Ladies and gentlemen, good day and welcome to the HDFC Life Insurance Q1 FY26 Analyst Conference Call. 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 touch-tone phone. I now hand the conference over to Ms. Vibha Padalkar, Managing Director and Chief Executive Officer of HDFC Life Insurance Company Limited. Thank you and over to you, ma'am.
Thank you, Vibha. Good evening all, and thank you for joining us for our earnings conference call for the quarter ended June 30, 2025. Our results, along with the investor presentation, press release, and regulatory disclosures, have been made available on our website and the stock exchanges. Joining me on the call today are Niraj Shah, Executive Director and Chief Financial Officer, Vineet Arora , Executive Director and Chief Business Officer, Eshwari Murugan, Appointed Actuary, and Kunal Jain, Head Investor Relations, Business Planning, and ESG. On the macroeconomic context, FY26 has commenced on a steady note, even as the broader global environment remains uncertain, shaped by trade frictions, geopolitical tensions, and divergent growth trajectories across markets. India continues to display relative resilience to recent high-frequency indicators, suggesting a mixed picture. On one hand, flows into capital markets have been strong, supported by investor confidence.
On the other, trends in consumption and early corporate earnings point to pockets of fortune. In this context, life insurance remains a compelling choice anchored in long-term savings, risk protection, and financial discipline. Our product and distribution strategy is well-positioned to serve evolving household priorities, and we will continue to assess and adapt our outlook as the year progresses. Moving on to business performance, Q1 FY2026 began on a strong note with healthy growth across top line, value of new business, and steady margins. Individual APE grew by 12.5% year-on-year, translating into a robust two-year CAGR of 21%. We outperformed both the overall industry and the private sector, resulting in a 70 basis point increase in our market share at the overall level to 12.1%, a new milestone for us, and a 40 basis point gain within the private sector, taking our share to 17.5%.
Over 70% of new customers acquired in Q1 were first-time buyers with HDFC Life, underscoring our customer acquisition strength and deepening presence across year one, two, and three markets. Growth during the quarter was led by higher average ticket sizes, supported by traction in select unit-linked and Par products. As the year progresses, we expect a more balanced contribution from both ticket size and policy volumes. Moving on to product mix, it remains well-balanced with unit-linked at 38%, participating products at 32%, non-PAR savings at 19%, term at 6%, and annuity at 5%. Contrary to initial expectations, demand for unit-linked products remains strong, supported by sustained strength in equity markets. However, our unit mix remains lower than the industry and broadly range-bound. We anticipate a gradual shift rather than a sharp swing in favor of traditional products over the course of the year.
Participating products have gained traction driven by refreshed propositions and heightened macroeconomic uncertainty. Both our new offerings, Click 2 Achieve Par Advantage as well as the relaunch of an existing retirement product, have gained significant traction. The refresh also enabled sharper need-based selling across older age cohorts and deeper tier two and three markets in select families. Non-par savings have temporarily moderated for us in this quarter as we fundamentally believe in staying away from irrational pricing. We remain confident that this segment, of which we have been pioneers of, will bounce back buoyed by a steeper yield curve. Our non-par annuity business registered a healthy growth of 25% in terms of new business premiums. Retail protection continued to grow faster than the company average, delivering a robust growth of 19% on a year-on-year basis and a strong two-year CAGR of 23%.
Credit Protect also saw recovery aided by higher disbursements, improved attachment rates, and expansion into new lending segments. While the MFI segment remained strong, the pace of the growth slowed amongst larger partners thanks to a more stable regulatory backdrop and a favorable base effect. Retail sum assured grew in double digits and registered a 30% CAGR over two years. We maintained our leadership position in overall sum assured, reinforcing our position as a market leader in protection. Moving on to financial and operating metrics, in line with our outlook at the start of this year, the value of new business for Q1 FY2026 stood at INR 809 crore, a growth of 12.7% year-on-year and a two-year CAGR of 15%, with new business margins steady at 25.1%.
We are pleased that a 30 basis point downward impact of the revised surrender regulations, as well as investment into augmenting our proprietary channel and project Inspire, was offset by a better product profile. As indicated, we are consciously reinvesting any margin gains into building long-term capability. As we deepen presence across tier two and three markets, we continue to front-load investments in distribution and technology. With 117 branches added in FY2025, taking our total to 658, and incremental assets from project Inspire getting rolled out through FY2026, we remain focused on scale and efficiency. We expect to maintain margins through the year, balancing short-term dynamics with our long-term agenda of sustainable and profitable growth. Our embedded value increased to reach INR 58,355 crore, with an operating return on embedded value of 16.3% on a rolling 12-month basis, a more representative view that smooths out quarter-on-quarter seasonality.
Solvency remains robust at 192%. Profit after tax grew 14% to INR 546 crore, driven by a 15% growth in backbook profits. Renewal collections registered robust growth of 19% year-on-year. Persistency metrics remained healthy, with 13th and 61st month persistency at 86% and 64% respectively. 61st month persistency improved across cohorts, supported by stronger retention in long-term savings products. The 13th month metric remained stable sequentially and in line with actual assumptions. On distribution highlights, all channels recorded healthy growth. Counter share within our parent bank held steady. Our focus remains on enhancing this channel's economics through a multi-pronged strategy, diversifying product mix, driving cross-sell and upsell, leveraging the bank's digital assets, and elevating customer experience. We recorded healthy growth in other bank partnerships as well. Our agency channel delivered a two-year CAGR of 10%. Post the changes in surrender regulations, industry-wide growth in agency has been uneven.
The channel maintained a healthy double-digit protection mix and profitable growth. We have initiated an agency transformation program aimed at boosting activation, productivity, and long-term viability. Agent additions remain strong, with 23,000 new agents onboarded in Q1 FY2026. Business from branches opened in the last 18 months now contributes a high single-digit share in line with our expectations. We continue to focus on improving profitability at a branch level. As part of more meaningful disclosures, we have now grouped brokers and non-bank corporate agents under the non-bank alliances category. Our distribution strategy remains focused on broadening reach and recalibrating our market approach to unlock newer opportunities. Moving on to regulatory updates, over the past few years, the life insurance industry has seen a series of regulatory changes aimed at enhancing customer transparency and strengthening sectoral governance.
Throughout this period, the industry has demonstrated resilience, with underlying value pools continuing to grow steadily. Encouragingly, recent commentary from policymakers indicates a shift towards a more stable and consultative regulatory environment. Specific concerns such as mis-selling are being addressed through industry-wide efforts, including our own focus on right-selling and process improvements. As one of the leading insurers, we remain aligned with the broader regulatory vision and continue to proactively strengthen our disclosures, effective sales practices, and customer experience. We believe such balanced regulation will support long-term growth and deeper penetration, particularly as bancassurance and open architecture become levers for expanding insurance access. Amongst other updates, we are pleased to share that MSCI has upgraded our ESG rating from A to AA, placing us amongst the highest-rated insurers in India and the region.
While the external environment remains dynamic, our fundamentals have held strong, anchored in a balanced product mix, a diversified distribution footprint, and a consistent focus on innovation, customer centricity, and disciplined execution. Our aspiration is to continue to outpace industry growth while sustaining our position amongst the top three in India. As we mark 25 years of serving Indian households, we have planned a series of initiatives through the year to engage with our stakeholders and reaffirm our commitment to being a trusted partner in financial protection. Thank you once again for your continued trust and support. For a detailed overview of our results, please refer to our investor presentation. We are now open to any questions from the participants.
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 touchstone 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 Avinash Singh from MK Global. Please go ahead.
Yeah, good evening. Thanks for the opportunity. A couple of questions. First one is o n margin. I mean, if we look at the kind of fixed of around 16% odd b etween par and non-par, and I think margin holding up is a kind of a commendable performance. Is it kind of supported by the product-level margin changes due to higher rider attachment, maybe changing PPTs, and kind of a support from yield curve? If you can just help, if I look at that context. Related to that only, I mean, a quarter earlier, I mean, in your call, you were sounding more confident about margins than APE growth in the first half. On that note, I mean, the margin outcome has not come that great. I mean, if I look at product, it's of course great. If I just look at kind of your commentary a quarter back, in that backdrop, what sort of a change when you were kind of commenting on quarter around Q4 results and through the quarter, I mean, that led to this kind of a higher acceptance or higher demand for par? This is the question one. Second question is, again, on proficiency, if I look a sharp improvement in 64th month, but let me focus on the marginal kind of a worsening of proficiency in 13 months. If you can help, what has led to this sort of a marginal decrease in 13 months? On the left, I mean, with the sharp improvement in 61st and maybe some bit of a decrease in 13, is that kind of contributing meaningfully positive towards operating finances? Thanks.
Yeah. I'll take the in-between question of what I was sounding like last quarter. If I recall, I was saying that margins will remain range-bound. Growth at that time seemed like it's going to be somewhat muted because of the macroeconomic scenario, which I think will probably continue for another quarter as well, based on slowdown and very visible slowdown in consumption as well as a tariff situation and so on still being up in the air. I think we have delivered well. In fact, if you look at slide 14, which shows the margin walk, we started off with a handicap at the beginning itself of 25%, really being 24.7% because of the impact of surrender charges. There has been an expansion of margins of 40 basis points to get to 25.1%. That is one.
Second is, if you look at, and this is something that I had mentioned, that we grew last year, first quarter, by 31%. There was a base effect which we had called out. Against that base effect, growth of, say, 13%, is very much along expected lines, but just the mathematics of that will mean that there is a fixed cost absorption, and the impact is 0.6%, which should, as the year stands out, that fixed cost absorption negative impact should disappear. I think very much in line is how I see things. Over to you in terms of the shift in mix. Yeah.
Avinash, in fact, you touched upon everything that has happened in this period, and as we've discussed in the past as well. We've maintained our pricing disciplines. We've spoken about it to some extent on the call as well. non-par mix, as you know, is basically a result of some of that. The environment is still fairly upbeat as far as equity. Thought process of customers is concerned. This is reflecting in the emerging mix, which is steady. We managed to maintain our pricing discipline on the non-par side. The mix has come down because of the equity environment as well as letting go of some business because of irrational pricing. We expect the mix to interrupt as the year progresses, as some of this pricing calibration happens in the industry.
As far as unit link mix is concerned, while the mix remains similar, the level of protection we've been able to attach has increased. That has helped us improve our inherent margins in unit link while the mix has remained the same. The participating products are inherently longer term. The margin extraction on par has also improved compared to what we had in the past. As such, at a very broad level, what's happened is that the delta between segments on margin has come down over the last couple of years, and that is something that helps us maintain a fair bit of flexibility on product mix as we go forward as well.
Yeah. One other point I wanted to mention, Avinash, just remembering back a quarter, is that we had expected some moderation in unit link. There were many things on the political front also happening. There was a lot of uncertainty that was just an overhang. That does not seem to be the case, and unit links still are fairly robust in terms of what people want to buy. That is a reality. Like Niraj said, we have worked on some of the product profiles to increase the inherent profitability of some of these products. Eshwari, you want to take the proficiency?
The proficiency in the 13th month is in a drop of around 1%, mainly because of the proportion of large ticket sizes, which has reduced due to both the changes in the taxation. This has already been allowed for in our assumptions, because when we look at assumptions, we see the experience by various parameters, of which premium size is one of them. We already knew that the proficiency is going to be lower, and that is why we see that the operating variance is still a small positive. It is not a negative, which would have been the case if we had allowed for higher assumptions.
On the 61st month, yes, the improving persistency, it is mainly coming from the products we sold four, five years ago, and we have been seeing a gradual improvement in the persistency 13, 26, and so on. That is definitely going to give a better profitability, and that is also factored in our assumptions. Hence, we do not see any big operating variance in either direction when you look at our EV walk. Hope that answers your question.
Yeah. Very clear. Thank you.
Thank you.
Thank you. Our next question comes from the line of Shreya Shivani with CLSA. Please go ahead.
Yeah. Hi. Thank you for the opportunity. I have two questions. First was on the units itself. Just on the basis of interaction with other industry participants, your performance on the unit front has been quite different. As rightly mentioned, one of you mentioned that you're attaching more protection over here. Probably that's still pushing for more unit sales. Can you help us understand that h as there been any change in the unit product design that you were selling till Q4 that you're probably selling right now, w hy are people still buying more units from you when others are still reporting there's a unit slowdown? That's my first question. My second question is from the annual, no, it's from the public disclosure for the full year.
It's basically to do with, I think you broadly touched on it, but I just wanted to get a better color on the mortality variances went negative in fiscal year 2025, negative INR 10 crore or so. And even the proficiency and other operating variance for you has been declining for three years. Any comment on this or what segment is impacting mortality and also on the proficiency? Thank you.
That's probably interesting, and pass it on to Eshwari for the second question on the variances. On unit-linked, it's all relative, right? For us, as such, while the product design keeps getting refined from time to time in terms of taking customer feedback and adding new features, that is a continuous process at our end. As such, when you're talking about maybe on a relative basis, I think for us, unit-linked historically has been in the mid-20s. In the last couple of years, it has been elevated to the mid-30s, late 30s. We have kind of maintained that, and I spoke about our ability to get more flexibility onto our product mix because of some of these changes to Avinash as well. For some of the others, maybe the levels at which the unit-linked was previously was a lot higher.
Compared to that, maybe it has moderated. For us, as such, the levels have been fairly calibrated even last year. While it was higher for us compared to what it has been historically for us, it has still been a lot lower than for some of the peers in the sector.
Got it. In the immediate quarter, there has been no change in product design or anything of that sort, right?
Nothing which has influenced. The mix, really. I think we have continued to make changes, but nothing more recent that I can think of which has contributed to any change. The mix has been fairly similar. In fact, Q4 last year, if I recollect, unit-linked mix was higher than 40%. That has moderated to 40%. On a year-over-year basis, it's similar.
Yeah. Okay. Yeah. Yeah. Thanks. Yeah.
Actually, operating variance, yes, in FY2025, there's a INR 10 crore negative mortality variance, but that's a very small proportion when you look at the overall EV of INR 55,000 crore. Just as I explained in the previous answer, when you look at the experience, you look at the experience of various parameters, and that is already factored in our assumption. We do not expect a big positive or negative variance. As we have been doing this exercise for a long period, we have got quite evolved in how we look at the experience and how we allow for it in our assumptions. That is why you see that the variance is coming down because all of that is already reflected in the VNB or in the embedded value.
Earlier, when we had good proficiency in unit-linked over the last two, three years, gradually improved proficiency, we did not allow for all of it in our embedded value because we wanted to see the trend and ensure that it is sustainable, which is why we had a big positive proficiency variance. Having seen the trend for the last two, three years, we have now captured it in the embedded value. That is why the variance is expected to be small, but broadly positive over the year.
Got it. That is useful. Just one follow-up. The mortality variance was because of which subsegment? Any particular product segment or geography which?
No, nothing specific. As I mentioned, various parameters. We look at the sum cohort, you would have had. If it is something material, we immediately take interventions like either repricing or looking at some of the due diligence we do at underwriting, etc.
All right. Yeah. Thank you. This is very useful. Thank you.
Thank you. Our next question comes from the line of Supratim from Ambit. Please go ahead.
Hi. Thanks for the opportunity. My first question is on the group protection side. This has been a category which has been declining for around six quarters. This quarter, there has been around 20% growth. Now, could you help us understand what is really driving this growth? Has the credit protect, are you seeing any recovery in growth there? If you could help us understand the dynamics here, that would be very helpful. If I move to the agency channel, again, this quarter, that growth in that channel has slowed down. I understand that you are planning at new initiatives of activating agents. If I see over the last five quarters, the growth has been on and off. Is this channel being driven by any promotional activity, such kind of one-off activity, which is resulting in the growth being so volatile? For example, if you could help me understand those two questions, that would be helpful.
Sure. I understand the need here. I think these questions. The first one around the entire group mix, I think the group products largely are dependent on our MFI as well as the non-MFI segment on the CP . We have continued to see the downward trend of MFI happening this quarter as well. We were able to more than compensate for that downtrend through the non-MFI business. This non-MFI business has been both by additional lines of businesses in the same partner as well as by acquisition of some new partners. I think the impact of MFI is now not reduced, even in that. The growth of MFI was more than compensated. That is the reason why you are seeing the growth coming back in the group business. The other question was around agency channel.
On the agency channel, like we have mentioned, we are doing a big transformation exercise, and we have seen some green shoots of those channels coming in. It is not a one-off promotional-driven activity which has seen a better performance this quarter. This quarter, I mean, our feeling is that, and whatever market intelligence we have, is that there has been an impact overall on the agency channel across the industry. However, given that volatility, we have been able to really come back and outperform how the industry has gone. Our agency market share has moved up in this quarter, and we expect that trend to continue.
Got it. Vineet, just two follow-ups here. If you could help us split out the protection product by MFI and non-MFI, what would be the mix? That would be very helpful. When you are talking about this transformational exercise in agency, what would this entail? If you could give us some pointers, what would this involve? That would be helpful.
Yeah. On the protection side, see now, with the degrowth of MFI happening over the last nine months now and maybe another quarter, this is the basic exercise to take it. We would be now at about maybe 15 kind of numbers in our MFI business, and the remaining business would be non-MFI. That is how the mix would be at this point of time. In agency, I think the question was kind of transformational I have missed that part. If you could repeat that.
Yeah. Yeah. Just wanted to understand what is the transformational exercise that you plan for the agency channel?
Yeah. The exercise is more around bringing in the basics of agency back into the river, bringing in a lot of technology around that so that we can monitor a lot of ground-level activities and how training, activation, and support, etc., is happening. Some changes around the agency lifecycle for agents and around our partners on the variable side. Some of that has responded. A lot of fundamental tweaks, etc., onto the agency program that we have.
Got it. Thank you. Thank you.
Our next question comes from the line of Nitin Jain from Fair View Private Limited. Please go ahead.
Yeah. Thank you for taking the question. Congratulations on a steady quarter. My first question is on the product mix. The contribution for non-par has increased significantly year on year, while par has gone down. How do you see this panning out over the rest of the year, and what kind of impact do you anticipate it to have on the margin? My second question is regarding your commentary last quarter on the FY2026 outlook. It was more along the lines that H1 could be slow to mutate, and growth will pick up H2 onward. Are we still holding on to that, or are there any changes to that? Thank you.
Yeah. I think going to the first question, it was the other way around. Non-par mix has come down in this quarter, and par mix has gone up. Like Niraj mentioned in an earlier answer, Non-par has seen a lot of aggressive pricing in the market, and we did retain some deliberately on the Non-par segment. That is where the non-par mix has come down. While we made sure that we were able to compensate for this through the par quarter. From a margin perspective, we are both in a similar range, so it becomes a margin-neutral exercise from our end. I think that is something that we could look at. The other one was around the commentary of growth and how did we see it.
In April, our view was that there would be some slower growth happening, at least for the first H1 of the year, given the uncertainty around the geopolitical uncertainty and some macro indicators that were there. We also expected ULIP to be slightly muted. As things have panned out, ULIPs did remain in traction. The industry growth was actually slower this quarter. We saw that happening in the industry. We were able to, given our business, etc., we were able to outperform the industry in the first quarter. I think our view still remains that the industry will be slightly slow for the first H1. We do expect that we will continue to outperform the industry.
Just maybe add quickly to the second point Vineet mentioned, the industry had a very high base last year on H1, right? That holds true for us as well. That is something that just mathematically would not be the case. On the first bit, the product mix, I think, will probably start converging. Non-par is likely to end up in the mid-20s as the year progresses, and par will probably come down slightly, but will still be upwards of 25 or 27. That is just something that is in line with what we have been trying to actually achieve as well, all the product segments being between one-fourth to one-third from a savings perspective.
Okay. Great. So just to clarify, do we anticipate growth to pick up from H2 onwards?
We seem to be positive that we have different pickups. One is the basic pickup last year when the growth in H2 was actually slower than the growth in H1. Mathematically, it could look better. Second is as we fundamentals of the economy move, I think that will be something that we will also have to discover along the way. So far, we believe that H2 should be better than H1.
Right. And margins, as we expect, they will continue to be rangebound, like within the 25-27 band kind of? Or do we see a gradual uptick as the year progresses?
No, we do expect it to be rangebound for this year. We'll take a slightly longer-term view, three years. We do see expansion, definitely. From this year's perspective, I think, especially given that the growth at an overall level is likely to be relatively softer compared to last year. Last year, we were talking about 18-20% kind of growth. This year is likely to be lower than that. The fixed cost absorption, as such, while it will even out through the year, will still be slightly lower than last year. Our investments, like we've mentioned, continue. The product mix-related upliftment will actually get, in some sense, neutralized by some of these aspects. I think that's not our objective for this period. VNB growth in line with top line will continue to be objective for this year. From a three-year, five-year perspective, certainly, there is hope and potential.
That's great. That's quite helpful. Thanks so much.
Thank you. Our next question comes from the line of Dipanjan Ghosh with Citi. Please go ahead.
Hi. Good evening. Just two questions from my side. First, in terms of the non-HDFC Bank channel, what has been the growth rate, your pound-per-share, and in terms of the product mix at some of these channel partners? Second, obviously, the present few quarters there has been mentioning in terms of improving the economics of the business and maybe the product profile of the business at HDFC Bank. What are we on the journey? If you can kind of detail some of the steps that you're taking in terms of e-ccross-selling, upsellingross-sell, after utilizing some of the digital channels of the banks, if you can give some color on that.
Yeah. So firstly, I think p artnership with all the bank partners, including HDFC Bank and non-HDFC Bank partners, is strong. We have seen a steady market share in all of those relationships. Our mix of products in non-HDFC Bank partners is slightly better than HDFC Bank relationship. The entire number of channels and digital interventions in HDFC Bank is also giving us a lot of traction. We saw that happening in quarter one. We have done more digital integration with HDFC Bank, and we hope all those things will also give us an impact in quarter two to improve our mix with HDFC Bank. To your second question on unit economics. Our endeavor on improving the profile of every product that we are doing, including adding more riders and hiring some assuring ULIPs, that's playing out very clearly for us.
All the unit economics are working very well at a product level, as well as every investment in the resources that we do. I think that is something that is a BAU for us, and we continue to improve on those factors as we go along.
Yeah. Just to follow up on the second one, I think the question is more directed towards HDFC Bank. In terms of your product profile and in terms of your economics at that channel, are you seeing improving trajectory also?
Yeah. So, the product profile, like I said, in HDFC Bank is better than what we had last year. It is looking upwards in terms of having our mix becoming more fast and improving our term product as well. A lot of digital integration that we have done has helped us improve our term shares also in that entire channel. The other part about how every unit, we track units in various ways. One is like a product method in which we are trying to improve the merit marketing of every product. Second, at the branch level, how do we interact with the partner and improve branch-level share of business and productivity? Those reviews are also very constant and BAU. That happens. We track branches in different cohorts of less than 50%, greater than 50%, and what kind of market share we have in each of these branches.
Those numbers are looking better than what they were last year. Branches which had a share of less than 50% for us are now much lower than what they were about a year back. These are the numbers which are helping us at every unit level or productivity for the sales employees.
Just to add, there is a conceptual alignment with the bank that they should, along with us, be selling protection, a lot more of protection than the current 3-4% kind of level that it is right now. Some of our other channels are anyway at a much higher percentage of protection. At least very definitive steps and conversations have already happened on that.
Got it. Thank you, Vineet. All the best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our next question comes from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah. Hi. This is one question on how the product mix and margins can move. Let's leave aside the benefit of the operating leverage eating into cost, right? What I heard from the call is that the product-level margins between non-par and par are not meaningfully different. So even if the share of non-non increases, we would not see any product-mix benefits coming in the second half in terms of margins. How would you then look at, or whether do you think that the share of units can go down and that can bring in some benefits to margins from the product-mix perspective? Obviously, I understand that you have mentioned that any benefits on product margins, any benefit of product mix will be utilized to absorb the fixed cost or invest into growth. Just from a product-mix perspective, can you elaborate as to how should we think about this product mix benefiting the margins?
Prayesh, a couple of things. One is, I think what Vineet was talking about is alluding to what I had said earlier on the call, that the delta of profitability within product segments is reducing compared to what it was a few years back for us. Because every product category is now more profitable than what it was, with the exception of maybe protection, where margins used to be in three digits a few years back. Given the way the pricing environment is in the industry, it is healthy, but not the way it used to be. As far as par and non-par, the mix is concerned, we expect the mix to become a little more moderate, where the par mix is likely to come down a bit, non-par mix is likely to be higher than where it is at this point in time.
Non-par is still definitely more profitable than par. It's just that the delta, which used to exist maybe six years back when we introduced the non-par category, was a lot higher compared to what it is today. That's really the crux of what we were saying. As the mix changes the way we expect it to over the next three quarters, you could expect some profitability enhancement coming from that mixture.
Right. And just on this, a gain, the fixed cost absorption thing, at the end of Q4, we were expecting relatively muted growth, and I think the growth has come in better than your expectation. Do you think that you would invest more and utilize that benefit of higher growth that has come in the first quarter, or do you think that the margins can expand?
Again, Prayesh, I think what we had said later was that last year was a very high growth year for the sector. And for us, we grew at 18% or thereabouts That was right about. Given the whole macro situation and the uncertainty, we expected this year to be relatively softer. That is exactly what happened in quarter one. Is the growth very different from what we were anticipating? Not really. Because, I mean, one is on an absolute basis, and second is mathematically, because of high base last year, the growth in H1 was likely to be lower than H2 for us in any case. That is exactly how it is, at least it started the year at. We did mention that our aspiration would be to continue to do better than the sector. We have managed to do that.
We still see g rowth to be lower than last year, but hopefully, the quarters in volume terms become bigger as we go forward because that's the way the business pans out as the quarters progress. As far as fixed cost leverage is concerned, again, it's relative. Vibha mentioned there is a negative 60 basis points impact because of lower volumes compared to volumes of the quarter in the previous year. This is what is likely to get erased as the year progresses. The 60 basis points negative is something that could, hopefully, if things move according to plan, then it should be close to zero. We will have to wait and see how that goes.
Got it. Thanks.
Thank you. Our next question comes from the line of Sanketh Godha with Avendus Spark. Please go ahead.
Yeah. Thank you for the opportunity. Sorry, Vineet, again, to harp on that same point, what many people have asked. You are saying par and non-par margin at the current juncture are broadly similar. If unit margins are lower than the company average margin in general, then you are saying that at 25% margin, what you are reporting, there is a fair probability that par and non-par will be upwards of 25% at product level. A broader indicator, I think, that's the case. In future, we will be indifferent whether the growth comes from par or non-par indexing. There is no, basically, from a company point of view, there is no very active reason to trade non-par to just boost the margin.
Sanketh, again, I mean, I'll just say it again if I wasn't clear. There is a difference between par and non-par margin. The difference is not as high as it used to be four to five years back, but the difference is still very much there. Non-par is higher than company average. Par is closer to company average than it was maybe five years back. That is really the aspect. Unit linked certainly is lower than company average, but it's slowly now moving in the, it's now converting towards par because of better persistency as well as higher level of commercial. The delta in margins across all the segments is very much there. Protection is still the most profitable product, followed by annuity, depending on the way we price the products at least, followed by non-par, par, and then unit linked.
It's just that the delta across each of these segments is lower than what it used to be three to four years back. The mix certainly will determine what the margins end up at. If the non-par mix improves in the remaining three quarters, it will definitely give an upside to the margin compared to what you are seeing today.
Basically, in the waterfall of 100 basis points improvement due to new product mix, or sorry, better margin profile mix, is predominantly because of your ability to attach higher commission or higher riders to the unit. That is a very simple exemption to make, assuming that par grew at the expense of non-par, at least in the current quarter.
No, unit-linked is certainly one part of it, but it is also protection. Also, again, I guess in decimals, it does not show up. The mix has gone up compared to last year. Credit protect also has grown in this period. Nideesh spoke about that. Annuity is a lot higher compared to last year. It is about, I think, up to 20% growth in this period. A lot of these things are margin-accretive, as you know, in terms of segments. Each of them has contributed to the product profile. Product profile has all of these aspects apart from the inherent margins of the segment itself.
Last one, how much of unit has higher commission? What is that level, basically? Maybe if you can give a little data around that, will be useful.
We do not really get into that specifically given a lot of these things are not where we make public disclosures, but it is now becoming a very meaningful part. I think it is higher than what it was last year. It is now becoming a lot more meaningful than it was when we started the journey two years back.
Okay. Thanks for your answers.
Thank you. Our next question comes from the line of Nideesh Jain with Investec India . Please go ahead.
Thanks for the opportunity. My question is on annuity growth. Our annuity growth still is quite weak. Though we have done quite fairly well on APE growth despite our base, annuity growth is a bit weak. A couple of years back also, when annuity growth for the sector starts to decline, we enter into growth sort of a problem. How do you see annuity growth panning out going forward?
Nidhesh, you're right. If you look at this on a quarter one basis, on a two-year CAGR basis, we have grown about 10%. Also, I'm reasonably confident that rest of the year, as we progress, NOP growth should come back. If you were to look at every cohort, that is about 1 lakh ticket size. For us, we have grown fairly well. In some of the lower ticket sizes, based on some of the experience that has panned out, we have consciously gone back to the drawing board, re-looked at some of our assumptions, pricing, and that happened towards May, June of this year. That's really what is impacting it, but NOP growth should come back. Do you want to add anything?
Yeah. No question. Just reiterating what Vibha said. Certain lower ticket size segment is where we have deliberately gone slower on NOP growth. Putting in some models to figure out which is the profitable segments to pick up. While all other segments we have seen are increasing NOP growth. That is not a challenge. We expect this to also even out.
Sure, sure. Second question is on complement density, non-par, and annuity. What actually is driving that? Because post the surrender early norms, we thought that complement density from enlisted players will reduce. Given the surrender exemption, etc. It seems like the complement density on pricing has further increased in Q1.
Yeah. I guess i t is i n some sense, what's happened is some players are becoming more calibrated, some at least the way we see it, more aggressive. In balance, I think the intensity is still fairly strong. I think as far as the single-view annuity products are concerned, it's I think, a little more straightforward to kind of understand. As far as non-par products are concerned, there are other aspects there in terms of the kind of how the surrender value builds up across different products. Some of this also plays a role there. It is something that we need to be watchful of. As we've said in the past as well, our long-term proposition really is something that we will focus on.
That is something that we will, given the way the interest rate environment is likely to move in the rest of the year, this category will definitely be a lot bigger than what it is at this point in time. From a mix perspective, we have some launches planned as well that also does d emand moves with some of that as well. We have had launches in the par product, like Vibha mentioned. Some of that also does move demand. While we have to deal with whatever pricing environment is there in the marketplace, that has not necessarily always been the issue from a demand and product mix perspective. The competitive intensity has been high in the past as well. The non-par product mix has been in the mid-30% right through this entire period. We will continue trying to do different things, new things, and stay away from just pricing game.
Sure. Thank you. That's it from my side.
Thanks.
Thank you. Our next question comes from the line of Nischint Chawathe with Kotak Institutional Equities. Please go ahead.
Hi. Thanks for taking my question. Just curious, what is our moat in the non-bank alliances? Especially, I think as I see the product mix, the share of units is fairly high in this segment, especially where it's a multi-insurer shop. One might just be a little bit more careful in terms of participating in these challenges.
When we say non-bank alliances, there are two categories that we have merged, and we have combined all the corporate agencies together. I think there are some partners who are higher on unit and do more unit, and that's gone up in the first quarter. Overall, the mix is fairly within line with what the organization mix is as far as unit is concerned. It is not that it is very high on the non-bank alliances. What also happens is that at a unit level, at a partner level, especially in the non-bank alliances, our commercials are completely aligned to what the margins of the products are expected to be or what kind of expense that we can charge to those people. I think from that angle, this does not really impact the margin, etc., more on the non-bank.
I want to add here, Nischint, that you will find, and you will be surprised, that some of our channels are operating at higher than company level, slightly higher than the company level margins. Despite some of the product mix that you see on slide 17. It is a function of two or three things. One is, like Vineet said, at what commercials does it make sense? It obviously cannot be same commercials, agnostic of whatever is being sold. Second is that, what kind of persistency is that channel delivering? Because, like Niraj mentioned earlier, it can have a very different outcome on the fortunes of a unit-linked product for the company. If persistency is a lot higher, some channels are able to deliver much higher levels of persistency.
So it is a combination of these things that is now getting more nuanced that it is not necessarily that unit-linked will lead to a poorer outcome on margins. That is what I think we calibrate on a daily basis at a channel, sub-channel level. Philosophically, each one of our channels will and do operate very close to company-level margins. Some of these things, say, the channel CEOs do very well in terms of meeting with channels where demand is, what can be evangelized to the system in terms of rider attachments and so on. Some things matter. For a particular channel, maybe fully underwritten product, say, protection product is fine as long as there is straight-through processing. For another channel that is a lot more sensitive to price, that might not work, and so on. Many, many nuances on that, as against just a unidimensional impression that slide 17 in our presentation gives.
Also, just to add to what Vibha mentioned, if you look at the mix, I'll just highlight maybe two differences. If you look at non-par mix, it's 27% for non-bank alliances versus 19% for the company. If you look at term, it's 14% versus 6% for the company. This itself tells you the kind of ability to have product mix, which is very different from what you see in some of the larger banks. That really definitely helps in terms of maintaining the overall profitability at the levels that we want.
These are all multi-insurer shops, right?
Absolutely. All of them.
Perfect.
Actually, I'm sorry, e verything else, out of the four quadrants, everything is multi other than Vibha, which is a gents. Agents also, realistically, there might be 12 agents, might be multi.
Sure. Great. Thank you. Thank you.
Yes. Thanks.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, may we request all participants to limit to one question per participant? Should you have a follow-up question, we would request you to rejoin the queue. The next question comes from the line of Mohit from Centrum. Please go ahead.
Yeah. Thanks for the opportunity. My question is on the retail protection too. Have you seen any repricing in the retail protection? We had introduced three protection products past year, Ultimate Super and Elite Plus. How has the performance been for that product?
Yeah. So I think all the products that we spoke about are doing quite well. They were targeted at different segments that we did not have solutions for earlier. All of them have started to scale up and are doing quite well. As far as pricing is concerned, I think it's more a gradual business-as-usual granular approach. It's not any just to, I mean, to answer it clearly, there's no big bang change that we've seen. As Eshwari mentioned earlier, as we go deeper into India, we can expect different customer experience. That customer experience needs to be either priced for or it needs to have a different underwriting process or a combination of both. That's what we're kind of trying to do over the last few years. It's a continuous learning process.
As we get more data, access to more information, we're able to make the process friction lesser, but still be able to assess the risk. At the same time, getting surrogate information to be able to make our assessments. At the same time, you referred to some of the new products that we've launched. Some of them have actually helped us address that in terms of getting through to different customers. For some, process ease is important. For some, pricing is important. For some, flexibility in terms of how their coverage shapes up for the year is important. A lot of these things play a role. Pricing is one aspect, but not necessarily the only thing really required. The other aspect of pricing is in terms of the reinsurance capacity has been reasonably stable. In fact, we are seeing some enhancement in capacity.
They are willing to take a slightly longer-term view in terms of increasing penetration. The pricing is definitely a lot more sustainable now compared to what it was probably three to four years back from a reinsurance perspective. That is going to actually be a good development from a sustainable growth from the sector perspective.
Thanks. Thanks for the slogan.
Thank you.
Thank you. Ladies and gentlemen, we will take two more questions after this. Our next question comes from the line of Aditi Joshi from JPMorgan. Please go ahead.
Yes. Thanks for taking my question. My question is broadly related to the channel side. As you have described in the previous comments and the questions as well, the agency channel has somewhat suffered across the industry from the surrender regulations. Given this quarter's trend, the growth was significantly higher in the other channels like Exet Bank and agency. Going forward, do you think this trend is likely to be continued, or can we see some pickup in the banker channel, especially given that agencies could remain at this level of growth for a while? Just some color on how you're thinking about the growth across the channels would be helpful. Thank you.
Yeah. So I think for the year, clearly, we are looking at all channels growing at very similar levels. In fact, given the investment that we are doing in agency, we expect it to grow faster than the other channels during the remaining months for the year. As the impact of all the investments and all the transformation exercise comes in, we should see better growth coming into agency channels as compared to others. Overall, for the year, I would say all the channels, we are expecting them to grow at a similar number.
Especially on the bank side of the channel, Nadeep, even if you tell them how HDFC Bank and Exet is doing as compared to the other banks. Going forward, especially in the banker, you think it's basically only the base effect that is showing up in a low double-digit growth, or how are you thinking about that?
Vibha mentioned that the counter-share expansion in HDFC Bank happened in Q1 and H1 of last year. That is something that is now steady. The growth that we get from HDFC Bank is going to be more reflective of how the bank grows, which has been fairly steady in this period. Other banks we spoke about earlier are we continue to obviously compete in intense open architecture while maintaining our overall approach of growth of liquidity and risk. That is something that will develop as the year progresses. All the channels are growing. Agency that we spoke about and our aim for the agency business is what Vibha spoke about. As far as the banks are concerned, I think all of them are growing reasonably well.
Yeah. I think some.
Sure.
Some general volatility in any of the banks just keeps on happening based on some competitive pressure and what we might do practically for a shorter period of time in that particular relationship. Overall, for the year, we do not expect it to vary much from each another. Every channel should be in the same range.
Okay. Got it. Thank you so much.
Thank you. Our next question comes from the line of Nitin Jain from Fairview Private Limited. Please go ahead.
Yeah. Thank you for the follow-up opportunity. My question is on the growth that we have seen in Q1. We have certainly done better than the industry in Q1, which is also reflecting in the market share gain. Have we also done better than our own internal expectation that we had at the beginning of the year, given that we have a high base for H1? If so, are we a little more upbeat about FY2026 growth, or is there no change from the view that we had at the beginning of the year?
Yeah. Nitin, this is very much in line with our beginning of the year expectation because if you were to look at a two-year CAGR basis, it's 21.5% growth. That, you will agree, is a fairly handsome number, even versus some of the buoyant periods that the sector has seen. Yeah, I think very much in line. Also in terms of margin delivery and so on. Digesting the impact, the 0.3% or 30 basis points impact of the surrender charges and so on, we've seen, in a way, an underlying margin expansion of 40 basis points. VNB growth also on a two-year CAGR basis is 15%.
Great. Okay. That's helpful.
Thank you so much.
Thank you. Thank you. As there are no further questions from the participants, I now hand the conference over to Ms. Vibha Padalkar for closing comments.
Thank you for joining us today. Should you have any follow-up questions, please feel free to contact our investor relations team. Wishing you a pleasant evening. Thank you.
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 line.