SBI Life Insurance Company Limited (SBILIFE) Earnings Call Transcript & Summary

[Audio Gap] everyone. And we heartily welcome you all to the results update call of SBI Life Insurance Company Limited for the period ended December 31, 2019. Along with me, Mr. Sanjeev Pujari, President, Actuarial and Risk Management; Mr. Abhijit Gulanikar, President and business strategy; Mr. Sangramjit Sarangi, President and Chief Financial Officer; and Mr. Subhendu Kumar Bal, appointed actually, are also present. Update on our financial results and the key highlights can be accessed on our website. The key highlights for the first 9 months of this financial year are: New Business Premium registered growth of 35% and is now at INR 127.90 billion. Individual protection new business premium grew by 71%. ULIP new business premium has grown by 20%. Annuity's new business premium witnessed 320% growth and stands at INR 8.1 billion. Renewal premium has shown a strong growth of 31% and now stands at INR 159.10 billion. On effective tax rate basis, value of new business is INR 16.5 billion, a growth of 27% and the VoNB margin is at 20.5%. Assets under management stands at INR 1,641.90 billion, registering a growth of 22%. We will update you on each of the above elements in detail. The company's performance for premium is that we have maintained the leadership position in Individual New Business Premium. We collected Individual New Business Premium of INR 83.90 billion, achieving growth of 27%. The private sector grew by 19%. The company maintained its leadership position in individual rated new business premium, which stands at INR 72.8 billion, growth of 19%, leading to private market share of 24.40%, showing an improvement of 70 basis points over the last year same period. Leading in New Business Premium with a growth of 35% and with private market share of 22.30%, an improvement of 230 basis points. The renewal premium grew by 31% to INR 159.1 billion and accounts 55% of the gross written premium. Individual renewal premium has grown by 33%. Our gross written premium stands at INR 287 billion, growth of 33%. Annualized premium equivalent, APE, grew by 22%. By way of product mix, ULIP continues to show good growth of 20% in this period with a share of 47% in New Business Premium. Individual protection is at INR 3.6 billion, a growth of 71% and contributes 4% of Individual New Business. Group protection NBP has grown by 28% with Crédit Life business growing at 28% as well. Annuity business at INR 8.10 billion, growth of 320%, contributing 6% of our new business premium. Traditional savings business, including group savings, accounts for 42% of the New Business Premium in this period, registering a growth of 55%. We will continue to grow all profitable lines of business. Distribution partners. Bancassurance business has shown a growth of 24% in New Business Premium with a share of 60%. Total number of CIS stands at 53,988 as on 31st December 2019. Instant protection policy issuance through UNO app of SBI has covered more than 80,000 -- 89,000 lives in this period. Our extensive agency channel grew by 24%, contributing 19% of our New Business Premium. Our total number of agents stands at 123,719 as of December 31, 2019. During the period, other channels that is direct corporate agents, brokers and web aggregators, grew by 104% in terms of New Business Premium. Protection premium through online channel that is web sales and web aggregators, registered growth of 54%. As far as the profitability of the company is concerned, profit after tax for the period ended 31st December at INR 8.90 billion as compared to INR 8.7 billion previous year, same period, on account of new business strain. Our solvency as on 31st December is 230%. As mentioned in my opening remarks, value of new business has shown strong growth of 27% and INR 16.5 billion on effective tax rate basis. And on an actual tax rate basis is EUR 14.7 billion. VoNB margin at 20.50% on effective tax rate basis, improvement of 90 basis points. On actual tax rate basis, this stands at 18.30%. As far as operational efficiencies are concerned, cost efficiencies continued to improve with OpEx ratio reducing from 6.9% in the 9-month of FY '19 to 6.1%, similar period. Our 13-month persistency is 85.7% as compared to corresponding last period of 83.3%. On a regular premium basis, 13-month persistency stands at 83.5%, an improvement of 152 basis points. The total assets under management crossed [ 1.5 trillion ] mark standing at INR 1,641.90 billion as of 31st December, a growth of 32% compared to 31st December last year. The company continues to drive digital expansion across the company with 96% of the proposals being submitted digitally and 37 proposals -- 37% of the proposals being processed through automated underwriting. Customer satisfaction is a key focus area. Our grievances with respect to unfair trade practices continue to reduce and now stand at a very impressive 0.08 percentages, one of the lowest in the industry. We continue to focus on innovation, automation for achieving higher standards in business excellence and customer satisfaction. Our strategy of focusing on the 4 pillars of protection, distribution, digitization and customer satisfaction continues to yield results, enabling maximization of shareholders' wealth. Thank you very much for your patient hearing. And we shall now be very, very happy to take any questions that you may have.

[Operator Instructions] The first question is from the line of Rahul Gupta from Morgan Stanley.

This is Sumeet here. I've got 2, 3 questions. First is on individual protection. So during the quarter, initial protection growth is broadly flat as per my calculation. Is that correct? And what is the reason driving that, please?

Yes, it is broadly flat. It is about 7%, 8% higher over last year. This year, we have put some, how do I say, closure of large incentive programs happened in December, where high ticket was pushed. You would see it coming back, the growth coming back in Q4.

Sorry, what were these programs, which you put?

We do run some...

MDRT campaign.

MDRT kind of campaign -- I mean it's not official MDRT campaign. Campaigns, which closed on in December.

Okay. And why do you think every campaign has closed? [indiscernible].

No. So when these two meet, there are premium targets to be met to qualify. And to meet those premium targets, people go for ticket size rather than protection.

So the third quarter basically is dominated by this kind of drive, which drive towards premium. So you would have a high ticket size. So the proportion of production would come down in that kind of scenario? or it will be flat.

Okay. Got it. And can I get the breakup of group protection into term and Credit Life for the quarter? Or if 9 months whatsoever?

We can give that to you off-line.

We will continue to focus on protection. And this quarter, we will -- look, we are pushing. We have campaigns for protection now. We have -- we are driving the granular data on each new salesperson. And the traction will be back in protection, and we continue to maintain the position that we will improve as a percentage, as a proportion over the last year's performance. And overall, if you see the -- on the APE basis, on the YTD scenario, we are already doing 180 basis points kind is the performance better than the last year, similar period. So it should not be a matter of concern at all.

If you look at Slide #6 in the presentation, we have a kind of distribution between individual products and group production. Individual is 3% and group is 8%. 8% is largely, majorly Credit Life.

So the number, if you want, the Credit Life is INR 944 crores and GTI is INR 141 crores.

Yes. Got it. And INR 944 crores, this is basically regular -- this is single premium, right?

Single premium.

Yes. Credit Life, single premium.

So on an APE basis, last year, for the same period, I think the share was 6.2% production. This time, it is already at 7.80%. So clearly, on a YTD basis, we are clearly much, much ahead, and we will continue to maintain the rhythm in the last quarter.

No, I got that. It's just that the deceleration in third quarter versus first half is quite stark, which is where I was coming from. Okay. And another question is on slide -- is from Slide 10. So you've given a breakup of VoNB, which is quite helpful. What I wanted to understand is the change in operating assumption and economic assumptions, especially operating assumption, is that for the fourth quarter?

Change in operating items for the fourth quarter, yes.

So this was something which was done last year and there's not something which is...

March, March, yes, otherwise, during the year, we don't change assumption [ over the year ]..

Yes. So far -- okay. Got it. So fiscal '20, there is no change in operating assumption, right?

No.

Got it. And then last question is on your margin expansion. So last quarter, you talked about not being able to fully capitalize the various hedging techniques and repricing of some of the guaranteed interest rate product, bet it annuities or traditional non-Par. Can you provide an update as to what has happened [indiscernible]

I think we talk of annuity business, and then we talked of the guaranteed. So basically, all that was to be done, they have been done essentially.

Okay. So the margins for this [indiscernible].

Annuity basically was the pricing had to be revised. So that has been done during the product regulation refiling changes. And whatever hedging that we were required to put in place, they are in place at the moment to the extent possible.

The next question is from the line of Hitesh Arora from Unifi Capital.

Yes. Just looking at the data, the share of protection from the non bancassurance channel is relatively low. How do you, sort of, foresee that to be increasing? What are your thoughts on that, please?

No. So protection or...

Protection. Protection.

Protection.

So at the moment, our protection from bancassurance channel is, you are talking about non bancassurance channel. So in [indiscernible].

[indiscernible] Yes. Sorry. I mean on non bancassurance channel, sorry.

Correct. So in agency, there are certain steps being taken on how we would want to increase protection. You would see the fruits of that coming in quarter 4 and in subsequent years. That will be our main area of focus for protection for expanding protection further from the non bancassurance channel.

Can you sort of elaborate a little more on what steps are you taking?

So there is a product -- new product getting filed with significantly richer features that is coming, which will come in first quarter, probably of FY '20 based on our estimate of when approval will come. Also, what has happened is the incentive scheme for agent has been revamped for quarter 4 to push for more protection, and we will continue that effort in full financial year 2021. As targeting of customer and some underwriting back end processes are also being worked out. But that obviously will aide all the channels, not only agency channel.

On the agency side, there has been a little improvement over the last year, but not to our satisfaction so far. And therefore, the fourth quarter we'll see more focus on the agency side to get the desired level, which -- where we want them to reach. Banca is playing out as per plan. On the agency side, there's a little lesser amount coming in than what we had desired and piloted for. But quarter 4, we'll be focusing on protection as a running theme in everything that we do.

And if you notice, agency channel has grown quite healthy. Overall basis, 21% plus. And also, the productivity has improved. So agency is showing good traction overall basis, it is lagging only a little bit in terms of protection.

The next question is from the line of Madhukar Ladha from HDFC Securities.

Can you help me explain Slide 10? Why do we have a change in operating assumptions in the middle of this year and that's contributing about negative 1.9% to the margin?

Yes, that is the -- from September to -- sorry, December to December, you will have a year-end also. So there is March '19. So there would be a review of assumptions in March '19. So that is what where you'll get the assumptions being reviewed.

But that is already done in the previous year. Right?

The previous year means the end of the financial year, last financial year. We are talking of quarter 3 of last year to quarter 3 of this year. So it's kind of straddle to the end of the financial year.

Okay. So with respect to the assumptions that were there in the last year, what we've changed in this year.

Is there any assumption change starting from April onwards? No. But again, 31st of March is the time when we review all of agency. So that is where it will take place.

I understood. I understand now. Okay. This is starting of quarter 3 FY '19.

Yes. For quarter 3 of last year.

Okay. Sir, your competitor reported yesterday, and they are saying that the ULIP market is not growing, whereas you have grown ULIP significantly and the commentary that we've heard from them is that the demand for ULIP is down. So any additional color on this as to why we're seeing such different market size for both the [indiscernible]?

We are not seeing any pushback on ULIP as far as our sales teams are concerned.

Neither on new business nor on [indiscernible]

Persistency.

Persistency, everything is good. The only difference explanation that we can give is we sell ULIP pan-India. So it's like metros and semi-urban and semi rural areas as well. So there, possibly the pushback to ULIP, which you would expect in metro cities because of better [indiscernible] possibly may not be there. I think that could be the only explanation. But again, we don't -- we haven't had an issue at all in the [indiscernible] market.

Renders have gone down, persistency has improved and new business [indiscernible] 18%, 19%.

Yes. So it's like whatever was the situation last year, we kind of continue on this year.

So our EBIT growth is consistent, 20% plus for the last 3 years. And if you see the competition you are referring, I think they have the concentration issue of Metro and second one is a [indiscernible] ticket size.

Ticket size also would be an issue. So a particular profile of customer, if you concentrate on that profile, there could be something, yes.

And the debt -- the predominance of debt in our portfolio, 65% is debt on only 35% is equity, perhaps that also explains the sustainability of our ULIP model.

Correct. Congratulations on a good quarter.

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

Sir, my question is with respect to Slide 26, where we have the protection term -- average policy term in years is close to 13 years only, whereas completion has close to double of that number. So why is this holding period or the term of the policy different?

So term with return of premium has a lower term than purer term policy. So if you take only pure term policy, the period is much longer. We are working towards seeing how we can balance the mix. We will continue to sell [indiscernible] because it suits our customers, but we will also want to [indiscernible] of pure term policies, which will have a significantly longer period. And we do believe that once we -- our new version will have a limited paying term, there also, there will be some benefit because people are wanting long-term but they are not willing to commit to pay for 20, 25 years of premium. They want to get done in 5, 7, 10 years of premium cementum. So those flexibilities will help us once our new product gets approved from the regulator.

So this is because of the return on premium recently being put to that tenure is...

[indiscernible] typically shorter. It is typically 15 years, 10-year terms.

10 years and 15 years. If you take pure protection, even in the existing portfolio also, you'll find substantially longer duration.

20 or so.

Okay, sir. And sir, what steps are being taken to increase the presence of employee per branch? Currently, I think we have one employee coming close to 8 or 9 branches. So what -- are there initiatives being taken to improve that touch point this quarter [indiscernible]?

Yes. So we don't have any great plan for expansion of employees. There will be here and there additions in the SBI channel. But I don't think we will have a substantial increase in employees from our side.

Look, this model is working fine with our major partner, which is State Bank of India. And the rule of the bank employees who specified to sell insurance is to interact with the customer. And then we step in only to support the closure of the deal or to coordinate travel shooting, et cetera, et cetera. So our model is working fine. If at all, there is a need, we will act on the demands of the situation. There's no need to place our employee in every branch. We have potential branches where we see that there is a lot of potential. We have one person for 1 branch already. The Super Turbo classification that we have. And we continue to enlarge those numbers each year after the suitable review. So last year, this year, we increased by 100, I think, 100-odd numbers. So we will accordingly evaluate and then move forward.

Okay. And sir, going forward, you were talking about -- sorry, you were talking about MDRT and because of that, the protection sales was lower. That wasn't the case last December also? Or is it specific to this December, the agency was trying to move into higher ticket sizes, and that's why [indiscernible]?

No. So last December also, it was like that, but it was on a very small base. And we had just started selling protection. If you see the big push in protection last year happened in Q4, not in any previous quarters. Last year was the [indiscernible].

When we broke away from the past way of doing protection and launched it in a big way. '18/'19 was the first year when we did it very, very seriously. And last quarter was the designing period for us.

Okay. Okay. And sir, going forward, when the push comes to protection, do we expect a dramatic or significant jump in on the cost ratios as well? And will VoNBs -- any impact for that?

No, I don't think it's about cost. I think it's about product rationalization. So essentially, they're revamping the products to align the products to the especially very [ specially ] requirements of the different channels. So it's -- whether it is online channel or bancassurance or agency. I don't think there will be an issue with the cost because the distribution channels will remain the same.

The next question is from the line of [ Raj Jain ] from Yes Securities.

Congrats on a good set of numbers. A few questions from my side. First one, on the protection, you may have been talking about significant growth going ahead. But then on the pricing side, what I understand, is it the reinsurers are planning to hike the prices, hike the charges for reinsurance, and that would lead to a significant increase in premiums. So would that -- would you be able to then still see a healthy growth going ahead?

Yes. I think that is what we have come to understand as well. So there is a thought process within the reinsurance certainty about the -- whether the current prices would be sustainable going forward based on whatever experience they have seen. For us, it won't be such a challenge because -- challenge because we are, in any case, pricier than our peer group, [indiscernible], Pru or SDC, we are roughly around 8% to 9% cost year. So if that happens, obviously, we'll have to take a view on whether we got to kind of increase the premium, depending on where the reinsurance rates go or keep it flat. So that is basically competition, the rates eventually that will come and our profitability. So that's a call that we'll take. But I believe it's still around 6 months for that change to happen.

Okay. So because recent interactions with the reinsurers has indicated that they could possibly hike charges within a couple of months?

Yes. But again, in terms of implementation, possibly it will be a little bit...

So we will not be affected as much. And I mean, we would be in a better position to manage the change.

Okay. Okay. But you don't think that could impact the demand in the industry?

Not that price sensitivity. It is relative price sensitive.

I think they look at the comparative prices rather than the absolute price. Going by absolute price. And if you compare the prices, what they were 5 years back and what they are today, there is a huge drop in prices. So the customer has benefited from the prices improving. I think the key thing is where you position yourself in terms of your peer companies. Where do you need to [indiscernible].

Okay. And then secondly, in your reported numbers, you have indicated some NPAs in your linked Par business made, I guess. So what's that pertaining to?

No. The NPA is related to the investment in DHFL. Last time also, if you remember, we have provided. And this year also -- this quarter also we have provided [indiscernible] so total provision already been done in the books by to the [ front ] of 80%.

Okay. So sir, 20% is there?

Yes.

Okay. Okay. And sir, the last question from my side. With respect to your future growth or future profitability, what kind of growth you're looking in terms of premiums and what share of business of individual products do you see shaping ahead?

I mean, we will be growing at the rate at which we are currently poised to achieve. We see that that's the number where -- which we can sustain for the next 2 years or so.

Okay. And with respect to margins, do you see a sustained improvement in the kind of margin improvement that we are seeing on a year-on-year basis in VNB margins? Do you think that is sustainable -- is the margin...

Gradual kind of improvement depending on how we are going on the protection business, basically. So we'll see a very gradual lift in them.

The way it has been panning out. I think that's the way we see the margins also growing. So we see that they will grow.

The next question is from the line of Ansuman Deb from ICICI Securities.

I wanted to clarify on our non-Par savings business. The decline we see in Q3 is largely to -- should it be further going down in line with the lower interest rates? Or how are we -- what's the outlook on this particular segment?

[indiscernible] non-Par has increased only largely.

Sequentially, if I look at it, non-Par savings would have declined, right?

You're talking about group savings or?

Individual non-Par saving.

Individual non-Par saving growth of 624%.

So I think there is a growth there.

In Q3 versus Q2. We will come back to you. See again...

Q2 -- Q3 would be slightly lower than Q2.

Again, we'll come back to you on this specific question. We will continue to sell non-Par savings and continue to calibrate what it will be as a part of our total group.

Both. Yes. But again, largely, it will be the guaranteed savings product, which we have repriced end of last quarter. That's why the take-up has dropped a little bit.

[Operator Instructions] The next question is from the line of Avinash Singh from SBICAP Securities.

Yes. So again, coming back to that VNB movement, that change in operating assumption that, of course, you did it on March '19. Can you help -- I mean, I guess, you would have told this all year as well, but can you tell the breakup? I mean was it largely based on your operating cost? Is there some changes or there were some element of persistency or mortality involved in it? So can you just help us understand this minus 2% changes in operating, sort of what exactly the deal was?

I think the normal routine changes are very minimal, if I remember correctly. Only thing is we anticipated for this year because we have got 4 or 5 additional bancassurance partner. Some kind of acquisition expense in terms of deploying more people, so we provided for that. And in our product filing, because the new filings were going on, there was a provision for a little bit of higher commission scaling up. So they were, in effect, put in place for those eventualities. Now during the year, part of it will crystallize will come, and part of it will not come. So maybe there is some release for that as well. But again, it was not a great deal on either persistency or routine expenses or mortality, not a real difference.

Okay. Okay. So it means that, okay, you're this minus 1.9% or 2% assumption as it's gone out so far. Yes, it's conservative. And towards the year-end probably, I mean, there could be some sort of positive areas on that account?

Yes.

The next question is from the line of Hitesh Arora from Unifi Capital.

Yes. It's only just the share of protection in the total AP, your competitors have a higher share, which I'm sure you're well aware. Do you have any short term, medium-term target as to where do you see it to be? A share of protection in your total IP.

So in 3 years' time, we should go to double digits. That is what our aim is on an APE basis, protection, which will include Credit Life also, and it will include individual premium also and our GTI. Combination of all 3 put together, we should go to double-digit numbers of our premium in 3 to 5 years' time. Currently, it is at about 8%. Just under.

Yes. That's currently 8%. Last year, it was around 9%. And your competitor, you know the numbers. So basically, saying 3 years yes. So in 3 years, we're growing north of 10%.

Yes. Okay. Okay. But the implied growth there then, I mean, assuming certain AP growth doesn't seem to be a very generous than protection?

No. So what we have always said and which we continue to say is that if our APE growth is 20%, our VNB growth will be faster than that, which is in line with what other competitors are also producing.

Yes. I mean because your margins incrementally increase. The other new VNB increases there. It's just that the expansion will be there if your share protection is higher.

Yes. And then you have the -- in VNB terms, you have the Credit Life with a single segment. So when you're talking of AP terms, obviously, it's a 10% of that growth in...

Sorry, come again, please?

If you look at NBP terms, we are at 11% today. 11%. So that -- possibly, one would hope would go upward of 15%. That...

On NBP terms.

On NBP terms.

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

Sir, on this analysis of EVO on Page 25 in your presentation, there is an operating experience variance negative of INR 86 crores for H1 FY '20. So can you just let us know what is this about?

So operating variance -- other operating variance you're talking about?

Yes.

Yes. Other operating -- I think if you heard the earlier question, there was some provision in last year's assumption. That is -- and when we did the 31st March towards anticipated increase in commission and anticipated increase in acquisition cost because of some partnerships that we are getting into 4 or 5 in number. So there will be, obviously, we have to put people on the ground. To that, the -- it was kind of incorporated in the expense assumption. Now this particular lot, obviously, you cannot put it as part of expense. It goes into some kind of risk margin. So it was parked in the CRNHR and any movement in CIHR comes through as the other operating variance. So whether it's a release or it's an addition on the CRNHR would come as other operating expense. So that is around INR 125 crores. So there are some plus items. So eventually, it's coming to around INR 86 crores negative.

Sir, so in the beginning of the year, we'd be...

Yes, it's a provision in anticipation of higher costs.

Sir, so we took an operating assumption change in the beginning of the year. And then we have a negative operating variance, which means that what assumption change we took, it is actually even more -- we need to take even more than that. Is that the understanding?

No. I think in the end, you have to see how much of that comes through. So suppose you have provided for, say, 2% sort of scale-up of the acquisition expense, then eventually, whether it will be 1% or 2%. So the actual would come through, the rest will get released. So it's a provisioning that comes through. But again, it will appear as a change in the provisioning during the year.

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

Just 2 questions. One question. Last quarter, [indiscernible] [ Manesh ] to mention that the economic variance impact on the margin for 300 basis points. Now in the slide, we say it as 230 bps. So basically, there was a pullback of 70 bps, predominantly because of the hedging strategy or repricing of the products. Just wanted to understand what led to this? And to what extent this 230 could be further reversible in the -- by the end of the year?

No, it was not the hedging strategy. It's the repricing of the product essentially. So the [indiscernible] have been repriced, and the guaranteed product also has been repriced during the quarter.

So nothing with respect to change in hedging strategy -- or because we said that we had some unhedged exposures, therefore, it is 300 bps negative impact on the margins because of the interest rate movements. Now it is 230 bps. It's more due to -- nothing we have done on hedging, which could add positively to the margins, basically?

No, no, no.

Okay. And second thing on DHFL, entire -- entire exposure. ULIP will be not pass-through EV. And -- but INR 113 crores will pass-through as a negative economic variance number when you report the full year EV, right?

It will be an economic variance that will appear in the movement segment.

So basically, we have provided completely 100% to the DHF exposure to shareholders. And that will get reflected. Anything with respect to ULIP will not be passed through EV, right?

ULIP will not reflect, no.

And lastly, you said that you wanted to -- sorry, I come back to it.

The next question is from the line of Neeraj Toshniwal from Emkay Global.

Just a follow-up question on the DHFL. So the provision is 100% [indiscernible]. The 80% [indiscernible] something remaining on that?

Yes, 80% done. So 20% is left now.

20% left now. Okay. And we'll be taking 20% or you will be just leaving it out and spending on some recovery?

So we will decide in the due course of time, we'll see what other market is [indiscernible], and accordingly, we'll take a call. So even if we provide 100%, then even if some time, something comes back, then it will be straight profit.

Okay. And this is pass-through in the P&L and on the -- both the books, right, in terms of impairment and the...

Yes.

Okay. And on the incentive plan, which you spoke about, how much cost increase you have factored in typically for protection, which will be your main focus either from Q4? So how much increase in cost one can estimate from the current level?

No, no, it's a routine kind of incentive. So every year, we have a beginning of the year, there will be a budget for various marketing activities. So it will be within the limit, there is -- there won't be anything extra to that in terms of either pushing protection or...

[indiscernible]

Only the focus would change. So the same incentive budget basically would -- whether you deploy it here or you deploy it there, that is the question.

Okay. So what kind of growth you're factoring in from Q4? Because this quarter was almost flattish for in terms of protection growth.

So we will see 20%, 25% kind of growth because last quarter was massive in terms of protection for the current -- for the Q4 alone, stand-alone basis.

Okay. So just on the math, so you have come down in protection, I mean they kind of stable and your ULIP has gone up and you're not [indiscernible] to come down vis-à-vis last quarter, but margin has increased. So what has led to increase? I mean, the 70 bps of pullback of the operating variance from the -- due to the repricing? Or there's something else as well in terms of movement of the margins? Because the mix has changed in -- has been dilutive in terms of margins, but we have reported a growth of 20 basis points. I think the repricing is helped in terms of the growth in margins.

Yes, that is to some extent. But again, the movement that you're showing on the margin starts from Q3 of last year. And if you see, overall, the proportion of protection over the year, it has increased substantially by roughly around [indiscernible]

Trying to match between Q -- between [ 1 ] and 9 months because the mix has changed towards...

[indiscernible] of Q2 and Q3.

Q3, right.

Q2 and Q3, I don't think there will be much of a change.

One added point is that Smart Platina has been changed between the two. If you take the Q3, the Smart Platina was with the interest rate low and our guarantee a higher so our margin was a little low. We will come back to the repricing, we are able to reprice in the Q4. When you do that Q3, we're now putting this particular new product revised product, where the margins came a little higher than that. [indiscernible]

So there is an impact of the repricing. There is an impact of repricing on the annuity product also towards the end of the quarter.

Yes, in the [indiscernible].

Okay. Okay. And 1 last question, when you're looking to launch this new product, the fourth quarter or the first quarter -- the limited pay protection plan?

Based on [ ILD ] approval. So either it will be end of this quarter or early next quarter.

The next question is from the line of Harshit Toshniwal from Jefferies.

Sir, again, on the Platina product, so 2 things primarily on it. So last quarter, you very clearly specified that there was a 300 basis points of negative margin variance because of not being able to reprice the product itself. Still, when I look at the VNB margins, 230 basis points holds negative in that particular segment. So I wanted to just clarify that is all the benefit which we are expecting now over so we should assume this kind of margins to be stable? Or are we yet to take some more benefit from repricing?

Yes. Slide number -- just yes. Can you repeat the question? I didn't get what you're getting at.

The annuity and the return guarantee repricing, the benefits is something which we have already now booked entirely because I'm coming from the point that in the last call, we were expecting 250, 300 basis points of reversal because of the interest rate repricing.

Yes. So basically, last year, what we said was the dip or the sensitivity of the margin to interest rate was because of some product pricing were out of line. So once the products are brought in line with the current interest rate and then provided, we continue to do that. On a month-to-month basis on a routine basis, whenever interest rate changes, then we'll achieve the stability that we are talking of. So essentially that. So this -- whether it's an annuity or it's a guaranteed product, they have to be priced in line with whatever market interest rates are available to us. If you don't do that, then there be a dip in the margin, which we faced in the last quarter. I think that is what we are referring to. And which is over at the moment.

Okay. And just one more thing. So earlier, you said the hedging strategy was the interest rate derivative by a particular party? Vis-à-vis the corporate bond purchase by which we hedge the business till date. What is the strategy going ahead? Are we going to use the corporate bonds to hedge these products or we will use the interest rate derivatives, which RBI has allowed?

So depending on availability, the bond strategy would depend on to what extent we'll get the instruments in the market. And the derivative hedging strategy also would depend on what is available in the market. But again, depending on the situation, we'll try to use both. And then we'll try to do that effectively, wherever possible. And then we'll -- the business volume will be also tuned towards the instruments that are available in the market.

So can we expect the volumes to go down -- the mix to go down further in 4Q of Platina?

The fourth quarter, we are planning to scale up on Platina, but again, it will depend on so many other things. Whether interest rates move, whether the hedging instruments are available. But again, we might decide to scale up the guaranteed product in the last quarter.

The next question is from the line of Adarsh P. From Nomura.

Again, I'm going to repeat one of the questions that's been repeatedly asked again. So the confusion is more in the sense that if you see our mix of protection business and say, higher-margin, non-Par business, it's gone up substantially on a Y-o-Y basis. And for that kind of quantum leap, our net margin expansion has been only 100 basis points, while your gross margin expansion that you show on Slide #10 is about 500 basis points. Now there is about 200 and 230 basis point reduction. So the first question on that 190, which you clarified was that you have taken some assumptions on cost for increases after March 31, 2019. And at least going by your numbers on cost or persistency on any operating numbers, it looks like you are better off than last year, right? So just trying to understand, as we sit today, the first part of this 190 basis points, would it be fair to assume that a good part of it will be recouped when you look your -- when you cast your full year FY '20 numbers? That's question number one.

Yes. I think that has to be evaluated. It's very difficult to say to what extent those assumptions will bear out in actual terms. So that is something that we'll evaluate end of the year. I think beyond that, it's very difficult to...

See, because we were also putting higher commission in select products. Part of consumption was also that...

And the difficulty today is, again, because of the product refiling, all the products are going through the [ ID ] approval process because of the regulatory changes. So that also would -- that would be a key consideration in terms of how much of that we can put through. So there are uncertainties around these things. So very, very difficult to say that. But again, as a matter of precaution, because of certain things, we have made this provision.

Sir, again, I go back to the OpEx ratios, right? I don't see that any of the -- your OpEx ratios have moved both the commission cost is either flattish, broadly flattish from last year 9 months and expense ratio, as you've indicated in your slides, are down materially. So is this some form of capitalized cost on which a certain part of...

No. And in commission ratio, we'll have to see separately for new business renewal. Then you have to remove the FMC business from commission ratio. So when you do that granular analysis, you will see that commission ratio has actually gone up marginally on new business.

So, the expense ratios where you express expenses as a percentage of the total GWP will throw up one number. But when you do a granular analysis in terms of attributing each component of expenses, whether it's acquisition or renewal expenses, to each policy level, you will get a different kind of result. So if your acquisition cost is going to increase, that's a 0.0 increase. If you anticipate there will be an increase, whether it's commission or acquisition cost, and that is something that we'll have to take care at the beginning of the year, and that is what we have done. Whether if DSO during the year, there are so many factors which will decide that. Including the current set of product approvals, which are ongoing at this point of time in this month.

Correct. Understood. And the second part to that was, again, it's been discussed enough on the call, but still wanted some more clarity was the 230 basis points of negativity -- negative impact from economic assumption changes, right? So if in the last call, the same number was 300 basis points. Again, due to -- if I recollect correctly, one was on the repricing, which you said you have done. So this quarter's numbers reflect the full effect of properly priced products based on how you would want to price them versus benchmarks. And two is on -- I remember a conversation about that we use a certain hedging instrument. The positive impact of that when interest rate goes down, the positive impact of that hedge is something you couldn't consider for your VNB, right? And then that you said either we'll think about whether you want to use that instrument or we'll figure out how we can account for it, right? So what happened to the second part from 2Q? If you can just clarify there.

I think whatever hedging was possible, that has been taken care of. So whether it's the bond strategy. But, obviously, it's not yet in place. But again, in terms of -- the readiness is there, obviously, for the next quarter. But the bond strategy, to the extent possible that, that has been taken care of.

So if majority of the 300 basis point was because of repricing and the hedging thing. And both have been taken care of in this quarter's business written, it's a little surprising why you kind of have still a 230 basis point negative impact because the ultimately, what is panning out is -- are protection plus annuities or our non-Par businesses increased from, say, 6%, 7% of AP to 15% or 16% this year. And the consequent impact on our margins have been like a usual 100 basis point that we've had. So that's why the questions again and again, the same questions keep coming up on both these metrics. So a little difficult to comprehend. Something is not adding up somewhere.

No, no, I think we are -- I'll tell you what is the reason is we are kind of focusing entirely on the guaranteed product and the annuity products, which are very sensitive to interest rate. But again we say that we can manage the sensitivity by repricing. These are products which are frequently repriced. They are aligned to the market rate of interest. And that is one way of ensuring that in spite of wherever the interest rate goes, you're able to retain the margin, which includes when the interest rates go up as well. What we are possibly not missing out is the other lot of business, which are also sensitive to interest rates. So whether it's the Par business or whether it is even the Credit Life also, which has got single premium. So those products are also sensitive to interest rates. And when the interest rate moves, obviously, there will be a dip in the margin.

When the interest rates go down...

When they go down.

Compared to last year.

And our products, primarily, most of the products, if you look at the companies, the entire product set as a whole, we are sensitive. In this direction, where interest rates go down, our margins go down. So you have the guaranteed products where possibly you would reprice. But again, the other products we'll have to take the impact of the interest rates going down, if the interest rate go up, then obviously, the margins would move up. So that is what would happen.

The next question from the line of Nischint Chawathe from Kotak Securities. As there is no reply from the current participant, we move to the next question from the line of Rishi Jhunjhunwala from IIFL.

Yes. So just wanted to understand your profitability on the protection side. So if I look at basically the addition in APE over the last 12 months, 9 months over 9 months, large part of the decline in Par and a slight reduction in ULIP has been offset by non Par. So on the savings side, that's how it has played out. And of course, protection has improved significantly as a proportion of overall APE. And you talk about almost INR 4 billion being added to the VNB margin -- to VNB on a full year basis. So just trying to understand if there is not a significant profitability difference between the shifts that we have seen in terms of non-Par versus Par and ULIP. What would be your -- basically, it seems like the profitability on protection is much higher than 100% as well. So just wanted to understand a bit on that. And also, with the introduction of the new protection product, what kind of profitability metrics should we look at for that particular one?

Yes. I mean, it's not 100%. It's somewhere close to that. I mean if you take the entire range of protection products, which includes ROP, which includes pure term and then which includes Credit Life, which have different profitability figures to them. Going forward, when we reprice, there are a few factors which would come into play in terms of how competitive we would like to be, in terms of how aggressive we'd like to be in terms of trying to match the competitors. And secondly, where exactly the reinsurance rates are going, starting from now. So if we have to increase volume, then we have to be competitive, and that is understood. But again, at the same time, we were able to sell more, maybe on a lower profitability basis, and in the end, we are adding to the VNB, so it doesn't matter. So on that, we'll have to take a call. At this point of time, it's very difficult to tell.

So basically, if and when the reinsurance rates go up, so there is one option, of course, of basically increasing your rates along with the market, and that differential will continue, and we'll probably end up growing your protection at the same rate. But on the flip side, if you maintain your rates and others increase, then there could clearly be market share shift. So basically, you're saying, at this point of time, there is no decision made on how do we want to go about it?

Yes. So it depends on [indiscernible]. Sometimes the decision depends on how others are reacting to the -- if at all, there is a rate increasing the reinsurance rate. For us, one of the options is, okay, increase it along with the reinsurance. But again, if you have a cushion at this point of time, we have, it because our rates are higher than our closest peers, we might decide to just retain the rate as well. So that would make us a little bit more competitive. And internally, if you have the cushion to sustain that rate, it's good for us.

Are you seeing pressure from LIC? I mean whether that can converge closer to yours on the online. And as a result, basically, there is a pressure from downwards because of your closer peers and on the upwards because of LIC?

No, I think we haven't felt any pressure from LIC. That business is going away from LIC. I think the competition comes within the private sector only. Not from those companies which have got substantially low rates. But again, from the bigger companies, which have got rates, not similar to ours, slightly lower. Obviously, there are -- they're having the competitive advantage. But again, we are having to compete with them. The LIC process, we haven't really felt in the market.

The next question is from the line of Nidhesh Jain from Investec.

Sir, firstly, on the banca productivity, we have seen very sharp improvement in productivity over the last 4, 5 years. What is the sense in terms of this INR 35 lakh per branch number to move over the next 3 to 5 years? Do we still see that it can double from here onwards, the next 4, 5 years? Or...

No. It won't double, but it will continue to grow at a healthy pace.

Okay. And secondly, sir, what was the share of ROP in your retail protection?

Significant proportion of the retail protection is ROP, it continues to be there. There is no change in that commentary at the moment. But Credit Life also in some ways is retail-only because every customer has to be convinced that you need to take Credit Life. If you include Credit Life, then ROP percentage goes down. But if you take only individual technically, then of course, ROP percentage is higher.

Yes. I mean, if you include everything, it's around -- less than 50% would be ROP if you include all protection. As a percent of individual production, it's high. Significantly high.

And sir, lastly, on this negative economic assumption. I believe that interest rate decline, you should have positive economic assumption on ULIP, and which is a decent portion of VoNB, while on other line of business, I understand that there will be negative impact. Is that right?

Yes. Only the thing is in spite of a higher ULIP, the direction change is largely driven by other than ULIP because ULIP is pretty much neutral to interest rate change, even though the direction is different. So it offsets the other changes. But again, in terms of quantum, it's very less. So the impact is largely driven by other than -- it's largely driven by the [ lending ] business. That is what happened in our portfolio.

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

Am I audible?

Yes.

Yes.

Sure. Sure. On the banca side, if I really look at your growth rate on a year-on-year basis, banca growth was just around 9% for the third quarter. Agency, I think, was fairly healthy at around 24%. So just wondering, I mean, what is happening out there? And what is the plan to kind of improve the banca business?

See, banca is mainly meeting our internal target that has been set, largely speaking. And for the year as a whole, we have said 20% growth rate for banca. I think we will be using that, I think over the years.

Sure. And any ideal target mix, if you could kind of share with us between banca and agency?

No. So as we said, our endeavor to tie up with new banks and go to outside SBI ecosystem and further our -- strengthen our agency system and agency channel continue to be there. So going forward, though, we will continue to grow banca, we do believe that the share of banca in individual business will go down as we go forward.

Sure. And the high-growth in ULIP from the agency channel was, I guess, because of the MDRT sort of targets?

Kind of. But agency, if you see, broadly speaking, less than 70% coming from ULIP had been a trend for last 2 or 3 years. So it is between the 65% and 70%. I have not seen any significant change in mix as far agency is concerned. Only thing Par has got replaced a little by the non-Par savings. That's the only change.

Sure. Just now kind of -- just moving to the financial statement. And I'm really looking at the change in FFA, and there is a fairly large increase on a year-on-year basis. So just from something like from INR 200 crores to INR 337 crores. So just trying to understand what has happened over here.

No, that is a routine kind of situation where whatever the surplus is built over the years, and then it is allocated either to the policyholders or the shareholders at the end of the financial year. So it builds through the quarters. And then in the end, it is allocated. So that is why you see, during the year, there will be a gradual increase in net FFA. That is where it sits. It's parked there.

And if I look at the segmental surplus, we can see that there is a massive surplus in the linked life segment. Again, that's increased quite substantially on a year-on-year basis or on a quarter-on-quarter basis. This is basically segment G. So I was just trying to understand what has happened over here.

Linked -- the [indiscernible] surplus you're talking about?

Yes.

Yes, that is because the ULIP business is profitable, and the volume also has increased.

Because the delta just seems to be very high. I mean, I was just wondering...

So Nischint actually what happened. A lot of maturity has started occurring in the company. Around INR 2,000 crores are paid to maturity in this quarter. So there are some release of reserves also has happened.

So the guarantee [indiscernible] guarantee product.

And maybe, guarantee product maturity, we are releasing reserve as the product is maturing.

So that could be maybe...

And that is one of the reasons why your earnings growth is so high. Sorry, that may be one of the reasons why your earnings growth is so high this quarter.

Yes.

For the quarter, yes, yes.

Sure. And just final one question was, if I look at the sensitivity to mortality and interest rate movements, we have the numbers for 9 months and first half, and that sort of suggests that maybe the sensitivity for the third quarter, [indiscernible] would have been much, much lower. So just trying to understand that. If I look at mortality, what you're saying is that if rates go up by 100 basis points, the impact on VNB for the first half was 11.8%, for 9 months was 9.8%, which means that for the third quarter, the number would have been possibly something like 6% to 7%. So I'm just trying to understand what has changed out here. And I think we discussed the interest rate part. But at least the mortality, if you could explain.

Mortality, the change that we see is roughly around 9.8% and 9.7%.

Compared to [indiscernible] first half.

Compared to the [ first half ].

First half was 11.8% and 9 months was 9.8%. So I guess, this quarter would have been like maybe 7% or something like that?

No. I -- difficult to say, I think we'll have to analyze this. But I don't think anything has changed at all. There is...

I'm asking on the product pricing or anything of that sort?

A little bit maybe because of mix, actually. As you know, that smart Platina product, which is part of the whole company since [indiscernible] Par was put on, that's not much more maturity risk as such. But in the protection, we do have it. So that if you take the mix of this business, that has a little bit of impact. So that could be one of the reason for the moderate [ deposit ]. So if you say the last part of what you're saying, that time, the amount of cover of the smart Platina as of today, that means as compared to production [indiscernible]. So that may be a little impact on the [ moderate ] part. [indiscernible], there are no [indiscernible].

It's a mix -- even the group savings, if it becomes high and direct. There is no mortality component there. So higher proportion of group savings would reduce your mortality sensitivity. So that kind of thing. We'll have to look at individual products and see the composition to understand that. But it's purely a mix -- product mix proposition.

The next question is from the line of Madhukar Ladha from HDFC Securities.

So we've seen this write-off on [ Divan ] of about INR 113 crores in shareholders' account, why is it not taken here in the policyholders' account. So I understand ULIP goes and directly hits the unit-linked policyholders. But what about the Par segment?

So we have exposure only in the ULIP as well as in the shareholder. So the provision to the [indiscernible]. So no exposure to the Par on non-Par. there is only ULIP and shareholders.

It was not held in those portfolios.

As there are no further questions, I hand conference over to Mr. Sanjeev Nautiyal for closing comments.

Thank you for giving us the opportunity to interact with you and to take your feedback, your observations as to how we need to build it into our narrative. We can assure you that protection continues to be a very important part of our plan to drive business in SBI Life. And while Q3 may have been flat in terms of the outputs and protection business, but we assure and we have in place all the steps, all the strategies to ensure that we do better than what we did last year. And protection as a theme is here to stay in SBI Life. And because of which we see a lot of value being added into the company. We are expanding our relationships, we are moving into tie-ups with other banks, with other partnerships. We continue to drive digital. Operational excellence continues to occupy the central theme and protection along with annuity and the guaranteed products, which is the non-Par side of our business, will continue to be focused, continue to be grown. And because of which we see that the accretion in the margins will improving and will be better. So with this, I would like to assure the house here that SBI Life will continue to do things in a disciplined manner to decide the proportions of each product where they fit into the overall scheme of things. And because of which you would have seen that even ULIP has come down to 71% now against, I think, 74%, which it was in the entire year last year. And we committed to -- we are committed to ensure that the value-driving portions of the business are always upheld. We will continue to do it on a sustainable platform on a sustainable part so that the benefit continues to kick in every year and is not seen as a one-off phenomenon of flash in the pan. So with these words, assuring you that SBI Life will continue to do all the right things, which drive value for the stakeholders and continues to shine among the private life insurers and among the overall life insurance industry. With these words, I offer my thanks very, very profusely to all the investors, all the analysts who gathered here. Thank you with my team here, Mr. Sanjeev Pujari, Mr. Abhijit Gulanikar, Mr. Sangramjit Sarangi and Mr. Subhendu Bal, thank you. Thank you very much.

Thank you. Ladies and gentlemen.