...Please note that this conference is being recorded. I now hand the conference over to Ms. Vibha Padalkar, MD and CEO of HDFC Life Insurance. Thank you, and over to you, ma'am.
Good evening. I would like to welcome everyone to our earnings conference call for the quarter ended June 30th, 2024. Our results, which includes the investor presentation, press release, and regulatory disclosures, have already been made available on both our website and the stock exchanges. Joining me are Suresh Badami, Deputy Managing Director; Niraj Shah, ED and CFO; Vineet Arora, ED and COO; Eshwari Murugan, our appointed actuary; and Kunal Jain, SVP, Investor Relations and Business Planning. Moving on to key highlights of quarter one, FY 2025. Starting with operating performance, we have kicked off the year on a strong note, achieving a robust year-on-year growth of 31% based on individual APE, translating to a 2-year CAGR of 21%. This healthy growth is bolstered by strong performance across all metrics.
We registered an increase of 22% in the number of policies and a ticket size expansion of 7%. Our growth outpaced both the private sector and overall industry on a year-over-year basis, as well as a 2-year CAGR basis. We experienced growth resurgence in Tier 1 markets, while maintaining strong growth in Tier 2 and 3 geographies. Tier 2 and 3 markets continue to account for 2/3 of our business in terms of APE and three-quarters of our business in terms of number of policies sold. We observed healthy growth in the number of policies across both savings and protection segments, as well as across geographies. The proportion of new-to-HDFC Life customers in quarter one remains robust, exceeding 70%.
We achieved a strong growth of 46% in retail Sum Assured, driven by expansion in retail protection, higher Sum Assured multiples for saving products, and robust rider attachments. Regarding our product mix for the quarter, ULIPs accounted for 38%, non-par savings for 35%, participating products for 16%, term for 6%, and annuities for 5%, based on individual APE. While we began the year with a high ULIP mix, we have been successful in lowering it during the quarter. We anticipate this moderation to continue in the coming months, driven primarily by product launches across other categories. We have observed strong growth in non-par products, with the segment achieving a year-on-year increase of 41%.
Additionally, our continued introduction of newer variants within the Click 2 Achieve umbrella has resonated well with customers, with the latest variant garnering INR 100 crore of new business in nearly 16 days. Retail Protection experienced significant growth of 28% based on individual APE, and a robust 36% on a two-year CAGR basis. This is despite us continuing to follow a calibrated pricing and risk management approach. The Credit Protect segment remains flat due to slower disbursement in certain lines of business and increased competitive intensity across select partners. Our focus remains on building a sustainable and profitable business in this segment, and we are prepared to temporarily step away if a segment or a partnership becomes unviable.
We continue to be ranked among the market leaders in both Credit Protect and Retail Protection segments, and are committed to maintaining sustainable and profitable growth in the overall protection segment. The annuity business in India is still in its early stages, presenting significant long-term growth potential. Despite intense competition and aggressive pricing by some peers, we continue to adopt a calibrated growth strategy, focusing on enhancing our product offerings while maintaining pricing discipline. Together, annuity and protection contributed 47% to our overall new business premium. Moving on to key financial and operating metrics. Our quarter one value of new business was INR 718 crore, reflecting a healthy 18% growth both year-on-year and on a two-year CAGR basis. Our new business margins are 25%, compared to 26.2% last year.
The margin compression is primarily due to the product mix and continued investments in infrastructure, manpower, and technology. We are committed to investing for long-term growth by expanding our geographical reach and tapping into new customer segments. These initiatives will help drive our growth trajectory over the next 3-4 years. As the year unfolds, our focus remains on achieving absolute APE and VNB growth. We will be flexible in trading off margins within a range in order to pursue these objectives. Our embedded value is INR 49,611 crore as on 30th of June, with an operating return on embedded value of 15.5%. Profit after tax has grown by 15% year-on-year, reaching INR 478 crore, driven by an 18% increase in profit emergence from the back book. Our solvency ratio stands at 186%.
To strengthen our solvency position, we will be raising sub-debt up to INR 2,000 crore in one or more tranches over the next twelve months. This sub-debt raise will help fuel our growth aspirations. Renewal collections grew by 10% year-on-year. Persistency for the 13th and 61st months improved to 88% and 56% respectively, marking increases of 108 basis points and 282 basis points versus the previous year. Next, on distribution. The Bancassurance channel experienced over 40% growth in individual APE.
Our counter share in HDFC Bank continues to be healthy, reaching 66% by the end of the quarter, up from 56.5% in quarter one of the previous year. Our close collaboration with partners ensures that we are able to offer the relevant products that suit the needs of our Bancassurance partners with diverse customer segments. The agency channel achieved strong growth this quarter, with a robust two-year CAGR of 17% based on individual APE. We are expanding our agency network by enhancing capacity for future growth, which includes expanding our footprint, recruiting top talent, and investing in technology and capability development in order to improve productivity. We led the industry in net agent additions, adding over 18,500 agents during the quarter.
Additionally, we expanded our network by adding 60 new locations this quarter, taking the aggregate number of branches to around 600. Further, we continue to actively forge strategic partnerships and have recently partnered with Upstox, Fino Payments Bank, Peerless Financial Services, among others. These collaborations will enable us to reach new customer segments, expand into new markets, and strengthen our presence. Now, regarding our subsidiary, the assets under management of HDFC Pension Fund Management grew by 67% year-on-year and surpassed INR 88,000 crores. We continue to build the pension business, maintaining a market share of over 43%. We are advancing our expansion efforts in GIFT City through our subsidiary in Dubai and are already seeing encouraging results in the NRI segment. Going forward, we aim to enhance our footprint by introducing more products tailored to their needs.
The recent expansion of the scope of remittances under the Liberalised Remittance Scheme, LRS, will enable us to extend our offerings to Indian residents as well. Update on Project Inspire. Our technology transformation initiative is progressing as planned. We are on track to launch our Group business transformation between quarter three and quarter four this year. The business process reengineering under this project will greatly improve operational efficiency, establish a unified data platform for enhanced decision-making and collaboration, and bolster our risk management capabilities. Moving to regulatory updates. We welcome the IRDA's progressive reforms outlined in the Master Circular on life insurance products. Measures such as mandatory policy loans to enhance liquidity, extended free-look periods, robust processes to address customer grievances, and higher value to customers on early exits should further the regulator's vision of insurance for all by 2047.
We are confident that these reforms will significantly strengthen the life insurance proposition in India, making it simpler, more transparent, and ultimately more attractive to prospective customers. As indicated in our press release on the stock exchanges, we anticipate a growth impact of approximately 100 basis points on the company's new business margin due to higher Surrender Value payable on earlier, early exits. Impact for us is limited due to our balanced approach to business. We have consistently employed a calibrated pricing strategy and maintained a prudent approach to risk management, as is demonstrated by our regular quarterly disclosures over the past few years. Our actual experience of surrenders is negligible, based on which our assumptions factor in close to zero surrenders. This implies that we have not been factoring in any surrender profits after the customer pays the first renewal premium.
This is illustrated on slide eight of our investor presentation, where most of our customers prefer to continue their policies in paid-up status rather than surrendering them. Our persistency experience is also strong and improving across cohorts and geographies. We are reasonably confident in our ability to mitigate this impact without compromising our customer value proposition. We endeavor to achieve this primarily through restructuring distributor payouts using a combination of deferment and clawback. We also believe this regulation will improve market conduct, moderate competitive intensity, and benefit players who have been relatively prudent. In conclusion, the substantial gap in financial protection across India presents a compelling growth opportunity for our sector. We are committed to securing India's future through innovative insurance solutions.
We believe our dedication to excellence is visible in our consistent, predictable, and sustained performance over the years, where we have doubled on our key metrics over multiple blocks of core years. Looking ahead, we remain focused on maintaining this high growth trajectory while prioritizing value of new business growth. For a detailed overview of our results, please refer to our investor presentation. We are now open to take any questions from the audience.
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 their touch-tone phone. 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. Our first question is from the line of Avinash Singh from Emkay Global . Please go ahead.
Yeah, hi. Thanks for the opportunity. A few questions. The first one is rather not related to this quarter or even the Surrender Values. It is more regarding the sensitivity to taxation, the corporate tax rate being increased. So if I see your sensitivity to the VNB margins, it appears reasonably, you know, higher. Just wanted to clarify that when you are sort of showing the sensitivity from corporate tax going to 25%? Are you also assuming all the exemptions being taken away, I mean, in certain line, business lines like pension and all, where today, I guess it's zero tax. Are you assuming that? Or it is like that, okay, 14% where it's applicable going to 25%, and then you are showing sensitivity.
Because there is a kind of a reasonable variance in sensitivities as far as the VNB are concerned. So bit clarity I wanted, how are you sort of calculating the sensitivity? So that's the question number one. Second, related to your Credit Life, can you help order for, you know, a bit more into the kind of the product, is it like in the competition in intense in the likes of the mortgages or more into the short-term product, like, you know, the personal loan or, you know, microfinance, or a durable, where, I mean, you are seeing kind of an intense competition.
Has that kind of a led that on a like-to-like basis this quarter, the margin profile overall on the group side of product is also maybe lower than what it was last year, same quarter? Thank you.
So I'll hand it over to Niraj in the first question, and then we can take the second one.
So Avinash, on your question on tax, which we have it on our page 26 of the investor deck. We've also given a note there which basically talks about what our assumption is when we are taking this impact. So basically, assuming that, the current tax rate of 12.5% plus surcharge gets changes to 25%, and, the policyholder and shareholder segment surplus gets taxed. Everything gets taxed at the higher rate. It is not allowing for any benefit of policyholder surplus being tax exempt, which was envisaged in the DTC. So we'll have to wait and see how this really pans out, but this assumes that everything gets taxed at this rate. And, it's not factoring any other exemptions that may be available or may not be available in the future.
Okay, okay. And yeah, just a follow-up. So of course, whatever exemptions, I mean, completely exempted, you are assuming to continue, but you are assuming that the policyholder surplus that get taxed in Par, as well as your shareholder PBT, both getting taxed at 25%?
That's correct.
Okay, okay. So you are assuming basically 25% tax return. So basically, with that way, I mean, if you are having certain Par business, then, I mean, you are penalizing yourself a lot more in the sensitivity analysis. Because, I mean, it is the Par business, basically, where the policyholder surplus will get taxed.
Yes, Avinash, because, while DTC was very clear in terms of how it wants to treat policyholder, surplus generated out of those segments, so we don't know whether it is going to come in that form. So we didn't want to make any assumptions of that lower tax on that segment. So we've taken the maximum rate on everything, and I guess we'll have to wait and see how it really plays out when
Okay, okay. Well, pretty adverse taxes. Do you—I mean, at both points, you are going to tax at 25%. Okay, no, thanks, thanks. That clarifies.
Yeah, I just want to add here, that there was a particular reason why the rate is 12.5% plus surcharge. I won't go into the technicalities of it, but I think it is somewhat misunderstood or just in terms of speculation, that this is—And given that the last three terms, DTC has not been talked about. There was a particular reason why, like I said, the rate what it was. There was later on, and going back 25 odd years, and there was an IRDAI committee, which then subsumed the way policyholders and shareholders profit together. And because the intention was not to tax policyholders, the profits emerging from their funds, and to tax shareholders. So this was seen as a amalgamated or an averaged out percentage.
So, I think a lot of younger people who are tracking it perhaps don't know the backstory on why it is what it is, as against just that there was just a random rate that possibly is being applied in life insurance. But like I said, you know, this is probably not the forum to get into the details. So if anyone is interested, we can always, you know, go back in history as to why it is, about, you know, overall landed cost at about 14.5%. On our next question, Suresh, you want to take?
Yeah. Yeah, hi. So, you know, just to give you the context on the Credit Life business and your question on competitive intensity. I think one, I would like to clarify that, look, we work across the spectrum, more than 200 partners in terms of Credit Life, and that is across banks, SFBs, MFIs, NBFCs and other ecosystem players that we work with. Secondly, we are, we work on almost every possible line of business, whether it's the mortgages, whether it's loans, whether it's commercial vehicles, personal loan, auto. So there is a fair amount of spectrum that we work in terms of the type of partner as well as the line of business. Even within that, we work on many other partners which are there in certain geographies. We don't work in certain states.
So it, it varies in terms of where we are present and what is the profile of the underlying customer to whom the loan is being disbursed. And finally, you know, even in terms of products, we have a very clear strategy in terms of what kind of value penetration is that we can do, what are the products that we can offer in terms of riders. So really, it is not an easy like-for-like comparison in terms of how you can offer the pricing. In the simpler lines, we do find that some of the other players are also coming in, and then coming back and ensuring that with the rates. But, you know, having given the experience that most of the partners have had with us over multiple years-...
You know, we have probably got the best, in terms of the lowest claim repudiation ratio, in terms of the claim settlement stats, in terms of what is the value penetration that we are able to bring. So we are working more in terms of ensuring that, look, our margins remain more or stable. I don't think it is true that our margins are thin. Some places where we find that the quality of business is not good enough, we are letting some of that business go. Some places, the disbursement on the Credit Life on the underlying, loans itself has slowed down on certain lines on at the partner. There, obviously, the numbers have come down.
But I think as a calibrated strategy, we are very clear to say that we will work in a certain margin range and ensure that value penetration, where we cover the loan to the maximum with our partners, and that's broadly been the way we've been working on the Credit Life pricing.
Also, to add here on the pricing and irrationality sometimes, and we will take, say, fairly balanced on this. In the past, on Credit Life, you know, where it doesn't make sense, we have exited certain lines of coverage. And then down the line, the partner has come back to us because, you know, that can't continue forever by a, a new insurer. There will be penetrative pricing, but down the line, if there is prices, then the partners with strong relationship means that they'll come back. So we just have to build this brick by brick, and, and that's why it will always be two steps forward, one step back. But, you know, we are in there for the long haul, in terms of the relationship.
How is the pricing environment in GTI this year?
That remains competitive as every year, given that, you know, I mean, in most cases, there are a few players who've been looking at it. But that is sometimes balanced more with the relationship that we have with the particular corporate and the overall relationships that we have got. But that is a segment which remains competitive in terms of pricing, which is why if you find that we are at a certain market share, and we don't want to go beyond that market share. And in any case, every one year, it keeps getting renewed. So wherever we find it reasonable or where we find that existing relationship which comes in for renewal, we go back and ensure that scale.
And to add over there, because of this one-year churn, you end up paying stamp duty every year, right? And that makes it onerous. So if GTI was say, for three years, then it could make, you know, very different commercial sense than this annual bidding out to the lowest insurer and, and so on. So again, there will remain calibrated.
Got it. Got it. Very clear. Thank you. Thank you.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please restrict your questions to two per participant. If you have a follow-up question, you can rejoin the queue. The next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah. Hi, good evening, everyone. Firstly, you know, now that you had time to look at the current charges and, there is a talk in the industry that there will be obviously a kind of an aggressive selling in Q2, and then possibly we'll go through a period of new product launch in Q3. So how could we look at the industry from the next nine-month perspective? And within that, what would be your strategy, you know, overall, in terms of premium, how could we look at it from the next nine months perspective?
See, Prayesh, this aggressive selling is something that we don't like, and we did not do it when the budgetary changes were happening. We did not, we did not resort to fire sale and so on. And even more so now, because the product will actually be better for the customer in the event that they want the liquidity. So just because somebody might be saying, "Okay, you know, the IRRs might drop, and so take my product right now," so we are not going to... It's going to be absolutely business as usual for us between now and the transition period.
Got that. Got that. And, you know, from a margin perspective, you know, the product mix has been great, whether, when share of protection has gone up, share of annuities has gone up. Your thesis, I'm more looking from a sequential perspective, but still, you know, margins have kind of come up, it's primarily led by expenses, and so how do you look for the full year margins?
So, like I mentioned, even in the April call, we are focusing on two outcomes. One is growth that is faster than industry growth, the new business APE, retail APE growth. And the second is in terms of VNB growth, again, getting back to doubling every 4 years in a very consistent manner. So margin will be, to some extent, an outcome, while at the same time, we don't intend for it to yo-yo excessively. And by that I mean 300, 400, 700 basis points. That's not what we have in mind, but a little bit here and there.
Also, the reason for that, my saying that, is that, you know, clearly there is an uptick for unit link has been over the past several months, thanks to the markets, and so, that is something we cannot ignore. Second is that, customer acquisition continues to stay, to be important, so that we can upsell to the customer and so on down the line. And so we'll remain range-bound as far as unit link is concerned, while at the same time delivering VNB growth.
Last question on protection, Retail Protection, is there a pricing action that's happening in the industry? And is there some pressure from reinsurers? And what will be the reason for saying if there is any major pricing action that's happening?
... It varies on pricing. We've always maintained that this is an ongoing exercise, whether it is protection or annuities or non-par. Like in any product in any industry, we will review pricing based on what the, let's say, raw material cost is, in our case, what the experience is, depending on which customer segments are you addressing, and so on and so forth. So I mean, if you're referring to some media report that was there a couple of days back, I think there hasn't been any change that we made, which is significant. What was reported was, at least in our context, wasn't appropriate.
For one segment, which is above 60%, there was, I think, up to a 5% change in price, and this business is less than 0.1% of our overall business. So honestly, nothing of any consequence at all. And, pricing will evolve based on how deep we go into, you know, the country in terms of customer segments. And, it is not really going to be something which is, something out of the blue. It will emerge over a period of time, after which we will review our experience, look at our pricing, talk to our reinsurers. And of course, we have to compete in the market as well. So a lot of these things will, come into, you know, consideration. And as we've articulated across all our businesses, we will maintain a calibrated approach.
So with our pricing, we are reasonably comfortable with the kind of share that we have in the market, and we'd like to continue maintaining that discipline.
Thank you.
Thank you. The next question is from the line of Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
Hi, good evening, you know. I wanted to get a sense of this new slide that you've added in the presentation about the surrenders. Now, you know, I want to understand what is the paid-up policies actually mean? So these are sort of non-surrendered policies, but that's where they've stopped paying premiums. So how does that really flow into your VNB? So maybe you could, like, clarify that part a little bit. And yeah, then I can ask my follow-up questions on this.
Yeah, I'll hand it over to Eshwari. Go ahead.
So when we calculate the margin or the profitability, we look at what is the proportion of policyholders who will pay the premiums and continue to be in force throughout and get the full benefit. We also have an assumption for policyholders who will discontinue premiums during the tenure of the period, but will not surrender, but they will continue with the policy for a pro-rated benefit. Then we also have assumptions for policyholders who could completely exit the policy. Now, as we've shown in the slide, the experience for us in both non-par savings and par on the policyholders who exit is very small, negligible. We only have policyholders who continue paying the premiums or policyholders who stop paying the premiums, but continue the policy. And those are the two assumptions we have factored in our calculation of margin or the VNB.
So that is what we are trying to explain here. Because of the change in the regulation, where the Surrender Value has gone up, since we don't assume any surrenders in our calculation, there is no impact on the margin post year two. The only impact we have is in the year one, where our experience is quite good. And further, we have a conservative assumption on the year one also. So our assumption on lapse or exit in the first year is even lower than our assumption, sorry, experience, and that is what we are trying to explain in this slide, in terms of what the experience is, what our assumptions are, and what is the regulation in terms of the impact on the margin.
Okay, got it. So, just a follow-up on this: so, when a paid-up, a policyholder or this is sort of partly paid up, right? You know, he's probably paid up for two years and then stopped paying premium. When he, when the policy matures for him, that's what you mean, that he will not surrender the policy, and the policy will mature in a partly paid status. What do... What benefit does he get at that point in time? Or, you know,
Benefit, to give an example, suppose a policyholder has taken a 5-pay policy of, say, INR 1 lakh premium. And just as an example, suppose the maturity value is at INR 10 lakhs. He stops paying premiums after, say, three years. He paid only premiums for three years. Then he has paid 60% of the premiums he had committed. Then he will get 60% of the Sum Assured. Instead of INR 10 lakhs, he will get INR 6 lakhs at the maturity. This is what we call a pro-rated benefit.
Understood. So, wouldn't the pro-rated benefit policy margin be lower than the margin which you get on a fully paid-up policy at which is?
So that could vary depending upon when the policy is made paid up, what is the original premium, premium paying term is taken, the structure of the product, what kind of benefits in terms of composition. For example, in a par, it could depend on the Sum Assured, the bonuses, et cetera. But what is important is that the impact on margin will depend upon what is the assumption on how many policyholders are making the policy paid up and what is the experience. Since we keep calibrating our assumptions to the experience on the policies becoming paid up, whether it is a higher or lower profit, that's already captured in the margin. So as long as the experience is going to be in line with the assumption, we don't see any major impact on the margin.
You see, as you've seen our yearly disclosures, our operating variance has always been positive. So our assumptions are tightly conservative, when compared to the experience. That's why the operating variance is positive. It's not a question of whether the policy is becoming paid-up or premium paying or surrender. It's more about what the experience and the assumption. The major change that has happened with regulation is the change in Surrender Value, and there we don't have any impact because of the factor that we already explained.
Understood. Understood. And, yeah, this is another question for maybe Vibha and Suresh. You know, with these sort of changes happening, the industry will be in a flux and you'll probably be back on the drawing board, designing products and talking to distributors. What is, and what is the feel that you're getting? When... And, you know, I think it's very important that we are able to defer the first year commissions over maybe the first two years or first three months. Do you think that the distributors will agree? And this also, to a certain extent, depends on whether the industry, the manufacturers actually come together and are willing to do this, right? So, what are your thoughts on this?
Yeah. So we have put out a likely impact based on, you know, current what Eshwari just explained.
Right.
So we will have bespoke conversations with some of our key partners. But that will happen in an organic way. There is no fire situation per se, because our assumptions, not only the assumptions of what is, how much is getting surrendered, but equally or if not more, more important is to be fairly restrained in terms of aggression on IRR. If one is more aggressive on IRR, and there have been competing products that give more, say, you know, 70 basis points to 100 basis points or if not more, even today, differential in IRR. So if that's going to happen and one is really banking on surrender profits beyond the first year, then one is going to hurt more. And also what one has to return back to the customer will be more.
For us, it's been always, you know, there is, repricing of new business that we write very, very quickly if the macro situation moves. So, so given that, this is, you know, we're, we're having conversations but not on a, on an SOS basis. It's, it's a little bit more organic, and we are in multi-time more situations. So the, you know, the, the interface conversations between us and our distributors will also depend on the conversations they are having from other manufacturers. So, so it's a dynamic process. Suresh, you want to add anything?
No, I think broadly we've covered it. Thank you. You know, and given that the quantum of change, the impact on us is probably lesser than some of the other players in the industry, and I'm sure everybody's assessing their impact, I think we can look at three, four options. One could be to say that we continue, we have a pullback, we have a deferral, or we look at maybe lower IRR. Obviously, IRDA would want the product to remain as good for the customer with better deferrals. So our objective would be to say, do we look at deferral, which will probably lessen the impact on each manufacturer, or if the partner has extremely high persistence and we are comfortable, maybe we'll just continue and have a little bit of a pullback. So we really don't want to jump into this immediately.
I think we are having, like you have mentioned, discussions with each of our partners, and in turn, they are having with their respective insurers, given that we are probably in multi-tie with different insurers and different, partners. So, you know, we will probably, think it through, and by end of September, we'll be in a fairly more comfortable position as to what we want to do.
Got it. Got it. Understood. All the best. I'll come back in the queue. Thanks.
Thanks.
Thank you. The next question is from the line of Suresh Ganapathy from Macquarie Capital. Please go ahead.
Yeah, hi. So Vibha, I have two questions. One is, on margins and in general, the VNB, growth outlook that you have, painted, right? So first, with the VNB margins, you are at 25% for this quarter. Do you mean that you will have a further 100 basis point compression because of the new surrender rules, that is not a fact, part of the 25% that has been reported in 4Q? How should we look at it, that further from 25, you're going to see any impact?
So, Suresh, the 25% is for the quarter, and usually the margins get better as we move towards full year because of seasonality. So the businesses is that much more, while your fixed costs remain more or less the same, right? So margins do have a pickup. So on a full year basis, wherever we are likely to end before these regulatory changes, again, those margins, it will be 100 basis points impact if we did nothing.
Okay. So these new rules are not a factor of the 25%. Okay. So just wanted a clarity on that. And the second thing is, Vibha, you are saying you want to double your VNB in four years, so that's a 19% CAGR. Now, the problem there, Vibha, is, indeed, you know, the upside from margins is very limited, right? I mean, all said and done, the margins have a downward bias across the industry, not only for you. In that sense, you are actually indirectly indicating that you want to grow your APE at 20% plus for the next four years. Is that not at all asked, Vibha? We have not seen 20% for quite some time. So you think you can do that over a period of four years consistently?
Yeah, I'm reasonably confident, Suresh, because we are assuming the current dynamics of competitive intensity, relative advantage, the products being the same, and just now we are going through a massive overhaul of products. You know, something that we knew all along, and that is something that's happening right now. And that itself could reveal a very new normal. Another one that could be fairly disruptive is, for example, IFRS. Now, under IFRS, Unit-Linked, the way we see Unit-Linked now in terms of top line and the competitive intensity with Unit-Linked, that could undergo a significant change because a lot of that is going to get shaved off, and only the net income will reflect on your on your income statement.
So we are assuming a status variable from now for the next four years, which itself is, you know, probably there are already some visibilities of largest changes where we feel we have a competitive advantage. Third point is on HDFC Bank, and as you know, just over the past maybe seven, eight months, our counter share has meaningfully gone up, and it will organically, as we work more closely together and so on, will go up, and also little bit of product tweak. For example, if I were to see my agency channel, that has our, that has turned at about 12%-13%, while at HDFC Bank it's low single digits, like 3%-4%, closer to 3%, right?
So, that itself going up to, say, a 5% just because there's a little bit of focus, can have a meaningful uplift in margins. So we have many tongs in the fire to keep chipping away and to see how we can continue to add margins while there will be investments that we need to make in business. But we feel the doubling in four years are still doable. Niraj, you want to...?
Yeah, yeah. So, Suresh, and just to your point in terms of inherent margins going in one direction, which is downwards, we don't necessarily think that, because in each of the product segments there is an opportunity to improve margins for couple of things. One is obviously scale. Second is also in terms of the ability to attach embedded protection across, not just in the term products to riders, but also the savings products. All of these things, along with dynamics being very different as you go deeper into India, the ability to keep reserved inherent product margins and even expand on that in a calibrated manner is very much possible. So not all the VNB growth needs to come from top line growth.
Some of it can come from mix, like we discussed, and also increasing inherent product margins.
And, again, I want to add a final piece. So, for example, when you look at Sum Assured, the growth in our Sum Assured is significantly higher than our APE growth, which just again, means protection is growing. So 46% growth in individual Sum Assured. All of these are, you know, large chunks of mortality cover, which is a result of Sum Assured. So that itself means, and the fact that we are raising sub-debt also means that we are writing more of protection business. So this, so we're slowly moving towards the higher margin, brick by brick. And also, 70% of our new customers are new to HDFC Life. 70% of our customers are new to HDFC Life, this quarter as well as last quarter that we talked about and before that.
So ability for us to upsell to them is that much more at a slightly reduced cost, and therefore uptick in margins. Agency channel is another one wherein we are investing quite heavily in Tier 2 and 3, as we have talked about in the past, including the Exide Life acquisition that's grown significantly higher than company level growth, even in the first quarter. But it is in a growth phase and investment phase. So all of this should start delivering and reaping dividends for us in a slow but sure manner. And that's why we say that it's not gonna happen overnight, but that's why we said four-year doubling should certainly happen.
There is one procedural clarification question can I ask, just quickly?
Yeah.
Yeah. So, the new IRDA regulations is effective when?
October.
From first of October. So last date of selling the, under the current structure, 30th of September.
Yeah. So, so just to understand this better, so what will happen is, are we already started filing the new product or will you start in this 2Q, the new product filings with the regulator, and then you will have to launch in 1st October? How well prepared you are with respect to some of your new product structures and stuff? Because the approval from IRDA will also take time, right? There could be a legal issue in between.
So, Suresh, all the existing products which need to be made compliant with the new regulations do not need to be filed for approval. They have to be self-certified by the company as per their product management committees, which is a board-level committee. So we certify it, and we can launch it as soon as we are ready to operationalize. So it does not have any lead time as far as IRDA approval is concerned. Of course, any new product that we launch now, depending on which process it needs to follow, whether it's use and file or file and use, will require a prior approval in certain categories. That will be an ongoing process.
You'd appreciate that what happened over the past few months is that many products are now getting filed and, rather, getting launched in the use and file. So the bandwidth to approve products by the regulator has improved. So that has actually brought down the lead time to launch new products this year. So while it's an exercise, we will be in a position to offer all the products that matter and will, you know, comprise most of our existing business. We should be able to offer it by October 1 without any disruption.
Okay, that's very clear. Thanks so much, Niraj and Vibha.
Thank you.
Thank you.
... Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please restrict your questions to one per participant. If you have any follow-up questions, please rejoin the queue. The next question is from the line of Aditi Joshi from J.P. Morgan. Please go ahead.
Yeah, thank you for taking my question. So, just my question is related to the margin walk. In full year 2024, we had some negative impact coming in from the expenses. So I'm just wondering that for the first quarter, do you have such impact persisting or how was, how was the walk for first quarter? If you are able to share your view, please.
So the negative impact earlier was due to what? Sorry, we could not hear you very clearly.
Are you referring to this walk or the-
The last walk.
Okay. So last year, if you recollect, what we had said is we had 130 basis points gap. Out of that, about 70 basis points was on account of lack of operating leverage, because on an actual basis, we were, we grew at 1%. I mean, of course, normalizing, we grew at 11%. But, that scale gap is what caused a significant part of that, margin gap, and the rest of it was, the product mix. In the Q1 context, everything is pretty much, product mix because the scale, is, is back. The growth was 31% for the period, so you see a positive fixed cost absorption of 0.3%.
We have a 1.3% negative on the product mix, which is largely the Unit-Linked mix increasing from 25% to 38% on a like-to-like basis.
Okay. Thank you.
I just want to add that, Aditi, while for the quarter it was 38%, but exit rate in June has come down to about 35%.
Thank you.
Yeah. Thank you.
Thank you. The next question is from the line of Gaurav Jain from ICICI Prudential Mutual Fund. Please go ahead.
Hi, thanks for the opportunity. I just have one question. We are at 186% solvency margin as of June 24. With this sub-debt raise, if we were to do it on this base, how much will the solvency go up to? And post the sub- debt raise, will we still have room to raise more sub-debt, or how do we think about capital building?
Yeah. So our headroom today, based on the regulatory limits, is about INR 2,000 crore, is what we can raise. We will see in terms of how we want to go about it. We have an approval to raise this over a 12-month period in one or more tranches. The solvency position that we are comfortable with is in the 180% plus range, so we'd like to operate in that. And I think, the first tranche at least that we will raise will in all probability help us to maintain that level for the foreseeable future. And then, we can use the rest of the headroom based on our requirements. We are also expecting over the next 12-18 months, risk-based capital regime to kick in.
When that happens, our understanding is that we'll be able to write more business with the same amount of capital. The regulator will obviously take a view in terms of how they want to establish that regime, but based on our interactions with the regulator, we believe that if you're writing business prudently, long-term business where, with appropriate risk management, you should be able to write more business with the same amount of capital.
To your other question, it'll add about 20%-22% to our solvency. If we raised the whole of INR 2,000 crore.
Yeah, understood. Thank you.
Thank you. The next question is from the line of Swarnabh Mukherjee from B&K Securities. Please go ahead.
Yeah. Good evening. Thank you for the opportunity. A couple of questions. One is on the channel, so where you had mentioned that you are having a conversation on, you know, how the, eventually the structure, the commission structure, et cetera, will pan out. I just wanted to understand from you, in our open architecture channels as well as, say, in the agency channel, what will be. You know, since multiple players will have a, maybe a varied approach on how they are going to pay out, you will also have varied approach based on, you know, the kind of, what kind of, business you source from a particular channel. Can there be a risk that, you know, there can be aggression from players in terms of commission that can move counter shares in those channels?
So just wanted to understand how you think that can be a, you know, a risk or a challenge in, say, open architecture or agency, or which one would be tougher to crack? And secondly, on, in terms of, you know, IRR cut on the non-par product, where there is the impact of this new regulation is much poor. So just wanted to understand from your perspective, do you, you know, how do you see the product's competitiveness vis-a-vis, say, other similar products like, say, FDs or say, mutual funds?
The product, our product competitiveness should definitely go up. And like I mentioned earlier, today, one is that we reprice with a lot of frequency, as and when interest rates move, typically. That is number one. And number two is, even today, there is a material difference in IRRs, and that IRRs can't come out of thin air. Right? It has to be funded somewhere, either by the customer or by the shareholder, or the company. So from that point of view, we believe that there will be some calibration in IRRs, which due to the surrender charges going down. And therein, if it's very similar, then we can only get at a better place than the comparative intense comparative intensity today in non-par.
If you want to mention the first point?
I think, you know, the first point is related in the sense that the market share depends, one, on the IRR of the product in terms of what is the pool. The second is the commissions that are available in the market, and three, is the resources that we put in terms of supporting the partner. Now, given the lesser impact that we have, we do believe that it may lead to a much more competitive advantage over a period of time in terms of what we should be able to work out with partners, both as a combination of all three, whether it's resources on the ground, whether it's the IRR on the product in terms of the differential, as well as the commission structures, whether it's deferred or whether it's, you know, slightly lower, commercial or clawback.
So those options are all available. It may lead to a certain degree. I don't see this market changing dramatically. At least for us, we don't see a huge shift. There will be obviously some change here and there, but with some of our top partners, we should be able to work out something which is clearly better than what we got as a relative advantage to competition.
Right. So I just quickly wanted to follow up that on the HDFC Bank channel, as per your conversation, do you expect that the counter share would kind of remain around that 70% range, which is our aspiration in the new scheme of things?
Yeah, I'll just leave it by saying that it's our parent. In the last 7-8 months, counter share has gone up very meaningfully from some 56%-57% to 65% or so, in that range. And, you know, so that 70%-72%, I think it is a matter of time before some of that organic movement upwards should happen. Irregardless of surrender charges, no surrender charges, whatever it is that they're selling, a share of that should go up organically.
Understood. Very helpful. Thank you, and all the best.
Thank you.
Thank you. Participants, requesting to limit your questions only to one per participant. Thank you. The next question is from the line of Nischint Chawathe. The line for Nischint has dropped from the queue, so we'll move on to the next question. The next question is from Vinayak Agarwal from Jefferies. Please go ahead.
Good evening. I had a question on the non-par savings business. So the absolute amount of business done in quarter, about INR 860 crore, seems to be quite reasonable. How do you think the momentum builds on from here? And, you know, just generally, how should we think about the growth in this segment, as last year's subsequent quarters saw some decline due to change in tax norms?
I'll start off and then hand it over to Suresh. We are seeing good traction in this category. We are seeing traction both in above INR 5 lakhs and below INR 5 lakhs. We are seeing traction in Tier 1, 2, and 3. So any which way we cut non-par, we are seeing traction. And this is something we've been saying all along, that once this whole, you know, focus on tax starts weaning away, and it has to happen because ultimately money has to flow somewhere. Not everything can flow in equity. And that's exactly what we are seeing. Also, there are new product launches to get mind share.
There are some of the other aspects to it, for example, on pension, which has a very unique way of delivering value on a post-tax basis to the customer, especially the slightly older customer. So, so really it is a holistic growth, Vinayak. You want to add, Suresh?
I just add, Vinayak. I think the market continues to remain large for the non-par also, given that the household savings for the customers will finally have to invest, whether it's in a fixed deposit or any of these products. So as a competitive product to some of the other, you know, fixed interest kind of products that are available in the market or some of the guaranteed products, we believe the non-par product still has a fairly large scope in terms of growth. So in some of our products, like Click 2 Achieve, which we've now launched, it's a very unique annuity also, kind of a product which kind of addresses the financial solution.
When you go out with a product like that in the market, really it is for us to expand the market in terms of the activation that we have at our, you know, distributors at the banca level or our financial consultants in the agency level, as well as the number of new unique customers that we bring in. And as Vibha rightly mentioned, the Tier 2, Tier 3 expansion, especially on this product, will get us more the ticket size as well as the number of unique customers.
Great. Thank you so much.
Thank you.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi, thanks for taking my question. Just one, how much was the growth from HDFC Bank this year on the year of your business?
It was 41%.
That you said that the counter share increased around 65 from 65 on the year of business.
Yeah. So about 18% is growth, is about, due to counter share increase, and about 22% is, due to, you know, just, holistic increase.
Okay. And just on the, you know, agency side, your growth sort of, you know, still is a little muted at 10%.
I can't hear you very well, Nischint.
Sorry. On the agency side... Yeah, yeah, on the agency side, your growth is still at around 10% versus some of the peers who have been growing in, you know, kind of at around 20%-25%. So, you know, we are not sure when the, you know, investments in agency are really going to play out in terms of numbers.
... So also two, three things there. Our agency growth is around 14%, and over, you know, two years, three years, our, you know, growth has been around that, so it is fairly good. Two, three things that are happening in the market. You know, there is a shift in terms of the Unit-Linked contributions in, as a source of the business, so we, we don't really compare. I think we are very clear to make sure that ours is a profitable agency business. We calibrate it in terms of how do we grow based on a certain product mix.
The third thing that probably I had mentioned earlier in one of the sessions, the Exide agency channel which had come on board, we are investing a lot in terms of that growth, so that will take some time, and hopefully the pickup will happen over in that particular period. So then the growth in the Tier 2, Tier 3 market, we have expanded some 60 branches. We are looking at like, and, you know, in terms of the number of new agents that we have added, that continues to be the best in market also. Three, four things are working out for us. There is an NOP strategy that we are putting into place. We have invested heavily in a full-service retirement advisory financial consultant program that we are looking at. So the building blocks are clearly in place.
On the tied agency side, we had, you know, kind of, because of the greater than INR 5 lakh in certain segments, we had slowed it down, but I now think the base of it has fallen into place, and we should be able to grow significantly. So we added, like, 18,500 agents net in Q1 of FY 2025, which was the highest in the industry. So the distribution is building, the locations are expanding. I think the Exide channel has also been growing. So fairly confident that the agency channel will start again.
Perfect. Thank you.
Thank you. The next question is from the line of Supratim Datta from Ambit . Please go ahead.
Hi, thanks for the opportunity. So on the Surrender Value, slide eight, just wanted to understand, have you done any sensitivity that as these 10%-15% of customers who are going to a fully paid up, who are taking the fully paid up route, if they move, you know, surrender their policies-
Can't hear you very well. Sorry.
Supratim, may we request you to use the handset, please?
Hello?
Yeah. Go ahead.
Yeah. Yeah. So what I was asking is, if you, you know, if you assume that these 10% of people who are going to a fully paid up policy as compared to surrendering their policy, if these people now surrender because of the higher SSV, then what will be the margin impact? Have you done any sensitivity analysis on that? That's the first question. And the second question I had was that if I look at your non-par savings policy tenure, then it seems like it has gone from 13 years last four, in the fourth quarter it was 16 years, and now it has gone to 21 years. So what is driving this change in and, you know, what's resulting in this higher tenure? And how would the margin of a higher tenure product compare with the lower tenure product?
If you could help me with these two questions. Thank you.
Yeah, on the first question, if the policyholder now surrenders compared to keeping it paid-up, economically, the value of the company will not be different because if you see how the Surrender Value has been defined, it is linked to the paid-up value, and it is a present value of the paid-up benefit at the current G-Sec rate. So the company, for the company, it will be very, it will be very neutral whether the policyholder continues in a paid-up status or he surrenders. But for the customer, it's a good proposition to continue the paid-up policy because he continues to get a death cover, though it's lower, but they continue to get the death cover. And he also gets the locked-in interest rate for a long tenure.
The contract may be 20 years, 30 years, so he gets a benefit if he continues in the paid-up policy. But from a company perspective, the impact on margin will not be material because of the way the linkage between the paid-up benefit and the Surrender Value.
Got it. Understood. Understood.
Yeah.
And the second question?
On your second question, in terms of the increase in tenure, that's something that we've been consciously driving, because longer term products can offer better value to customers. This has been enabled by our new launch of Click 2 Achieve that we had launched a few months back, and we have been launching new variants in that, which encourage customers to stay for a longer period of time and get a higher value proposition.
Mm-hmm.
That completely sinks in with the economics for us also. The longer the policy term and premium payment term, the better the margins as well. So it works for everybody, and that's something that we've been driving consciously as well.
Got it. And what would typically be the margin differential? Could you give us some sense that, you know, well, a 13-year policy versus a 21-year policy, how would the margin differ?
Sorry, not, we can't get into specifics on that, but, it'll be meaningfully different. I think one thing you can maybe look at is in terms of from a on a non-participating product, the margins are higher than company average. You can expect a significant delta on that for a longer-term policy.
Mm-hmm.
So, it is very meaningful.
Got it. Understood. Thank you.
Thank you. The next question is from the line of Nidhesh from Investec. Please go ahead.
Thanks for the opportunity. Do you see any change in the new business trend with the higher Surrender Values post first October?
Not in our case, because of what all Eshwari had mentioned. Prudence in pricing as well as surrender assumptions does not result in a very significant change in our reserves, so that does not affect our accounting profit. But the impact could be different for different approaches that people companies may follow.
Sure, sure. And why don't we go with a strategy of no change in the commission structure and try to gain market share? Because the impact on us is quite low versus some of the other peers. So why don't we take this opportunity as a market share gain opportunity versus a profitability neutral strategy?
... Yeah, I think, anyways, there's nothing that is off the table. We will explore all options with different partners. However, I think our regulator is also looking at little bit of collaboration with partners in seeing how payouts can be more back-ended. So that is also a tacit kind of expectation from the regulator. But, you know, we will have all sorts of options and iterations, I'm sure, between now and 30th of September.
Okay. Thank you. That's it from my side. Thank you.
Thank you, Nidhesh.
Thank you. The next question is from the line of Shreya Shivani from CLSA. Please go ahead.
Hi, thank you for the opportunity. Most of my questions are answered. Just two. First is on the VNB walk. I know it's a very small number, but there is some change in assumption. I'm not sure if I, if I missed this. Is there? If you can give some details of which assumptions have been changed, is there any trend that we should, we should know about? Second, again, on the Surrender Value itself. One of my questions was that it's very useful that the data that you've put across on slide eight, about how much surrenders you actually faced in the different years.
But given that the surrender format now is such that probably after third or fourth year, the customer can actually get 100% of their principal back, unlike earlier, when it would be at 50% or 60% or whatever the old format was. So in that situation, do you, are you also accounting in for any change in customer behavior? Or have you guys thought about how would you go about that? Those are my two questions. Thank you.
For the first question, the assumption changes we do as a year-end exercise based on the experience that is emerging. We have changed the assumptions in mortality, persistency across product segments. It had a small material, a small impact of, a non-material impact on the, margin, which is what is getting carried forward to the quarter one of this year, because whatever was reported in last quarter one didn't, didn't have this assumption change. So if you see the last full year disclosure, you will see some similar impact in the VNB walk.
Okay.
That, that's on the first question.
Second one, there could be some difference in the customer behavior because of Surrender Value, but the reason we say that behavior may not impact us is because today we are not assuming that any customer will surrender for a lower Surrender Value, and the company will make a surrender profit. So if our assumption is that no one surrenders, then we don't make any profit currently, and going ahead, if the customer surrenders, he gets a value which is equivalent to the paid up benefit that we would have anyway assumed. So there won't be any impact on the margin. So the customer behavior will not impact our company's margin so much, whereas if you have assumed surrender, there could be some impact.
Yeah, and just optically, persistency could—thirteen-month persistency could look bad, but not the economics of it.
Okay, sure. Yeah.
Thank you. The next question is from the line of Sanket Godha from Avendus Spark. Please go ahead.
Yeah. Thank you for the opportunity. Just, just on the ULIP business, I just want to understand, to what extent our ULIP today has higher sum assured, that is more than 10x, and to what extent it has supported the margin? And to the extent I remember last time it was around 60%-65% of the total unit what we are selling has higher sum assured. So is there any further headroom available to do that more, to improve the margins or hold up the margins, even if the ULIP contribution goes up? But just on ULIP.
Then the second is your sub-debt raising, maybe during the year you will do it, then the difference between what you will pay as interest and where you will invest, how much likely impact it will have on VNB margins? If there is a 100 basis points difference, I believe that impact could be somewhere between 20-60 basis points. So I just wanted to understand how it will play out.
Yeah, so Sanket, on the first one on Unit-Linked, we had, I think, mentioned a few quarters ago that we've started attaching riders as well as the multiple of sum assured, which customers were used to taking, say, 10x-
Mm-hmm.
and moved to 20x in the last couple of quarters, and it has in fact started expanding beyond 20x as well now. So there is room, and customers are preferring to use this as a vehicle to not just save, but also to get meaningful protection in the same product. So that journey is very much on and moving in the right direction. Also, our rider attachment as a journey which started a few years back is still in its nascent, very nascent stage. We are yet to, you know, see the full benefits of the rider approach in terms of multiple riders per policy. So that journey has just started, so the headroom is very significant from here on.
So, what is the weighted average sum assured today in ULIPs, and what extent of the business is holding ULIPs have had higher sum assured?
I mentioned the 20x was the number sometime back. Now it is close to 30x.
Okay, perfect.
So-
In the proportion of the total premium, what you did, how much is higher Sum Assured?
No, so we don't look at it that way. We basically-
Okay.
-level, and I think, it literally depends in terms of, which channels are selling what, kind of, tenure, et cetera. So we don't, we don't really have that as a, as a target or any of that. We're basically just seeing if customers across the board are-
... willing to consider buying protection through this in a more meaningful manner, and that is happening, and we are quite happy to drive that as we go forward. On subordinated debt, yeah, we will raise it over a period of time, and we'll decide the timing based on our requirements as well as the market appetite. In the past, the sub-debt that we carry has a fairly negligible negative carry of about 20-30 basis points, because we have the ability to invest. I mean, all the sub-debt that will be raised will get invested, and the negative carry on that, we don't expect it to be significant because we don't necessarily need to match the duration of what we raise with where we invest. Given that-
Right.
We have a fairly large book, and we'll be able to minimize the negative carry and will not have any material impact on our VNB.
Okay. But honestly, what is the need to raise capital? Because honestly, if you look among all the companies, you guys are the ones who have raised the highest amount of capital, whether it is sub-debt or direct equity. So still, because 186% is healthy, you also said that our safe number is 180%. Is it only because you expect more growth in bancassurance or your high sum assured strategy is asking for new strain, more strain, or more unique demand is resulting in more strain, and that's the reason? Or just, it's still really difficult to understand why you need sub-debt, because your sub-debt is still very decently healthy.
Yeah. So it is, it is healthy. It's just that our preference is to not be in a situation where we have to, you know, manage growth just because the capital is getting to a 180% zone or a 135% zone. Anything above 150% is great. That's absolutely fine, and given that we know that directionally we are in an excess capital regime today. But it is the regulation, and we have our internal policies based on the current regulation. So we don't want to be in a situation where we need to manage those tightly, when the growth is indeed moving in the right direction for longer-term products as well as more protection.
So yeah, it is to your point, sum assured is increasing faster than overall company growth, and capital is getting deployed for a longer period of time. So we go, we want to do this ahead of time, and if the cost of carrying the subject or the negative carry is minimal, we don't see a reason why that should be an issue. To your point on equity, you know, the reason for that, it was basically the, to fund the acquisition. There was no other requirement for that. So, yeah, that's, that's our thought process.
Okay. If I can squeeze one, just on one rate... Okay, sorry.
Sorry, just to answer the question on competition, the solvency ratio for all the players is coming down because the reason that Niraj just mentioned, the type of contracts the companies are writing.
Yeah.
So maybe some companies have been at 300% solvency ratio, may not be raising capital, but if you see the trend, every for every company, the solvency ratio is coming down.
Right. Got it. A data keeping question. Just your unwind rate seems to have been off in the current year, current quarter, 0.8 percentage. Anything to read there? Is it only just because of the income movement? And lastly, if you can break down your economic variance number into equity and fixed income, INR 400 crores.
The unwind rate is 8.1%. As you said, yes, it's mainly due to the yield curve change, offset by some, the positive outflow on equity. Last year it was 8.2%, this year it is 8.1%, 10 basis point reduction. On the economic variances, it's mainly coming from equity. The equity markets have raised around 8%-9% this quarter, compared to our unwind rate of, 8.1%.
Mm-hmm.
That's given a positive upside in the equity. On the debt side, there's a small increase because of the shortened curve reducing by 8-10 basis points. But that's a small amount. Most of the economic variance is from equity.
Okay. Perfect. That's it from my side. Thank you.
Thank you. The next question is from the line of Aravind R from Sundaram Alternates. Please go ahead.
Hi, team. Thank you so much for the opportunity. I actually have two questions. One is that, you know, in the current quarter versus the last quarter, I mean, sequentially, VNB margins have declined. You know, despite, you know, mix of ULIP coming down and, and, you know, non-par and protection mix has, you know, gone up, you know, sequentially. Despite that VNB margins have declined, like, is there anything to read here, like in terms of, you know, you know, a lower profitability in the product or like, investments in any particular channel or, or like your tech investments, any leading to this VNB margin decline?
Not, not really. I think end product margins are only either sustained or improving. Product mix also on a year-over-year basis, obviously there's a big movement, as you can see, 25% versus 38% in Unit-Linked. On a sequential basis, there isn't much difference in product mix. But yeah, the difference is largely on account of absolute scale of business that gets done in quarter one versus a quarter four. That's probably the difference.
Sure, sir. Now, you know, annuity has de-grown in this quarter, you know, when I compare it to year-on-year. Any reasons like, do we expect our annuity to pick up, again in the upcoming quarters?
Yeah, so we mentioned this earlier as well in terms of having a calibrated approach. There are multiple sources of annuity business. It is a fairly large market as we see it going forward as well. So it is going to be a you know long-term opportunity, but there is some irrational pricing in certain pockets, so we have to take that into account, and we are not in the business of writing a business which is not viable for us in terms of either managing the risk or the pricing. So we will take these calibrated calls. We had a similar kind of conversation on credit life, what Suresh spoke about as well.
So it applies to all our businesses wherever we see, you know, some sort of pricing or risk management, which we are not in a position to compromise on. We are happy to, you know, step back temporarily. Given that the opportunity is long term, we are not really worried about, you know, missing out on certain parts of growth, which are not viable.
And just to add here, at least deferred annuity will also the surrender charges will have an impact on deferred annuity, and so we do see some level of calibration coming through post first of April on this product segment.
Sure. And, yeah. Yeah. And just one last question, if I may ask. Do you see any pushback on the, that any agency or any distributor or any other channels in terms of, you know, implementing trial commission, or like, up, you know, you know, any other structure of, you know, commissions, you know, specifically? Yeah.
Yeah, I mean, we are in very early stages right now. There-
Okay.
No one will agree immediately. I'm sure there will be, you know, there's some bit of convincing, some bit of expectation from regulator and so on. So I think those conversations are on as we speak. And as you will understand that we don't want to really, you know, put out everything in a public forum for some of these private discussions.
Sure, sure. Thank you so much. Thank you so much.
Thank you.
Thank you. The next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hi, good evening. Just two questions from my side. First, you know, on the non-par business, you clearly mentioned that, you know, growth has been across the spectrum, be it geography or ticket size. But if you can give some, you know, breakup of the low ticket growth in non-par versus the INR 5 lakh plus growth ticket, growth in non-par for the quarter. Second, just a data-keeping question. If you can give your HDFC Bank next individual business, for the quarter.
So the product mix by channel is there on page 16. HDFC Bank is a subset of banca, of course, and it's reasonably representative of the product mix. Unit-Linked is in the 40s in HDFC Bank, and non-par is fairly healthy in the mid- to late 30s. And as Rohan mentioned earlier, the term mix is increasing fairly steadily. So that's probably the mix. So not very different from the other banca channels, but by and large moving in the direction that is right from a customer perspective as well as for all the stakeholders. As far as growth on non-par, it's across the board, and obviously, as you will appreciate, on a very low base, the greater than INR 5 lakh growth is extremely high.
I mean, it's not a number that we want to talk about, but it's just a base effect. There is a fairly healthy growth of over 30%, 30% on up to INR 5 lakh as well. On a very low base, the growth is much higher in greater than INR 5 lakh.
Just a follow-up. I just wanted to know that out of the INR 100 of individual AP that you have written, how much will be HDFC Bank for the quarter?
Uh, 51%.
Correct. How much would that be as a base? I mean, one key last year.
I'll just explain. We grew about 40%, and about 18% is because of share increase, and the rest is, so about 22% is, just normal growth.
Sorry, sorry.
I think the bank also has grown about 22 odd percent, you know, in the mid-20s in there all put together.
Okay. That's good. Thanks. Thank you. I'm all good.
Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.
Yeah, thank you. Just, there are a couple of questions. One is, you know, EOM is now at a decade-high, and even adjusting for any kind of declassification of commission payouts, it looks like both year-on-year and sequentially it has gone up. So just wanted to understand, you know, what is driving that, given that, you know, even on a year-on-year basis, our growth was decent, so have commission payouts gone up? And the second question is, you know, when you are offering a guaranteed return product, what kind of, you know, rate of return do you make or do you assume? Is it higher or lower than rates just previously?
Sorry, Rishi, you'll have to come back on the first one. We didn't completely, I mean, capture what you were asking. The second question is in terms of the spread, is it changing? Is that what you're asking, in terms of non-par?
No, I just wanted to understand how much rate of return do you actually end up making on non-par?
Okay. So that really depends on the product pricing is based on the tenure in which the investment is happening. So the rates that we offer the customer ranges anywhere between, in the current context, maybe say, 5.5%-6.5% . So for us to give the customer 5.5%-6.5%, we need to have a spread to manage our risk as well as have the baseline profitability in and cost of capital. So that is factored into our pricing, and that's the reason why we reprice fairly dynamically based on how the interest rates move. And we've been reasonably disciplined in this manner, so ever since we launched this product category over 5 years back.
So we have broadly managed to maintain our spreads, even in a fairly intensely competitive environment. And we've done that through multiple things. One is, of course, strength of the distribution that we have and also new products that we launch from time to time, which, you know, in which the customer and distributors as well are able to see beyond just, you know, the rate. And, like in protection, there are many other considerations that go in when a customer is buying a product, so that, that works for us, fairly well in this segment.
Okay. No, I mean, the only reason I ask that question is, you know, for the surrender regulations, we have been allowed to discount with a factor of G-Sec plus 50 basis points. So what I was trying to understand is, at a portfolio level on that same guaranteed return product, do we end up earning more than that or, less than that? That's about it.
More than that, Rishi.
Okay, understood. And, and just the first question that I was asking you was on, you know, EOM as a percentage of, APE, now up to almost 22%. It is pretty much at a decadal high, and even adjusting for any kind of reclassification from OpEx to commissions, it seems like our commission payouts have gone up, substantially because it's visible in the sequential pickup as well. So just trying to understand whether, you know, what is driving that?
So it is, if you see the total expense ratio for full year FY 2024, it was within 20 basis points of the previous year, right? And the commission structure started changing last year after the UAM regulations that were effective from beginning of last year, right? And that journey continues as we speak, in FY 2025 as well. So nothing will be materially different from that. Our cost of acquisition on a like-to-like basis hasn't really changed meaningfully. At the margins, there could be relationships in which there could be some changes, but at a very broad level, there are no significant changes in the overall cost of acquisition.
So it's, it's largely, if you see, it is more in terms of, the overall, cost of acquisition being at similar levels and the expense ratio also being fairly, close to, you know, where it was, at the beginning of the period. For quarter one, the change that you see in the expense ratio is more in terms of, the investments that we made in terms of, infrastructure as well as, people that we've deployed in partner branches, nothing much to do with, the commercial arrangements.
Understood. Thank you.
Thank you. Requesting everyone to limit your question only to one per participant. Also, use only handsets to ask a question. The next question is from the line of Arul Selvan from Independent Advisors Private Limited. Please go ahead.
Hi. Thank you for the opportunity. I just had one bookkeeping question. On slide 33, it says that your current solvency ratio is, you know, given after assuming the dividends... I'm sorry, without assuming the impact of the dividend. So could you just tell me what would be the solvency ratio after including the impact of the proposed final dividend?
Around 5%.
Okay. All right. Thank you.
Thank you. The next question is from the line of Anurag Mantry from Oxbow. Please go ahead.
My questions have been answered. Thank you so much.
Thank you. The next question is from the line of Neeraj Toshniwal from UBS Securities. Please go ahead.
Yeah, hi. So wanted some sense on the distribution. Obviously, we have already mentioned, like, for example, from HDFC Bank, also changing the share with the volume share change. But is it correct to understand that last year, second quarter, you already had a higher volume share, so that we used to bring off, and we'll have a normalized growth from banker and from Q2. So is that right understanding?
Not the entire Q2. It started moving up slowly from August and, you know, meaningfully from September onwards.
Okay. In terms of agency channel growth, looks a little tepid lately. Obviously, you looked at one of the reasons, but how do we see that agency growth picking up from second quarter?
We did address this in one of the earlier questions also. I think with a few input parameters which are in place for agency, and we do believe a little bit of the base effect of last year will help us grow our agency faster. So the existing agency channel forward is expanding. We believe that will happen with Tier 2, Tier 3 expansion, with the new branches that we have set up last year. That should help us expand into newer locations and newer geographies. Third, of course, is the fact that we have invested heavily in terms of training as well as a lot of new products that have got launched, which are getting picked up by agency. So we do believe that agency should also pick up in quarter two as compared to quarter one.
On that, any update on composite license, last question?
... So we are hopeful that it gets introduced in the House of Parliament, both Houses of Parliament, and hopefully it gets passed. We've been waiting for a long time, and if that were to happen, we'll evaluate our options. But the bigger picture is: how do we expand the pie? Not much interest in just doing the same thing, but this hopefully should open up a lot of new product ideas, innovation ideas, and that's what we'll be focused on if this comes through.
Have you already started evaluating, kind of products you'll be launching if at all this gets through?
Yeah, we do have some ideas internally.
Okay. Thank you. That is helpful.
Yeah.
Thank you. The last question is from the line of Raghvesh from JM Financial. Please go ahead.
Hi, thanks for the opportunity. So just on the group protection bit, so you mentioned that credit growth was flat year-over-year. So how much was the decline in the group term? Okay, so, is it better now?
Slightly. Go ahead.
Okay. So on the group protection piece, you mentioned the credit growth was flat year-over-year. So how much of a decline did we see in the group term, and how does that fare on a margin perspective as compared to the company-level margins, the group term business?
So both are almost flattish and, yeah, I mean, these are profitable segments when you get it right. And but credit life is a lot more impactful than GTI. GTI for us is small. It'll probably remain small. We've said in the past, we'll, we'll do GTI only where it makes sense, and given it's largely one-year business, you know, it's, we find it difficult to ignore past experience and, and so on. So at the right price, we will look at it, but it's fairly negligible for us in terms of margins or, premium.
But the year-over-year decline in group protection comes out to be around 15%. So if credit protection is flat, this has to be a substantial kind of decline.
So GTI itself is not substantial, so volume, you know.
Okay.
The second,
Credit product is also not a substantial decline, it's flattish.
Where do you see substantial decline on my page?
I see it on 15% when I, you know, try to back calculate from the protection.
Maybe we connect offline, because the numbers are not adding up. It's flattish.
Yes. Yes.
Yeah. Okay, those 2%-3% negative, not the kind of percentage you're saying.
Okay. Okay, thank you.
Thank you. Ladies and gentlemen, as there are no further questions, I now hand the conference over to Ms. Vibha Padalkar for closing comments.
Thank you everyone for joining today's call. Please feel free to reach out to our IR team in case of any further queries. Have a great evening. Good night.
Thank you. On behalf of HDFC Life Insurance Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.