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

Ladies and gentlemen, good day, and welcome to the ICICI Prudential Life Insurance Company Limited Earnings Conference Call for 9 months 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 Company Limited. Thank you, and over to you, sir.

Thank you. Good evening to all of you, and welcome to the results call of ICICI Prudential Life Insurance Company for the 9 months ended December 31, 2020. At the outset, my apologies for the very late call, India time, because we started the Board meeting only at 3:00 p.m. So we got a bit delayed, sorry about that. And secondly, we waited for about 5 minutes or so just so that several of you could join the call. Thank you once again for coming on to the call and spending the next hour with us. I have several of my senior colleagues, as always, with me on the call. Satyan Jambunathan, our CFO, is here; Judhajit Das, who leads Human Resources, Customer Service Operations; Amit Palta, who heads Distribution, Brand and Marketing as well as Products; Deepak Kinger, who is responsible for Audit, Legal, Risk and Compliance; Manish Kumar, who's our Chief Investment Officer; and Asha, our Appointed Actuary, are on the call. I also have on call my colleagues, Dhiren and Mukesh from the Investor Relations team. So let me start by mentioning some of the key developments during the quarter. On the distribution front, first, as we had mentioned earlier, our focus has been to further diversify the distribution network. We've been actively engaging in establishing partnerships with various banks during this period from large private sector banks to new-age small finance banks as well as payment banks. We announced multiple partnerships in the last 2 quarters, specifically the partnerships with IDFC First Bank and IndusInd Bank have already started yielding results with us having gained a significant share of those shops. In the third quarter of the current fiscal, we have partnered with RBL Bank, one of the fastest-growing private sector banks in the country, serving over 8.7 million customers through a network of 398 branches. We also signed a partnership with AU Small Finance Bank, a scheduled commercial bank, one of the largest small finance banks in the country. They are serving over 1.8 million customers through a network of 700 banking touch points. These partnerships will enable the customers of both banks to access and seamlessly purchase our customer-centric protection and long-term savings products and provide financial security to themselves as well as their families. We continue to deepen our presence further across emerging channels as well. During the quarter, we have partnered with PhonePe, India's leading digital payment platform, with over 250 million customers. We launched an instant term insurance plan with a premium as low as INR 149 per annum. We also partnered with BSE Ebix Insurance Broking Private Limited, a joint venture of Bombay Stock Exchange and Ebix Fincorp Exchange, launching a term insurance product on their state-of-the-art high-tech platform with an omnichannel digital presence. So these are the developments on the distribution. We'll talk about the numbers later. Moving on to the other developments. As you know, during the quarter, we proactively used the opportunity offered by the benign fixed income market conditions to raise INR 12 billion through issuance of nonconvertible debentures, which are unsecured and in the nature of subordinated debt. The issue was tightly priced at a coupon rate of 6.85% per annum and received a good response from the market. Moving on, in April 2020, we had released our maiden ESG report, even as we continue to further incorporate ESG principles within our organization. Even as we do that, I'm happy to report that we are the only insurance company to have been ranked in the top 30 of India's most sustainable companies by sustained lapse of tariffs in association with BW Businessworld. That concludes the key developments during the quarter, and I'll now move on to the presentation. We have loaded the presentation on our website, and you can refer to the presentation as I move along. Moving to Slide 3 on risk management in the presentation. We continue to maintain a resilient balance sheet, which has been our focus. Of our total liabilities, non-Par guaranteed return products comprised only 0.7%, that is less than 1%. We continue to closely monitor our liquidity and ALM position, and we have no issues whatsoever to report currently. On credit risk, only 0.6% of our fixed income portfolio is invested in bonds rated below AA, and we continue to maintain our proud track record of not having a single NPA, nonperforming assets, since our inception. Further, I'm happy to mention that our assets under management have crossed INR 2 trillion mark during the quarter, and they stood at INR 2.05 trillion as of December 31, 2020. This assets under management is a reflection of our growth in our new business premium, good persistency levels, low surrenders and robust fund management. Moving on to the insurance risk, first, I'll talk about mortality. While we have seen claims arising from the spread of COVID-19, our overall mortality experience, including the deaths on account of COVID-19, continues to be in line with our liability provisions. Further, as of December 2020, we continue to hold additional reserves towards COVID-19 claims although we have not had to utilize any amount from these additional reserves still date. Satyan will talk about this in more detail. In terms of persistency risk, our 13th and 61st month persistency ratios have significantly improved from the ratios we saw at the end of the first quarter and persistency ratios of other cohorts continue to be in a narrow range. The improvement in the 61st month persistency is a testimony to how we are building the business for the long term. One of the key imperatives for us this year has been to manage cost dynamically in line with the emerging new business growth. With our focus on variabilization, the cost ratios have been in line with our assumptions. Our solvency ratio has increased to 226% as of December end 2020 as compared to 194% in March 31 -- as of March 31, 2020. I'll now move on to our performance for the quarter. Our 4P strategic elements, that is premium growth, protection business growth, persistency improvement and productivity improvement, continue to guide us towards our objective of growing the absolute value of new business, while ensuring that our customer is at the core of everything we do. I will talk through our performance on the 4Ps through Slides 6 to 10 in our presentation and then conclude with the commentary on the VNB for the quarter. Coming to the first P of our strategic elements, which is premium growth on Slide 6. For the quarter, our new business premium grew by 14% on a year-on-year basis to INR 34.43 billion. In terms of annualized premium equivalent, while the linked segment registered a decline year-on-year, there is a sequential momentum with the third quarter linked business growing 21% over the second quarter. Our nonlinked savings segment continued to register a strong growth of 36% even on a year-on-year basis for the third quarter. This segment grew 10% sequentially in line with the overall market. The overall APE, as a result, grew by 14% sequentially in the quarter, which was significantly ahead of the growth rate of the overall market. We also continued to maintain a diversified product mix with a 48% linked, 46% nonlinked and 6% group savings for the 9 months of this financial year. From a channel perspective, APE from channels, other than ICICI Bank, grew by 9% during the quarter as compared to the same period last year. Our total APE was INR 39.54 billion for the 9-month period. While some of the new partnerships that we created have started yielding results, we expect them to provide a further fillip as we move forward. Moving on now to the second P of protection business growth on Slide 7. With an APE of INR 7.03 billion, the protection business accounted for about 18% of our overall APE as compared to 15% for the whole of the last financial year. Based on the disclosed results and market estimates, adjusted for return of premium business, we continue to lead the industry in terms of overall protection APE and specifically for the retail protection segment. Within the protection business, while retail protection continues to dominate our product mix -- for our protection mix, we have seen a strong growth in the group term business during this period. Also, credit line saw a strong recovery and registered a good growth in the third quarter of current financial year over the same period last year. So overall, on the 2 Ps of premium growth and protection business growth, I would like to highlight to you that based on the total new business sum assured which includes both savings and protection business of ours, we continue to be the private sector market leader. Our new business commercial market share significantly increased from 11.8% in the last financial year to 12.5% in the first half of the current financial year to 13% in the 9 months of the current financial year. Our new business sum assured grew by 22% on a year-on-year basis in the third quarter. With this, actually, our new business sum assured for 9 months of this financial year is higher than the same period last year. So we have arrested the decline even on a cumulative basis. Our efforts in encouraging customers to complement their life insurance coverage along with critical illness cover has actually aided this robust growth in sum assured. We believe that this result of driving insurance coverage, both through term and health will help us in our VNB aspirations. Now moving on to the third P of persistency, which is presented on Slide 8. As mentioned earlier, we saw a significant improvement in the 13-month persistency as well as 61st month persistency from the ratios we saw at the end of the first quarter as well as H1 of the current financial year. Our 13th and 61st month persistency for retail business and excluding single premium stood at 82.7% and 58%, respectively. It would be worth mentioning that within this, the 13-month persistency of the nonlinked savings business is at the same level as last year, that is financial year 2020 and the persistency of the protection business has improved meaningfully from the last year levels. Beyond the premium payment term, containing surrenders is also very important. And our retail linked surrenders have reduced by 7% as compared to the corresponding period last year. On the fourth P of productivity improvement presented in Slide 9, our cost to total weighted received premium ratio was 14.6% for the 9 months of this fiscal as compared 16.6% for the same period last year. So there is a 2% improvement. For the savings business alone, this ratio was 9.3%, single-digit percentage, as compared to 11% for the same period last year. Our cost ratios are one of the best in the industry, and we continue to leverage technology. Satyan will talk about some of the key technology initiatives undertaken by us during the third quarter. Moving on to the VNB, value of new business. As a result of the metrics I explained now, the VNB, which has been presented on Slide 10, for 9 months of this fiscal year was INR 10.3 billion as compared to INR 11.35 billion for the same period last year. For the third quarter specifically, our VNB for the current year third quarter was INR 4.28 billion as compared to INR 4.26 billion for the same period last year. As you can see from the quarterly development of VNB, which is presented on the slide, VNB growth has been well ahead of the APE growth or decline for each of the past quarters. Our VNB margin for 9 months of financial year 2021 stood at 26% as compared to 21% for the 9 months of the last financial year. Our assets under management, as I mentioned earlier, was INR 2.05 trillion at December 2020, a growth of 34% from March of 2020. So I would like to mention that we continue to progress on our objective of doubling our financial year 2019 VNB over 4 years. Now to summarize the performance for the quarter, nonlinked savings business grew 36% year-on-year for the third quarter, ahead of the growth of the overall market. Unit-linked business actually grew 21% sequentially; given the market conditions of our fund performance we have been able to grow this sequentially over the previous quarter. Both of these led to a new business APE growth of 14% sequentially. New business sum assured grew 22% year-on-year, resulting in arresting of the decline for the 9-month period, and it grew by 2.1% for the 9-month period. We not only maintained the private market leadership in terms of new business sum assured but as I said earlier, we have increased the market share further. Adjusted for return on premium business, as I said earlier, we believe we have continued our leadership in the overall protection market for the 9-month period. Persistency and cost ratios, as I said, continue to be one of the best in the industry. And more importantly, as I concluded earlier, despite a lower APE, our VNB for Q3 equaled the same quarter last year. Now moving quickly on to the customer service metrics. We continue to improve upon industry-leading benchmarks on turnaround time for our claims. The average number of days for noninvestigated claims stood at 1.4 days for the 9-month period. Similarly, over 90% of all service transactions were conducted by customers in self-help mode and renewal collections through digital mode increased to 80% during the 9-month period of the current financial year. Before I conclude, I would like to give a quick update on our wholly owned subsidiary, ICICI Prudential Pension Fund Management Company Limited, PFM. The AUM managed by this PFM has increased by 52% to INR 66.2 billion as of December as compared to INR 43.5 billion as of March 2020. The PFM has a market share of about 16% in the private sector on an AUM basis as of December. In terms of new subscriber additions for the 9-month period, we actually had a market share higher at 22.3%. The PFM commenced operations as a Point of Presence during financial year 2020 and in terms of subscriber enrollment stood second among the pension fund managers registered as Point of Presence. To conclude, even as we pursue our strategy of expanding the VNB, at the start of the pandemic, our focus was to ensure resilience of our balance sheet, along with close monitoring of all the risk metrics. As we moved along, we focused on creating a base for future growth by further strengthening the capital position through raising of subordinated debt; enhancing our product suite by introducing customer-centric products in life as well as retirement space, thereby also enabling us to manage the cycles better; diversifying the distribution through new agents, new bank partners, new conventional partners as well as new emerging ecosystem partners; and last but not the least, we continued investment in people, process and technology as we have been. I now hand over the call to Satyan to talk us through some of the details of our performance. Thank you very much.

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 #13. The strength of our product range with propositions to suit different risk characteristics of customers has been a very important enabler of premium growth. We have a complete range of product offerings ranging from unit-linked products without any guarantees to fully guaranteed return products on the savings side, complemented by a range of retail, group and critical illness products for meeting protection needs. Enhancing our product strength further, we launched ICICI Pru Guaranteed Pension Plan, an innovative retirement plan that offers guaranteed lifelong income, along with an option of return of the premium amount on diagnosis of critical illnesses and permanent disability and also an option to increase the annuity payout to combat inflation. We also launched ICICI Pru Guaranteed Income For Tomorrow, or GIFT, a product providing guaranteed benefits in the form of a lump sum or regular income. Also, as a variant of regular income, customers can opt for an early income benefit to receive a guaranteed income for the second year onwards. With these products, we continue to capitalize on opportunities in the emerging environment without compromising on our risk management approach. On Slide #14, I will talk through the risk management approach that we have taken in the nonparticipating products segment. While the earlier product ASIP catered to lump sum benefits with a policy term of up to 15 years, the new product GIFT includes an income benefit option as well as extends the coverage to approximately 20 years. We are hedging the interest rate risk through a combination of cash market instruments and derivatives, predominantly forward rate agreements on government bonds. From a hedge effectiveness point of view, our hedge program is designed for each tranche of new business as well as a residual hedging program for the overall nonparticipating portfolio. The underlying bond for the derivatives is based on the liability tenure beyond the time that we contract to purchase the bonds. We continue to conduct a regular review of the portfolio for mismatches on asset liability as well as initiate repricing based on prevailing interest rates. On Slide 15, as Kannan had mentioned earlier, we have registered a sequential improvement with our savings APE growing at 14% to INR 14.09 billion as compared to Q2 of FY '21. 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 9 months FY 2021, active adviser count was about 95% of the account that we had in 9 months of last year. The agency channel grew sequentially by 25% in Q3 FY '21 as compared to Q2 FY '21. Our direct channel as well grew sequentially by 24% in Q3 FY 2021 as compared to Q2 FY 2021. With ICICI Bank, we continue to focus on protection and annuities. As mentioned in the last results call, we have been growing -- focusing on growing critical illness benefit attachment, along with the term life product. Further, we continue to make significant strides in the annuity business through ICICI Bank growing by more than 400% during Q3 FY 2021 versus the same period last year. As you can see on Slide 18, we have added 83 partnerships during 9 months of FY 2021, including the new bancassurance and nonconventional distribution partnerships. With the new partnership, our bancassurance distribution is now able to reach out to 162 million customers as compared to 116 million earlier. Similarly, our bancassurance branch footprint will increase from about 8,600 branches to about 12,000 branches. During 9 months 2021, we continue to have a well-diversified distribution mix with distribution channels, other than ICICI Bank, contributing about 66% of our APE. The second element of protection growth on Slide 22. With an APE of INR 7.03 billion, the protection business was 18% of the APE for 9 months as compared to 15% for FY 2020. In terms of total new business sum assured, we are the private sector leader with a market share of 13% for 9 months FY 2021, a significant improvement over FY 2020 market share of 11.8%. During Q3 FY 2021, while we have seen some decline in new business APE from the retail protection segment, based on market disclosures and adjusted for return of premium business, we continue to be a market leader in the retail segment. Based on these estimates and coupled with our strong growth in group term business and credit life, we believe that we are the market leader in overall protection for 9 months FY 2021. We continue to have the belief that protection is a long-term business -- long tail business and hence, it is important for companies to have underwriting practices commensurate with the price as risks will only emerge over a period of time. Given that protection market in India continues to be significantly under-penetrated, 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. The third element of persistency on Slide 24. For persistency, if you may recall, we had mentioned in our Q1 FY '21 results that we expect the persistency ratio to recover as we go through the year. I'm happy to inform you that our 13-month persistency ratio has significantly improved and stood at 82.7% as of December 2020. Also, our 61st per month persistency ratio continued to make significant strides by improving from 56% to 58% from FY '20 to now. We have seen some decline in persistency ratios of other cohorts, primarily from the linked business, while persistency of other product segments has been stable. We do expect the persistency ratios of other cohorts as well to improve from here on as we end this year. The fourth P of productivity on Slide 26. During the quarter, we continue to see improvements with cost to TWRP ratio for our savings business at 9.3% as against 11.1% for the same period last year. We have seen a reduction in discretionary expenses, infrastructure-related expenses and employee cost through optimal deployment of manpower. Our cost ratios continue to be one of the best in the industry, and we continue to leverage technology. During the 9 months, 97% of new business applications were initiated via the digital platform and more than 90% of service requests were completed through self-help modules. We also launched technology initiatives around personalized video product brochure to further improve the quality of sales, video verification and vernacular language for improved risk management and rapid application development tools to ensure a more responsive IT deployment architecture. The outcome of our focus on these 4Ps, as you may see on Slide 28, has resulted in our value of new business of INR 10.3 billion with a margin of 26% for 9 months FY 2021. The VNB outcome for the quarter has been supported by the strong growth in the nonlinked savings business as well. Within the financial metrics, our profit before tax for 9M FY 2021 was INR 9.68 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 profits, which is the net surplus generated from policies underwritten and transferred to shareholders account during the period. Our underwriting profits have increased by 24% to INR 5.28 billion as compared to the same period last year. Our profit after tax for 9 months FY 2021 was INR 8.96 billion, with a strong solvency ratio of 226% at December 2020. Our AUM was INR 2.05 trillion as of December 2020, a growth of 24% from March '20. As mentioned by Kannan earlier, this is a reflection of our growth in new business premiums, good persistency, lower surrenders and a robust fund management outcome. Given the pandemic, we wanted to talk a bit more in detail about our mortality experience, including the COVID-19 claims so far, as shown in Slide 31. The total claims on account of COVID-19 for 9 months FY 2021 were INR 3.44 billion. We have reinsurance arrangements on all of our risks. Net of reinsurance, the retained COVID-19 claims impact was INR 1.54 billion. What we have tried to illustrate in the chart is a pattern of claims observed across months. We find this to be very consistent with the national statistics on death. What is also coming out clearly is that in the early part of the year because of lockdown-related challenges, there were delays in claims intimation, which now seem to be normalizing. I would like to mention that our mortality claims, including that on account of COVID-19 is in line with the provisions that we have made in the liabilities. Further, we carry an additional provision of approximately INR 1 billion towards potential COVID-19 claims which has not yet been utilized so far. Based on the data that we have observed, it appears that deaths on account of COVID-19 have peaked out during Q2 of FY 2021 and intimations to us seem to be peaking out through Q3. We thought this additional bit of data about what's happening with COVID might be useful to understand the impact of the pandemic. Overall, to summarize, we 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 Arav Sangai from VT Capital.

So I have 3 questions. My first question is, sir, even though the protection mix and the saving mix and within the savings, the non-Par savings is kind of stable Q-on-Q, can you explain the margin fall for this quarter? And second part of this question is, we have been hearing the retail protection has kind of normalized across the industry. So with this, will it be possible for you to guide us what is the kind of margins you're expecting across the portfolio for the next 2 years? Because even though you have mentioned that we remain committed for a VNB doubling target, it still looks an odd task. So any guidance on that part will be helpful. My second question is, what kind of products are we distributing through the other partnerships, except ICICI Bank? And lastly, if you could comment on the sensitivity of the non-Par book.

Okay. Let me first start with the question you had on the margins on a quarter-on-quarter drop is what if I heard you correctly, you wanted to get the reasons for that. What I would like to emphasize once again is that if you look at our VNB development, I would urge to look at the absolute VNB development more than looking at the margins. That's the first point I would like to make. The second point I would like to make here is that quarterly margins can be fluctuating. We have said that before, and it is possible. However, what is probably a good thing to look at is that over a period of 9 months, the overall margins we have been able to put out, which is about 26%, that has been pretty stable. I would say that at 26% levels probably will be the best in the industry today. So that is the kind of thing, and that is what something which we need to look at because as the things stabilize through the year, you will get a better sense of the margins as we go deeper into the year. So I do not see any concern whatsoever on looking at a quarterly number because from Q1 to Q2, there was a smart pickup. So that time also, we said that we should look at the 6 months more appropriately. The second question you asked is about retail protection. You've talked about that in the context of, I think, the overall margin development. Yes, as Satyan mentioned during his opening remarks, we have had some decline in the retail, but I would like to put the retail protection in the context. To start with the last quarter itself, we had mentioned that we will have supply side constraints in pushing the protection business on the retail side, especially during a pandemic because this is a long tail business, which entails a lot of tests to be done off the customer, including possible medical tests and other due diligence. Given that, the friction is still there on the ground though it is going away. So the supply side constraints will get removed only when the frictions completely go away. And that is happening as we speak, but we are not fully normal in terms of doing the business the way it is panning out. Second, in a pandemic like this, especially, we'll have to get -- the risk capacity and approach will have to be suitably calibrated. That is what we have been doing from the quarter 1 itself that we have to be very careful in terms of underwriting. Not that we have changed anything in the recent past, and we have been following this approach from day 1. And what is very important in writing this kind of business is that we should have a sufficient reinsurance comfort. So we'll have to take into account the reinsurance comfort also in looking at the risk capacity and the approach in calibrating this business. The third point I want to say is that while all of us say that it is a high-margin business, et cetera, that is based on looking at the numerator as a PV of all the future profits and dividing it by the 1-year premium in a multiple premium product -- in a multiyear premium payment product. So to some extent, it's an anomaly. So if you sort of spread it out and look for a like-for-like comparison, I would look at this product more like a general insurance product with a 95% type of a combined ratio. Given that I want to emphasize that 100% kind of margin or a 90% kind of margin, we should not get carried away because the cushion is quite limited in terms of a margin of error. The fourth point I want to make to you is that we want to be -- we would like to be patient in this environment till things become normal -- back to normal. So we believe that the long-term thesis, as Satyan mentioned, is quite intact. The protection gap in the country is well documented. People will come back. So I don't think there is any problem. So we will continue this approach. Even pricing, people have asked the question. When it comes to higher afflu and higher sum assured categories, we are quite competitive in the market. When it comes to lower down the spectrum, we may be a little bit high priced compared to the competition, but we have been running this business for a long time like this. And the fact that we believe, based on our own estimate, that we are a market leader in the retail protection business with this kind of calibrated approach gives us a lot of confidence that we should be continuing the business in the same way we have been doing. Having said that, to answer your question again, there will be intermediate opportunities such as group term business. Actually, at the beginning of the year, we never thought that group term is going to go so well. And because of the pandemic, there are lot of employer, employee and other groups, which want to be insured. They have been approaching us for writing the business. And credit life has come back in a big way. So I would say that rather than looking at retail alone in the way which we'll do in a normal environment, we would look at the group credit life as well as retail together as a cohort. And on that basis, we are 18% today. And to answer your question on margin of retail vis-à-vis others, I want to give you an assurance that as a portfolio in protection, we have been able to hold the margins as it was in the last year. So by more -- we have been very careful in writing the group business also without compromising on the margin. So as a portfolio, our margins continue to track, which we said at the beginning of the year that we will be tracking the last year. So this is what I thought I'll just spend a little bit of time to give a full color to you. The third question you asked regarding what products do you sell through the other partners. Everything. Other partners, absolutely. No holds barred approach. We don't have any constraints like ICICI Bank. ICICI Bank, we have articulated it in the April call also. They have moved to more of a VNB kind of a partnership rather than a top line partnership because they are focusing on annuity. And incidentally, they have done a phenomenal job of annuity in the last quarter. And with our new introduction of the GPP, which has become caught on and become quite a popular product, we believe that the guaranteed pension products will further increase the momentum in ICICI Bank. So in that shop, clearly, we are not selling traditional products because of their preference. But other than ICICI Bank, in every new acquisition or every other partner, we have absolutely no constraint in terms of which product to sell. Whatever the customers want, we are happy to write and sometimes, ULIP may do well and sometimes traditional may do well. Protection and annuity will be a continuous push in those channels. So I want to assure you that we are completely free to sell whatever you want, that is what our partners also want in each of these channels. On the last question on non-Par, I will ask Satyan to talk about the sensitivity, which you mentioned.

So Arav, at this point of time, the non-Par portfolio still comprises less than 1% of our liability portfolio. And like I described on the new product, and you will see it in this chart that I showed of how our product map is expanding, it is not that we have expanded our products to go to very long terms that we cannot manage the risk of. We have taken one step forward, allowing for the fact that there is now a developing liquid market in derivatives and capacity, which helps us extend the tenure of a product by a little bit. So our entire approach to the non-Par product still continues to be one of a completely matched, externally hedged, layoff the market risk kind of an approach. Whatever yield that asset management strategy gives us is what we then feed into the customer proposition. So I don't see any interest rate risk profile change arising out of what we are doing now from what we were doing before.

Great. Sir, just one follow-up question, if I may. So since you mentioned that we are committed to our VNB doubling target and this year was pretty volatile in terms of margins because the protection was like peaking and then kind of normalized. So I just wanted to -- like, is it possible from your end to share some kind of narrow range or a broad range also where margins be? Because, like, the way I am seeing it kind of stabilized, but it might not increase the way it did last year. So how are we planning to get that kind of VNB doubling because across the industry, the competition across products has increased a lot? Like, we were one of the pioneers in retail production, but now a lot of other people are also getting into there. And while we understand that the penetration is very low, the quality penetration also there's some doubt around it. So any comment on that aspect will be helpful, and that's it from my end.

Sure, Arav. So if I can quickly talk through this, and we said this at the Q1 call, we said this at the Q2 call, we said what we are seeing in the short term as an increase in the protection mix on the back of decline in savings is not necessarily the kind of improvement in margins that we would like to see. We said we would like to grow the VNB with the savings business growing, protection business also growing, but possibly at a faster pace than savings business. And therefore, consequently, over a period of time, the mix of protection improves. So I'll go back and frame my point of reference to FY '20. We closed FY '20 with a protection mix of 15%. When I look at it forward, I would actually expect that over a 3- to 5-year period or thereabout, the 15% can progress systematically to over 30%. And that is really the trajectory. So I wouldn't get in a way disturbed by what is happening in a quarter as either a supernormal improvement in mix or a drop in the mix. And that's really, to my mind, will drive the margin outcome. But most importantly, like both Kannan and I have been saying, our approach has been about growing absolute VNB, which means grow the unit-linked business and the VNB on that, grow the nonlinked savings business and the VNB on that, and grow the protection business and the VNB on that. Relative growth terms, it is quite likely that protection growth will be the highest of all of these 3 categories. And that should define where the margin settles over a period of time.

And Arav, just additional point. While doing that, as I mentioned in my opening remarks, we have also been looking for opportunities to sell our riders along with the base product, be it the critical illness rider or other health riders. So that also is addition to the margins, which is something -- is a lever which is available to us, which we have been managing, especially in a shop like ICICI Bank. We have been able to push the attachments in a much more aggressive way compared to the beginning of the year. So we do have levers available to hold the margins. So that should not be any concern at all. I would -- at this stage of the company, I would rather be focused on the overall sales, APE moment, which I think, hopefully, things will get better because you know that there is a base effect operating from February onwards. So that is how we will plan in terms of our absolute VNB development.

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

I hope I'm audible.

Yes. Clear.

Yes. So just 2 quick questions. One is that you mentioned that annuity and credit life and group term, these are 3 products, including -- and in fact, the fourth one non-Par guaranteed is doing well. Could you give some color in terms of how -- where this could be in 9 months this year versus last year? Some color, that would be helpful. So that's first question. Second is, I missed your commentary on the persistency on ULIP, which you mentioned. So if you could highlight these 2 things, I think -- and those are 2 of my questions.

Sure, Udit. So talking through the key segments of protection and annuity that we spoke about, the annuity APE has been growing quite strongly for us. In the 9 months, it's been over a 70% growth over the same period last year. And within this, I specifically mentioned that ICICI Bank has actually been able to grow this segment at over 400%. So that's been a very, very strong growth. Of course, the base is fairly small. But clearly, this is illustrating early signs of success when we have started focusing on this segment. We do think that the new product launches that we have now come up with will aid this going forward because the proposition is quite strong. I hope you will also notice that the new product that we have launched is, again, very risk-calibrated from an investment risk point of view. The maximum deferment period is 10 years and it's a single-pay product. So we have done this also keeping in mind the underlying investment instruments and the investment risk. So we actually think that the annuity market for us will continue to develop quite strongly as we have been seeing for the first 9 months of this year. Non-Par savings, again, we have spoken about this in the past results. We actually see non-Par savings and par savings as interchangeable from a customer segment point of view. There are, of course, some quarters where customers might prefer one over the other. But over a longer period of time, we see these 2 as almost fungible customer needs and that's how we look at this entire segment. That segment combined, again, you've seen the numbers, both for 9M as well as Q3 have been growing at about 35% over the same period last year, and that growth continues to be quite healthy. As we have gone ahead and added many more partners, which expands our ability to distribute some of these products to customer segments where they are more suited to, this is a segment where we would expect to continue seeing strong growth even going forward. From a protection point of view, like Kannan said, I think in periods like pandemics, where there will be very, very different risk selection philosophies operating in retail business versus group business, we are quite content to manage the business in aggregate as total protection retail plus group. As the pandemic situation stabilizes and we get out of it, we will get back to the same sharp focus of each of those underlying segments such as retail, group term and credit life and start showing how we are leveraging on those opportunities. But I think through this pandemic environment, at least we are not getting very fixated about one versus the other as long as at an aggregate level, the VNB development that we expected out of protection is indeed emerging through the focus on this segment.

So just one thing -- sorry, sir. In terms of 9 months number, even if you can't give the number, would it be -- credit life and group term, would it be higher than last year or how would it be?

So group term has been actually very, very strong growth for 9 months. Credit life in the first quarter was a big decline. We spoke about that. In the second quarter, we said it had become flat. In the third quarter, credit life standalone is a modest growth. Going on to your other question on persistency. Again, as I spoke about in my opening comments, nonlinked savings, strong; protection, stronger than last year; ULIP is the one where the catch-up is still happening. We do see the environment improving. We have seen the fund performance also show dramatic improvement over the past few quarters. We still have one more quarter before we close the year. We are indeed closing the gaps with respect to persistency with same period last year across multiple cohorts. So our endeavor continues to be even where we are today, as we go through the last quarter, to get even a unit-linked persistency as close as we can for the last year.

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

Sir, my question is again on individual protection. So if I do a back calculation, the decline in individual protection seems to be 36% in the quarter. And even on sequential basis, it is almost like flat on sequential basis on current quarter to previous quarter. Sir, just -- and all decline seems to be a little more acute compared to other peers, which have also shown decline. Sir, just wanted to understand, is it something with respect to more of a reinsurance capacity constraint rather than, say, supply side structures of hospitals or medical centers not working or something more to do with little expense compared to the peer, which is impacting our growth? Just wanted to understand, if you want to give just to a different reason, whether it is more to reinsurance capacity or the pricing or supply-side constraint? So that is my first question. And the second question I had is that you started doing deferred annuity, which initially we were very reluctant to do that business. And just wanted to understand that the dynamic of that business. Do you have any particular target in your mind so that it doesn't come and hit your balance sheet? Or -- and second thing is that what is the preferred deferment period you will be looking at to do deferred annuity? Say 2 years, 3 years from where we start doing that businesses? And in deferred annuity, still -- means, you would be preferring using [ FRAs ] or you will take a longevity call and sell and accordingly do that business in that way? So these are broadly 2 questions. If you can share, it will be great. If you can share the mix of par, non-Par and annuity of total issues.

Sure, Sanketh. So let me talk through the protection attribution first. So first of all, I don't think it is so easy to kind of back work what those segment results are. But I'll go back to what I said a little earlier, Sanketh. Realistically -- and again, I'm not talking about it now, I spoke about it exactly one quarter before, where I said, some of the things that have changed in the protection market. First, I said that there was a challenge with respect to testing capacity. Second, I said that there was a change in the process, given the pandemic environment, nonmedical processes for underwriting were no longer prevalent. And we had to do some kind of a medical or a telemedical assessment before we even completed a case. Third, I had also said that capacity for large sums assured was not very high because there was a reluctance to take on large risks in this kind of a pandemic environment. Fourth, I had also said that overseas markets where COVID infections have been very, very volatile, the normal nonresident Indian business that I could do, I have far less capacity to do today. Some of those things haven't really changed. So I don't think the capacity has changed. It's actually the challenge still continues to be that in a live pandemic environment, risk management will have to take priority over top line. And that's the point Kannan made about this being a long-term business, and therefore, you cannot compromise that, and the margin for error is not very high. So I go back to what I said that in periods of this kind, therefore, how do you look at the opportunity and get the most out of the opportunity? The group term business has actually presented itself as a very meaningful risk-calibrated and appropriate approach to growing the protection business. And that is exactly what we have focused on. If indeed we were doing so much worse than competition, Sanketh, on all of the metrics that you spoke about, I would find it very hard to understand how our market share would have improved and sum assured from overall sum assured market share of 11.8% at the start of the year to 13%, keeping in mind that LIC is at 14.5% to 15%. This clearly establishes that in relative terms, I don't think we have been worse off from the market. One also needs to keep in mind that retail protection growth for us has been the strongest in the past 3 years compared to anybody else in the industry. So on a year-on-year basis, are there slightly different patterns across companies? Quite possible. I would expect it to be that way, but the reality still remains that from not even being the leader in protection in the last year, we have emerged as a leader in the overall protection space. Not just that, we have also been able to grow our market share. So I would at least like to think that while the environment has been difficult, we have been, in our own way, trying to navigate the environment without compromising the risk outcome and without losing sight of the opportunities that this environment presents. Moving on to the second question on deferred annuity, our entire approach to deferred annuity is -- and I've spoken about our annuity approach in the past, where I said that if I take an immediate annuity, I typically have a liability duration of about 12 to 13 years from an interest rate sensitivity. And from a bond investment, you effectively would have to buy a 30-year-plus government bond to be able to match the interest rate risk from that. Over the last few quarters, and you have also referred to it in the past, capacity for FRAs has been growing. The yield curve has been conducive to that market as well. And all we are doing now is using that as a way to extend the duration availability on the asset side. So what we have now extended it to is a maximum deferment period of 10 years. So effectively, I can break it down into 2 parts, almost like saying, a 0 coupon bond investment for 10 years, followed by a 30-year bond investment at that point of time when my deferred annuity converts to an immediate annuity. Today, with the combination of an FRA and an underlying 30-year-plus government bond, I think we can execute this kind of an investment or a liability profile. So we have no fixation about whether I'm going to do 2 years, 3 years, 4 years, but we are very clear about one thing. Investment risk is best managed if we lay it off externally so that we can determine what is the yield that we expect to get, and from that, we decide what is the proposition that we are able to offer to the customers. Eventually, we look at each of these businesses on its standalone merits, what it adds in terms of risk, what it adds in terms of value, what it drains in terms of capital, and therefore, on a risk-adjusted basis, does it make sense to do this business or not. So with the instruments available, and we have had discussions in the past on this, we do believe that there is some extension in tenor that we can do without getting unbridled about the expansion of tenor.

Got it. Perfect. Yes. And finally, if you can share the traditional product, breaking it into Par, non-Par and annuity, that would be very useful.

So again, Sanketh, I still believe very strongly that from the target market point of view, both of these are fungible. I would like to look at it that way. Hopefully, at the end of the year, we'll give you splits, which are in more detail to help you understand it. But I think through the year, one should look at it more as an opportunity and not get caught up between one or the other.

The next question is from the line of [ Parth Gupta ] from Macquarie.

Can you just share the individual protection growth for the 9-month period? And also the share of individual protection in the total protection, if you can give these 2 numbers, please.

So like I said, we have been looking at it as an aggregate protection at this point of time. We normally give disclosures about breakup between retail, group and credit life at the end of the year. We will do that. But I think I'll go back to what I said at the cost of repeating myself. The most important priority in this environment is to reach out the pools of opportunity in a fashion that doesn't compromise risk and that doesn't compromise profitability. And therefore, given that our portfolio margin for protection, even with the mix that we are seeing now, are consistent with what we had for full year last year, we're quite comfortable pursuing the approach that we are following.

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

Just a couple from my side. In all the new banca tie-ups, how would you rate the competitive intensity? And do you foresee any impact to cost ratios coming through because of more of higher commercials in these new tie-ups? And secondly, sir, I just missed the number of ICICI Bank's share in the APE and the year-on-year trend on that?

Yes. So let me start off, Kannan here. I will also ask Amit Palta to give a commentary -- our Chief Distribution Officer to give a commentary on the relative competitive dynamics in each of the recent shops. To start with, the ICICI Bank percentage is 34% for the current 9-month period. So -- which has come down from a much higher level in the previous period. And all the other banks put together in banca would be only about 8% as of now. So that is the breakup what you wanted. The ICICI Bank from a top line perspective continues to be a sharp decline on a year-on-year basis, whereas the other banks have grown at a very sharp pace because of the base they are not being there. That is the first aspect. The second aspect regarding how the banca tie-ups are coming regarding the economics, we do believe that each of the bank -- banca tie-ups have come with good economics. We don't have to really compromise on anything. Our philosophy continues to be that the fee income the bank makes or the profit we make is a function of the product mix, which gets sold in the respective bank shops. So there is no change in our outlook regarding this. If they want to earn more fee income, they distribute more and earn the income. That has been very clear in our dialogue with each of the banks. And if you really look at the overall cost dynamics, we had some opportunity to redeploy our manpower also. So if you look at the overall headcount of the company, it has been actually down compared to last year. So we have an opportunity, given the kind of channel dynamics we have seen. You have looked at the ICICI Bank, you've already asked the question. Given that we've been able to deploy our people -- redeploy our people into the new shops, thereby not really exploding our cost base. So I think all in all, I would say that this is a good development from a top line perspective. Not only that, it is also from a VNB perspective. So with this introduction, I will ask Amit to give us general color on the dynamics -- partner dynamics because, in some cases, we are the third partner, in some cases we are the second partner. So he can talk about the partner dynamics. Amit, over to you.

Yes. Thanks, Kannan. So as you know that we have partnered with some of the large banks, which is IndusInd, IDFC, AU and RBL in the recent…

Amit, you'll have to speak up, Amit.

Your voice is a little faint. Can you speak up, please?

Yes. Am I audible now?

Yes, much better.

Yes. So as you know that we have partnered with some of the large banks like IBL, IDFC, RBL and AU Bank in recent past. So what we do is we get, first of all, is a philosophy. We get governed by what are the partner objectives at their shop and, of course, it has to be about increasing the pie, increasing the pie for our partner as the first objective that we start with. And from that perspective, along with the partner, we take a look at where those white spaces are, which are those customer segments where they may have a natural disadvantage for the proposition not being made available. And hence, we work out a joint strategy to see how we can look at our product structures to suit and take care of their prioritized customer segments [Audio Gap] of getting guided by our partner to see where they can look at opportunities together with us, with our product portfolio and our natural advantage, which help them increase pie and maximize revenues for them. So some of these partners, of course, on the priority, we have actually spent a lot of time in our process and technology integration. So we have gone through that as a top priority. And second, of course, is about the way we have gone about building capability of both our people as well as our partner employees to get used to the new products that they've got introduced to through our tie-up. And third is what we have been able to manage very innovatively, is something called iSOLUTIONS, which is our ability to structure and customize solutions based on a very unique insight that the partner may share with us. And that is something that we have been very effectively using our -- using to our advantage to create that competitive differentiation at all these shops. So that's how broadly we are working on. And of course, while there is a competition, but at this point in time, at the stage that we are in, we are still very early days in the partnership. We are still in the process of looking at which those white spaces can add value, both to our partner as well as us. I hope I've answered the question.

Yes. If I can just follow-up on that. Do you think that essentially, given the fact that the new partners are open to all products, it could provide a floor to the unit decline that we have seen thus far?

Yes, right, we say so because even in this quarter, we have seen sequential improvement in ULIP. It would probably provide a floor, yes.

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

Sir, my question is with respect to the philosophy of non-Par guarantees. And we've been…

Sorry. Sorry, Ajox, I wasn't able to hear you. Can you -- philosophy of…

Non-Par guarantees.

Okay. Okay. Okay.

Yes. So yes, earlier, we used to have a slightly conservative view and then we launched ASIP, and now we are coming with GIFT. Phenomenal products. But 2 things there. One is, what is driving the change in philosophy towards guaranteed business? And two is, will we be focusing on this more in future? So that's on non-Par side. On the protection side, we are seeing competition entering return of premium space. And they also have the view that return of premium will be a faster-growing product versus pure term. Again, now we have a philosophy that the return of premium is smarter protection product and pure term is what serves the customer the best, which I do agree. But are we seeing 2 quarter, 3 quarters down the line, when competition has bumped up pretty strongly in return of premium, we see an opportunity there and we start focusing on that again. So these are 2 questions, but primarily, the argument is with respect to the philosophy and our thought process.

Sure, Ajox. So if I may put our thought process in context, first of all, on non-Par, we have had only one philosophy. And that is to say that I first have to find a suitable asset product that I can get. From that, I have to construct the liability product to ensure that my interest rate risk is laid off externally. It has never been different. It has never changed from before to now. What has evolved over a period of time is the kind of investment products that have been available in the market and the scale and capacity for those investment products in the market. If I were to sit on it and say that, look, irrespective of the way these asset markets are going, I will sit with only one kind of investment product and use that to manufacture non-Par liabilities, and I will be behind time. So the philosophy is exactly the same. What can be manufactured in the context of investment market is what is being manufactured, which is why I'll take you back to the Slide 14 of the presentation, where I'm illustrating that the expansion of the product arena is very, very calibrated. It is keeping in mind the underlying emerging opportunity provided by some of the forward rate agreement kind of derivative products in the market in conjunction with the cash market instruments that we already had. So I just want to frame this again. Our approach to investment rate -- investment guarantees has always been one where I need to be able to lay off the investment risk through suitable asset products, it has not changed. On your second question of return of premiums, again, we really don't have a philosophy about what is term or what is not term. We simply use that expression to say that if it is a pure term product or a pure protection product, the margin is one order of magnitude. If it has a return of premium term, the margin order of magnitude is similar to a nonparticipating guaranteed return product. So if I have to count something and represent something as pure term, because eventually, you, as market commentators, will want to look at it in the context of what is the margin yield, in that, if I mix a return of premium product and tell you, it is quite likely that you will misunderstand the margin that I'm likely to deliver. That is the reason why we have always kept it separate. I have no problem with return of premium. Even today, we sell a bundle of our pure term with a savings product to mimic a kind of a return of premium option. It is quite possible that we'll go ahead and manufacture a return of premium product as well. But when I do that, Ajox, I will tell you this, my pure term protection portfolio is this much, my return of premium portfolio is so much, so when you are looking at an expectation of a margin from my portfolio, you can suitably take that into account. I have absolutely no philosophical view of one versus the other. Both of them have their place. Both of them have a customer segment to which there is an appeal, and both of them are and will remain opportunities from a business point of view going forward. I hope I have been able to clarify or frame at least where we are coming from because I think it's important that we understand this because this is really the foundation on which you will see our approach. And I don't think either of these has changed in even the minutest fashion in the past 4 years that we have been talking to each other.

Got it, sir. Got it. So just a question on ICICI Bank. So we are just hearing that ICICI Bank is being more focused on its core business and slightly reducing its focus on distributing products, be it life or nonlife. So what has been your sense with respect to that?

No. Our -- we have articulated -- you look at our April call transcript. Very clearly, that lays out the ICICI Bank approach in a large paragraph, Ajox. And if you look at that, what they have clearly told us is that they will not be focused so much on our top line. They will, however, be very happy to support our development of VNB. So that hasn't changed even today. So to that extent, the protection products, there has been a lot of engagement with ICICI Bank. In fact, they have been pushing us very hard on getting out products such as protection by invitation, which in that terminology essentially means that why didn't you take our entire customer base, you wash it based on your underwriting standards and tell me x million customers to whom I can offer without any underwriting, straight way I can go and sell the protection, which we have just about rolled out. We have carefully looked at their database, and we have rolled out what is -- what we call protection by invitation. They've also pushed us very hard to say that if the customer of the bank has got very affluent over the last 3 years, why should you not sell a top-up product because since protection requirements have gone up today. They call it dynamic underwriting, which also we are in the process of rolling out. So their capacity to sell protection has only increased. And as you know, they said only ICICI Prudential among the life insurance companies. So we actually feel that it is sort of, yes, we would have liked them to distribute the top line, but the kind of push they are doing on protection and other products has at least given us visibility regarding the VNB. For example, the annuity, they have seen a growth rate of 400% in terms of year-on-year. So to that extent, I don't think they are saying that they will not distribute ICICI Prudential. They're only saying that a protection product or an annuity product is complementary to their line of products. So we are very happy to open up. Unit linked products, yes, we will keep it in the shelf, and we will do whatever we can. And on traditional, they are saying, they will not distribute it at all. But my sense has this, even today, ICICI Bank sells 34% of our product mix, which is a good place to be in and, hopefully, come February where their base also gets set right, we should hopefully get this at a normalized level of ICICI Bank distribution. So there is no other rethink of ICICI Bank in the last couple of quarters on this issue.

The next question is from the line of Vinod Rajamani from HSBC.

Just a couple of questions. First on this guaranteed pension plan, I remember in the past, you had stated that you will not be interested in doing deferred annuity. So has that thinking slightly changed in the sense that now deferred products are also -- is also a certain -- deferred non-Par as well as deferred annuity is also a segment you'll look at? And secondly, on this product standardization move by the regulator, what is your view on that? Is it something -- the sum assured on the standardized products are likely to be lower than that of your general offering. So there might not be cannibalization, but then how do you view that in terms of pricing and so on? How are you viewing that? Also, is it possible that there could be other products which the regulator says that you have to standardize and so on? So -- and is customer loyalty likely to be, is it likely to be less on such products because people can compare across companies and so on? So your philosophy on deferred products and also on the standardization initiative by IRDA?

Yes. So Vinod, I'm probably saying the same thing again and again today on this one, but I'll repeat myself. On deferred products, guaranteed return products, nothing has changed in our approach to it. What has changed is the systematic improvement in the availability of underlying hedge instruments from the market, which helps me in a calibrated fashion expand the scope of the products that I'm offering. That is what has changed. And all that we are trying to do is to take advantage of that. Yes, FRAs have been existing in the market for a time, but this is probably that point of time where the yield curve also makes the FRA as suitable and an attractive product to invest in. And therefore, I can use that to provide a meaningful yield to my customers. So there is always this twofold thing of how can I offer a good yield, which typically is, the yield is lower in a government bond, higher in a corporate bond. But on the flip side, the government bond gives me duration, the corporate bond doesn't give me duration. So to construct a meaningful return proposition to the customer was more difficult before. Now it becomes more possible, more manufacturable. There is more capacity, and therefore, we are going into that. Again, I'll repeat myself, the tenor of the deferment, again, I explained, is a maximum of 10 years. You can effectively break it down into 2 parts, a 10-year 0 coupon bond and a 30-year government bond after that. And there are enough ways to execute this in the market using an FRA. So nothing has changed in our approach. We're only responding to the availability of instruments in the market. Standard products, I think, have their own place in the sun. I don't know at this point of time how successful any of them could be. But to our mind, what it creates is a market that may possibly not be existing today. When the PMJJBY was launched, it actually catapulted insurance awareness into completely differently. It is quite possible that some of these new proposed standard products achieve the same purpose. Eventually, I think insurance companies will choose their own path of where they offer the standard products and where they create their own niche. And eventually, they'll have to find their level about saying, am I competing on price for something or am I competing on service and differentiation? Even if I were to look at the U.K. market, and you're probably quite familiar with that, there was the concept of stakeholder pension which came in. It is not as if stakeholder pension meant that no other pension product existed. You still had both coexisting. So somewhere, I think there is a place in the sun for every kind of these products. Very early days yet. We are very supportive of the regulatory approach to do this because we believe that it can actually catapult insurance awareness meaningfully. For some categories of products such as term insurance or annuities, it is more amenable. For certain other categories, it becomes not so easy to create a standard product. Effectively, what we are trying to address through the standard products, in the term product, if you were to see the PMJJBY caught the bottom, the normal retail products are catching the cream, the standard term products, for all we know, but actually catch the missing middle.

Yes. But what about pricing and so on? I mean how…

I think eventually people will sell it where it makes sense to price it, Vinod. I don't think anybody is in the business of charity.

Nor IRDA is also is not tariffing this item. It is more of a standardization of terms and conditions and the product name. It is not saying that suddenly, life insurance industry is going to come under tariff regime. No, no, no. That is not the point. The form of -- they are also not saying that whoever -- they are also not saying that trespassers will be insured. We should have our own underwriting norms, and we can have our own pricing. Your point is that if you are completely out of line with the pricing, will we be able to survive? But it is a missing middle. So far, we have missed it. Probably, we think that it is -- at that price, we are to miss that market. Maybe it will open up a market, but that doesn't mean that anybody will go and sell at a loss in this segment. So I also -- going from the newspaper reports, I also see that the prices which have been filed is a far higher pricing compared to the products which have been approved earlier. So I think it will find its price. I don't think we need to be nervous about it. If we want, we can sell; if we want -- don't want, we don't have to sell. But it -- I feel that it will not only create a market, it will also increase the awareness just like PMJJBY related to the term industry. So we would welcome it at this stage. To answer your question on what else can follow, I think annuity can follow. Those are the 2 areas where there could be standardization. We will see how the market goes. And I don't think anybody will write it at a loss.

The next question is from the line of [ Manoj Shah ] from [ Black Curve Investments ].

My question is with respect to -- can you comment on the protection premium rate of our company versus the industry? And how they've fared over the last 12 months? And how do you see it going forward? And the second question is with respect to that market has rallied over the last 9 months. And you are focused more on the traditional, the savings products kind of it. And now we have launched a guaranteed product, and we are at the bottom end of the interest rate cycle. So at this juncture, we are launching a guaranteed product. Does it make sense or we should have launched it when the interest rates were very high, so that it would have given a very high guaranteed return to the product which would have appealed more to the customers?

Actually, from a guaranteed return product point of view, it's better to manufacture the product at lower interest rate and not be caught out rather than manufacturing at a higher level and be caught out because yields fall. So I would much rather be in this position. As yields increase, I can keep recalibrating the rate that I offer to my customer systematically over a period of time. So I don't think that needs to be a point of concern. On your question on the relative pricing of protection, I think in the first couple of quarters, there was significant difference. But if you see now, almost everybody has started changing their prices and prices again have merged to a similar cluster that it used to be up to last financial year, which is the top brands in one segment and then there is a second set of brands in the second segment and then the really cheap ones. We also have seen over the years that it's not necessarily the cheaper brands which do the most business. So in our own way, and I said this again in our opening remarks and Kannan also spoke about it, what is very critical is to ensure that the price at which I'm selling is consistent with the target market that I'm selling it to and with the underwriting process that it takes to make a profitable business outcome out of the price. That is the most important combination that we have to establish.

I do understand your focus on the protection business being because it offers the highest VNB margin. But in the sense, like, do you expect that with the premium rates going to harden further from here because it has hardened over the last 12 months and most of the companies kind of already increased it somewhere in the process, and -- how do you see it going forward as well, over the next 12 months?

So let me put it this way. People that -- companies that have fully reflected their experience in their price may not need to change it anymore, and we fall in that bucket. Companies that may not necessarily have reflected all of their experience in the price, but have taken a middle ground, may very well feel the need to do it again at some point of time.

So you are saying that those companies who have like not increased the rate, maybe they -- they may not be making that much margin as compared to what we have fully reflected in our products, is that the assumption for it?

I would think that is the most logical conclusion I can arrive at because realistically, we are selling to a similar target market, they're using similar underwriting practices…

Similar reinsurance also.

Similar reinsurance terms. And therefore, if the price is dramatically different, the only place where it goes into a balancing is the margin.

Okay. Now coming back to the guaranteed products, as you said that in a low interest rate environment as the interest rates move up, we will keep underwriting the returns on the guaranteed products. Like when the interest rates were high, at that time, you can lock in and buy to protect your liabilities with buying longer-term bonds. Does it make sense here?

No, absolutely, it does make sense. But again, I'll caveat it with what I said before. If I offer a guaranteed return product, for example, which offers an income for life, it becomes, I would argue, extremely difficult to construct an asset portfolio to hedge that risk. However, if I'm manufacturing a product where I have to lock into a yield for a 15- or a 20-year period, given the combination of bonds that are available in the market today plus the ability to enter into forward rate arrangements, you can still reasonably hope to lock into those rates. And this is what we have said historically. We have only 2 objectives in this management. One is to manage the level of the guarantee; and two, is to manage the tenor of the guarantee. As long as we are able to do that, we are happy to do the product. We have always had non-Par products. There has never been a period in our history where we have not had this. But the range that we have offered on that have always been calibrated to what we have believed we can realize from the market.

Yes, because the current products basically are offering somewhere in less than 6% kind of -- like, maybe 5.5%, that range going forward.

So my only point is, I don't think you can take that kind of an absolute return view on this. Reality also is that we offer 10x the premium as life cover. So it's not really comparable even to a pure investment product.

Okay. And how do you see the share of protection in your overall mix here? Any target number we have in mind kind of for the protection business, so that you reach a certain level of VNB margin over there for the overall company?

Again, like we said before, we believe that the relative underpenetration is such that we expect protection to grow faster than savings. Now I don't know whether the relative rates will be 10% for savings, 20% for protection or what it will be. But we do think that the relative growth rate for protection will be higher. We have seen this in the past 3 years now. This year has been a bit of an aberration because we have seen savings business decline. Going forward, I think the 15% mix that we had for protection in FY '20, I would quite reasonably expect that to grow to become 20% or more over a 3- to 5-year period.

Okay. I just wanted to go back on the protection premium rates. Like, over last 2 years, my understanding is that the premium rates have not changed. Is it -- it was because of more of competition between the players that with premium rates were -- for the protection business were at that level and because of the pandemic as well as because of that higher demand, the premium rates have hardened up?

No. I think the way the premium rates have moved in the past has been a combination of pricing strategies of companies as well as the pricing strategies of reinsurance. What it has also been led by is the target market. When everybody started selling, they were selling to urban affluents. Now as the penetration of protection is widening, one would expect underlying average mortality to increase. The prices today are actually reflecting that, and in fact, should make growth more sustainable than it was in the past.

[Operator Instructions] The next question is from the line of Nidhesh Jain from Investec.

Can you share some trends on ULIP sales through ICICI Bank and credit life sales through ICICI Bank because we understand on credit health sales, ICICI Bank has gone slow. So have -- are we seeing some trends on credit life as well as if you can share some sequential trends from ULIP sales from ICICI Bank?

So Nidhesh, the sequential on credit life for the bank has actually been strengthening. It's been improving. So that is something which is clearly coming out.

But we don't have -- just to clarify, we don't have those issues of health, what you mentioned. We don't have that issue at all with the bank.

So we're clearly seeing credit life grow sequentially in the bank. With respect to unit linked in the bank as well, Q3 versus Q2, we have seen a reasonable sequential improvement. So it is very positive trend even sequentially. And like we have discussed in the past from -- towards the end of January or February onwards, as we see the base effect for the bank to kick in, the year-on-year growth situation also should kind of correct itself over a period of time.

Sure, sir. And sir, second question, sir, when we sell critical health insurance, in the segmental data, is it classified in the health? Or it is classified under non-Par -- individual non-Par?

In the segment, it will be in the protection segment, individual non-Par.

Individual non-Par. Okay, okay. So what will be there in the health segment, sir?

Only standalone health products. So we have a heart and cancer product, that will be in individual health. So standalone health products come in. Products which are a health cover as an attachment to a life product, because these are not 2 products, but really an option in one, will be sitting in the nonparticipating category.

The next question is from the line of Neeraj Toshniwal from UBS.

Sir, in terms of understanding the credit benefit of, basically the benefit in this benefit product attachment, where are we currently? And where we see the scope of that extending in terms of and how margin accretive is that, understanding that it's a higher ticket comparatively to a relative protection product?

So some of the channels such as ICICI Bank, ICICI Bank, specifically, they have been speaking about how focused they are on that, we are now seeing critical illness attachment in close to 55% to 60% of the term life sales that happened there. That's the kind of attachment we have been able to get it to. Again, from a margin point of view, I'm not quite looking at it as margin percentage, it's really about, it's an incremental opportunity. And therefore, to that extent, it should help me get an absolute VNB. We have not specifically disclosed the margins, including and excluding that. As we get to the end of the year, maybe we can get a bit more color. But I can say this, for sure, attachment of critical illness significantly improves the margin of the protection product.

Got it. Second is on your, sir, group term, which has improved meaningfully, compensating the loss we had in retail, which we already discussed. What would be the margin you would be making in terms of group term. If that you can give, that would be very helpful in terms of understanding the trend, it sounds very meaningful in terms of the contribution?

Again, I would like to think that the level of granularity with which we have given margins between savings, protection, linked, non-linked is much more than anybody else in the market has provided. So please don't ask me for more detail than that. But I can confirm what Kannan told us before, which is to say that even with the current mix, protection margin as a whole for 9 months is in line with full year protection margin for last year.

Okay. That is helpful. And sir, in terms of persistency, though 13th month have picked up vis-à-vis last quarter, sequentially, the trends are encouraging. But 25th and 49th month is seeing some stress. I think you mentioned some -- the status coming from the linked business, but if you can elaborate more on that, it would be helpful.

Yes. So it is not where we would like it to be at, Neeraj. That is real. Like I said, we are working towards improving it. The things that we have going in our favor are that the market environment has been improving and, typically, we find that as favorable for persistency. Our fund performance also has been sequentially meaningfully improving. Again, we see that as favorable for persistency. Given these 2 positive factors, we are actually working towards getting our persistency to close to last year's level. Whether we'll get there or not, I'm not sure at this stage. But at least as far as the positive effects are concerned, it seems to be in the right direction. Again, I'll go back to something that I have said before. The most sensitive persistency buckets to VNB, margin, EV and variances are possibly 13th month persistency and surrenders beyond 5 years. Of course, every other bucket also has an impact, but relatively, it has a lesser impact than these 2 buckets. What we are seeing as a good sign today is that the 2 most sensitive buckets from a financial implication are probably getting much closer to where we would like them to be. Other buckets, still some work to be done, but we do expect to get closer to last year's levels on those as well. Overall, even as we speak now, I think our persistency variance is not going to be negative.

[Operator Instructions] The next question is from the line of Santanu Chakrabarti from Edelweiss.

Many congratulations on your results. I have 2 questions. The first one is a housekeeping one. In relation to the forward rate agreement market that you are talking about, which has precipitated the change of your product strategy a little bit, which has enabled it, if you could give us some sense of what is the term up to which you are seeing liquidity in this product and put some numbers as to how much is actually doable in terms of principle? Who all are the counterparties to these transactions? Some color essentially around what that product market looks like? And the second question relates to savings products, particularly unit-linked. With -- while capital markets have certainly corrected a little bit in the last week, it's very clear that there's been such a large rally from the bottom. So would you expect your unit-linked sales to pick up? And what role do you see ICICI Bank playing in it?

So Santanu, first of all, I didn't quite recognize you from the name that it displayed on the caller list. So I had to hear your voice to recognize that you are Santanu.

I think it must be a typo at the end of whoever…

Sorry. To go back to your questions on the entire interest rate derivative thing, we have already started doing transactions in forward rate agreements. What we are finding as capacity for is forward rate agreements up to a tenor of 10 years. Beyond that, we are not seeing any meaningful capacity. So any product structure where we need to elongate or lock into yields over the next 10 years seems to be possible under the current structure. Today, predominantly, our counterparties are the foreign banks. We do expect this to expand over a period of time, but at least our initial transactions are with the foreign banks. The second question on unit-linked business. Both in terms of possible business momentum as well as persistency, you're right, improving capital market is indeed a positive tailwind. But one must keep in mind that unlike an asset management product with high liquidity, it typically takes a little bit of time in both directions for the market to reflect into sales for the life insurance industry. So to that extent, directionally positive. Whether it will come through in the next quarter, the quarter after that or the one after that, I can't say with certainty today. But we do see this as a positive momentum from both a new business as well as a persistency point of view.

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

I have 2 questions. So one is like, structurally, how do you think the opportunity size is for the guaranteed and annuity products versus the protection business that we have built over the years? And also, if you can share your thoughts on the expected cross-sell rate when it comes to selling these products, as typically, I think customers who have realized the need of insurance and want protection with us are typically better suited to sold -- to be sell -- to sell these savings-cum-retirement products? So does this mean that we can like pick up on these products faster?

Okay. So Nitin, the first point is that market size relative to protection, I don't think is a fair comparison because these are really very different needs that we are talking about. I would actually break up the savings target market more into, let's say, the affluent customers and the mass affluent or the mass customer. Typically, what we have found is a unit-linked product is the more natural fit in the affluent customer segment. And therefore, the market size is defined by the size of their affluent customer base. Where we see the participating or the nonparticipating product being more popular is the mass affluent and the mass segment or maybe at times, some part of the affluent customers who want to do some asset allocation and lock into a yield for a period of time. So in that sense, the opportunity for the Par and the non-Par put together is probably more along the lines of the middle India and what you would expect that to grow into over a period of time. So slightly different target market. I would like to believe that each of these are very, very distinct opportunities. From a relative growth rate, the growing middle class of India probably will give its own strength to the Par and the non-Par business going forward but very, very different target markets from a protection or from a unit-linked, is the way we look at it.

Okay. And secondly, on the cross-sell rate?

Cross-sell, I don't know. I can stand up and say that I would like cross-sell to be at a Par higher level than what it is today. But somewhere, the reality of life also is that in a market where new customer acquisition or the penetration is so low, focus tends to be more on new customer acquisition. Cross-sell is something which probably starts peaking in only when the market gets more and more saturated. So even today, I think cross-sell rates are actually fairly low and trivial for the industry. But it would actually -- the priority is acquisition of a new customer. Cross-sell will become a priority only over a period of time.

Okay. And my second question is, if you can share the number of COVID claims in both group and individual business? I know that you have shared the amount of claims, but if you can share the numbers of claims also?

Number of claims, I don't know how relevant it is. It's more from a financial impact point of view. The proportion of deaths that happened to the insurance industry's claims or our company's claims in relation to where we are in the market versus the population, we are actually quite trivial. That is the reality. Really, the meaningful thing for us is the size of the claim, and that's what we have tried to disclose, specifically highlighting that even if the size of claims that we have had, it is in line, actually better than what we had provided for in our liability basis. And therefore, it doesn't hurt the P&L. We still have a large COVID provision, which is completely untouched. And given that we have seen the deaths already peaking, we will assess as we go along whether we may even need to use that additional provision or not.

Right. So approx how much is the size of this COVID claim, approximately? Average per claim.

Total amount, INR 3.5 billion of total COVID claims.

No, no, average of per claim. I'm sorry.

Then you're basically asking me to tell you the number of claims.

I thought you were indicating that average would be like close to the overall level. So I thought maybe I'll ask the average.

Now I know that how people are interrogated.

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

Thank you once again for participating on the call. And we are sorry once again for the late call because the Board meeting was scheduled late in the afternoon. I hope that we have answered all the questions in an exhaustive manner. But if there are any residual questions, my team and I are available for answering. Thank you very much, and good night.

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