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

Ladies and gentlemen, good day, and welcome to the Q1 FY 2022 Earnings Conference Call of ICICI Prudential Life Insurance. [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.

Good evening, and welcome to the results call of ICICI Prudential Insurance -- Life Insurance Company for the quarter ended June 30 of financial year 2022. I have several of my senior colleagues with me on the call: Satyan Jambunathan, Chief Financial Officer; Judhajit Das, who heads Human Resources, Customer Service, Operations; Amit Palta, who heads Distribution, Brand, Marketing and Products; Deepak Kinger, who is responsible for Audit, Legal, Risk and Compliance Functions; Manish Kumar, who manages investments; Asha Murali, Appointed Actuary; Dhiren Salian, Deputy CFO of the company; and Mukesh Boobana from the Investor Relations team. At the outset, the intensity of the second wave of COVID-19 infections has been quite sharp in the country. Our thoughts are with the families who are grappling with health issues, lost life as well as livelihood issues. With the country continues its battle to contain the spread, we saw a significant recovery in the last few weeks. Also, the vaccination drive has started to gain momentum. We continue to follow COVID-19 safety protocols at our branches, and 82% of our employees have got at least 1 dose of vaccination. For the safety of our customers, employees as well as distributors, we continue to promote and adopt digital means for policy sales as well as servicing. During the quarter, we saw a significant increase in death claims on account of COVID-19, the impact of which we will talk through in the later part of our opening remarks. I would actually like to start by talking about a couple of developments during the quarter before moving on to our performance. As you know, we had our 21st Annual General Meeting through video conference on 25th of June 2021. All the items included in the notice for members have been approved by the shareholders of the company. The items included reappointment of 3 directors: Mr. Anup Bagchi, nominated by ICICI Bank; Mr. Wilfred John Blackburn, nominated by Prudential; Mr. Dilip Karnik, an Independent Director. Also, an amendment to the aggregate number of shares issuable pursuant to the exercise of options granted under the company's employee stock option scheme was approved by the shareholders, which will further enable alignment of senior employees' interests with that of the shareholders. Moving on, during the quarter, we have released our financial year 2021 ESG report. You would recall that we made disclosures on our ESG practices a year ago, and we have now put in place several additional steps to address areas of improvement. We have also been interacting with stakeholders to understand their expectations in this regard. Accordingly, our ESG report for financial year 2021 incorporates various initiatives we have put in place towards responsible investing, diversity and inclusion policy, privacy policy and enhanced disclosures on human capital, environmental impact and ethical aspects. This report is available on our website. We'll also be talking about this later in the presentation. Moving on, we have always focused on developing innovative products that meet the needs of our customers. I'm happy to mention that our recently launched Retirement Planning Product, ICICI Pru Guaranteed Pension Plan, has been voted the product of the year 2021 in a consumer survey conducted by NielsenIQ. Product of the Year, as you may know, is the world's largest consumer-voted award for product innovation in the respective categories. Our unit-linked plan, ICICI Pru Signature, has been awarded the best unit-linked plan for the financial year 2021 by Business Today-Money Today Financial Services Award. Considering the pandemic environment and the needs of our customers for corona-specific insurance coverage, we launched 2 riders, Corona Protect and Corona Protect Plus during the quarter. I will now move on to our performance for the quarter. Our 4P strategic elements, that is Premium Growth, Protection Business Growth, Persistency Improvement and Productivity Improvement, continue to guide us towards our objective of growing the absolute value of new business while ensuring that our customer is at the core of everything we do. I will talk you through our performance on the 4P's through Slides 5 to 10 of our presentation, and then conclude with a commentary on the value of new business. Let me start with the first P of our strategic elements, which is Premium Growth. Continuing the growth momentum of the previous quarter, our Annualized Premium Equivalent, APE, grew by 48% to INR 12.19 billion in the first quarter. Based on the total new business premium, the growth was actually higher at 71% for the quarter to INR 25.59 billion. Our market share based on retail weighted received premium increased to 7.7% for the first quarter financial year 2022 from 6.2% in the first quarter of the last financial year. We continue to maintain a very well-diversified product mix with the contribution from linked savings products at 44%, non-linked savings at 29%, protection at 22% and the balance 5% coming from group savings products. Through our focus on acquisition of new partners and investment in creation of new sourcing channels, we continue to diversify our distribution mix as well. In our first quarter FY '22 APE, bancassurance channel share was 39%, as can be seen on Slide 6; Agency share was 23%; direct business share was 13%; the share of other partnerships was 8%; and the balance was contributed by the group business. Moving on to the second P of Protection Business Growth on Slide 7. As you know, protection products are available in retail, group term as well as credit life platforms. Given the continued pandemic environment, supply side constraints, including revised underwriting guidelines, and general reluctance to visit medical centers continued to impact the retail protection business. On the other hand, we saw an increased demand in the group term segment. Credit Life business has also returned to pre-COVID levels. We continue to take a risk-calibrated approach, and our underwriting practices are commensurate with the prices offered. As a result, our protection APE actually grew by 26% to INR 2.7 billion in the first quarter of 2022. I would like to highlight that based on the total new business sum assured, our market share has increased to 14.7% for the first quarter from 12.5% for the whole of the financial year 2021. With this, we have not only increased our market share lead within the private sector, but we have achieved overall market leadership as well. Our efforts in encouraging customers to complement their life insurance coverage with critical illness cover has also contributed to the increase in sum assured. On the third P of Persistency presented in Slide 8, we saw improvements in the 13-month and 49-month persistency ratios. Our 13-month persistency ratio for retail business, excluding single premium, has increased by 60 basis points to 85.4% at the end of June 2021 as compared to March 2021. As I said, these numbers are excluding single premium. Similarly, our 49th month persistency ratio has further improved to 63.1% at the end of June 2021. On the fourth P of Productivity, which is reflected in cost ratios, is presented on Slide 9. Our cost to TWRP ratio was higher at 20.1% for the first quarter. For the savings business, the ratio was at 11.9%. While the absolute expenses are higher as compared to the same period last year, the cost increase is in line with the new business growth. That has also been mentioned on Slide 3. Our cost ratios continue to be one of the best in the industry, and we leverage technology to improve our efficiencies further. Satyan will be talking about our technology initiatives during the quarter later in the presentation. Alongside our 4P strategy framework, we continue to maintain a resilient balance sheet. On mortality risk, as I said earlier, the death claims arising out of COVID-19 second wave were significantly higher than the trend seen in the beginning of the quarter. As a country in a very short span of time, we have lost more lives in the second wave as compared to the first one. Also, compared to the first wave, the impact of the second wave had seemed to be more pronounced in the age group below 45 years. Given that our book has a higher proportion of customers from this age group, the resultant claims are naturally higher. Our focus, as would be expected from a large responsible life insurer, has been on helping the families of our customers in their hour of need by paying genuine claims on time. From a financial perspective, we are focused on resilience of the balance sheet including making additional COVID-19 provisions. Our solvency ratio was 194% at June 2021 as compared to the required ratio of 150%. For Q1 of FY 2022, the gross claims on account of COVID-19 stood at INR 11.19 billion. And net of reinsurance, the claim amount was INR 5 billion, as presented in Slide 10. The net claim amount includes settled as well as all notified and in-process claims. I just wanted to clarify that the net claim amount not only includes settle claims, this includes notified as well as in-process claims. Further, at June 2021, we hold reserves of INR 4.98 billion towards COVID-19 claims. Our approach to claims provision, just to summarize, and the reserving thereof is threefold: one, recognize all notified claims at our touchpoints as our financial liability and not just the settle claims, as I said; two, provide for IBNR, which is for claims against death, which may have happened in the country, but which having been notified at our touchpoints; and three, provide for future possible mortality claims on account of COVID-19 in excess of normal mortality expectations and take the possible future impact upfront. This is the approach we have used in creating these provisions and reserving. While the above development has had an adverse effect on profit for the quarter, we would highlight that our mortality experience, excluding COVID-19 claims, continue to be in line with our liability provisions. Satyan will talk about this in more detail. On credit risk, only 0.4% of our fixed income portfolio is invested in bonds rated below AA, and we continue to maintain a track record of not having a single NPA since inception. Even during this quarter, we have maintained this record. Of our total liabilities, nonpar guaranteed return product comprised only about 1%. We continue to closely monitor our liquidity and ALM positions, and we have no issues to report to you. Now coming to VNB. As a result of the above drivers, the value of new business, VNB, for first quarter of this financial year was INR 3.58 billion, a significant growth of 78% during the corresponding quarter last year. Given our APE of INR 12.19 billion, the resultant VNB margin was 29.4% for this quarter as compared to 24.4% for the corresponding quarter last year. While this increase in VNB margin is primarily on account of shift in underlying product mix, we, from our side, continue to focus on absolute VNB growth, which is our stated objective. Before I hand over to Satyan to talk to some of the details, I would like to mention that we continue to maintain our objective of doubling financial year '19 VNB by financial year 2023, which requires the compounded annual growth rate of 28% over the current and the next financial year as you know. With a good start to this period with a VNB growth of 78% for the first quarter, we believe we are on track to achieve this aspiration. Thank you all for patiently listening to me. And I will now hand over the call to Satyan. Thank you.

Satyan sir, can you please confirm?

Am I audible?

Yes, you are audible now, sir.

Okay. Thank you, Kannan. Our primary focus continues to be to grow the absolute value of new business, that is VNB through the 4P strategy of Premium growth, Protection Business growth, Persistency improvement and Productivity improvement. The first element of Premium growth. We continue to leverage on our innovative and comprehensive suite of products, distribution strength, robust technology and strong risk management architecture. Coming to products performance on Slide 15, we have registered a strong growth year-on-year across all product segments. For the quarter, our annuity business grew by 164%, non-linked savings grew by 66%, linked savings grew by 49% and protection grew by 26% year-on-year. With this, our overall APE saw a strong growth of 48% year-on-year to INR 12.19 billion for Q1 FY 2022. In terms of new business received a premium for Q1 FY 2022, annuity business contribution stood at 21%, significantly higher than the 13% in Q1 FY 2021. With a premium amount of INR 5.59 billion in Q1 FY '22, we were one of the largest pension and annuity providers in the market. 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 is synergistic to our annuity offering and is expected to support growth of the annuity business in the future. The AUM managed by the PFM has increased by 65% over June 2020 to INR 83.69 billion at June 2021. The PFM has a market share of 15.8% in the private sector AUM at June 20 -- June 30, 2021. Moving on to distribution. We have continued to enhance our distribution network across channels. In the agency channel, we have added more than 4,500 new agents. Within the bancassurance channel, we have a total of 23 bank partnerships. On partnership distribution, we added 24 partnerships during the quarter and have about 700 partnerships across traditional and nontraditional distributors such as web aggregators, payment bank, small finance banks and insurance marketing firms. For the direct channel, the strategy has been that of upsell to our existing customers, aided by analytics. Coming to performance of these distribution channels on Slide 18. We saw strong growth across distribution channels. Our bancassurance channel APE grew by 45% year-on-year to INR 4.71 billion in Q1 FY 2022. Within this, ICICI Bank continued with the growth momentum seen since March 2021. Specifically, the annuity business from ICICI Bank grew by more than 195% in Q1 of FY 2022. Our new bank partnerships continued to contribute to a significant share of bancassurance APE. Our agency channel APE grew by 35% year-on-year to INR 2.74 billion. Direct and partnership channels grew by 58% and 44%, respectively, in Q1 of FY '22 over the same period last year. The second element of Protection growth on Slide 20. With an APE of INR 2.7 billion, the Protection segment saw a growth of 26% over Q1 FY 2021. Our total new business sum assured stood at INR 1.77 trillion for Q1 FY 2022, a growth of 89% year-on-year. We had the highest market share of 14.7% for the quarter, a significant improvement over 10.7% market share in Q1 FY 2021. As mentioned by Kannan earlier, while we continued to have supply side challenges in the retail protection segment, with increased demand in the group segment, group protection business has also become a key category for us. The third element of Persistency on Slide 22. We continued to have a strong focus on improving the quality of business and customer retention, which is reflected in the 13th and 49th month persistency ratios. Our 13th month and 49th month persistency ratios improved to 85.4% and 63.1%, respectively, at June end. The persistency ratios of other cohorts have been ranged from, and we expect them to improve as we progress through the year. The fourth element of Productivity on Slide 24. Our overall cost to TWRP ratio stood higher at 20.1% for Q1 FY '22 as against the 14.8% for the same period last year. Similarly, our cost to TWRP ratio for the savings business stood higher at 11.9%. While the increase in absolute expenses is in line with the growth in new business, the increase in cost ratio as compared to the same period last year is on account of 3 factors. First, if you recall at the beginning of the pandemic last year, we had significantly cut down on discretionary expenses and deferred certain expenses to subsequent quarters, including annual increments to our frontline and junior employees. Two, with business returning -- business activities returning to normal, we have incurred higher spends on advertising and employee costs to support the business growth momentum. Three, with a strong growth, share of new business premium within the total premium has increased. As you know, the acquisition cost of an insurance contract is significantly higher than the maintenance cost, and hence, the overall cost ratio has increased. I would like to reiterate that our cost ratios continue to be the one -- continue to be one of the best in the industry, and we continue to leverage technology to improve it. Some of the key technology initiatives during the quarter include intelligent and cognitive tools deployed for end-to-end process automation rather than an activity-based approach. This is aimed at helping us reduce turnaround times, eliminate multi-team dependency and handoffs and provide robust risk management controls. Second, as part of the presales suite of tools, we launched a platform to empower both employees and partners to self-generate and nurture leads. This platform can be further extended to provide an optimized onboarding journey with a preapproved sum assured offers. Third, towards customer convenience, we are the first life insurance company to offer UPI auto pay facility, which allows for instant registration of recurring e-mandates that should further help improve persistency. The outcome of our focus on these 4Ps, as you may see on Slide 26, has resulted in a VNB of INR 3.58 billion for Q1 FY '22, a growth of 78% over Q1 2021. Given our APE of INR 12.19 billion, the resultant VNB margin was 29.4% for Q1 FY '22 as compared to 24.4% in Q1 FY '21. While this increase in VNB is primarily on account of the shift in underlying product mix, we continued to focus on absolute VNB growth, which is our stated objective. As product mix evolves over the rest of the year, the VNB margin is expected to move in line with the underlying product mix. Coming to the financial metrics. Firstly, to spend some time on COVID-19 claims. As you can see from the chart on Slide 28, since mid-March 2021, we saw a fresh surge, that's called the second wave of COVID-19 infections. In a short span of about 3.5 months till June 30, 2021, we have seen higher infections and deaths as compared to the full financial year 2021. As you may know, the impact of the second wave was -- seemed to be more pronounced in the younger age groups. This has resulted in a proportion of claims up to overall country deaths increasing by about 27% over financial year 2021. Also with younger customers and the underlying product segments, our average claim amount has increased to 137% of what it was in FY 2021. As a result, our COVID-19 claims net of reinsurance stood at INR 5 billion for Q1 FY '22, that is about 2.5x the FY 2021 claims of INR 1.98 billion. Every claim that has been notified at any of our touchpoints is accounted for in this number, even as they are being processed further. We have also used preliminary information in the intimation of claims to classify them as COVID or otherwise. Further, at June 2021, we hold reserves of INR 4.98 billion towards potential COVID-19 claims. These include provisions for claims that have been incurred, but not reported as well as new claims over the balance 9 months of the financial year. With a provision of INR 4.98 billion and the net claims of INR 5 billion for Q1 FY '22, unless COVID-19 claims in this year exceed INR 10 billion, that is 5x the net claim amount in FY 2021, we would not expect any further negative impact. Against this, as we have said earlier, the actual claims so far have been 2.5x in Q1 FY '22. As a reiteration, claims and provisions on our books at June 30, 2021 include the following: first, all claims notified at our touchpoints for COVID 19 or otherwise. This corresponds to a gross death claim amount of approximately INR 20.4 billion for Q1 compared to INR 7.36 billion in Q4 of FY 2021. This can be seen in our financials in the benefits paid schedule, which is Schedule 4 to the revenue account. This amount includes settled claims, acknowledged claims, where all necessary documents are received from claimants as well as notified claims, where we have only received preliminary intimation supported by preliminary documents such as claims intimation form and/or death certificate. This is recorded as a financial liability. The second element is a provision for expected claims in the future on account of COVID of about INR 4.98 billion, which includes 2 components: first, provision for incurred but not reported claims, IBNR, specifically for deaths due to COVID that have not been notified at our touchpoints. And second, a provision for expected future claims, where deaths have not yet happened by June 30, but could happen in future time periods. This is an actuarial liability. Beyond COVID claims, a further provision of INR 3.84 billion has been made for IBNR on non-COVID claims that are yet to be intimated at our touchpoints. This is also an actuarial liability. As you can see on Slide 30, we are starting to see a decline in the daily average number of deaths in the country. Specifically, for the month of July till date, the daily average number of deaths are even lower than the peak of the first wave. This is also reflected in the slowdown in the intimations on our portfolio that we are seeing during the month of July. With the vaccination drive starting to gain momentum, we expect to see a further recovery in the coming months. As a result of the COVID-19 claims and provisions, we incurred a loss for the quarter of INR 1.86 billion as compared to a profit of INR 2.88 billion for Q1 FY 2021. As I mentioned earlier, unless COVID claims in this year exceeds INR 10 billion, that is 5x the net claims of 2021, we would not expect any further negative impact. Our solvency ratio continues to be strong at 194% at June 2021. Before I conclude, I would like to give a brief update on our ESG initiatives for financial year 2021. Given the nature of our business, we have focused on ESG themes of human capital; responsible investing; governance and business ethics; data privacy and security; access to finance, environment and CSR. As you can see on Slide 34, given the pandemic, we undertook several initiatives to support the physical as well as psychological well-being of our employees. With the help of our structure, learning and development framework, about 1 million digital learning hours were completed across employee roles and levels. We promote an inclusive culture and have instituted a diversity and inclusion policy to encourage diversity and promote a safe, secure and supportive work environment. Moving on to Slide 35. We have incorporated responsible investing in our investment processes by adhering to stewardship, ESG integration and exclusion criteria for certain industries. For stewardship, we engaged with an investee company on material matters and disclosed our voting actions publicly. Recently, we have instituted a framework for ESG integration in our equity investments. We have also outlined a list of restricted industries such as coal and thermal power, which focus on climate change risk. Another focus area for us has been governance and data privacy, Slide 36. Our Board comprises a majority of independent directors. The Board and all committees are chaired by independent directors. We have a policy on diversity of the Board of Directors and criteria for appointment as well as the framework for their evaluation. The compensation of whole-time directors is aligned to both financial and nonfinancial indicators of performance including risk parameters. Our risk governance structure consists of the Board, the Board Risk Management Committee and various subcommittees. Apart from our privacy policy covering handling of data and related aspects, we undertake employee awareness programs. As a part of our business ethics and compliance framework, we have formulated various policies as mentioned in the slide. Towards financial inclusion, we have specifically designed micro insurance products, targeting underserved customer segments. As a part of our CSR activities, we have supported COVID-19 relief measures along with a voluntary contribution of INR 26.5 million by employees. In terms of reducing environmental impact, we saved about 2,700 tonnes of carbon footprint during financial year 2021. With this, I conclude our ESG approach and initiatives. We believe ESG integration is an ongoing and evolving process, and we are committed to progress on it. To summarize, we monitor ourselves on the 4P framework of Premium growth, Protection Business growth, Persistency improvement and Productivity improvement to improve expense ratios. Our performance on these dimensions is what we expect to feed into our VNB growth over time. Thank you. And we are now happy to take any questions that you may have.

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

Congratulations for a very strong set of numbers, especially on the VNB growth. Sir, firstly, on the bancassurance, can you split the growth that we have seen in this quarter? I want to see -- I want to understand how much growth we have seen from ICICI Bank and non-ICICI Bank.

I can give the proportion, Nidhesh, Kannan here. The ICICI Bank, out of that 39% what we have shown, is about 28%. All the other banks constituted the balance 11%. That has been the breakup for the quarter.

Sure. So ICICI Bank has also grown on a Y-o-Y basis...

That's correct. They have started growing, and they have started stabilizing. And as Satyan mentioned during his opening remarks that -- especially the annuity segment of ICICI Bank has grown at triple-digit growth.

Sure. I understand that we don't focus on VNB margin, but our VNB margin has improved quite significantly. And still, we are having one of the highest share of ULIP, which is the lowest margin product, which means that probably the product level margin for us is may be higher than the other peers. So do you see further reduction in share of ULIP going forward, which may mean that VNB margin may improve even from these levels?

See, but what we have seen, Nidhesh, is that since February we have seen decent momentum when it came to ULIP. And particularly during this quarter, when the market stabilized, we are seeing a momentum back in ULIP. So I guess that it will probably stabilize at around this level, this is what I feel, as a proportion. But the growth prospects will be there both in ULIP as well as non-ULIP, is the feeling we get. But the way we look at it is that it is a great product from a customer perspective. And probably our yield reduction in terms of cost will be probably the best in the industry. So given that and the fact that we are one of the low-cost income ratio companies, we are happy to get the scale economies work for ULIP profitability and continue to do that. So I would say that ULIP proportion will continue to be around this level, and it will continue to grow. So our approach is that keep all the products today. If you look at about 2 years back and today, we have the entire set of products now depending on the consumer preference. So we would present everything. And whatever it takes at that particular quarter or a particular year, we are happy to sell. So we are quite neutral, Nidhesh. We are not pushing a particular segment ahead of the other, is what I would say.

Sure. And lastly, on the group term business. The nature of the business is a B2B business, and I believe it will be very competitive. So in that business, how are we able to generate a reasonable profitability? What is your strategy that we have adopted, ensuring that we are able to generate reasonable profitability?

I will ask Satyan to supplement. But primarily, I want to answer it by saying that there is a lot of demand for this business now. Responsible employers, especially large employers are getting very, very anxious about the coverage which has been provided to their employees, be it the amount of coverage or the number of employees being covered. Both sides, there is a lot of demand which is coming through. And here, I would say that people are more focused on getting the cover rather than haggling on the price. That is the trend we are seeing currently. And we believe that it's a great opportunity, especially to sell it to the large employers because as you know, some of these large employers are vaccinating their own employees much more disproportionately compared to the country average. For example, I mentioned in my opening remarks, in our own case, 82% of our employees have got vaccinated at least once -- first dose at least have been administered through various camps and tie-ups. So that is happening. It is a great opportunity for companies like us to sell to these employers a group term. And of course, it is a 1-year product which is renewable. We can always adjust the pricing depending on the reinsurance pricing. So we do see it as a great opportunity. And so far, what we have done in this space has really been accretive to us from a VNB perspective. So with these remarks, I would give it to Satyan to answer any other aspects of this group term business.

Nidhesh, just one thing to add. We are still very selective about what schemes we pick up. We have lost schemes as well, and we have won many schemes as well. So pricing to our expectation is a clear expectation before we get into a scheme.

The next question is from the line of Suresh G. from Macquarie.

I'm very confused on this provisioning that you have done. So I just want to understand this a bit better. So you made INR 3.3 billion of COVID reserves as of FY '21, which was taken through the embedded value for FY '21, right?

Yes, Suresh. Correct.

Yes. And if suppose there was an EV work. I know you don't give in quarterly EV work, it would have meant that your EV would have gone down by another INR 4.98 billion because of the additional provision then over and above the INR 3.3 billion?

No, no. So let's break this up into 2 parts, Suresh. I had a COVID provision of INR 3.3 billion at the end of last year, which has moved up to INR 5 billion by June.

So there would be an additional INR 1.7 billion in fact.

Right, first, INR 1.7 billion on that account. Second, the actual claim expense in my books, which was net INR 5 billion in this period, is also in my books at this point of time. So what has gone through my P&L, allowing for par and nonpar bit of adjustment, is INR 5 billion worth of claims plus INR 1.7 billion worth of increase in provisions is what has gone into my books through this quarter.

Why this bifurcation? I don't think your competitors give this bifurcation. I mean...

It's important. It's important, Suresh, and I will just use something to highlight this. I think the simplest thing to do is to look at the claim numbers in Schedule 4 of financial statements of various companies, okay? You will find the patterns are a little different, which would suggest to me that different companies are using slightly different approaches of what they are calling a claim and what are they calling a provision. I'm noticing certain companies who are calling a part of intimated claims also as a provision. And that's the reason why I'm clearly stating every element which is in the book.

So this INR 5 billion is what? Just to repeat...

INR 5 billion is every claim which has touched our touchpoints, whether processed or not processed, is sitting on my books.

Okay. Okay. Okay. So the...

I can take this offline with you later, but I would just suggest this. Look at the Schedule 4 numbers of the top 4 companies through last year and through this quarter as we are emerging, the patterns will be obvious.

Okay. Fine. We will look through that. The second part is, can you share what is the individual protection APE growth? You have given the total protection APE growth. I want the individual protection APE growth.

It's a decline, Suresh. We haven't disclosed the numbers. It's like we had said in the past as well, our approach in this period is not about retail or group, it is really about saying wherever there is an opportunity we take it. As long as the overall outcome on margins, and you will see this in the margins as well, given the mix is consistent, it doesn't matter too much to us in the short-term period. I would much rather, like Kannan said, in this COVID-related environment work with an organization which has an 80% vaccination rate compared to a population underwriting on retail protection where I may have more concerns and questions with respect to that.

Okay. And finally, on bancassurance thing. I mean look, your ICICI is still 28% of the overall business, by far the largest distributor. I mean I know this year is going to be a good year because of the base effect and everything. But when your largest distributor doesn't want to sell par and nonpar the normal products, of course, they're okay doing single premium, do we think it is a structural disadvantage, Kannan and Satyan, over the longer term? I mean some point in time it is going to hurt you when 30% of your distribution sales will not do certain kind of products.

No, I don't think so, Suresh. Why I say that is because it is not that they are selling single premium. They are selling regular premium ULIP. That is a bread and butter of the business. Along with that, they are giving a lot of trust for annuity, which is not getting reflected too much in APE because annuity is a single premium. And we have protection on retail side as well as credit lines, which has really come back big time to pre-COVID levels. So there is still about 3, 4 streams which are there in ICICI Bank. And as you rightly said, the base has got set and from here they have been growing. And finally, they are more focused on VNB delivery, is what I feel, from our perspective. Not from their perspective, from my perspective. They are adding to bottom line in terms of VNP. So I have a feeling that, yes, this was a question which was relevant probably about 1 year, 1.5 years back. But now things have stabilized, and they are -- in fact, we have had a lot of conversations around how to underwrite, what kind of PASA product, pre-approved sum-assured products we should be rolling out; how to use their platform -- app platform to give prequalified offers to the customers. Engagement is of highest order. And I feel that the product mix margin there is going to really be accretive to us on VNB, which we are very happy to take, Suresh. I don't see -- incrementally, I don't see too much of risks, what you are highlighting, which was probably an issue about a year back.

Okay. Maybe 1 last question. Can I squeeze in?

Yes, of course, of course, Suresh.

Yes. Yes. Okay. Now again, a very conflicting signal from one of your larger peers. As they clearly say -- I know you addressed this, but the fact that the group business is a very heavily competed business. The margins are very fine, very difficult to make money. And -- 1 group goes bad, then your claims can go through the roof, right? So we just want some qualitative aspects here, Satyan or Kannan, because this looks intuitively that group is supposed to be a lower-profitability business and a high-risk business or a heavily completed business, whereas the signal that you're giving is completely conflicting to our intuition. So can you give us some more qualitative feature?

Sure, Suresh. So I don't think one can generalize the character of group term profitability in a manner of speaking. Because at the end of the day, the competitive dynamics are different across large groups, small groups, relationships where groups have a firm relationship with that organization. It's also a function of what is the level of price where I draw a line and say that thus far and no further. Also very important is what is the kind of reinsurance support that I have and how far do I deviate from a reinsurance pricing. Last, but not the least, it's also about how long I retain a customer. Because if I'm looking at a group client on a 1-year basis, you're right, profitability will be nothing to write home about. But if I can retain a group customer for an average of 3 to 5 years, suddenly, it multiplies my profitability. And our approach to this has been a combination of all this. And you will see this, and you have seen this in the numbers. You have seen the last 2 years, our group term business grow quite dramatically. FY '21 grew at 100% over FY '20. Q1 of this year, it has grown at 80% over the last year. But fundamentally, when I look at my profitability outcome, it is not adversely affected in any fashion because of this. So to that extent, clearly, I do not know about the others. I cannot speak for them. But I can say this for ourselves, we are as willing to walk away from a deal if we are not comfortable with the price, as we are to compete for it for groups that we are comfortable about.

Yes. I would just add, Satyan, to what you said to answer Suresh's question that, yes, we have seen ourselves walking away from some deals and there are lots of deals available in the market we are not very sensitive also. I would just add 2 points; one, to answer your question about peers, at least the middle-level players when I see, Suresh, I'm seeing a significant pickup on sum-assured market share by some of those players. So this may not be true for all the players, what you are saying mid-levels. Mid-to-large players, I am seeing them picking up sum-assured market share, so may not be -- and it can't be out of retail protection. So it has to be largely driven by some of the group businesses. And the second point I want to make is that, yes, we are handicapped by the fact that we don't give out the retail protection numbers every quarter. But if you really look at the product mix, and you know the rough sense of margin across the products, when you do the back-of-the-envelope calculation, you would see that we are broadly okay on the margins from the entire protection perspective. So I just want to assure that we are not compromising on our margins in trying to get to this business.

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

I hope all well at your end, and congrats on a great set of numbers. So I have a few questions. I'll just go one by one. My first question is on the VNB margins. So I know that you don't disclose a VNB trajectory. But qualitatively, if I had to break it down, the whole margin improvement is it because of product mix or do we have some kind of persistency improvement also that we have factored in or any kind of -- since our expense ratios have gone up, any kind of negative assumption changes that we have also factored in, in the VNB margins? Just to get a sense of how the VNB margins emerge throughout the year if the protection part of it normalizes.

So Arav, if we just use my last year's disclosed segmented margins, linked, non-linked savings protection applied to product mix, you will roughly arrive at the margin that we have actually achieved for the quarter. There is no assumption change. We always use the current yield curve. There is no expectation of deterioration in cost ratios. Like I said, the cost to total weighted is also a function of new business and annual premium. It's a kind of a composite metric. Unit costs that feed into expense assumptions for VNB have not been adversely impacted at all during the quarter. So it's consistent margin from last year. It's a mix effect, which is dominating what has happened there. No change in assumptions.

Right. Understood, sir. Sir, just a follow-up on this. I know again that this question has been asked that we don't look at the margins. But if I see the protection demand going up by -- like a share going up to almost 22%, and the industry channel source, which I had, did suggest that ULIP demands are -- they are getting back. It's coming with a lag, but they are coming back. So I know that we don't look at the margins. But if we have a very high volatility in our product mixes, the margins are also getting very volatile. So at the company level, is there a broad range within which we are comfortable? Or like we are letting the margins go -- like flow wherever it is in order to ensure that we are satisfying the customer needs be it with any product?

Yes, we will absolutely look at the demand, as I said earlier to a question. We will look at the consumer demand, and we are happy to present all the products, whichever sells is good from our perspective. And the second part I want to clarify is that we are not working for a margin. We are working for growth in absolute VNB's. That is very clear both from our own internal targets as well as the both KPI perspective that VNB growth is an important metric to track. And depending on the product mix, I would say that the margin is an outcome of the mix rather than a goal. So to that extent, we are happy to take any margin with some, but our goal is to double the VNB of FY '19 in -- by 2023. From that perspective, we believe that we have had a good start and build some cushion in the first quarter itself in terms of the trajectory. So I will -- if I were you, I will look at only the VNB growth as a single metric, Arav.

Right. Understood, sir. Sir, just last question from my end. Again, I know the group term insurance question has been answered. And you said that if you are able to maintain the relation for maybe, say, 3 or 4 years, then the profitability starts coming in. So it's like highly dependent on the persistency that we -- like -- which we experience from this segment. So I know that...

That is actually true not just for this business, but for every product that we sell effectively.

Yes. Sir, but then again, like whatever I've understood from industry check is that this thing -- this demand, which has been like very strong demand, this has been there this year. But what gives us the confidence that maybe, say, after 1 or 2 years, we'll have the same level of demand and same level of persistency with the corporates that we have engaged this year? I'm just not too sure about the persistency of this business. So if you could clarify that.

Arav, most of the group term relationships that we have on our books have already been with us for a number of years. Our book at any point of time is a mix of old relationships which have got renewed and new relationships that we are seeking to acquire. So that's the mix that we manage. So again, I cannot say definitively what will happen later on. But like the rest of our business, we have to manage persistency on this block as well.

Understood. Right. So just like 1 last question if I could squeeze in, 1 bookkeeping question. So in our other banca channels, what might our market share be in the other banca channels that we have? Is it improving? Or are we able to maintain a stable market share compared to last year?

So we don't disclose. But what I would do is that I have the benefit of having our Chief Distribution Officer, Amit Palta, he can give you a color of how we are doing in multi-partner banks, which we have acquired recently. He can give us a color. Amit?

Yes. Thanks, Kannan. So Arav, what we are trying to do is, as a primary philosophy behind our partnership distribution agenda that we are driving through our newly acquired partners, is about working towards increasing the overall pie. And increasing the overall pie is typically worked upon by looking at white spaces both in terms of geography as well as customer segments to see how we can look at our ability of combining product solutions under a platform that we have created over a period of last few years, which we call it as iSolution to create differentiation and help our bank partners to grow the overall pie. I think with that as a primary objective, what we have seen is that the 4 new partners that we added in the last financial year, they have actually started growing on the overall business. So ever since we started doing bancassurance business with them, we have seen their overall pie improving and our share as a consequence is now quite significant. And given a space of 2 to 3 months, we've been able to become quite a significant contributor to the overall growth that these bancassurance partners are seeing. So if you ask me if I were to simply put it this improvement is sequentially getting better every month. So the percentage share that we had at the shop in the month of March has further improved in quarter 1. That is something which I can tell you. But of course, these numbers are not disclosed at this point in time, but I can give you a trajectory, which is on the improving trend.

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

Any updates from the reinsurer side in terms of product price changes, if any, given the current environment?

Prakash, price changes have already happened in the group term business, that is short-term business, and therefore, we have to quickly respond to that. In the shorter term credit life business also, we are seeing some price changes. But in the long-term business, we have not seen a price change because fundamentally, for a price change in the long-term business, everyone concerned has to be convinced that the lasting impact on mortality is for a long period of time and not just the pandemic effect.

Understood. Months ago you were facing operational challenges in terms of medical tests. How is the situation now with the vaccination drive? Is that a bigger challenge or now it's much more manageable?

I think this quarter, Prakash, has been a bit of a blow hot, blow cold on that. Early part of April was okay. Then we had multiple signs of lockdowns in various parts of the country, which affected movement in a particular way. May -- through May, we had challenges. June, it started improving again. So this has been something which is a blow hot, blow cold through this quarter. You're right, vaccination is picking up. In fact, it is encouraging that people are going out and getting themselves vaccinated. And I think the relevant number is what Kannan spoke about, that in the adult population, which is a target market, there's almost a 40% vaccination rate so far. As that expands, I would think that in the next couple of quarters, I would expect this to start easing.

Okay. And lastly, Satyan, on the employee expense. Obviously, last year, there was a lot of uncertainty and on a low base, we've seen an employee increase in expenses by around 37%. So is it a combination of annual increment as well as new recruitment? And will this trend of INR 2.8 billion, INR 2.9 billion sustain on a quarterly basis for the bank?

In absolute terms, what you're seeing is for the quarter charge, you should expect it to continue through the rest of the year. In fact, through the second half, I would expect to see even a greater buildup as we expand our manpower. Compared to last year, it's a bit of -- sorry, to put it differently, unfair comparison. Because in the first quarter of last year, we had not even given increments to people. And therefore, that's not a comparable base. And that part of it, Prakash, will normalize. But we are intending to expand the workforce as we go through the year. That effect you will expect to see through the balance 3 quarters.

It's fair to say the current cost increase takes into account increment as well as the new recruits.

That is correct. That is correct.

[Operator Instructions] The next question is from the line of [ Shubham Kabra ] from Nippon Mutual Fund.

I have 2 questions. First one is, sir, just understanding on the part of losses that you have booked in the shareholders' funds. The implication of the staying on the debt servicing of the subordinated debt that we have raised in the last year. So this is my first question. And second question I have regarding this huge significant decline in the solvency margins. So what are the key drivers that have led to this decline in solvency margins?

So Shubham, there has been no loss booked in the shareholder fund. In fact, there was a gain booked in the shareholder fund during the quarter mainly on equity. So it has no impact on the sub-debt at all. Sub-debt continues as it is. The sub-debt has also been invested in longer duration bonds to help us manage our ALM better. The negative carry, if you will, on that is quite small, not material at all. From a solvency ratio point of view, the 3 things that have most impacted solvency ratio change are: one, we have paid out dividends after the -- within the first quarter. Our AGM happened before the end of the quarter. So our books of Q1 include a dividend payout of about INR 2.8 billion. Second, we have had an increase in the required capital because of the growth of almost, again, INR 1.75 billion to INR 1.8 billion. Third, If I were to look at the quarter, we had a loss before tax of INR 2.1 billion. That affects the solvency because it has affected the net worth. These are the 3 elements which have impacted it. If I were to project it going forward into the balance of the year, Shubham, dividend is an annual feature for us. So that part of it should start to build up again. Second, on the P&L, if our provisions that we have made now hold us up through the rest of the quarter and we end up making profits in the balance 3 quarters, that should be naturally accretive. Of course, on the required capital side, as we continue to grow, it will continue to require more capital. So I don't see that is changing. But the other 2 elements are more, of what we have seen in this quarter, dividend clearly is a further quarter impact, which should even out over the year, and we will see how profits progress over the next 3 quarters. So I don't see this as in any way impacting our ability to service the sub-debt that we have raised.

Okay. So just on the first question, you are saying that there is a PAT level loss in the shareholder account. So that business seems to be contradicting the IRDA regulations requiring that there should be no loss for the insurer to pay the interest on the debt portion of the sub-debt raised?

No, I don't think there is anything which is triggered there.

We will continue to pay and there is no -- this is only a quarter number also.

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

Couple of questions. Like -- first is like COVID reserve that we have now is almost equivalent to the net claims that you have incurred during the first quarter. So how sufficient do you think this is going to be? And also what will be the strategy now as regards to risk retention given how the claim incidents have been?

So how sufficient is a question, I don't know how I can answer quite clearly. We have discussed this at the last year-end also. And at that point of time, we provided what we thought was best. And quite honestly, not just we, everybody around us also agreed with what we have provided as being conservative. But this is really a question of how it emerges? All we can do at any point of time, Nitin, is to ensure that we are providing what we see. And we try to ensure that, that is reasonable in the context of what we are seeing. To answer your second question on risk retention, I don't think reinsurance capacity is going to flex so much to help us to change our retention. We will continue to hold it as we are. We still see this as a short-term phenomenon. We still see this as an element that we need to manage through provisioning and capital management. Whatever is the consequent impact in the short term, we will take. In the longer term, of course, reinsurance is about long-term risk management. It is not about managing every quarter's P&L. I'm not sure any reinsurer would be keen to even do that.

Okay. Sure. So related to first question that we have asked about, the question will be, can you give some color on what was the sense like we get around the IBNR teams? How big can it be as for the serviceable model that we do internally? And generally for the large claim intimation between both the group and the individual business.

Okay. So let me put it this way. In the first quarter, COVID-19, non-COVID, all put together, I had total claims intimation related costs, which we spoke about, INR 5 billion was COVID and then I have the balance, roughly INR 9 billion or so of total net retained claims, and you will see this in Schedule 4 in the notes to -- in the financial statements. Against the INR 9 billion of what I have got by June, if I were to see my overall IBNR provisions, I have our COVID provisions plus non-COVID IBNR provisions, I have about INR 3.8 billion of non-COVID IBNR plus INR 5 billion of COVID-related provisions. So I'm talking about INR 5 billion plus INR 3.8 billion, INR 8.8 billion, roughly INR 9 billion of provisions against a claim which has touched me of INR 9 billion. From an IBNR point of view, I don't think I ever recollect, having seen a delay of the extent that my June numbers will double up over the next 2 years through IBNR. I don't think I've ever seen that happen in this business.

Okay. So -- and the delay in the group and the individual businesses are quite different, so you are expecting a higher claims coming out of the business?

They can be a little different, but within the group business, the employer, employee group term business, Nitin, tends to be very short delay. You may have maybe micro insurance, which has a longer delay; credit life, which has a slightly lesser delay; group term and retail may have short delay. So every -- it's not just again group and aggregate. It's a part of the group business, which will be a very different characters. But again, that is something, Nitin, that we specifically provide for. When we do IBNR, we do not do it at an aggregate basis. We do it at a segment after studying the historical delay in reporting patterns of that segment. I'm not taking an overall approach at all to this. It's a segmented approach.

The next question is from the line of Manish Shukla from Citi Group.

Satyan, Slide 29, the average net claim amount is 37% higher in first quarter versus full year. Can you please explain that again? Why is that the case?

Yes. The reason why this is happening is one, clearly, and again, we know there's some anecdotal information as well. The impact of this wave has been more pronounced on the relatively more affluent people in the more urban centers. And this is something that we can associate with given that my average retained claim amounts have gone up. So almost 60% to 65% of this increase in average claim amount is just on account of change in my customer profile that is now claiming this time around compared to last time. And then there will be some smaller pieces, which is about mix versus -- of savings versus protection and other factors which come in. But a bulk of this is driven by customer profile change in the underlying claim portfolio.

Okay, sure. And the non-COVID IBNR at INR 3.84 billion, what was the number as of March?

As of March, it would have been around INR 3 billion or so. This is the routine provision that we hold. This is a routine provision that we hold. This is not unusual. I always hold IBNR.

No, no, sure. I'm just trying to understand the order of magnitude because you said that the total net claims for the first quarter is about INR 9 billion, of which COVID is INR 5 billion. And now in total, let's say, contingency, if I can use the word provisions going forward, is INR 8 billion, of which COVID is INR 5 billion and non -- INR 9 billion, of which COVID is INR 5 billion and non-COVID is INR 4 billion?

Yes. That is correct. That is the order of magnitude.

Okay. Last question on group term. Group term was roughly 22% of your protection for last year in APE terms or about 3.5% of total. Can you tell us what would it contribute to sum assure? And it's about 3.5% of total premium.

We have not disclosed that separately, Manish. When we do the end year split in the protection portfolio, we'll look at it, but we have not disclosed that separately.

Right. And you mentioned that the pricing in group term has changed post reinsurance. So that has already flowed through to your customer segment in terms of whatever incremental business you're doing, right? Or is there an element of any pricing which is likely to happen for the rest of the year?

Yes. And whoever is coming up for renewal, both.

Okay. So when was that change implemented approximately, the new pricing when was that implemented?

2 months, this has been running now.

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

I just -- so most of my questions have been answered. I just wanted a clarification on the previous question. So COVID current reserves are INR 5 billion and non-COVID, are these sort of death claim reserves, which are now at INR 4 billion. Is that understanding correct?

So again, I -- quite honestly, I don't understand these concepts of what a death claim reserve is or what an extra mortality reserve is, I don't understand them. All I'm telling you is this. Everything which touches my touch point, I have provided for as financial liability. There could always be a situation where some claims have happened elsewhere, customer has not come to me because there is a natural delay, that is what is provided in IBNR. And this is a standard concept in insurance reserving, even in general insurance reserving. It is a practice we have always followed. We continued with that practice.

So isn't the -- isn't -- doesn't the INR 5 billion include IBNR?

No. INR 5 billion is...

Let me clarify. Satyan can supplement. INR 5 billion includes 2 things. The first thing it includes is that all the sort of claims which we have already settled, death claims paid out is included. And a lot of things which have been notified to us, It has been tagged in our system, but we are still processing the claims. So this is included in the INR 5 billion. So INR 5 billion is not just the settled claims that some other people report. This includes all the notified claims, including the settled claims. So that is the INR 5 billion. Now IBNR, deaths have happened somewhere, you don't know, and it may become a claim at some other point in time because there is a delay between death happening and that we don't know. There -- that is where Satyan mentioned that, that is an actuarial estimate has to be made and it's a standard process, a practice this company has been doing for 20 years. So that IBNR, now we'll have to look at COVID as well as non-COVID IBNR, which has also been provided for COVID IBNR of -- IBNR plus there is a future death, death itself has not happened. That -- for that, we don't look at it for non-COVID, we look at it for COVID. So these are the 3, 4 layers which we have provided. That is how we have clarified. Satyan, you want to expand on it, please go ahead.

No, Kannan, you explained it.

So I'm still a little unclear, and I'm sorry about this. So INR 4.98 billion, the provision which is now outstanding, that is -- includes IBNRs, right?

Yes, Madhukar. That INR 4.98 billion includes IBNR. The INR 5 billion of booked claims is without counting IBNR.

Okay. Okay. That -- so that has already happened. That has already occurred.

That has already happened. So again, I would say what I said before. If you look at Schedule 4 claims of all the top companies quarter-by-quarter of last year, including full year financial year and first quarter of this year, it will show you that there are slightly different ways in which, what are people calling as claims. What are people calling as provisions. It is possible that what you might call provision, I call claim. The only way for you to figure that out is to actually look at the claim numbers in the schedule.

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

Sir, my question is regarding the synergy benefit on life and pension funds. So what portion of funds normally flow into the annuities? And what is the sensitivity of the growth? Like how -- is there any way to model those 2 in to our annuity growth?

Yes, I will request Amit to give you a color. But broadly, these are all quite early days. There are 2 synergies which we are focusing on. One, from the pension fund management company itself, both as a POP as well as a PFM. They have 2 licenses. One is for fund management, other is for procuring new business in the form of point of preference. And the other synergy we have is at ICICI Bank NPS customers. So these are the 3 synergies we have been trying to focus on. Technically, the choice is with the customer of which -- what to choose later. But of course, we'll have to showcase our own servicing, our own convenience to the customer to get a larger proportion into our business. With this, I will request Amit to give you further color on how we are deriving the synergies out of this company. Amit?

Thanks, Kannan. So as you know that in this entire retirement space, pension space, you have accumulation products and then you have deaccumulation products, which you call it as annuity. So like what Kannan mentioned, at this point in time, in the role of a POP, what pension fund management company is doing is adding subscribers. And they add subscribers, both as a role as a POP, but also by working with all the other POPs that exist in the industry, which is close to around top 20 where they focus to add more and more subscribers. And for those subscribers, they manage funds, as they accumulate funds at the time they build -- the customer builds the corpus which can be converted into annuity. And whatever gets accumulated during this course after retirement is where it gets into an opportunity area for an insurance company to offer annuity solutions. So as you know, that 5 to 6 years' time frame is what has gone and POP role has been initiated only for the last 1.5 years or so for pension fund management company. So it's only over a period of time you will see that corpus built in the subscriber funds will eventually start flowing into annuity business, which gets booked by the insurance company. But it is too early at this point in time.

Got it, sir. Got it. Sir, my second question is on retail protection. So let's assume 100 policies are coming to you. What proportion of that are you issuing at this point in time? But I remember this being like 2 out of 3 sometime back so...

So let me put it slightly differently. It depends on what time horizon that you're looking at it. Within a month, it may be 2 out of 3. Within 2 months, it may very well be 75% of that. So it's hard to actually say how much is coming through. But beyond the point, it doesn't stay. So -- but this is something which can fluctuate. The more I'm unable to execute medical testing, the more I can have a followup. But if I'm able to turn medical testing to normal, then my fulfillment should improve again.

Got it, sir. Sir, just a contributor of someones question earlier. So we are not expecting any reinsurance rate hikes for retail protection in the near term?

No reinsurer has asked us for -- has made a proposal to us for a reinsurance price hike in the near term.

The next question is from the line of Prayesh Jain from Yes Securities.

Congratulations on great set of numbers. One question was on the non-ICICI Bank banca channels product mix. So is it similar to the overall banca allotment that we would have delivered in FY '21? Or is it more tilted towards other kind of products? So lesser of ULIPs and higher of annuities and non-par or participatory?

It will be a mix across partners, Prayesh. There are some partners where unit-linked will be substantial. There will be other partners where non-linked will be larger. So depending on how the capacity ramp-up of each of the partners happens, at least until they stabilize, you would -- you should expect to see this change a little. Maybe a year from now, we will see a more stable product mix emerging for that segment, but right now, it is still evolving.

Okay. But some sense as to whether it is different from ICICI Bank, significantly different overall mix?

Of course, of course, because ICICI Bank does not sell the traditional products.

Okay, okay. And secondly, extending that question in your VNB growth of 28% CAGR, how much would these play a role, in the sense, these new tie-ups? How much would these play a role?

It's hard to put a number on that, Prayesh. But very simply, if you look at the contribution of these new partners in the last quarter of last year, sustained full year production from them through this year and going forward our endeavor to expand that market, like Amit described before, it can be quite a sound growth from them, but I would hesitate to put a number as to how much of this 28% growth will be contributed by that.

Okay. And another question related to the same. The costs related to these will be higher than ICICI Bank for sure. So from a VNB profitability perspective, these channels -- these banks or these partners would be any change towards the overall profitability or would be lesser?

Eventually, product mix will determine the profitability, Prayesh. Everything else is at the margin.

Okay. And just one qualitative comment on -- if you can. In the non-COVID death claims, are we seeing any number rising in the sense that some person has COVID 2 or 3 months ago and now the deaths are coming through, something of that second order deaths. Are you looking at that kind of data?

Too early to get that sense, Prayesh. The thing also is that, statistically, you have to let this evolve over a period of time to large enough pools before we can get any sense of that.

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

Satyan, you -- when someone asked on the VNB margin, you said that the assumptions of what we reported in VNB margin in the current year is based on last year's segmental cost ratios. And to the extent I remember last year when we reported Q1 FY '22 VNB margin -- '21 VNB margin, it was based on budgeted cost for FY '21. So basically, have we changed our approach?

Same approach. Same approach. Exactly the same approach based on projected costs for full year, expectation for projected costs for full year is consistent with what we had for full year last year. I have not assumed any improvement in cost ratios into this year on the back of growth at this point of time.

Okay. Got it. And is it safe to assume that around INR 3 billion of non-par -- sorry, the traditional business you have done ex of annuity, will be more skewed in favor of non-par compared to what it was in Q1 FY '22 or even -- Q1 FY '21 or full year FY '21? And that probably is the product mix answer, which gives the margin expansion story? And second, related to is that do you think 29.4 is sustainable from a full year point of view?

So Sanketh, again, the mix between par and non-par within that, I have said this before, will be a cyclical thing. It's never going to be in one direction always. And therefore, again, when we spoke at full year, I had said that we should look at the non-linked savings segment in its entirety to see what is the margin in that. If you apply that margin to the product mix for non-linked savings that you are seeing on my portfolio for Q1, the segment level margin, if you just apply it to the product mix that we have disclosed for those segments in the current year, I suspect you will end up with an answer which is very, very close to what VNB we have got.

Okay. Got it. And finally, Satyan, on this INR 498 crores of COVID provisioning, which we have on balance sheet, can you just give me the sources, like where it is exactly sitting? Like, drawdown in par SSA and change in actuarial liabilities or any other source? Just wanted to understand how did you source this INR 498 crores to be created in the balance sheet?

Change in actuarial liabilities. Some portion of it will be in the par fund. But even in the par fund, it will go through change in actuarial liabilities. That's the only line that it goes through.

Next question is from the line of Jayant Kharote from Crédit Suisse.

Sir, my question is regarding retail protection growth. So slightly hypothetical to that if there is sort of rate hikes, then what will be our approach? Because one thing I have noticed is that our view is that more of a near-term headwind, whereas some of the peers are saying that there had been demands for tightening the underwriting standard, which can lead to some moderation in growth, if just the moderate experience is to be controlled. So what is your medium-term outlook on retail, but if then if indeed hypothetically there are hikes that come through, would you look at tightening your own standards and then sort of sticking to a table which you have been laying to mortality to win the space?

So there are 2 different approaches possible. One approach is say price tightening due to the current environment. Second approach is increase in price with some relaxation. I don't quite expect increase in price to be accompanied by tightening. That becomes a little bit of a counterintuitive approach to me. As we speak now, you would have noticed that there has already been a tightening in the underwriting process. That has got executed on the ground. If hypothetically there were a price hike, our approach would be, like we did in the last year, to pass the price hike on to the end consumer without much delay.

And the growth then over 4Q, let's say post COVID?

See, again, you know our view on the opportunity for the retail protection business. If I go post COVID, again, we are talking about the penetration level, which is 10% of the addressable population being covered today. We have always said that this is a business which in the long term can grow at 20% to 30% per annum also for a sustained period of time post COVID. I would actually think that COVID should give a little bit of extra tailwind to possible demand given that our awareness would have increased, but that's something we will see as it happens.

Sir, sorry to -- so if I were to put it differently, was your mortality experience due to protection worsening even pre-COVID? And then why wouldn't it be any different this time?

Let me put it this way. My mortality experience, excluding impact of COVID is in line with what I expected it to be.

And then the reinsurance would be on the same page I think.

It's the same thing, right, it's back-to-back.

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

Two clarifications actually from my side. One is somewhere you mentioned that the weighted average margin for the non-linked business is exactly similar in 1Q as compared to F '21. Is that what you roughly clarified?

No, no, no. What I was saying, Nischint, is that outside then, if I were to see from a stability of segment margins, if I were to use segmental margins for full year last year and just superimpose them on the current quarter's product mix, you will find that it is very consistent with finally what is the VNB that we have achieved. So all I'm suggesting there is segment-wise, we have stability of margins in this quarter compared to full year last year.

That's right. So basically, if your margin in non-linked business, let's say, the weighted average margin in the non-linked business worked out to, let's say, 8%, then I can just simply use the same x percent for the 24.5% business you did this quarter, and that would be an accurate way to think of it.

As a frame of reference, yes. There will always be some pluses and minuses, Nischint, you know that. But yes, broadly I answered it.

Sure. The other thing is you are now provisioned or have a buffer to the extent of maybe INR 1,000-odd crores is what we can say for COVID claims, and this is approximately around 3-point -- and last year, you have total claims at around INR 3.3 billion. So what you're broadly trying to say is that you would expect the net claim this year to be maximum of 3x of whatever was incurred last year?

No, no, sorry. Slight change, Nischint. INR 3.3 billion was the provision I held as at March. My actual claims due to COVID during FY '21 was INR 2 billion. When I did my disclosures for FY '21, on top of the INR 2 billion, we had done an attribution of micro insurance claims which was another INR 0.5 billion. So this time I am keeping the attribution out and I am taking like-to-like numbers. What was INR 2 billion last year is now provided for to power 10.

No, sir. Actually, if I look at Slide #29, it says total claims on account of COVID-19 for FY '21 is INR 3.5 billion.

That is gross claims. So you should look at net claims, which is the P&L impact, which was INR 1.98 billion.

Okay. So INR 200 crores as compared to a provisioning of INR 500 crores and INR 500 crores that you already incurred.

Yes, 2 versus 10, that's what it is.

Yes, 2 versus 10.

The balance is the reinsurance.

See, I've given the gross number so that you can tie it back to my financial statements. It's much easier if I'm able to give you that. Otherwise, it becomes a little confusing.

And the ratio between gross and net for last year versus this quarter, how should we read that? Does this kind of mean that maybe you had no reinsurance last year? I'm sorry, no reinsurance this year?

No, no. What it means is that more claims this year came from portfolio which had higher sum assured. So therefore, my recovery from reinsurer was a larger proportion than last year. If the average claim amount point that I made, Nischint, a few minutes back.

Yes, it's consistent with the general color we gave of more affluent customers getting impacted this time. Younger population getting impacted and we also see a little bit of disproportionate impact in Tier 2 cities compared to first time. I think it's a combination of all this in terms of profile, which has also resulted in a higher reinsurance claims as well.

Perfect. And just one last point. I think we will get a complete clarity about on all of this broadly by the second quarter, right? I mean if there is no third wave.

Your guess is as good as mine, Nischint.

We all hope so. But what we thought we should do in the meantime is that based on our own outlook, whatever sense we are getting, we should strengthen the reserving, provide whatever we think is appropriate. And despite that we have a good solvency is what we wanted to indicate.

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

Sir, just one -- couple of clarifications. One, so the VNB calculation is done assuming the OpEx ratio to be same as FY '21 or same as Q1 FY '21? Just needed clarification on that.

Similar to full year FY '21. Even though growth is higher, I'm not anticipating any sale benefits yet in my unit cost assumptions.

Got it. Got it. Then, the second question is that we have had like pretty large OpEx growth this quarter, obviously, from a lower base in Q1. For the full year, what sort of OpEx growth are we looking at? Because the quarter ended at close to 55%, non-commission OpEx at least.

In line with what I described, Mayank, of -- if my expense ratio this year is to be consistent with last year, my expense growth should be consistent with new business growth.

Okay. Okay. Got it. So it's still a moving target. It will sort of end up depending upon how the growth pans out in the rest of the year?

Always. Always. You know, last couple of years, we have tried to manage that in a very, very dynamic fashion, both through up cycles and down cycles. So that is something that we will continue to do.

The other question I wanted to check is, like, obviously, we are in an environment where the reinsurance companies want to do all sorts of checks before they sort of underwrite mortality risk. In such an environment, be it sort of doing a lot of credit life business, a lot of group term business, where we fundamentally just don't really do any sort of checks, et cetera. So just wanted to get your sense on like if the reinsurer is that worried about taking mortality risk and wants to do so many checks before he does that. What gives us the confidence to sort of write this level of mortality risk on the group side where you're really not doing any significant underwriting?

So I'll go back to something that Kannan spoke about earlier, Mayank. We as an organization have got to an 80% plus vaccination already. I would have far more comfort on that than an expectation of COVID infection and subsequent mortality in a larger retail population, checks or no checks.

Okay. Got it. And just last question, Satyan, I missed this. What was the total gross death claim we paid out in this total COVID, non-COVID, all combined? What was the total gross amount that was paid out?

About INR 20 billion.

About INR 20 billion. And sorry, this same number, net of reinsurance, was how much?

About INR 9.5 billion, that's it. INR 9 billion to INR 9.5 billion.

INR 9.5 billion. Perfect. Perfect.

Roughly, we have been operating on a 50% reinsured kind of a thing, right? We have discussed this multiple occasions in the past. So broadly that describes it.

Yes. So that is where I asked my previous question because we -- I think typically the industry does a lower level of reinsurance on the credit life business, which means our balance sheet gets a little more exposed compared to the reinsurance...

No, but that is -- no, Mayank, that is because the average sums assured themselves are small. It's not like that I'm trying to retain our larger proportions. It's a ticket size.

Fair enough. And I mean I don't know if you've answered this, but what would be the ratio of the sum assured that we generate through the group business versus the sum assured that we generate out of the individual retail protection business?

I don't have it off hand. But that should be in the public disclosures on a monthly basis, Mayank. My sum assured -- new business sum assured is disclosed separately for retail and group. The domestic data, industry data will have it. I -- unfortunately, I don't have it at the top of my head, but you sure should find it easily enough.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just the first one on the INR 5 billion COVID claims. Can you split it based on protection versus savings?

That is not yet publicly disclosed, Shyam. But this is a reflection of the size of the book. The book is predominantly savings oriented. It's only in the last 3 years that the protection book has grown. So there is a greater skew towards savings in my claims than towards the retail protection part.

Yes, Satyan, I'm just trying to reconcile that with the other point you made that sum assures have been higher, so that should ideally come from the protection book. I am just...

Correct. Yes, yes, yes. So between last year and this year first quarter, the skew has moved slightly towards retail protection, that is correct, which is why sum assured has increased on that account. But still on my overall claims, between retail protection and savings, it is savings which is the larger proportion.

Fair enough. And are you disclosing the number of claims volume?

Number of claims, I don't think I have disclosed anywhere. I don't think I have disclosed that anywhere.

Got it. Okay. Second question just back on the sum assured part. I think multiple participants have asked and I looked at the public disclosure. Just looking at between fiscal '21 and June, looks like your market share on group has doubled from 10% to 20%, and the individual regular premium, that has been largely flat. So can we safely say that all the -- some assured growth has actually come from group? Do you think so?

I said that, right? We said that retail protection has declined in the quarter. I didn't give the breakup of that in order of magnitude. But yes, the growth in protection has been driven by group protection. That is correct.

This includes credit life also, by the way.

Yes. Last question is on the just the distribution part and some data points if you could share on the direct, right? It says it's a combination of both websites plus employees. So if you could kind of help us split that? And what are some of the products that we're doing online? You've given the color that I think protection and annuity is 20% -- 21%. But what is the rest of the book?

On the online business, Amit, do you want to give color to the kind of product mixes that we are seeing and direct business?

Yes. So typically, we have 2 portfolios of business. One is buy online where the demand generation is captured both at our website as well as at our partners' -- mobile platform as well. There, we have seen predominantly, it used to be protection in the past. And recently, we have introduced annuity as a proposition. So it is growing every month. But predominantly it is still protection as a proposition. The second part of our direct business is what we do as an upsell to our existing clients that we have acquired and who are active over a long period of time since inception. These are the customers where we have seen that the existing unit-linked products, which used to be a significant part of our overall portfolio till 2 years back, we have a large number of unit-linked customers who tend to prefer and capitalize on a positive sentiment in the market towards unit-linked products. Hence, it has relatively skew towards unit-linked products as a preferred category. But in line with the change in the consumer preference that we have witnessed towards guaranteed products over a period of last 12 to 15 months, we have seen some portion of that business moving towards the guaranteed range of products as well.

Got it. So predominantly, you're saying it's ULIP and 20% is protection and annuity?

Let me just correct. Within Direct buy online business, which is demand is getting generated on our website as well as mobile platform, there it is predominantly almost 60% to 70% business is protection. On a proprietary sales force, which is an upsell channel, which upsells to existing channels, there you have a larger proportion of business coming on unit linked platform.

Got it. And roughly, what's the split between online versus employee generated?

Yes. So direct business contributes close to around 13%, 13.5% of our overall channel mix. Within that, the proprietary sales force is close to 10% to 11% and 2% to 2.5% is on a buy online platform.

We'll take our last question, which is from the line of Deepika Mundra from JPMorgan.

Sir, firstly, I just wanted to understand the progress on rider attachment. So given that you've had a good amount of success through last year, what would be -- however you want to define as the percentage of policies that have already opted for credit -- sorry, health rider?

Deepika, roughly a little over half of our retail protection policies have a rider attached to it, either accident or critical illness. That's where we are.

And on the savings business, you would see scope for improving or either attachments?

Yes, but slightly lesser because the -- there are restrictions around what proportion of the premium can come from rider. What should be the coverage of the rider with respect to the base plan? So rider attachment with the savings product historically has never been an easy thing to achieve in our context.

Got it. And I just want to reclarify on the expenses assumption. I know you mentioned that the assumption is unchanged largely from last year. But given that the cost ratios have gone up and we're not taking into account the benefit of increasing volume, I just wanted to tie in those 2 things as to why the expense ratio assumption remains the same.

Deepika, the cost to total weighted received premium ratio, in the denominator, the total weighted received premium has a combination of both new business premium as well as renewal premium. Given that we have not had a meaningful growth, in fact, we have had a decline in the new business in the last couple of years, our renewal premium growth is actually -- renewal premium is flat. That is affecting this ratio. But that is the way the metric is designed. If I were to look at it from an expense assumption point of view, I would break it up into expense per unit of sales and expense per unit of maintenance. Both of these have not worsened for us in the first quarter.

Got it. That's very clear. And lastly, I just wanted to say, in your offline channels, both agency and banca, what percentage of policies in the last quarter or so would be end-to-end sold digitally, like sourcing as well as execution?

Amit, would you have a sense?

Yes. So that 2% of our business comes from a buy online platform. So 2/3 of our buy online business actually is end-to-end digitally closed by customers themselves. And what I mean by end-to-end is where demand is generated by -- customer himself walks onto the platform and he ends up closing the sale or completing his entire purchase process on his own. So 2/3 of 2% is what you can attribute towards complete end-to-end digital sales.

Sorry. Probably, what I meant was, let's say, your agents are not being able to do an in-person meeting, sourcing or prospecting the client completely online and converting the transaction.

That way 95% plus of our applications are on the digital platform.

Okay. So like would you say that 95% of sales have not required an in-person meeting at all?

It can be done without an in-person meeting. I don't know whether in-person meeting was conducted or not, but it can happen because 100% of my business, Deepika, can happen without an in-person meeting. It's really the distributors choice about what he or she is comfortable with.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you. Thank you all. This is Kannan here. Thank you all for patiently listening and asking questions over a long call. We do believe that we have answered most questions satisfactorily. However, if you feel that we need to answer any other questions, please feel free to talk to me or my team. We are always there to clarify any further queries. Thank you, and good night.

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