ICICI Prudential Life Insurance Company Limited (ICICIPRULI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the ICICI Prudential Life Insurance Earnings Call for H1 FY 2021. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. N.S. Kannan, MD and CEO of ICICI Prudential Life Insurance. Thank you, and over to you, sir.

Thank you. Thank you, Reo. Good evening to all of you, and welcome to the results call of ICICI Prudential Life Insurance Company for the half year ended September 30 of financial year 2021. First of all, my apologies for this very late call, and apologies for the slight delay also. We had the Board meeting late in the afternoon, that was scheduled to happen at that time. I'm sorry about this. I have several of my senior colleagues with me on the call. I have Satyan Jambunathan, who is the CFO. I have Jit, who heads Human Resources, Customer Service as well as Operations. I have Amit Palta, who heads the Distribution, Brand Marketing and Products. We have Deepak Kinger, who is responsible for Audit, Legal, Risk and Compliance. I also have Manish Kumar, who is the Chief Investment Officer of the company. And I'm joined by Asha Murali, who's Appointed Actuary. And from the Investor Relations team, we have Dhiren and Mukesh joining the call. Let me start with some of the key developments during the quarter. First, on the distribution front, as you are aware, we are focused on expanding our partnerships to further diversify our distribution network. So specifically on bancassurance channel, we have been actively engaging in establishing corporate agency partnerships with various banks from large private sector bank to new age small finance banks as well as payment banks. This has been a journey. In this journey, during the last quarter, we announced our partnership with IDFC First Bank, and this partnership has already started yielding results with us having gained a significant share of their shop. We are now happy to announce our partnership with Indusind Bank. As you know, this bank with its pan-India presence caters to banking needs of over 25 million urban and rural customers through their about 2,000 branches. We intend to leverage the bank's network to serve the protection and long-term savings needs of these customers. And even though these 2 partnerships were only recently brought on board, we have started to see significant traction in terms of distribution engagement and new business. We also partnered with NSDL Payments Bank, a subsidiary of NSDL, the largest depository in India. NSDL Payments Bank is predominantly a digital bank and offers end-to-end digital banking products to 3.5 million customers. With this tie-up now, we have partnerships with 3 of the 6 active payments bank in the country. The other key development during the quarter has been the appointment of Mr. Wilfred John Blackburn as a Non-Executive Director nominated by Prudential Corporation Holding. Wilfred is Regional CEO, Insurance Growth Markets at Prudential Corporation Asia and is responsible for steering 16 markets across Asia as well as Africa. Wilf is an industry veteran with close to 3 decades of diverse life insurance experience, and is a qualified Fellow of the Institute of Actuaries, FIA, and MBA from University of Bath and BSc Mathematics from University of Newcastle. We have already informed the Exchanges earlier that Mr. Raghunath Hariharan, Non-Executive Director, who used to be on the Board, has sent us his resignation as a director of the company with effect from August 29, 2020, while he continues to serve as the Chief Financial Officer of Prudential Corporation Asia. Moving on to Slide 3 on risk management. In the context of COVID-19, our approach to market risk continues to be that of not taking risks that we believe we cannot manage. Of our total liabilities, nonpar guaranteed return products comprise only 0.6%. We continue to closely monitor our liquidity and ALM position, and we have no issues at all whatsoever to report. Our credit -- on credit risk, only 0.7% of our fixed income portfolio, as shown in the slide, is invested in bonds rated below AA, and we have not had a single NPA, nonperforming asset, since the inception. Now moving on to the insurance risks. First on mortality, while the spread of COVID-19 and the resultant deaths is still rising in the country, our overall mortality experience, including debts on account of COVID-19, continues to be in line with our assumptions. Further, at September 2020, we continue to hold additional reserves towards possible COVID-19 claims, although we have not had to utilize any amount from this additional reserve till date. In terms of persistency risk, our 13th and 61st month persistency ratios have improved from the ratios at the last quarter, and persistency ratios of other cohorts continue to be in a narrow range. The improvement in the 61st month persistency is really a testimony to how we are building the business for the long term. So to summarize, from the risk management perspective, our care approach continues to be maintain the resilience of our balance sheet by offering suitable products and deploying appropriate risk management practices. Our solvency ratio stands at 205% at September 2020. Further, the Board at its meeting held on October 7, 2020, had approved raising capital by issuance of subordinated debt instruments in the nature of unsecured nonconvertible debentures of up to INR 12 billion. While our solvency ratio of 205% is well in excess of the regulatory requirement of 150%, given the fact that the debt capital market is attractive from an issuer perspective, we intend to raise capital through this issue proactively to support future business growth, including the protection segment growth. An issue size of INR 12 billion will add about 25% to 30% to our solvency ratio. I'll now move on to our performance for the quarter. Our 4P strategic elements, as you know, that is protection -- sorry, premium growth, protection business growth, persistency improvement and productivity improvement, they continue to guide us towards our objective of growing the absolute value of new business while ensuring that our customers is at the core of everything we do. This continues to be construct. I'll now talk you through our performance on the 4Ps through Slides 6 to 10 of the presentation, and then conclude with a commentary on the VNB for the quarter. So coming to the first P of our strategic elements, which is premium growth. For the quarter, our new business premium grew by 1% year-on-year, to INR 29.57 billion as compared to the decline year-on-year we had in the first quarter. Also, in terms of APE that is annualized premium equivalent, there's a sequential momentum for the quarter with Q2 APE growing 78% over Q1. Specifically, we saw an acceleration in the non-linked savings business, which registered a strong growth of 45% year-on-year for the second quarter and 119% sequentially over the first quarter. The resultant 34% year-on-year growth of this business for the half year was ahead of the growth rate of the overall market. This growth significantly contributed to the VNB for the quarter. So that is one of the key drivers of VNB expansion. It also helped our product diversification agenda, with the first half year, financial year 2021 mix being 46% linked, 48% non-linked and 6% group savings. So we stand well diversified as we speak. The unit-linked business as well has grown -- has shown a strong sequential improvement, actually. There have been a lot of commentaries about the unit-linked business. While we continue to have a year-on-year decline, I want to once again underscore the fact that the ULIP business has shown a strong sequential improvement with the second quarter ULIP growing by 95% over the first quarter. So as a result, our APE was INR 22.88 billion for the half year. As we enter into the second half of the financial year, which is also important from the perspective of business seasonality, we intend to carry this momentum forward. We expect new partnerships that we are creating during this year to further provide this momentum. Moving on to the second P of protection business growth. With an APE of INR 4.46 billion, protection business now accounts for 20% of the overall APE as compared to 15% for the last fiscal. Based on disclosed results and market estimates adjusted for return of premium type of business within this product line, while we continue to lead the industry in retail protection segment, we believe that for the first time, we have also achieved a leadership in terms of overall protection APE, including credit life and growth term businesses. Within the protection business, while retail protection continued to dominate our protection mix, we have seen a strong growth in the group term business as well. Also, credit life saw a strong recovery in the second quarter and ended at very similar levels as the same period last year. We are also encouraging customers to complement their life insurance coverage with critical illness cover, and this initiative has started seeing early success. Overall, if I combine the first 2 Ps of premium growth and protection business growth, I would like to highlight that based on total new business from assured, which includes both savings as well as protection business, we are the private sector market leader with a market share of 12.5% for the first half; a significant improvement over the last fiscal market share of 11.8%. This is despite a 32% decline in the new business APE for half year. We believe that this result of driving insurance coverage will help us in achieving our VNB aspiration going forward. Now moving on to the third P of persistency, which we have presented in our Slide 8 of the presentation. As mentioned earlier, we saw improvement in the 13th month and the 61st month persistency ratios over what we had reported in Q1. Our 13th and 61st month persistency for retail business and excluding single premium, I again want to say that we do not include single premium in this disclosure. Excluding single premium, the persistency numbers stood at 82.1% for 13 months and 57.5% for 61st month. It would be worth mentioning that within this, 13th month persistency of the non-linked savings business is around the same level as last year, that is fiscal 2020. And the persistency of the protection business has actually improved meaningfully over last year. So our persistency ratio continues to be one of the best in the industry. Beyond the premium payment term, containing surrenders is also important, and it is gratifying note that our retail-linked surrenders have reduced by 20% as compared to the corresponding period last year, which is positive from the perspective of value of new business as well as embedded value. Moving on to the fourth P of productivity improvement presented in our Slide 9. Our cost to TWRP, total weighted received premium ratio was 14.3% for the first half of the current fiscal as compared to 16.6% for the same period last year. So we have actually seen a significant improvement of 2.3% of this ratio. For the savings business, the ratio was in single-digit percentage at 8.8% for the first time as compared to 11% for the same period last year. Our cost ratios are one of the best in the industry, as you know, and we continue to leverage technology. Satyan will talk about some of the technology initiatives undertaken during the second quarter of this fiscal. Another key imperative for us this year continues to be to manage cost dynamically in line with emerging new business growth, which we believe we have achieved so far. Moving on to the value of new business. As a result of the drivers I talked about, the VNB for the half year financial year 2021 was at INR 6.02 billion as compared to INR 7.09 billion, which was there for the same period last year. In the second quarter of the current fiscal, we have arrested the decline -- year-on-year decline with VNB at INR 4.01 billion as compared to INR 4 billion for the same period last year. This trajectory we have presented in our Slide 10. This is despite our new business APE declining 23% year-on-year in the second quarter. The performance of VNB for the quarter is a strong indicator, we believe, that our VNB journey is intact. Our VNB margin for the first half as a result stood at 26.3% as compared to 21% for the first half of last year. The implied margin for second quarter, therefore, is 27.4%. The embedded value has shown a strong growth of 12% for the half year to INR 257.11 billion as of September from INR 230.3 billion. Our AUM was more than INR 1.8 trillion at September 2020, a growth of 19% from March 2020 numbers. I would like to mention that we continue to progress on our objective of doubling our financial year 2019 VNB over 4 years. So I would like to summarize the performance for the quarter as follows: First, the non-linked savings business grew at 45% year-on-year, ahead of the growth of the overall market. Second, unit-linked business almost doubled as compared to the first quarter of the current fiscal. Third, both of these 2 levers led to the new business APE growth of almost 80% sequentially over the first quarter. Fourth, we maintained the private market leadership in terms of new business sum assured at 12.5%. Fifth, adjusted for return of premium business, we believe we have now gained leadership for the first time in the overall protection markets. Sixth, persistency and cost ratios continue to be one of the best in the industry. And finally, and most importantly, we have arrested the VNB decline on a year-on-year basis, with improvement in VNB margin to 27.4% on an implied basis for the second quarter of the current fiscal. So quickly moving on to the customer service metrics. We continue to improve upon industry-leading benchmarks, our turnaround time for our claims. We believe that, that is even more critical at the current time. The average number of days for noninvestigated claims stood at 1.4 days in the first half of the current fiscal. Similarly, over 90% of all service perfections were conducted by customers in self-help mode and renewal collections were actually through digital mode increased to 80% in the first half. Before I conclude, I would like to give you a quick update on our wholly owned subsidiary, ICICI Prudential Pension Fund Management Company Limited, PFM. Our subsidiary distributes products as you know under the National Pension System and is registered as a section fund manager. This business is synergistic with our annuity business, and thus is one of the key elements of our strategy. The AUM, assets under management managed by this company has increased by 41% to INR 56 billion as of September as compared to INR 40 billion as of September 2019. This was primarily driven by an improvement in the new subscriber share, which almost doubled to 26.5% in the current half year as against 14.8% for the whole of last fiscal. The PFM got the point of presence license, POP. And as you know, POP license enables these companies to market the pension products and so far, they've been only fund managers. The PFM license was received recently, and we have already started scaling it up nicely. Early results are evident as in terms of new subscriber share. For first half, our PFM stood first among the pension fund managers registered as points of presence. In conclusion, I would like to summarize our efforts and outcomes that have maintained the resilience of our business through the difficult environment created by the pandemic, the resilience around balance sheet first, continued high quality of assets, strong liability franchise, calibrated risk management across insurance risks resulting in a strong solvency ratio, that is on the balance sheet resilience. Coming to the product resilience, well-diversified product mix today, led by strong growth in non-life -- non-linked savings, keeping in mind the emerging risk appetite of the consumers. Third, on the distribution side resilience, well-diversified channel mix, new partnerships have been added, they will result in solidifying our resilience on this aspect further. And fourth, operational resilience, return to normal customer walk-ins into branches. Actually, the walk-ins today have become better than the pre-COVID levels. Further increase in technology, we have talked about and self-service adoption by the customers as well as adoption of technology by the distributors. So with this, I would like to hand over the call to Satyan. He will talk us through some of the details of our performance. Thank you very much for joining. And after Satyan completes his opening remarks, we'll be happy to take your questions. Thanks a lot.

Thank you, Kannan. Good evening, everyone. Our primary focus continues to be to grow the absolute value of new business, that is VNB through the 4P strategy of premium growth, protection business growth, persistency improvement and productivity improvement. The first element of premium growth on Slide 14. We have registered a strong sequential improvement in our savings APE growing at 102% to INR 12.32 billion as compared to Q1 FY 2021. Within this doubling of savings VNB in Q2 over Q1, our non-linked savings APE sequentially grew by 120% and 45% year-on-year for Q2, well ahead of the growth rate for the overall industry. If you recall, we had mentioned that product diversification is one of the key elements in achieving our VNB aspiration. With the strong sequential growth, we have made significant progress on our product diversification agenda. As you can see on Slide 15, our product mix for H1 was 46% linked, 28% non-linked savings, 20% protection and 6% group savings. As non-linked savings and protection segments are the more profitable segments, which for last year contributed to 74% of our year's VNB, the diversification has also meant a higher VNB margin. Moving on to distribution channels. All our channels have registered a strong sequential growth. For the agency channel, our focus has been to get more of our agents digitally active. For H1 2021, the active adviser count was about 90% of the account that we had in H1 of last year. During the half year, we added 7,400 new agents, out of which 6,200 were added in Q2 alone. This was in spite of challenges with respect to the licensing given the lockdown environment. You will recall that for FY '20 as a whole, we added about 23,000 agents. So on a run rate, we are getting as close to last year -- we are getting close to last year's increase in number of agents. Through the ICICI Bank, we continue to focus on protection and annuity segments. As Kannan mentioned earlier, we have been focusing on growing critical illness attachment along with the term life products. As we speak, we have been able to get an attachment of over 50% of critical illness on term sales through ICICI Bank. Also, we had a growth of over 300% for Q2 in annuity business through ICICI Bank. Overall, the new business APE in Q2 FY '21 from ICICI Bank almost doubled as compared to Q1 FY '21. On partnership distribution, we saw strong momentum with a 68 -- sorry, 78% growth of Q2 over Q1. We also added 18 partners during the quarter, including the ones with Indusind Bank and NSDL Payments Bank that Kannan mentioned earlier. The direct channel grew by 76% in Q2 over Q1 FY '21. As a result of all of this, we continue to have a well-diversified distribution mix with distribution channels other than ICICI Bank contributing about 65% of our H1 FY 2021 APE. The retail business continues to anchor our new business, contributing about 87% of the APE. The second element of protection growth on Slide 19. With an APE of INR 4.46 billion, the protection business was 20% of the APE for the half year as compared to about 15% for FY '20. While across most lenders, retail credit was still lagging, for Q2 FY '21, our credit life business recovered strongly to end flat compared to the same period last year. In terms of total new business sum assured, as Kannan described, we are the private sector leaders with a market share of 12.5% for H1 FY '21, a significant improvement over FY '20 market share of 11.8%. During Q2 FY 2021, we have seen some decline in the new business APE from the retail protection segment. As you all know, with an objective of protecting the segment margin, we were the first ones to pass on the reinsurance price hike. However, despite the price hike, based on disclosed results and market estimates adjusted for return of premium business, we continue to be the market leader in this segment. During the quarter, some of the companies have launched new products incorporating the price hike and others seem to be in the process or waiting for product approval. Given that protection is a long tail business, it is important for companies who have underwriting practices commensurate with the price as risk will emerge over a period of time. Further, as Kannan mentioned earlier, we are encouraging customers to complement their life insurance coverage with critical illness. This is indeed a need of the hour for the customer and also value-accretive for the company. While there have been short-term challenges on retail protection in the quarter, given that the protection market in India continues to be significantly under-penetrated, we continue to believe it will be -- we continue to believe it to be a multi-decade opportunity, and specifically for a company like us, having a strong customer proposition and a wide distribution. And the third element of persistency on Slide 31 (sic) (Slide 21). For persistency, we continue to evaluate ourselves on the metric excluding single premium for retail business. We saw an improvement in the 13th and the 61st month persistency over Q1, which stood at 82.1% and 57.5%, respectively. Specifically, I would like to draw your attention to the 61st month persistency, which continued to make significant strides by improving from 51.4% in FY '19 to 56% to FY '20 to 57.5% now. For the quarter, persistency ratios of other cohorts have been resilient with the ratios remaining stable across the cohorts. We expect the persistency ratio to revert to normal levels as we go through this year. Even at the current levels of persistency, our experience on persistency continues to be better than that in our assumptions for VNB and EV. The fourth element of productivity on Slide 23. During the quarter, we continued to see improvement with cost to TWRP ratio for the savings business at 8.8% as against 11% for the same period last year. We have also seen significant reduction in discretionary expenses, infrastructure-related expenses and have also started seeing gains on employee costs through optimal deployment of manpower. Our cost ratio has continued to be one of the best in the industry, and we continue to leverage technology. During the half year, 97% of new business applications were initiated via a digital platform, and more than 90% of service requests were fulfilled through self-help modules. Continuing our innovation journey, we consistently seek to offer new product propositions and adopt future-ready technologies. Some of these initiatives include critical illness riders that provide comprehensive coverage, voice bot on the Interactive Voice Response system, or IVR, which offer personalized interaction with human touch, and an extension of our chat bot through Google assistant-enabled devices. We also continue to improve the adoption of digital service architecture. I'm happy to inform you that our company has been ranked 14th amongst the 50 top digital insurance companies by the Germany-based organization, DIGITAL SCOUTING. This organization was founded by Robin Kiera, who was named by IBM as one of the top 10 global influencers in digital transformation in 2019. Our company is the only life insurance company from India to make it to that list. This listing by DIGITAL SCOUTING is a testimony of our efforts to build a world-class digital platform to empower and deliver an immersive experience to our customers. The outcome of our focus on these 4Ps, as you may see on Slide 25, has resulted in our value of new business of INR 6.02 billion with a margin of 26.3% in H1 FY '21 and INR 4.01 billion with a margin of 27.4% in Q2 FY '21. The VNB outcome for the quarter has been supported by the strong growth in the non-linked savings business. Within financial metrics, our profit before tax for H1 FY '21 was INR 6.41 billion, a growth of 8% year-on-year. In terms of the components of profit before tax, we have seen a higher contribution of underwriting profit, which is the net surplus generated from the policies underwritten and transferred to shareholder account during the period. Our underwriting profits have increased by 32% to INR 3.93 billion as compared to the same period last year. Our profit after tax for H1 was INR 5.91 billion, with a strong solvency ratio of 205% at September 2020. Our AUM was more than INR 1.8 trillion, a growth of 19% over March 31, 2020, driven by higher renewal flows and a recovery of equity prices. Our embedded value stood at INR 257.11 billion as of September '20, with the value of inforce business within that being INR 169.23 billion. The growth in EV for the half year was INR 26.81 billion, almost twice that of full year FY '20, which was at INR 14.07 billion. During the half year, we saw a significant recovery in equity prices, resulting in economic variances being significantly positive and largely wiping out the negative for the full year FY 2020. To summarize, we continue to monitor ourselves on the 4P framework of premium growth, protection business growth, persistency improvement and productivity improvement to improve expense ratios. Our performance on these dimensions is what we expect to feed into our VNB growth over time. Thank you, and we are now happy to take any questions that you may have.

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

Two questions, Kannan and Satyan. I'll go one by one. The total protection APE for the first half is down 10%. I know you don't give a complete actual split up in absolute billion rupees, but can you tell me what would have been the individual protection APE growth for the first half -- growth or decline whatever is the number, can you share?

Sure. The individual APE decline was more than that. It was about -- between 15% and 20%. Overall, protection was at minus 10%, driven a lot by the group's 1-year renewal term. And in the second quarter, with the credit life ending plan.

It will be a little over 15%, Suresh, to answer it.

Okay. Now so just to continue with this question, this minus 15%, Kannan and Satyan, is way below your peers. Some of your peers have reported 40% growth, some have reported 13% growth. Is it purely because of your price being higher than others, and you have taken a conscious call to protect the margins? Is price alone the difference here or there is something more than what we see?

Suresh, it's a good point. A couple of things I want to mention that this has been a quarter of increased competitive action, as you know on the retail protection front from both the larger competitors you mentioned as well as some of the smaller competitors who have recently increased their focus on this segment that we are aware of. As you know, we were the first one to go to market in July with increase in rates to offset the suboptimal margins on protection that the entire industry had in Q1. And I mentioned it even at that time, that this has got nothing to do with our company alone, it is to do with the reinsurance pricing. And the price hike, where we could not do that fully in the first quarter because of product approval delay, et cetera, the price hike has brought the protection margin at similar levels as FY '20. That has happened already. That's one of the reasons why you saw the margin expansion, obviously. So the question you're asking is around whether this has led to volume thing. What I would say that one big adjustment you'll have to make is that the return of premium also is included by several of other competitors in the protection business. So that has got -- that characteristics -- the direct order of magnitude of the margin is totally different of that business compared to a pure term business. Because our focus on retail protection is pure term only, not on return of premium variant, that too only instead of increasing the ticket size, but not the VNB. That's the way I would like to mention about that business. And at the end of the day, if you really look at the numbers, adjusting for ROP, despite the stiff competition from the cheaper products with lower margins, we are still the retail protection market leaders in the quarter and half year. And when I look at the current trends, we are seeing a sequential improvement already of protection at the pricing levels which we have talked about. So -- and last year, if you look at around the same time, we were flattish. We did not improve month on month during the same period. So I think it is only a question of adjustment of sequential getting into year-on-year, and that is just around the corner for us. And the huge increases you talked about the other competitors are showing that really depends on the base effect they had at the last year, which was far less numbered for them compared to us. So those are the only reasons. And I would like to just add only one aspect, Suresh, that we have to be careful about underwriting. This is a long tail business and risk will emerge only over a period of time. And we can talk about a 90% margin, 95% margin, et cetera. But as you know, the margin is computed with a PV of expected profits in the numerator, whereas it's a 1-year premium in the denominator. So the cushion available is extremely, extremely thin. So it is important from our perspective, match the process, match the price, sailing with the portfolio may prove to be quite difficult to manage later on. So as far as we are clear that we are the market leader, as long as we are clear that margins are acceptable to us and that we are on the VNB doubling journey, which we have articulated, we are quite happy to continue to be at this.

Okay. Good. Now the last question is we keep debating on this time and again, both from your product, this -- product capabilities as well as on your channel distribution or intensity. Now, of course, the ICICI -- I mean, Sandeep has taken a stance that he won't do part products through the bank branches. Whereas if we look at the competitors, they are doing anything and everything through all channels, all channels are firing on all cylinders across all products. So there is some restriction with respect to your ability to do this business through the bank branches. So I just wanted to understand, can you convince Sandeep that this is also a product offering that everybody is doing it and you can push that? And combined with this, this is also the nonpar guaranteed products. Now that we have an upward sloping V-curve, FRAs being signed with foreign banks, so that is something which everybody is effectively using as a new-gen mechanism. Why is the reservation for Prudential to do -- ICICI Prudential to do the nonpar guaranteed business, when everybody believes that this is something which definitely can be done taking use of the FRA? So can you combine these 2 questions and answer?

Yes. So I'll take the second part of the question first, then I'll talk about ICICI Bank. Second part of the question on guaranteed products. I just wanted to assure you that we do sell guaranteed products. It's not that we are shying away from the guaranteed products. Nonpar products already may be compressing about 10%. They have not given out a specific number. I can give you a color. It's about 10% of the product mix for H1, is already the guaranteed products. The only philosophy we have, as we have discussed in the past, that it is the same philosophy of not taking on this that we cannot manage. So we don't want to be giving a very long-term income guarantee kind of a thing which cannot be hedged. But for our nonpar products, the way we have done is that we first lock in our yields before offering it to the market. If you really see our guaranteed -- sorry, guaranteed nonpar product yields, it is quite a good yield on a posttax basis, that is something which we are very competitive in the market. It is just that we do not give a very long-term income guarantee, but we are quite happy to offer the products otherwise. And we have been offering this based on the capacity that we have already built up. And also that -- you're absolutely right that we also have ability to do FRA. So to this extent, we are definitely in this product segment. It's already about 10% of the product mix. I'm happy to do. I want to assure you and the shareholders of this company that in all the channels other than ICICI Bank, we will be very happy to sell guaranteed products as well as participating products to the extent that we can take on the guarantees and we can manage to hedge the guarantees that is very much there. And one of the reasons why our margins have gone up, while we've been able to put out a 45% growth in non-linked segment is clearly on account of par as well as nonpar. So that I want to put it to rest, and then you will see it happens. On the ICICI Bank side, they have taken a call as a distributor that they don't want to be -- they want to be distributing the traditional products. I mentioned it in my disclosure in the month of April that they have taken this call and they are comfortable distributing ULIPs as well as the protection products and the annuity. The good news is that they are such a big promoters of protection that they find the various ways of doing protection, including prequalified offers, including dynamic underwriting and so on. So this has been their focus. So ICICI Bank has clearly turned out to be more of a VNB channel for me rather than a top line channel. So we can always keep talking to them. But my sense is that their focus will continue to be protection and annuity and also ULIP being there. So -- and already, ICICI Bank is about 35% of our top line. So come December, the base effect will get adjusted in any case. So -- and the other banks have started contributing already 7% of our top line with all the banks we have been adding. So that has become a separate channel of 7% by itself. So given this, yes, by January -- when you go to January, the base effect of ICICI Bank will get fully adjusted. So we do not see any problem. Yes, we can continue to talk to them. But currently, their stand is that they would rather be our VNB channel, pushing protection, pushing annuity and making ULIP available rather than going into traditional products. I don't think there will be much progress on that, Suresh actually.

Sorry, just one other thing to add on this, Suresh. If you look at the growth rate of the [Technical Difficulty] 34%. Industry growth rate overall was negative 7% for that period. And even the highest growing companies did not grow at more than 20% for the half year. So quite clearly, what we are doing in terms of focus on the non-linked savings, where we are selling it, it's indeed giving us a growth rate, which is quite substantial.

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

[Technical Difficulty]

Shreya, I'm sorry to interrupt, but we can't hear you very clearly. [Operator Instructions].

[Technical Difficulty] Am I audible now?

No, sir. We can't hear you very clearly. [Operator Instructions]

[Technical Difficulty] So I don't know if it starts being clear, maybe put me back in the queue. So is it better now? I think it's -- probably I'll come back in the queue.

Yes, sir. Request you to...

Am I audible now?

A little bit. [ Rajesh ], go ahead ask the question. We'll see if we can pick it up.

Okay. So question was we've got a really positive number basically, 2 things, right? One is cost in [Technical Difficulty] cost was down by 15%, 20%. Is that tactical or is it sustainable long term [Technical Difficulty] Can you speak up what specially it was? And question number two, it was asked in the last 2 questions that there [Technical Difficulty] in terms of protection pricing. Now what I understand is that [Technical Difficulty]. So how sustainable [Technical Difficulty] it's really impressive on kind of pricing decisions. So how long do you think it is sustainable [Technical Difficulty] using this kind of pricing factor?

Sure, [ Rajesh ]. So the first question was about -- if I understand right, whether the cost achievement that we have in H1, is it tactical or sustainable? I think it will be a mix of both. The journey on cost for us overall for the half year, noncommission costs were down about 16%, 17% for us over the same period last year. Within that, if I were to see discretionary costs, which are more business management and advertising were down even more. Discretionary costs are a bit more tactical, keeping the environment in mind. As the environment starts to improve and as we want to continue investing in growing the business, some of those will come back. Even within the noncommission, nondiscretionary costs, it is really people and other related elements, there are some elements which will be permanent. So some manpower efficiencies will be permanent. Some rent savings and reduction in infra cost will be permanent, some operational savings will be permanent. What we are conscious of very clearly is at the cost of reducing expenses, we are not going to starve critical functions, such as expanding into new distribution channel or technology, which can give us longer-term gain over a period of time. In a nutshell, the cost reduction that you see, some of it will sustain. Some of it, we will let it drift back to the original level as the environment improves. Your second question, if I understood right, was with respect to protection pricing and price difference. I think very clearly, we have seen some of the price differences also narrow as other companies have started launching their own products through the quarter. And some of that will really establish what the playing ground is going to be going forward. It is not so much as what is the price difference. Because even historically, if you go back to pre-March 2020, there was always a price difference between the top brands and the others. What we have seen as a divergence in the current period is some of the top brands have also had a different trajectory of reflecting price increases. Our own view is that pricing is something which will be calibrated to risk and to process that suits the pricing. It is not going to be a situation of one price fits all or one size fits all pricing. We will suitably calibrate price in segments where it's worth it. And we will make sure that in segments where the risk is seemed to be higher, we don't give up anything on price. Overall, our objective will continue to be to protect the margins on the protection business through a combination of events. Better risk selection, better risk targeting, attachment of critical illness, wherever possible and improving the attachment. And purely on the back of the retail distribution strength that we have, continuing to get growth in that business. So like I said in my opening remarks, yes, this has not been a very happy quarter with respect to year-on-year and some of it is also steeped in the base effect that we have had. But clearly, the fact that we have still been able to maintain leadership in that space, even with the price difference and our own calibrated approach to pricing and risk management gives us confidence that the margin is something that we would like to protect over a period of time.

Got it. [Technical Difficulty] new products where a third-party platform where people are comparing? I'm just trying to understand will it be a tactical advantage that [Technical Difficulty] capitalize on, which is [Technical Difficulty].

So I think our strength, [ Rajesh ], has been the strength of our distribution that distribute will be for us. We have had far less reliance on the open architecture platform as compared to some of the others. And therefore, to that extent, we can still take a calibrated view in open architecture platforms, targeting profiles that we are more comfortable with and actually be far more extensive in our captive distribution. So it will end up being a bit of a mixed bag. But somewhere, I think, the strength of our distribution and the lower reliance on the third-party competitive platforms actually protects our trajectory a bit more than some of the others in the industry.

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

Firstly, hope everything is good and fine. Secondly, sir, I have a few questions. So my first question is on the EV. So there's a drastic improvement in embedded value. So will it be possible to share the kind of EV walk as to what is driving this expansion? Because I assume a lot is coming from economic changes. That is my first question. My second question is a clarification on persistency. Sir, if I'm not wrong, we have even a persistency of 82.5%, if I'm not wrong. And right now, it's like 82.1%. So if that's the case, like you mentioned that protection is almost, like, has improved compared to pre-COVID. And our savings business apart from ULIPs are also pre-COVID. So how much of a difference will ULIP persistency still being affected for the rest of the year make it, through our assumptions, even at the end of the year? That is the second question on persistency. And thirdly, sir, on the VNB. So we have, like, quite, like, very drastic improvement over 2 quarters in our VNB margins and definitely it is driven by a very better mix. But now as we stand at September 2020, we looked at -- almost 70% -- 60% to 70% of our VNB is coming from protection. Now if I look at the industry tailwinds or headwinds, we are already one of the -- we don't have any room for passing on any more price for our protection products. And as you mentioned that a lot of competition has also come into segment, maybe by -- they are undercutting prices and everything. But at the end of the day the sector is becoming a ground for a lot of competition. So given that we have moved away from our VNB, from maybe ULIPs given it has more of a protection-driven VNB. How vulnerable are we through this competition going ahead? So those are the 3 questions.

Sure. So let me take the questions. EV walk, we tend to give once in a year. The reason we don't give it more frequently is that, the business is seasonal. Therefore, through the year, the changes are not really representative of a full year. You can't just annualize it. That's why we give it for a full year. Having said that, you made the right point, the growth in the EV by almost 12% over March has been significantly aided by the positive economic variances. Like I mentioned in my opening comments, fully last year, we had a large drop in the -- or a large negative in economic variances. A large part of that is already got recovered into H1 this year, given the way the stock markets have recovered. So the growth what -- is actually a reversal of the decline, if you will, that you saw in the last year. In any case, what it has helped us do is help us get a growth in EV which is almost twice of what we got for last year. This way, it's not a bad place to be in because eventually, your [Technical Difficulty] said this before. Investment [Technical Difficulty] short-term volatility. But in aggregate over a period [Technical Difficulty] positive. [Technical Difficulty]

Mr. Jambunathan, your voice is cutting off.

Okay. Am I audible?

Yes, we hear you.

Okay. The second point that you made was with respect to persistency, 82.1% versus 82.5% and whether it is in line with our expectations. 82.5% is the assumption that over a period of time, that is what it will get to. Today, what you see at 82.1% also means that these customers, when they continue over the next few months, some of them will pay premium. So typically, we see this improving automatically over a period of time. So there are 2 ways of looking at persistency: One, on the due date, how much am I able to improve it? And second, beyond the due date, how much do I recover? What we are now structurally seeing improving from Q1 to Q2 is on the due date, we are seeing the improvement. When I then extrapolate this for later duration, very clearly, and that's what comes out in the variances also when we measure it, we are comfortable with where we are as far as the assumptions are concerned. When we get to the end of the year, we'll evaluate whether there is an opportunity to improve or not, but that is really a decision that we will take at the end of the year. The third point that you made with respect to relying on protection for VNB. I've only one thing to say, at the end of the day, for a life insurance company, protection has to be the be-all and end-all as far as source of VNB is concerned. There are not many countries in the world where savings business are allowed to be done for such a extensive extent by insurance companies, and therefore, the mix of savings in VNB is much higher in India. The way I would look at it is this. And we spoke about the target market being roughly 60 million people in the country with a current penetration of 10% of that at 6 million, the providers of retail term insurance in the market today are 6, at best 7. Even if you say 10 companies, 10 companies going after 60 million customers today, I don't think companies have to fall over each other to be able to grow. What you do see, however, is some companies have not historically been very strong on protection, and they have to make a start. We still always see in any product category in any industry, some kind of price disruption in the short term. But to really expect that, that is going to be the way of the future in a market where opportunity is so large and providers are so few, I would hesitate to think or I would not be so worried about contribution of VNB coming from protection. Having said that, and we spoke through our opening remarks as well, in the second quarter, in being able to get to a flat VNB, and this is during a period where the protection top line was a decline in the quarter, clearly, what has helped us is some of the other segments of business. In particular, the non-linked savings business. And I spoke about how that growth has been actually ahead of the industry. That is something which has given us strength in the current quarter. So typically, if you see how we are thinking to get to our VNB objectives, it is not unidimensional. There are 4 dimensions that we are expecting to feed into our VNB. Premium growth, which is predominantly savings. Within that, both unit-linked and non-linked, that's 2 levers of growth of VNB. Protection is the third lever of VNB growth. Persistency is the fourth lever and cost is the fifth lever. So I would hesitate to say that our VNB growth is predicated on only one of these 5 parameters. What I would stand up and say is that in shorter periods of time, one, [ NCF ] being a stronger outcome than others. So last 2 years, protection was dominating for us in the growth of VNB. This quarter, it was non-linked savings. So the very fact that we have so many levers is what gives us comfort that over a period of time, we are not relying in any fashion on one source of profit or one dimension of business to be able to get us to our VNB objective. I hope that clarifies your question.

Right, sir. Sir, just one clarification. One follow-up on the VNB question. So talking at the ground level, I'm getting a sense that we are not getting the kind of profile that we might want to underwrite in the protection segment. So is that the case right now that there is a lot of demand, but that demand is not qualitative, like within the list parameters?

No, no. I don't quite understand where you got that feeling from because we are quite comfortably able to underwrite the profile that we have seen.

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

Apart from lockdown, what factors would have affected APE? Is it rate hikes in certain products? Is it cash conservation? Is it banks are canalized? As we look forward, as we unlock, as seen in our country and Indian doing relatively well, how does H2 look like especially given our seasonality of savings products? What kind of weekly trends do we see? That's the first question. And on the ULIP side, what is the ticket size? How much has it declined from the peak? And when does that mass transition show? Where are we in that journey? [Technical Difficulty]

Sure, Prakash. Again, if I were to talk through the various elements of business segments and where the growth or lack of growth has come from, our strongest growth has come from the non-linked savings business, both in Q1 and in Q2, which is also very closely associated with the generous risk conversion in the consumer space. And therefore, any product where people see some comfort in the maturity values or some assurance in the maturity values has turned out to be more popular. Whether this is the trend which will continue for a very long time? I do not know. But clearly, in this uncertain period, that is one demand element which we are seeking to capitalize on. And in line with capitalizing on that, we have been able to grow that portion of our business by 34% in the first half. The second part or the second segment is unit-linked. Now unit-linked is something which is typically associated with the more affluent customers. It is something which is logically more associated with equity market and volatility in the equity market. It's also something which is associated with the ability of a person to pay a large premium for a long period of time. Now in the current COVID environment, there are a number of questions around these. Whether people will have jobs? Whether salaries will remain unaffected? For self-employed people, how will their income be affected? So very clearly, what we are seeing as a behavioral pattern, it's a greater reluctance on the part of people to commit large amount for long periods of time. Equity markets recovered recently. But typically, the insurance product is not a direct-direct short-term play on the equity market. That tends to happen either through direct equity or through mutual funds. But the sentiment of a positive stock market tends to percolate with a little bit of lag in the sentiment of the typical unit-linked customers. So any improvement in sentiment that you see in the stock markets would tend to come back into the unit-linked demand, but with a little bit of a lag. Whether it will come through an...

The bank's equity is what 6 to 8 months or even more based on...

It can be -- generally, we see it at about 6 months or so. But again, I will go back to what Kannan spoke about earlier. Q2, our unit-linked business was double our Q1 unit-linked business. So quite clearly, even if I'm not yet on a year-on-year strong footing, the sequential trajectory tells me that there is greater confidence on the consumer. From a -- looking forward into H2, some of our challenges on the unit-linked growth actually started from Q4. And therefore, from a base effect, Q3 will probably be the last of a very strong base for us. Q4 onwards should actually start giving us a far more modest base to grow on. What will be the growth rate in H2? Quite honestly, I can't stand at this point of time and comment on. But the trend that we are seeing in non-linked savings to us is quite strong. The expected base effect on unit-linked from Q4 onward is very real. Protection, we had a bit of an aberration in Q2. We do believe that this is something that will come back. It's not just about retail or group. It is really about overall protection because VNB comes from all sorts of protection. So our focus will be on growing all the parts of the protection business. So outlook for H2 is still going to be a VNB-focused outlook. For the first time this year, Q2, we were able to get to positive territory on VNB despite a significant decline in the APE. Our effort in the next 2 quarters will be as top line growth recovers that we'll continue to get our VNB growing versus the same period last year.

Yes. Prakash, this is Kannan here. I just wanted to supplement what Satyan mentioned in terms of the protection side. In fact, given the aspects we have discussed about pricing, the fact that the credit life side has revived much better for us, gives us a little bit of a leeway to adjust the process and the pricing in terms of protection. So I think that lever we are using it very effectively. So we are not too bothered about what has happened for the month. And last year, around this time, as I mentioned, it is flattish. So I think year-on-year, protection should come back. The real issue if you really look at, if I split the top line issues with ICICI Bank and non-ICICI Bank, you can back calculate the numbers because we told you that ICICI Bank has got 35% of our business today. So if you really look at the non-ICICI Bank, actually, in the month of August and September, we have started putting out a year-on-year growth. So that is already there. And to supplement what Satyan said, if you go back and look at our numbers of bancassurance, you would find that in the month of January, ICICI Bank dropped quite a bit last year in the ULIP side. So that is when the base effect becomes favorable for us. So it's really the turnaround quarter will be the Q3 quarter. With Q4, we should be able to put out the growth, to answer your question. At this pace, I would not be able to predict exactly what kind of a growth as Satyan mentioned. But I think January would be the turning point in terms of base effect. Protection is something we can handle quite easily. I mean, that is something which is not a bother. But overall top line, I would say January is the base effect coming for us.

Sure. That is helpful. One more thing, any financing facilities do we offer to policyholders for continuation of policies or some arrangements?

We do have a portfolio of policy loans, which we can give based on the surrender value. But unfortunately, it is not allowed for unit-linked products. So our stock of policies, as you know, we have been a very ULIP independent company traditionally. So it is changing at the margin. So our portfolio of what is eligible for a policy holder loan is quite limited. So we have been talking to the regulator to see if after a haircut basis, whether we can give a policy loans for ULIP. But so far, regulations do not allow any policy loan to our customers for ULIP. So that is a bit of a concern, but we do have a portfolio for traditional products of policy loans, but we have offered selectively whenever the customers had suppression of the income or something they are not able to pay, we have offered it to the customers and all the companies do that actually.

[Operator Instructions] The next question is from the line of Ajox Frederick from B&K Securities.

Sir, my question is, again, a slight continuation of the earlier question. To give you a bit specific on this. I mean, the question is, are we going for lower run customers with H2 protection. So some of the changes, which are -- if you're seeing on the ground is the change in the minimum income criteria and ITR requirement, instead of 3 years, you are taking 2 years and minimum -- like, the profile of customers who are educated, I mean, that is coming down. So overall, we get a sense that we are trying to get it to lower around customers. So -- and we are seeing the pricing also coming down. So are we -- I mean, what is your sense there? Or are we reading it too microcosmic here?

I think as you said, that is -- I don't think that is a correct reading of the situation at all. There is absolutely no bottom scraping as far as customers are concerned. In an underwriting process, when we are asking for evidence of income, there are different ways in which I can ask for evidence of income. And there are different evidences that are used. Getting an income tax return is one way of doing it. Looking at a credit score is another way of doing it. Asking for a salary is another way of doing it. So what you see on the ground at an operating level is what is the least disruptive from a sales process, but reliable from a quality of the events that we are seeking. That is the way that it operates. Throughout, if you see, even whatever the so-called price changes that you have seen have offered have actually been only for a specific better customer profile. Let me know pricing which has ever been offered to a bad profile in our pricing at all? So I actually don't think that, that is an appropriate reading of the situation at on. You have to keep your process calibrated to keep in mind that friction is reduced. And this is something which has always been there. I don't know, maybe people following the insurance sector are far more detail oriented and granular than those following any other sectors in the market. But the smallest of actions by any insurance company on protection is first known to the research community.

Got it, sir. Because we have always been pretty stringent on the underwriting process and -- I mean, again, from the ground, the process seems to have become more stringent with respect to video KYC and people going and seeing if the house he's living currently is own or not. So are we saying some of our policies getting stuck because of this incremental risk management efficiencies with the phases we are facing and the issuance is taking a lot of time customers are saying, "Okay, I don't want to buy it now." So is there some of the policy that are being stuck in the process?

Not really, Ajox. Not really, Ajox. See, the reality is that from last year to this year, there have been changes in the way risk appetite has been there given the reinsurance price. Last year to this year, there has been a change in environment given the emergence and progression of COVID. Risk management practices through this period have to be calibrated to all of these environmental factors. I don't think you can ignore it and follow exactly the same risk management practices as you would have in a normal world, pre-COVID world. That is the reality of the way we will have to progress as far as risk management is concerned. Even when we look at the video underwriting, yes, it is quite possible that when we started the video underwriting our process efficiency was not as good. But incrementally, as video underwriting has got embedded, the efficiency of the process and completion also has picked up quite sharply. So whenever you have new processes that you put on the ground, yes, you do have periods of transition and adjustments. We are not perfect. We learn with it. But the idea with every passing one really is how do we optimize and make the process more efficient.

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

I have a few of them. First, can you explain the margin move probably in terms of the mix change and the assumption change of fixed cost absorption? So how much would contribute -- what would contribute how much to the margin, that would be helpful.

So Madhukar, no assumption changes during the quarter, driven by product mix and projected costs for the full year, keeping in mind that we do not expect a meaningful growth. We don't even expect a growth in the top [ places ] compared to last year.

So in this context, on a quarter-over-quarter basis, protection has sort of declined substantially in the mix, right? So what is driving this on a Q-o-Q basis? Will it be mostly fixed cost absorption?

No. Like I said before, it is a non-linked savings growth in the quarter. For the quarter, non-linked savings growth was 45%. Non-linked savings business in Q2 was 120% of Q1. From a mix point of view also, it went up quite substantially. That is what is contributing to the margin expansion.

And that's good enough to be the decline in protection slightly, so.

Yes, it does.

Yes. Plus also you should remember, Madhukar, that first quarter when we had the call, we talked about margins of protection was depressed in the first quarter because of the inability to pass on the pricing. Those are the 2 levers. Primarily what Satyan mentioned in terms of non-linked. Non-linked -- one unit of non-linked replacing unit-linked of one unit is a significant figure to the margin. The full benefit -- full price passed on and margin restoration and protection has also happened in the quarter. Those are the 2 reasons.

Right. Within protection, how much is the ROP product and how much is the pure term product? Can you also give what are margins for that?

So what we call pure term protection business, Madhukar, is entirely pure term.

These have no ROP.

Okay. Okay. So you include that in the nonpar savings line?

Correct. Correct. Correct. Wherever there is an ROP, it is really about a nonpar or a part. We typically offer ROP as a bundle, as a solution, which is a pure term, bundled with one of the other product -- savings products that we have.

And the pure term goes to the protection classification. Rest of it goes to the base product. We don't -- we think that these 2 are different products altogether. So we don't mix it at all.

And what would be the margin contribution from each of them, in terms of margin profile of these products?

This is a standard one. I have far nonpar margin profile, and I have protection margin profile. We've seen a non-linked margin product disclosure for full year last year. We've mix of our margins across unit-linked, non-linked savings and protection, that's really the order of magnitude.

So only this was the first quarter of protection. Otherwise, we have restored the margin like last year in order of magnitude, I'd say. We would have actually got some more cost efficiencies this year. But the order of magnitude, you can take it as last year. The margins have come primarily because of the product mix change.

Got it. Yes. Okay. And just one more thing. When you look at your...

Mr. Ladha...

No, it's okay. You can finish one more.

Just last. When I look at your -- the earnings filing in the exchange. When we look at the non-par life segment, the transfer from shareholders account continues to increase in the first half. So that's gone up to almost like INR 703 crores versus some INR 466 crores last year. This is despite the fact that in the first half, protection as such has not grown that much. So what can be the reason for this?

It comes favorably from protection and non-linked savings. Nonpar savings is part of the same thing, to the extent that we have done it. Protection as well, while there was a little bit of decline. When the price change did not fully happen, new business gain was higher during the first quarter. That is reflected there. So it's purely coming from protection business and the nonpar business.

The next question is from the line of Deepika Mundra from JPMorgan.

Sir, first you mentioned that about 10% of your business in first half was coming from nonpar. I just want to understand that, does that include the annuity portion as well? And then would that imply basically par was fairly flattish in the first half? Secondly, my second question will be on the unit persistency. While overall, your persistency trend seems to be flattish. Could you comment specifically on ULIP?

Sure, Deepika. See our way of looking at non-linked savings, and I have said this before. And that's the reason why we actually talk about non-linked savings as a single pool, I don't think par or nonpar is such a distinct segment that is a distinct opportunity. You typically have periods of time when you have consumer preference maybe towards one in one period and towards the other in the other period. And that's the reason why we have tended to look at non-linked savings across both par and nonpar as a single composite business segment from an opportunity context. Whether each of those grew or not is really on the context of where the base was or otherwise. But I think what is important to us is the non-linked savings together for 6 months has been a 34% growth, and for Q2 has been a 45% growth. I think that's a more important part because this also feeds significantly into the margin profile. What was the second question, Deepika? Sorry, I missed it.

I asked specifically on unit persistency, so is -- yes.

Yes. So the overall persistency improvement is actually driven by multiple factors. Clearly, protection persistency instance has gone up very sharply. And it's also consistent with the desire to continue with the product in the current health environment. Non-linked savings persistency continues to be at similar levels as last year. So there's been a little bit of decline versus last year on the unit-linked persistency, but the sequential pattern of March versus June versus September, stand-alone unit-linked persistency as well is showing an improving trend.

Okay. Got it. And sir, if I can just follow-up with one more question. Like, you have done in the savings product, do you think that you would widen the mix to include ROP business as well in protection? While you offer it as a bundled product with other savings, some of your competitors are pretty successful in ROP. So do you think this for overall VNB accretion, does it make sense to go down that route?

Of course, we will. But quite likely, we will not call it protection business, but we will do that business.

Okay. Sir, so basically, that is something that you are not doing it clearly right now and you always look to add?

Yes, we do.

The next question is from the line of Mayank Bukrediwala from Franklin Templeton.

A couple of quick questions. One, on your guaranteed business, which is the ASIP product, one, what is -- how do you hedge that? And second, on a more technical point, your premium payment term on that is about 7 to 10 years, but -- and your entire policy term is 15 years. So from an interest rate risk, does the premium payment term matter? Or does the entire policy term matter? And I want to slip one more question in on the agency business. Can you give a sense on whether the employees tied to our agency business, to what extent has that pool of employees grown in the last couple of years? Yes. So these 2 questions.

Sure, Mayank. On the first one, from an interest rate risk, it is both the pay term and the maturity term that are important. Our underlying investments at this point of time, backing that investment are partly paid bonds, with a corresponding same subscription period and the same maturity period. So effectively, the cash flows from our policy premiums are hedged by a direct paying to the partly paid bonds with a maturity of the corresponding similar -- or same tenure. The only difference or mismatch that you have is that you buy the bond at one point of time, your premium comes in over a few months. So that is a bit of a mismatch you may have. But otherwise, in terms of scheduling on an annual basis, it is very closely matched. As we go ahead and start looking for ours as well, the idea will be to construct the portfolio, which is a composite of some underlying cash instruments. It could be partly paid bonds. It could be long duration government bonds. And also locking into yields that I can throw for our arrangement. Eventually, the risk management, our own comfort will be not just about interest rate sensitivity or duration matching, it will also be about as closely as we can match the cash flows. And whatever is the yield underlying, therefore, in the portfolio, is what we'll be able to offer to our customers. So it's both the pay term and the straight term, which together determine the interest rate ratio. Moving on to agency. I think if I were to go back to 5 years or 7 years, we would have said that the growth of our agency is predicated on the growth of number of employees in the agency channel. But over the past 5 years, we have actually shrunk the agency employee base by maybe half, but the agency business has actually grown 1.5x. From here on, the way we look at the agency business and people and staffing in agency business, it's really about saying that, yes, I will continue to add some employees to manage agents. But also, I will be seeking to build a pool of agents or agent managers to operate on a variable compensation structure. So the idea in agency is more importantly to target agent hiring, not just about employee hiring. To some extent, an employee needs to be hired to hire an agent. But we are also going straight to hiring agents to be able to build that pool. I spoke in my opening comments, full year last year, we added about 23,000 agents. Q2 itself, we have been able to add about 6,500 agents. Q1, we were lagging because of the challenges of examination. Our focus, therefore, continues on hiring agents who are really the last mile to grow the agency business.

Got it. And if I can just slip in 2 follow-ups to this. One on agency net only, so would you say that over the last 3 to 4 years, to what extent your agency channel margins might have expanded? I know you don't give the channel margin, but if you could give some sense on where or what expansion has happened. And the second question is on the retail production business. So net-net, VNB as a percentage of the sum assured, how has that moved on a Q-o-Q, Y-o-Y basis? If you could give some color.

Again, very difficult question to answer, Mayank, both of them. But all I can say is this, on the agency side, if I were to go back a few years, the cost structure was such that agency would have been less profitable than some of the other channels. Today, from a cost ratio perspective, it's actually as profitable as any other channel. And that's really the advantage we have been able to create over most other participants in the market that run agency forces. The other question on VNB per unit or sum assured, quite honestly, I don't have the math of that in my head. But as we go through the year and as we go through to the end of the year, I'll probably find a way to get that communication across and deviate from the pure premium-related margin profitability that we talk about.

Got it. So I just asked the question because you've reiterated many times that it's probably important to look at VNB sum assured...

You bet. Absolutely. Absolutely, it is. And that's the reason why the sum assured growth is such an important part of the way we're looking at our business. And that's the reason why for a relevance in the market context, the sum assured market share becomes a very, very important part of how we are tracking our relevance in the marketplace.

The next question is from the line of Udit Kariwala from AMBIT Capital.

Hello, am I audible?

Yes, Udit. Go ahead.

The question I had was that if we look at the protection growth and enough has been discussed on the call in terms of pricing and the multi-digit opportunity. But structurally, one question I would like to ask, both Kannan and Satyan, is that in terms of contribution to VNB, and you guys have been highlighting that the focus is on absolutely VNB. The proportion coming out of protection is the highest for you amongst peers. So does that expose you more towards this kind of a pressure going forward, wherein you could say this is an aberration. But if maximum of your VNB is coming from protection compared to peers, then could we assume that you're more vulnerable when it comes to pricing war within protection, which is bound to happen, given number of people or a number of companies who would like to explore that opportunity?

Yes and no, on this one, Udit. I don't think the answer is so straightforward. At the end of the day, like I said before in answer to an earlier question, we are a life insurance company. And it's actually been held up as a virtue in pretty much every other market in the world where the almost entire VNB for the company has come from protection. I think it is only in this market that we want to look at protection as something which is itself a concentration in the life insurance industry. What is more important to my mind, within the protection business is not how much of protection contributes to VNB, but what is the granularity of the protection business that I'm underwriting. Typically, when we operate in a market where awareness is not at a level where people wake up in the morning and buy insurance, distribution has a very important role to play. And I think as a market, we are not yet very close to being in a situation where people wake up in the morning and decide to buy life insurance. And therefore, in our own mind, the diversification of sources of earnings actually is less about how much of the VNB comes from protection. It is actually about where is my protection business coming from. Is it retail? Is it granular? Is it a concentration of distribution? Is it a concentration of a product type, such as the credit life or a group term, which is causing it? Those are the questions I would much rather address from a diversification of sources of earnings. Quite honestly, if I were to go back to just 2 or 3 years before, the same criticism was leveled at us that we were relying only on unit-linked business and fees from unit-linked business as a source of earnings. The fact that we have been able to move that to being so protection-oriented in a business where the reason to exist is protection, I think is something that positions us as a far more robust brand in the provision of protection business even as we go ahead to exploit the opportunity.

Okay. And just a follow-up to this. You mentioned about ROP adjustment, what about limited pay because that is also kind of -- I agree it will not reflect in sum assured. But if you could give some color around that, if you're adjusting for ROP, if adjust for limited pay, how would the numbers kind of broadly look or what is the proportion of limited pay this year versus last year?

Limited pay this year is lesser than last year. Regular pay mix has increased. We have highlighted the specific proportion even in our disclosure, which is why I've always guided everyone to look at sum assured trajectory, which is a more important indicator of the underlying core growth, if you will, as opposed to whether it is coming from an ROP or it is coming from a limited pay or from a regular pay. I still believe that the sum assured trajectory is a truer reflection of underlying growth.

The next question is from the line of Yash Sidana from Genesis Investment Management.

Kannan and Satyan, good job on the margin side as well as recovery. Please consider my questions as an attempt to sort of really learn about an important part of this industry. So the first question is, when I look at your direct business, right, it says it's about 12% of APE. Now if I remove the 6% group, what part of the retail business comes from direct channel? And in that direct channel, what part of it is first-party and what part of it is third-party, presumably Policybazaar, right? If you can give me that and then I'll possibly ask you another question linked to this.

Go ahead. You may just want to -- okay. Just give me a second, I'll just open the particular segment. Okay. The split of business that we are showing by channel on Slide 17 of our presentation and the direct that we are showing there is actually direct retail. The group business is a separate line that we are showing at the end of it. So the bancassurance, agency, direct and partnership distribution are all retail businesses and group is the last line.

Makes sense. That is my mistake. So when you say 12.6% of APE direct, what are different channels there? Like, what is digital? What is -- if you can just explain how does this play?

Sure. So direct business for us consists of 2 parts. One is the pure online business that we sell on our website to customers. Second is the business sold to our existing customers, more of upsell campaigns that are executed by people employed by us, sales employees or what we call proprietary sales force. That is more of a mixed online, off-line kind of a switching and a delivery model. That and the pure online sales on our website are the only 2 pieces which are sitting in direct. If there is any business which is web aggregators, it comes in partnership. If there is any business, which from -- let us say, one of our bank partners originates on an online platform, we still give credit of that to the distribution channel and would put it in bancassurance.

Makes sense. So when you say web aggregator, which is in partnership. So this 7.5% of partnership, how much of that is coming through web aggregator?

It's a very small portion. Our -- shall we say our exposure to web aggregators is actually quite small compared to some of the other participants. We have historically relied more on our side channels of distribution. And some of our partnerships, of course, are open architecture, but they are limited open architecture.

Got it. So that's where my question is. So speaking to some of the employees at Policybazaar, what they claim is 2 things: One that as a part of new term insurance sold in the industry, they have 25% market share in this year. Of course, it could be a raised number because physical distribution channels are not opening. We don't know what the normalized number would be, but this is what the number is what they quote. And the second bit that they quote is that the loss ratios, so-called loss ratios, the life insurance version of loss ratios, is significantly better through their channels because of the way the kind of data they take and all of that, right? If this is true -- so first of all, I would love to hear from you what part of this is true. And second bit would be, if this is true, this is a pretty alarming fact that there is one part of distribution of the most profitable product that goes into one channel, one player who can obviously take a lot of economics away. I mean, that's the obvious bit, right?

Sure. So let me just address the second part first. And it's not like we have ever been absent from the web aggregator. Web aggregator has been a partner for us, and we have been doing a lot of business. In my portfolio, we have never seen web aggregator mortality experience to be very different from the other channels. So that part of the hypothesis, I'm not sure I agree with. The second part, which is your first question with respect to the share of the overall market. Quite honestly, I don't know. There are no public statistics of that. So I don't know what it will be in overall terms. Whether the share of business includes return of premium business, excludes return of premium business, I have no visibility in that. What we do know is that we do not ignore any channel or partnership. Policybazaar is just an important partner to us as any other partner in the ecosystem. Even until last year, where pricing was a bit more established, we actually would have had one of the largest share of shop of Policybazaar. They may not have stand-alone been a very significant contributor to our business, but that's our distribution dynamics. But we have always been a meaningful contributor or share of shop in their place. Whether the first 2 quarters of this year are an indicator of the way things will be? I do not know. But the point I want to really make and leave with you, Yash, is that no channel is ever ignored by us. Policybazaar is a very, very important partner, and we keep looking at ways in which we can optimize and improve our presence on their platform.

That's very helpful. So would you say that, that channel for you as of now is as profitable, obviously, from a contribution margin perspective because, obviously, you don't have to market -- or maybe you have to. But from a contribution margin perspective, is that channel as profitable for you as other channels are?

Yes.

And just a bit of follow-up. Globally, what people have done on the GI side, especially in U.K. as GI, auto and homeowners have really moved online in U.K., especially. Some of the insurers have sort of floated their own price comparison websites of sorts so that, that channel doesn't remain monopolistic. Do you see that happening in India? Because term life as it seems, it's sort of rapidly going online, and we would want that channel to remain nonmonopolistic for us.

Quite honestly, I don't know at this point of time, but it's also to do with whether the regulatory environment will permit it. At this point, I don't think, as an insurance company, we are allowed to promote a web aggregator.

[Operator Instructions] The next question is from the line of Sanketh Godha from Spark Capital.

Just wanted to understand your Indusind Bank relationship. What maybe internally you might have sized that market opportunity, given the how strong relationship with Tata already. So do you think that -- given it's a very big bank, do you think it will make a meaningful contribution in that sense for the overall business going ahead? And the second one, which I had is this -- Satyan, you said that the non-linked business, you are indifferent whether it comes from par or nonpar, but the focus is more on growing the non-linked part. So sir, is it fair to assume that the margins what you make in par and non-par are very single? Because in par, you sell largely Lakshya, which is a long-term plan compared to previous what it was. So sir, a long-term par plan will have a very similar margin to, say, annuity or ASIP kind of a product? Those are the questions I have.

Okay. So I'll come to the Indusind next, but I'll talk about this. Par margin will never be the same as nonpar margin. No matter what the long term, just the fact that the discounting of the long-term cash flows will make it smaller will mean that the margin, even in a whole of life, our product will never match a non-par product. So it's not about margin. The reason I clubbed the 2 together is more from a consumer buying mindset and the product category as an opportunity by itself. Both of those are products, which from a consumer point of view, offer the comfort of sum assurance on maturity value or complete assurance of maturity value. If you go through a period where a person is happy with sum assurance and participation in upside, par works. If you go through a part of a cycle where there is very little faith in what can happen in the future and an assured return drives more, non-par will work. From a customer point of view, it's why I chose to club it, not from a margin point of view. Answer to your question on Indusind. I think indeed it will...

Satyan, just a follow-up on that. The sort of safe -- I think, because the protection contribution in the Q2 have come off compared to what was in Q1, so it's a bulk of the growth in Q2 in non-linked has happened from non-par because the margins are better there, and therefore, we see Q2 margin at around 27.4% as compared to 24.4% what we reported in Q1. Is it a fair assumption -- fair conclusion to make?

In Q2, non-par has grown very strongly for us. That is correct.

Okay. Perfect. Perfect. Yes.

With respect to Indusind Bank -- we just need to answer that question. With respect to Indusind Bank, indeed, it is actually a very meaningful opportunity. What the opportunity will be over a period of time, time will tell. But like Kannan described early on in his opening remarks, we are getting into a spirit of partnership between the 2 organizations, which is actually helping us work very closely. So time will tell as to how successful we are able to make it, but it is indeed a very significant opportunity.

The next question is from the line of Ravi Mehta from Deep Financials.

So I just heard you saying that limited pay protection had a better traction last year, which is coming off given the environment. So does it mean growing term protection would be a bit challenged because of the high base that limited pay has created?

Not really, Ravi. Because again, like I said, the limited pay typically comes with a lower margin percentage. And as I was also discussing in the answer to a question from Mayank, the sum assured is the more important determinant of profitability. So the core growth of the protection business, I think, should still be measured by sum assured growth. Whether we offer it through a limited pay or a regular pay is a revenue measure, which gives you APE. But from an absolute VNB, whether it is limited pay or regular pay for the same sum assured, it gives me similar VNB. And that's the reason why I keep suggesting that one needs to focus on the sum assured more than on the premium.

Sure. And one more question on protection again that interactions indicated that some of the affluent customers going for a high ticket term cover because of the medicals not happening due to lockdowns and there were constraints on that. And they were given some minimum cover that debt you can offer, and then you would top it up with as the medicals and all open up. So I was expecting a sequential improvement because of these in Q2. So can you highlight around this part?

Sure. See, medical testing is still not that completely opened up. It is improving over what it was. What's also important is not just the testing facility, it's also the inclination of an individual to be willing to be tested. So it's a bit of a combination. So I don't think it will happen very quickly in that sense. Larger sums assured will still take a little bit more time to recover. But what we are seeing in our own progression, sequentially, that portfolio is improving because more and more people are willing to and able to undergo medical testing.

So we have a ready days waiting to be tapped because you've already given them some days of...

No. No. And unfortunately, the reality of life is that much as you might want to do things in 2 stages. If you don't do it at the first stage, then the ability to convert a second stage actually become later. It's not as if you can actually stand up and say that all of this is opportunity waiting to explore. Effectively, it will be a lot of new prospecting that we'll be doing, which will drive the due sales.

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

Sir, on cost, we have done a very good job in the last 2 years. Despite the pressure on top line, we have consistently delivered operating leverage. So how do you think when growth comes back, do you see further operating leverage playing out? And secondly, how should we see that playing out in better products for the customer? Because when I compare your products, whether it is a guaranteed product or a par product, the benefits are very similar to competing companies. Ideally, when your cost structure is so great versus other company and we are cost leader that should have been visible in the better benefit illustration for the end consumer. So how are you thinking about this cost leadership that you have been able to achieve in the last 2 to 3 years to give you a competitive advantage over long term?

It will translate, Nidhesh. The benefit illustration in a par product is -- it tends to be a little bit more complex. Typically, if you look at our track record of delivery of actual benefits, compared to anybody else, that actually separates out how much better we have been able to do. A lot of distributions which -- with respect to par tends to happen not on future bonus but based on past track record. So to that extent, systematically, we continue to do better than the rest of the industry and significantly so. That benefit will start to flow through to the distribution as far as the sales ability is concerned. One must also keep in mind that our entire focus on the participating segment itself is not a very old one, it's a more recent one. So the distribution scale up and the reach on par business will happen over a period of time. But clearly, we think on the par, we have already created through historical bonus track record, a clear differentiation with respect to most other companies. The same thing will also happen in the non-par segment. If you see in the space where we are offering non-par products today, which is the ASIP product that we do, I suspect you will find that the returns that we are offering are at par or better than many others in the market. We do this without having any anticipation of lapsation profit to boost up the profitability. This is purely based on our relative cost advantage with respect to others, which is helping us even offer those deals, those rates and therefore, get the kind of growth that we have been getting in that segment through the last quarter. So I would like to think that we are already starting to leverage on the cost advantage through the non-par guarantee rate that we are offering. Across most other companies, we will be compared to most others better in terms of yield to customers, even on the non-par where we are operating.

Sure, sir, sure. Because sir, what I see that in lending business, cost leadership is a very important thing. While in insurance, we think that it's not been highlighted very clearly that cost leadership can also be a source of competitive advantage. That [Audio Gap]

[Audio Gap] you won't be required to read much more into that. It's just that. After that, organically, Satyan has already given the numbers on how much we are adding, which is going up by the month. So I would rather focus on the incremental addition rather than onetime cleaning up exercise -- different companies do this cleaning exercise periodically. We thought this would be an appropriate time to clean up the nonactive agents. That's about it. Nothing more to it than that. Long-term nonactive agents.

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

Just in the middle of all of this, how should we think about your overall product mix or product strategy starting from next year, when I guess we start with cleaner state? I believe you've always spoken about growth in VNB and how you are kind of in now 2 legs and possibly now 3 legs of VNB growth. So how should we really think about product mix in that context? And just one small one. On the par side, what kind of growth or decline did you report in this quarter?

So from a product mix recognitions, again, the way we are looking at it is that the unit-linked base is getting reset this year. Starting from the fourth quarter onwards, unit-linked base becomes more favorable. So from a growth point of view and therefore, a mix expansion, one might start to see unit-linked pick up a little bit in the year. Of course, eventually, where it will get to is also a function of how long the non-linked savings growth trajectory continues. Really at least this year, so far, we have seen that as a significant driver of demand. And therefore, also of the mix. Like I said before, between par and non-par, we don't really differentiate as to what is the growth on one versus the other. We prefer looking at both in conjunction because that's really where the opportunity is coming from.

The next question is from the line of Nitin Aggarwal from Motilal Oswal.

Congratulations on good results. I have 2 questions. First, like, on the non-linked savings business, we have been able to continue to report strong growth backed by these new banker partnerships that we have now. You envisage a situation where the traditional 7 segments can be higher than the mainstay unit business? Because that may mean that while ULIP mix has come down from 80s to now in 40s, and it can still continue to decline here?

So Nitin -- our way of looking at it, Nitin, is that, again, I'll repeat myself, at the cost of repeating myself, that mix is not a target. Non-linked savings, in our view, is a distinct customer need and opportunity at this point of time, whichever channel we are able to build to deliver this product to the end customer, we are happy to grow there. We have no notions about what is the mainstream product or a mainstream category. We are very clear that every product category has got a particular customer fitment. As long as we continue to operate with that guiding principle and look at the opportunity, we are perfectly happy with whatever the outcome is.

Okay. Sure. And secondly, on the aspiration to double the VNB, while I must give it to the management team to stay committed on double VNB over 4 years, despite starting the year on such a weak note, but as you assess now, is confidence to deliver on this higher or we would want to assess business volumes after we surpass one more quarter of 5 years ULIP?

No. We have looked at it once again when we did the business plan for the year, then we redid the business plan during the quarter. We are quite confident, Nitin. I don't think anything should come in the way. As I said earlier, the base effects should get adjusted in the month of January. So in the short term, the VNB delivery will be through margin expansion. And over the medium term, our top line should come back. So that is -- in 2 phases, we are taking it. So as of now, we will continue to do. So technically speaking, we said 3 to 4 years, now we say 4 years. So to that extent, we've a little bit of leeway already. And that we made it in the month of April itself. So from about 25% kind of CAGR, we had articulated more like 19%, 20% of CAGR. That shouldn't be a problem at all.

The next question is from the line of [ Kishore Kaushal ] who is an individual investor.

I have 3 questions. First, what is the contribution of par, non-par savings and individual production? Second, banker growth has delivered robust growth for leading players, but ICICI bank degrew. What is the outlook for -- going forward? And third is, we had a strong growth in group term. Can you please share the breakup of group production into group credit life and group term life for H1 FY '21?

Satyan, are you taking the question?

Sorry. Okay. Sorry. So just to go back to your questions. One, with respect to the disclosure of the mix of protection, we do that on an annual basis. We'll continue with that process. We will disclose it at the end of the year.

Okay. And second was, banker growth has delivered robust growth for leading players. As ICICI Bank degrew, what is the outlook going forward there?

So there, as I mentioned, [ Kishore ], earlier, ICICI Bank strategy has been around the protection and annuity and ULIP rather than focusing on the traditional products. When the industry is around 80% traditional products, this obviously has a consequence in terms of our top line. But the good news is that from a margin perspective, annuity and the protection are very high-margin products. So given that, ICICI Bank is becoming more like a VNB channel rather than the top line channel. Having said that, as I mentioned earlier to one of the questions, the base effect will start working in our favor as far as ICICI Bank is concerned by January. So till then, we'll have to really manage it a year-on-year decline on ICICI Bank. And hopefully, by then, the base will get adjusted. So that's the outlook. But as a distributor, they have taken this call that they would rather -- for their customers, they would be really bothered about lapsation profits going to the company or different set of policyholders rather than to the same policyholder. So that's the call they have taken. But that is a call as a distributor, but we are happy to distribute these products with the other distribution than ICICI Bank. So that is really the channel dynamics. Other than that, they continue to be extremely valuable to us. It's about 35% of the top line. Plus also a significant contribution to the VNB. That's the way we are looking at that channel. The other banks, as you said, they may have taken a different call, but that is really up to the partner to decide what they want.

Okay. And my third question is, we had a strong growth in group term. Can you please share the breakup of group protection into the group credit life and group term life, or...

As I already mentioned, the credit life has got about a 30% decline on a year-on-year -- for the half year compared to the last half year. Second quarter specifically, credit life was flat on a year-on-year basis. So it has started coming back in terms of the revival. Group term, we had a very sharp growth because given the pandemic and given a lot of clients, they want to take new policies for their employees or other constituents. And also those who are existing clients, they have gone ahead and enhanced the life cover available for their employees or other constituents. So the growth in group term will be far ahead of the overall growth rate of the group business. But within that, the credit life, as I said, as we have been able to achieve roughly flat year-on-year in the second quarter.

The next question is from the line of Akshen Thakkar from Fidelity.

Most of my questions have been answered. I just sort of wanted to push on one aspect. I mean, if you look at your ULIP growth, obviously, it's [indiscernible] from Q4, they started getting okay. But I don't know in the thinking about that business, thinking about the drag being lower from Q4? So do you think you have a shot on getting a growth like Q4 or Q1 or Q2 of next year? How are you thinking about it? Because the context of the question is that even with ULIP actually coming down, is it still be growing 25%, 30% of your APE exit. So say if that continues to decline next year, this year was unique in that sense. But then next year, do you get back to APE growth overall? And sort of how do you think about that? That's the only question for my side.

Sure, Akshen. So Q4 onwards, we are actually looking at the segment getting back to growth, not a reduction of drag. Reduction of drag is starting to happen already. With Q2 sequentially doing so much better than Q1, the decline in the unit-linked has started to moderate already. But we actually see unit-linked business as a distinct growth opportunity once we have been able to recalibrate the base. The recalibration of our base is really driven by a couple of factors. The environment, we are starting to see that recover. Some of the distribution strategies, we'll start to see that peak through in the base effect after we cross Q3. So it's really an expectation of growth on the segment from Q4 onwards as opposed to reducing drag.

We'll take that as the last question. I would now like to hand the conference back to Mr. N.S. Kannan for closing comments.

Yes. Thank you very much, once again. And I would like to apologize once again for this late call today, but we have spent more than 2 hours today. And I hope because of that, we've been able to answer all the questions. Having said that, my team and I are available for any residual questions you may have. And look forward to interacting with you during the quarter going ahead. Best wishes to all of you. Please stay safe, and good night. Thank you.

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