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 Q3 FY 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anup Bagchi, MD and CEO. Thank you, and over to you, sir.

Thank you. Thank you. Good evening, and welcome to the results call of ICICI Prudential Life Insurance Company for the 9 months ended 31st December, 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, 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. Our independent director was Dileep Choksi retired effective December 26, 2024, having completed his second term of appointment. I would like to express our gratitude for his guidance during his tenure. During the quarter, we raised subordinated debt of INR 14 billion, thereby strengthening our solvency to 211.8% at December 31, 2024. Recently, the company has approved the proposal to invest up to INR 100 million, not exceeding 10% of the share capital in Bima Sugam India Federation. Bima Sugam is one of Idea's initiative to achieve the objective of insurance for all by 2047. Bima Sugam aims to create and operate a centralized marketplace of insurance products and services. Customer-focused products continue to be at the core of our business strategy. During the quarter, we launched industry-first women's health plan, ICICI Pru Wish and an increasing annuity variant of GPP Flexi. Amit will subsequently cover the new product launches in detail. Now let me talk about the key performance highlights. We delivered RWRP growth of 31.4% year-on-year in 9 months 2025, outperforming both the private and overall industry over the last 5 quarters. Our endeavor is to continuously create an alpha on business growth over the industry. APE grew by 27.2% to INR 69.05 billion in 9 months 2025. The number of policies increased by 14.4% year-on-year in 9 months 2025, outperforming the private industry growth of 8.7%. Our focus segments, annuity APE and retail protection APE grew by 81.7% and 24.2% year-on-year, respectively, in 9 months 2025. In line with our focus on proprietary channels, agency and direct together have delivered 37.9% APE growth year-on-year in 9 months 2025 and contributes approximately 55% to our retail APE. Our 13-month persistency stood at 89.8% and 49-month persistency stood at 69.2%, a testimony to our customers' continued trust in us. We continue to deliver on our claims promise with claim settlement ratio of 99.3% for 9 months 2025, settled with an average turnaround time of 1.2 days for non-investigative individual claims. VNB grew by 8.5% year-on-year to INR 15.75 billion in 9 months 2025, with an APE of INR 69.05 billion, the margin stood at 22.8%. Our business growth and profitability has 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 2 leading global ESG agencies by virtue of our AA ESG rating from MSCI and low risk ratings from Sustainalytics. Our customer-centric initiatives have also been recognized by awards in the area of digitalization, customer experience, learning and development and claims management by various industry platforms. A complete list of awards won during Q3 2025 is presented on Slides 52 and 53. To summarize, we will continue to offer the right product to the right customer and deliver it to the right channel. Our 3C framework of customer centricity, competency and catalyst will help us deliver sustainable VNB growth by balancing business growth, profitability and risk and prudence. Thank you, and I'll now hand it over to Amit to take you through the business updates.

Thank you, Anup. Good evening, everyone. We continue to improve our product propositions to cater to the evolving needs of the customers. There is a growing need of women-centric protection products and to cater to the same, we have launched an industry-first women's health plan, ICICI Pru Wish, offering fixed lump sum for critical illness and surgeries. This plan ensures adequate financial support during treatment and recovery period and creates a safety net for the family. Moreover, the premium is also fixed throughout the coverage term, which could range up to 30 years. In Protection segment, we launched iProtect Super, a term plan, which offers a unique feature of premium break whereby a customer can choose to defer payment of premium by 12 months while keeping active life cover. This feature is a beneficial option for the customers with fluctuating income who may want to take a break from premium payment due to other financial commitments for a certain period. We also launched an industry-first variant of GPP Flexi, which offers increasing annuity income every year, thereby safeguarding retirement income against inflation. In ULIP segment, we launched ICICI approved Signature Assure, which offers goal-based savings through waiver of premium, family income support in case of uncertainty and maturity benefit, thereby safeguarding the investment objective of the customer. Let me talk about the business performance now for 9 months FY '25. APE grew by 27.2% year-on-year to INR 69.05 billion, and retail APE grew by 28.5% year-on-year to INR 57.53 billion for 9 months period. Linked business grew by 49.8% year-on-year and its contribution to overall APE increased from 43.1% in 9 months FY '24 to 50.8% in 9-month FY '25 on account of customer preference shifting towards ULIP products given the market buoyancy. Non-linked savings business excluding annuity, declined 17.4% year-on-year, and its contribution also declined from 26.8% to 17.5% in the corresponding 9 months this year. Group fund business grew by 102.5% year-on-year in 9 months FY '25. Contribution from group fund business increased from 3.7% last year to 6% in 9 months FY '25. This business is typically lumpy in nature. Protection APE grew by 6.9% year-on-year and contributed 16.9% to APE in 9-months period. Retail Protection business grew by 40% in quarter 3 and 24.2% in 9 months FY '25 on a year-on-year basis. In credit life business, we have witnessed some slowdown due to ongoing challenges in MFI industry. Non-MFI business continue to do well. In this segment, we continue to add partners and introduce propositions aligned to the various lines of businesses of our partners. Group term business, as we've highlighted previously as well, continues to be impacted due to increased competition. However, we have been able to increase our depth of market coverage as seen in the growth in number of deals, lives covered and some assured during the quarter. As a long time player in the industry, we have a deep understanding of this market, and our underwriting strategy remains focused on selecting businesses which meet our defined risk/reward expectations. Annuity business grew by 50% in quarter 3 and 81% in 9 months FY '25 on a year-on-year basis. Its contribution increased from 6.2% in 9 months last year to 8.9% of APE in 9 months this year. Protection and annuity are our focus segments, which, together, constitute approximately 42% of the new business premium, and we expect it to continue doing well. We have a well-diversified distribution mix. Agency business APE grew by 41.3% year-on-year and contributed 30.2% to overall APE and 36.2% to retail APE in 9-month period. To improve productivity of our advisers, we had launched ICICI Pru Edge, a comprehensive adviser stack, which enables them to focus on revenue-generating tasks instead of administrative activities. Advisers using IPRU EDGE have exhibited an increase in productivity. Direct business APE grew by 31.6% year-on-year and contributed 15.3% to overall APE and 18.4% to retail APE in 9-month period. We will continue to invest in our proprietary channels to drive business growth further. Bancassurance business APE grew by 26.3% year-on-year and contributed 27.7% to APE mix in 9 months FY '25. Even within banca channel, our business is well diversified amongst various partners. Partnership distribution business grew by 2% and contributed 10.1%, while group business grew by 20.9% and contributed 16.7% to APE mix in 9 month FY '25. We continue to build capacity and have more than 2 lakh agents spread across geography. We have partnerships with 46 banks and access to more than 22,500 bank branches and 1,250 nonbank partnerships. We will continue to focus on improving customer experience through tech and digital integration in our day-to-day processes. Approximately 50% of policies were issued on the same day for the savings line of business in 9 months FY '25. Notably, we are also the first insurer to pay out commissions on the same day to our distributors. Our product, process and distribution are completely aligned with one goal that is to deliver value proposition to our customers. All these initiatives together will help us achieve our core objective of increasing absolute VNB, while delivering value to our customers. I will now hand it over to Dhiren to talk to you through the financial update for 9 months FY '25.

Thank you, Amit. Good evening. Now let me take you through the financial metrics. APE for Q3 FY 2025 grew by 27.8% Y-o-Y while the expenses increased by 10.7% Y-o-Y. APE for 9 months FY 2025 grew by 27.2% year-on-year, while the expenses increased by 19.8% year-on-year. Our cost to premium stood at 19.8% and cost to TWRP stood at 27.8% in 9 months FY 2025. Our cost to TWRP on the savings line of business stood at 16.8% in 9 months FY 2025. Our objective is to bring efficiency and savings line of business while we continue to focus on growth in the Protection business. We have been investing in our capabilities that is people, technology and process improvements, which will help us deliver an operating leverage into the coming years. The VNB for 9 months FY 2025 grew by 8.5% year-on-year to INR 15.75 billion. As you are aware, our focus has always been on growing absolute VNB, and margins are primarily an outcome of the product mix. The margin for 9-month FY 2025 stood at 22.8%. The movement in margins is primarily on account of the shift in the underlying product mix. The company's PAT for quarter 3 FY 2025 grew by 43.6% year-on-year to INR 3.26 billion, and PAT for 9 months 2025 grew by 18.3% to INR 8.03 billion. Our assets under management stood at INR 3.1 trillion and our solvency continued to be strong at 211.8% at December 31, 2024, aided by the INR 14 billion sub debt fundraise that we had done. Thank you, and we're now happy to take any questions that you may have.

[Operator Instructions] The first question comes from Pankita Shrivastava from Aditya Birla Capital.

I can see a sudden spike in the good fund numbers. So if you could just shed some light on the reasoning for the same?

Pankita, can you just repeat your question again? We didn't catch the first part.

Yes. So I was asking that there has been a sudden spike in the group fund numbers. So if you can shed some light on the reasoning for the same.

Yes, we had a spike in group fund numbers in this quarter. Group fund is typically lumpy in nature, and it is -- it's a good business. We do make money off it, and we're happy to pick it up.

Okay. And just one additional question. What has been the business for credit life?

So credit life business for us actually has grown by 8%, and this contributes close to 38% of our overall protection business. Our protection is close to 16.5% of our overall APE and 38% of that is credit life. And within credit life, 45% of our business is MFI and remaining is non-MFI. So I'll give you the exact numbers.

Pankita, anything else?

The next question comes from Avinash Singh from Emkay Global.

So a couple of questions. The first one, again, regarding the product composition and margin. I do understand, I mean, the buoyant equity market or demand. But I mean, do you have any sort of a product mix in mind? I mean given that last year, this non-linked product has already seen a kind of a reset from the high base of FY '23 and yet it continued to decline in the mix. And given the cost structure, the ULIP is not really the profitable one. And that is why the margin continues to sort of -- and if my understanding, of course, you choose not to disclose, but typically having an idea about composition of non-linked in par and non-par also gives us idea around margin. And that is where, again, if I see correctly, it looks like that the non-par side has rather again slowed down sharply and versus par and that's all contributing to this margin. So if you can just help us understand the product strategy and if you can just sort of provide some color between this that par and nonpar and also the kind of idea on the kind of a group fund business, why to do it particularly it is not sort of -- it is coming at such a margin, it appears. So that's one. The second part is that -- the second part is around product. So you launched this 100% kind of zero surrender value product even before this new regulation came. So how has been the experience so far? And has there been kind of, again, related to that, any changes in assumption or something that has led to kind of a margin resetting this quarter? I'm asking this question in the backdrop of what has happened last year quarter because you had to kind of adjust certain assumptions that led to margin drop. So these are my 2 questions.

So Avinash, Dhiren here. So let me pick up some of your questions before I hand over to Amit. So one, if you look at the trajectory of the product mix across the quarters, and I think we should call this out also. A large portion of the group funds also needs to be clubbed along with the unit-linked when you look at the overall margin profile. So when you look at that, you'll see that for the quarter, you've got nearly 60% of the business that comes in from unit-linked plus group funds. Now when you overlay the overall margins, you will find that you're broadly in line with the number that we have reported for the 9-month period. So that should explain how the margins have moved broadly in that direction. Yes, we discussed what the split between par and non-par numbers are. They're roughly in the range of about 60-40. We discussed this last time as well. It ranges somewhere between 60-40 to 66-33 in that range. So that should give you a sense of how the numbers have been moving. Very clear that we don't want to put any artificial factors as to how much business we want to do from a particular line because as we have reiterated over and over again, our focus is not on the margin. The focus is to grow absolute VNB. And what we are very clear on is we want to offer products at customers' demand. Now in this current environment, customers have chosen the unit-linked product, and we've had a variety of offerings within the unit-linked products, which customers have picked up even in this quarter as well. Clearly, we are not ones who are going to say no towards a particular product line. What we need to be very cognizant of is we have to build our cost structures to be able to support products that customers demand. Now what you'll also notice that when you look at the trajectory of costs from quarter 2 to quarter 3, there is a sequential downward movement. It's part of the work in progress that we have been doing even while we continue to make investments in technology, people and brand. So you're putting all of this together, and that's how we're looking at how the VNB movement is for the 9-month period.

And there is no sort of assumption changes, I mean, that has happened this quarter?

Can you repeat that, what?

No operating assumption changes or anything that has -- I mean it is just a product mix, no assumption changes that is kind of having any bearing on margins?

No, we haven't taken any assumption changes. Typically, we'll do that at the end of the year. We'll review all assumptions at one shot. Of course, we've updated some of the expense forecast that we see for the full year.

Yes. So now quickly just a follow-up. I mean, again, I understand on the retail side, but that's okay, what customer you want to sell the product. But why do this group fund business if it is like a ULIP because group is not -- group fund is not loyalty. I mean, so that's one. And the second also on the cost because you raised the point. If I look at the selling total cost to actually TWRP, Y-o-Y, again, it's a very marginal increase. But given the kind of volume growth coming and also product mix shifting towards ULIP more even this year, one would expected some bit of a decline here. So what's going on?

Yes. So let me pick that second question, first.

Let me just close that group thing and you're asking this question for the second time. See, group business is part of our proposition that we give to our institutional clients, and it goes as a composite package both for what you do to the funds, which are managed by the corporate for their employees, which we categorize as group funds. And in the same breadth, we look at group term as another proposition that goes as part of the overall employee benefit solutions. So it is not a separate effort being made for a category or product. It is an institutional set of customers, where we are catering to what they need as a composite offering from group fund as well as group term perspective. . And by the way, for the same set of team members and for the same cost structure, group actually adds to the incremental profits. As you know that we don't go by really a margin percentage, but with the same effort, with the same coverage, if we are able to get group fund alongside group term, we absolutely don't mind. And margin is not the consideration. The absolute profit is what group fund adds, and we are very happy to take that.

Yes. Just to reiterate that, Avinash, we are not seeking to get a margin outcome. We're looking to grow absolute VNB. And to that extent that group fund brings profits on the table, we're happy to take that. To get your other question on cost, actually, if you look at the differential between H1 between what was the cost ratio last year, the cost ratio this year. And if you look at the differential between the cost ratios at 9 months last year of this year, you will find that the gap has reduced. And that's also part of the point that I spoke of earlier in terms of the sequential decline in costs, which is roughly about 10%.

Anup, do you want to take up the annuity?

Yes. So you also spoke about the non-par and guaranteed range of products. See, when we look at non-par products, we either want to look at it as non-par and annuity together because both are guaranteed propositions for the customers or we look at overall non-linked savings business together in one bucket, and we don't really differentiate between a participating and nonparticipating product. We do understand that with current interest rates prevailing and what is available in the market on fixed deposits from banking systems are quite attractive. So naturally, we did not find anything as an aberration when the demand we saw slowing down on a non-participating products. At the same time, what we really saw was cash flow as a benefit, being really taking precedent customers really valuing liquidity in the long-term insurance products. And we offered that liquidity feature in one of our part guarantee products. So our part guarantee products, the flagship product within part guarantee range, which is gold has been doing very successfully. So from that perspective, there is no bias towards non-participating products. Overall, as a base we are very happy to take care of the liquidity demand which we are seeing in the market. And annuity, as you know, from 6% mix to 9% mix this year, means that we are catering to that demand in our age segment, which is relatively 50-plus where a customer is closing towards his retirement. So that way, I think on an overall portfolio basis, liquidity demand is taken care of and customers nearing retirement is taken care of through annuity. So I don't think we are missing out any demand which exists and which has not been catered to.

In fact, Avinash, we had seen this challenge even over the last year, where single premium really wasn't growing well from an annuity perspective, which is why we had introduced a regular pay annuity, which is the product that you just referred to. And that has done quite well since the time that we introduced this in January last year. That has been a big driver of this demand on the annuity side, and that's an opportunity that we saw and we took advantage of it.

The next question comes from Nischint Chawathe from Kotak Institutional Equities.

Just curious if I have to sort of look at your VNB ex of the group business, the group funds business, how would that look like? If there's some pointer to this, if you could help us? And if I really try to look at your cost to WRP for the savings business, again, ex of the group business, it looks like the ratio has gone up over the 9-month period.

So I don't want to call out the margin on the group funds business. There is rupees on the table, and we are quite happy to take that. Obviously, it's going to be smaller, but we're quite happy to put that on the table. But even otherwise, when you look at the cost and look at the ratios, you will still see a decline from a quarter-to-quarter perspective. And we keep working at this. And as I mentioned earlier, the idea is to be able to reset cost structures to based on the products that we're selling, which is again based on the customer demand.

No, I understand that. Obviously, we discussed that the share of ULIP has gone up. And despite that, I think we just start saying that the cost ratio has probably not gone down as much. And so if I kind of try to adjust that with the group funds business, which practically comes in at negligible cost, probably the ratio looks a little adverse. I think that's the point I'm trying to make.

Not really, Nischint. See, I think one also has to recognize that one of the biggest components of OpEx is going to be employees, and we are not a hire and fire company. So we will adjust our cost structure and we'll keep working at it systematically. And therefore, which is why you're seeing this cost -- overall cost number move down from quarter 2 to quarter 3.

Sure. And on the first question, if you could give some texture on how should we think about the VNB at a product level ex of group savings?

Broadly similar to what we had closed earlier.

The next question comes from Shreya Shivani from CLSA.

So I have questions on the...

Really sorry to interrupt, ma'am, your line is not clear. No, ma'am, there is a lot of breakage in your voice. This is sounding clear right now.

Okay. So I have 2 questions on the channel. So I wanted to understand the agency channel for most of the year that quite well in terms of the growth that's been coming through in fact the third quarter? Or if I look at the 9 months, that channel has been doing quite well in terms of matching up with how the bank channel has been growing. So how many agents have we added in the quarter or in the 9 months. What are some of the key changes are we making over here as this channel becomes open architecture which is proposed in the insurance amendment bill, how do we -- how will we manage with those changes that, that would come through. That would be my first question. And second is on banca channel. So there was a lot of noise around the misselling bit in the banca channel, et cetera. Have you seen any change in the way our banca partners were behaving? Were there any thing that were going on? Any color that you can give to us on that would be useful.

See I'll start from agency. Sorry, your voice was not very clear. So I'm just assuming what you asked. So correct me in case you want me to answer anything incremental.

Sure. Sorry, yes, sure. Okay.

I heard you ask about what is working in agency. See agency has been asked -- has been chosen as one of the key focus areas for us over a period of last few years. And we have spent time in building capacity, both physically as well as on processes, on skill building, and that is something that is now starting to play out. And over a period of last 9 months or so, we have been able to see a growth on the new adviser licensing, which is quite reasonable at 50% plus growth. And then, as you know, apart from new adviser licensing, which anyways contributes little to the overall top line, it happens over a period of time. A lot of time has been spent in looking at building skill on the retail side of our advisers. And I'm very happy to state that almost close to more than 25% to 30% of our advisers activation is what we have witnessed over a period of last 9 months, and that is largely on account of digital enablement that we have done for our advisers. We launched adviser stack through an app called IPRU EDGE, which has been adopted very well with our value set of advisers and the productivity enhancement that we have seen specifically on value advisers has gone up to the extent of 37% over what it was when they were not using that app or even in comparison to advisers who are not currently using those that app. So I think that has really held us in good stead. Apart from that, I think the learning academy right from our own employees to the advisers is something that is, again, working well for us. Overall productivity increase at the entire agency base has gone up by almost 10% to 12%. And all this is by, of course, doing a lot of ground-up activity and breaking down the entire process beyond relationship management to having a very strong digital sales process of tracking skill levels and then monitoring and certifying over a period of time. So it sounds all very logical and very simple, but this is something that will rigor over a period of last 1.5 to 2 years is what we have been able to eventually achieve. And of course, I want to speak about the fact that segmenting our advisers basis on the access that they have on the customer segments that they are catering to has actually held us again positively. We today have a fair hang of which set of advisers have access to what profile of customers, which allows us to build skills specifically for product propositions, which are most meaningful for the advisers, which is drawn from the access that he has from its natural ecosystem. So it's not that everybody has been asked to do everything. It is all aligned to the customer access that they bring in to ICICI potential. So I do a very segmented capability building, skill building and not doing everything to everyone has been the fundamental reason why we have been able to see this result. So we are quite confident that we'll continue to add capacity. We'll continue to add depth in leadership and depth in frontline management with people who have spent enough time in agency and build it over a period of next 6 to 12 months' time frame.

Got it. That is useful. And also on the open architecture comes -- do you see that as net positive? Or do you see more disruption would come in the agency channel once they open?

Right now, it is very -- see, first of all, it is not something which is entirely in our control. It is a decision best left to the regulator to decide. But if you want to ask us today, inclusively and with the experience that we have in agency, it's a business which is very different in comparison to what you would typically see in a mutual fund kind of business where also there is a multi-manufacturer distribution existing. It's a very high intensity business, a lot of training, capability building, skill building is required and also advisers tend to gain a lot when they enhance productivity with a particular manufacturer. So that exercise means that even if the multi-insurer architecture was to come, how many will exercise the choice of trying that out with multiple manufacturers is something that is yet to be experienced and seen. I believe that category of products are available with almost any insurance company today, products are copyable. Anybody can manufacture anything. So from that perspective, product differentiation from company to company doesn't exist. It is all about the capability of how you manage advisers, how you build skills I think from that perspective, I truly believe that advisers this time to gain aligned to one set of people in the organization to really accelerate their overall productivity. But anyway, it's too early to comment right now. We'll wait and watch and see how it pans out.

Sure. And sir, my second question was on the banca. Are there any changes you've seen after the regulators comments, et cetera. And is ICICI Bank still doing INR 1 billion per month -- sorry, per quarter kind of number?

Okay. So I understood the ICICI Bank question. So ICICI Bank has been stable like what we have been maintaining every quarter. The focus is in protection line of business. They are doing fairly well on protection. And the numbers are stable. The Y-o-Y growth keeps differing depending upon what was there in the base. But I think we're very happy with the overall focus on protection, overall focus on sum assured. And I think there, the growth from ICICI Bank channel has been quite good. From other bank perspective, I could not understand your question. If you could just repeat that.

So there was some comments made by the regulator and the Finance Minister on misselling in banca channel. So have we seen any changes happening at the distributor in terms of tightening of processes to curb misselling?

See, first of all, misselling is not something that we have ignored ever. We always want to focus on misselling and improving it all the time, irrespective of what the guidelines come eventually. So persistency, I believe, it's a fair measure of the quality of sale that you do and there, I think we are improving very regularly. And every year, we are actually showing an improvement in persistency and that is the best outcome that you can expect from a quality of sale. Otherwise, our effort on improving quality all the time, not just with banca, but with every channel will always be there. So to that extent, specific to banca, I don't see trends any different from what we see at an overall country level. So I don't have to anyways comment on specifics about banca on that front.

The next question comes from Supratim Datta from AMBIT.

So my question is I understand that you have a VNB growth target. But looking ahead into the fourth quarter or FY '26, you already have a high APE base after the growth that we have seen over the first 3 quarters of FY '25. So could you help us understand that how would you, going forward, drive this VNB growth? Because would it be driven by getting into more products like group fund and expanding those. And hence, the margin could be lower, but the top line would continue to grow at a similar rate. Would that be the strategy? Also on the VNB side, while we have been growing the VNB now, if we see yes, we are still -- if we look at it on a 2-year basis, you are still below where we were in FY '23. So by when do we plan to go back to those levels? Or what would be the pathway back to that level? Because what is happening is we are growing the top line, but the margins are still weaker than what we used to weaker than what the your competition is also posting. So just if you could give us some clarity on these two things, that would be helpful. And on the third bit, what I wanted to understand is on the zero surrender product. Now you launched it at Jan, so there is around 3 weeks of data. So what are you seeing in terms of surrenders? Are you seeing anything different from what you have already budgeted for, if you could give some color on that? And for this product, are you anyways building in higher surrenders in your assumptions? Or are the surrender assumptions similar to your regular annuity products? So if you could help me with these points, that would be very helpful.

Supratim, Dhiren here. So let me go one by one. With regard to our annuity products, I guess, it's a little about 3 weeks since the time that we -- over a year since we launched. And frankly, we have not seen any adverse trends at this point because, again, our belief is that this product has been bought from the perspective that the customer wants to take an annuity. And that is the way it has been sold with our distribution as well. So for the customer to walk away with just the premium at this point is really not a win-win situation for him because in any case, there is going to be an opportunity loss that the customer has -- would be taking as, of course, the GST loss that he would be bearing. So clearly, it would be a little out of pocket for the customer to walk away now. The objective of the plan that we had brought out was to be able to build a corpus such that an annuity can be taken. And we believe that's how it is being sold at this point. Nonetheless, we have our eyes and ears open, and we'll keep watching out for any trends as we can pick it up. But at this point, we have nothing to report. The surrender numbers -- surrender expectations built in are anyway quite miniscule in line with our other products as well.

I just want to add here, Dhiren. Supratim, when we launched this product, it was based on the insight that we picked, where customers had large sums, but they were not willing to commit for a long-term commitment on premiums, believing that if there was to be a crisis, then the principal may get lost. So this product has actually taken away that anxiety of losing principal in case crisis was to hit. So if that was the purpose and if we were to root this product through distribution who was aligned because we did a level commission with our distributors, then I think this product was meant to manage and take the fair away from the customers' mind, which was crisis. And that doesn't give the reason for a customer to surrender just because the feature is available. And liquidity requirement at this point in time, so liquidity is something which we don't see has emerged as a big requirement and hence, surrender experience has been not something which is conspicuous at this point in time. So there is no change in the assumption that we have taken. And customers have welcomed that and it has helped us build our annuity franchise.

Coming to your earlier question, Supratim, on what are we looking at for quarter 4? Frankly, as we had mentioned to you in last quarter 4, there are a series of multiple items that we have on the table. And that, of course, is a natural consequence of the fact that we've got a very well-diversified distribution network. So there is not going to be one big lever that I can pull. There are going to be multiple levers that we have on the table that we have set out. And like we have done for every quarter, these are elements that we are putting in place, and we will see. Some of them will work, some of them may not work, but we believe on balance, we should be able to deliver some alpha on the market, and that is what our endeavor would be. For the last 5 quarters, we've got some alpha, I guess to be able to continue the alpha of the market into the coming quarters as well. And again, the focus very clearly is on absolute VNB that we want to drive. Margin is an outcome for us.

Dhiren, what is the path back to the FY '23 level VNB because we are still below that. Two years out, we are still below that. So how do we go back to those levels? That is what I'm trying to understand?

See FY '23 is a different context. The context was very different. And what you were experiencing as a demand from customers during FY '23 was very different in comparison to what you see today. So comparing it in a -- comparing it with an environment which is not relevant today is a difficult question to answer to be honest. Dhiren, you want to add?

Yes. So very clearly, we took a hit last time. We did not have the growth, and that actually impacted the overall margins and therefore, the VNB. Now we've worked beyond that from the first and second quarter of last year to start to deliver growth slowly but steadily from quarter 3 onwards. And that is what our endeavor will be. Because at the end of the day, when you have to look at delivery of VNB, it has to come from delivery of APE. And as you can see for the past few quarters, we have been working at it, and we've been able to deliver some bit of alpha over the market. Slowly and steadily, we'll bring this back, no doubt about that.

[Operator Instructions] The next question comes from Manas Agrawal from Sanford C. Bernstein.

Can you hear me?

Yes, Manas. Please go ahead.

Sure. Sorry to go back on to margins. Just wanted to understand and confirm, you said product level margins were stable. This is slightly contrary to what we are seeing with peers where they are seeing better rider uptake and therefore better margins on the ULIP side, and they have repriced to adjust for interest rate movements. And therefore, non-par/par pricing margins have also improved. So if the product margins are stable, why this delta relative to peers? And if you're saying product margins are stable, then the entire movement in margins on a sequential basis or Y-o-Y basis coming only from mix. Is that the right way to think about it? I'll also squeeze in on margins, is there any impact from surrender value? Those are the questions.

So very, very limited impact on surrender value. We really don't have that kind of a book as our peers. As you can -- as I spoke of earlier, a large portion of our non-linked savings is in participating business and not in the non-par space. That's where the larger impact would have been seen. On product level margins, they are broadly the same as we've seen from the previous periods. We, of course, are working at improving product-level margins in terms of rider additions as well as elongating terms and some of the actions that we've spoken of is starting to bear fruit at this time.

So we've not cut customer IRRs in line with interest rates. Is that accurate?

So we have repriced our non-par plans in line with the yields at October. The last time that we had made these changes was at April. So in the intervening quarter, we did not have the chance to do that because we had to update it for surrender value regulations as well. But in October, we did update the IRRs in line with the yields. But in any case, the share of non-par for us is quite small in our overall mix.

The next question comes from Prayesh Jain from Motilal Oswal.

Just a structural question as to how do you think or what would be the factors that will kind of shift the product mix for the industry, the way it has been shaping towards ULIPs and reducing share of non-par. What will kind of drive this mix back towards something like a non-par and lower from ULIPs? The markets have been weak in the last few months, but has -- is there any evidence that, that impact is visible in terms of ULIP demand? So any thoughts there where how do we see this -- what would be the factors that -- macro factors that can drive this shift in mix?

So Prayesh, if your question is what can drive the demand up in nonpar, I think you'll have to look at the shape of the yield curve and a favorable movement of the yield curve will be the one that will create an opportunity to be able to provide this product and get the demand up over there. What we are seeing in the market is that unit-linked has got a great appeal, and we continue to provide products in that space, which are favorable for both the customer as well as the company. And very clearly, we are not want to throttle demand, and we want to work at improving the quantum that comes through on that.

Okay. And just a clarificatory question. The group fund business, what is the -- would there be any element of protection there? No, 0, right?

Sorry, we lost you there. Group funds?

Is there any production element there?

No, it's saving.

No group fund is purely savings. It's managing funds for the clients.

So basically, it will have a lower margin compared to your general ULIP product, right?

Yes, it will have a lower margin in general.

The next question comes from Aditi Joshi from JPMorgan.

Just a follow-up question regarding the annuity product, which is growing rapidly. Can you please confirm the margin on this product as in was there any repricing being done for this annuity product as well in the October as you did for your nonpar? And just on the commission structure again, if I can ask the distributor commission structure, especially in the broker and MFI channel. So is it more like a trail based commission structure? Any restructuring has been done there? These are my questions.

Coming to commission structure change subsequent to 1st October surrender guidelines changes that have been executed, I think our options -- the options that we have worked with our partners is either deferring commissions or drawback of commissions or reducing commissions. So different partners have agreed for different structures, different models. It also had to be in line with what their OpEx requirement was, what their business models are. So we have almost closed more than 95% of our partners. We have closed the arrangement device structures. And whatever is spending is something very small. I think also will get over in the next couple of weeks' time. So from that perspective, the commission structures have been completely aligned with the change in surrender guidelines.

Maybe just to reiterate the way that we're approaching the surrender value guidelines is that to ensure that the impact to customer is minimal. What we have passed on in terms of price changes has been largely in line with the change in the yields on the market. With our distribution, we have offered these 3 mechanisms that Amit just described, which is a reduced commission or a clawback or a deferral of commission. And as you pointed out, most of these conversations have now started to come a close. We didn't get your first question that you had raised. Your line was little patchy. If you can repeat that?

Yes, yes. First question is related to the repricing of the annuity products. So just wanted to confirm that similar to non-par repricing, would you also pick up IRR cuts, let's say, in the annuity product as well around the October month?

Yes, the pricing of non-par annuity, all those products linked to were all corrected effective 1st October. Something that we could not do in quarter 2 was corrected as we got into this quarter.

The next question comes from Madhukar Ladha from Nuvama Wealth Management.

So just again, coming back on VNB growth actually. So this year, we are seeing like so far, a 27% growth year-over-year on APE. Despite that, the VNB growth has just been about 8.5%. We've been investing in the business. And still, I would have expected a slightly better operating leverage to play out and the VNB growth to be stronger than this. And especially also, we have also been guiding earlier in the year that sort of mid-double digits is the VNB growth that we are targeting. So in that context, our VNB growth is significantly lower than our target. And I mean, the first question is why -- what is happening then? Is the cost -- just the variable cost of acquiring the business so high, the commission element and total cost is so high? That's what is keeping contribution levels down and not helping VNB grow. And two, then for the year, how much VNB can we grow? And then over the medium term, what sort of VNB growth should we be looking at? When do you think operating leverage will start playing out for you?

So one, Madhukar from a VNB growth of about 4% for half year, we are now at about 8.5% for 9 months. So clearly, we're seeing an upward trend in that. You're right, the top line growth was 27%. But what you also note is that the mix shift here is also happening more towards unit-linked, which has got a lower margin. So that explains how we are working at 8% to 9% VNB growth for 9 months. The view that we want to take from a medium-term perspective is to work towards the mid-teens, no doubt about that. And we are working at it for quarter-to-quarter. As you can see from H1 to 9 months, there has been a positive improvement.

Right. And -- but then is that the right way to think about operating leverage is the other thing that I had in my mind. Like when you look at cost to TWRP that going up, is it that the commission cost or the variable cost of acquisition has just been very high?

So if you look at the OpEx, Madhukar, you are starting to see this come down. And more so when you look at the overall cost they are also down quarter-to-quarter. So we are actively working at containing costs and making sure that we are working to the products that we are selling and the suitability of the cost structure to those sets of products. So this is obviously work in progress. We'll continue to work at it. While we continue our investment in specific areas such as technology as well as people and brand. So this is work in progress that we are working at, at this point, and I'm sure the results are going to come through.

Got it. And finally, just in one of the questions, you mentioned that 38% of the total protection was group protection. So I just -- and that has grown about 8%. That would mean that the credit protect is down about 12% year-over-year. Is that correct?

Yes. So group protection being down like is quite well known for the stress that we see on MFI business. And largely, it is because of disbursements getting lower, which has impacted credit life side of the business, taking a hit in quarter 3. So to that extent, yes, the share of credit life business in the overall protection actually has come down on account of challenges which are well known in the industry.

And that's mainly the MFI industry, no other sort of change there?

That's the -- non-MFI business, it has been happening quite good. So I think the slowdown that you see is not a stress that we believe. So I think it is something which is well factored and we are aware of why it has happened. So from that perspective, we don't see that as a challenge. Once the cycle reverses, we are quite happy that we'll get a positive momentum. So I think we are well aligned to get adjusted to the changing cycle, all the time. So there is a positivity. Recently, we have seen some numbers reversing. There is a positivity on non-MFI business already visible. Hopefully, with the outlook expected to get positive over the next couple of quarters. We are well present across all our MFI partners to come back to the original share of credit life once the business reverses.

The next question comes from Dipanjan Ghosh from Citi.

Just going back to one of the previous questions. If I just look at the margins, and you mentioned that on a sequential basis, adjusted for the group funds business, margins are almost stable. If I do a sensitivity and let's say, assuming that there is no change in margins of group funds business between 1H and 3Q, even if you assume that's a 0% margin on that business, it seems that the other segments, there have been at least a 60, 70 basis points decline between 3Q and 1H. Firstly, is that a fair assumption? And to start with the group funds margins were similar across quarters and the second is...

No, I don't think that bears out.

Okay. And second, on your ULIP segment, would it be fair to assume that the momentum is holding on even during the current quarter?

Yes, that's right. At least early days of this quarter.

The next question comes from Nishant Shah from MLP.

My questions have been answered.

The next question comes from Sanketh Godha from Avendus Spark.

Amit, you launched a new variants of every product, whether it is annuity, health or protection and features to the customers look to be better compared to the existing plain vanilla versions what you have? So is it fair to say that given the benefits are a little better to end customer, will these products will have on a cumulative basis in margin better than the existing or it will be lower. And I just want to understand, given since the launches, whether there the contribution of these products, how -- I don't know when exactly they were launched. So from that prospective, I just wanted to understand how the trends are in this particular product and whether it will support the growth in fourth quarter, which invariably to some extent is higher for you? That's the first question I have. And second is a data keeping question.

Before you move on the second question, which products are you talking about in this?

I'm referring to the new annuity product which you launched, which is inflation-linked or protection plan where you have a premium break and health plan. So these products typically are more customer friendly compared to the current versions what you have. So I'm asking from that perspective, given you are giving more benefits to the customer, whether the margin profile of these products will be better than the existing ones or broadly similar?

Sanketh, in short, we are not looking at any margin drop. We're pricing them to be margin neutral.

Okay. Perfect. And secondly, just a data keeping question. You typically disclose ROP protection APE. This time, I don't see it in the PPT. If you can quantify the number, it will be useful.

It's small. I think for the 9 months, it's roughly in the range of 15% to 20%. It's broadly been there.

Okay. It was INR 63 crores last year. So it's broadly there or it's 15% growth on that front?

I'll come back. I don't have the number right now with me.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the Chairman and Managing Director, Mr. [ Khaitan ], for closing comments.

Thank you very much for joining the call. Have a great evening. Thank you.

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