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

Ladies and gentlemen, good day and welcome to ICICI Prudential Life Insurance Company Limited FY 2023 Earnings Conference 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, ICICI Prudential Life Insurance. Thank you and over to you Mr. Kannan.

Thank you, Nirav. Good evening to all of you. Sorry, about this late call. We just completed the Board meeting so we had to have this call at this time. Good evening to all of you once again and welcome to the results call of ICICI Prudential Life Insurance Company for the financial year 2023. I have several of my senior colleagues with me on the call: Satyan Jambunathan, our Chief Financial Officer; Judhajit Das, who heads Human Resources, Customer Service and Operations; Amit Palta, who heads the Distribution, Brand & Marketing and Products; Deepak Kinger, who handles Audit, Legal, Risk and Compliance; Manish Kumar, our Chief Investment Officer; Souvik Jash, Appointed Actuary; Dhiren Salian, Deputy CFO; and Dhiraj Chugha from the Investor Relations team. Let me start by talking about some of the key developments during the quarter. First, on the regulatory front, IRDAI, our regulator, has notified revised regulations on the expenses of management and commission. The increased flexibility and commission limits, as per the new regulation, will allow insurers to react to market forces in an agile manner, thereby supporting the IRDAI vision of improving penetration of insurance in the country and their focus on ease of doing business. The EOM regulations seek to bring about 3 relative shifts in our view. First, encourage longer-term products by way of higher allowances related to shorter-tenured products, which is in line with insurance products being more suited to the long-term savings and protection needs of the customers. Second, incentivize renewals through increased allowance, which aligns distributor and manufacturers' interest with that of the customer. This is also expected to improve persistency levels for the entire industry. And third, provide incentivization for protection at a higher level related to savings products. In our view, these regulations are a welcome change for the industry. As a company, we are very optimistic about the growth prospects on the opportunities ahead of us. The second development during the quarter has been the Union Budget. In the Union Budget 2023, it was announced that if the total annual premium paid for non unit-linked policies exceeds INR 500,000, then the difference between the total benefits received and the premiums paid would be subject to tax as income from the other sources. This will not affect the tax exemption provided to the amount received on the death of a person insured and also on insurance policies issued till March 31, 2023. We do not expect this change to have a lasting impact on our business as customers who wish to take the benefit of Section 10(10D) taxation can, in any case, buy policies with the premium amount being capped at INR 500,000. Up to this amount, insurance products have in fact become more attractive than competing death products in the market. In any case, customers value products which address their specific needs, irrespective of the tax levied at various stages of the product's lifecycle. There is also the precedence of a similar event in the recent past, when in the Union Budget 2021, high-ticket ULIPs were subjected to capital gains tax and despite this, for our company in APE terms, the product mix prior to and post-tax regime change was very similar. Finally, and most importantly, as of today, the well-diversified products and customer segments of our company has made the business model much more resilient and allows us to take advantage of opportunities as they present themselves in the marketplace without being reliant on 1 segment or 1 channel, nor on specific tax or other such issues specific to a particular segment of business. The third development during the quarter, I'm happy to inform you that during the quarter, our annual report was awarded the ICAI Award for Excellence in Financial Reporting for the year '21-'22. We are honored to be recognized as the Most Innovative Insurance and Life Category by FICCI. We have also been conferred with the Corporate Governance award at the Dun & Bradstreet ESG Awards 2023. We are particularly delighted with the outcome on the independent industry net promoter score NPS survey where we were ranked the Best Life Insurance Provider in India by Hansa Research. The fourth development during the quarter, I'm pleased to inform you that Ms. Vibha Paul Rishi has been reappointed by our Board of Directors as an Independent Director of the company for a second term of 5 consecutive years with effect from January 1, 2024 subject to approval of the shareholders of the company. The fifth development, I am happy to inform you that Mr. Anuj Bhargava has been nominated by ICICI Bank Limited as a Non-Executive Additional Director of the company with effect from May 1, 2023 subject to the approval of the shareholders of the company. He began his career with ICICI Limited as a Management Trainee in 1998 and has successfully completed various assignments in different roles in the Bank, and the Group companies during his career spanning 24 years. He has a rich experience in investment banking, corporate and government banking, and retail banking. The sixth development, as you are aware, the Board of Directors has appointed Mr. Anup Bagchi as the MD and CEO of the company for a period of 5 consecutive years with effect from June 19 of 2023, subject to the approval of IRDAI, shareholders and other approvals as maybe applicable. To ensure smooth leadership transition, the Board has also appointed Anup as Executive Director and Chief Operating Officer with effect from May 1, 2023, subject to regulatory and other requisite approvals. While the approvals are still awaited, I have immense confidence that under Anup's leadership, the company will continue to grow and bring even greater value to the shareholders. Anup has been my valued colleague at the ICICI Group and I have personally known him for more than 3 decades since our business school days together. I want to assure you all that my team and I personally will ensure the smoothest possible leadership transition of the company. Anup has been on the Board of our company as a Non-Executive Director for more than 4.5 years now and has been one of the biggest supporters of Team ICICI Prudential. While each new CEO will and should bring his or her own perspective for the business, I expect the overall strategic continuity to be maintained since he has been an integral part of the Board and the company's strategic formulation over years. My journey as the MD and CEO of the company will come to an end as I superannuate from the services of the company on June 18, 2023. I would like to take this opportunity to thank all of you for being extremely supportive during my journey. We faced unprecedented challenges, both internal and external during this period. Despite these challenges, you continued to have faith in me and my team for which I am extremely grateful. Achieving any of the milestones over the past 5 years wouldn't have been possible without your support. I once again extend my sincere gratitude to each one of you and thank you all for your huge belief in me, not just during this 5-year period, but all through the last 3 decades of my tenure with the ICICI Group in various roles in the Bank as well as ICICI Prudential. Thank you so much. I will now move on to the company's strategy and performance. We have put up the results presentation on our website. You can refer to it as we take you through our performance. First, let me talk about the strategy and the corresponding performance of our VNB Journey. 4 years back in April 2019, I had articulated the aspiration to double the financial year '19 VNB, building on the 4P strategy of Premium Growth, Protection Business Growth, Persistency Improvement and Productivity Enhancement, while keeping the customer-centricity at the core. My team and I are delighted to state that we have been able to walk the talk and have successfully doubled the financial year '19 VNB in financial year 2023 with a 4-year CAGR of 20.1% and the industry-leading margins of 32%. Over these past 16 quarters, we have demonstrated a consistent track record of healthy compounding of VNB and well-diversified pools of profit. As I look back, we started on this journey with a medium-term financial and the shareholder value metric in mind, but along the way, we have also focused on building long-term capabilities to create an organization well-positioned to deliver sustainable growth in the future. Our long-term capability building has been focused on the building blocks of people, process, technology and analytics, and distribution and product. While, without any doubt, these capabilities also contributed to our performance in the last 4 years, more importantly, these capabilities will serve as a robust platform for sustainable growth, quality of business and profitability of the company, going-forward. The details of our work relating to each of these capabilities in the last 4 years are set out in slides 8 to 11 of our presentation. On the people aspect, we have systematically invested in expanding capacity, improving capability and strengthened our culture of empowerment of inclusion. Across the customer lifecycle, starting from purchase of policy up to claim settlement, you can see technology and digital has underpinned our process journey and the same has evidenced to a steady increase in the digital adoption percentages and our net promoter score as presented in Slide 9. As I mentioned earlier, the outcome of this NPS journey is the external endorsement of Best Life Insurance Provider in India by Hansa Research. For increased productivity, we have invested in technology and analytics, which helped us provide better value to our customers, improve our various processes and identify new growth opportunities. Last but not the least, creating depth and adding width in our distribution channels and offering a comprehensive product suite to address varied customer needs has been our key focus. Amit will talk in detail about the capabilities on distribution and products in his section. Now let me move on to the performance on Premium Growth and Protection Business Growth. The APE performance across distribution channels in the last 4 years has been presented on Slide 12. The performance has been split across the first 3-year period of '19 to '22 -- financial year 2019 to financial year 2022, then 9 months of financial year 2023, which we discussed during our last results call, and the period just ended, that is the Q4 of financial year 2023. Specifically, the FY 2023 APE growth of 11.7% was on the back of a [ 20% ] growth in APE in financial year 2022. The overall company APE declined in the first 3 years at a CAGR of 0.3%, followed by a 4.2% year-on-year growth for 9M FY 2023 and a 26.5% Y-o-Y growth for Q4 2023. As you can see, the decline in the ICICI Bank channel has been mitigated by the growth across all other channels. Overall, excluding ICICI Bank channel, during the 4-year period, we have registered a very strong CAGR of 18.1% for the company. The accelerated growth registered across channels, other than ICICI Bank, as you can see in the slide, is a result of our relentless focus on distribution expansion and accelerating our top line. The APE performance across product segments in the last 4 years has been presented on Slide 13. Over the last 4 years, we have worked on broadening our product propositions through the launch of annuity variance, protection products and protection variance as well as guaranteed products and participating products. As a result, our non-linked savings and annuity business registered a very strong growth across the 4-year period as can be seen in the slide presented. We have been witnessing an impact on growth in ULIP products on account of ICICI Bank channel shifting its priorities, pandemic-related concerns and market volatility, leading to a shift in consumer preference towards preserving wealth through guaranteed products. These factors have led to our ULIP business declining at a CAGR of 16% over the last 4 years. However, our systematic approach to building a comprehensive product suite with the product mix being well-diversified has ensured the decline of ULIP business has been more than mitigated through growth across all other product segments. This is reflected in the 36.6% CAGR registered across all product categories, excluding linked products over the last 4-year period. Moving on to our journey on Protection Growth. We have become a dominant private player on new -- overall new business sum assured with a 23.8% growth, a 4-year CAGR, and with the market share expanding to 15% in 11 months of financial year 2023. Our overall protection business, including group protection, has grown strongly by 20.2% CAGR in the last 4 years and contributes nearly 1/3 of the new business received premium in financial year 2023. While we faced supply side constraints coinciding with the start of the pandemic, we are focused on revival of the retail protection business. This effort has started yielding results through this previous year and we witnessed a sequential growth in second quarter financial year 2023 and third quarter financial year 2023, followed by a strong 27.7% year-on-year growth in Q4 of financial year 2023. We will continue to direct our efforts in this segment, while we leverage the opportunity in the group protection business as well. Protection and annuity products together contribute 47.8% of our new business received premium for the whole of fiscal 2023, a significant increase from 27.2%, 4 years back in financial year 2019. With this, coupled with sum assured market share, we have truly become systematically more focused on mortality and longevity, even as we continue to seize the opportunity from the savings line of business. While I have spoken about the short and medium-term performance on the strategic element of premium and protection growth, let me also talk about the long-term performance built through the building blocks of our investments in people, process, technology and analytics and distribution and product, which I talked about earlier. I'm proud to say that we have become a resilient organization that can successfully seize and capitalize on emerging opportunities despite facing unprecedented challenges as we have seen in the last few years. The dimensions of resilience can be evidenced through the aspects of removal of skewness in the business model through well-diversified business mix and also a strong balance sheet. First, the well-diversified business mix avoids any excessive concentration of risks in any one channel, product or a customer segment. We have the power of a comprehensive product proposition today, distributed through multiple channels catering to a large customer base spread across various income segments. Second, we have built resilience across risk, capital and profitability aspects. We have no liability reserving issues and our emerging mortality experience is consistent with our expectation. Our asset quality is high and we have had zero nonperforming assets since the inception of the company. We use forward-rate agreements to hedge the interest rate risk for our non-par guaranteed savings portfolio. Our solvency levels are strong with a solvency ratio of 208.9% on March 31, 2023. It is much above the regulatory threshold of 150%. With the proposed risk-based capital under discussion by IRDAI, you can see that our solvency ratio on an economic capital basis is also robust at 385% at December 31, 2022. On profitability, we are focused on growing absolute VNB and it has led to industry-leading VNB margin levels. To summarize, the resilience built over the last few years across insurance risks, investment risks, solvency levels and profitability is reflected in our strong balance sheet as presented in Slide 16 of our presentation. The growth trajectory of the last 4 years and finally the achievement of the VNB doubling objective, despite unprecedented internal and external challenges faced, is a testimony to the resilient organization that has been built and demonstrates that we are well-positioned to deliver sustainable growth in the future. Now as we look forward, we are poised to capitalize on this platform and continue our journey of sustainable growth into the future. Thank you once again. Now, Amit, Satyan, and Jit will be taking you through the performance update for financial year 2023, financial update and ESG update, respectively. Thank you for your patience, and over to you, Amit.

Thank you, Kannan. Good evening, everyone. I will be talking about performance update for FY '23 through the elements of the 4P strategy. Let me start with the first P of our strategic elements, which is Premium Growth on Slide 19 to 23. We have used a 2-pronged strategy to drive Premium Growth. First, investing in building existing channels and widening the distribution to maintain a diversified product distribution mix; and second, continuing to strengthen our product portfolio to address changing consumer preference in dynamic economic environment. On the distribution front, we have continued to invest across channels. Our strategy in the agency channel is to ring-fence our top producing advisors, while continuing to have granular focus on expanding the width of advisor activation. We strengthened our sales management teams in FY '23 to manage our existing advisors and to add new advisors. We licensed more than 33,500 new advisors in FY '23. Within the bancassurance channel, during FY '23, we have added 13 new banks and with these new bank partnerships, we have now access to more than 17,500 partner bank branches for distribution of our products. Out of the 17,500 partner bank branches, more than 3,000 bank branches of UCO Bank have been added during quarter 3 FY '23. Recently, we have tied up with Ujjivan Small Finance Bank in March and with commencement of business, it will give a boost to our distribution network further. We've added 113 nonbank partnerships also in the year and have more than 900 non-bank partnerships now. For our direct channel, we continue to focus on business generation through our digital assets like website and mobile application. Additionally, we continue to leverage analytics to upsell to our existing clients. There was a strong momentum across most distribution channels in the last quarter of the year. As you can see on Slide 20, for overall financial year '23, our APE in banks other than ICICI grew by 28.2% Y-o-Y to INR 74.46 billion. ICICI Bank channels declined by 38% Y-o-Y and contributes now 13.8% of the APE for the last financial year. Among other channels, agency grew by 24.8%. Bancassurance other than ICICI grew by 23.6%. Direct business grew by 6.7%. Partnership distribution grew by 78.2% and Group grew by 26%. Now moving on to the capability built in our product propositions. In FY '23, we had strengthened our product portfolio by introducing ICICI Pru Gold, a participating non-linked life insurance product. With ICICI Pru Gold, we have combined saving benefits along with protection, where customer gets income up to 99 years and an option to earn immediate income, which addresses their liquidity needs. Even in the linked savings category, we have launched 2 new funds during the financial year. We have launched a mid-cap fund, where we invest in stocks of companies which are currently in the growth phase. We've also launched a mid-cap hybrid growth fund in the month of February. This fund is a combination of equity funds that predominantly invest in mid-cap stocks, that is companies in the growth phase, and debt funds that invests in government securities and corporate bonds. This equity debt ratio is in 70-30 proportion. We witnessed strong momentum across most product categories during the year and especially in quarter 4 of the financial year. As you can see on Slide 23, apart from 51.9% Y-o-Y growth in non-linked savings product, our annuity products also grew by 69%; Group funds grew by 17.2%; and protection products grew by 14.5%, even though these 3 product categories were not affected by the tax changes announced in Union Budget 2023. Linked business for us declined by 17% Y-o-Y in the entire financial year. On the back of strong growth in all product categories other than linked, overall APE grew by 11.7% Y-o-Y in FY '23. Now moving on to second P, which is Protection Growth on Slide 24. For 2023, protection APE grew by 14.5% Y-o-Y to INR 15.04 billion. We continue to be a leading private player on overall new business sum assured with a market share of 15% in 11-month FY '23 as compared to 13.4% in the last financial year. Moving on to the third P, which is Persistency Improvement, on Slide 25. We continue to have a strong focus on improving the quality of business and customer retention, which is reflected in the significant improvement in persistency ratios across all cohorts. I would like to highlight here that our 13-month persistency ratio improved to 86.6%; 25th month improved to 77.8%; 37th month improved to 71.3%; and 61st month improved to 65.7% in March '23, which is the best in the last 5 years. Our 49th month persistency ratio improved to 64.2%, which is the best in the last 3 years. Now moving on to the fourth P, which is Productivity Improvement, which is presented on Slide 26. Our total expenses grew by 20.7% Y-o-Y. Excluding advertisements and publicity expenses, the increase in total expenses is 14.4% Y-o-Y, which are broadly in line with the APE growth. The absolute expenses are higher as compared to the same period last year due to the investment that we have made in order to deliver sustainable growth in the future. Our overall cost to total weighted received premium, TWRP, as we call it, stood at 21.5% and the cost to TWRP ratio for the savings business at 14.2% for FY '23. Even with the cost increase, our cost to average assets under management has been stable at 2.6% for the financial year. The outcome of our focus on these 4P has resulted in our VNB for FY '23 of INR 27.65 billion, a growth of 27.8% over the same period last year and VNB margin expansion from 28% for last financial year to 32% of FY '23. We will continue to monitor ourselves against the 4P framework and our performance on these dimensions is what we expect to feed into our VNB growth over time. Given all this, we will continue to invest in organizational capabilities, as Kannan mentioned, such as people, process, technology and analytics, distribution and products to enhance our overall growth trajectory. While this investment may lead to elevated costs in the short term, we believe this will yield results in the form of sustainable growth in the future and create value for our shareholders. Thank you, and over to you, Satyan.

Thank you, Amit. Good evening. I will now take you through some of the financial metrics. Let me start with the movement in embedded value during the year. If you refer to Slide 29, you will see that our embedded value grew by 12.7% year-on-year to INR 356.34 billion as at March 31, 2023 as compared to INR 316.25 billion at March 31, 2022. This growth was led by 15.4% year-on-year growth in the value of in-force business. Our embedded value operating profit, EVOP, grew by 71.9% year-on-year to INR 54.88 billion in financial year 2023 as compared to INR 31.92 billion in financial year 2022. The breakup of EVOP is as follows. Unwind contribution for FY 2023 is at 8.6% of opening EV. The VNB of INR 27.65 billion is 8.7% of the opening EV compared to 7.4% for FY 2022. Total unwind and VNB constitute 17.3% of the opening EV. Operating assumption change is a negative INR 1.61 billion, primarily taking into account the revisions in group term premiums in the post-COVID environment. We continue to see a positive persistency variance of INR 1.43 billion on the back of an improvement in persistency. Mortality variance for the year is at INR 0.22 billion. The other operating variances are also marginally positive. Consequently, the ROEV for financial year 2023 stands at 17.4%. Total economic and investment variance is at a negative INR 14.49 billion due to the shift in the yield curve and the equity market movement. Overall, this has resulted in the EV growth of 12.7% for FY 2023 with a closing EV at INR 356.34 billion. Our VNB margin for FY '23 stood at 32% as compared to 28% in FY '22. The contribution of VNB from nonlinked savings products has increased to 53.4%. The VNB margin expansion can broadly be explained by the following: 3.5 percentage points of margin improvement is due to the change in business mix as contribution of nonlinked portfolio increased from 32.6% in FY '22 to 45.2% in FY '23 with a corresponding decrease in the linked portfolio. About 1% of the margin improvement came due to changes in operating assumptions, primarily taking into account some of the improvement in surrender rates under unit-linked products; 0.5% margin reduction is due to the movement in the yield curve where we saw, during the year for most parts, a rise in the yield curve. Comparison of the yield curve between the 2 years is provided in Slide 74 and 75. On Slide 32, sensitivity details have been provided. There is no significant change in the various sensitivities. And overall, sensitivities of both VNB and EV to various factors remains low, reflecting a stable operating model. 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. Slide 33 shows other financial metrics. The company's profit before tax increased from INR 7.9 billion in FY '22 to INR 8.97 billion in FY '23, a year-on-year growth of 13.5%. Profit after tax for FY '23 stood at INR 8.11 billion, an increase of 7.6% from FY '22. Our solvency ratio continues to be strong at 208.9% at March 2023, an improvement of 440 basis points from March 2022. Our AUM was more than INR 2.5 trillion at March 2023, a growth of 4.4% from March 2022. This concludes the financial performance section. Over to you, Jit.

Thank you, Satyan. Good evening. I'll be sharing the salient aspects of our ESG journey. As shared in our investor pack, we received the highest ESG ranking in the Indian insurance industry by 2 well-known ESG rating agencies. I'm also delighted to share that this year we received the Corporate Governance award at the Dun & Bradstreet ESG Leadership Summit 2023. This year, we expanded the terms of reference of our Board CSR Committee to include review of sustainability activities and key ESG-related disclosures. Under the Board Committee, we have the Executive Sustainability Steering Committee, which comprises members of our management committee and we are supported by a dedicated ESG research. This committee sets the ESG agenda and reviews progress every quarter. I will now share the key highlights under each of the ESG focus areas. You can refer to Slide 35 to 39 for more details. Starting with human capital, we believe that people are key to strategy execution and a source of our competitive advantage. We identified diversity and inclusion as a thrust area and our gender diversity has improved to 29% from 27% last year. We have a Diversity Council comprising senior colleagues and it's chaired by our Chief Distribution Officer. This committee recommends reviews and monitors D&I-related initiatives. This year, we also formalized a human rights policy to further strengthen our commitment to human rights and providing a professional work environment. I'm also pleased to share that 90% of our employees gave us top-2 box score on a 5-point rating scale on parameters like advocacy, morale and several others. Our approval ratings are also among the best in the Indian life insurance industry on a top global workforce platform. In the area of responsible investing, this year, we put in place a [indiscernible] policy to facilitate ESG integration in our investments. As a signatory to UN PRI, we remain committed towards integrating our responsible framework to promote ESG factors in our investment decisions. On governance, we continue to have a robust governance framework with the board having a majority of independent directors with an independent chair, enabling the separation of the Board's supervisory role from executive management. In the area of access to finance, we specially designed micro insurance products targeting socially and economically weaker sections covering 61.8 million lives as of March 2023. Our 13-month persistency ratio of 86.6% is one of the best in the industry. And this year, we settled around [ 246,273 ] retail and group death claims. And overall, our retail and group death claims settlement ratio stands at 98.64%. As mentioned by Kannan, in the industry net promoter score NPS survey conducted by Hansa Research, we were ranked the Best Life Insurance Provider in India. On environment, our focus has been on reducing our carbon footprint. We have already calculated our Scope 1, Scope 2 and partial Scope 3 emissions, which have been verified by external sustainability consultants. Going forward, we intend to have quantitative targets for reduction in carbon footprint using the SBTi methodology, and we are working with an external consultant on the same. To summarize, sustainability is intrinsic to a vision of building an enduring institution as we serve the long-term savings and protection needs of our customers. I would like to once again reaffirm our commitment to creating a culture that embraces sustainability and goes beyond goals and targets by integrating best-in-class sustainability practices with our business processes. Moving on, I would like to highlight that we have added a section on innovation in the investor pack from Slides 41 to 43. I'm pleased to share that we have created a platform called Pi, which is a digital portal to encourage all our colleagues to share their ideas. More than 1,200 employees participated, and we identified 100 ideas as projects for implementation. These ideas span improving the customer journey, launching new product features, improvements in process and many more. Some of these projects have been recognized at prestigious forums organized by chambers of commerce, such as ASSOCHAM, FICCI and the Indian Chamber of Commerce. 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 Avinash Singh from Emkay Global.

A couple of questions. So the first one is that, I mean, you have very, very impressive numbers, of course, and driven by the last 2 months of kind of a high-ticket non-linked policy sales for you and the industry. However, overall, if you look, I mean, numbers tells a lot of positive story about you and the industry but policy count -- I mean, despite the retail protection coming back a bit, the policy count still remains muted. And that, again, brings the very basic point that the entire narrative of the opportunity underpenetration, but that is not reflecting somewhere even if you were to look at the policy count overall adjusting for retail protection. Some of that -- and now with the regulatory changes, it seems the industry participants are a lot kind of affected or other looking at opportunities in terms of the increased commission and OpEx. So now the question is that, okay, if you are looking -- the industry is looking to increase the OpEx and costs, I mean, how is the product, particularly on the savings side, going to remain really competitive for the policyholder? So that is my first question. And second question is more that the VNB -- now as the VNB margin and the VNB contribution to EV growth looking pretty strong, what kind of -- can we expect the EV compounding trajectory to be very, very different now? Because if I look at over the last 4 years, I mean it's close to a 14% kind of a compounding EV even in distribution again. So can we expect the EV compounding trajectory to be different going forward?

Thanks, Avinash. I think your first question was actually many questions rolled into one. So I'm trying to break down your question and answer them. The first point that you made was with respect to the strong growth in Q4 being driven by high-ticket, I don't think that's entirely true for us. It may well have been true for many of the other market participants, but equally from the market numbers that you would have seen earlier in the day today, you would have seen that, that was not the case for everyone. Particularly, the channels that did very well on the high-ticket sales were those which had a higher access to affluent customers. Typically, some of the large banks, some portion of agency, which cater to high-net-worth customers and some parts of partnership distribution or some brokers who had a natural customer base over there. So you will find, Avinash, that most others who did very well in the period got disproportionate benefit, and we may not have got nearly as much benefit in the quarter as some of them did with respect to high-ticket cases. Your second question on the same part was with respect to number of policies. And we have discussed this now for many quarters, Avinash, and we have said this that there are 2 distinct reasons why our number of policies have not grown. One, the decline in one of our channels and 2, the decline in retail protection. I can say this, for sure, I have the numbers in front of me, and you will start seeing them in the overall public numbers over the next few quarters, that as the impact of that distribution channel decline goes down and as we have seen in Q4, retail protection picking up towards 27% kind of a growth, number of policies growth will start again. So I'm not so sure I agree with the view that not growing number of policies in the last year or 2 years, particularly in ICICI Prudential's case is about any decline in the opportunity. This is more to do with specific circumstance of our business, which we now believe is behind us. Your second question in the context of compounding VNB and expenses of management, again, the first point I would want to make there, Avinash, is to say that I don't see anything in the expenses of management regulation to even suggest that costs for company should go up. And I say this knowing that if indeed the industry were to price at the current expenses of management, then we would end up with customer propositions that we would not be able to sell. So in a way, the expenses of management is only an enabling framework and a boundary and effectively, costs will depend upon affordability that we create through our business models. And that is something that we believe will continue to drive the industry. We do not expect costs for the industry to go up on any of these accounts. In fact, we are very conscious of the expectation of the regulator that we should systematically bring down costs over a period of time, and that is what I would expect to see for the industry at large. Your fourth or the second part of your second question, which was with respect to EV compounding, I think a number of things, Avinash, have changed in the way our business has evolved in the last 4 years. And I would venture to say that what we are today is not nearly what we were 4 years back. And therefore, to superimpose what happened in the last 3 to 4 years into what could happen for ICICI Prudential over the next 4 to 5 years, I think will end up giving very misleading answers. I would much rather focus on what Kannan spoke about at what are we today, a diversified customer acquisition model with varied distribution channels and a variety of product offerings to cater to the needs of all of these customers. Where we are today, we really do not have any qualms about the kind of growth or compounding the VNB that can happen from here on. One, of course, has to keep in mind that the EV compounding will also be a function of market and to that extent, there will be some volatility in the shorter term. But I don't think we ever had, even in the past, any doubts about our ability to compound EV. If at all today with what we have built, we would like to think that our ability to grow EV from here on will be far more sound and predictable compared to what it has been in the past. So I hope I've been able to answer your rather 2 long questions, which I broke down into 4.

Yes. Quickly, regulatory EOM thing, they have also mentioned that, okay, passing benefit of direct. Now, what is your position on that? And how are you going to handle channel conflict if indeed you want to pass some benefit of the direct sourcing to the customer? I mean how are you thinking about it?

Avinash, if I may just point your -- draw your attention to the current product regulations which already require that if there are any cost savings, they should be passed on to customers. To that extent, pretty much every company today has an architecture of what they believe they can pass on as benefits or discounts for direct sales. I'm not seeing anything in the current norms to change that approach from where we are today. And as a category, as this category moves more towards becoming a full product, I only think there will be a greater ability for insurance companies to offer better propositions for customers.

Next question is from the line of Swarnabha Mukherjee from B&K Securities.

Congratulations, sirs, for the great set of numbers and also the fact that you have very comfortably exceeded the VNB growth aspirations that you had. So I, just from the previous participant's query on the cost side, wanted to take your views on this factor. So cost to TWRP has been bit high for us. You had earlier also commented and today also commented that investments in business would keep this elevated at least in the near term. Given the EOM levels and the limits that you have right now, how would we be placed in terms of the regulatory method of calculation in terms of EOM? Where would we be? Are we comfortably having a headroom in that? And what -- how can it pan out over the next year? And then how should we think about in terms of your profitability and VNB growth, given that if the costs are slightly higher, that could have a drag on that? So that would be my first question. Maybe also in line with that, some comment on margin, although I understand that your focus is more on absolute VNB, but whether with the change in product mix, the new par product out, how should we think about VNB [ demand ]? So that is the first question. And on the second question, just wanted to understand the retail protection growth. The pure term number has started to improve as well along with the ROP. So the pure term, from where the growth is coming? And is this primarily from the ICICI Bank channel that is selling this? And also wanted to understand the ticket size does not seem to have increased over the last year. So what is the dynamics playing out there? So if you could take these 2 questions and then I'll have couple of more, I mean, bookkeeping kind of questions that I will ask later.

Thank you for your very kind words, Swarnabha, with respect to the numbers and the results. But like Kannan spoke about at the beginning, it wasn't just about the numbers for this year, it was also about positioning the business for the year beyond 2023. And that really is the content of your question with respect to where the expenses are going. And you're right, we have been speaking about this for a few quarters now as we have ramped up our ability and capacity to expand. I would just point this out, Swarnabha, to say that despite the increase in cost ratios, we have been able to still improve our VNB margin for this year. And that is through a variety of other factors such as even the product mix. Going forward, we are very clear that, internally, through managing the other levers of business, we want to and we will create capacity to invest in growth because growth is the primary driver of the way we are looking at the way forward. So to that extent, even if costs in the short term end up being higher, it wouldn't really worry us because we believe we have enough ability and capacity to generate -- the ability to spend for growth into the future. With respect to your question on limits on expenses of management, these do not tend to be very public numbers, but I can say this, we are well within the limits, and we have no intention or desire to expend the cost in a way that it reaches the limits. So we will continue to focus on delivering good propositions to customers, which creates opportunity, not just within the insurance space, but across the wider financial savings space, and that is what our focus will be. With respect to your question on protection, I'm going to hand over to Amit to talk through where the growth has come from. But before I hand over, I think I'm quite happy that the growth has not come from average premium. Fundamentally, we have one commentator who would like to see us grow number of policies and as long as we are able to deliver that, I think we have met our objective of growing the segment. Amit?

Yes. Thanks, Satyan. See, retail protection has been a slow process over a period of last 4 quarters, if I may say. We saw congestion and continuous change in underwriting guidelines and product restructuring and retraining of distribution leading to quite a bit of a slowdown in FY '22, which we saw sequentially quarter-on-quarter. So lot of time was spent in investing in distribution, retraining and getting used to selling protection in a different way. I call current regime of protection being a regime [indiscernible], if I may call it as for protection. So a lot of relearning had to be done. Protection product had to be repositioned from being very, very strongly positioned only on a high sum assured segment through our affluent product. We introduced return of premium product to reach out and become more meaningful to mass and mass affluent as well. We started looking at INR 50 lakh to INR 1 crore sum assured also as a focus area. And suddenly, we saw that since we had more diversity in distribution, our access to mass and mass affluent was also much better in comparison to what it was earlier. We started seeing some results going into quarter -- from quarter 1 to quarter 2, quarter 2 to quarter 3, which, if you were to track it closely, we saw a sequential growth from quarter 1 to quarter 2, which was very small, at least we could capture the degrowth. From quarter 2 to quarter 3 was again a sequential growth, and we had kept our eyes on growth coming to Y-o-Y in quarter 4. So while this entire hysteria was being created on nonlinked savings business, we are happy to say that by deploying the right product to the right distribution segment with access to diversified customer segments, we started seeing a variety of results coming from various partners, and it was not restricted only to ICICI. So we saw various partners who had access to customer segments, which are very diverse from the ones we had in the past, choosing the right product and selling it. And there, of course, return of premium products also helped, and they helped us get the right sum assured we sold to mass and mass affluent. So it's a combination of right product, introduction of new products, introduction of distinct advantages that we could offer through our product and more and low distribution channels getting used to selling new products and, of course, the learning curve that went into from quarter 1 to quarter 2 to quarter 3 to quarter 4, which led to 27% growth in quarter 4. So that is all I have to say. In case you want anything else, you can...

No. Very, very clear, sir. That's very helpful. I also wanted to ask a couple of quick questions on numbers. May I go ahead?

You can, but if -- it's also okay if after the call, you want to connect back with the team and get the details as well, that's also okay, given that there are other people also who might have questions.

Next question is from the line of Sanketh Godha from Avendus Spark.

In 9 months, we disclosed that our high-ticket non-ULIP is around 6 percentage of the total business. If you can tell that number, what it is for fourth quarter, March '23 and FY '23, it will give us some indication on the contribution of the high-ticket policies. And second question was ULIP margins, if I see, have come up significantly, around 6.5 percentage in FY '23, which is meaningfully low compared to what we have delivered in '21 and '22. So I just wanted to understand that, anything to read because persistency and everything seems to be better numbers, still margins in ULIP has taken a hit. And last one on protection mix, in the past, you used to give the disclosure of protection mix [ into credit portal GTL ] and ICICI and non-ICICI credit life. So if you can give the details, it will be useful.

So Sanketh, if I may take the -- talk through the questions, your first question on the share of the business coming from high ticket, I somehow get the feeling that we are making too much of an issue of that particular topic, especially in our context. And we have been saying this in the past as well, the proposition stand-alone is strong enough to stand on its own feet even without tax advantage. As an industry and as a company, we are very clear that over a period of time, we prepare for a regime where there are no tax advantages. So to that extent, it shouldn't really matter what proportion of our business comes from there. While we gave the numbers at 9 months, that was in a particular context when the announcement was being made. At this point of time, all that we would like to say is that in the context of our 2023 FY full year numbers, we do not believe that the so-called elevated sales of Feb and March are in any way material. And therefore, going forward as well, we do not expect this to impact our growth through a base effect in any adverse fashion. We will remain focused on improving the proposition to our customers, and that is going to be the way we operate. With respect to your question on unit-linked, why the margin has gone down, I guess it's not always possible to have all shining bright spot in all parts of the results. There are always pockets where there will be challenges. A unit-linked margin decline comes predominantly from 2 factors. One is the yield curve shift, which has reduced the margin a little. And the second is our higher expenses in the year, which have also been allocated for that segment, which has reduced the margin for that segment. At the end of the day, if I were to go back to 2 years back, our unit-linked margins were in the same ballpark. In FY '22, we saw the unit-linked margins go up meaningfully on the back of a lower conscious expense level that we had. So I wouldn't read anything into this, Sanketh. I would actually say last year was an aberration. We have been reverted back to the levels of margins of that category that we had prior to last year.

Got it. And on the credit life group protection business mix issue?

We have not put it out at this point of time. We will see whether we can put it out at some time later, Sanketh.

Got it. And last one, if I can squeeze, see, the unwind rate at 8.6% seems to be substantially superior compared to what we have even reported in last 3 years. I believe it was in '20 around 7.9%, 7.2% in last 2 years, '21 and '22. And this number seems to be materially very higher. So just wanted to understand that, are we building better returns in the equity is reflecting in the unwind rate or this 8.6% number is sustainable going ahead too?

Nothing of that sort, Sanketh, I will just start off by saying that when others were having unwind rate of 8.5%, nobody told us that ours should be better. So I'll leave that aside. But fundamentally, unwind rates are a function of the yield curve, you know that, and also the underlying portfolio composition. Given that our portfolio composition has been changing from being more unit-linked-dominated to including other categories as well, the higher unwind rate is a natural consequence of that. It is not on account of any higher expectation of investment return compared to the past. It is only a reflection of the underlying yield curve and the underlying composition of the book that I described.

Next question is from the line of Deepika Mundra from JPMorgan.

Sir, back towards the margin front on the ULIP margin, when you said higher expenses, is that mainly because of the change in the timings for the product? [Technical difficulty] on the protection margin, we've seen better numbers despite group mix being higher this year. So what is driving that margin improvement within protection? And lastly, on the expense outlook, you mentioned that you were not looking to materially up expenses, but given the fact that higher -- more taxes on nonparticipating products, do you think more distribution effort will require -- will lead to product level change in margin?

Deepika, the first question on unit-linked margins, I referred to the cost delta. Last year was a conscious lower spending year. So the 9% category margin that you saw for FY '22 was, in a way, artificially elevated. And that's the reason why I said to the last question that we should keep that out and look at the trend for FY '23 compared to FY '21. And then I don't think it is too far off the mark. There may be some element of channel mix, but I don't think that is the bigger driver. The bigger driver is overall cost ratio this year for us was higher than last year. That is the reality. And to that extent, it will get reflected in respective product segment margins as well. But going forward, like I said, there's -- a couple of things may end up happening. First, yield curve itself may see a change of shape into next year. So to that extent, that will impact margins as well. And second, given that most of my new business now has moved to other product categories, it may well become the case that my expenses allocated to unit-linked also change from the current levels into last year. But to that extent, we are not too fixated on a product category margin. We would much rather look at it as an overall VNB. So from our point of view, no real concerns with respect to the emerging trajectory of segmental profit margins. Second question on protection. Yes indeed, the composition of group has been higher in this period compared to what it was a couple of years back. But I think last year as well, the contribution of group was substantially higher. In fact, this year, the contribution of retail towards the last quarter started improving a little bit. So yes, you do have a little bit of plus and minus. We tend to focus more on underwriting group business also where we are comfortable with the levels of profitability. And you will remember, Deepika, we have had, in past quarters on the results call, conversations about, given the strong focus on group term, will this materially affect our margins over a longer period of time? At least what this year's results on margin for the segment also demonstrate is, yes, there will be some changes in the underlying product mix, but the overall margins have remained stable. Your third question with respect to expenses on the guaranteed return nonparticipating, I would only say this, Deepika, that if I have to increase expenses, the only way to fund it is by passing it on to customers. And from here, if I actually worsen the proposition to customers, then that may well be an impact -- adverse impact on demand where I don't think the industry will be keen to get to. So if at all, I would see that we have to manage our sourcing strategy in a way that costs are not adversely impacted.

Well understood, sir. And one last one from my side. In terms of the new banks' contribution in 4Q, what would that be on APE?

Banks -- fourth quarter, we have not separated out. But for the full year, we have shown this. For full year ICICI bank was about 14% of APE. Other banks were 16% of our APE. Quarter 3 was a bit of an aberration for us. You know our quarter 3 numbers were generally weaker across all channels. We did see a rebound in the fourth quarter coming through. But I don't think we have put out 4Q numbers specifically, but full year, we have seen it move up to 16%.

So what I actually meant was that any new banks that were signed up in the last couple of quarters alone, not -- obviously non-ICICI Bank, was there any incremental contribution specifically in the fourth quarter from banks which were not present in the distribution mix before?

Yes. So I'll take that, Deepika. So some of the significant partners that we added in last couple of quarters are the ones who actually got operational only in the month of March. And they are still at a very, very early stage. We were in the process of still integrating the system, getting the employees trained and the product dissemination was happening during this period. So the contribution from the new partnerships during this period was very limited. And hence, it's not part of the overall growth numbers that you see from banks other than ICICI or new partnerships in the last quarter. Just to give you a number, broadly, if we were to be growing at around 27% -- 24% growth for our non-ICICI Bank bancassurance partners, our growth was in a similar range, a little more for quarter 4 as well, but it doesn't include any new bank partner. Very small number was there in quarter 4.

The next question is from the line of Supratim Datta from Ambit Capital.

I'll start off with firstly seeking a clarification to an earlier question. So is my understanding correct that you expect to deliver growth on top of the elevated FY '23 APE? That would be the first question. Then the second one is regarding the new commission guidelines and you talked about how distribution -- incremental distribution will have to be passed on. But then wouldn't -- now that you have the flexibility to design your commission structure, wouldn't the banks who give you most of the volumes demand higher commission? So are you getting similar inquiries from the banks? So that's the second question. And thirdly, there has been lot of talks around composite license and some of the life insurers have indicated their interest in entering the health insurance segment. So how are you thinking about that? So those are the 3 questions.

Supratim, your first question was with respect to VNB growth on the back of elevated VNB or APE?

APE growth.

I'm struggling to see how 12% APE growth is elevated growth, Supratim, quite honestly. If at all, we would like it to accelerate from here on. So I don't think there is a base effect challenge with respect to APE. With respect to your second question on will banks demand more? I don't think anything has ever stopped distributors from demanding more in the past. What is now very clear is an overlay on top of that from the regulator to say that I will expect companies to bring down their costs. This is a matter of balance that has to be found between the manufacturers and distributors. It will play out over a period of time. Our view at this point of time is that it should not increase costs.

Yes. On the composite license, Kannan here, I wanted to say that, from our perspective, it's a welcome move. We do believe that composite license will be good ultimately for the consumers. On our part, we always believe that health insurance is integral to life insurance and integral to our business, and we used to operate this business till 2016. So we would be very keen to watch the space and make our moves. Even pending composite license, if regulators can allow us in some form getting into health indemnity business, we would be very keen to do that. Apart from health, we do see the Allied businesses or wellness-related activities as something which could really be of interest to us because that will round up the proposition to the customer in a nice manner. So Wellness and Allied business is the second area of this purposed new regime, if it gets through, will be of really help. And finally, anything to do with the insuretech, fintech space, in which as the bill suggests that rough businesses which we can get some form of skin in the game kind of a stake in those businesses that will also be of interest. So to summarize, health, insurance, Allied businesses and insurtech fintech, these are the 3 areas we will be very keen to pursue.

Next question is from the line of Nidhesh Jain from Investec Capital.

Congratulations to the team to achieve the VNB [indiscernible] over the last 4 years, which I think honestly was looking quite difficult in between. So congratulations for that. Sir, firstly, on the protection, we have seen good growth in this quarter. What give us confidence that this growth is now sustainable probably next year we should again see double-digit growth on the retail protection side? Has underwriting and reinsurance issues are all resolved and the distribution issues all resolved which gives us confidence that we will be able to show decent growth in the retail protection next year?

Thank you Nidhesh for your kind words. Yes, it was not an easy journey. Thank you for the compliments because we had lot of ups and down, more of downs than ups. But still we managed to double the VNB. So that is quite gratifying. On the retail protection side, what gives some confidence, I will ask Amit to elaborate. But essentially, how we came to fourth quarter numbers is a lot of hard work across the quarters and the sequential improvement month-on-month, we have been seeing in this business. Amit will talk about the strategy, but the bulk of the sort of frequent process changes or the pricing changes we believe are behind us. It's more of activating the channels and having a coordinated strategy. It's a very granular strategy. Amit, you want to talk about that? This is what gives me confidence from an outlook perspective but Amit can talk about how he has been able to drive this business.

So Nidhesh, I spoke about retail protection as an answer to one of the questions. But first, let me on a lighter note, tell you, it is not doubling the VNB. It is a little more than doubling of VNB that we eventually delivered. So thank you so much, still. So now coming to retail protection, like I mentioned earlier as well that the process of coming back on retail protection for the industry has been a long one, has been a very arduous one, and protection, the way it was sold prior to all the changes that happened with the ecosystem. There's a very different regime altogether, distribution, sales processes, practices, learning of products, access to customer segments was very, very different. And the landscape had to undergo a change after all the processes and underwriting guidelines had to be -- had to be changed because of the challenges with the environment. Subsequent to that, as you know, distribution is generally very granular in nature and spread across various types of distribution, which starts from agency to partnership distributor to banker. And eventually, at the ground is being sold by the employees scattered right across the country. And what we have been able to do as an investment over a period of last few quarters is to take advantage of the diversity of our distribution and not make one strategy fit all for all our distribution channels. We looked at the access of the customer segments that our various partners had with their customer segments. And we aligned and made offer on products, which were most appropriate for those customer segments. So not everyone was selling one kind of product. So depending upon where the natural advantage was to position an appropriate product and good introduction of return of premium product also hit our cost. So I think this has been a learning process. There's nothing miraculous that has happened. I'm sure this learning curve will further improve, and we'll get into next financial year on a sequential improvement trend. Y-o-Y has just happened as an outcome, but I'm still looking at a sequential improvement. So quarter 2 was better than quarter one. Quarter 3 was better than quarter 2, quarter 4 was better than quarter 3. In between, we just happen to see that because of this Y-o-Y positive. So Y-o-Y was an outcome. It was not something that we were intending to work towards. Everything was a result of incremental steps that we were taking every quarter. This is the confidence. Y-o-Y will happen on its own. Sequential efforts on distribution and innovation and products will continue. And training, of course, will be very, very important because now it's a very, very different and hard-working model than what it used to be earlier, which was largely focused on [indiscernible].

Sure, sure. Secondly, on this high ticket policy issue, the management team seems to be quite confident that the impact is minimal. But as an outsider, we are quite worried that hypothetically let's say 10% of APE came in this year from that segment. So -- but [indiscernible] seems to be much more concerned the impact is lower. So how are we thinking internally to mitigate that impact? Because from a high-ticket customer who is buying, let's say, INR 30 lakhs, INR 40 lakhs of policy for him, there is a meaningful impact on IRR. And he is a very informed customer. So the value proportion for that customer has materially got impacted. So what -- how are we thinking that the impact of that will be much lower in FY '24?

Nidhesh, sorry, I can take your question again. Nidhesh like I mentioned -- in fact, Satyan mentioned about this in the beginning as well. That first of all the proposition and the opportunity which was available to us we leverage it through our distribution partners. We have natural access to affluent customers. And of course, there was a value. There was a value because with tax benefit IRRs definitely look very, very good. But let me just share with you some incremental information as to what we watch and what we observe as a consumer train, consumer preference within the same segment, which is affluent. I'm very happy to share that even the Annuity space, which is one of the fastest-growing category of products within industries, and we are no different. More than 50% of our business sold in Annuity segment actually is being bought over by the same customer segment, which is affluent, which means that this customer is still buying the proposition for the need of the proposition, a period of across need of business worldview. And that product happens to be taxable. So imagine the fastest growing. We may have seen this disproportionate growth in quarter 4 or in March for non-linked savings business. But otherwise, if you were to look at overall year, the fastest growing product category for the year is actually Annuity, and that is taxable. And more than 50% of annuity sales is actually done to the same customer segment. So incidentally, even on sum assured, almost 50% of the protection sales still happens in a sum assured in excess of INR 1 crore, which makes me believe that this is also a customer who is a affluent. And there, like it or not, but it is the highest GST product available in the protection space is paying 18% GST for the protection that is purchasing the product for. So I think this customer is not adverse to paying tax or paying tax for the value that he is getting -- it is just that he got the opportunity to save some because of this arbitrage, which was available. I'm sure the normalcy will prevail, and we need to look at the options available to this customer in light of the fact that physical investments are anyway moving towards financialization and within financialization, what are the options available. And we believe that unit-linked products in the current form also under INR 2.5 lakhs is still a value proposition which is available on the unit platform, which is much better. Even beyond INR 2.5 lakhs, tax structure is quite favorable to these customer segments. Yes, it's going to be lesser than what it was in March, but then look at the options available. I think this is still the best option available within the life insurance space, specifically in long-term savings category.

Are you planning to make any changes to the product structure to mitigate the impact or how are you thinking about that from a product structure point of view?

That's an ongoing process, and we'll keep looking at taking feedback from distribution. We have a team is talking to customers, we look at insights. And we'll align our product design as the time goes by and look at what is best for the customer and create it on the go. But at this point in time, we will see how it emerges.

And lastly, on the [ EV work ], if you can share the reason for negative operating variance in [ EV work ] and positive operating variance and VNB?

So [ EV work ], there are no negative operating variances Nidhesh. On the [ EV work ], operating assumption changes is negative. If I were to talk through what are the elements that are contained in this, I would call out 3 specific elements. One, the increase in expenses meant that there was a small increase in the renewal unit costs as well. That was a negative impact on EV. Second, the group term business in the last year had in the price and expectation of claims on account of COVID. Post the pandemic, when those teams got renewed, that loading was not charged anymore. Some of that is reflected as a negative in the [ EV work ]. The third element is surrender rates in the unit-linked business beyond 5 years for us have been considerably lower than what we had assumed. We have capitalized some of that in the assumptions that is seen both in the VNB in the margin as well as the EV. Net-net, it is 1.61 negative. But if I were to look at it slightly differently and club operating assumption changes to all operating variances, even that is a less positive. So net-net, we are looking at an ROEV driven predominantly by unwind and VNB with a small aggregate delta driven by the net operating fees put together.

And the operating assumption change in VNB work is completely driven by surrender rates for 100 basis points.

That is the predominant one, which is there. There may be other smaller persistency related or mortality related for certain segments. But yes, nothing to significantly call out Nidhesh that is of material nature.

Next question is from the line of Madhukar Ladha from Nuvama.

Congratulations on a good set of numbers. A couple of questions from me. First, we see further improvement in non-linked savings segment margins. Can you elaborate a little bit on the sustainability of these margins and how they have been derived especially given now that the interest rate curve is a lot more flatter? And let's say, how could these margins behave if interest rates actually go down maybe after 6 months? So how could that play out? Second, coming back on APE growth -- and for the non-linked savings segment again, do you think that there has been some preponement of demand even for the less than INR 5 lakh segment? I'm coming from a thought process that people might buy a little bit now and just say that, okay, at least I have that INR 5 lakh available if I want to buy it in the later years. Could that also impact demand going into FY '24 and onwards? Those would be my 2 questions.

Madhukar to answer your first question, non-linked savings margin increase that we saw this year compared to last year is a function of the underlying interstate mix between par and non-par. The last 2 years have been about non-par doing well. If it so happens in the next few years are about par doing well, then this portfolio margin may well not be the same as what you're seeing, what you're seeing now. It may come down. I have said this in the past as well. So to that extent, the way we see it is not about margin, it is about, am I still there from an opportunity point of view or not. Product segment related margin expansion opportunities will come as protection mix expands and within protection as retail grows faster than group, which we saw happening in Q4. So you will always have, at a subproduct category, some changes which happen. But I think the really good fees, the very good structural part of the life insurance business is that we have so many underlying distinct needs and segments that we don't need to worry about everything firing in the same fashion every period. I have unit-linked savings, I have par savings, I have non-par savings, I have annuities and savings. I have retail protection. I have credit life, I have group term, I have microinsurance. I don't think there is any other business model in -- around us that have so many different opportunities that's there. So I'm never going to get worried about whether one segment in terms of mix goes up or down. I think there are enough opportunities overall for that to ride. But to go back to your fundamental question, if non-par mix goes down and par mix goes up, average portfolio margin of non-linked savings can go down, but we will deal with it as we get to it. Your second question with respect to preponement of demand, I'll hand over to Amit to answer that.

Yes. Actually, we were tracking it, good you asked this question. I have actually the answer very much ready. As you know, that March business generally sees a scale up over February. And this happened last year as well, and it happened over years. So these are also internally tracking the business closely, and we saw that the scale-up that we had last year, in less than equal INR 5 lakh kind of a premium, which is the premium segment that you are talking about actually scaled up almost the same from February to March last year, like the way this there. So if at all, there is a preponement let me tell you the systemic preponement generally happens in March, if you all call it as preponement. So the movement from 1st to March was absolutely identical to what we saw last year. The entire swing, of course, we saw in the more than INR 5 lakh category, but less than equal to file, it's better to say.

Okay. Got it. Satyan, just on part B of my first question. How do the -- how would the interest rate curve and flattening of the interest rate curve sort of impact the non-par margins given?

Okay. Sorry, I missed that one. Yes, you're right. I don't think the change in the yield curve or the change in interest rates should affect margins in any fashion. Eventually, what will matter is a spread between expected return and actual return passed on to customers kept the same or not. So to the extent that we can reprice our product practically every month to reflect the yield curve, level of yield curve or shape of yield curve doesn't bother us. If competitive action enhances or reduces, that can change the spread. But I don't think one needs to be worried about the yield curve.

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

Congrats on the entire team on staying committed and surpassing the VNB guidance. A few questions, like firstly, if you can broadly share the mix of business that you sold through ICICI bank this quarter? And do you expect further decline in this channel mix from here? And secondly, on the retail protection side, wherein the growth has really picked up so have we gained market share in this segment? And what is the mix of ROP business there?

ROP is disclosed in the slide Nitin. Whether we gain market share or not, I have to wait for the disclosure of others. So maybe we can have that conversation on the side a couple of weeks from now. On the other question.

Yes. So only thing I will add here is that overall commercial market share 11 months, they have grown -- done very well compared to last year. So overall how mass market share, we have been picking up some momentum. And Nitin, thank you for your kind words. Thank you for all the support. On ICICI Bank, you asked the question, at about 14% of my mix, it doesn't really move the needle anymore too much going forward. Yes, it has been stable. We have started doing the monthly disclosures also, you would have seen it's been stable at around INR 1 billion a month. So that is what it is currently doing. I would expect that to be around that as we move forward. But beyond that, it doesn't really move the needle in terms of impacting the overall APE, if it goes down further. So that is the stage we have gotten into. So whatever the bank gives, we'll be happy to take on the -- those are the other 2 questions you asked. Any other questions you have?

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

Yes. So my first question is what is driving the improvement in the first month persistency. And a follow-up on that is, why is not clearly getting into a renewal pool because renewal pool going much lower. So how do reconcile that?

So every cohort persistency improvement is also a function of preceding cohorts. Today, if you see the 61st month persistency for the industry, it will predominantly be driven by unit-linked persistency for most private sector companies and participating persistency for LIC. Now given this, and you would have noticed this even through the segmental persistency disclosures over the past few years, that we still stand head and shoulders over every other company with respect to unit-linked persistency. And what we are seeing at 61st month today is just the accumulation, if you will, of improving prior period persistency over a period of time, nothing dramatic overnight. Does this flow into renewal, yes, there is a positive effect to renewals. But the bigger driver of renewal again, is the pace of new business growth over the recent past. And to that extent because we have not been that strong. For all of these persistency improvement visibly show up in the renewal premium will only follow once growth also starts to pick up. But it is sitting in the renewal. Without this, possibly the renewal numbers would have been a little worse than this.

Sure. So aren't we looking to change the assumptions, which we talked about earlier in terms of persistency, we had some of buffer.

Slowly and steadily. We did a little bit of [indiscernible] this time, maybe we'll pick up some of the other buckets over a period of time.

As we get more confident.

Yes. And Niraj, we are not -- at the house, we are not -- we have not been of the view that we capitalize everything at one go and then put it at risk to see whether it will be sustained or not.

So and the last question although again from the March month growth, how much if you have to attribute on the higher ticket sales, so you have mentioned minimal. But if we have to really attribute how much have been coming from the team in the budget guideline. What was the realistic number to look at?

So Niraj, I've been very gently trying to dissuade you from asking that question by saying a day. I go back to what I said. The more relevant aspects is the product proposition stand-alone good enough. And 2, what is so much of our business in the last year that it should create a base. Did it add more than it normally does in the month of March, yes, it day. If we take advantage of that, yes, we did. These others take more advantage of that. I'm sure they do much more.

So does that give us the confidence that we repeat or have you seen any strategy towards the tourist the March season not at all attributing to other things. Is this seasonality, the March factor or do you think it will be [indiscernible]

But I think both Karan and Amit have been talking at length about distribution capacity and product capacity build-out that we have been working on all of this time. A lot of what you are seeing now in terms of the outcome Niraj is what we have done as good work over all of this period. You see the growth numbers as more pronounced because also ICICI Bank share and that impact has also gone down over a period of time. But reality is 4 years, 18% plus CAGR on APE ex ICICI Bank. So to that extent, it's really about building of that wider distribution, which is creating it, not so much of a seasonal or a mood-based phenomenon. So yes, there may be some of it, there will be some of it.

So getting into FY '24, how to think about growth in terms of APE and VNB going forward?

Again, no different from what we have spoken of in the past. Our expectation of growth across various segments still remains quite stable. Savings business for the industry more or less in line with nominal GDP growth. To the extent that we have been building some distribution capacity, can we move at those levels are slightly higher, I think that's an opportunity. Protection, we still think will grow faster than savings, and that may well add to growth in an overall basis as well. So no change in view with respect to growth opportunity from what we have discussed in the past.

And last question, if I may, on the site bank, we are already 30% in contribution now. So do we think that we can further go down or does it come stable or it will improve from here, how we're thinking about overall scheme of things?

I think, again, Karan addressed this when he said that they seem to be producing about INR 1 billion of APE each month. If they remain at INR 1 billion a month and others grow faster, I think logically, the share will reduce, but that's okay. It is what it is.

And the drag in terms of decline would go hopefully, but it's not in our hands. It's a fair approach towards distributing the [indiscernible].

Next question is from the Dipanjan Ghosh from Citi.

First, congratulations for the good set of numbers. 3 questions from my side. First, on the bank a bit. If you can just give some color on some of the larger non-ICICI partners and how they have been growing. I mean, maybe specifically the top 2 or 3. On the context that maybe some of them would also incrementally focus on liability mobilization -- not from a product competition perspective or maybe from an RM bandwidth perspective out there. Second also is some of these partners have been incrementally discussing about opening up or expanding the partnership tie-up compared to what they already have. Second, if you can give some color on the annuity business and the warrant types, whether it's the deferred warrant that has been sold more or some of the other varies maybe not from an FY perspective or maybe a quarterly perspective. And lastly, if you can break down your unwinding into RFR and excess returns.

I'll let Amit answer the questions on distribution, but the unwind Dipanjan, we have not broken out in disclosures. We are not expecting to do that at this point of time, but you can kind of [indiscernible] from the yield curve that you have.

Yes. So I'll ask Amit to specifically talk about what is the outlook for of top 2 to 3 players in Banca other than ICC Bank. He will talk about the outlook and you also are asked in the context of their own -- their own efforts towards the deposit accretion, she will talk about that. I'll ask him to give a general color. And on this opening up, we do see it as an opportunity because over a period of time, now we have got a good handle of how to drive business in multi-partner shops in banks that we have been able to push that forward in the last 1.5 years or so. And also, given that we'll be one of the largest bancassurance partners company for any bank promoted company we do believe that our pitch book is very strong when I go to the potentially opening up partners, so banks. So there I can make a strong case in terms of getting into those banks. So I do see it as an opportunity. We do have a very strong alliance, which keeps cutting for this opportunity. And I think at some point in time, you'll be able to add a few mid- to large-size banks as we go along. You want to talk about the first part Amit.

Yes. So specifically talking about banks other than ICC, we have seen that they have been quite appreciative of the need to bring their fee income up, and they've been focusing a lot in building cross-selling capabilities. And we have seen most of our partners talking about getting more and more employees of theirs going through the licensing process and becoming part of the overall insurance sales process. That we have not seen coming down as a focus. While there has been discussions about asset liability mismatch, which typically is with test on the growth side across the banking sector. But I still believe that almost, if I were to take a guess, almost INR 50,000 crores to INR 2 lakh crores, INR 200,000 crores is what is the fixed deposit motorized in a month by banking system. Insurance industry whole forget about the company, industry as a whole does around INR 7,000 crores to INR 8,000 crores of premium, which is very, very small fraction of the overall deposit mobilization that is done by banking industry. So I think while the focus on deposits will continue, and I think almost every bank is very sensitive to drive fixed deposits. But again, the category of products are so different. One is short-term win liquidity and the benefit, whereas our product is much longer term in nature, offers a very distinct advantage. And I think most of our bancassurance partners have matured into accepting both as 2 different category of products serving 2 different needs of the customers. In terms of our success rate with all the other bank partners, actually, we have been growing our share in most of the shops over a period of time. A large number of these partnerships, we spaced almost 2 years back, and we have seen progressively our share actually has reached a point which is highest that we have witnessed in the last 2 years. I'm talking about specifically quarter 4. So that is about the outlook on the other banks. In terms of the opportunity on new banks and new partners, I think that is an ongoing effort. Given a choice, we would like to tie up with all. But yes, this is a long process. It's has gestation. But we are in it. Wherever we see an opportunity, we are there making a proposition on income and our principal offer to our partners on increasing the overall revenue pie by working in the white spaces and helping the partner grow their overall fire houses and take away what they're doing with their existing partners. So that proposition stays and that is something that we are going ahead and meeting with new partners. On non-bank partnerships, we have been quite active and like it's there in the deck somewhere. We added more than 100 non-bank partners as well last year. And that effort will continue. And we have seen that what you acquire typically in a year starts getting results in 2 to 3 years' time frame is what we have witnessed over a period of last so many years now, having invested in partnership distribution space. And that is something which also is helping our overall partnership distribution to grow much faster than any other distribution channels. So that trend is no different for last year in comparison to a year prior to that. And I don't see any reason why the trend will change again in the coming years. So that's how I would like to answer your question.

Sure. Just on the annuity mix -- if you can give some color.

The one big trend that I can speak of annuity is that, as you know, annuity is typically for a customer, we had a benefit starts accruing to him on he has retired. So earlier, it was about retired customers coming and investing lump sum into immediate nit products, which will start annuity immediately. Then the new customer segment was explored started looking at planning for the retirement much earlier, which we call it as [indiscernible]. On a single premium proposition, they started investing much earlier. So we saw younger customers starting to invest annuities where he will invest now and start his annuity 8 to 10 years later, which we call deferred -- and what we've witnessed in the last 1.5 years or so is that the insurance industry introduced regular premium variant of deferred bit, which means that somebody who doesn't have a long sum to invest in single premium and wanted to look at systematic investment as a group to plan for a retirement started adopting regal premium annuity products. And that has been both successfully around categories within Amada over a period of last 12 months as witness fire.

So would you like to quantify it? Or is just leave it at that?

We don't break it out. So on the side discussion we can probably.

Some kind of a color Amit has already given because of late, we have seen regular premium arty picking up. That is the current trend. So let's see how it goes.

Next question is from the line of Mohit from BOB Capital.

My question is that if you see -- do you foresee any change in the retail protection premium? Or do you think whatever hike had to happen has been done and now it has stabilized?

As of now, we are not foreseeing any changes, and we do believe that whatever has to happen has happened.

Okay. So basically no pressures from the reinsurers to have any hike, right?

Yes. As of now, there is no such conversation. We only hope that at some point in time, they will come and reduce the price.

Another question is basically in terms of the persistency. So if I look at the bancassurance persistency, it is actually lower than your average, both on 13 and 49 months. So is there a cause of concern? Or do you think that this will pass in the coming quarters?

I think we have to recognize structurally that high engagement channels end up with a much higher persistency than relatively lower engagement channels. These are structural dynamics of distribution. I wouldn't read too much into it or worry too much about it. What is very clearly there is that partners recognize the merits of retaining customers for long. And to that extent, they are aligned to our efforts at improving persistency.

And that is where I also feel that the proposed guideline is incentivized relatively more the renewal premiums compared to the new business premium would be beneficial for the customer ultimately, and we can drive through that behavior by all the partners including the partners who may not have that kind of level engagement with their customers.

If I could also add, once you have the disclosures from other companies as well, they would share category-wise persistency. And you would know and appreciate that by category, unit-linked persistency is relatively lower to non-linked -- that is because customer doesn't lose in unitary going to discontination. And hence, relatively in comparison to product categories, unit-linked has lower persistency in comparison to other categories, and this is an industry phenomena. Internally, in bancassurance, ICICI Bank, even in current form is half of our business in Banca. So Banca half is done by ICICI and half is done by non-action ICICI is only unit-linked. So that could be one of the reasons that you may be seeing an aggregated number in bank where number could be slightly lower to the extent of higher remit.

Next question is from the line of Nischint from Kotak Mahindra Life Insurance.

Just a clarification of the entire unwinding rate change reflects the RFR and probably the duration of the product mix change, right? Or have you made any changes to the expected return assumptions?

It's exactly these 2 Nischint, no other change, no change in method or anything else.

Sure. And I think -- now how should we really think about unwinding rates next year? If we sort of make an assumption that you move from a flattish to a more upward topping curve -- because I think what seems to have happened is that this year, you seem to have got a significant benefit in the unwinding side without not much movement in the longer end. So if you see the shorter end kind of yields coming off, then probably you might refer to where you were last year? I'm just trying to kind of understand how it works because you don't really have any data points to this.

It may still be a function of where my cash flow patterns are. If it is shorter-term cash flows, then steepening of yield curve through drop in rate at the shorter term could have a reduction in unwind rate. But to the extent that most of the cash flows are longer term, short-term shape of the curve, I don't think should significantly impact the outcome. It's just the level of the yield curve, which will be the bigger determinant than just the slope.

You would probably say that a large significant contribution of the increase in unwinding rate this year was the movement of rates not the change in the shape of the curve.

Yes and underlying composition. Given that when non-par significantly higher term compared to a unit linked, which should have been a shorter-term concentration of cash flow pattern that also needs to the underlined.

Sure. Got it. And just one small clarification. You said that change in parent rate assumption for units. So this had a positive impact on VNB Balkan negative [indiscernible]?

Yes.

Ladies and gentlemen, that was the last question for today. On behalf of ICICI Prudential Life Insurance Company Limited, we conclude today's conference. Thank you for joining us. You may now disconnect your lines.