persistency? Can we just increase inherently the margin of all our segments? That is something that we would focus on. We are not too fussed about where it goes to in a particular quarter. But over a period of time, we definitely want to still maintain between our savings products anywhere between 1/4 to 1/3 across each of the segments. And just again, a slightly different point, but on the same issue, is that there are a lot of perceived headwinds against nonparticipating products in this period, but our product mix on non-par has actually moved to the mid-30s in this period and much higher than what it was in the 9 months period. So that basically tells you that there are ways to kind of get to a particular sort of outcome, keeping in mind the overall demand drivers in the market. So as such, we would like to maintain a fairly reasonable window within which we'll have each of these segments coming in. Your question on solvency, again, like Eshwari mentioned, each product category has a different dimension. Unit linked products will have a much higher requirement given the base on which it is calculated, but also the capital requirement is for a shorter period compared to for non-par or for participating products. So some of these things do balance each other out. In certain products, which are more profitable, you need to hold more capital for a longer period of time. Certain products like unit linked, which, in our case, are relatively less profitable. You need more capital at inception, but that capital requirement comes down over a period of time. So we would obviously want to maintain a solvency which is in a good zone, and we've managed to do that all things considered.

Niraj, the reason I was asking that question is that if this market remains as volatile as they are today and ULIP demand remain persistent then -- whether your solvency will become a limitation to grow -- to cap the growth, because the demand is for that particular product in that sense, as it is in the current year.

While the solvency requirement will be dependent on the mix, it's not that if ULIP is going to be at a very high percentage, the requirement will increase exponentially, because as we discussed there are different influences. On unit linked, the requirement for capital is lower compared to a non-par. For the requirement itself is lower at the start and then because of the persistency being lower compared to non-par, the trajectory of the requirement of the capital is going to be lower. So it will balance it out, and we don't expect it to be a big strain on the growth, especially since we are at 187% of solvency. There's a good cushion between the minimum required of 150% by the regulator and it is 187%. So in the rupees crore, it's a very big number because our actual solvency in capital that we have is around INR 15,000 odd crores, so that gives us the comfort that it don't restrain the growth even if the ULIP mix had to go a little higher.

Got it. And lastly from my side...

Yes, go ahead.

Sorry. The last question from my side is that, see, the surrender norms definitely has a negative impact on -- the revised surrender norms are definitely watered down, but definitely, it has some impact on 2 products, especially the limited five pay non-par and to some extent, deferred regular pay annuity. So just wanted to understand how much five pay contributes to our total premium and deferred regular pay annuity contributes to total premium so -- given it is linked to [ AUM ], the SSV. So just wanted to understand how much portion of the business is linked to it and whether how can you transit it to, say, seven pay, eight pay or ten pay to overcome this problem if it is there?

Sanketh, while the allowance is based on the premium paying term, it is also based on product category. In that sense, now in terms of various segments that we have, whether it is participating, nonparticipating and unit-linked, the product commercials are different across different categories. So the AUM allowance is also something that is managed at an overall level. It does not really get -- it doesn't become a critical point in terms of managing growth or your expense ratio. So the AUM allowance is something that gets managed at an overall level, as you know, between par and non-par. Within non-par, you have different categories, you have unit-linked, which -- on which the commercials are very, very different compared to some of the other product categories, which are sold at the longer end. So a large part of our -- significant portion of our non-unit-linked business comes at PPTs, which are 8 to 10 as well. So a lot of this balancing happens within channels, who have a different premium paying term mix. At an overall level, we are able to optimize to get to the answer that was required.

But Niraj, would you be okay to quantify how much five pay contributes to our total -- five pay non-par contributes to our total APE and how much deferred regular pay annuity contributes to total APE?

So not we want to do that. But I can tell you that as far as non-par business is concerned, different channels have a different kind of mix. So banks would typically sell something which is relatively shorter pay compared to agency. Agency, direct, all the brokers, large part of that business would be sold in the long-term mix -- premium paying mix. So there is a healthy balance of all of these categories. We wouldn't want to specifically call out because it's fairly dynamic as well. And as far as deferred annuity is concerned, do you mean the single premium product? Or the...

The regular pay deferred annuity.

Regular pay deferred annuity is a fairly small segment so far. And again, there is a fairly good balance between shorter pay and longer pay term. It's a recently introduced category and it's a fairly portion of our business as things stand today.

[Operator Instructions] The next question is from the line of Shreya Shivani from CLSA.

So my question is, going back to the growth topic. You've mentioned that the Tier 2, 3 cities have seen some 12% to 13% growth. Now I remember from the last conference call, you guys had mentioned that it will take you at least 12 to 18 months for some of the partnerships that you are making in these geographies to start delivering on numbers. So just wanted to understand that Tier 2, 3 cities growth of 12% to 13%, how much higher can it get? And will it be more towards FY '26 rather than in FY '25 because that would be in the time line of 12 to 18 months that you were mentioning. So is it that in this year, the main trigger for growth would be HDFC Bank counter share increasing and the expansion in the smaller geographies of Tier 2, 3 cities will actually start delivering probably from second half or the even the exit month of FY '25. That's my question.

Yes, this is Suresh. So there is 2 parts to it. One, of course, HDFC Bank has a clear SURU market growth strategy and so do many of our other large national banca partners. There are a lot of partners who we have added on, which are present in the Tier 2, Tier 3 and the regional geographies. So clearly, that is something which has started coming into play, even outside HDFC Bank, a lot of our other banca corporate agent partners have grown faster in the range of 13% to 15%. So that has already started playing out for us this particular year and a lot of that has come from Tier 2 and Tier 3. But it's not that it will all come only in '26. Some of it has also started playing out. Our growth has almost -- from Tier 2, Tier 3 market. The composition has grown by more than 10% in this particular year itself and like we mentioned, it is more as part of a retail NOP growth strategy. So yes, to your first -- the second part, there is also the fact that we will increase our market share, hopefully, at HDFC Bank. Clearly, we have to work for it. And if it grows from [ 63 ], if the bank grows and we are able to increase our market share, that will give us overall growth as far as the bancassurance is concerned. On top of that, we do believe that our both agency and the broking business have kind of set base because the greater than INR 5 lakhs has now gone off the base for this particular year. So both of them -- both those channels will also grow. And third, clearly, the Tier 2, Tier 3 market in terms of the products and the fact that look we are seeing a lot of distribution expansion, including 75 new branches that we are looking at expanding, that will also add. That may probably take 12 to 18 months for us to deliver in terms of a agency buildup in these markets and hence, the business volumes coming in. But there are actually 3, 4 lines which are helping us build the Tier 2, Tier 3 business and they are all phased out.

I'll just add to that. We were also surprised, Shreya, that if I were to look at growth in, say, protection, Tier 1 has grown 26%. Tier 2 has grown 22% and Tier 3 has grown 32%. And the ticket sizes are just a 10% differential between each of the tiers, right? So if I look at each one of these different segments, the growth from non-Tier 1 is healthy and the ticket size isn't that much because we are going after the upper quartile of Tier 2 and likewise for Tier 3. And then there is, of course, SURU which Suresh talked about of both HDFC Bank and other banks. But equally important is our strategy for agency. For example, of the new agents added, the 80,000 agents added, 85% to 90% of those agents are from Tier 2 and 3. Of the 75 branches that we have opened last year, a significant portion, similar kind of percentage is in Tier 2 and 3. So all of that means that we are somewhat agnostic of channel, so the channel, if you visualize is the vertical and the horizontal cutting across are the Tier 2 and 3 opportunities. So it will be fairly widespread across channels .

Got it. So if I could summarize in 1 line, probably the banca delivery on growth in those cites will be faster, probably agency may be more towards second half of FY '25. Does that summarize properly?

I'm hoping that agency starts off on quarter 1.

The next question is from the line of Suresh Ganapathy from Macquarie Capital.

Yes. Just 2 questions. Vibha, is it possible to get product level margins? One of your peers discloses it. So can you at least do that on an annual basis?

So Suresh, for us, it becomes -- each channel and each product is a very different outcome. So it's like a -- and we have 300 partners. So it is not that it is simplistic that term is this margin because what is the margin I make on term depends on what is -- what are my commercials with that partner and what is the mix with that partner. So it gets a lot more involved than this. So I think once we have some of the same peers also disclosing very clearly what is par and non-par or what is credit life and retail, then I think we'll have those discussions.

Okay. And now 1 big question on this growth versus margin debate, because of course, we have been discussing this in this call, this and [indiscernible]. So if you look at from FY '17 to FY '22, I'm excluding deliberately FY '23 as the year which got distorted because of the tax thing, I saw broadly you as well as your peers growing at anywhere between 20% to 25% VNB growth, right, because it was a pretty benign period for margins. So do you -- it looks like you are struggling to get 12% to 15%, right, because [Technical Difficulty]

Is there an issue with the line here?

Yes, there was an issue with the line. We are just getting it checked.

Okay. Let us know.

Sure. So it's working fine now. Should we go ahead?

Yes, let's do that.

All right. So we'll move on to the next question. The next question is from the line of Vivek from Aditya Birla Capital.

The first question is on credit protect business. Just wanted to understand what is the percentage growth in credit protect year-on-year. And the second -- the follow-up question on that is that since the business on GIFT City has been mentioned during the call, I wanted to understand, do you see any potential in credit protect business in GIFT City? Or are we going to [indiscernible] market in terms of credit protect business in GIFT City?

So yes, so 2 parts. The credit protect business grew by 13% for us in this year, which is fairly good, given quarter 4, we did see some kind of a slowdown in terms of disbursements in the market. All our partners remain intact in terms of our partnerships. There have been some segments that we have gone up, some segments we have gone down. But overall we continue to retain the kind of market share that we have on the credit protect business. On your question on GIFT City, yes, there is an opportunity down the line. Right now, all the products that we are looking at are in terms of the individual dollar-denominated products. But tomorrow down the line, if there are banks which set up their branches out of GIFT City and they look at it, we will definitely look at similar product structures there. But right now, all products that we have -- we are looking at, there is -- there are products that we will be looking at once the U.S. dollar loans start coming into -- from GIFT City.

Okay, sir. And one more thing. Do you see any potential in group term in GIFT City? Are you going to target any market in that?

We have very small market in terms of what we are looking at because the -- yes, so I think it's more the employee base which is there in some of these, GIFT City, it's like similar to what we have at [indiscernible] but that will be a very marginal business, in any case, it's hard fought for us. So we are not really targeting that as a particular product now. We do believe the savings kind of products, which will help us grow that particular market. And it is like the education plan, some products on health, some products on travel. That's the kind of opportunity that we're tracking now given what kind of segments are available internationally and where we believe we'll be much more competitive than anyone.

[Operator Instructions] We'll take the next question from the line of Suresh Ganapathy from Macquarie Capital.

Yes. Sorry, my question got cut. Am I audible now?

Yes, sir, you're audible.

Yes. So my question is just on the VNB outlook because I was looking FY '17 to FY '22, broadly the industry as well as you guys have grown between 20% to 22%, 25%, right? So it's been a good VNB trajectory and now we are talking about 12% to 15%, right? And one of your peers reported a 23% margin and they're arguing now, in the revised [indiscernible] environment, that is the margins at which maybe the industry might operate considering the pressure from all directions. So how are you looking at this? Because even you at the start of the call, Vibha made a statement that there is a trade-off between growth and margin and we will let go off margin to get growth, right? So are we really looking at a lower VNB growth this cycle? And do you think margins can really go down considering the way the industry is evolving now?

So I want to clarify here that -- a couple of things. One is that, we want to hold VNB growth very similar to APE growth, right. That is #1. So the limited point I'm saying is that there will always be something or the other that's happening, either a macro event, war is there or some equity market. So I don't want to not engage with the customer when the customer wants to buy something, that's the limited point. So I would like to go in for, obviously, wanting VNB growth while growing top line faster than the industry, overall industry. That's the objective. But are we looking at completely yo-yoing on margins, where in you're talking about lower by 300, 400 basis points in 1 quarter? I don't think so. That's not what I'm saying. I'm saying little bit here and there we will seek that flexibility so that we are able to engage with customer and don't turn away the customer to say, okay, you don't meet my margin threshold and so I will not sell you a policy, that's the limited point that I'm making. So holistically, we want to grow, like I said, 12% to 15% industry growth, on the upper end of that or a shade more than that would be a good place to be. VNB in similar kind of zone, return on embedded value in the 17%, 18% zone, which we have again delivered. I think that kind of a holistic growth and a scorecard is what we're looking at.

So Vibha, protection margins are 4 to 5x that of the other product margins. And if indeed the narrative on protection is strong, why this complete U-turn. This is not for you specifically, in general for the industry itself that they're struggling to improve margins despite those products having better opportunity and 3 to 4x the margin potential than other products?

So on that, Suresh and Niraj you can add. This is what it used to be. Over the last 4 years, it has changed completely. I think one of the earlier callers, Niraj explained over there, wherein given almost irrational pricing, competitive pressure on pricing, especially through aggregators on protection, it is a very different game today. For INR 1 crore cover in India, that is cheaper than a INR 1 crore cover in Hong Kong or many other geographies. How is that possible? So we have to get back and some of that will come in -- one of the earlier callers, I also mentioned that unlike in banks, insurance companies are largely competing with unlisted players with next-to-no disclosures. So this will move and grow into a sector wherein either one lists or there is a road map or there is disclosures that are similar to listing. Something will happen. And with that, that will rein in a lot of exuberance on pricing and aggressiveness on pricing both in term pricing and on annuity pricing, we're seeing on both ends and hence, we need to stay focused on building profitable business. And we continue to do that, which is why perhaps we are not the cheapest because if I were to cut my prices by 30%, I will then make sure I will definitely have 0% margin, best case scenario. And so we'll do that. But because of this competition, the kind of multiples that you're talking no longer exist, that's the fact. Will it come back? I think I'm of the school of thought that it will come back in terms of rationality in pricing due to the reasons that I mentioned. But today, it is not there. And then so we need to sustain this competitive intensity for now until margins are climbing back again. Do you want to add anything?

Yes. Suresh, just 1 point to add here. There was earlier caller, MW had asked in the context of IFRS and Ind AS, how can things change? So while I said the business, we don't expect to change the way we do our business. What is definitely likely to change at an overall sector level is that contracts or business which is priced upfront at negative margins or at very low margins and coinciding that with risk-based capital that will also come in during this period, it will be extremely difficult for someone to -- on a sustained basis price or misprice products and look at only top line. So the whole definition of top line itself will change and evolve as you are aware, going forward. So I think -- unfortunately, protection margins are not where they should be. I mean, that's something that we would have liked it to be the case like it is in all other parts of the world. It is not the case in India. So that's really the reality right now.

So just as a continuation, I know you guys don't disclose product level. But just for our understanding, is it possible to at least tell the magnitude of difference between, say if you had a protection margin of, say, X-percent 3, 4 years ago, would that be down 10 percentage points or 20 percentage points and just a rough number would also be great. The magnitude of difference or delta.

So I can just tell you 1 very broad number, protection margins, 4 years, 5 years back used to be in 3 digits. Now they are much higher than company average margins but nowhere close to where they used be.

[Operator Instructions] The next question is from the line of Harshit Toshniwal from Premji.

So I think 2 questions. So following from the previous one, that the margins on protection has been slightly lower. But despite that, at an overall level as an industry and as a company we have all been able to maintain that margin in the 26% to 27% range. And even if I look at that 4Q despite the ULIP mix increase, the drop in margins has not been very significant. So wanted to get a sense that, is ULIP margins at a stand-alone product level, how much has that improved? And also to -- due to the fact that probably the approach of HDFC Bank towards looking at HDFC Life that has also evolved over the last 2, 3 years. So apart from just the wallet share shift, is it also that the product level margins in that segment is something which are more in line to the overall structure, which we would have wanted to be with. So some color on that. And to that point, which you mentioned that in a market like this, demand is something which is not controllable. Probably last 2, 3 years, we saw very good phase for ULIP and staying away from a particular product might not make sense in this kind of an environment. So rather than controlling the product mix, basically ensuring that individual product margin keeps on improving. So just wanted to get your thoughts, that ULIP as a product, how has that changed us for the last 2, 3 years?

Right. It's a good question. And we look at every segment continuing to -- just give me a second, yes, every segment continuing to give higher and higher, meaning eking out different. So for example, in participating products, we would have -- we would urge our channels to sell for longer term, even toggling between what is the level of sum assured versus what is the bonus that we give. So we do believe that we are right up there in every -- each one of the segments because we are really, really granular on how we're not leaving money on the table unnecessarily, is also good for the customer. So that's what we've done on par. To your question on unit linked, today some of our products, so for example, Smart Protect has a 100x cover, so not that we sell all policies are 100x but those that want a one-stop solution. Also, we are able to get much better unit-linked margins than otherwise. Also, if you were to look at steady improvement in persistency, that has helped because we do change our actuarial assumptions and mark-to-market. So if we see a positive trend in persistency, we wait for 2 years. But after 2 years, we do change the inherent assumptions, which will -- and then new business also will get that uplift on the change in assumptions. So many such reasons that help us in goal seeking in a way for margins and that has become a DNA of the organization. We also have channel CEOs who have to balance their top line and bottom line. They want to sell more unit linked. It could be through something like Smart Protect. It could be through attachment of riders. It could be a productivity improvement on costs. It could be many such things, all the technology investments that we are doing, wherein we need lesser people. So it's a combination of all of these things that is there and term, of course. And term has been steady, we've grown 27%. We've also grown in the 50s in terms of sum assured, which clearly means that we are covering higher levels of mortality in various mechanisms that we can do it. And all of that is margin accretive.

So ma'am, I think just to -- on this part itself. So very clearly, I understand that you are saying that the DNA has shifted towards improving the margins of our product level. And so somewhat like a ULIP, which probably at the point we would have had to do with a single-digit margin. Is it fair to say that now it is not that a case, that is the market is expecting that product to be sold in greater proportion? Then we are not running that race single legged because of some factors. I am just trying to understand that in order to mold ourselves to what the market demands, the profitability of each of the products at ROE levels should be competitive enough. So wanted to check that in the previous avatar a lot of things on the distribution part restricted the margins on ULIP as a product. Has that changed very specifically?

Yes, we have a lot more levers for us to be able to deliver margins in a particular zone that we have consistently operated in. And I don't want to reveal all of it. But suffices to say that, for example, our product committee meets every fortnight to really look at not just high-level par, non-par and so on but many, many nuances of what is selling, to which channels, which cost of acquisition, where are we leaving money on the table by not cross-selling, attaching, so many such things. So it's really a nuanced approach that is looking at both top line growth and bottom line. But I'd struggle to share beyond that because that is really how we're looking at things. And we don't do it at a -- only at a corporate level, it is done even at a decentralized channel CEO level.

Understood. One last question, ma'am. I think this is from regulators perspective. Yes. But now, I mean, when we look at insurance as an industry, there are effectively 5, 6 nature of products which we have been selling from a long period of time. Only recently and probably the regulators intend to look at each product through a different lenses, try to see whether it fits the customer, et cetera. Now, I mean more from a industry point of view can adding new products -- so somewhat there have been talks of composite but I'm thinking that even within savings, do you think that industry as a whole needs new products beyond the 3, 4 ones, which are typical structures under which we are selling insurance?

Absolutely. And that is there in the report -- regulatory review report. We are part of that and along with many other peers. I'll give you an example. Earlier there was a caller about our GIFT City products. Now we have an education -- dollar-denominated education product, which is approved by the DFSA. And there, you don't necessarily have to have a 10x cover. You could have, say, a 5x cover, because your objectives might be different or you might already have some level of insurance and that's not what you're looking for today. It's not 0 but it doesn't have to be much higher levels of insurance. There are tweaks like that or it could be wherein you could take a premium holiday without necessarily lapsing your product, because there are some constraints that you have on the financial front. Many such things within the existing avatar can certainly be done to expand the pie by offering flexibility and it's already there as a recommendation, series of recommendations to our regulator.

The next question is from the line of Dipanjan Ghosh from Citi.

Just 2 questions from my side. First, on the Tier 2 and Tier 3 markets, if you can kind of give some color on what you think could be the right to win in this market, be it for HDFC Life or any other competitor? Will it be a distribution strategy or the product innovation strategy? And in that context, if you can give some color on the split of the 13% growth that you have seen in Tier 2 and 3 between maybe the specific product cohort, like you mentioned that retail protection was probably 20% or 30% now in some of the geographies. And secondly, if you can just give -- a dedicating question, if you can just give what was the contribution of HDFC Bank in your individual business for the year or can you give the counter share, or if you can just give the contribution in your overall business?

So I'll answer the third one. First, HDFC Bank, obviously, we've gained fair market share. There's also been a little bit muted because of the high base in our broking and agencies. So we have hit almost 52%, 53% kind of contribution on the retail individual from HDFC Bank. It's still fairly diversified because we have many other partners. But given our focus on proprietary, given our focus on some of the alternate channels as well as other banca partners who are supporting us, it will probably go up and down a little, even if HDFC Bank were to grow the next year, right. So that's broadly where we are in terms of the contribution from HDFC Bank. On your question of right to win, frankly, it's really a very competitive market. So I think every key lever falls into place, especially with somebody like even an HDFC Bank who is looking at what is the right composition which is going across to the customers. So right from in terms of how the product, how the IRR, what kind of operational efficiency is coming in, we constantly benchmark ourselves on -- we constantly benchmark ourselves in terms of where do we stand in terms of operational efficiency, product IRR, resources on the ground, training and capability. And we do believe that there are many such innovative things that we can bring on to the market where we add value to our partners, especially across all, it's not that we are specific to 1 particular partner but we look at whether we can come out with propositions like the GIFT City, whether we can come out with deferred annuity kind of a product, to achieve as a product, has had a huge advantage, which had brought to us in terms of the innovative product or the customized solution that we are able to bring. So really, it's a question of how do we go back and benchmark ourselves across each of these parameters and make sure that, look, we are #1 or at the worst #2 as far as the value proposition to each of our partners is concerned.

So if you can kind of break up the 30% growth in Tier 2, Tier 3 between maybe some product cohort, if that's what...

So I think the same set of products at different ticket sizes have been moving across both the Tier 2 and Tier 3 kind of markets also. We do believe that there is a segment within Tier 2 and Tier 3 because they're fairly less underpenetrated. But yes, the less than INR 5 lakh cohort in this Tier 2, Tier 3 markets have seen a much faster growth because of the NOP penetration that we are able to get into each of these markets, right? So the Tier 3 has, for instance, grown at almost 17%. The Tier 2, Tier 3 overall has grown faster than the industry level growth, which is there in the market. So those advantages are clearly coming in, in terms of -- and it's 13%, not the number, I couldn't hear whether you said 30% or 13%, 13% is what we were mentioning in the Tier 2 and Tier 3, right? But the less than INR 5 lakhs has been growing in high teens. Our NOP growth also has been in the mid-teens in terms of each of these segments.

The next question is from the line of Madhukar Ladha from Nuvama Wealth.

Just 2 quick data-keeping questions from me. First, can you give me a split of your more than INR 5 lakh and less than INR 5 lakh ticket size and the total individual APE...

We can't hear you very well.

Yes, I wanted to get a split between the high ticket size and the low ticket size and total individual APE for FY '24. And my second question would be, we see that the economic variances are about INR 1,300-odd crores. So what is the split between fixed income and equity out there? And yes, that -- those would be my 2 questions.

Yes. So on the first one, we had mentioned at the beginning of this year, just after the budget that the impact we see is around 12% of overall APE and today, greater than INR 5 lakh, the basic same category is about 6% to 7% of our business. It is definitely lower than what it was last year but it is still a fairly significant number. And that is something that we expect to continue as we go forward as well. If you can -- sorry, please come back on your second question.

And the economic variance breakdown for that, please?

So that's primarily due to equity about -- out of the INR 1,300 crores -- about INR 1,200-odd crores is due to equity. The rest is due to the lower yields in this period compared to the same period last year.

Understood. And just on the 6% to 7% high ticket size, what would be the composition, sort of which product mix -- product categories actually contribute to that?

So these are all basically the traditional products, non-unit linked. Unit linked, in fact, is -- if you include unit linked in this, the mix would be even higher than 6% to 7%. So we're only referring to the affected category, which we spoke about in the context of last year.

Right, right. Understood. Understood. Yes, makes sense. Yes.

Also, what you're seeing is, in this period, I was referring to in a earlier conversation about our non-par mix having gone up in this period to the mid-30s from less than 30% in the 9-month period. A large part of that is due to one of the new product launches that we've had, which has also helped us garner business in high ticket size as well, in spite of where we are, as far as the tax regulations are concerned.

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

So firstly, on this -- on the Tier 1, Tier 2, Tier 3 that we spoke about, any thoughts that you can share in terms of how has been the experience there with regards to modality, persistency, any of those parameters? And how should we look at it from a medium-term perspective? And secondly, on your overall product mix, like -- how would you look at something like a protection or a annuity -- annuities going ahead? So the point that I'm trying to get out here is, if protection and annuities, although the protection margins have come up but still they are significantly better at the company level. But if the share of protection and annuities can go up in the next year, you can see some margin bump up. So just trying to understand that as to how the product mix, particularly from these 2 products are likely to shape up in FY '25? Yes, those are my 2 questions.

Yes, so let me take the first question, see, protection clearly for us has been growing well. And also when you triangulate that with the level of sum assured, so we should, despite us not necessarily being -- playing the price war, like one of the earlier callers had a discussion, it should grow faster than overall company level. And we are very, very happy that the retail sum assured, for example, has grown just shy of 50% and retail protection on a stand-alone basis has grown by 27%. So that kind of a -- while some of it was based in fact in the first 3 quarters. But even in the fourth quarter, we have done okay. So that's growing faster than company clip, should certainly continue, thereby giving us the margin uplift. And more than the margin uplift, it is core to insurance and we want to grow more of that. So 4% has become 5%. And this is inching up, in terms of percentage of APE should happen, right? In terms of persistency, what is again heartening is that the difference between Tier 1 and Tier 2, maybe 300, 400 basis points and again, between Tier 2 and Tier 3 is thereabout. So it's not that it is in the late 60s or early 70s. So that's what -- that's -- that's how it is panning out because, again, we're not throwing caution to the winds and wading into profiles that we don't understand. There are a lot of filters. And like I've mentioned earlier, that we are looking at the upper quartile in a Tier 2 and upper quartile in a Tier 3. So that we are being very selective of where are we going in terms of the places, it could be a small industry, it could be a missionary, it could be a school. It could be something which is generating a certain income of the population that is dependent on that income-generating activity.

So Vibha, point that I was trying to make or wanting to ask was, if the same product is sold in Tier 2, Tier 3 via the same channel, say, for example, HDFC Bank sells a ULIP product in a Tier 2, Tier 3 and HDFC Bank then sells it in Tier 1, would your margin be material -- would it be any different? Or how should we think about it?

Just to elaborate on the point that Vibha mentioned, while the Tier 1, Tier 2, Tier 3 will play a role in the persistency as well as moderately experienced, that is not the only parameter. The other parameters like, at what level of underwriting they've had, taken the risks on board, what is the income level, what is the kind of ticket size of sum assured, what kind of products. All those things influence the experience and we look at the experience -- like, all these parameters and we factor that in the calculation of the margin. And I guess, we'll not be able to exactly carve out different, different products for all these categories but whatever products are sold in more predominantly in the segment, all those products have the actual experience captured in the margin. So for example, in a Tier 2, in a certain ticket size, the persistency will be better than a lower ticket size in a Tier 1. So that's -- those elements are the ones that we are referring to, it's not a very, very clear differentiation only within this year that or only then differentiating 1 parameter that is looked at and the experiences [indiscernible].

See right now, largely margin neutral because it is more that, that profile of a human life is choosing to live in that particular place as against living in a top 10 city. That's how we are seeing it. And so not huge difference. Over a period of time, we'll get nuanced wherein it is possible that we might introduce these 4 products and we are working on that, in Tier 2 with a higher charge extraction to take care of higher or for a mortality and persistency experience. As the volumes start picking up, we will -- it is possible that we'll look at that as well.

Ladies and gentlemen, we will take the last 2 questions. The next question is from the line of Supratim Datta from Ambit Capital.

So my 2 questions. One, could you let us know what is the contribution from the non-HDFC Bank partners to the APE? And what would be the 2 or 3 key partnerships here? And given this is a fairly competitive channel which has seen commissions going up after the new [ IRDAI ] guidelines coming in, what are your aspiration -- growth aspirations in this channel? That is one question. And two is a follow-up to a person who had previously asked this question on protection. You seem to be very confident around protection growing. But when I look at your retail protection, the growth has been slowing for the last 2 quarters now. So just wanted to understand, is this anything specific to these 2 quarters and that should reverse next year? Or how are you -- why do you think that this growth should accelerate going forward?

I'll take the second part and then hand it over to Suresh. On the term, it's really because of the base effect, nothing else because we did have the base. If you look at the quarter 4 term of last year, it had grown higher. Again, I won't go into some of the reasons, specifics of that, that happened in that particular quarter but that's what it is. Otherwise, in rupee value quarter-on-quarter, you'll find a steady growth. Suresh, over to you.

So on your specific question on what is the non-H Bank contribution in terms of the other banca channels, around 12% to 13% of our overall business. So -- but then a lot of our partnerships have -- or the large partnerships have also come on board over the last 2, 3 years. We're still making forays in terms of market share as well as our presence across each of these partners. So for instance, even last year, we have added on Karnataka Bank and Karur Vysya Bank. Our partnership with YES BANK and some of them are growing stronger. Some of the earlier partnerships with IDFC, RBL, Saraswat, they continue to remain strong partnerships for us.

And just if I could ask what was this 12% to 13%, say, around 3, 4 years back?

So really, it has not that it has shifted dramatically because, look, at one end, HDFC Bank has grown in contribution. And so the denominator has had grown because we've gained significant market share there. Secondly, the proprietary focus also is helping us grow. Like we mentioned, our agency business over a 2-year period has grown by 14%, has been growing faster than industry over the last few years. So really, we do look at each one of them in isolation in terms of growth year-on-year, but we do believe that the bancassurance partners are growing at around 10% plus also year-on.

And just to add to what Suresh was mentioning, also what happened is, like Suresh mentioned, HDFC Bank this year, of course, has grown faster than our other bank partnerships. But over the last 3 to 4 years, the contribution of other banca partners has almost doubled to the overall banca business. So it used to be in single digits still a few years back but more -- lot of these new partnerships that we spoke about have scaled up in this period and they have -- now they're contributing to almost 20% to 25% of our bancassurance business, if you were to just normalize for the HDFC Bank business growth in this period.

We will take our last question from the line of Swarnabha Mukherjee from B&K Securities.

So a couple of questions. First one on the growth versus margin. So last year, you had highlighted that you were capacitized to grow by 17%, 18% but since you expected around, say, a mid-teens kind of a growth, so there was a kind of impact on margin that was expected. Where are we this year? So are we again kind of budgeting in a cost structure for 17%, 18% growth and given the fact that you are guiding for kind of a 12% to 15% industry growth and maybe little bit ahead of that. Is there a risk of shortfall from that 17%, 18% number and consequently there could be an operating deleverage towards -- as we progress in the year, should we kind of think of such a -- this thing playing out on the margins this year also. So that is the first one. And second, in terms of the 13-month persistency, in the initial speech, you had highlighted that you expect some shift in that. Sorry, if you have already given some color on that, I might have missed it. So if you could maybe elaborate on that a bit.

Yes. So to your first question, in terms of where the -- where we're headed in terms of growth for FY '25 and consequently, the margins. Basically, we are expecting the sector to grow in this range, 12% to 15%. We expect to grow at the top end of that range and hopefully faster. We are not targeting a margin expansion in this period. We are definitely continuing to see competitive intensity. We are continuing to see our distribution expansion happen, our resource allocation increasing. So all of those things will, in some sense, counterbalance each other. We are definitely targeting a similar VNB growth to the top line growth that we have, which, in some sense, implies margins to be in the zone that we are at this current point in time. If we are in a -- if we are able to actually -- let's say, the product mix becomes more margin accretive or we're able to extract more segment level margins, we will evaluate ploughing some of that back to get growth as we've discussed, something very similar to what has happened in quarter 4. We've seen unit-linked mix go up. We have taken that growth on board without significantly diluting our margin profile. So these are some of the trade-offs that we've spoken right through this call and that's where we are. And linking it back to the VNB growth that we spoke about earlier on the call as well, significant part of that 130 basis points is coming out of that operating leverage gap because of the difference between the capacity and the actual growth. We do not see that repeat in FY '25 because we expect growth to come back fairly strongly in FY '25. So that is something that will only be balanced by our continued investments. So that's the only factor that we will talk about. Product mix will, of course, evolve. We are at a reasonable balance at this point in time but we will retain the flexibility to evolve the product mix based on how the market shapes up. To your second point on persistency, what we have been talking about is in the context of our expansion into -- deeper into the Indian markets. We did speak about -- Vibha spoke about persistency across the 3 tiers being different by about 300 to 400 basis points at the 13-month level, not dramatically different. So all of these still put us in the 80s handle, even in the Tier 3 market, exactly because of the ticket size at which we're operating in. We do expect, we will task ourselves with improving persistency on a like-to-like basis but the mix effect will be something that we will not hold as a constraint to growing profitably. So if the contribution from Tier 2, Tier 3 keeps increasing, can it have impact on the overall headline persistency? It could, but that's something that we would price into our business model.

Understood. Just 1 follow-up on this. So this shift that you are expecting, so would we expect any kind of impact in our, say, operating assumptions in our VNB or NBV because of this?

No, it will cover that. We would put it up. End of every year, we do a -- review our assumptions in line with our actual experience and we do reset that at the end -- review every year. We've done that in our review work this period as well as you can see. This is basically, in some sense, anticipating what we are likely to see in the coming year.

Right. So that's already baked in, if I understood correctly.

VNB [ walk ], so we can see a 0.2% impact on the margin due to assumption change. So some of the difference is already baked in.

We would take that as a last question for today. I would now like to hand the conference over to Ms. Vibha Padalkar for closing comments.

Thank you, Sagar. Thank you, everyone, for joining today's call. It was good interacting with all of you. Please feel free to reach out to our IR team in case of any further queries. Thank you and good evening.

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