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

Ladies and gentlemen, good day, and welcome to the ICICI Prudential Life Insurance FY 2021 Earnings Call. [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 very much. I hope I'm audible. Good evening to all of you, and my apologies for making you wait, we had the Board meeting in the afternoon and I could just join the call only now. I welcome you to the results call of ICICI Prudential Life Insurance Company for the financial year -- full financial year 2021. I have several of my senior colleagues, as always, with me on the call. Satyan Jambunathan, our CFO, is there on the call. We have Judhajit Das, who Heads Human Resources, Customer Service and Operations for us. We have Amit Palta, our Chief Distribution Officer. He also handles brand marketing and other products. We have Deepak Kinger, who is the Chief Compliance Officer. He's also responsible for audit, legal and risk function. We have Manish Kumar, who is our Chief Investment Officer. We are joined by Asha Murli, who is our appointed Actuary. And we also have Dhiren and Mukesh from the Investor Relations team. Let me first start with a quick review of financial year 2021 in the context of one of the most pervasive pandemics in the history of mankind. Like many other countries, the COVID-19 pandemic induced lockdown in India, caused the disruption in the economic activity, resulting in a contraction of GDP by 24.4% in the first quarter of the financial year. Consumers faced a risk of job losses as well as fall in income. With this uncertain environment, we saw consumers unwilling to commit to a longer term savings products as well as preferring traditional products to unit-linked products. The initial focus area for us as an organization was to engage with all the stakeholders and to ensure the resilience of our business and operations. We saw the Annualized Premium Equivalent, the APE, and decline by 44% during this first quarter. The calibrated opening up of the country and the economy from June 2020 led to improved economic activity. By following the safety protocols for COVID-19, we were able to operationalize all our branches. During the second quarter, our Annualized Premium Equivalent, APE, declined -- reduced to 23% decline from 44% decline in the first quarter. We also focused on creating a base for future growth by diversifying our distribution through new agents and new partnerships. This helped us capitalize on a renewed interest of consumers in the unit-linked products. In the third quarter, GDP grew by 0.4% year-on-year, and we also arrested the APE decline in channels other than ICICI Bank, which grew 8.7% during that period year-on-year. Alongside, we enhanced our product suite by introducing new products, including deferred annuity. On the back of diversified distribution, the sequential momentum we saw since Q2 and an enhanced product suite helped us register an APE growth of 27% in the fourth quarter on a year-on-year basis, with March actually being more than 100% growth on a year-on-year basis. As we speak, we intend to carry this momentum forward, while also being cognizant of the recent surge in the COVID-19 infections in the country. I'll now move on to the performance for the quarter. Our 4P strategic elements, that is premium growth, protection business growth, persistency improvement as well as productivity enhancement, continue to guide us towards our objective of growing the absolute Value of New Business, VNB, while ensuring that our customers is at the core of everything we do. Our robust performance across customer-centric parameters is presented in Slide 6 of our presentation. Our 13th persistency for non-linked savings has reached -- sorry, has reached 94% as of March 2021. Our claim settlement ratio stands at 98%. Very importantly, if you recall, for certain category claims, we had introduced 1-day guaranteed settlement promise in financial year 2020. I'm delighted to report that for the full year 2021 financial year, 100% of all the eligible claims were settled within the promised time line of 1 day. And just to give you a context, the claims under 1-day promise were 2/3 of the aggregate debt claims of the company by volume. With this, the average time taken for settlement of all the claims was just 1.4 days in financial year 2021, a further improvement from 1.6 days in the previous financial year. Now I will talk through our performance on the 4Ps through Slide 7 to 11 of our presentation and then I'll conclude with a commentary on the VNB. Coming to the first P of our strategic elements, which is premium growth. Our new business premium for financial year 2021 grew by 6% on a year-on-year basis to INR 130 billion. As mentioned earlier, we registered an APE growth of 27% in the fourth quarter of the financial year, ending the year with an APE of INR 64.62 billion. Our new business composition over the years was dominated by unit-linked products. As you can see on Slide 8, in the financial year 2018, unit-linked products alone has contributed 82% to our top line. Since financial year 2019, we have been systematically working on broadening our customer base through a combination of distribution buildup as well as product propositions. As we speak today, for financial year 2021, unit-linked products contributed less than half of our top line with 31% being contributed by the non-linked savings products and 16% by the protection products. With this, we believe, we have diversified our product mix adequately, enabling us to manage the impact of external development in a much better manner as we move forward. The testimony to this has been our recent performance on the premium growth. As you know, in union budget 2021 high ticket unit-linked products were subject to capital gains tax since February 1, 2021. And during that time, there were a lot of concerns which were raised by the market regarding the demand for unit-linked products, and consequently, what would be our top line. I'm happy to report that despite this development, our new business premium based on retail weighted received premium grew 48% year-on-year since the announcement of that measure -- since the measure became effective. Similarly, on the distribution channel, we focused on expanding the distribution network through acquisition of new partners as well as investing in creation of new sourcing channels themselves. With higher contribution by some of the recent partnerships, we have further diversified our distribution mix for the financial year 2021. Moving on to the second P or protection business growth. During the year, we saw an increase in the end consumer prices, as we have discussed in the previous calls for protection plans, driven by reinsurer-led price increases. Also, given the live pandemic environment, supply side constraints, including the general reluctance to visit medical centers for examination and also revised underwriting guidelines, impacted the retail protection business. Despite these challenges, through our focus on the group segment, specifically on group term products, our protection mix further increased to 16.2% for the whole of financial year 2021. With an APE of INR 10.46 billion in financial year 2021, we saw a steady sequential growth quarter-on-quarter, that has also been presented on Slide #9 in terms of our sequential momentum of protection business. Further, I would also like to highlight that based on total new business premium -- sorry, new business sum assured, we continue to be the leader in the private sector. Our new business sum assured market share significantly increased from 11.8% in the previous financial year to 13% as of February in the financial year 2021. Our efforts in encouraging customers to complement their life insurance coverage with critical illness cover has further aided the increase in commercial market share. That has been one of the key drivers of increasing our market share even as the base retail protection products were a little bit of pressured because of the reasons I mentioned. On the third P or persistency, presented in Slide 10, we saw significant improvement in the 13th month as well as the 61st month persistency ratios. Our 13th month persistency ratio for retail business, excluding the single premium, has increased by 160 basis points to 84.8% at the end of March 2021 as compared to March 2020. Also, our 61st month persistency ratio has increased by 230 basis points to 58.3% at the end of March 2021 as compared to March 2020. While I highlighted it earlier, this would be worth mentioning, again, the 13th month persistency ratio of non-linked savings for retail business, including single premium, has reached 94%. On the fourth P or productivity improvement, presented in Slide 11, our cost to TWRP, that is total weighted received premium ratio, was 14.8% as compared to 15.9% last year. So we have seen improvement in the productivity and cost ratios as well. For the savings business, this ratio was further down to 9.6% single-digit percentage as compared to 10.4% we saw last year. So our cost ratios are one of the best in the industry, as you know, and we continue to leverage technology to improve this. Coming finally to VNB. As a result of these drivers I talked about now, the VNB, Value of New Business, for financial year 2021 was INR 16.21 billion as compared to INR 16.05 billion for the previous financial year. Our VNB margin increased from 21.7% in the previous year to 25.1% for the financial year 2021. This increase in VNB margin is primarily on account of growth in non-linked savings business and, of course, increase in the protection mix we talked about. The result in product mix has also helped us diversify our source of our profits as evident on Slide 12. For instance, if you look at the VNB contribution of non-linked savings that has increased to 24% in financial year 2021 as compared to 9% in financial year 2019. So if you really look at this chart of VNB contribution development, roughly about 55% of our VNB comes from protection. So savings and protection are 45-55 in terms of VNB development as ratios. And within savings, if you look at it, it is equally -- broadly equally distributed 50-50 between traditional and linked products. So we do believe that we've been able to very well diversify the sources of our profit as well. Along with this diversification of VNB, we also continue to maintain a resilient balance sheet. Of our total liabilities, non-Par guaranteed written products comprise about 1%. We continue to closely monitor our liquidity and ALM position. We have no issues to report to you. On credit risk, only 0.5% of our fixed income portfolio is invested in bonds rated below AA. And we continue to maintain our track record of not having a single nonperforming asset since the inception of the company. That has happened during this year as well. On insurance risk, we continue to hold additional reserve and we have upped the additional reserve, as you can see from this chart, to INR 3.33 billion towards potential COVID-19 claims. So that is the opening balance we are carrying against future COVID claims. Further, operating variances on other parameters continue to be positive for financial year 2021. Our solvency ratio has increased to 217% as of March 31, 2021, compared to 194% as of March the previous year. Now I would like to mention that we continue as a way forward to maintain our objective of doubling our financial year '19 VNB by financial year 2023. As you can see from Chart 14, this requires a compounded annual growth rate of 28% of VNB over the next 2 years. We aim to achieve this aspiration through our 4P strategic elements, as we have talked about earlier. First, our primary driver to meet this VNB aspiration will be that of premium growth. As you can see, last year, despite the pandemic and despite the challenges we have had in terms of our product -- the lack of product diversification or some of the partner priorities, we still managed to maintain our Value of New Business but -- and that has been caused because of the expansion of margin. But going forward, the primary driver will have to be the premium growth. Since financial year 2019, our growth lagged the overall industry growth, that is also something you are aware of. But with the diversified product mix in place and an enhanced distribution network with a significant addition of new partners during the year, we expect to deliver higher growth. The results so far in terms of what we have seen as a sequential improvement throughout the year and also a 27% year-on-year growth in the fourth quarter give us this confidence of moving forward on this path. Coming to our protection business. Even as we calibrated our pricing and underwriting norms, we were quick to spot the opportunity in group term segment and increased attachment of riders as well. This approach will continue. Also, we have been able to build the sequential momentum in retail protection, which I've talked about earlier. Third, in terms of persistency, despite an uncertain environment during financial year 2021, our persistency ratios have actually improved. We endeavor to further improve the ratio across the cohorts because there are a couple of cohorts where it has been range bound and we have to do some more work. And doing so, we will increase the segment level margins as well. And finally, on the cost ratios, we target a positive operating leverage, given the growth in the new business premium. That will be the path towards achieving this VNB aspiration. With this, I'll now hand over the call to Amit, our Chief Distribution Officer, and then to Satyan to talk through some of the details of our operating performance as well as financial performance. Thank you very much once again, and apologies for the delay in the call. Thank you.

Thank you, Kannan. Good evening, all. As part of our agenda of delivering long-term sustainable growth, we have been systematically working on broadening our customer base. To achieve this, we are using 3-pronged strategy: product propositions, distribution buildup and customer retention. Coming to products. During this journey, the strength of our product range with propositions to suit different risk characteristics of customers has been a very important enabler. We enhanced our product suite and launched newer products to capitalize on the opportunities in the emerging environment without compromising on our risk management approach. We'll continue to look to better the product propositions for our customers. On the savings side, our product offerings range from unit-linked products without any guarantees at one end to fully guaranteed return products and default annuity on the other end. To meet protection needs, we have a suite of retail group and critical illness products. As you can see, our quarter-on-quarter performance of our saving products on Slide 18, we have seen a strong sequential momentum since quarter 2 FY '21. Specifically for quarter 4 FY '21, we have registered a strong growth year-on-year across the product segments, including the linked segment, which has turned positive during the quarter. This strong growth was achieved through a product diversification journey we undertook since FY 2019. For full year of 2021, our non-linked savings business grew by 56% and annuity business grew by 120% year-on-year. In terms of new business received premium, annuity business contributed about 17%, amounting to INR 23 billion for the full year 2021. It reinforces our credentials as a significant player in pension and annuity provider in the market. As you well know, our wholly-owned subsidiary, ICICI Prudential Pension Fund Management Company Limited, distributes products under the National Pension System and is registered as a pension fund manager. This business, we believe, is synergistic with our annuity business, and thus is one of the key elements of our strategy. The AUM managed by Pension Fund Management Company has increased by 74% to INR 75.59 billion at March '21 as compared to INR 43.53 billion at March 2020. In terms of new subscriber additions, the PFMs market share has increased to 18.4% this year as compared to 14.8% last year. PFM has also commenced its business operations as Point of Presence in FY '20 and has started scaling it up. Early results are evident and in terms of new subscriber share for 2021, our PFM stood second among the pension fund managers registered as Point of Presence. Further, with the renewal of our certificate of registration to the PFM and given that AUM size is less than INR 100 billion, 9 basis points can be charged as investment management fees from 1st April as compared to 1 basis point earlier. Moving on to Slide 20. Given the significant under-penetration in India, protection segment has been another focus area for us. During the year, we saw an increase in end customer price for protection products, corresponding to an increase in reinsurance rates. Given the pandemic, supply side constraints, including a general reluctance to visit medical centers and revised underwriting guidelines have impacted the retail protection business. However, we saw an increased demand in the group segment, specifically for group term products. With this, while on full year basis, protection business declined year-on-year. We saw a steady sequential growth across the quarters. This also led to group protection business becoming a key category for us while we continue to maintain a lead in the retail protection segment. We believe that protection is a long tail business. And hence, it is important for companies to have underwriting practices commensurate with the price as the risk will emerge only over a period of time. Given that the protection market in India continues to be significantly under-penetrated, we believe it to be a multi-decade opportunity, and specifically for a company like us with a strong customer proposition and a wide distribution. Moving on to the second aspect on Slide 22. We have continued to enhance our distribution network across channels. In the agency channel, the approach has been to ring-fence our highly productive agents. We also added more than 20,000 new agents as part of our strategy to broaden our customer base. Within the bancassurance channel, as you know, we announced multiple partnerships during the year and have a total of 23 bank partnerships now. With these partnerships, we have broadened our reach to 162 million bank customers with a branch footprint of about 12,000 branches. Within the ICICI Bank channel, the focus on deepening the underpenetrated customer segment has continued in FY '21. Specifically on annuity business, ICICI Bank channel grew by more than 400% over last year. On partnership distribution, we added 110 partners during the year and have almost close to 600 partners across traditional and nontraditional distributions, such as web aggregators, payment banks, small finance banks and insurance marketing folks. For the direct channel, which comprises sales through our own website and employees on our payroll, the strategy has been of upsell to the existing customers with the help of analytics. Coming to the performance of these distribution channels on Slide 23 and 24, first on the bancassurance channel. The new bank partnerships have gained strong momentum and are already contributing significant share of APE in a short span of time. Specifically for quarter 4 FY '21, banks other than ICICI Bank have contributed 16% of overall APE. ICICI Bank, which continues to be aligned to our VNB objective, also turned positive on year-on-year APE growth in the month of March. Distribution channels other than bancassurance have also seen a strong sequential momentum and have registered a strong growth in quarter 4. Specifically, the agency and partnership distribution channels grew by 37% and 63%, respectively year-on-year. Moving on to the third and an equally important aspect, which is customer retention, which is persistent. You may recall, we had mentioned in our quarter 1 results, that we expect 13th persistency ratio to recover as we go through this year. I'm happy to inform you that our 13th month persistency ratio has not only recovered but has crossed last year with a significant margin and stood at 84.8% at March 2021. Also, our 61st month persistency continues to make significant strides by improving from 56% last year to 58.3% now. We have seen some decline in persistency ratio of other cohorts, and the decline is primarily within the linked business while persistency of other product segments continue to grow. So performance on these 3 aspects, repeating product propositions, distribution buildup and customer retention, make us believe that we have come a long way in our journey undertaken to broaden our customer base. This performance also positions us well to continue the growth trajectory seen in quarter 4 2021. As you can see on Slide 28, we have seen strong sequential momentum during the year and across the new business premium metrics. Based on retail weighted received premium, we have gained significant market share during the year. While March industry numbers are not disclosed yet, I'm happy to report that we have delivered the highest ever monthly APE value of INR 11 billion since the inception of the company, recording a growth of 100% -- 108% year-on-year. With this positive note, I'll now hand over to Satyan to talk through on the financial performance. Thank you.

Thank you, Amit. Good evening, everyone. Our performance on the 4P strategic elements resulted in a VNB of INR 16.21 billion for FY 2021 as compared to INR 16.05 billion for FY 2020. Despite an APE decline of 12.5%, we were able to grow VNB for FY 2021. Our margin for FY 2021 stood at 25.1% as compared to 21.7% in FY '20. The contribution of VNB from non-linked savings products has increased to 24%, resulting in a further diversification of our sources of profits. As you can see on Slide 30, the movement in margin from 21.7% to 25.1% can be explained by the following: 3.9% of margin improvement has been on account of business mix, which includes a higher non-linked savings and protection mix. 0.2% of the improvement in margin has been on account of expense efficiencies. There has been a decline of 0.7%, which is predominantly on account of the yield curve going down during this year. If you look at Slide 62, it gives a comparison of the yield curve from FY '20 to FY '21. There is no significant operating assumption changes, which has improved or adversely affected our VNB. During the last quarter, we had disclosed the impact of COVID-19 on claims and provisions. I will now talk through the updated numbers as of the end of the year. As you can see from the chart on Slide 31, the pattern of mortality development still continues on a downward slope. Since mid-March 2021, we have seen a fresh surge in COVID-19 infections. Given that there is usually a lag in reporting of claims, we may see a change in the pattern as we go ahead. For the full year, we had gross claims on account of COVID-19 at INR 4.59 billion and net of reinsurance recoveries, our part of the claim amount was INR 2.64 billion. On examining the claims pattern, we see the possibility that some claims on account of COVID-19 may not have been appropriately reported. We will observe the development of claims through the year, next year as well before we conclude on how we separate COVID-19 and non COVID-19 claims. Keeping in mind the current surge of infections and deaths and looking at the age-specific death rates we have experienced on account of COVID-19, we feel it is prudent to increase the provision for future COVID-19 claims to INR 3.32 billion as compared to INR 1 billion at December 31, 2020. Please note that claims due to COVID-19 during the year as well as the provision for future COVID-19 claims have already been fully reflected in the closing embedded value as of March 31, 2021. Referring to Slide 32, our embedded value at March 31, 2021, was INR 291.06 billion compared to INR 230.3 billion at March 31, 2020, a growth of 26.4%. This growth in EV was led by a 29% growth in the Value of Inforce or VIF. Our embedded value operating profit, EVOP, for the year were INR 35.05 billion as compared to INR 32.88 billion in FY '20. The breakup of EVOP is as follows. The unmined amount is based on the opening yield curve. The reduction in reference rates during FY '20 has resulted in a lower contribution of unwind to EVOP in the current year. Operating assumption change was a positive INR 3.09 billion. This is largely explained by a positive impact of about INR 5.7 billion,from the improved expense efficiencies and some improvement to later period unit-linked surrender rates. This was offset by about INR 2.5 billion on -- INR 2.6 billion on account of increase in COVID-19-related provisions, which was for the future years, as I had explained earlier. The VNB of INR 16.21 billion was 7% of the opening embedded value. We'll continue to see a positive persistency variance of INR 1.1 billion on the back of an improved persistency across most buckets and this was higher than FY '20. Mortality variance for the year was negative INR 2.37 billion as compared to positive INR 0.42 billion in FY '20. This needs to be looked at in the context of COVID-19-related claims of INR 2.64 billion approximately. With the additional provision of INR 3.32 billion that we have made for the future, unless COVID-19 claims in the next year exceed this amount, we would not expect any further negatives. When we had disclosed our embedded value number at September 30, 2020, mortality experience, including COVID-19 claims, was within our assumptions and that is what we had discussed in the results call. As we have highlighted in the chart on Slide 31, the peak of COVID-19 claims has happened in H2 FY 2021, resulting in claims, including COVID-19, exceeding the best estimates. The other operating variances remained positive. As a consequence, the RoEV for FY 2021 stood at 15.2%, the same level as for FY 2020. If not for the COVID-19 specific impact of higher claims and a closing provision of INR 3.3 billion roughly, the RoEV for FY '21 would have been much higher. Beside EVOP, an improvement in capital markets during the year resulted in a positive impact of INR 25.67 billion on account of economic assumption change and investment variance put together. This compares to a negative impact of INR 14.76 billion for FY 2020. So the positive economic variance impact has been substantially higher than the negative that we saw in the last year. This overall has resulted in the EV growth of 26.4% for FY '21. The closing EV, as I said, stood at INR 291.06 billion as of March 31, 2021. On Slide 34, sensitivity retail of VNB and EV have been provided. While most sensitivities are similar or lower as compared to last year, the sensitivity of VNB to reference rates has changed direction, given that -- given the higher share of non-linked savings and protection put together in the VNB. I would, however, highlight that the sensitivity to a 1% drop in reference rate is still only a 1.7% drop in VNB. So the sensitivity still remains quite low. Our VNB and EV have been reviewed independently by Milliman Advisors LLP, and their opinion is available in the results pack submitted to the exchanges. Coming to other financial metrics. Our profit before tax was INR 10.81 billion for FY 2021 as compared to INR 10.69 billion for FY 2020. Tax charge increased to INR 1.21 billion on account of the withdrawal of dividend exemption and no final dividend paid by the company for FY 2020, resulting in a higher taxable surplus. The company's profit aftertax was INR 9.6 billion for FY '21 as compared to INR 10.69 billion for FY '20. The difference was really on account of the higher tax charge. Our solvency ratio continues to be strong at 217% at March 2021 and our AUM at INR 2.14 trillion at March 2021 was a growth of 40% over March 2020. To summarize the performance of the full year, despite a decline in APT, our VNB grew and VNB margin increased to 25.1%. This was on account of a diversified product mix, improvement in persistency and higher efficiencies leading to lower expense ratios. On that note, thank you very much. 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.

Kannan and Satyan, 2 questions. One is on the protection business itself, right? So we are hearing one more round of reinsurance hikes likely to happen because of the adverse COVID-19 experience. And I'm looking at your protection margins, it's gone down from 109% in FY '19 to 83% in FY '21. And there has been 300 basis points also decline from FY '20 or FY '21, right? So how do you look at this protection margin and the role that it would play in the overall VNB margin? And the second question is, of course, the fact is that you need to have a 28% CAGR in the next couple of years. Would it be the fact that it's going to be entirely driven by growth? Or you still believe in the current backdrop of reinsurance hikes further likely to happen, you still can maintain your VNB margins at these levels? Yes. Can you just explain on that, please?

Thank you. Thank you, Suresh. Let me start. Kannan here, then Satyan can supplement. First, as you know, given the protection -- the nature of protection business on the long-term and the values involved, reinsurers are required to be in the game. I don't think we can really do the business without the help of reinsurers. We would continue to have a strategy of reinsurers being there in the equation. So to that extent, their pricing is important. As we had told you earlier, in the month of July, we had passed on the increase in reinsurance premium to the customers, thereby, we wanted to protect the margins. That's what we had communicated to you. That strategy broadly continues. And as we speak now, to your question, whether reinsurers are contemplating an increase for us, the answer is no. We don't expect any increase arising [ order of ] the reinsurers further increase because that is not on the cards as we speak today. Now the second question you asked is about the margin 80 -- around 89%, 90% margin is what you talked about. Yes, it is. Compared to 100% plus margins, it is the lower number. But if you really see the development of the pricing over the year -- over the past year, we mentioned that in the first quarter, even as we were waiting for approval from IRDA for the increased pricing, we had to sell the products, not with the full reinsurance, again, of passing on reinsurance premium passing on to the customers because we didn't have the approval for the increased pricing. At that time in the first quarter, we had a drop in margins of protection products, which got pretty much [ retried ] only in the subsequent period. So I would request you to see that 89%, 90% you talked about in the larger context of weighted average of first quarter being sold with lower margin and subsequently, margins getting protected because of full passing on of the reinsurer pricing to the customers. So that is the bottom line in terms of price increase as well as the margin. So we hope to maintain the current margins as we move forward. Now to the -- to your question on how do we mitigate this whole protection business in terms of margin, we do have this -- including some of the margin pickup in the savings side, the strategy, which I had said in my opening remarks of the riders, critical illness riders as well as accident benefit riders, that has been a huge attachment we've been able to drive in ICICI Bank as well as the other partners. So a little bit of loss on the retail protection side. We think we'll be able to manage it through the riders and critical and less attachment strategy as well as the group term business strategy. With regard to your question on the need to pursue something like actually more like a 28% CAGR in the next 2 years, definitely, in the first year out of that, which is FY 2022, we would see it largely happen on account of the top line. So what gives us the confidence on the top line? Clearly, the way we ended this quarter and including the month of March, there's a huge momentum here, about 108% growth we had on the month of March, that is really going to -- we are going to take it forward, that momentum. Plus all the banks, which we have added during the year, they've been pretty much in operation only for a couple of months. Some of the banks have got some momentum and we do believe that the benefit of having them for the whole year is going to benefit us. And as you know, ICC Bank's change of strategy has resulted in the number coming down, but that is also fully baked in, in the base effect. So given the current momentum, given the levers we have added and given the fact that we will be able to activate all the partners, we are quite confident, at least in the first year out of the 2-year horizon, achieving it through the top line. Anything else, Satyan, you want to add, please go ahead.

Nothing else, Kannan.

Suresh, anything else? I'm happy to answer.

Just 1 more question. I'm just trying to bake my head on this, I mean, whatever I've learned about this business. The group term seems to be less profitable and you have increased your share from 10% to 22%, but still maintained your protection margins. I mean, Satyan, can you explain, or Kannan, how can you have such good margins in the group term business? With what we hear, is it really a low profitable business -- a low-margin business?

So Suresh, the entire group term margin outcome is a function of what is the level of pricing that we are able to sustain and what is the stickiness of the group client over a period of years. What we have been able to build as a portfolio on the group term side is a fairly sticky portfolio. What we were able to do in this year is leverage those existing group term client relationships and enhance the level of cover. So effectively, we do take a view on what group term deals to participate in and what not to participate in. And we prefer to be in deals where we are much more confident of the mortality outcome or with the price. So really, the outcome on margin of profitability will be derived by this combination of how much of pricing I'm able to have and what is the level of stickiness I have with group clients, both of which have worked very well in the last year for us.

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

Congrats on a good end to a calendar year. So I had 3 questions. My first question is on the change in direction of VNB to sensitivity of increased rates. So just wanted to understand that if even our protection and our non-Par book is completely hedged, how can we have a change in direction? And to what extent are we expecting this change to go ahead in the future because our protection and non-Par book might only increase going [ well ]? That's my first question. Second question, sir, a follow-up again on the protection business. So what we have been hearing is that insurance as a whole in the protection side, it's going to -- the cost is going to increase in the coming year. And there's a lot of competition in the industry, which I don't think is going down anytime soon because of the excess capital also, which is flowing in the industry. So do you see -- do you think that we might need to increase our share of ROP products going ahead? Because with the kind of mentality that Indians have that they need something in return for something. And a couple of our peers also going aggressive in this segment. Do you think this is a segment which we should focus on better in order to maintain our protection share because over the year, it has been consistently going down. And so that's the second question on the protection side. And thirdly, sir, again, on the 28% CAGR that we were expecting. I understand the fact that the next year will be a good growth because of the [indiscernible] because of the efforts we have put in last year. But if I break it down by different businesses, ULIP, again -- if we go very aggressive in ULIP, that might affect our margins to some extent. Non-Par also is a business where there's a lot of competition, which is kicking in. And that might also drive some kind of restrictions from our end in order to maintain our margins. And protection, again, we might enter into a high base period notwithstanding the 3 months again in the next quarter, which seems to be challenging because of the second wave. So how are you foreseeing a 28% CAGR? If I -- like I'm unable to understand that if I break it down to product-wise, where is that advantage that we might get and be able to grow this business? So that's the 3 questions.

So Arav, if I were to pick up one at a time. The first question was with respect to the sensitivity of the VNB on account on the -- or the change in direction. And the change in direction is a factor of 2 parts. The profit margin of nonparticipating product is driven by 2 factors: one, what is the spread and second, what is the discount rate. Now as interest rate goes down, the spread will naturally go down. Normally, when that happens, what you would do is you would reprice the product. Effectively, what the sensitivity tells you is what would happen if you didn't reprice the product. So to that extent, the sensitivity of VNB is only relevant if repricing doesn't happen. Otherwise, if the sensitivity of the EV, which is the book which will dominate the overall outcome, whatever you may do with respect to hedging. Eventually, given that your protection liabilities are extremely long term, and this is not the first time I'm saying this, I spoke about this at the last year-end results as well. As the share of non-linked savings and protection business increases, it will start to mute some of the other direction impact that we are getting from our unit-linked business. So that is natural. That's the structure of the product. At the end of the day, if you see the sensitivity, it is not like the sensitivity is huge. A mismatch in hedging will give you a large sensitivity. A more hedged portfolio should give you a lower sensitivity. But I would argue that you can never have a situation where it has no sensitivity. So the direction, which is driven, like I said before, by the increasing contribution in the VNB of both the non-linked savings and of the protection. So this direction, you should now expect. The other direction was unusual and driven by the extremely high contribution of unit-linked in our VNB in the past. I don't see it as a risk to VNB. I really see this as a demonstration that the sensitivity is low, and there is always an opportunity to reprice new branches of business should interest rates come down. And old tranches of business by the hedging strategy has locked in, should they become insensitive in a way to change in interest rates. The second question that you asked with respect to protection. I think, yes, there has been a lot of discussion about premium increasing, reinsurance premium increasing. But a lot of the conversation really ignores the fact that some reinsurers increased premium early on in the last year and others had not yet increased it. It also ignores the fact that some insurance companies increased premiums early on in the year and others did not or did not increase it significantly. So I don't know whether the answer is going to be a one size fit all to say that all companies will, for sure, have an increase in premium. It may really be a combination of 2 factors. What was their reinsurer's pricing approach then and now? And second, how much of any part increases they have been able to pass on before versus what they want to do now. So that really is going to be company-specific as Kannan also spoke about in his opening comment and in answer to the first question. At this point of time, we are not expecting a change in reinsurance prices for ourselves. Can I get back to your third question? I kind of missed that.

Yes. So sir, for the protection, I just had one more question in that regard. So do we look -- are we looking to increase the share of ROP products in our protection, sir, because given that we share mostly -- we sell mostly [ pure retail ]. And my third question was again on the...

Yes, on the growth, on the growth.

Yes. First, I'll just talk about the ROP, then Satyan and Amit can answer the growth question. On the ROP, Arav, are we averse to introducing our ROP product? No, not at all. But will we introduce just to classify that item under protection line of business just to say that protection is going up? There's no way. So if you are going to be introducing our ROP product from a customer perspective, yes, we may still do that. But given the kind of margin characteristics, we'll be more closer to the savings product as a high cover savings product as against the protection products. In all likelihood, we will go ahead and classify it separately, but we will be alive to the market opportunity as well as the consumer preference in deciding to introduce the ROP product. If you really look at our history during the last couple of years, you can see that whenever that we saw the emergence of the demand in a particular area, we have never hesitated to introduce the products which we wanted to introduce, subject always to a hedging requirement, and by hedging, we always mean external hedging. We don't get into this business of internally owned portfolio hedging another portfolio. So when we got the confidence that we are able to get the FRAs and things executed outside and we are able to get a good outcome for us, from a risk management perspective, we have introduced products like GIFT, which is Guaranteed Income for Tomorrow. And we have also introduced products like Guaranteed Pension Plan, which is a deferred annuity plan. So we will not -- we will not be hesitating if we see a good customer preference, and this is in the interest of the customer. I want to assure you. But in terms of classification of the product, in all likelihood, depending on the margin characteristic of the product, we will classify it separately and not include it in the protection by which the overall margin can get messed up. So that is what I want to do offer by way of answer to your question on ROP, Arav. Then I will pass it back to Satyan and Amit to answer your question on what the confidence of the organization in terms of the growth in the next year, specifically and over the next 2 years. Satyan, Amit, yours.

Amit, do you want to take that?

Yes. Yes. So I'll go with that. So Kannan just touched upon on the product interventions, which typically came into play in the second half of the last year. And we expect probably the new product introductions that we did on Guaranteed Income for Tomorrow, which is GIFT, as well as something that we launched on annuity products. We'll now have a full year to play. Because then those products are now waiting for the entire year. That's one intervention, which I want to speak about. Second is, as you know, that newer channels, specifically bancassurance, I'm talking about, they were all added towards the latter part of the year. And as you know, that in more partnership, the onboarding process typically gets system and process integration to take a little longer. And virtually, it was only 45-day kind of a performance or a 2-month kind of outcome that we could actually see in the previous year. To that extent, I believe that now with the full year operational relationships and a further investment that we have done over a period of last couple of months, both in February and March, I see a good runway available for us in the next 12 months period. And third, one more thing I want to make a point is, apart from bancassurance partnerships, we've also added significant number of partners in the partnership distribution space last year, which is typically a corporate agency and broker. And we have seen that, typically, a year or 2 of a new partner is where you start building up productivities. And this is one of those channels which has actually grown almost by 30% Y-o-Y basis even in this current year. So we believe that these are the kind of levers that are clearly available for us on the scale. Apart from the upside that we expect on the distribution efficiency, which we have been able to build an agency as well as on proprietary sales force, which is our upside channel. So all this makes you believe that the momentum which is being built, which is the sum total cumulative impact of all the channel interventions. But I guess 12-month runway will hold us in good stead.

Right. So sir, the margins, like we'll be able to maintain the margins plus/minus 1%, even if ULIP share goes up a bit, right?

That is what we are hoping, Arav. Because when I mentioned about the growth, sort of the base case is that we would broadly maintain the margins around this level.

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

Yes. I had 2 questions. It was on the growth aspect, which you build upon. So congrats on the banker channel tie up and that is a good factor. So that's helpful. If I try and dissect the momentum growth, which we talked about over the last few minutes, can you give some more color on channel-wise because the recent banker tie-ups, if I look at -- be it the AU Bank or RBL or IDFC, they cater to a segment which is already feeling stressed due the second wave of COVID. So will it be banker channel only? Or is it upselling to existing customers? Or is it ICICI bank, which will be a bigger driver on the channel part? That was the first question. And second, at the customer end, how are we dealing with medical debt and reports? Any -- because most of the diagnostic chains are to busy to -- second wave of COVID. So those were 2 questions. [indiscernible]

Prakash, I'll take that. Amit, this side. The first question, if I've understood it right, is your concern about the impact that bancassurance as channel will have in the second wave. So I would just like to mention here that being part of the essential services, I think providing banking services to the customers would continue even in the most adverse environment. And we have seen even in last year, bancassurance in the industry did actually hold insurance in good stead. And grew phenomenally in comparison to some of the other distribution channels. And last year, look at the overall bancassurance space, you would have seen significant movement across category of products that you could see even in the most difficult phase 1 or wave 1 of COVID. So I don't see that -- didn't change in any time in wave 2 as well. I see the stress would be there. There will be a rostering of employees, which was like the way it was last year. But I'm sure everybody has learned with the experience in wave 1 and will be as much impacted as any other channel or like the way it was impacted last year. So to that extent, I don't see bancassurance in specific getting impacted differently in comparison to any other channel or in comparison to last year. So that's something which is my answer to your bancassurance concern. Within ICICI Bank and others, we do believe that there are definitely some distinct customer segments which we have been able to reach out through some of our partners like AU. So while IDFC is reaching out to affluent customer segments, AU gives us a very different flavor of relatively a mass and mass uplink customer segment. They are -- we are looking at opportunities on the product segment, which is most ideal fit for the segment that is available there. And we see also because of the different product customer segments, even the product mix, which is emerging out of our all bancassurance partners is very different and is aligned to the customer segment than their survey. So to be very honest, while in ICICI you can see a product mix very similar in IDFC in comparison, but all the other channels, customer segments are actually driving the entire quality mix behavior. So to that extent, we are not worried. We are not chasing products. We will let the bancassurance partner decide their priorities and what they believe is the most appropriate product for their customers, we will just align and serve and offer it to them. And we'll take the outcome the day it comes.

If I have just 1 thing to add to what Amit said, the capacity building in distribution that we have focused on this year is in every channel. Amit spoke about 20,000-plus new agents added in agency. He spoke about new partners added in partnership. He spoke about new banks added in bancassurance. And he also spoke about a deeper analytics-based cross-sell campaign that we are implementing through the direct channel, which effectively not about relying on 1 channel to deliver the growth. But building capacity in every channel. Even in ICICI Bank, the new product offerings on annuities, which have proved to work quite well, alongside protection are giving us a lot of momentum. So that's one. From a capacity across channels and not just about 1 channel. The second point that you raised about medical testing capacity, you are right. This is indeed the point that I have now been speaking for about for 3 quarters that during a live pandemic environment on retail protection, these challenges will exist. If I'm looking at an overall long-term growth opportunity for protection, I believe the industry and the company will look through that and we'll then deliver on the opportunity. But during a live pandemic environment, it is quite likely that we will have disrupted environment on some or all of these. The way we have been building around this is twofold. One, Kannan spoke very early on about the focus and advantage that we took of the group term business in mitigating some of these challenges. That is typically a business where, for the some sessions that we offer, medical testing is not required. And second, as the pool of profit has diversified more into nonlinked savings as well, it has actually emerged as an alternative VNB provider in the growth aspiration. So yes, you will have short-term periods of plus/minus on 1 or some of these product categories. But there are indeed enough levers in our view that can absorb that over a period of time.

The next question is from the line of [ Shyam ] from Point72 Advisors.

Congratulations on the good results. Just 2 quick questions. The first 1 would be on the APE growth part. You're commenting that you are seeing momentum, your export momentum continues to be strong going forward. Do you mind give us more color on what you're seeing on the ground so far into the second -- into the first quarter? Are you seeing some impacts from the restrictions, especially in those days, Maharashtra or the impact was quite muted?

Amit, you'll take that?

Yes. So if I understood your question right, it is about how we take quarter 1 challenges for it, right, given the base, too. Have I understood it right?

Yes. So are you seeing any slowdown in momentum because of the second wave in terms of top line growth?

Okay. See, these are early days. And as you know, that situation is only emerging every day. Every day is a new day and different from yesterday. So to that extent, all of us are keeping a very close watch on how things pan out over the period of next 10 to 15 days' time. My guess is as good as yours. But what is different this year in comparison to last year April? It's preparedness. There were a host of activities, which were initiated and the designs were to be redone all over last year in the month of April. Then the effort was to be made on moving physical sales processes to digital sale processes, for instance. Now this year, having learned from the entire last year, we have actually been able to take on this challenge of day 2 very, very differently because the entire design platform of managing sales process on our digital platform is available to us. And hence, I must tell you, while it is unfair to share numbers, but the momentum, the early momentum that we have seen in April, in this April, is very, very different and much better in comparison to what it was last year in April. And I will predict a lot the kind of investment that we have done on digital sales processes and digital capability building that we did through the year last year for which we are seeing the advantages now -- benefits now in the first quarter in the month of April, let's say.

This is Kannan here. So supplement to -- supplement that -- on a couple of facilitators are also in place, especially coming from the regulator. In terms of recruiting agents, the virtual examinations, et cetera, that is in play now. Last year during the lockdown, we are still trying to figure out what to do on all the physical processes. That is not the case this year. Then the regulator on its part, on all the dispensations they have given, such as do dispensing with the physical signatures and going for electronic signatures and policy sales on virtual platforms, et cetera. That time period has been extended up to September. So I feel that some of the preparedness, including the facilitation by regulator is quite different this year compared to last year. And the final point I want to make is that the base -- effective base is so low last April, May, that we do get a lot of space from the market in terms of the base effect. So by that time, hopefully, the vaccination, I heard today that vaccination has been opened up for everybody above the age of 18 from May 1. So these kind of measures really require a little bit of space in between. That space is being provided by regulatory facilitation, our better preparedness as well as the base being very low, giving us some space to perform. So that -- those are the things we are banking on. And hopefully, we should be able to pull-through this space. Thank you.

Got it. That's very clear. And my second question is on VNB margin. So if I see quarter-to-quarter, the trend is trending down this year, I think you were mentioning that you were hoping to keep VNB margin plus minus 1 percentage point going forward, if I hear you correctly. Is that referring to the fourth quarter VNB margin or you're talking about versus the full year '21 VNB margin?

Yes. My request is always to look at the yearly VNB margin. Especially the fourth quarter margin should never be looked at because it carries lots of assumption changes impact. So whenever we talk about VNB margin, we tend to talk about to the year as a whole margin. So that would be the starting point. So we don't have any target to say that it will be within plus or minus 1%. But to a question I respond the question regarding whether the VNB -- absolute value of VNB will be driven by growth or margins. I responded by saying that predominantly, it will be growth driven in the immediate year we are talking about. And of course, that would mean that we are broadly capable of aspiring to keep the VNB margin stable. So that is how I would like to respond to your question. So we will look at it always as a yearly margin because Q4 is a difficult thing to compare, but there are a lot of moving parts and assumptions involved in that number.

The next question is from the line of Jayant Kharote from Credit Suisse.

This is Jayant Kharote from Credit Suisse. Congratulations for good set of numbers. So 1 question was, you said you took the reinsurance sites in the first quarter, while much of the COVID claims and mortality experience has come in the second half of this year. So how are you so confident about not getting any reinsurance hikes through this year? And also within that, slightly medium-term question is, as we expand our base into newer cities and as we expand our base rate protection, how will the reinsurance cost will be baked into our medium-term protection margin? Would it be a selection of customers within the urban metro segment or are we comfortable moving into newer geographies?

So the key point here, Jayant, is that nobody would ever reflect 1 or 2 years of a pandemic situation into long term pricing. Because the price that I get from the reinsurer is actually a locked in price for the whole term of the policies that I set. Just like I do not pass on a pandemic impact of 1 year directly into my price to customer, and I take it as an impact in that year or through provisions, that is the way the business operates. And I don't think that is going to change in a hurry. So the most important driver of reinsurance price is actually the second part that you brought on, which is about the target market and where we are selling. That will still be a gradual process. We're still predominantly operating in the top, maybe 40, 50 geographies in the country. It is not as if we are prevalent much beyond that. A very large part of the protection opportunity currently also comes from this geography. And to that extent, any underlying mortality change will be a gradual change over a period of time. So it is possible that once in 2 or 3 years, there is a need to change price upwards to reflect the expanding target market. In which case, that would get reflected in the price at that point of time. The only point that we are making with respect to pricing is about -- is there a disruption expected immediately? We took the disruption already in July is the point that we are making.

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

I just wanted to understand what the operating -- sorry, are using similar which is around INR 3.1 billion in our EV walk, what has led to that decent positive number to get reflected in the current year? So that was on the first question. Second question, just wanted to harp on the point of VNB growth. You're saying that if the margin in flat one-off or maybe whole in the range of 1 or plus or minus 1 percentage. Then you are trying to say that in FY '20, maybe a 30%, 35% APE growth could be possible. So just wanted to understand that if that kind of growth is to be achieved in FY '22? Then ICICI Bank as a channel should fire. So basically, do you think the things have bottomed out for the ICICI Bank and GST and before it can achieve a 50%, 55% kind of a growth in FY '22? Its margins remain flat and the real expansion, a growth of 28% there is [indiscernible] in FY '22. Those are the 2 questions.

Sure, Sanketh. So I'll take the operating assumption changes first, and I spoke about it in my comments as well. The operating assumption change of INR 3.09 billion came from 2 significant positives. One was with the increasing scale, our maintenance expenses went down. And this is something, Sanketh, you would have seen in every 1 of the last 2 or 3 years. In the assumption change, it is just a natural progression of a growing book and therefore, reducing unit cost. The second positive assumption change that we took was surrender rates in Europe in the later duration beyond the 6 and 7 years, experience was significantly better than what we had assumed. So we capitalized some of that in the assumption. So these 2 put together, gave me a net positive of about INR 5.7 billion. Against that, I discussed the incremental provisions in COVID that we have taken, which have [indiscernible] for the year. And therefore, to that extent, those incremental provisions on account of COVID was almost a negative 2.6% to this 5.7%, give or take, on settlements, we are at 3.09 as a net basis. These are the 3 big pieces that are sitting in that. There may be a few smaller pieces, but not really material.

Got it. Got it.

Yes. So Amit, do you want to take the question about growth and the bank?

Yes, I'll take that. See, first of all, on ICICI Bank, 1 is that, as you know that they strategically prioritized their focus on specifically protection and annuity range of business. And this came from the fact that they see a lot of value in the differentiated proposition that they can offer to their customer segments apart from focusing on banking products. So to that extent, over a period of last 12 months, I think base has been set or reset at a number from where we can actually expect a scale-up to happen in both these kind of businesses. And as you know, while on top line, it could be still subdued, but being advantaged on a lower base. But we truly believe that on DLB, through their delivery on protection and annuity range of products, which they want to offer through a seamless process and simply a good experience to their customers, they want to actually look at a very, very rapid movement in the pace of growth that we can expect in these 2 line of businesses. So we do expect that ICICI bank will continue to add value to our VNB. And of course, they will fire, as you mentioned, they will fire, but probably not on pure top line but probably in lines of businesses, then they have chosen as their clarity.

Okay. But given the guidance, you said that margin should be broadly the same, which means that growth should translate almost like at least 30 percentage in FY '22 then we're just wondering where it will come from. So you are more confident on industry bank, IDFC Bank and RBL to drive that growth. Or are some decent positive growth coming from ICICI bank, combination of both should result in 30% rate of a growth?

Yes. So what I feel is that, number one, we have ICICI Bank based fully in question. And when I see the momentum sequentially, ICICI Bank has been slowly sequentially increasing. And all the steps we have taken in terms of not selling to NRIs or some segments what they are closing, those have been fully, fully baked in, in the base. Next, while we don't have -- we have not put the numbers in the public domain, I find that the March to March numbers, ICICI Bank, some momentum is back in the bank. And some of the products like Amit mentioned, what we have introduced like annuity that has been taken a big time by the bank because they feel that it is a perfectly complementary product to their wealthy customers. So those are the positive movements which are happening in ICICI Bank. So I would expect ICICI Bank to grow from here to answer your question, but you should know that it is only 30% of our distribution mix now. The other banks we talked about, they have, including Standard Chartered bank, they ended the year extremely well. And the momentum is with them. And some of these banks are waiting for some of the products which we introduced in the later part of the year. So given that Amit mentioned earlier that some of these new relationships have been in existence only for 45 days in the entire financial year, that is going to be the -- I mean, I don't even want to talk about the growth because it will be multiples of what they did last year, is what we expect for this year in terms of the momentum from the other banks. Agency channel, we have recruited 20,000 agents, 20,000 -- a little more than 20,000 agents. They will start performing because it takes a little bit of time for them to get trained and then come into production. So that the agency channel also, we expect to grow. And the partnership distribution, again, they have been starved of products in the past because we used to sell only ULIP in that segment also. For the last 1 year, we have tried to push this -- the nonlinked products into that. So that has also helped us in terms of the growth because that was the first channel, which gave us momentum in the year. So I feel that the fact of the matter is that we are a well-diversified distribution company itself. And with several parts of the distribution, having hit the rock bottom in terms of the base effect or not having worked for bulk of the last year are going to be the drivers of the top line. And you're right, it's not 28%, something like a 25% to 28% kind of growth rate is what we'll be pinning down in terms of our plan for financial year '22.

Got it. Got it. Sorry, if I can -- 1 more. Just so certainly -- so you probably -- the VNB has recently get negative impact because of the assumption change. Because maybe you how structurally change the assumptions of unit cost and now also structurally changed the efficiency assumption for 6, 7-year, then it should have got reflected somewhere in the VNB margins also. So just their 70 bps impact is because of negative impact of 70 bps because of what is it will be?

Yield constantly. Not purely yield curve. Not entirely yield curve.

Okay. Okay. And the 6th, 7th year better participancy, it will be reflected where then?

The biggest impact of that will be in EV, Sanketh. In VNB because it is so far out in discounted terms, it doesn't give you much positive. So it's a real impact on margin, but it's a reasonable impact on EV.

Okay. Fine. And final for me. INR 100 crores of extra provisions which you made in December with receptor, you have big thing to it, right? So therefore, you thought of making another INR 350 crores also -- sorry, INR 240 crores of additional provisions?

So it's not so much as dipped into or not, Sanketh. The way to look at it is, as we stand at March, we are experiencing what could be a second wave. And therefore, the question that we have to ask for ourselves is that if I have 1 more year of a similar claims experience on account of COVID as FY '21, do I have enough in the city set aside to be able to cover that or not? And fundamentally, that is what has driven the level of provisions that we have taken. Our approach on this, Sanketh, always has been if there is an ability to take it before, we are better off taking it because you then are then not surprised later on. And you're only exposed to deviation from that level.

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

Congratulations on strong results. And good to see that we have plugged all the deficit indeed for the year. I have a couple of questions. One is how do you view the share of COVID claims that you have received in respect to the total facilities at the country level and the low penetration that we have in the protection segment? Does it mean like quantum of claims not look high and [indiscernible]

I don't think it is high. Really, what you have to look at is that provide is going to be an extra mortality. We have looked at studies across the world in various countries. From a developed country to a not so developed country. We have actually seen, at least from the last year, total claims during '21, our calendar year '20 compared to the pre-COVID period being higher by anywhere between 20% to 40%, depending on the country. You remember, in the early part of the year, we had spoken about in the first half, claims, including COVID within best estimates. So we actually had some compensating effects. But over the period of time, there are multiple effects that can happen out of COVID. One, there is an impact arising out of the co-morbidity and associated mortality. Second, there is still uncertainty with respect to -- for a person who said COVID, how will it affect his life going forward and health going forward. I don't think all those answers are done yet. When I look at it in the context of penetration, all said and done if I were to count the number of lives that have claimed, it's only been 2,500. So in the context of a larger population of all the deaths that have happened, I don't think that insurance has had a disproportionate effect. 2,500 claims on a country level mortality, which is far, far, far higher than that, it's actually reflective of under penetration.

Okay. So are [indiscernible] from the fact that we had nearly, say, 1.8 last -- casualty so far and the country-level penetration at the individual level. I'm not talking about the people who file tax is around, say, low single digits, 2%, 3% So applying the sales proportion to that 1.8 lakh, the total casualty of the total claims that should come -- should be around, say, 5,000 outcomes, of which, like we have the...

No, no, no. This is going to be claims from savings products as well. Everything has a mortality cover, right? All the business that we do has a mortality effect. When you take savings product included, your penetration in terms of number of customers is much higher.

[Operator Instructions] The next question is from the line of Prayesh Jain from Yes Securities.

Congratulations. Just on this, we look for -- giving the margins of a look, there is significant improvement in FY '21 from what I think it jumps from something like 8.8% on the linked savings in business, something at 11% -- over 11%. So what drove this expansion in VNB margins for that segment and do we see this sectoring going ahead? Or is it improving for that market?

Mainly driven by expense efficiency during the year, accompanied by increased rider attachment that we have been trying to do. From here on, whether expense efficiencies will be as large, I wouldn't expect that. As a base case, I wouldn't really expect the unit-linked margin to increase dramatically in the near term. But as persistency improves and we translate some of those persistency gains into assumptions in the next couple of years, then it presents an opportunity to improve the unit-linked margin from where we are.

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

Ajok, I'm not able to hear you.

Sir, can you hear me?

Yes.

Sir, we did very well in group term. And what strategies did we adopt to achieve this kind of growth? And usually, group term is considered as an expense by companies. So what are we going to do going forward given that retail protection is going to slow down a bit in FY '22 and going forward?

Amit, do you want to take that?

Yes. See, on the group, if you ask, we have our group line of business for very long time. And as you know, it is all about sharing that there is a reach out strategy through our relationship team on the ground to cover as the many institutions as possible. [indiscernible] for a very long time time [indiscernible] from the employers expecting other changes in the draft in employee benefit solutions on our protection platform. [indiscernible] present in this segment [indiscernible]

Amit, your voice is not clear. It's breaking. Not very clear. So just let me try to answer this. The entire context of group term being an expense is really about context. I can say this for our company. And Danny is also here as the Head of HR. We have actually taken this year as time and point where we are seeking to increase cover for our employees, and we have done that in the last year. Given the current pandemic environment and given that employers are very focused on well-being of employees and their families. This has actually been a natural time for all good employers to increase their cover. So it's not been a year where people have seen this as an expense. There are lots of other expense people have cut, but not group term or group health, these are not items expensive companies have sought to cut up.

Am I audible now?

Yes, Amit. Clear.

Yes. I just wanted to add here what Sanketh just mentioned. See, we have been invested into this business, group business in large institutions for a fairly long time. And the -- what we go and offer is overall employee benefit propositions as a package, they are group term or protection for employees is 1 of them. So since we have a fairly spread out distribution where we understand institutions, and we have been reaching out to them and spending time during these times, which were difficult, we saw a lot of keenness of the employers to evaluate strengthening their employee benefit propositions. That's where we were there to capitalize on what came as an opportunity and a natural pull from employers. We will continue to stay invested in this line of business because we are spending time with our employee benefit solutions, which cover gratuity, superannuation and other businesses in the group fund side as well. So we look at capitalizing on the season in a couple of years to come.

So do you expect this line of business to be growing at about half the rate short-term for this year at least?

Yes. I don't see any reason why it should lose any momentum. There is still -- even as the centers last quarter, we saw a lot of momentum, a lot of expression of interest, which was visible. And we hope to see those pipelines getting converted even in this financial year.

The next question is from the line of Adarsh Parasrampuria from CLSA.

Yes. First one, more like the headwind. We've spoken about margins reduction. Second, what's comprehensive is the fact that the businesses have -- there is still mobility and access people had in the last 4, 5 months of March. And industry commercial has kind of dropped neatly at the time there logistical simply is not there, right? And I would say that a pandemic shifts, yes, people get a little more aware. And then mobility increases, even the medical goes up. It's quite countering. So there has to be something beyond logistics, which explains why production should have done poorly in the 5, 6 months. So -- and is that the reason why we think the next 6, 8 months also remains challenging on that count?

Adarsh, the entire challenge on retail protection, and I have spoken about this before, it's 2 fold. One is logistics. You're right, as it was being opened up, the logistics clearly eased out. The second was also underwriting norms and risk appetite in a live pandemic environment. That has created a lot of friction. It has also excluded a lot of people from even potential coverage, for example, nonresident Indians. Our people for whom we are not able to provide risk at the current point in time. So yes, it is not only about logistics. It is also because of risk as well as segments being excluded because in a live pandemic environment, neither insurers or reinsurers are comfortable taking on the risk. If I were to look at it from a broader industry point of view or from our side, all I can say is this, Adarsh. But no matter what the industry thinks. On the new business, APE decline of 12.5%. We had a new business increase of 8% for the full year. Not just that, our market share on the new business some assured increased from 11.8% to 13%. So whatever has been the industry trend on this, all I can say for ourselves is that we have been working on alternate opportunities to be able to get to nearly the same results, recognizing that there are some practical challenges in a live pandemic environment on retail protection.

So you're broadly saying that the underwriting tightening or -- is more driven by COVID...

[Operator Instructions] The next question is from the line of Udit Kariwala from AMBIT Capital.

Yes. Am I audible, sir?

Yes.

My question was if you could give some breakup of par and non-par savings APE and wanted to know your thought process on the non-par because on one side, there are statements like non-par guaranteed is based less proportion of the balance sheet, but then a lot of growth, I'm presuming, correct me if I'm wrong, is coming through that process through that product. So at large, what is the thought process going forward with respect to guaranteed offering? And last bit, on the protection price increase, you've made it clear that you don't see that in the short to medium-term for your company. But should that benefit to you because in the last hike, it kind of did not benefit you because others were cheaper. But now since others could increase and you'll stay where you are, the gap should narrow and should it benefit you? So this is my question.

So is on the non-par guaranteed return, we have clearly articulated what our approach is. If you see Slide 54 on our presentation. We are saying what is our comfort, how have we expanded what we are offering and what is the premise on which we are offering. Nothing has changed. We look for an investment product that can meet a possible liability profile, we'll construct a liability project which can take advantage of that hedges by laying it off in the market and offer it to the customer. Whatever is the flexibility and the range of investment products that are available to do this, to that extent, we are extremely comfortable manufacturing liability, keeping in mind that the levels of the guarantee have to be commensurate with what I'm expecting to earn on the underlying investment portfolio. Absolutely no change in our approach to non-participating from the time we started doing the business. The discomfort you have always heard us speak about in certain parts, certain tenors that we have not been comfortable with because of availability of investment products and that has not changed. So to that extent, at least, I would like to think that our approach to nonparticipating business is crystal clear. And has been extremely consistent over the past few years. The second point that you made about relative advantage or disadvantage, from a first principles point of view, yes, it should be an advantage as the gap narrows. But sometimes, I don't think the market operates in such a linear fashion. So we will see how it goes and then figure out what is the impact that it will serve.

And on the par, non-par breakup, if you could.

So that we have not given this. So we're going to leave that. And I've also spoken about why we believe one should look at both of them as one single category.

The next question is from the line of Madhukar Ladha from Elara Capital.

So I'm a little confused about what finally ICICI Bank's stance is on selling the traditional products. So can you sort of clarify because until last quarter, I think we heard something there, whereas now we are also seeing that the bank has become a little bit more open on doing this. Is that how it is? And that's also sort of reflected in the numbers? And second, how much do you think the other bank partners can grow going into FY '22? Because I think right now, on Slide 22, you've indicated that other banks have done about INR 7 billion in business in FY '21. So how high can that number go? Any guidance in there will help? Those are my 2 questions.

I'll take the first question, and I'll ask Amit supplement me on the second question. On ICICI Bank, from our side as well as from ICICI Bank's side, there's absolutely no confusion on traditional products. They are very clear, they don't want to do it. And the answer stops there. I don't think there is any change of thinking because their view about the traditional products is that if the persistence is not good, then the customer's money gets appropriated,to other customers or the shareholders as the case may be. So they are saying that in an industry where the 6th year persistency for traditional products is something like 50%. That means that half the customers' monies are getting appropriated by the shareholders or the other customers as the case maybe. Thus, as you know, the surrender penalties are very steep. Even if after paying the 6, 7 premiums, the customer -- if he or she lapses, they get only 50% of the principle. So this has been a fundamental issue with ICICI Bank. And I don't think anything else has changed in the market in terms of the product construct for them to change the view. So to that extent, we have also stopped pursuing such opportunity of distributing traditional products in the ICICI Bank shop. So there is no -- we think on this at all. On our part, as a company, you may ask the question then, how are we getting comfortable selling that product? So we have had a discussion at our Board level to say that in non-ICICI bank channel, if there is a good customer proposition, and 80% of the market is traditional product, we cannot afford to check out of the segment. So as a company, to set up stakeholders, we have including the shareholders, it's unfair to say that I will not sell the 80% of the market to any channel. So we have taken a stand of going ahead and selling. But what our Board told us was taking into account the issue around the persistency or lack of it because of it not paying back a lot of customers' money, they said that you have to watch the persistency. I'm happy to say it is there on the Slide 6 of our presentation, that in our non-linked savings products, actually, we have a 94% 13-month persistency, is probably the best in the industry, but that is the number we have. So we handle the customer's -- possible customer issue, potential customer ratio by actually pushing the persistent high in that product. So with that, we are quite resolved in our mind that we should go ahead and sell this product in non-ICICI bank channel. So that is our approach to this whole non-linked segment. In ICICI bank, what has happened, however, is that they are very happy to sell all the products, which will not create unique potential customer issues in terms of the trust or the brand issue. They're happy to sell as long as it becomes quite complementary to their product suite as well. So things which fit in very nicely with their approach, are products like protection products as well as annuity products. So protection products, for example, there have been a lot of push from ICICI Bank to say that why don't you look at our customer data, why don't you give it sudden profiles? And why don't you roll out the prequalified offers rather than making the customers go to medical examination -- their -- of a particular profile. So bulk of our discussions with ICICI bank has been there pushing us to say that how do you smoothen the process for very good customers of yours. So this is a good news as a CEO of this company, I'm very happy that, that discussion is happening because that is very VNB accretive for us. And when we came out with this product, guaranteed pension plan, and we have shown that we have not separately broken out how much ICICI has done. But if you look at our annuity growth in this year, the ICICI Bank growth in annuity is far in excess of the total growth of our company in annuity. So those pro product lines, absolutely no confusion. They are wanting to sell a lot. ULIP, yes, they are making it available. And given the market conditions, if the ULIP picks up, they're quite happy. So as a result of all this, I can only tell you that sequentially, ICICI Bank has stabilized and slowly moving forward. Year-on-year in March, we got a good momentum from ICICI Bank. We would like to take it forward. But if we ask them to sell traditional products, they will say, they will not sell the traditional products. So I let them be satisfied with their distributing ULIP, they're distributing protection products. They're distributing credit life, which has grown quite well. And they're distributing their annuity products. These are the 4, 5 line items where we are happy to put -- they are happy to push and there will be -- I'm hoping that given the base effect has got rebased, we should be able to grow that franchise more going forward. On the other banks, I can give you the numbers, that they've already accounted for about 11% of the FPE for the financial year, we did have Standard Chartered already with us. And we had other banks which we have added, included the banks names we have talked about. And that was pretty much -- if you look at the other banks, APE, that was pretty much not there in the first quarter. Of course, we could say that the first quarter was in case a weak quarter for everybody. But if you look at the Q3 to Q4 moment, in FY '21, it moved up from about INR 1.4 billion to INR 4 billion of APE. So we've been able to gather multiple of what we did in Q3 into Q4. And to say that Q1 and Q2, bulk of these banks were not even existent last year gives us a huge base. I don't want to put a target to the team or I don't want to say that it has to be X percent but I feel that, again, the other banks can be a multiple of what they did last year into this year in terms of AT.

The next question is from the line of Manoj Bahety from Carnelian Advisors.

My question is mainly on competed value of RFO. So if you can give some guidance on RFO trajectory going forward, considering that we have clout control versus peers. And secondly, on RoEV composition around, I would say, 7.2% kind of RoEV is coming from [indiscernible] So how do you see this 7.2% rate going forward in the light of group interest is scenario?

The way I would look at RoEV is that our RoEV has actually been very stable over the past 3 to 4 years. Though there have been, in the last couple of years, some exceptional items. Last year, we had the tax charge impact, and this year has been a COVID year. Yet despite the one-off event, RoEV has stayed above 15%. I don't think this is significantly different from the RoEV of our peers as well. We are RoEV much in line with our peers with respect to RoEV. The point that you make about unwind -- even I spoke about unwind going down from what it was last year. That will really follow the yield curve. There is nothing that you can do about it. The priority really is beyond unwind, what are the levers available. This year, VNB with actually only a 1% growth was still contributing the same level to RoEV as it did last year. And therefore, as we continue to grow the EV to VNB to that should help us in adding to the contribution to RoEV. Beyond that, to the extent that our experience on the various parameters have been consistently better than expected, there will always be a little bit of capitalization opportunity each year. I described about the INR 5 billion plus that we got out of those 2 factors in this year. And we had similar capitalization of INR 2 billion to INR 3 billion coming in each of the last 2 or 3 years as well. So eventually the RoEV will be driven by a combination of all of these factors. I don't think from -- relative to peers, we are significantly worse off with respect to RoEV .

Yes, sir, I think I believe like on your top in 18% as kind of weaning on the kind of growth.

I don't think so, Manoj.

Okay, sir, I don't read. Sir, you are giving a guidance of around 15% kind of...

No, we don't give guidance on RoEV. The only objective that we have articulated. Our aspiration that we have articulated, is a 2023 VNB objective, which was doubling the INR 19 billion. Otherwise, we have not given any guidance.

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

Most of question has been answered. Just 1 unique data point that you can provide. On the protection side, can you give some sense in terms of what proportion of your business is separately getting sold online and one of the reasons I asked is because it seems like even though the breakdown that you provide for FY '21 is with [indiscernible] business as well. But it seems like direct and other partnership distribution have declined, where I'm assuming your own website had aggregators and all with the goal. So just wanted to understand the mix coming from online and how it is trending given that in pandemic here that is 1 channel, which should have been the positive here.

So 2 things here, Rishi. One, from an online business point of view, it is just single digits of our protection business. Within that, during the year, we have seen our direct -- our website business grow. And we have seen the web aggregator business decline for us. Part of the web aggregator business decline was also driven by the early pricing asymmetry across companies that we have spoken about in the past. But the fact is that our protection business is predominantly driven by our intermediated channels, no matter what the channel, whether it is bancassurance, agency, our own proprietary sales force or other partners. Even today, if I were to look at partnership distribution, partnership distribution overall, even if there has been a decline, contributed about 14% of the protection business that we did in the last year. So it is an important channel for us. To answer your question on the online being the natural positive in this environment, online also creates a risk management challenge that we don't know the customers. In an intermediated business, we know the customers. So risk management in a pandemic environment is easier. So that actually becomes much more difficult in an online business model during a live pandemic.

Understood. So just to -- just a clarification. So where do you -- where would the web aggregator business and RoEV online business be categorized in the channel category?

Online is in direct. The aggregated is in partnership distribution.

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

A couple of questions from my end. One is what's the OpEx growth outlook for the next year? Second, our total APM credit life seems to be similar this year compared to last. This is a little surprising given that I'm assuming retail loan disbursements would have been weaker in '21 versus '20 and so what explains that? Third is a rough back of the envelope calculation tells me that all non-ICICI Bank channels, the mix of non-linked savings is about 40% right now for us for FY '21. Would that make sustain in the future? Yes. So these 3 questions.

Amit, do you want to take the question on credit life?

Yes, so I'll start with credit life. See, credit life in the first couple of quarters, as you know that we have first off, partnerships both from the banking side as well as the NBFC side. So we have quite a few NBFC that's partners as well as banks. So we saw the first quarter, the impact was across NBFCs and banks and overall, the growth was almost to the tune of 70% plus. Largely because of the fact that the primary product itself was not getting sold, which was loans. So we started seeing that loans coming back by end of quarter 2 and the growth started returning by the time quarter 3 happened. So banks were the first ones to return to growth and NBFCs followed subsequently. So now we are seeing that quarter 3 and quarter 4 which are very good for banks, overall on the annual basis, it was the same digit growth that we were able to deliver on the credit life business. But if you ask me, between banks and the NBFC partners, actually banks returned to growth earlier then -- so than the NBFC partners that we had. And that was a trend which is quite similar to what you see on the loan side both on NBFC as well as banks side. Next question, I heard you ask about the nonlinked savings business on ICICI.

Non-ICICI bank, the non-ICICI bancassurance channel, so basically the idea of CAU, there, the nonlinked savings mix appears to be close to 40% on the basis of my calculations. It will be a little bit clearer then. But would that sort of relatively higher mix sustainable in the future.

Yes, it is quite closely. Our partnership philosophy always to see has been about meeting our bank partners, choose the priority that they want to. Focus on they understand their customers models the best. And they make a choice on what kind of products are most appropriate for their customer segments. And as you know, most of these new age banks, whether it is in this one or AU or even IDFC, they have very clearly identified sharp customer segments where they want to differentiate their offerings through product, which are very different from each other. So the product mix actually evolves dependent upon the mix of the customers and the priorities that the partner chooses for their customers. So I believe your number is not very far. It is quite close to what it is currently. But again, we have quite a number of bancassurance partners outside ICICI. So while at a cumulative basis, your number is very close, but you will be surprised that given partners, it varies quite drastically.

So my apologies, I lost track of your first question.

First question was your -- I mean, this year, we have managed to curtail our OpEx. It's down Y-o-Y.

Yes, yes, yes.

Next year, what does it look like and maybe the year after that What does it look like if you have got done any budgeting or any sort of estimating that has...

In simple terms, less than new business growth.

In simple terms, less than new business growth. So you're essentially talking about new business growth of around 25% is broadly what you're guiding. So you're telling your OpEx growth is going to be less than that. So if I could just ask a very quaint follow-up question, 2 things here. One, if you are going to deliver AP growth next year, and you could be at least 5 percentage points down on that? And second, if we are going to see higher growth on the AU and the NBFCs of the world, where the product mix is more towards the higher-margin segments, why would you not see a margin expansion next year?

It can. We are not saying that there will be no margin expansion. And I was very clear, we said that this year, if you see from a 12.5% APE decline to a 1% VNB growth was all about margin expansion, clearly, that's not going to be the case in the next couple of years. Top line growth is going to be the predominant driver. There could very well be other levers that can fire and give us a bit of margin expansion. And objective is still to deliver the VNB. But we're just trying to explain what is likely to dominate the VNB development relative to other elements. And that is where, as we speak now, given the low base, given the expansion and capacity that we have been able to create through all the channels, given the expansion of product offerings, in our view, at this point of time, growth is likely to be the biggest contributor to VNB expansion.

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

Thank you for the opportunity. So my questions, the expense , the new assumption that we have taken. So in the last couple of years, these operating expense items, I think, is only INR 1 crore or INR 4 crores over the last 2, 3 years. So how do you sort of take account for this. When the business is so small, how are we able to take your assumption into the spend?

Okay. It is -- the way it operates is that last year, let us say, for maintenance of our policy had an average cost of INR 500 per policy. This year, with the larger base of number of policies, that INR 500 very well become INR 450. That is a natural progression of efficiencies because for maintenance of my books, my expense is not going to grow in line with the book. Now given this, what I get from 1 year to the other, in a way, it seems like assumption, but actually, it is not an assumption. What I'm reflecting in the embedded value is my current peers' maintenance cost at a unit level without anticipating future improvement in productivity. So to the extent that I actually have an improvement in productivity year-on-year, it automatically gets capitalized into EV. The reason you don't see our variances, all assumption changes are in the representation deemed to have happened at the start of the year. That's the reason why you never getting a variance out of this. So effectively, the bottom line is actual expense is what is expected expense. Therefore, there is no variance. To the extent that actual expense itself comes down, therefore, capitalized value or expense and then EV.

What is [indiscernible] premium is pretty close to 0, and expense changes will be driven through assumption changes.

And that is my point, Hitesh. The record is that Indian embedded value is supposed to be based on actual expenses. It's not an assumption of long term.

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

Yes. A couple of questions. First is related to the margin expansion that we've seen in the savings business. So in the last 2 years, the business has sort of halved, but we've seen about 500 basis points of margin expansion, along with interest rate change, downward trajectory, that could be even higher. So if you could just break down how much comes from expenses and how much comes from the 6th and 7th year positive persistency that you're seeing in those long division cohorts? So just if you could explain the drivers for this? And the second question is, in the presentation, you gave the ticket size of protection, I just wanted to confirm that is for the overall book or for retail? And if it is for the overall book, can you give it for retail? Yes. Those are 2 things.

So double the margin expansion is predominantly on account of expenses. In fact, the later period persistency, I spoke about it calendar rates have a bigger impact on EV, it has a trivial impact on VNB at this point of time because it's quite far into the future, and we're looking at discounted effect.

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

Thank you. It has been a long call. Sorry about the delay once again, but I hope that we have taken all the questions and answered them satisfactorily. But if there are any further questions, please do feel free to reach out to me or my colleagues. Thanks also again. Thank you. Bye. Good night.

Thank you. On behalf of ICICI Prudential Life Insurance, that concludes this conference. Thank you all for joining. You may now disconnect your lines.