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

Ladies and gentlemen, good day, and welcome to the HDFC Life Insurance Q1 FY '26 Analyst Conference Call. [Operator Instructions] I now hand the conference over to Ms. Vibha Padalkar, Managing Director and Chief Executive Officer of HDFC Life Insurance Company Limited. Thank you, and over to you, ma'am.

Thank you, Ziko. Good evening all, and thank you for joining us for our earnings conference call for the quarter ended June 30, 2025. Our results, along with the investor presentation, press release and regulatory disclosures have been made available on our website and the stock exchanges. Joining me on the call today are Niraj Shah, Executive Director and Chief Financial Officer; Vineet Arora, Executive Director and Chief Business Officer; Eshwari Murugan, Appointed Actuary; and Kunal Jain, Head, Investor Relations, Business Planning and ESG. On the macroeconomic context, FY '26 has commenced on a steady note even as the broader global environment remains uncertain, shaped by trade frictions, geopolitical tensions and divergent growth trajectories across markets. India continues to display relative resilience through recent high-frequency indicators -- sorry, though recent high-frequency indicators suggest a mixed picture. On one hand, flows into capital markets have been strong, supported by investor confidence. On the other, trends in consumption and early corporate earnings point to pockets of caution. In this context, life insurance remains a compelling choice anchored in long-term savings, risk protection and financial discipline. Our product and distribution strategy is well positioned to serve evolving household priorities, and we will continue to assess and adapt our outlook as the year progresses. Moving on to business performance. Quarter 1 FY '26 began on a strong note with healthy growth across top line value of new business and steady margins. Individual APE grew by 12.5% year-on-year, translating into a robust 2-year CAGR of 21%. We outperformed both the overall industry and the private sector, resulting in a 70 basis point increase in our market share at the overall level to 12.1%, a new milestone for us, and a 40 basis point gain within the private sector, taking our share to 17.5%. Over 70% of new customers acquired in quarter 1 were first-time buyers with HDFC Life, underscoring our customer acquisition strength and deepening presence across Tier 1, 2 and 3 markets. Growth during the quarter was led by higher average ticket sizes, supported by traction in select unit-linked and par products. As the year progresses, we expect a more balanced contribution from both ticket size and policy volumes. Going on to product mix. It remains well balanced with unit-linked at 38%, participating products at 32%, non-par savings at 19%, term at 6% and annuity at 5%. Contrary to initial expectations, demand for unit-linked products remained strong, supported by sustained strength in equity markets. However, our ULIP mix remains lower than the industry and broadly range bound. We anticipate a gradual shift rather than a sharp swing in favor of traditional products over the course of the year. Participating products have gained traction driven by refresh propositions and heightened macroeconomic uncertainty. Both our new offerings click to achieve par advantage as well as the relaunch of an existing retirement product have gained significant traction. The refresh also enabled sharper need-based selling across older age cohorts and deeper Tier 2 and 3 markets in select channels. Non-par savings have temporarily moderated for us in this quarter as we fundamentally believe in staying away from irrational pricing. We remain confident that this segment of which we have been pioneers of, will bounce back buoyed by a steeper yield curve. Our non-par annuity business registered a healthy growth of 25% in terms of new business premium. Retail protection continued to grow faster than the company average, delivering a robust growth of 19% on a Y-o-Y basis and a strong 2-year CAGR of 23%. Credit Protect also saw recovery aided by higher disbursements, improved attachment rates and expansion into new lending segments. Whilst the MFI segment remains strong, the pace of the growth slowed amongst larger partners, thanks to a more stable regulatory backdrop and a favorable base effect. Retail sum assured grew in double digits and registered a 30% CAGR over 2 years. We maintained our leadership position in overall sum assured, reinforcing our position as a market leader in protection. Moving on to financial and operating metrics. In line with our outlook at the start of this year, the value of new business for quarter 1 FY '26 stood that INR 809 crores, a growth of 12.7% year-on-year and a 2-year CAGR of 15%, with new business margins steady at 25.1%. We are pleased that a 30 basis point downward impact of the revised surrender regulations as well as investments into augmenting our proprietary channel and Project Inspire was offset by a better product profile. As indicated, we are consciously reinvesting any margin gains into building long-term capabilities. As we deepen presence across Tier 2 and 3 markets, we continue to front-load investments in distribution and technology. With 117 branches added in FY '25, taking our total to 658 and incremental assets from Project Inspire getting rolled out through FY '26, we remain focused on scale and efficiency. We expect to maintain margins through the year, balancing short-term dynamics with our long-term agenda of sustainable and profitable growth. Our embedded value increased to INR 58,355 crores, with an operating return on embedded value of 16.3% on a rolling 12-month basis, a more representative view that smoothens out quarter 1 seasonality. Solvency remained robust at 192%. Profit after tax grew 14% to INR 546 crores, driven by a 15% growth in backbook profit. Renewal collections registered a robust growth of 19% year-on-year. Persistency metrics remained healthy, with 13th and 61st month persistency at 86% and 64%, respectively. 61st month persistency improved across cohorts, supported by stronger retention in long-term savings products. The 13-month metrics remain stable sequentially and in line with actuarial assumptions. On distribution highlights, all channels recorded healthy growth. Counter share within our parent bank held steady. Our focus remains on enhancing this channel's economics to a multipronged strategy, diversifying product mix, driving cross-sell and upsell, leveraging the bank's digital assets and elevating customer experience. We recorded healthy growth in other bank partnerships as well. Our agency channel delivered a 2-year CAGR of 10%. Post the changes in surrender regulations, industry-wide growth in agency has been uneven. The channel maintained a healthy double-digit protection mix and profitable growth. We have initiated an agency transformation program aimed at boosting activation, productivity and long-term viability. Agent additions remained strong with 23,000 new agents onboarded in quarter 1 FY '26. Business from branches opened in the last 18 months now contributes a high single-digit share, in line with our expectations. We continue to focus on improving profitability at a branch level. As part of more meaningful disclosures, we have now grouped brokers and nonbank corporate agents under the nonbank alliances category. Our distribution strategy remains focused on broadening reach and recalibrating our market approach to unlock newer opportunities. Moving on to regulatory updates. Over the past few years, the life insurance industry has seen a series of regulatory changes aimed at enhancing customer transparency and strengthening sectoral governance. Throughout this period, the industry has demonstrated resilience with underlying value pools continuing to grow steadily. Encouragingly, recent commentary from policymakers indicates a shift towards a more stable and consultative regulatory environment. Specific concerns such as misselling are being addressed through industry-wide efforts, including our own focus on right selling and process improvements. As one of the leading insurers, we remain aligned with the broader regulatory vision and continue to proactively strengthen our disclosures, effective sales practices and customer experience. We believe such a balanced regulation will support long-term growth and deeper penetration, particularly as bancassurance and open architecture become levers for expanding insurance access. Amongst other updates, we are pleased to share that MSCI has upgraded our ESG rating from A to AA, placing us amongst the highest-rated insurers in India and the region. While the external environment remains dynamic, our fundamentals have held strong, anchored in a balanced product mix, a diversified distribution footprint and a consistent focus on innovation, customer centricity and disciplined execution. Our aspiration is to continue to outpace industry growth while sustaining our position amongst the top 3 in India. As we mark 25 years of serving Indian households, we have planned a series of initiatives through the year to engage with our stakeholders and reaffirm our commitment to being a trusted partner in financial protection. Thank you once again for your continued trust and support. For a detailed overview of our results, please refer to our investor presentation. We are now open to any questions from the participants.

[Operator Instructions] The first question is from the line of Avinash Singh from Emkay Global.

A couple of questions. First one is on margin. I mean, if we look at the kind of shift of around 16-odd percentage between par and non-par and still margin holding up is a kind of a commendable performance. Is it kind of supported by the product level margin changes due to higher rider attachment, maybe changing PPDs and kind of some support from yield curve move. So if you can just help if I look in that context. And related to that only, I mean, a quarter earlier, I mean, in your call, you were sounding more confident about margins than APE growth in the first half. But on that note, I mean the margin outcome has not come that great. I mean, if I look at product mix, of course, great. But if I just look at kind of your commentary a quarter back in that backdrop, so, what sort of a change when you were kind of commenting on quarter -- around Q4 results and through the quarter that -- I mean, that led to this kind of a higher acceptance or higher demand for par. So this is question one. Second question is, again, on persistency, if I look a sharp improvement in 61st month, but let me focus on the marginal kind of a worsening of persistency in 13 months. So if you can help what has led to this sort of a marginal deterioration in 13 months. And on the net, I mean, with the sharp improvement in 61st and maybe some bit of deterioration in 13th, is that kind of contributing meaningfully positive towards operating variances?

Yes. So I'll take the in between question of what I was sounding like last quarter. Two, if I recall, I was saying that margins will remain range bound and growth at that time seemed like it's going to be somewhat muted because of the macroeconomic scenario, which I think will probably continue for another quarter as well based on slowdown and -- very visible slowdown in consumption as well as a tariff situation and so on still being up in the air. So I think we have delivered well. In fact, if you look at Slide 14, which shows the margin walk, we started off with a handicap at the beginning itself of 25% really being 24.7% because of the impact of surrender charges. So there has been an expansion of margins of 40 basis points to get to 25.1%. That is one. And second is if you look at, and this is something that I had mentioned that we grew last year first quarter by 31%. So against that -- so there was a base effect and which we had called out. And so against that base effect, growth of, say, 13% has -- is very much along expected line. But just the mathematics of that will mean that there is a fixed cost absorption and the impact is 0.6%, which should over the -- as the year pans out, that fixed cost absorption negative impact should disappear. So I think very much in line is how I see things. Niraj, over to you in terms of the shift in mix.

Yes. So, Avinash, in fact, you touched upon everything that has happened in this period and as we've discussed in the past as well. So we've maintained our pricing discipline, Vibha spoke about it to some extent on the call as well. Non-par mix, as you know, is basically a result of some of that. The environment is still fairly upbeat as far as equity thought process of customers is concerned, which is reflecting in the unit-linked mix, which is steady. We managed to maintain our pricing discipline on the non-par side. The mix has come down because of the equity environment as well as letting go of some business because of irrational pricing. We expect the mix to inch up as the year progresses as some of this pricing calibration happens in the industry. As far as unit-linked mix is concerned, while the mix remains similar, the level of protection we've been able to attach has increased. So that has helped us improve our near-end margins in unit-linked, while the mix has remained the same, and the participating products are inherently longer term. So the margin extraction on par has also improved compared to what we've had in the past. So as such, at a very broad level, what's happened is that the delta between segments on margin has come down over the last couple of years, and that is something that helps us maintain a fair bit of flexibility on product mix as we go forward as well.

Yes. And one other point I wanted to mention, Avinash, just remembering back a quarter, is that we had expected some moderation in Unit Linked. There were many things on the political front also happening. There was a lot of uncertainty that was just an overhang. But that does not seem to be the case. And Unit-Link still are fairly robust in terms of what people want to buy, so that is a reality. And so, like Niraj said, we have worked on some of the product profiles to increase the inherent profitability of some of these products. Eshwari, you want to take the persistency?

On the persistency, the 13 months we've seen a drop, a drop of around 1% mainly because of the proportion of large ticket prices, which has reduced post the changes in the taxation and this is already allowed for in our assumptions because when we look at assumptions, we see the experience by various parameters of which premium size is one of them. So we already knew that the persistency is going to be lower, and that is why you see that the operating variance is still a small positive. It's not the negative that -- which would have been the case if we are allowed for higher assumptions. On the 61st month, yes, the improving persistency which is maybe coming from the products we sold 4, 5 years ago, and we have been seeing a gradual improvement in the persistency 13th, 25th and so on. That is definitely going to give a better profitability, and that is also factored in our assumption. Hence, we don't see any big operating variance in either direction when you look at our EV walk. Hope that answers your question.

Our next question comes from the line of Shreya Shivani with CLSA.

I have two questions. First was on the ULIP itself. Just on the basis of interaction with other industry participants, your performance on the ULIP front has been quite different. So as rightly mentioned, one of you mentioned that you're attaching more protection over here, probably that's still pushing from more ULIP sales. But can you help us understand that, has there been any change in the ULIP product design that you were selling till 4Q that you're probably selling right now, why people are still buying more ULIPs from you when others are still reporting there's a ULIP slowdown? That's my first question. My second question is from the annual -- no, it's from the public disclosures for the full year. It's basically to do with -- I think you broadly touched on it, but I just wanted to get a better color on the mortality variances went negative in FY '25, negative INR 10 crores or so. And even the persistency and other operating variance for you has been declining for 3 years. So any comment on this or what segment is impacting mortality and also on the persistency?

I'll start with the Unit Linked and pass it on to Eshwari for the second question on the variances. On unit-linked, it's all relative, right? For us, as such, while the product design keeps getting refined from time to time in terms of taking customer feedback and adding new features. So that is a continuous process at our end. But as such, when you're talking about maybe on a relative basis, I think for us, unit-linked historically has been in the mid-20s. In the last couple of years, it has been elevated to the mid-30s, late 30s. So we've kind of maintained that. And I spoke about our ability to get more flexibility under our product mix because of some of these changes to Avinash as well. So for some of the others, maybe the levels at which the Unit Linked was previously was a lot higher. So compared to that, maybe it has moderated. But for us, as such, the levels have been fairly calibrated even last year. So while it was higher for us compared to what it has been historically for us, it's still been a lot lower than for some of the peers in the sector.

Got it. And no -- in the immediate quarter, there has been no change in product design or any of the -- anything of that sort, right?

Nothing which has influenced the mix really. I think we have continued to make changes, but nothing more recent that I can think of, which has contributed to any change. And the mix has been fairly similar. It's in fact, Q4 last year, if I recollect, unit linked mix was higher than 40%. That has moderated down to 38% but on a Y-o-Y basis, it's similar.

The operating variance, yes, in FY '25, we are at INR 10 crore negative mortality variance, but that's a very small proportion when you look at the overall EV of INR 55,000 crores. And just as I explained the previous answer, when we look at the experience, we look at the expense of various parameters and that is already factored in our assumptions. So we don't expect a big positive or negative variance. And as we have been doing the exercise for the long period, we have got quite evolved in how we look at the experience and how we allow for it in our assumptions. That's why you see that the variance is coming down because all of that is already reflected in the VNB or in the embedded value. And earlier when we had good persistency in Unit Linked over the last 2, 3 years, gradually improved persistency. We didn't allow for all of it in our embedded value because we wanted to see the trend and ensure that it is sustainable, which is why you had a big positive persistency variance. But having seen the trend for the last 2, 3 years, we have now captured it in the embedded value. Let's say the variance is expected to be small, but broadly positive over the year.

Got it. That is useful. Just one follow-up, The mortality variance was for -- because of which subsegment? Any particular product segment or geography, which caused that mortality...

No, nothing material. As I mentioned, various parameters you look at the some cohort you would have had. And if it's something material, we immediately take interventions like the repricing or looking at some of the due diligence we do at underwriting, et cetera.

Our next question comes from the line of Supratim from AMBIT.

My first question is on the group protection side, this has been a category which has been declining for around 6 quarters. This quarter, there has been around 20% growth. Now could you help us understand what is really driving this growth? Has the credit life -- are you seeing any recovery in growth there? If you could help us understand the dynamics here, that would be very helpful. Then if I move to the agency channel, that's again -- that -- this quarter, that growth in that channel has slowed down. I understand that you are planning at new initiatives of activating regions. But if I see over the last 5 quarters, the growth has been on and off. So is this channel being driven by any promotional activity, such kind of one-off activity, which is resulting in the growth being so volatile? If you could help me understand those two questions, that would be helpful.

This is Vineet here. I'll take these questions. The first one around the entire group piece, see, the group product largely is dependent on our MFI as well as the non-MFI segment on the CP business. We have continued to see the downward trend of MFI happening this quarter as well. And -- but we were able to more than compensate for that downtrend through the non-MFI business and this non-MFI business has been both by additional lines of businesses in the same partner as well as by acquisition of some new partners. So I think the impact of MFI is now reduced, even in that entire degrowth of MFI was more than compensated. So that's the reason why you are seeing the growth, the growth coming back in the group business. The other question was around the agency channel. So on the agency channel, like we have mentioned that we are doing a big transformation exercise, and we are seeing some green shoots of those channels coming in. It's not a one-off promotional-driven activity which has seen a better performance this quarter. This quarter, I mean, our feeling is that -- and whatever market intelligence we have is that there has been an impact overall on agency channel across the industry. However, given that volatility, we have been able to really come back and outperform how the industry has gone. So our agency market share has moved up in this quarter, and we expect that trend to continue.

Vineet, just two follow-ups here. So if you could help us split out the protection product by MFI and non-MFI, what would be the mix? That would be very helpful. And when you're talking about this transformational exercise in agency, what would this entail? If you could give us some pointers, what would this involve, that would be helpful.

Yes. So on the protection side, see, now with the degrowth of MFI happening over the last 9 months now and maybe another quarter before the base effect starts to kick in, we would be now at about maybe mid-teens kind of number in our MFI business and the remaining business would be non-MFI. So that's how the mix would be at this point of time. In agency, I think your question was what kind of transformation. I missed that part, so if you would repeat that.

Yes. So just wanted to understand what is the transformational exercise that you plan for the agency channel?

Yes. So the exercise is more around bringing in the basics of agency back into the results, bringing in a lot of technology around that so that we can monitor a lot of ground level activities and how training activation and support, et cetera, is happening. Some changes around the agency life cycle for agents and around our partners on the variable side. So some of that has gone in. So a lot of fundamental tweaks, et cetera, on to the agency program that we have.

Our next question comes from the line of Nitin Jain from FairView Private Limited.

Congratulations on a steady quarter. So my first question is on the product mix. So the contribution for non-par has increased significantly year-on-year while par has gone down. So how do you see this panning out over the rest of the year? And what kind of impact do you anticipate it to have on the margin? And my second question is regarding your commentary last quarter on the FY '26 outlook. So it was more along the lines that H1 could be slow to muted and growth can -- growth will pick up H2 onwards. So are we still holding on to that? Or are there any changes to that?

Yes. So I think going to the first question, it was the other way around, non-par mix has come down in this quarter and par mix has gone up. Like Niraj mentioned in an earlier answer was that non-par has seen a lot of aggressive pricing in the market, and we did vacate some space deliberately on the non-par segment. That's why the non-par mix has come down. While we made sure that we were able to compensate for this through the par products. From a margin perspective, they are both in a similar range. So it becomes a margin neutral exercise from our end. So I think that is not -- that is something that we could look at. The other one was around our commentary of growth and how did we see it. In April, our view was that there would be some slower growth happening at least for the first H1 of the year given the uncertainty around the geopolitical uncertainty and some macro indicators that were there. We also expected ULIP to be slightly muted. But as things have panned out, ULIPs did remain in traction. And the industry growth was actually slower this quarter. We saw that happening in the industry. But we were able to, given our business, et cetera, and we were able to outperform the industry in the first quarter. So I think our view still remains that the industry will be slightly slow for the first H1, but we do expect that we will continue to outperform the industry.

I'll just maybe add quickly to the second point Vineet mentioned and the industry had a very high base last year on H1, right? And that holds true for us as well. So that is something that just mathematically will be the case. And on the first bit, the product mix, I think, will probably start converging. Non-par is likely to end up in the mid-20s as the year progresses and par will probably come down slightly but will still be upwards of 25-odd percent. So that's something -- it's in line with what we have been trying to actually achieve as well, all the product segments being between 1/4 to 1/3 from a savings perspective.

Okay. Great. So just to clarify, do we anticipate growth to pick up from H2 onwards?

So we seem to be positive that, yes, it should pick up. One is the base -- in fact, the base effect of last year when the growth in H2 was actually slower than the growth in H1. So mathematically, it should look better. Second is as the fundamentals of the economy move, I think that would be something that we will also have to discover along the way. But so far, we believe that H2 should be better than H1.

Right. And margins, as we expect, they will continue to be range bound, like within the 25%, 27% band kind of? Or do we see a gradual uptick as the year progresses?

No, we do expect it to be range bound for this year. We take a slightly long-term view 3 years. We do see expansion definitely. But from this year perspective, I think, especially given that the growth at an overall level is likely to be relatively softer compared to last year. Last year, we were talking about 18%, 20% kind of growth. This year is likely to be lower than that. So the fixed cost absorption, as such, while it will even out through the year, it will still be slightly lower than last year. Our investments like Vineet mentioned, continue. So the product mix-related upliftment will actually get, in some sense, neutralized by some of these aspects. So I think that's not our objective for this period. VNB growth in line with top line will continue to be the objective for this year. But from a 3 year, 5 year perspective, certainly, there is scope for expansion.

Our next question comes from the line of Dipanjan Ghosh with Citi.

Just two questions from my side. First, in terms for non-H bank channels, what has been the growth rate, your counter share and in terms of the product mix at some of the channel partners? And second, you obviously this has been few quarters that I have been mentioning in terms of improving unit economics of the business or maybe the product profile of the business at HDFC Bank. So where are we on the journey? And if you can kind of detail some of the steps that you're taking in terms of your cross-sell, upselling, or utilizing some of the digital channels of the bank. If you can give some color on that?

Yes. So first is, I think our partnership with all the bank partners, including H Bank and non-H Bank partners is strong. And we have seen a steady market share in all of those relationships. Our mix of products in non-H Bank partners is slightly better than H-Bank relationship but the entire number of channels and digital interventions in H Bank is also giving us a lot of traction, and we saw that happening in the quarter 1. We have done more digital integrations with H Bank and we hope all those things will also give us an impact in quarter 2 to improve our mix with H-Bank. To your second question on unit economics, our endeavor on improving the profile of every product that we are doing, including like adding more riders and higher sum assured in ULIP, that's playing out very clearly for us. And all the unit economics are working very well at a product level as well as every investment in the resources that we do. So I think that's something that is a BAU for us, and we continue to improve on those factors as we go down.

Yes, so just to follow up on the second part, I think the question is more directed towards H Bank in terms of your product profile and in terms of your economics of that channel. Are you improving trajectory out there?

Yes. So the product profile, like I said, in H-Bank is better than what we had last year. And it is looking upwards in terms of having our mix becoming more par and improving our term product as well. A lot of digital integration that we have done have helped us improve our term share also in that entire channel. The other part about how every unit -- we track units in various ways. And one is like a product method in which we are trying to improve the inherent margin in every product. Second, at a branch level, how do we interact with the partner and improve branch level share of business and productivity. Those reviews are also very constant in BAUs. So that happens. We track branches in different cohorts of less than 50%, greater than 50%. And what kind of market share we have in each of these branches, and those numbers are looking better than what they were last year. So the branches which had a share of less than 50% for us are now much lower than what they were about a year back. And these are the numbers which are helping us at every unit level of productivity for the sales employees.

And just to add, there is a conceptual alignment with the bank that they should, along with us, be selling protection, a lot more of protection than the current 3%, 4% kind of level that it is right now. And some of our other channels have -- are any way at a much higher percentage of protection. So even that at least very definitive steps and conversations have already happened on that.

[Operator Instructions] Our next question comes from the line of Prayesh Jain from Motilal Oswal.

Just one question on how the product mix and margins can move, let's leave aside the benefit of the operating leverage hitting into costs, right? If -- what I heard from the call is that the product level margins between non-par and par are not meaningfully different. So even if the share of non-par increases, we wouldn't see any product mix benefits coming in the second half in terms of margins? And how would you then look at -- or whether do you think that the share of ULIPs can go down and that can bring in some benefits to margins from a product mix perspective? Obviously, I understand that you mentioned that any benefits on product margins or any benefit of product mix will be utilized to absorb the fixed cost or invest into growth. But just from a product mix perspective, can you elaborate as to how should we think about just product mix benefiting the margins?

So Prayesh, a couple of things. One is I think what Vineet was talking about, he was alluding to what I had said earlier on the call that the delta of profitability within product segments is reducing compared to what it was a few years back for us because every product category is now more profitable than what it was, maybe with the exception of maybe protection, where margins used to be increased just a few years back, but given the way the pricing environment is in the industry, it is healthy, but not the way it used to be. As far as the par and non-par, the mix is concerned, we expect the mix to become a little more moderate, where the par mix is likely to come down a bit, non-par mix is likely to be higher than where it is at this point in time. So non-par is still definitely more profitable than par. It's just that the delta which used to exist maybe 6 years back when we introduced the non-par category was a lot higher compared to what it is today. So that's really the crux of what we were saying. And as the mix changes the way we expect it to over the next 3 quarters, you could expect some profitability enhancement coming from that mix shift.

Right. And just on this -- again, the fixed cost absorption thing, at the end of Q4, you were expecting relatively muted growth, and I think the growth has come in better than your expectation. And so do you think that you would invest more and utilize that benefit of higher growth that has come in the first quarter? Or do you think that the margins can expand?

So again, Prayesh, I think what we had said in April was that last year was a very high growth year for the sector and for us. We grew at 18% sector there or thereabouts. We -- given the whole macro situation and the uncertainty, we expected this year to be relatively softer. That's exactly what's happened in quarter 1. So is the growth very different from what we were anticipating? Not really. Because I mean, one is on an absolute basis and second is mathematically because of a high base last year, the growth in H1 was likely to be lower than H2 for us in any case. And that's exactly how it is -- at least it started the year at. We did mention that our aspiration would be to continue to do better than the sector. We've managed to do that. We still see growth to be lower than last year. But hopefully, the quarters in volume terms become bigger as we go forward because just the way the business pans out as the quarters progress. As far as fixed cost leverage is concerned, again, it's relative. Vibha mentioned there is a negative 60 basis points impact because of lower volumes compared to volumes of the quarter and the previous year. This is what is likely to get erased as the year progresses. The 60 basis points negative is something that would -- hopefully, if things move according to plan, then it should be close to 0, but we'll have to wait and see how that goes.

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

Sorry, Niraj, again to harp on that same point, what many people have asked that you're saying par and non-par margin at the current juncture are broadly similar. So if ULIP margins are lower than the company average margins in general, then you are saying that at 25% margin, what you are reporting, there is a sale probability that par and non-par will be upwards of 25% at product level, broader indicator I'm saying, that's the case. So in future, we will be indifferent whether the growth comes from par or non-par indexes. So there is no -- basically from a company's point of view, there is no very active reason to chase non-par to just to boost the margins.

Sanketh, again, I mean, I'll just say it again, if I wasn't clear. There is a difference between par and non-par margins. The difference is not as high as it used to be 4 to 5 years back, but the difference is still very much there. Non-par is higher than company average. Par is closer to company average than it was maybe 5 years back. So that is really the aspect. Unit-linked, certainly is lower than company average, but is slowly now moving in the -- it is now converging towards par because of better persistency as well as higher level of sum assured. So the delta in margins across all the segments is very much there. Protection is still the most profitable product, followed by annuity, depending on the way we price the products at least, followed by non-par, par and then unit-linked. It's just that the delta across each of these segments is lower than what it used to be 3 to 4 years back. And the mix certainly will determine what the margins end up at. So if the non-par mix improves in the remaining 3 quarters, it will definitely give an upside to the margin compared to what you're seeing today.

So basically, in the waterfall of 100 bps improvement due to new product mix -- sorry, better margin profile mix is predominantly because of your ability to attach higher sum assured on higher riders to ULIPs. That's a very simple assumption to make, assuming that par grew at the expense of non-par at least in the current quarter year-on-year.

No, it's -- unit linked is certainly one part of it, but it's also -- protection also, again, I guess, in decimals, it doesn't show up. But the mix has gone up compared to last year. Credit mix -- credit product also has grown in this period, Vineet spoke about that. Annuity, it's a lot higher compared to last year. It's about -- I think it's a 20% growth in this period. So a lot of these things are margin accretive, as you know, in terms of segments. And each of them have contributed to the product profile. So product profile has all of these aspects apart from the inherent margins of the segment itself.

And last one. How much of ULIP has higher sum assured and what is that level basically? Maybe if you can give little data around that will be useful.

So we don't really get into that specifically given a lot of these things are not the way we make our public disclosures, but it's now becoming a very meaningful part. It's I think it's higher than what it was last year. It's now becoming a lot more meaningful than it was when we started the journey 2 years back.

Our next question comes from the line of Nidhesh Jain with Investec.

So my question is on NOP growth. Our NOP growth still is quite weak, though we have done quite fairly well on AP growth despite our base but NOP growth is a bit weak. A couple of years back also when NOP growth for the sector starts to decline when we have entered into growth sort of a problem. So how do you see NOP growth panning out going forward?

So, Nidhesh, you're right, if you look at just on a quarter 1 basis. On a 2-year CAGR basis, we have grown about 10%. And also, I'm reasonably confident that rest of the year as we progress, NOP growth should come back. If you were to look at every cohort that is above INR 1 lakh ticket size for us, we have grown fairly well. But in some of the lower ticket sizes, we -- based on some of the experience that has panned out, we have consciously gone back to the drawing board, relooked at some of our assumptions, pricing and that happened towards May, June of this year. So that's really what is impacting it, but NOP growth should come back. Do you want to add anything, Vineet?

Yes. No. So I think just reiterating what Vibha said. So certain lower ticket size segment is where we have deliberately gone slower on NOP growth, putting in some models to figure out which is the profitable segments to pick up. While all other segments, we have seen an increase in NOP growth. So that's not a challenge. And we expect this to also even out.

Sure, sure. And second question is on competitive intensity in non-par and annuity. What actually is driving that because post the surrender value norms, we thought that competitive intensity from unlisted players will reduce given the surrender assumption, et cetera? But it seems like the competitive intensity on pricing has further increased in Q1.

Yes. I guess it is -- in some sense, what's happened is some players are becoming more calibrated, some -- at least the way we see it more aggressive. So in balance, I think the intensity is still fairly strong. And I think as far as single premium annuity products are concerned, it's, I think, a little more straightforward to kind of understand. And as far as non-par products are concerned, there are other aspects there in terms of the kind of how the surrender value builds up across different products. So some of this also plays a role there. And it's just something that we need to be watchful of. And as we've said in the past as well, our long-term proposition really is something that we will focus on, and that's something that we will -- given the way the interest rate environment is likely to move in the rest of the year, this category will definitely be a lot bigger than what it is at this point in time from a mix perspective. We have some launches planned as well. That also does demand moves with some of that as well. We've had launches in the par product like Vibha mentioned. So some of that also does move demand. So while we have to deal with whatever pricing environment is there in the marketplace, that's not necessarily always been the issue from a demand and product mix perspective. This competitive intensity has been high in the past as well, but non-par product mix has been in the mid-30s right through this entire period. So we will continue trying to do different things, new things and stay away from just a pricing game.

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

Just curious what is our moat in the nonbank alliances and especially, I think as I see the product mix, the share of ULIPs is fairly high in this segment, especially where it's a multi-insurer shop. So one might just be a little bit more careful in terms of persistency in these channels.

So in the nonbank alliances, there are two categories that we have merged and we are showing combined all the corporate agencies together. I think there is some partners who are higher on ULIP and do more ULIP and that's the mix which has gone up in the first quarter. Overall, the mix is fairly in line with what the organization mix is as far as ULIP is concerned, It is not that it is very high on the nonbank alliances. The -- what also happens is that at the unit level, at a partner level, especially in the nonbank alliances, our commercials are completely aligned to what the margins of the products are expected to be or what kind of expense that we can charge to those products. So I think from that angle, this does not really impact the margin, et cetera, more on the nonbank.

And I want to add here, Nischint, that you will find and you will be surprised that some of our channels are operating at higher than company level -- slightly higher than the company level margins despite some of the product mix that you see on Slide 17. It's a function of two or three things. One is like Vineet said, at what commercial does it make sense? It obviously can't be same commercials agnostic of whatever is being sold. Second is that what kind of persistency is that channel delivering because like Niraj mentioned earlier, it can have a very different outcome on the fortunes of a unit-linked product for the company. If persistency is a lot higher, some channels are able to deliver much higher levels of persistency. So it's a combination of these things that it's now getting more nuanced that it's not necessarily that unit-linked will lead to a poorer outcome on margins. And that's what I think we calibrate on a daily basis at a channel, subchannel level. And philosophically, each one of our channels will and do operate very close to company level margins. So some of these things they -- the channel CEOs do very well in terms of need of the channel where demand is, what can be -- could be evangelized to their system in terms of rider attachments and so on. Some things matter for a particular channel, maybe fully underwritten product, say, protection product is fine as long as there's straight-through processing. For another channel that's a lot more sensitive to price, that might not work and so on. So many, many nuances on that as against just a unidimensional impression that Slide 17 in our presentation gives.

And also, just to add to what Vineet and Vibha mentioned. If you look at the mix, I'll just highlight maybe two differences. If you look at non-par mix, it's 27% for nonbank alliances versus 19% for the company. And if you look at term, it's 14% versus 6% for the company. So this itself tells you the kind of ability to have product mix, which is very different from what you see in some of the larger banks. And that really definitely helps in terms of maintaining the overall profitability at the levels that we want.

And these are all multi-insurer shops, right?

Absolutely, all of them.

Actually, other than direct everything else, all the 4 -- out of the 4 quadrants, everything is multi other than direct, which is...

Agents.

Agents also realistically, there might be top agents, there might be multi.

[Operator Instructions] The next question comes from the line of Mohit from Centrum.

My question is on retail protection. So have you seen any repricing in the retail protection? And we had introduced 3 protection products past year, Ultimate Super and Elite Plus. How has the performance been for that products?

Yes. So I think all the products that you spoke about are doing quite well. They were targeted at different segments that we were -- did not have solutions for earlier. So all of them have started to scale up and are doing quite well. As far as pricing is concerned, I think it's more a gradual business as usual granular approach. It's not any -- I mean, to answer it clearly, there's no big bang change that you've seen. But as Eshwari mentioned earlier, as we go deeper into India, we can expect different customer experience. That customer experience needs to be either priced for or it needs to be -- it needs to have a different underwriting process or a combination of both. That's what we're kind of trying to do over the last few years. And it's a continuous learning process. As we get more data, access to more information, we're able to make the process friction lesser, but still be able to assess the risk, at the same time, getting surrogate information to be able to make our assessment. And at the same time, you referred to some of the new products that we've launched. Some of it has actually helped us address that in terms of getting through to different customers for some process ease is important; for some, pricing is important; and for some, flexibility in terms of how their coverage shapes up for the year is important. So a lot of these things play a role and pricing is one aspect, but not necessarily the only thing really required. And the other aspect of pricing is in terms of the reinsurance capacity has been reasonably stable. In fact, we are seeing some enhancement in capacity. They are willing to take a slightly longer-term view in terms of increasing penetration. The pricing is definitely a lot more sustainable now compared to what it was probably 3 to 4 years back from a reinsurance perspective and that is for -- that's going to actually be a good development from a sustainable growth of the sector perspective.

Ladies and gentlemen, we will take two more questions after this. Our next question comes from the line of Aditi Joshi from JPMorgan.

So my question is broadly related to the channel side. As you have discussed in the previous comments on the question that the agency channel has somewhat suffered across the industry from the surrender regulations and given this quarter's trend, the growth was significantly higher in the other channels like except bank and agency. But going forward, do you think this trend is likely to be continued or we can see some pickup in the banca channel especially given that agency could remain at this level of growth for a while? So just some color on how you're thinking about the growth across the channels will be helpful.

Yes. So I think for the year, clearly, we are looking at all channels growing at very similar levels. In fact, given the investment that we are doing in agency, we expect it to grow faster than the other channels during the remaining months for the year. So as the impact of all the investments and all the transformation exercise comes in, we should see better growth coming in the agency channel as compared to others. But overall, for the year, I would say all the channels, we're expecting them to grow at a similar number.

So especially on the bank side of the channel, are you able to split as in how HDFC Bank in itself is doing as compared to the other banks? And going forward, especially in the banca, you think it's basically only the base effect that is showing up in a low double-digit growth? Or how are you thinking about that?

So we did mention that the counter share expansion in HDFC Bank happened in Q1 and H1 of last year. That is something that is now steady. So the growth that we get from HDFC Bank is going to be more reflective of how the bank grows, which has been fairly steady in this period. Other banks, Vineet spoke about earlier, are we continue to obviously compete in intense open architecture while maintaining our overall approach of growth, profitability and risk. And that's something that will develop as the year progresses. But all the channels are growing. Agency, we spoke about. And our aim for the agency business is what Vineet spoke about. But as far as the banks are concerned, I think all of them are growing reasonably well.

Yes. And I think some general volatility in any of the banks just keeps on happening based on some competitive pressure and what we might do tactically for a shorter period of time in that particular relationship. But overall, for the year, we do not expect it to vary much from each and every channel to be in the same range.

Our next question comes from the line of Nitin Jain from FairView Private Limited.

So my question is on the growth that we have seen in Q1, so we have certainly done better than the industry in Q1, which is also reflecting in the market share gain. But have we also done better than our own internal expectation that we had at the beginning of the year given that we have a high base for H1? And if so, are we a little more upbeat about FY '26 growth? Or there is no change from the view that we had at the beginning of the year?

Yes, Nitin, this is very much in line with our beginning of the year expectation because if you were to look at on a 2-year CAGR basis, it's 21.5% growth, and that you will agree is a fairly handsome number, even versus some of the buoyant periods that the sector has seen. So yes, I think very much in line and also in terms of margin delivery and so on, digesting the impact, the 0.3% or 30 basis points impact of surrender charges and so on, we've seen in a way, underlying margin expansion of 40 basis points. And VNB growth also on a 2-year CAGR basis, is 50%.

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

Thank you for joining us today. Should you have any follow-up questions, please feel free to contact our Investor Relations team. Wishing you a pleasant evening. Thank you.

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