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

Ladies and gentlemen, good day, and welcome to the ICICI Prudential Life Insurance Company Limited H1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anup Bagchi. Thank you, and over to you, sir.

Good evening, and welcome to the results call of ICICI Prudential Life Insurance Company for the half year ended September 30, 2024. I have several of my senior colleagues with me on this call; Amit Palta, Chief Product and Distribution Officer; Dhiren Salian, CFO; Ajit, Chief Human Resources and Operations; Deepak Kinger, Chief Risk and Governance Officer; Manish Kumar, Chief Investment Officer; Souvik Jash, Appointed Actuary; and Dhiraj Chugha, Chief Investor Relations Officer. Let me take you through the key developments during the quarter before moving on to discuss the company's performance. ICRA and CRISIL the domestic rating agencies have reaffirmed the rating of our existing INR 12 billion subordinated debt program as AAA stable and CRISIL AAA/Stable, respectively. The Board at its meeting held today has approved raising additional capital by issuance of nonconvertible debentures of up to INR 14 billion in the nature of subordinated debt instruments in one or more tranches over the next 12 months on a private placement basis. The additional capital raise will further augment the solvency position of the company and aim to ongoing business growth. I'm also happy to share that our available to sell products have been redesigned in line with the new product regulation, keeping the interest of customers, shareholders and distributors in mind. Impact on customer benefit has been minimized, except for where necessitated due to the yield curve changes. On the distributor front, we have been working on the various propositions such as clawback of commission on non-persistent policies, progressive commission structures and reduction of commission. Discussions with partners are still ongoing, and we believe that this will evolve. We have been leveraging our experience of level commission structured in GPP Flexi with benefit enhancer and clawback commissions in platinum products in these conversations. The impact on the company is also mitigated through a combination of measures by offering longer tenor products, higher sum assured products, multiples and increasing rider attachments. We believe that such customer-centric changes will boost the industry's long-term growth. For us, the comparatively lower share of non-linked products in our business mix, existing experiences of GPP Flexi benefit enhancer and platinum gives us confidence that the impact on the profitability due to the change in surrender value norms will not be material. During the quarter, we also introduced the 3C Framework to deliver the sustainable VNB growth. The presentation detailing the framework is available on the exchanges and the company's website. As a company, customer centricity has been at the core of everything that we do. We aim to deliver superior customer value, follow core competency of comprehensive products suite, seamless onboarding and sourcing via diversified distribution network and best-in-class servicing and claim settlement. People, technology and analytics are the 3 catalysts that help us utilize the true potential of our competency and improve the overall customer experience. We believe that the 3C Framework of customer centricity, competency and catalyst will help us deliver sustainable VNB growth by balancing business growth, profitability and risk and prudence. We delivered RWRP growth of 33.9% year-on-year in Q2 FY 2025 and 39.2% year-on-year in H1 2025, outperforming both the private and overall industry over the last 4 quarters. With this, we have gained 1.1% private sector market share on RWRP basis to end at 10.3% in H1 2025. Our focus segments, annuity and retail protection grew by 99.5% and 17.2% year-on-year respectively while linked business grew by 54.5% year-on-year on H1 2025. In line with our proprietary channel, agency and direct, together have delivered 45.7% APE growth year-on-year in H1 2025. The overall APE grew by 26.8% to INR 44.67 billion, and number of policies increased by 12.5% year-on-year in H1 2025. 48% of policies were issued on the same day for the savings line of business in H1 2025. Notably, we are also the first insurer to pay out commissions on the same day for our distributors. We continue to deliver on our claim promise with leading claims settlement ratio of 99.3% in H1 2025, settled with an average turnaround time of 1.2 days for non-investigative individual claims. Our 13-month persistency stood at 89.8% and 49-month persistency stood at 69.9%, a testimony to our customers' continuous trust in us. VNB grew by 4.2% year-on-year to INR 10.58 billion in H1 2025, with an APE growth of -- APE of INR 44.67 billion. The margin stood at 23.7%. Embedded value grew by 19.4% and stood at INR 460.18 billion in H1 2025. Our business growth and profitability have been delivered with risk and prudence and is exhibited in a strong and resilient balance sheet. We continue to be the highest-rated Indian insurer as per the 2 leading ESG rating agencies. We successfully retained our AA ESG rating from MSCI, which also makes us one of the top rated life insurers in India. We have also been conferred with awards in the areas of digitalization, customer service and claim management by various industry platforms. Our complete list of awards won during Q2 FY 2025 is presented on Slides 53 and 54. Thank you. And now I'll hand it over to Amit to take you through the business update.

Thank you, Anup. Good evening, everyone. Now let me talk about the business performance for H1 FY '25. Our total APE grew by 26.8% year-on-year to INR 44.67 billion, and retail APE grew by 32.7% year-on-year to INR 38.27 billion for H1. Contribution from linked savings product to overall APE increased from 42.4% last year H1 to 51.6% in H1 this year. On account of customer preference shifting towards ULIP products from non-linked products given market buoyancy. Non-linked savings contribution to overall APE declined from 26.6% last year H1 to 18.1% current year H1. The overall protection APE stood at INR 7.76 billion, and contributed 17.4% to overall APE in H1 FY '25. Retail protection business grew by 17.2% in H1 and 30.7% in quarter 2 of FY '25 on a year-on-year basis. Credit line segment has done well as we continue to add partners and introduce propositions, aligned to the various lines of businesses of our partners. Coming to the group term business, there has been a continued and significant trend of price reduction in this area, largely attributable to increased competition. As a longtime player in the industry, we possess a deep understanding of this market and our underwriting strategy remains focused on selecting businesses which meet our defined risk reward expectations. Annuity business contribution increased from 6.2% last year in H1 to 9.7% of overall APE in H1 current year. Protection and annuity are our focus segments, which together constitute 48.2% of the new business premium, and we expect it to continue doing well. Agency business APE grew by 51.1% year-on-year and contributed 30.4% to overall APE and 35.5% to retail APE in H1 FY '25. Direct business APE grew by 36.3% year-on-year and contributed 15.5% to overall APE and 18.1% to retail APE in H1. Together, agency and direct business contributed 45.9% to overall APE and 53.6% to retail APE in H1 FY '25. We will continue to invest in our proprietary channels to drive business growth further. Bancassurance business APE grew by 30% year-on-year and contributed 29.1% to APE mix. Partnership distribution and group business contributed 10.6% and 14.3%, respectively, to overall APE. We continue to build capacity and have added more than 29,000 agents during H1 spread across geographies. We have tie ups with 45 banks with access to approximately 22,000 bank branches and more than 1,200 non-bank partnerships. To summarize, our product, process and distribution are completely aligned with one goal, that is to deliver value propositions to our customers. We continue to focus on improving customer experience through technological and digital integration in our day-to-day processes. We strongly believe our 3C Framework elements comprising of customer centricity, competency and catalysts will play a crucial role in delivering sustainable VNB growth by balancing business growth, profitability and risk and prudence. I will now hand it over to Dhiren to talk you through the financials.

Thank you, Amit. Good evening. Now let me take you through the financial metrics. The VNB for H1 FY 2025 was INR 10.58 billion, given our APU of INR 44.67 billion, the resulting VNB margin was 23.7%. The relevant comparison of H1 current year margin should be with the FY '24 margin as it captures the impact of all assumption changes done on March 31, 2024. The movement in margin is primarily due to two factors. One is the shift in the underlying product mix towards unit-linked on account of the continued market buoyancy and the decline in the nonparticipating business. While quarter-on-quarter overall product mix may vary based on the customer preference, a wide range of our distribution partners spread across geographies with access to various customer segments will help us sustain a balanced product mix. Second, on the macroeconomic front over the past few months, G-Sec yields have declined given the product changes necessitated in quarter 2 FY 2025 due to the new regulations, we had limited ability to align rates in our non-linked and annuity portfolio in line with the market movement in G-Sec yields. Starting October, we have started aligning product rates with prevailing G-Sec yields. Coming to expenses. Our cost to premium stood at 22.0% in H1 FY 2025, cost to TWRP stood at 29.4% in the half year, which has come down from 32.6% in quarter 1. Our cost to TWRP on the savings side of business stood at 17.9% in H1, which has come down from 19.2% in quarter 1. Our objective is to bring efficiency in savings line of business while we continue to focus on growth in protection business. We have been investing in people, technology and process improvements, and increase in cost towards these elements should be seen from the point of view of investments that we have made in our capabilities rather than pure operating expenses that will deliver operating business in the future. On the other financial metrics, the company's profit after tax for half year stood at INR 4.77 billion, an increase of 5.8% year-on-year. Our embedded value grew by 19.4% year-on-year and stood at INR 460 billion at September 30, 2024. Assets under management stood at INR 3.2 trillion, and our solvency ratio continues to be strong at 188.6% on September 30, 2024. Thank you. We're now happy to take any questions that you may have.

[Operator Instructions] Our first question is from the line of Swarnabha Mukherjee from B&K Securities.

So 3 questions from my side. First, I wanted to understand a little bit how to read this -- how the margin development has been in the first half. So just wanted to compare the margins which you had in first quarter and in first half. And if I look at the product mix, that is broadly similar across these 2 time periods. So also, if I look at your cost ratio, which you have disclosed, this has kind of remained broadly stable. In fact, I think AUM ratio has increased, I mean improved marginally as well. So I just wanted to understand that from 1Q to 1H, what is the factor that is driving the margins downwards, so whether it's a factor of individual product level, some movements have happened due to designs, et cetera., so if you can highlight on the same? Secondly, on the channel side, I wanted to understand a couple of things. One is on the partnership distribution channel. So that we're still showing weak trends. So is this -- what is the challenge there? And is credit life -- does credit life get counted here? Or is this particularly the retail product? And if that is the case then what could be the reason why this weakness that is there? And also in the -- regarding the channels, I wanted to understand how ICICI bank's premium development is playing out? Is it still at a similar level? Yes. So these are my questions, sir.

Thanks, Swarnabha. This is Dhiren. Let me pick up your first question on quarterly movement. Part of the movement is actually the underlying mix itself. You would have seen that unit-linked while it has been steady, there is movement across in the non-linked segment. Participating has done better than the nonparticipating. And that has had an impact in terms of the overall margin flow. In addition to this, there are elements around the yield curve that we had mentioned earlier where given the fact that we had product changes that had to be done in this current quarter, we had limited ability to change the rates. Of course, starting forward into October, we've started realizing these rates. The overall margin change, as you see, is quite negligible, Swarnabha, its marginal movement across the quarter.

One follow-up, Dhiren, can you split or give us some color on the par, non-par split in the non-linked portion?

Yes, roughly 2/3 is the par and 1/3 is non-par, give or take. Over the course of the period, we've got a little more par than the non-par as compared to the previous periods. On your second question on partnership distribution. This is retail business, this does include credit life business. Amit?

Yes. So on partnership distribution, first of all, the partnership distribution over the period of last 4 to 5 years has been delivering a CAGR growth of close to around 20% for us very consistently. And what we see as a trend is temporary in nature. As you know that systemically, we saw a much larger proportion of business coming from unit-linked products. And typically, partnership distribution is where you see prioritization done on non-linked business, so they technically did not have the tailwind, which was available to the rest of the businesses because they prioritize non-linked savings business. That's one. Two, we are quite diversified in the kind of partnerships that we have. And hence, a few months or few quarters, you may have performance volatility in 1 or 2 partners, but that is fine with us. We are adding new partners. We have added close to 20-odd partners within H1, which has added to our overall base of distribution. And we believe that after the surrender guideline changes settling down, and markets normalizing with other businesses picking up, part of the distribution will come back on track overall. Coming to ICICI Bank premium levels, ICICI bank is now quite consistent at INR 100 crores, INR 110 crores on a monthly basis. So they've been quite consistent. The growth may vary depending upon what the growth was in the previous year quarter -- similar quarter. Their focus has been on protection and annuity and on protection side of the business, they are growing quite significantly. But on the overall top line, they are quite consistent at INR 100 crores, INR 110 crores level. So there's no change in our organization strategy when it comes to bancassurance with ICICI .

Okay. That's very helpful, Amit. So just one quick follow-up. So in the new scheme of things in this new surrender value post this regulation has come through. Now given that, I guess, if ICICI bank is steady then the 27% growth in your banca is largely driven by the non-ICICI partners. So just wanted to understand the contours of the conversations in terms of commission payouts, how do you see that panning and can there be a possibility that our payout levels can change due to how the competition is, would also be having terms with those distributors. So some color on that would be very helpful.

Yes. So we've been conversing with our partners. And I guess, first of all, I really acknowledge that most of our partners are quite understanding of the situation and the philosophy behind this entire regulatory change. And the unanimous understanding with the partners is to ensure that we try to protect and get the best for the customers. And we are working with our partners to work out various models, which could be around clawback of commissions if paid in full or deferred commissions or even reduction in commissions in certain products there to protect customer interest that is the only option available. All those options are being explored and I'm sure over the period of next couple of weeks, we should be able to take it to closure. The good news is that most of our partners are quite receptive to the idea of protecting customer interest and keeping proposition paramount. So from that perspective, we are quite comfortable.

The next question is from the line of Prithvish Uppal from Elara Securities.

Sir, firstly, I just wanted to understand on the annuity side, I think one of the competitors had highlighted that there are some concerns around the pricing. So just we reported a good set of numbers in annuity. So what is the outlook for this segment given where the competition is. So that is the first part. Second part would be related to the group protection. So here, there has been degrowth. So is this purely credit life driven or there is some element of group term also. And has the pricing environment for group term improved? And third question would be around the ULIPs. At a product level, has the margin profile of ULIPs increased given the higher share of sum assured that companies have been selling. So to that extent would that have also had some impact in terms of negating the margin decline on account of the ULIP mix increasing. So these are my three questions.

Yes. So I'll start with annuity. See, it's on a base of last year, we did not have benefit enhancer as a proposition. If you remember, we -- last year, towards the last quarter, we launched a benefit enhancer as a proposition with the belief that customers who had apprehensions about buying a life insurance product on annuity platform, which typically is a segment whose age is more than 50 years, they were not buying insurance because of the loss of -- because of the apprehension of losing principle in case he was to not buy or not being able to pay premium for second year. So that opened up a lot of customers coming in buying annuity business, annuity products who were probably earlier not buying. So that segment opened in quarter 4, and that continued, that trend continued in quarter 1 as well as quarter 2. Actually in fact, quarter 2 did even more than what we delivered in quarter1. Incidentally on the base of last year, we did not have benefit enhancer as a proposition, which is very different. So in comparison, you will say that the growth is good, but that growth was largely impacted with the new product introduction that we did in January and March. On rates, we are just comparable to the market not that we are any different in terms of pricing. So it was less of pricing, more of the uniqueness of product, which actually got this growth delivered for us. That's on annuity. On group protection, you're right, group protection, if you were to split it, credit life on a non-MFI side is doing fairly well for us. MFI all of us know kind of challenges that we have on disbursals, so there is a bit of an impact in quarter 2. The quarter 1 numbers were okay. Group term is where we have seen pricing pressure, like I mentioned in my opening script as well. On sum assured side, we have started growing now on group -- protection group term. However, on premium because of pricing pressure, it has delivered a little bit of a degrowth for us. So that's how group protection combined between credit life and group term is showing a relatively muted growth. That's largely on account of mute MFI business, credit life MFI business as well as group term business. Third question on ULIP you mentioned rightly that typically, if a consumer preference is tilting towards ULIP, one of the ways of maximizing margins is either selling a longer tenure products; two, attaching riders and increasing commission in multiples; three, to start with sell a high sum assured products. And fourth is about just ensuring that you have the same getting delivered in a composite manner. So all this leads to maximization of unit linked products profitability. This is a journey that we have been following for the last couple of quarters, and that is something that we want to believe that within the line of business, where the margins are relatively low these 3 steps on longer tenure, high sum assured multiples and better rider attachments will help us maximize margins within the category.

Prithvish sir, do you have any other questions?

Yes. No, that's it.

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

I have 2 questions. Sir, first is on the net commission that I can see from the P&L for either for -- if you look at 1H or you look at 2Q, there's a very sharp jump. And we thought there was a sharp jump, which already happened last year. So even on that, there is a very sharp jump over there. So I just wanted to understand what product segments, what channels, what is driving that? And second, on the VNB margins, now we closed first half at 23.7% and assuming we continue the same run rate of 20% to 25% APE growth, where do you see the second half margin landing up? Should we expect 50 basis points or 70 basis points cut from the current 1H margins in the second H? Or how should we look at the margins or you can just give us an outline on how to look at the margins for the full year FY '25?

Shreya, Dhiren here, so the commission rate increase, if you recall, quarter 1 last year is when we started implementing the new set of commissions across partners. Quarter 1 was quite low to that extent. But these commission structures started to get implemented over quarter 2, and they got into full force in quarter 3. Which is why, as you look at H1 to H1, you will see an increase of commissions across the 2 periods. So they're not directly comparable. I think if you look at it sequentially, you will start to see that commission rates are broadly in line at a product level.

Yes. Yes, correct. Understood.

That's the reason why on a year-on-year it's look quite elevated. But you also note that we've been able to look at noncommission expenses, we're starting to see the decline there as well.

Yes, correct.

On your second question on VNB margin, do we have a forecast? No, we don't have a forecast. We are not guided by VNB margin. We are looking at growth in absolute VNB, based on where the customer opportunity is, and you've seen this in this particular half year and actually over the last 9 months as well, the market buoyancy has led to an increase in the unit-linked product. We're quite happy to partake in the opportunity, quite happy to serve our products to our customers in the form that they would like. There are no artificial factors that we want to put in terms of product mix by itself. And therefore, we would let the customers' choice dictate where the final margin lands up because that will be where the product mix ends up at.

Sir, I was asking more from the point of view when -- what time line do you see we will get a clarity about the margins from the new surrender value products? I know there is only 20% of your mix right now. But even on that product segment, are we any time close to getting a clarity about how the commission structures will be finalized, how the margins for those products will look like?

So I would expect the commission structure conversation to continue through this quarter. We have already had initiated conversations and come to conclusion with some of these partners. But we still have space in terms of closing the conversation, I expect that the market will settle over this particular quarter in terms of the commission structures. As we said, the way that we've been approaching this problem is to ensure that it's a win-win situation for all 3 parties involved. We are quite mindful of the fact that one cannot take away the customers return, and therefore, some of the changes that you're seeing in the IRRs have been necessary only due to the yield curve changes. The conversations with distributors around the 3 lines that Amit spoke of, deferment of commissions, progressive commission structures, clawback of commissions were required. And of course, where needed, we have actually proposed reduction in commissions. My sense is it will take this quarter to settle down because I believe the entire market is having this conversation. So let's see how that evolves, Shreya.

The next question is from the line of Supratim Datta from AMBIT.

My first question is on the growth side. So we have now seen for quite a few quarters that growth on the agency side and direct channel has been fairly strong. Just wanted to understand from here, what gives you confidence that this growth you can sustain this growth? And I'm not talking about the next quarter or 2, but if I'm looking at it from a 2- to 3-year horizon, what gives you confidence that this growth can sustain, particularly considering that in post the surrender charge regulations, commissions could actually go down in some of -- particularly in the agency or non-ICICI bank channel. So that would be my first question. The second one was on the variable annuity piece. Now this has been one product which the regulator has allowed through the new product regulation. Just wanted to understand that, is this a product that you're looking at launching? And how would you be hedging the risk in this product? If you could give us some color on that, and that would also be very helpful.

Yes. So coming to consistency that you spoke about on agency, direct business as well as non-ICICI business as you can see, that agency and direct business, we have been speaking on the investment in capacity that we have been doing for the last 2 to 3 years now very consistently. Both in terms of people that we have deployed, capability that we have created, formal learning architecture that we have institutionalized now, both for our people as well as for the entire capability frameworks that we have created for our advisers as well as our employees. Both in proprietary as well as agencies is something which has taken very long for us to put up a pretty strong and robust process, which gives us a belief that what we created over a period of 9 to 18 months on the capability side will really stand in good state for us in holding on to our growth, specifically in these two. And not just this, we are also looking at going very granular and not looking at the strategy, which is only at an [ FX ] level. The strategy has been now created at a micro market level. And as you know, India is very, very diverse. Every market is different and unique. And the effort is to go and understand local unique markets, which we call them as micro markets and create strategies which are unique. And hence, we believe that with heterogeneity of micro markets that you have in India, there will always be an opportunity area which will play out and deliver growth for us because not all markets are similar. So I think the heterogeneity of our strategy at the micro market level and the learning capability that we have created will hold us in good stead. And apart from that, even in our proprietary distribution channel, which we call it as proprietary sales force, direct sales force, we are seeing a good traction in the alternate sources of businesses that we are opening. And few experiments that we are doing, which gives us good confidence that we will continue to grow on that front. On other partnerships, multi-insurer partnerships, of course, the paramount will be that eventually the revenue objectives of our partners, whether corporate agency or brokers or banks will actually be driven by their own internal objectives of continuously working and innovating ways and means of reaching out to untapped markets within the customer segments. So to that extent, we will be not following one strategy to stay on path of growth. We will be governed by the strategy that will be chosen by our partners. And I'm sure revenue growth for them is as important to them as it is to us. So we'll be governed by different strategies by different partners. We don't want to have our strategy to decide what we want to do. We would rather get our partners to decide what they want to do to maximize their revenues. I'm sure with the consolidation of revenues, the growth will be protected by doing things differently and reaching out to untapped markets.

Supratim, on your second question on variable annuity, I think that's a great opportunity. But frankly, at this point, we don't have a product. We continue to explore what are the structures that we could put in place to provide this product to our customers. And again, we also have to evaluate what are the hedging strategies one would have to take as you create these products. So at this point, this is still a work in progress. We don't have a product ready at this point.

Got it. And then just 2 follow-ups. One, Amit, could you clarify how many advisers have you really added over the last 2 to 3 years? And how many do you plan to add going forward? And Dhiren, if you could give us some clarity on what would be the negative carry impact from the NCDs that you plan to launch in the second half? That would be very helpful.

Yes. So on adding advisers, there is a focus on not just adding licensed advisers to our base, which actually has grown by almost 60% in H1. But also to look at distinct profiles of advisers, we can give us access to specific customer profiles for who we are designing our products. So it is actually when you create products, you have customers in mind and then you search for the right profile of distribution to get your product available to the right distribution set. So I think not just we will grow on the number of advisers that we license, but we'd also endeavor to reach out to the right profile to give us the access to the customers most appropriate for our products. So that is one area where we have really invested and quite a few profiles have been successful in terms of acquisitions and licensing. And we continue to work on that path and see how it progresses.

So over the last 2.5 years, I think we've added over 1 lakh of agents. The first number that comes to mind, I can check that and come back. On your question on what kind of carry do we have on the sub debt, it's going to be very, very marginal. It's not something to worry about.

The next question is from the line of Madhukar Ladha from Nuvama Wealth Management.

Just a couple of them from my side. First, can you quantify the impact of not readjusting the IRRs on the non-par, par products in Q2. So that could give us some sense of what more normalized margin in Q2 and first half would be. Second, our renewal premium continues to sort of lag and it's just growing at about 3%, plus we've also seen continued outflows. So can you give us some sense of when this actually stopped? Yes, those would be my 2 questions.

So yes, there was an impact partially because of the yield curve in the second quarter. It is small, but indeed have a part to play as it moved across the quarter. But as you look from to Q1 to H1, you see that the margin movement actually been quite negligible. That's one. The second point that you raised in terms of renewal premium being much subdued relative to the new business, that's right. There are 2 elements to this. One is that we do have some of our policies, which are of a longer tenure, typically 10 years and above, which are now hitting the point of maturity, where of course, these are in some sort of planned outgo. So those are coming into the fore at this point, policies that we have sold back in 2013, '14, which are now exiting the book. In addition to this, the unit-linked book, some of the larger numbers that we have done in FY '18, '19 is now hitting the 5-year plus mark, where you could say, given the release of the lock-in and the fact that markets are running at these levels, customers -- some customers will choose to exit the policies either completely or partially, that's creating an outflow to that extent. What are we doing about this? Obviously, the longer the policy stays with us, the better for us from a company's perspective. One of the products that we have launched is the Platinum product on the unit-linked side, which has a sale commission format. The idea being that there is scale in the game for both the distributor as well as the customer to continue as well as that gives us the benefit of a longer tenure and potentially higher margins there. So these are some of the structures that we're evaluating, and we also put in place in terms of elongating the scale that we have with customers. But of course, there could be points in time where given where the markets are, some customers we choose to book profits.

Also just to add, as you know, that we were going through a recalibration in our distribution strategy, and we were working at faster diversification of channels, and we did have an impact on our growth over the period of last 3 to 4 years. So year prior to 2022, we did have a relatively muted growth area. So that muted growth phase has relatively lower renewal premium coming through now. That also is the third element, which is impacting overall renewal premium growth apart from what we mentioned.

And now as the growth has started to pick up over the past few years, we should start to see improvement in the renewal premium over the next few years.

Right. And just as a follow-up, I remember that in Q4 last year because of these -- you had gotten a negative sort of persistency variance in your EV walk. And one of the reasons was, obviously, the ULIP, right and increase in mass surrenders. Given that -- this seems to have continued into this year, so do you expect a higher sort of impact -- I mean, another negative impact coming through in this year as well? Has that been accounted for in your EV calculation for first half? And what is your economic variance. Can you give me that number? What is the positive economic variance in first half?

One quick correction, Madhukar, it wasn't mass surrender, we've just seen elevated surrenders.

Elevated surrenders, yes.

It wasn't mass surrender. So as you compare H1 to H1, surrender rates themselves have dropped. But of course, the eligible book itself is much larger. And therefore, you would have seen an absolute volume go out. This experience we continue to monitor and eventually expect the ULIP persistency to come towards the long-term average. In any case, we will reassess at the end of the year and if we need to, we'll take an assumption change. But like I said, H1 to H1, we are seeing lower surrender rates. There is a marginal variance that we see, but that's not large at this point, and we will continue to watch through to the end of the quarter -- end of the year.

So in fact, let me also add to it that if you were to look at only persistency, whether 13, 25, 37, 49 months, actually it is quite best-in-class when it comes to unit-linked products. It is only the design of the product, which allows liquidity after 5 years and good markets has led to an impact on renewal premium collection. So persistency-wise, it should not be construed that ULIP has a problem on persistency. It doesn't. It is best-in-class for us when it comes to persistency. So we don't have any problem on persistency.

Right. And on the economic variance, can you quantify that?

We've not broken that out this time. We do that at the end of the year, but there is substantial economic variance.

The next question is from the line of Aditi Joshi from JPMorgan.

Just a couple of questions. If I look at the presentation in Page #67, there have been some -- you have specified the reference rates in September 2024. So is it fair to assume that you have taken some cut in the economic assumptions and that could likely impact the EV movement in some way? And second question is related to the yield movement that you have mentioned that it has had some impact on the margin profiles. Now when we look at the non-linked product category, it has been somewhat weaker. So I just wanted to understand a bit more from you as in which particular product category has been affected by that movement in the yield curve. Is it fair to assume that some impact has been seen on the annuity level margins as well? Yes, those are my questions.

Good evening, Aditi. So taking your second question first, yes, the impact of the yield curve has been felt on the non-par as well as the annuity product line. That's true. Now on your first question that you pointed out, see, we are on the IV method. So whatever is the risk-free at that point in time at the end of the period, that's what we will take into account. So yes, while you see the yield curve growth, second column is what we have now factored into the current EV. I hope that answers the question.

Yes, yes. Sure, sir. And are you able to -- I mean, you have mentioned somewhat substantial amount of economic variances, but any comments on the operational variance that you are able to make for the first half EV movement?

So we break the entire EVOP at the end of the year. That's what we normally do. So we will take into account then.

The next question is from the line of Prayesh Jain from Motilal Oswal.

So just on the new commission structures and the discussions with the partners that is ongoing. While the business is on, so the current commissions are being paid in the previous structure itself and which would basically mean that the margins in this quarter in Q3 could be impacted to that extent in this quarter? That would be my first question. And the second would be, what is the experience in the new product structures in the October month so far with respect to Y-o-Y growth or any product mix changes that you could highlight? And those are my 2 questions.

So Prayesh, Dhiren here, the new commission structures have been in place for some distribution partners, and we continue to have conversations with some other distribution partners. It will anyway be effective for the entire quarter. So I don't expect a material negative from that perspective coming through at all. So in terms of October, 20, 21 days of October, we are not seeing any fundamental shift in our product line, broadly the same kind of trends that we had seen at quarter 2, that continues into the early part of October. But again, October, November, our festival month, sometimes a little difficult to call. But let's see how that progresses, but nothing dramatic for us to call out at this point.

No major sudden jerks in terms of declines or nothing of that sort, right?

No, no. Not out of line.

The next question is from the line of Dipanjan Ghosh from Citi.

Just 2 questions from my side. Just 2 questions from my side. First, if I look at your non-linked savings growth, that has been quite weak. It was down 10% and 15% 2Q and 1H. And this seems to be tad lower than some of your private peers. And also, you mentioned that in the second quarter, it was more skewed towards par over non-par. So the question over here is in case, let's say, ULIPs were to go through some sort of a slowdown in the second half, how do you think some of the par and non-par products will see traction from a going concern basis? And my second question is, if I look at your cost to TWRP ratio for the savings business, and again, you give the first half and first quarter numbers, but my assumption would be that the second quarter Y-o-Y increase in cost by TWRP for the savings business would be higher than the Y-o-Y increase in 1Q despite the fact that ULIPs mix increase Y-o-Y was relatively lower in 2Q compared to 1Q. So I just wanted to get some sense of the payouts till the quarter and also how do you see it incrementally?

Yes. So the first question pertaining to our non-linked business. As you know, that unit-linked product was typically the consumer preference between these buying markets. That is something which was quite visible. And we anyway don't insist on any specific product preference when it comes to distributor making a choice. From that perspective, we actually saw customers relatively choosing the lesser of nonparticipating guaranteed products in comparison to unit-linked as well as participating products. But also, let me also highlight that participating and nonparticipating is something that all of us understand very well. But what has been currently sold in the market is the customers' demand for increasing liquidity in the product. As you know that most of the products sold in life insurance industry are not liquid. And the proposition that has really emerged over a period of last 1.5 years in the industry is about offering liquidity in the form of immediate income, which was the option available both on participating as well as nonparticipating products. So different companies have taken different calls. Some companies have offered this proposition on a participating platform. Some companies have offered it in the nonparticipating platform. So we incidentally offered this proposition of the participating platform. So participating platform has delivered a good single-digit growth for us, although, of course, not in line with unit-linked growth. And second, when you also look at growth, you know that typically surpluses -- investable surplus is generated with customers who are higher in age. And that segment, we also have annuity placed in the guaranteed space. So if you want to combine nonparticipating business along with our annuity, then some total growth is not really way off from the industry trend. So you need to look at normal savings in conjunction with annuity performance. So because eventually, the customer segment is similar with investable surplus and has opted for annuity products with us. So looking at all together, it is not really way off from the market.

Dipanjan, on your second question on cost ratio, if I understood it right, the overall cost ratios have increased. But when you look at the savings line of business, the increase is quite small. Evidently, the higher cost ratios do come in from the protection line of business, which is also more margin accretive. So quite happy to have that on board despite the higher cost ratio. And what we want to do is do more of the protection business, of course, which does add to our VNB, in a way the opportunity that exists in the market.

So completely agree to this. I just wanted to understand that while it has increased marginally in the savings business, but also your ULIP mix has gone up significantly, both 1Q and 1H. And I would assume that some of these products because ULIPs are lower margin, maybe your payouts also would be relatively more conservative in that. So despite that, the ratios have increased. So I just wanted to get some color on the market competitiveness.

That's true. That's true. I think the way the ratio gets computed is actually cost with TWRP, which also takes into account renewal. So if you look at the cost ratio growth -- cost growth versus top line growth, you see that top line is ahead of cost. But because renewal numbers are weak at this point, 3% to 4%, 5%, that is what impacts the cost ratio adversely.

Got it. Just a final question. I mean your fourth quarter last year ULIP growth was quite strong so the base was low. Now on this space and given the current market conditions, and I guess typically understand that you kind of don't push a product, it's about the customer demand. But do you feel confident of sustaining the 25% -- 20% to 25% sort of a growth run rate that we have been seeing in the second half?

See the proof of the philosophy that we have been staying true to for a very long period now is my request to you to trace back our few quarters' performance in last few years. And you will see that whenever consumer sentiment shifted towards products other than unit-linked products, in those quarters, our ULIP mix had actually dropped to close to around 40-odd percent. So whenever there has been a shift in consumer preference, our portfolio has actually reflected that. So just that you have to trace back in which quarter it happened. One of the quarters which I can recollect is typically in that FY '23 when there was entire profit increase and there was a demand for specific kind of products. And also in between, we saw a lot of volatility in markets and that was typically in 2020, 2021. That volatility led to demand for participating and nonparticipating products picking up and our product mix reflected exactly that. So we are quite confident that even if there is a slowdown, though I do believe that the long-term story on India equity is still quite strong. And we have mature set of customers who are investing with full knowledge on ULIP kind of products. But even if there is an impact, I guess we have all the book of products available with us, which can stand the test of any change in the market environment.

Dipanjan, if you look at our new business mix, about half of it comes in from unit-linked, 30% comes in from non-linked and 20% comes from protection. Now this is no way reflective of the amount of time and effort that we spend from a product development perspective. We are quite aware as there are various segments of the business that have got differential product propositions that need to be made available to them, and we spend adequate time with them because we are able to reach these customers through our diversified distribution network. And each distribution network requires a different set of products to be able to cater to their customer pools. So the amount of time that we spend is not reflective of the outcome in terms of APE. We do spend adequate time making sure that our propositions on the par, non-par and annuity side are in line with what the market offers. So if there is a swing away from unit-linked, we've got propositions in the non-linked space, which caters to customers, and we should be able to take advantage of the opportunity there.

The next question is from the line of Gaurav Jain from ICICI Prudential Mutual Fund.

A couple of questions from my side. One is if you can share a little more update on this ULIP Platinum as a product as to of the total units sold, how much gain from this product? Second is for H2, what are the new launches that are lined up and which segment of the business would we expect them to be sold?

I missed your second question, Gaurav?

New launches.

New products. So first on Platinum, see, first of all, like I mentioned, not every partner pick all products. So different partners prioritize products and Platinum also has been prioritized by certain distributors of ours, which is mostly agency and some part of our direct distribution. And there is a proposition here because we claim commissions being built in the product design, customers tend to see much lower cost in the initial part and then eventually see the value getting accretion through commissions over a longer period of time. But if you ask me, there is a fair number of customers and the fair mix of unit-linked products where customers are still choosing our regular unit-linked products because we do believe that long-term investment, if one were to build unit-linked products, they are quite beneficial if a customer wants to stay invested for 11 years or 11 years onwards. So from that perspective, not that everything is new to Platinum kind of products, but there are certain category of distributors, certain category of customers, we have prioritized products which are different in cost structure. But yes, it has definitely brought newer customers to come and start buying life insurance for us. On the second part on new product launches, this is one regular exercise that we keep doing. So that's as a process, almost every quarter, we have either added new products or new features in our existing products. So that process will continue. And we'll keep you informed as and when we have new launches scheduled in the coming time.

Just a follow-up on Platinum. Sequentially, if you see month-on-month are we seeing higher activation in number of partners or what is the growth that we are seeing here? I mean just wanted to understand are these products really tested in a big way and should we expect it to become a meaningful chunk in quarters down the line?

It will remain stable like I said, Gaurav. See, I have -- at a company level from a strategy perspective, we don't have a bias for any specific product. We are only creating options. Eventually, customers and distributors pick up what they find is more suitable. Like I mentioned, long-term investment product if a customer want to stay invested for 11 years, 12 years, 15 years is as good as Platinum. So some customers may be comfortable with a clear line of sight of making premium payments for 10, 15 years and they still find existing ULIPs as attractive. So we don't have a bias. The ULIP products, we manufacture products, we pick up insight from the customer, we create it, put it on table and then get the distributor pick and decide. So from that perspective, what product affords is what we make it as part of a distribution commission. So we pay what we can afford. Rest, the choice is entirely with the distributor. So it will remain sustainable. It will remain one of our significant propositions, and we see how it evolves.

Just a question on solvency, Dhiren. If we raise this INR 1,400 crores, how much will the solvency increase to? And will we still have room for sub debt to be raised? Or will this be the final sub debt that can be raised given the equity that we have?

So Gaurav, if we raise the INR 14 billion, that should increase solvency roughly 20%. This is the gap that we have hit at this point based on how the numbers pan out, then maybe we could look at raising sub debt additionally, but that, of course, depends upon what the underlying share premium, et cetera. At this point, this is the cap. So we've got INR 12 billion on board, INR 14 billion is what we can raise additionally. And that contributes to 20% of our solvency.

Next question is from the line of Nischint Chawathe from Kotak Institutional Equities.

What is the share of the -- in the banca business, what is the share of single insurer partnerships? I think last time you had mentioned that ICICI Bank and I think in 1 more foreign bank, you are the single insurance company.

So it is -- so 25% of our retail business is ICICI and Standard Chartered put together.

25% of the retail business.

Retail business, not inclusive for growth. So the retail business is 25%.

Sure. Got it. Just a little bit on VNB growth target because I guess that's the key focus now. How are we looking at this growth target for the year?

So we are looking to grow. We've got a decent growth for half year, 25% plus. We continue to build upon that growth through the year, Nischint. But of course, one needs to be aware there are regulatory changes that have happened in this current quarter. And there, of course, unit-linked has done quite well in this market environment. But like I said, we will take whatever opportunity is available to us. Whatever the customer wants to buy will make that available.

So the focus is essentially on -- I mean, is it kind of APE and VNB target? Or is it sort of more on an overall VNB growth target?

End of the day it's all going come to absolute VNB growth.

Okay. And which you are saying kind of sustains at around 20% less?

We haven't put out the numbers, Nischint. We will do as much as we can.

Sure. Got it. And just finally, a couple of changes that we made on the distribution side. And I know it's early days and take a couple of months to stabilize. But generally, what is the success rate of some of these changes in structures on deferments or kind of trail commission structures, et cetera. If you could give some qualitative color on this in terms of how do you see the offtake evolving over time? And is it open -- is it more with the larger distributors or smaller distributors. So you could give some qualitative color on that would be useful.

Yes. So see, like I mentioned as an answer to the earlier question that our partners are quite understanding of the regulators' position on the change in guidelines and they're quite receptive to this proposal of these options that you spoke about, which is clawback or deferral across categories of products. So it could be that different category of products may have a different proposition on clawback or deferral. So it does have an impact on cash flow. So probably smaller players in corporate agency and brokers, you may see that the business model will have to be evolved into growing the overall top line to manage for any impact due to persistency gaps. But we do believe that partners with better persistency will probably have least impact of these changes. So from that perspective, different partners, different fabrics and different combinations will evolve, and we'll see how it pans out. But one thing is clear that we have to work towards overall expanding the market through different propositions and look at compensating for whatever impact is on revenue on account of lapsed policies. So that is something which will really emerge. We would not know how it will evolve. But at this point in time, for the changes that we have been discussing, most of our partners are very receptive. And this entire philosophy of good for customer and fair to shareholder as well as fair to distributor is something which is really understood well. And it has not been as complicated as it has been made out to be. I think partners have been extremely forthcoming in accepting this proposal as a new way of distributing life insurance going forward. And we truly believe that eventually, it will convert into a good outcome for the customer.

And that includes banks and the larger partners as well?

Yes, of course, banks as well as anywhere where we have multi insurance partnerships. So in fact, proprietary distribution specific to agency, we have already incremental changes. And in banks, anyway, we have only 22% of our business coming from multi-insurer corporate agents and banks. So even to that extent, we will be impacted. Rest, I guess, mostly it is in place. I just want to keep repeating that eventually non-bank business is only 20%, 25% of our business. So from that perspective, exposure to the product categories where commissions will undergo a change is much lower impact on us.

But you would be looking at changing the structures or kind of having more kind of trail base structure, I guess, across product lines, right? I mean that's, I guess, the new way to look at things.

That -- for that, we did not wait for surrender guidelines. We actually have been doing it for now at least few years.

I am not connecting the 2.

Yes, yes. So that as a philosophy, we do believe that definitely is the right way of doing it and promote long-term contracts with customers. So from that perspective, we truly on the philosophy, we have no disconnect. We have already experimented in the past, and that gives us the confidence that we'll be able to guide through this phase as well. So as a philosophy, as a strategy, we have a lot of conviction in deferment as a process to manage overall profitability, overall outcome for the customer as well as for the shareholder.

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

So on credit life, one of your peer reported and mentioned that they are seeing some slowdown because of lower disbursements to NBFCs while we have seen good growth in the quarter. So what different we are doing here? Just to get some sense how the growth is looking for us?

Yes. So credit life slowdown, like I mentioned in the opening statement as well, is largely on account of business in the MFI segment for a reason which is well known in public domain. On the business being done through non-MFI partners, there, we have seen quite a robust growth. So we don't see any slowdown happening on that front. So that is how it is syndicated. So overall business, if you were to look at credit life growth did come down in quarter 2, but largely on account of slower disbursements in MFI as a segment. So otherwise, non-MFI looks okay. It is completely aligned to the credit growth. It moves in tandem. What we try to do to create an alpha over general credit growth in the industry is to work with that hard-working model of increasing attachments and opening new lines of businesses with every partner of ours. And also to the extent of adding new partners, which we have done, we continue to do. We added another 10 partners in quarter 2 as well. So to that extent, addition of new partners, opening new business lines with our existing partners. We've had great relationships with them. So that is something which is going to help us in creating an alpha over the industry period growth. Otherwise, industry period growth, 1%, 2% plus/minus is something that we are quite confident of. And rest alpha, like I mentioned, is going to be about existing customers and new customer addition -- new partners addition.

Got it. And in terms of margin, the margin you did mention that Q4 exit should be...

Neeraj, we are not able to hear you.

So is it better now?

Yes, go ahead, Neeraj.

So Q4 exit margin at the time of March, we did mention that, that should be the overall margin for FY '25 as well. And given the changes in surrender some impact out there and product mix change, what is the margin trajectory we should be working within the H2 going ahead, given how do you see the product mix evolving from here and the competitive intensity landscape changing from here?

So Neeraj, we haven't given a margin guidance. What we had seen was look at full year margins as you look at quarter 1, quarter 2, and that has been the relevant point of comparison. Yes, you are right that there are a set of changes that are coming through on the non-link space in terms of the surrender value regulation. But as we mentioned, these are -- there are ways in which we are looking at contracting the impact. And these will evolve over the course of the next couple of months and into the rest of the year as well. So there is no margin guidance to that extent. We are seeking to grow absolute VNB, and we will continue our endeavors on that, bringing up every product line that makes sense for the customer, and we'll offer whatever the customer wants.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

So thank you, everyone, for joining the call. Have a great evening. Bye.

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