Ladies and gentlemen, good day, and welcome to the nine months FY 2022 earnings conference call of HDFC Life Insurance Company Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Vibha Padalkar, MD and CEO. Thank you, and over to you, ma'am.
Thank you. Good afternoon, everyone. Thank you for joining us for the discussion on our results for nine months ended December 31, 2021. Our results, including the investor presentation, press release, and regulatory disclosures, are already available on our website as well as that of the stock exchanges. I have with me Suresh Badami, Executive Director, Niraj Shah, CFO, Srinivasan Parthasarathy, Chief Actuary, Eshwari Murugan, our Appointed Actuary, and Kunal Jain from Investor Relations. I will run through the key highlights of our 9-month FY 2022 results and would be happy to take questions post that. It is quite heartening to note that India's COVID vaccination coverage has crossed the 150 crore mark, with over 64% of the eligible population being fully inoculated and almost 90% receiving at least one dose.
Further, the government has started vaccination drives for youngsters in the age group 15-18 years and administration of booster doses to the vulnerable members of our society. These developments seem to have helped curtail the mortality impact of the more transmissible Omicron variant. Business sentiment remains positive, and the high-frequency indicators suggest economic revival is on track. We are optimistic about the sustenance of business momentum in the months to come. On the proposed merger, we are happy to announce that effective January 1, 2022, Exide Life Insurance has become our wholly owned subsidiary as part of the overall merger process. We are thankful to our regulator, IRDAI, for their speedy approval. This first of its kind transaction is a reflection of our intent to build a stronger India by providing a financial safety net to more people.
The integration process is underway, and we expect to seamlessly absorb the acquired business while maximizing value unlock over the next 18-24 months. We are happy to share that in the nine months ended December 31, Exide Life's individual WRP grew 31%, comfortably higher than industry growth of 20%. Moving on to our business update. We continue to deliver consistent and strong year-on-year growth of 21%, resulting in a private market share of 15.2% in terms of individual WRP for nine months FY 2022. On a two-year CAGR basis, we registered a growth of 14% compared to a 5% growth for the overall life insurance industry while maintaining a balanced and profitable product mix. On the claims front, we have honored close to 3 lakh claims during nine months FY 2022.
Gross and net claims recorded at INR 4,657 crores and INR 3,406 crores, respectively. The overall claims experience in quarter three has been well within our estimates. We carried a provision of INR 204 crores into quarter three, of which we have utilized INR 150 crores towards excess claims pertaining to Wave Two. While mortality experience is not alarming, we have created an additional prudent reserve of INR 55 crores should we witness heightened mortality experience on account of Wave Three. Our product portfolio continues to be a balanced one, with non-par savings at 33%, participating products at 30%, ULIPs at 26%, individual protection at 6%, and annuity at 5% on individual APE basis.
Our annuity business clocked INR 3,634 crores for the nine months, resulting in a growth of 39% versus nine months FY 2021, with annuities now constituting over one-fifth of our new business premiums. Protection APE, including group, has grown by 34% in the nine-month period and contributes 22% to our new business premiums. After some headwinds, individual protection for the quarter showed a growth of 20% and an uptick of 2% for nine months FY 2022, recouping to nine months FY 2021 levels. Credit Protect business continued to perform well, clocking growth of 76% versus nine months FY 2021. We believe that protection in India is a multi-decade opportunity given the level of under-penetration and protection gap, and hence are confident of witnessing a calibrated growth trajectory over the next 5+ years.
We will continue to address this opportunity via a compelling combination of new products bundled with technology solutions offered on our retail, group, and hybrid platforms. Additionally, we continue to refine our underwriting practices, deploy new technologies such as deep learning underwriting models, and engage with our reinsurance partners to offer relevant protection solutions to our customers. To put things into context, protection prices in India have historically been a lot lower than some of the developed countries with superior healthcare infrastructure and higher life expectancy. Additionally, price hikes in India over the years have been lower than inflation.
We should continue to expect pricing and underwriting norms to evolve in line with expanding geographical and demographic coverage over time. Recent increases in protection prices are a result of the above-mentioned factors and can be expected to be business as usual events from time to time to reflect the widening market. As awareness grows on the need to protect one's family, we expect demand for protection products to continue being robust in the years to come. We are also pleased to inform that our wholly owned subsidiary, HDFC Pension, has crossed the milestone of INR 25,000 crore AUM on January 5, 2022. The journey has been gaining momentum with the first 10,000 crores achieved in seven years, the next 10,000 crores in 14 months and the last 5,000 crores in just three months.
The company has a market share of 37% as on December 31, 2021, making it the number one private pension fund manager in terms of NPS AUM. As a recap, NPS is a significant feeder into our annuity business, growing at a rapid pace. Moving on to key operating and financial metrics. We have witnessed a 19% growth in renewal premiums and further improvement in our 13th and 61st month persistency, which stands at 92% and 57% respectively, versus 89% and 53% in nine months FY 2021. The 13th and 61st month persistency for limited and regular pay policies was at 87% and 53% respectively for nine months FY 2022 versus 83% and 47% in the previous year.
The value of new business generated in nine months FY 2022 was INR 1,780 crores, thus registering a year-on-year growth of 26%. New business margin stands at 26.5% for nine months FY 2022 versus 25.6% in nine months FY 2021. The operating return on embedded value before and after factoring the additional mortality reserve was 18.6% and 16.2% respectively, as against 18.3% in nine months FY 2021. Our solvency as on December 31 stood at 190%. We are supported by a robust back book, have capacity to raise further sub-debt and access to equity capital from supportive promoters as may be needed to fuel new business growth.
Our profit after tax stands at INR 850 crores for nine months FY 2022, which is 18% lower than the previous year, primarily due to elevated claims paid during the pandemic and reserving for possible excess mortality claims in the near future. Next on channel performance and products. All channels have registered double-digit growth with proprietary distribution, which includes our agency direct and online channels growing by 25% based on individual APE. We are also happy to announce our partnership with South Indian Bank that was cemented in quarter three. We are seeing a good momentum on our other new partnerships, with HDFC Bank continuing to be our leading bancassurance partner. Our agency channel witnessed robust growth in individual APE of 35%. The channel has licensed more than 28,000 agents during nine months FY 2022, an increase of 52% versus previous year.
Our capability building program, Agency Life, is seeing good traction with 15% increase in participation combined with noticeable improvement in productivity. All our major branches are now covered under the Agency Life program. In addition, there has been an increase of 30% in MDRT agents this year. This is a Million Dollar Round Table agents, a testament of our high-performing agent base. We continue to drive product innovation and are excited to announce the launch of our new product, Systematic Retirement Plan. This is a regular paid deferred annuity plan which allows flexibility to choose deferment periods and annuity payout dates. Our previously launched plan, Sanchay Fixed Maturity Plan, has also been very well received in the market, and we collected a premium of INR 300+ crore in the first 75 days post-launch. Moving on to summarize our progress on ESG.
We have launched an ESG-focused sustainable equity fund and the same is available in our ULIP offerings. Our endeavor is to grow holistically and sustainably by continuing to invest in the five pillars of our ESG strategy, namely ethical conduct, responsible investing, diversity, equity and inclusion, holistic living and sustainable operations. We have shared our approach and progress on ESG in our investor presentation as well as in our ESG report. We are humbled to win the Best Governed Company in the Listed Segment Large category at the twenty-first Institute of Company Secretaries of India, ICSI, National Awards for Excellence in Corporate Governance. To conclude, we believe that the life insurance industry is poised to grow given the heightened awareness and importance of insurance as a financial protection tool.
Our objective remains to evangelize the need for financial protection while introducing new product offerings, maintaining an upward trajectory on new business margins, and delivering consistent growth in embedded value while adhering to a clearly articulated risk management approach. The detailed disclosure on our results is available in our investor presentation. Wishing everyone a great year ahead. We are happy to take questions now.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Suresh Ganapathy from Macquarie. Please go ahead.
Yeah. Hi. Good afternoon, Vibha. First is on the protection price increase. Can you let us know how much is the protection price increase range that you have done?
Suresh, it is in the range of 15%-25%.
Okay. 15%-25%. Now, of course, this looks a bit higher than one of the larger peers who reported numbers. Have you changed your, by any chance, reinsurance versus retention policy or does it still remain the same?
No, we have changed it because of our discussions with our reinsurers, so it has gone up in terms from INR 20 lakhs to INR 40 lakhs.
Anything earlier above INR 20 lakhs was reinsured, now anything above INR 40 lakhs is reinsured, right?
That is correct.
Okay. Can you also share the percentage number as to what would be retained on the books now versus what was retained earlier? Or vice versa, you can give the reinsurance number, the percentage number on the protection front.
Srini, you want to give those numbers?
Yeah. It'll be around, say 30% or so will be because the average sum assured is little bit around INR 1 crore, Suresh. So, and not all of that will be, so roughly around 30%-35% might be what will be reinsured now. Earlier it would have been probably around 20% or so.
No, no. No, retained. Okay. Just understand this a bit better. You mean to say that now the percentage reinsurance number would have come down, right? Because you have increased the number to 40 lakhs. What was the earlier number? Currently if it is 30, earlier number should have been 50%, right?
No, it's you're talking about reinsurance ceded or we have retained?
No. Okay, you tell me how much is retained now versus how much was retained earlier.
Now roughly we'll be retaining 35%. Earlier it might have been around 20%.
20%. Okay. 20% has gone to 35%. Okay. That's clear. Now, can you tell me what has prompted you to do this?
See, the prices have also gone up, right? The prices, the INR 20 lakhs was level around a couple of years ago. Over the last two years, the prices have also hardened quite a bit. You know, we are a little bit more comfortable with the price we are charging the customers, coupled with the underwriting practices that are now the norm in the industry. It's a function of both the price and the underwriting norms, Suresh.
Has it got to do with the fact that you're worried about increasing the protection prices further and that would cause a dent in demand? Because the reason why I'm asking is, look, you had a nine-month FY 2022 growth in protection of just 2%, and now you have gone ahead and hiked the rates of 15% to 25% and also retaining higher on your balance sheet. Is there a worry that there is a genuine impact on the protection demand because of all these hikes that you have been doing? We understand the long-term structural story, but numbers tell a different story altogether, right, Srini?
Yeah. Suresh, we've also widened the market, right? I mean, the urban is little bit more or less there, but you know, we are also as an industry entering the hinterlands, so the prices have to slightly increase, you know, to be in line with the market we are addressing. Therefore, the prices are going up in relation to what we believe to be the expected mortality for the segment we are addressing. That's the price bit.
The 40 lakhs is largely in line with the fact that the overall prices have also gone up and, you know, generally, as a regulator's directive, you are supposed to increase our retention gradually over a period of time. If you go back around, say, 10 years ago, our retention used to be INR 5 lakhs, then it went up to INR 10 lakhs, then INR 20 lakhs, and now it's INR 40 lakhs. If you look at what other established players are retaining, especially the large privates, public sector, they are retaining much higher levels on their books. I think it's in line with the experience we have developed. As you know, we have a fairly large Credit Protect book as well.
We have fairly large experience in the mortality. It's a reflection of our comfort and the experience we've gained over the past 10, 20 years.
I also want to add, I want to come here, come in here, Suresh, and that is to your point that you alluded that why we are not taking higher. Two things here. One is that if you look at quarter three, before we took this increase, we have not been the cheapest by any means, and yet we managed to grow by 20% in the quarter. So it is not only the pricing and also this kind of an increase makes us NBM agnostic on our protection. So we didn't see the need for us to take more.
Okay. Fine. Thanks, Vibha. Thanks, Srini.
Sure. Thank you.
Thank you. The next question is from the line of Deepika Mundra from JP Morgan. Please go ahead.
Hi. Good afternoon, and thanks for taking my question. Just on Exide Life, now that it's gonna be consolidated from the next quarter onwards, can you give us some flavor on the margins or and how it is likely to look like, the margins are likely to look like once consolidated?
Yeah. Hi, Deepika. I'll start off and maybe Niraj can add. Overall, in terms of their margins, and that's the reason why we also acquired the company, is that the pre-overhead margins are very similar to our margins. It's only when the merger happens and we have included that in our investor deck also. It's when the merger happens that we'll be truly able to merge the two companies and extract synergies. As of now we're running it as two separate companies, a little bit away, maybe about 9-12 months away from truly being able to extract those synergies. Pre-overhead margin accretive, pre-overhead accretive.
Understood. That's very clear. Coming back to the protection subject, Vibha, now that the price increase is largely done with, do you see a different approach to the various channels in selling protection? Mainly, are you gonna be looking to push the channels more in terms of selling, given that a lot of supply side constraints which were mentioned all of last year are, you know, sort of done with?
Supri, especially when you look at some of our own proprietary channels, that is trending well. It's there on slide 19 in our investor presentation where, wherein you have channel wise. All our channels have largely settled down into their ideal product mix. Maybe a month or so here and there, you might find something going up or down, but otherwise it's largely settled. The focus has been balanced. You know, the NBMs, extraction of NBMs is not only with protection, it is holistic, and that's something we've been known as a company that has a balanced product mix, and it has percolated deep into the channels.
Also some of the nuances like selling longer-term, participating products, even the design of our participating products, annuity and the interplay between life and ROP. So there are various levers that we have, which all add to the NBM and this is run at a channel level and sub-channel level. You'll find that consistency and of course focused on both ends of protection which is term and annuity.
Understood. My last question, Vibha, across the entire distribution, what are low-hanging fruits that you would say now, given that, you know, product mix is largely stable. So from a growth perspective, where do you find a low-hanging fruit still across the various channels?
I'll start off and maybe Suresh can add. What is very noteworthy is that if you look at, of course HDFC Bank continues to be our dominant bancassurance partner. But if you look at the newer kids on the block, and you'll see that on slide 11 of our presentation, the growth over there is above 80%, both for the quarter and for nine months. A lot of that growth is coming there. Growth is also from our agency channel and direct. Suresh, you wish to add anything?
Yeah. Look, we can look at it both ways. From a segment point of view, clearly term remains an opportunity and annuity will continue to grow. From a channel perspective, we have a lot of new banker partners who are growing for us. You know we have some recent tie-ups with YES Bank, we have had tie-ups with South Indian Bank. Bandhan Bank is a growing partner and some of the earlier partners who came in, that's a large growth. Secondly, our strategic focus on proprietary for instance, you know, we have the agency business which has been, and direct both which have been growing very rapidly this year. With Exide Life acquisition, you know, nine months down the line we'll have that entire agency base which will come in with us. We can see a further spurt in growth on our proprietary channels.
Okay. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to two per participant. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Adarsh Parasrampuria from CLSA. Please go ahead.
Hi, good morning team. Couple of questions on the savings side. One is, you said the last two to three years you started off and everybody else replicated, the non-par mixes kind of gone up over a period of time. With rate cycle turning, do you see a constraint or?
We don't see a constraint at all. Yes, there will be, it also depends on relative to other financial savings, debt, similar to debt, driven financial savings, product that might be an alternative. As long as that is also moving in the same direction, don't really see that as a constraint. Our constraints really are internal wherein we, at a segment and segment level, which is a non-par savings and channel level, we have placed internal constraints wherein we don't allow our channels to sell more than what we are comfortable with. That comfort is really more in terms of focus on balanced product mix. If you were to remove that, for example, a non-par savings proportion can easily skyrocket from 33% to even 50%.
It's not really a demand constraint even with the impending rate or likely rate changes. Niraj, you want to add anything?
Yeah. Adarsh also the other thing to keep in mind is that, interest rates go up, technically you earn more on the bonds that you're largely investing in, and then you decide the spread and pass on, ensure that the customer returns are competitive vis-a-vis other debt instruments. That is one. On the back book, clearly the question really is in terms of irrespective of what happens to interest rates going up or down, are you hedged and protected? That's where these two things come in terms of being cash flow matched and also in terms of sensitivities going down. That's something that we don't know whether interest rates will go up or down. I mean, in the near future likely to go up, but that's fine.
Over the cycle of these products and the cycle of the company, there'll be multiple such cycles. You will not really, you know, be able to choose at a point in time as to what's what will happen to the back book. The back book under all conditions have to be protected. As far as new business is concerned, the rates that you are providing to the customers have to be in line with what you're earning. That's something that remains key. Of course. The other thing we just spoke about the new product, which has been launched recently. That's at a, you know, at a lower end of the spectrum in terms of the term. It's largely a 10-year term. A large part of the business is single premium.
Without increasing or worsening the risk profile, we are in a position to tap a segment of the market which we were not able to tap earlier. That's the way to kind of think about it. Like Vibha mentioned, earnings are a lot higher than what we would like to service. And rates, of course, need to keep pace with what someone's able to earn. Otherwise, adjusted for all the benefits that you get from an insurance product, including tax and the coverage.
Got it. No, this is clear. The follow-up here is if you, Vibha, you started off saying that most segments are in an ideal product mix that you would broadly like to have. In that context, a lot of, you know, the whole sector, including HDFC, we've got margin accretion basis, a lot of saving side improvement along with annuity and protection. Is it safe to say that from a margin perspective, product mix and savings is now optimized, difficult to kind of keep pushing the envelope? Or how would you look at it?
Not really. I think that at least our new business of VNB or NBC that will continue to grow. Margins, there is still some upward, and this is all things remaining equal on the regulatory front. If there is progression on regulation, for example, on health or for example on technology, there's also cost and scale benefits that is very much still out there, not yet completely maxed out. There will be a smooth upward curve, all things being equal, Adarsh.
Okay.
There's still scope left for margin improvement.
Perfect, Vibha. This is very clear. Thanks, and all the best.
Sure. Thank you.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Great. Thank you for taking my question. Just the first one on the savings point again. So if I were to dissect your PAR products, this quarter, we've seen actually a decline. Is it just a recalibration of what products you're selling or is there something specific happening to the PAR book?
Yeah. Shyam, this is just a seasonality, more than anything else. If you were to look at each of our underlying segments, they sell participating products in different proportions. That hasn't changed very significantly. However, the growth of each of the channels does vary over time, and from quarter to quarter. What you see at a company level is a summation of the underlying channel growth, and if that changes. It's more a mix impact than anything significantly different that's happening. We've always believed in the participating product, having its rightful place, in terms of our product offering.
Vibha, just following up here. In a rising rate environment, you would assume the Sanchay PAR products will underperform, say, some of your other higher percentage products, you think? Or is that how we should think about it or no?
You're not very clear. You're saying that rising rates should actually help Sanchay Plus? It'll make it more attractive.
Yeah. No, but Sanchay Par would be underperforming, right?
No, Sanchay Par also. Yeah, Sanchay Par also will be helped by higher rising interest rates.
Fair enough. Okay, great. Second question is on the solvency. I think you've made a few opening remarks. Now with higher retention, are we comfortable 190%, probably one of the lower end in terms of peers? Just your thoughts on how we will navigate that. Thanks.
Yes. Simple answer is, yes, we are comfortable. Srini, you can elaborate on-
Yeah.
Why we are comfortable.
Yeah. As per the current regulatory norms, we are supposed to hold 50% of the sum assured as a minimum solvency. Even when our retention limit was only INR 20 lakhs with a, say, average sum assured of INR 1 crore, we were holding INR 50 lakhs for every policy roughly, right? Even after this, whatever the increase we're now seeing from INR 20 lakhs to INR 40 lakhs, we will continue to hold the solvency at 50%, which is at INR 50 lakhs. It's not like it's improved. It is increasing from what we were holding last time.
Got it. The instruments you had at your disposal to increase solvency, I think, Vibha, you made a few points. I missed some of that, sorry.
I didn't understand the question. When you say instruments to improve solvency.
In your opening remarks you had mentioned that how we can.
Understand.
Yeah.
A couple of things. One is, of course, the profit accretion that will happen. As with COVID, we feel reasonably optimistic about, while we have strengthened our COVID reserve, I feel reasonably confident about not having to dip into it, so normal profit accretion. That will add to solvency. Second aspect is sub debt. While we have raised INR 600 crore in the past, there is further scope for us to do that should we choose. The last point is our promoters, as I mentioned, have always been supportive in case we require solvency, further capital infusion to support growth.
Great. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Jayanth from Credit Suisse. Please go ahead.
Thank you. Hi, thanks for the opportunity.
Hi.
I just wanted to ask on the fixed income product. In second last quarter, you mentioned that the interest rate risk can be managed better. It also opens up some headroom to improve the non-PAR share in the mix.
Where do you see that number going up? Now that there's some calibration happening on protection, are we willing to sort of relook at our internal limits?
Yeah. I'll start off and maybe Niraj can add, and he also alluded to it earlier. There are various parts of non-par. There is the annuities non-par, and there is all the variants under Sanchay Plus, both shorter end and longer end in terms of lifelong income. And somewhere in between is also a new product, Sanchay FMP, which is on the shorter end. There is scope to increase it. The short answer to your question is yes, there is scope to increase it. Slightly longer answer is that we will calibrate it in terms of what kind of mix, what kind of underlying hedging that we feel comfortable with. Niraj, you wanna add anything?
Yeah, just a quick one that, the new product there are multiple options and, significantly the key one is around single premium. That is a significant part of the business that is written since launch. You would obviously appreciate that the risk profile of a single premium non-par product would be very different from a regular premium category. It's very similar to annuity. Of course, in annuity there is no term. In this there'll be a fixed term. That's what we were just talking about in terms of expanding the market without, you know, increasing the risk on the books. That's like I mentioned earlier, the interest rate, it is reflected in the interest rate sensitivity as well as of December compared to September, which is available in the investor deck.
There is no trigger internally that you have set for yourselves to relook at those limits.
We were always comfortable with about anywhere between a fourth to a third of the business, so we are pretty much there. 35% is something that we're reasonably comfortable with, especially from a risk profile perspective. Now, if the risk profile is lower, then of course we have the ability to go higher and that we can take a call based on how the demand is shaping up as well. Not much to do with what's happening on protection really. This is a standalone kind of a decision really in that sense. And again, just to connect the dots, margin profile is fairly broad-based, and it's not necessarily dependent only on or disproportionately dependent on one product category.
Sure. This helps a lot. Thank you.
Sure.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.
Yeah. I just had one question. You know, you explained the non-par in the rising interest rate. Just in continuation of that, you know, customers just look at IRR before deciding that or, you know, it's a diversification while they are choosing products. What is the sense you're getting from customers in lieu of, you know, the potential interest rate hike?
Suresh, you wanna take that question? While Suresh joins, yes, the customer looks at, you know, the way nowadays customers are getting more and more evolved, and that is a good place to be, is that, they're looking at different insurance objectives for different needs.
Okay.
Protection is clearly emerging as a well-understood or reasonably well-understood segment for them to focus on, so is health. Now with the launch of Sanchay Plus, the fact that post-retirement there is a stream of income that comes to them, it can't be repriced no matter what gives them a lot of comfort and should an untoward event happen before these objectives are met, then we will pay a fairly hefty sum assured. It has emerged as a segment that did not exist earlier. People go searching for that because there's a need. Unit linked is of course another product which is here and now.
Yes, there's a quick bundle product of two or three objectives and they see that more in terms of you know, some excess money that they might have and at the same time they want to put that aside for a few years and with a life cover. Annuity serves a different need. These are all emerging as against just one or two products. All of these different segments are sharply getting defined and that's something that is a good trajectory that customers are going on.
Just two quick things. The way we are also looking at building capability in our sales team is to ensure that they are able to do entire end-to-end solutioning and financial planning for our customers. If you look at the way we are moving our financial consultants from just plain distribution to actually looking at how do they help plan the customer's end goals. I'm trying to tie this in with what Vibha just said. We see a market out there for customers who clearly have the risk and appetite to take unit-linked products. We see the customers who are willing to look at insurance products as part of their financial allocation. Term and annuity are clear segment needs which are there in place.
You know, we of course balance the composition of our product mix based on which channel and what profitability needs to be done. There are enough customers out there who understand these requirements to say, "Okay, look, Sanchay can be a long-term savings product," like how Vibha mentioned. There is a certain financial allocation which can be done for a non-par product. There's a certain allocation which can be done for a par product based on, you know, what kind of bonus. You know, insurance is a little bit of a different product, not comparable with some of the other asset classes, but it does allow people to take both the sum assured. There is a risk cover attached to the returns that they are getting. There's a fairly large profile of customers who are happy to take par.
There is a set of customers who want the guarantee. There are customers who are willing to look at unit linked and of course term and annuity are clear requirements. Between this whole portfolio we are able to kind of drive, at our end as well as meet the customer expectations on the other end.
Sure. That's helpful. Just last bit, you know, what was the last IRR changes in the non-par products, especially on the Sanchay front over the last six months? Has there been any change or more or less we are there in that 5.5-5.7 range?
Srini, you want to take that?
We constantly review the.
I don't know.
IRR on a regular basis. We look at, you know, what the market is at, what we can afford based on, you know, how we've invested. Even now we are, you know, looking at how we can revise our non-par IRRs. This is something that we monitor almost on a quarterly basis. There are certain regulations in terms of how often we can do it, but obviously it's a long-term strategy. In the meanwhile, we do tactically look at how we can change IRR depending on what the market is offering and how our products are competitive.
Okay. Has it been broadly in that range or has there been any change?
Broadly in that range.
Okay. Fine. Thank you. Thank you.
Thank you. The next question is from the line of Sanket Godha from Spark Capital. Please go ahead.
Thank you. Thank you for the opportunity. I have two questions. One, just wanted to understand within the total protection what we have done, given we have demonstrated very good growth in the third quarter. The ROP component in the total individual protection business, how much it contributes? Secondly, just wanted to understand your retention strategy, which is applicable to pure term is similar to the ROP and Credit Protect business too. That's the first question I have. The second question is with respect to new Sanchay FMP plan.
Basically just wanted to see that given this particular product has a tax break or 10(10D) benefit, whether this product will cannibalize into deferred annuity kind of a plan, because ultimately the end feature it seems to be similar. Maybe only the period where you get the income is known in case of Sanchay FMP. More importantly, just wanted to understand that if single premium is the product which you want to grow incrementally, then whether the non-par contribution can grow because to manage that particular product from balance sheet point of view is much easier compared to a regular premium paying Sanchay Par, Sanchay non-par. Just wanted to understand the strategy there.
These are the two questions.
Srini, go ahead.
On the retention, the first question, I think the retention, like I said earlier, depends on number of factors. I think you asked about Credit Protect. In Credit Protect, the retention limit is INR 20 lakhs. In the individual term, we've recently increased from INR 20 lakhs to INR 40 lakhs. Like I said, the underwriting.
My question was more on ROP, whether there also we have changed it or not?
No, it's the same and then it's at the product level. Whether ROP or non-ROP, the individual term is at INR 40 lakhs.
Okay. ROP contribution to the total protection business, what we have done because we have seen a strong growth, whether that contribution has gone up?
It's been fairly steady. I think it's around.
It's 16%.
16%. Yeah. Yeah.
Oh, okay. Similar to what we have
Yeah
According to H1 FY 2022. Okay.
Yes, slightly higher, but not massively higher.
Oh, okay. On the Sanchay FMP, whether it will lead to the higher non-par contribution and whether it cannibalizes into annuity business, deferred annuity business rather.
No. See, the FMP is actually shorter end of the term. Annuity is the longer end of term. Annuity typically the outstanding term will be 30, 40 years.
Yeah.
Whereas an FMP is like Neeraj alluded to earlier, on the single premium option is around five-10 years. We're selling more of five-year in the single premium option of FMP. It's actually playing at the shorter end of the interest rate curve.
Got it. Do you think we can increase the contribution of this particular piece because it's easier to manage from balance sheet versus a non-par contribution could go up?
Yes. In Vibha's remark at the outset, she mentioned that in just 75 days of launch we have sold INR 300 crore already.
Yeah.
I think the volumes are ramping up and we are very happy with this product. Because like you said, you know, the balance sheet management is easier in this product and customers also see a lot of value in this product, and margins are also reasonably good. Yeah, it's a win-win.
The reason why I ask this question is that because we have internal limits which Vibha was alluding to that maybe you don't want to do non-par more than 30 or broader that kind of a number. That limit can be breached if there is a steady or decent demand for Sanchay FMP. So.
Yeah, yeah. We will-
Vibha, can I just take that? Sorry, Srini. You know, I just want to clarify, Sanket, and that is we and maybe next quarter we will give further granular details of our non-par savings portfolio based on tenure. So it's not just overall non-par because that's how we started off given the-
Uh-huh.
Our introduction of this product into this market. We will start getting more nuance. Certain tenures we might go a little bit, you know, with a cap. Other tenures which are shorter in like FMP that Srini mentioned, we really, that will be outside this cap.
Got it. Perfect. Finally, if I can squeeze one. Pre-overrun margin with Exide Life is fine. So you said that it will be pre-overrun accretive. Just wanted to understand post-overrun how much time it might take or and what are the levers which are low-hanging available so that even in post-overrun basis, combined entity margins will be similar to what HDFC, I mean, what we report right now in that sense.
Yeah. Once we merge, I think in a time period of between, you know, around 18 months, on average, most of the synergy extraction should happen. This is both top line synergies and bottom line both put together. If you put things into context, it's about 10% of our business. It's not as big that it should really sway the margins of HDFC Life over that kind of time horizon.
Got it. Perfect. That's it from my side. Thanks.
Thank you.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities - Institutional Equities . Please go ahead.
Hi. I have two questions, both pertaining to slide 10. This is essentially the IEV work. The first one is, you know, looks like there was some negative economic variance during the quarter. I think if I look at the COVID impact as well, you know, this has gone from -6% to -6.5%. If you could maybe, you know, just explain what happened between these two line items.
Sorry to interrupt you, Mr. Nischint, but we cannot hear you clearly, sir.
No, I could hear them. I think main reason is the equity market's not doing so well in the last quarter. That's the reason why you see a little bit of a dip in the investment variance.
Okay. The COVID impact?
The COVID impact, actually in the last quarter was very, you know, in line with expectation. In fact, you know, we went into the quarter with INR 200-odd crore of COVID reserves and, you know, we are still carrying over about INR 50 crore from that INR 200 crore. It's actually a little bit better than what we expected. Yeah, we don't know how the third wave is going to be. So far for the Q3, it is in line with expectation.
Sure. Investment balance, the entire negative of around INR 500 crore for the quarter would be on account of equity, is it?
A large portion of it was on account of the equity, but a little bit of that is also due to the interest rate shift, change in the yield curve, shape of the yield curve.
Sure. Thank you. Thank you very much. That answers my question. Thank you.
Thank you.
Thank you. The next question is from the line of Abhishek Saraf from Jefferies. Please go ahead.
Hi, thanks for the opportunity. I just want to get some clarity on what was mentioned earlier during the call that, as a regulatory requirement, we insurers need to raise the retention level and protection and probably get closer to what the PHU player is doing. I just wanted to understand, I mean, why did we settle it 40 lakh because one of the players has actually gone for higher retention. Maybe if we go for higher retention and could have gone for a lower price hike. If you can just explain the philosophy behind that. Going forward, should we also again assume that taking retention higher in absolute amount will be more like a regular business feature?
I'll start off and maybe Srini can add. There is always a calibration in terms of how much we want to keep on our books and how much we want to reinsure. We are doing this against the backdrop of a pandemic. This is, in our opinion, not the best time for us to take a call which is more than the INR 40 lakh that we thought would be reasonably okay to retain. Over a period of time, it will depend on profile base. There might be some profiles that we think fit within our underwriting norms and at a price that can be supported in terms of long-term mortality expectations.
We've always gone in a very calibrated basis and I think we'll continue with that. That's not to say that we won't, we are not enthused to take on more on our balance sheet over a period of time. Srini did mention this with our previous caller that we've gone from five, 10, 20 to 40 over, I think the last, maybe eight, nine years. As we have learned from experience on different profiles, different geographies, different professions, gender, smoker, non-smoker, and now of course the pandemic thrown into that melting pot. Srini, you wanna add anything here?
Yeah, just one point I wanted to add is it's also to do with what price we are able to charge in the market. With now the price is hardening in the market generally, it makes sense to retain a little bit more risk than what we did earlier. I think other points you've covered Rupa.
Yeah, maybe I'll just add one more aspect here, Abhishek. You know, ultimately whether the risk is carried on our books or the reinsurer's book, that shouldn't really decide what is the right price to be charged for the risk. You know, there has been a time when the reinsurers apparently were charging a lot lower than what the experience was, and that's reflecting in the numbers. Our approach really is in terms of ensuring that whoever is taking the risk is able to get the appropriate price for it. That's something that should also dictate, you know, how we want to recalibrate this whole period of time. One last bit also is in terms of
The segments that we spoke about. That also is a, it's a function of that as well.
Thanks for that response. Thank you.
Thank you. The next question is from the line of Neeraj Toshniwal from UBS. Please go ahead.
Yeah, hi. So again on protection, wanted to understand whether we have become margin neutral with the price hike or is still some margin impact might come on the protection portfolio first. Second, have you tweaked any mortality assumption in the lower cohorts given that we are increasing our retention strategy or it's already there in the pricing right now? Or how do you think about-
I'm not able to hear you. I got your first question. I'll answer that quickly. This increase that we have taken will make us margin neutral. Second question, we could not hear you very well. Maybe you're on speaker.
Second question was on the mortality assumptions. Have we tweaked any mortality assumptions or we will actually do it in the end of the fiscal year? Or how do you think about it in the lower cohorts? Because we are retaining more, how one should think about it.
Srini, you want to take that question?
See, the mortality is priced in, right? Assumptions are changed. That's why the prices have gone up. Mortality assumptions have been changed, and therefore the price has gone up. Now, as to whether the different segments of the population will have different prices, currently that's not the case in the industry. Ideally what you're saying is right. I think different customers with different socioeconomic profile will experience different mortality, and that should be reflected in the price to the customer. But that's not where the industry is today. Yeah, but that's where I think it will move towards.
Got it. In terms of insurance underwriting tightening also, are you back to normal standards in terms of after all these price hikes in and the new terms, whether pandemic medicals are now allowed or the rejection rates have improved. What we can see as a normalized run rate to happen in terms of protection going ahead? What are you thinking?
Your voice was a little muffled. I couldn't hear your question clearly.
Yeah, I couldn't either.
Sorry, maybe some network issue. Just wanted to un-ask, basically, in terms of underwriting standards which were tightened earlier, are you back with a normalized, offering of policies or rejection rates still remain high or the medicals are being again, started?
I'll answer that. We are continuing to look at this carefully because we are still not out of the pandemic, and this is something we mentioned last quarter as well, and we don't know how many such waves will be there. Having said that, we are learning to live with it. COVID-recovered folks are certainly being covered. As we move deeper into India, we are also learning into different kinds of access to healthcare, triangulating that with various other factors. There is some level of learning as we move deeper. I think that is really to be in a good place because it shows that penetration of the much needed pure term products in India.
Hopefully that answers your question. If there's anything else, let us know.
I was looking for a normalized run rate in terms of protection growth. When can we expect run rate to, you know, resume to normal?
It's a little bit difficult because it also depends on the pandemic. To date, even now, people are fairly hesitant to go in to get their medicals. That is something that I think will continue for some time. There is only that much that we can cover. About 51% is what we cover as part of 51% is part of tele. Rest is a combination of somebody visiting in your home or having to go in person to the medical center. We are in the midst of wave three as we speak, and I think we are some way away, but I'm hoping that we are hopefully about six months away and not longer than that.
Got it. This is helpful. Thank you.
Sure.
Thank you. The next question is from the line of Madhukar Ladha from Elara Securities . Please go ahead.
Hi. Thank you for taking my question. You know, most of my questions have been answered, but just a couple of things. One, can you provide me with the change in AUM, the net funding flow, NII and the market movements? The AUM growth has been pretty sluggish, so maybe you can dwell a little bit on that. Second, you mentioned that the individual protection in the quarter has actually gone up. My calculations seem to suggest that it's around INR 90 crore. Am I right or am I missing something? If you can, like, just confirm that number.
We grew our AUM by 18%, so I'm not sure, and I think that is industry-leading growth in AUM. I'm not very sure as to what is it that. Also, when you look at the base effect because markets earlier did significantly better than what they did in-
I'm looking at it on a quarter-over-quarter basis.
Yeah.
It's grown only about INR 3,500 crore.
It's a function of the markets also, largely a function of the markets. If you look at the BSE 100, last quarter versus this quarter, it is a significant reduction.
Can you give me the-
Also, if you triangulate that with another data point, which is our unrealized gain on our policyholders PNL, you'll also see that quarter-on-quarter that falls, the unrealized gain having gone down.
Maybe just to add to that, one thing to keep in mind really is AUM, we can't really, you know, look at it as with one broad brush really, right? It has different constituents in terms of whether it's coming from unit linked or from traditional products, what is the debt equity mix in that. That, if you look at the investor presentation also lays out that there's been a gradual shift that's coming through there because of the way the products are being offered, the customers are looking at them. They spoke about it in terms of markets for all three kinds of product categories on the savings side.
This is something that will, we hope, become a more longer lasting trend in terms of the larger the debt base you have in your book, whether it's through traditional products or in fact, increasingly more and more unit linked product unit linked customers are also preferring to increase the allocation to debt. The accretion is obviously going to be in line with that. Similarly, you'll find the volatility also be lower than what you would find with you know, higher equity allocation. You have to see this over a you know, longer term period, not over three months or six months. That's the way we'd like to look at it.
Can you give me the split for net financial investment income and market movement, that split that you provide?
Maybe we can connect with you separately. I don't have the details readily available. You can, when you look at the LODR, you'll be able to see it immediately on our unrealized gain also. On your question on term, I'm not sure how you have derived the INR 90 crores. It's at least 33% higher than that.
Okay.
That gives the 20% growth in individual term.
Oh, understood. Maybe there's an error in my calculation. I'll take it off. Yeah. Thanks.
Sure. Thank you.
Thank you. Participants are requested to please limit your questions to one per participant. The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I have two questions like, but related, both of them are related. One is like this price hike that you've taken on the protection is more in the lower ticket size, segment versus the higher, ticket size, given that now we have increased the threshold to 40. Does it mean that the claims in the less than 40 are higher proportionately versus more than 40? Or is it like we are okay carrying the higher exposure in the lower ticket policies? How do we interpret that? Secondly, how should we look at this recurring price hike by the insurers? Because this thing is going on repeatedly and we are discussing same thing, every few quarters.
Because otherwise the general belief has been that the longevity in India has been increasing and this should have supported benign protection pricing over the medium term. Do you think that this current round of price hike that we have been repeatedly seeing is more of a reaction to COVID and related comorbidities, and this may not be structural and sometimes reverse?
Nithin, I'll take your second question first and I'll ask Srini to answer the first one. See, every industry goes through price increases. Why should insurance industry be different? Why should the premium not increase at all? Because underlying there is a risk that is being covered. In my opening remarks, I also mentioned that back in time, this was around 2009 to 2011, term prices were at least 40% higher than what they are today. That's not. I'm not saying that we should go back to that. My limited point is, I think it's a lot more is made out of a term price increase every 18 months or thereabout.
The increases so far, if you were to look at it over the last eight to nine years, has been lower than inflation. I just want to put it into that context or even lower than average salary increase. It is in the basket of goods of buying whatever it is that we buy. It is very essential to for protection. It could be motor insurance, it could be health insurance premiums that continue to go up. It's very similar to that, and it'll start becoming business as usual over a period of time. I'm just preempting your question, although you didn't ask.
We do believe that as more and more awareness comes through on pure protection, Sorry, it's not going to be very inelastic. It is, let me just rephrase. Demand is not going to get impacted because of price hikes that would happen every 15, 18 months. On the first question, Srini, do you want to take that one?
Yeah.
You? Yeah.
Yeah, I can. The average summation, like I said earlier, is roughly INR 1 crore in our term book and INR 40 lakhs retention is on every single policy we have to retain. It's not that the sort of the experience is adverse or less, so we are retaining more. It should be the other way around, right? Like I said earlier, we are increasing the retention, not just today. We've been increasing the retention, periodically, like starting from say INR 5 lakhs 8, 9, 10 years ago. Then we doubled it to INR 10 lakhs, then we doubled it further to INR 20 lakhs.
INR 20 lakhs and now INR 40 lakhs. Maybe this is what has attracted the attention to the wider community now. We have been periodically increasing retention limits, not just on term book but also on various other parts of the business. So it's a function of the sort of a maturity the industry is, you know, is at. Like I said, there are some larger companies who have been in the market for much longer, their retention is much higher. So therefore, this higher retention, yes, if you were to increase suddenly from, say, INR 20 lakhs to a much higher level, then yeah, then there could be something. We are gradually increasing. Every couple of years or so we've been increasing.
It's more to do with the price that we are able to charge the customer and the stringent underwriting norms that have been used to screen their lives before we onboard them and the overall experience we've seen in the book. If we are not comfortable with a certain life, then we will not onboard them. Now we are sort of almost every single life goes through a medical, which wasn't the case say two to three years ago. Those are things that are giving us more confidence. Also, we do analyze our experience almost every month. Our retention limit is a function of all these factors. We will continue to increase over a period of time.
not only HDFC Life, but the entire industry will gradually move over a period of time. It's just a normal course of evolution.
Sure.
Yeah, sorry, I just wanted to add to the second question which Vibha answered. I think we need to understand that the pricing in India on term is still fairly cheap, one. Two, the demand which is there in the market, especially given the awareness around the pandemic, is also fairly high. So while there may be a little bit of a price increase, I think from a customer point of view, he or she needs to see the value of what term insurance at what price. We do believe that through some of these may happen because the reinsurer may come back based on experience or based on what they are looking at their margins, and some of it may get passed on, some of it will not get passed on.
As long as the market remains competitive and it's fairly cheap the way it is right now, the demand for term products will continue. You know, frankly, the customer will benefit if they were to take it as early on as possible. Probably, you know, we don't see why the pricing has to remain same for a longer period of time. It can increase, but it's at that moment when you want term, you need to buy the term policy.
All right. Thanks. Thank you so much. I wish you all the best.
Thanks.
Thank you. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, hi. Quickly, one on retail protection. I mean, broadly we see the kind of a 20% price hike, roughly for nine months. Is my understanding correct that the volumes are down roughly around 20%? Related to that, on I mean, as we have seen earlier, the retail protection prices were sort of going down. Policyholder have a tendency to shop, and that was sort of leading to a growth on the new business side, but persistency was lower. Are you seeing with this price hike on the new policies some sort of a trend that the persistency is improving on the existing retail protection? That's on the retail protection.
Avinash, it's too early for us to know trends on persistency because most of our policies are annual policies. I'm not very sure about if I've understood your question right.
Yes. Yeah, yeah. No, yeah, but price hike, I mean, almost has been happening for almost two years. Even last year there was some.
Earlier, yeah, the earlier customers, the existing customers, persistency on term is good. We'll have to see whether because of this hike, it gets even better. There is a correlation, I agree, in terms of the policies that we have sold. Especially the correlation is stronger in people who are 45 and above. Very young lives could anyway go and, you know, shop around and that's always possible. By the time you're 45, something or the other catches up in terms of comorbidity and gets more difficult to get term at favorable rates, and stickiness does increase over there. Yes.
Just to add, typically the term persistency is fairly high. Even for us, our term persistency will be upwards of 95, 96 on the 13-month persistency, and it remains fairly high. What we also realize is, look, yes, initially the customer may shop in the initial one or two years, but as every year the age increases, the term pricing also effectively changes for the customer. You do find that term persistency remains fairly common. In this particular case, as price increases, maybe the persistency will only improve.
Okay. Thank you. Quickly on group, just two questions. How do you treat your GTI premium in terms of your APE calculation? Because some of the peers have a tendency to treat it as a single premium, whereas, I mean, IID decision says it's a regular premium. How do you treat GTI in your APE calculation? Related, sorry, on the group, how are you sort of witnessing growth on annuity where overall market for annuity, I mean, including the public sector, despite LIC has been pretty muted. What sort of experience in your growth in annuities?
Niraj, you wanna answer that?
Yeah. I'll start with the second one. The annuity growth trends have been fairly strong, quarter-on-quarter, as you can see, they'll be in the late 30s%. As a whole, over the past 3-five years since we started offering this product category, starting with basic products and then graduating to more,
Innovative products like the annuity. We've seen the overall total book that we have is in excess of about INR 15,000-INR 16,000 crore, and our overall market share is something which is fairly significant. Even looking at LIC, it's upwards of 10%. We've had multiple sources of business for the annuity products that we have. It's obviously a lot of the pension policies that are vesting. It's group policies where corporates are buying annuity on behalf of their retiring customers, employees rather. Also in terms of NPS business, which you would see in our presentation as well, that's significantly adding to the annuity business that we write. We've been able to find multiple sources of growth for the annuity business at scale, and that's what largely contributes to this.
Um-
On your other question, Avinash, on GTI renewals, of GTI is stated as renewal premium, not in APE.
Okay. Okay, all good.
Thank you. Participants are requested to please limit their question to one per participant. The next question is from the line of Bhuvnesh Garg from Investec Capital. Please go ahead.
Yeah. Thank you for the opportunity. In your slide 10 on EVOP, we see a negative impact of INR 2.3 billion for ESOP exercises. Could you please elaborate where this impact came from and how should we look at it going forward? Thank you.
Yeah. Hi. This is we paid out a dividend of INR 408 crore and there were ESOP exercises, so this is actually netted off because of net impact on overall nothing to do with rest of the business. ESOP exercises would be a fresh inflow of capital and INR 408 crore is an outflow of dividend.
Okay, fine. Thank you.
Thank you. The next question is from the line of uncertain , an individual investor. Please go ahead.
Yeah. Good evening. Can you hear me?
Yeah, please go ahead.
Yeah, thanks for the opportunity. Ma'am, my question is a general question. I just want to know, given the increase in the protection premiums, how dependent this industry is on the tax sops, because I have been seeing some articles about the industry asking for additional sops in the coming budget.
I mean, you know, regardless of what's happening on the protection front, I think that is just one of the segments that is topical. There have been several asks that as an industry and a sector, we believe that we are fairly nascent and some of those not SOPs, but I think enablers would help us grow. Our penetration levels, as you know, are still fairly low. Our protection gap is uncomfortably high. We're asking for a GST waiver on the premiums because we do believe that maybe having a full GST rate of 18% is somewhat debilitating, especially on protection.
We're also asking for annuities not to be taxed twice because annuities are typically, say, for a salaried employee, annuities are purchased out of post-tax income. Then again, they are taxed in the hands of the individual, especially when he or she is a senior citizen, and that is not equitable. Some sort of a deduction for at least to the extent of purchase of the annuity or some kind of indexation would be more equitable. Also the ATC carve-out is very crowded, so can we have some sort of a carve-out for insurance or carve-out for pension? These are all, I think more in terms of nation building to increase protection of Indian citizens, slightly more longer term than here and now.
Okay. Thank you. Thank you, ma'am.
Thank you.
Thank you. The next question is from the line of Rohan Advani from Multi-Act. Please go ahead.
Yeah, thanks for the opportunity. My question is on reinsurance rates. I wanted to know if these rates differ based on the distribution channel that the premium is sourced from. For example, if sourced digitally, are reinsurance rates lower or anything in that aspect?
Srini, you want to take that?
No, it doesn't vary. Reinsurance premium doesn't vary. It varies mainly on account of whether it's a medically examined life or non-medical and whether it's a smoker or non-smoker, it's a female life or a male life. It's all more to do with the underlying risk factors.
Not the channel.
Not the channel, no.
Okay. Got it. Thanks for the question. That's it.
Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Ms. Vibha Padalkar for closing comments.
Thank you. We would like to thank all of you for participating in the results call. Stay safe and take care.
Thank you. On behalf of HDFC Life Insurance Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.