Q1 21/22

Jul 19, 2021

Good day, and welcome to the Q1 FY 'twenty two earnings conference call of HDFC Life Insurance Company Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference call over to Mr. Wizzah Pedalkas, MD and CEO, HDFC Life, thank you, and over to you, ma'am. Thank you so much. Good evening, everyone. Thank you for joining us for the discussion on our results for the quarter ended June 30, 2021. At the outset, I must apologize for the delay, which was due to our AGM being slightly longer than what was anticipated. Our results, including the investor presentation, press release and regulatory disclosures are already available on our website as well as that of the stock exchanges. I have with me Suresh Badame, Executive Director Neeraj Shah, CFO Srinivasan Parasati, Chief Actuary Ishwari Murugan, our appointed actuary and Kunal Jain from Investor Relations. I will run through the key highlights of our quarter 1 FY 'twenty two results and would be happy to take questions post that. With signs of the 2nd wave receding, we have seen a gradual pickup in economic activity across parts of the country starting June. We are expecting a continuing revival with easing of lockdown restrictions and extensive vaccination drive and are hopeful that the severity of future incidences would be lower than what we have seen so far. Moving on to our business performance. We saw business disruption during the 2nd wave of COVID. While the economic restrictions were fewer and also more localized as compared to the 1st wave, The health impact was a lot more devastating this time around across our country. Against this backdrop, we recorded a 22 growth and a market share of 17.8 percent in terms of individual WRP in Q1 FY 'twenty two. Given that the trends have varied by region and the possibility of future waves cannot be ruled out, we will continue to be more segmented and localized in our approach, taking 1 quarter at a time. Our product mix continues to remain balanced with nonpar policies at 32%, Protection and annuity at 8% and 5%, respectively participating products at 29% and ULIPs at 27%. Our annuity business saw strong growth of 61 percent visavisquarterone FY 'twenty one. We continue to address the long term opportunity in protection in a calibrated manner and remain confident about the medium- to long term prospects of protection in India. We saw a pickup in credit protect business on the of higher disbursements, registering a growth of 204% in quarter 1 FY 'twenty two. Moving on to our claims experience. In the quarter gone by, we witnessed a steep rise in debt claims with peak claims in wave 2 at around 3 to 4x of the peak claims volumes in 1st wave. We paid over 70,000 claims in quarter 1. The gross and net claims provided for amounted to INR INR15.98 crores and INR9.56 crores, respectively. It appears that claims on individual business have peaked in June and expect them to normalize in the coming months with more people getting vaccinated and a fall in absolute number of infections. While this wave has been steeper, it has been shorter as compared to the first wave. Based on our current claims experience, we have provided for an additional reserve of INR 700 crores to service the claims intimations expected to be received across our individual and group businesses. Group claims tend to have a higher lag as compared to individual claims, and we remain watchful of emerging trends. Our continued approach would be to review the adequacy of this reserve at periodic intervals based on actual experience. At a broader level, we will monitor overall mortality claims at claims in excess of our estimates rather than Segregating claims based on cause of death. We endeavor to promptly settle every bona fide claim. The strength of our balance Cheat and back book surplus has enabled us to absorb the shock of heightened claims whilst continuing to deliver growth. Moving on to other financial metrics. In comparison to Q1 of last fiscal, the company saw higher renewal collections with 13 month persistency improving from 87% to 90%. We expect this trend to continue for the rest of the year. Our new business margin stands at 26.8% for the quarter, higher than 24.3 percent delivered in Q1 last year and 26.1% in full year FY 'twenty one, with value of new business at INR 408 crores, a growth of 40% over last year. This has been achieved on the back of growth across channels and a balanced product portfolio. Our normalized operating return on embedded value, I. E, before factoring in the onetime mortality reserve creation stands at 16.5% as against 15.8% in Q1 FY 'twenty 1. Our profit after tax stands at INR302 crores, 33% lower than quarter 1 FY 'twenty 1, on the back of higher claims Our solvency position remains healthy at 203%. Turning to channel and product performance. Our Banca channel grew by 16% based on individual APE with robust growth being recorded across most of our corporate agency partners. We've also seen an upswing in face to face channels. Agency channel grew by 49% compared to the previous year. We are witnessing a gradual increase in branch walk ins that aid our direct channel and continue to see improving trends in our online channels as well. We are proud to announce the addition of ICICI Securities and TVS Credit as our bank assurance partners. Next, on our response to COVID-nineteen. The pandemic has impacted lives across the world. For organizations like us, it has been a test of our resilience and agility to adapt to the ever evolving situation. In the interest of the health and safety of our employees, We at HCFC Life started a program to facilitate the vaccination for our employees and their families. A majority of our employees are in the 18 to 5 years age group, and our endeavor is to get all of them vaccinated as soon as possible. More than 60% of our employees have received at least one dose. We have also undertaken various other initiatives like adopting a work from home model, introducing new digital platform for sales and service. Through our tie ups with medical service providers, we have been offering ICU at home in certain geographies, doctor on call services, oxygen concentrators, and mental assistance helpline, medicines and lab tests at discounts amongst other initiatives. We also provided financial assistance to our employees in case of medical exigency of self or a family member. We have embarked on our integrated reporting journey to articulate our approach to long term value creation Our annual report, integrated report and ESG report are available on our website. To conclude, We see greater customer engagement and an increased interest in life insurance policies with the concept of human life value gaining relevance. Additionally, we have also seen an increasing adoption of digital services by customers. We are not still out of the woods and hence, We'll continue to maintain a cautiously optimistic stance. I would like to reiterate our focus on surpassing industry new business growth and delivering an upward trajectory on new business margins while adhering to a robust risk management approach. In the end, we would like to extend our sincere gratitude to our employees, partners and other stakeholders who have worked relentlessly during these trying times to provide best in class Our customers and also thank IRDAI for their continued support. The detailed disclosure on our results is available in our investor presentation. We wish you and families a safe and healthy time ahead. We are happy to take questions now. Thank you very much. We will now begin the question and answer session. The first question is from the line of Suresh Pantanid from Macquarie. Please go ahead. Yes, hi. Thanks. Vibhu, I'll just take a quick question. First, a quick number clarification. The 5,500,000,000 Impact on EV, net of that 1.65 that you have taken, right? I mean, you had already provided for, right? Yes. That's correct. So out of that 1.65, we had some left over. So out of 1.65 crores, we had about 69 crores left over, Suresh. Okay. You still have another RMB69 crores left over. Yes. Unutilized, yes. And then on top of that, you're providing another RMB7 1,000,000,000. Well, the RMB7 billion subsumes the RMB69 billion subsumes the RMB69 billion subsumes the RMB69 billion subsumes the RMB69 billion. Yes. Okay. That's clear. Now, Vibha, don't get me wrong on this, But when we had specifically asked at the end of 4th quarter that is RMB1.65 billion adequate, Of course, nobody would have anticipated the COVID wave and second wave could be so legal. But unfortunately, the eventual impact has been Almost 3, 4 times more than what you had anticipated. How sure that this RMB7 billion now takes into account All possible things. You may be still having a lot of things in the pipeline. I understand some of these things come with a lag. Are you confident that this time around the $7,000,000,000 is adequate? I think so because what we have done is the statistical modeling of deaths in India, Regions where that has happened to down at the state and even further granular level, whatever data is available, we have Done that. And then map that to our customer base and what is the shape of the curve. And that's why in my opening comments, I mentioned that the shape of This time, Suresh, is that it is certainly thicker, but we it is shorter as against more prolonged. And so we believe that the debt the peak was, I think, on the 23rd May. That will start resulting into Claims, but will peter out maybe by the end of August with that kind of a lag. And that's So really how we are seeing it pan out. And also to give you a sense, we have touched about 300 claims a day. That is Progressively going down sub-two 100 very, very steadily on a day and we track this on a daily basis, and we can see That decline in a steady manner. But having said that, with any projections, whether it is actual projections or claims projections, it is ultimately a projection. But At this point in time, we have actually heard on the side of caution. That's the other point I also made on group claims that It does take group claims typically take us a little bit longer to be registered as a claim. And so there's some bit of caution there. Might happen, might not happen. But right now, we believe that this is a reasonably cautious Amount of claim that we have set up. Puneet, do you want to add anything in case I missed Yes. Just one point I just wanted to add. Suresh, when we set aside INR 1.65 crores back in April, That was like the change already occurred as of 31st March and Anyal, sort of spillovers from March is what we were providing for. And like we've mentioned, after RUB 165, We are still left with INR 69 crores from that. So we couldn't anticipate what was going to hit us in the month of May because the month of May was really Fatal, from a claims perspective. And what you're now setting aside is for, again, the Kind of, whatever happened, because there is a little bit of a reporting delay that comes in. So whatever happened, thus far as the 30th June is what we are setting aside. Now if there is something that's going to hit us 2 months down the line, another wave hitting us and all that, that we are unable to foresee. So hence, what we set aside last quarter was based on what we knew then. And like I said, we are still left over with INR 69 crores of that INR 1.60 crores amount. Now based on what we now know, we set aside INR 700. But if there is something that's going to hit us in September, October, that we don't know. Okay. That's very clear. Helpful. Now just quickly two questions. One is on the reinsurance side. Are you guys viewing this? Because obviously, unfortunately, they are taking the bulk of the pain. Are there any negotiations being carried out from a pricing perspective there? And secondly, or rather the final question is, in terms of the protection demand, if you were to look at it, individual protection is down 4%. Now, I mean, I understand the longer term potential, but you know, Vipa, we need to be really careful about the tailwinds Going into the smaller cities and centers. So is it a demand issue? Is it a supply side issue? We are hearing a lot of these life insurance companies Certainly, group term insurance and all those stuff and being very reluctant. I just want your stance on that. Yes, absolutely. And this is an area that We have been cautious right from the beginning, as you know. And 2, 3 parts to this. The first one is on individual protection. And it's something that we've been saying that what the formula that worked or the DNA of the customer that worked in what we were seeing in cities and salaried customers in Versus interior, there was a deterioration in claims experience. And all of what I'm saying is before COVID. So think to do with COVID. Even without COVID, we were seeing a deterioration, and we were very, very careful in having additional checks and risk based Underwriting rather than one size fits all underwriting. So you're absolutely right, Suresh, that one has to be extremely careful. That is number 1. Number 2 is that, to your point on reinsurers, they have a hypothesis. They have checks that are required, and we Have to ensure that once we agree to a certain level of underwriting, we have to get it done because post facto, if we, As insurers just do something else, then they would have the right to say, Sorry, but I'm not going to honor these claims. So largely, it has to Be in sync. It has to be done jointly. It cannot be that it will be a very short term approach to say, what, my book is reinsured because it's a partnership. That's the second point. 3rd point is we've always stayed away from group term insurance. Unless we really understand The counterparty very well, and we feel comfortable with it because the pricing tends to be extremely fine. So it is a it has unfortunately become a fairly commoditized product, and we have not Been successful in making money there because even one additional debt can really throw your pricing out of gear. So we have largely stayed away from that, and it can suddenly be a large hit in terms of employees of 1 Corporate or even in a nonemployee employee relationship. And the 4th is on Credit Life. On Credit Life, also, they can Often, we are raised to the bottom in terms of price cutting. And one has to see whether pricing versus what are the what is the underlying A mortality experience, and does it fit within our risk framework and be okay to say, no, it doesn't make sense for me at this P. Vijay Kumar:] And MFI experience could be very different From some other NBFC experience and so on. So I've always maintained this is that growing protection isn't very But making reasonable returns and protection is fairly difficult. And that's where I think it's possible, But it will happen slowly, and that's where I think a calibrated risk and underwriting model, calibrated way of growing it And the percentage, ma'am, minus 15%, 20%. As against this undue focus on what is protection as a percentage of Your it was 8% last quarter, pressure for it to become 10% this quarter and so on. I think one has to Really stay away from those kind of pressures or temptations to just grow that very rapidly. Okay. Thank you. Thank you very much. Thank you. Ladies and gentlemen, in order to ensure that the management The next question is from the line of Arasangai from BT Capital. Please go ahead. Yes. Hi, good evening, ma'am. Hope all well at your end. So I had few questions. My first question was around the claims that we have received. The majority of the claims, we seeing a deterioration in the group part of it or the retail part of it? So right now, we're seeing it in the retail part of it. So ma'am like It's a group. It's not that group is completely immune from what is happening overall In the country? There is deterioration in group as well. But right now, we are seeing an acceleration of individual claims. So ma'am, in the Like some of the disclosure you have mentioned that we have almost expected that the claims have peaked out. So the INR 700 crores that we have made, is it Keeping a reasonable amount of like a reasonable amount of cushion or we are more than certain that this might get utilized? Just a qualitative percentage if you could share any Detailed on it. Just to give us some kind of assurance that we might not see any negative surprise going ahead. Yes, absolutely. Like I mentioned to Suresh earlier, We have heard on the side of caution. Ma'am, one last question I had was on the retail protection Trajectory and the GTI business as a whole. So like we have been pretty cautious about this. And I think for the past 3 or 4 calls, we have been pretty cautious about retail protection. So Like, since the wave 2 is like kind of coming to an end, how do we see the demand or supply picking up here? Are we still being cautious here? Or do we see that maybe in the next Few months we might get active here. That's the first part. And second part, ma'am, like on GTI, you mentioned that we have never been making money in this particular segment. But In the industry, we have been hearing that some players are getting very aggressive in this. So just wanted to understand, is it that they are satisfied with less Profits on this business or they do some kind of different things that which we are not able to undertake or which we are not satisfied to do? So on the first question, we do believe that there is an opportunity in protection. We are so underinsured as a country. There is a renewed Awareness about the need for pure protection, thanks to the pandemic. So our approach remains calibrated. It remains wherein we are wherever we are able to understand who the DNA of the prospective customer and what fits into our risk appetite, we will cover. But at the same time, we will also walk away wherein we or defer where we think that underwriting right now is not possible or medical tests are not possible. There's always a case when somebody else is willing to underwrite, and that's okay because these are all long They're not products, and we'll really come to know only down the line. But is there an opportunity? There is an opportunity. Is it going to be meteoric? That's where we will be cautious. To your second question on GTI, We have always remained calibrated in that because of the very fine pricing, like I mentioned to you, and also the Situation wherein a few, worsening of a little bit of mortality experience can pretty much wipe out everything. And there is next to no underwriting there in terms of medical. There is at higher covers, but otherwise, you're underwriting Somewhat in the blind, and you're underwriting on the basis of some past performance that might have been with some other insurer. And it's often without, and there is a raise to the bottom. In that kind of a situation, we've always stayed away. So we're right next to nothing in terms of GTI business. The next question is from the line of Shreyas Shivani from CLSA. Please go ahead. Hi, this is Adarsh. Couple of questions. One is the DNB walk chart that we have. The mix of business has broadly remained same between Q last year and this year and margins have ticked up versus 1Q. Is that because 1Q last year would have had weaker protection Because of repricing, that's kind of rebased and hence that's the margin uptick we see? P. Vijay Kumar:] Hi, Adesh. Yes. And also, you'll remember that 1st quarter did not Have next to nothing in terms of credit life. So that has come back to over 200% growth. So that also does help. And of course, there is repricing also. That so it's these are the two, three reasons why Annuity is another reason, the 61% growth that I talked about. Got it. 2nd is, again, this protection thing, And you kind of already spoken about it. What I would tell you is clearly that the underwriters or reinsurers are also Tightening up norms, right, the increased price and now tightening norms. I just want to understand when they tighten norms, It broadly means somebody are there, little more, their asking rate of what they want to underwrite has changed and that leaks into the population side, So I just wanted to understand dynamic because on one side, I would think a pandemic Does make people to go and buy health or protection businesses policies. And on the other side, you have a supply issue of Person wanting to tighten underwriting and even the companies, right? So does it shrink the population side a little bit whom you want to underwrite or the System wants to underwrite, but underwriters are now very sure that they don't want to do that business. What's happening on ground on that? Adesh, I think more than shrinking, I think it just makes whole process more realistic. This is not over the table issue, it in 2 seconds, 2 minutes, What do you call it? So at a certain risk profile with some checks, a large population will get some kind of cover. But the realistic word I've used is that maybe some more medical tests are required, maybe some more KYC and financial documentation is required, Maybe a rate up might happen. Maybe the sum assured might be lesser than what they originally started off with. Maybe some other forms of cover might be more suitable than just a very high term cover. So that is a more sustainable way of looking at it than just sign up something over the counter with no checks. We were getting into that mode as a sector Just before the pandemic hit because term suddenly became the new kid on the block. And I think I've said this at least on 3 calls that That is not in our view. At least high sub assured, that's not how it's going to be sustainable. Yes. Low ticket, low subassured over the counter, that's fine, or a PMJ, JPY, and you're talking about 200,000, 400,000, but it can't be for 1 crore kind of a cover. So it'll just evolve hopefully to being more realistic. From both ends. What are we asking for? What is the expectation of the customer and so on? In any sense, Vibha, what's the kind of business being weeded out given the higher asking rate of reinsurance? Some obvious ones are wherein there are co morbidities, there is a nondisclosure Which can get detected if someone goes for a medical test or the somebody is over insured And we do use data such as IIV data and say that what you need to show me more of income generation For a justification of such a high cover, those sorts of more, I think, peripheral fringe cases will certainly get weeded out very quickly. And that is good because the last thing we want to do is not pay claims. We would rather philosophically just say no to such business upfront. Got it. And my last question, Linda, is through last 2 years been quite innovative and got new products, Catered up those products and they are relatively better margin products than what the other products used to be, the oldest savings product. Now at the end of the day, these are commodities, right? There is a guarantee involved in some or there is a bonus involved in some. So just wanted to understand What gives the comfort on margin protection in these businesses over a medium term? So the way it works is a couple of things. One is 1st mover advantage of being the innovator, and that's something that HDFC Life has consistently been. And so that segment is associated. So rarely will somebody buy a product of the contours of Sanjay Plus without Evaluating Sanjay Plus. I'm not saying that they will always buy Sanjay Plus, but certainly, there is no struggle to be called to the To being part of the consideration set and then it just increases your chances when you fall of getting picked. 2nd is that it's no longer it's not especially Post pandemic, it's increasingly becoming lesser of an IRR or a lowest Pricing on term mindset, which is also a good progression and a good way of looking at insurance and not Bargain hunting on insurance. 3rd is that various other things. So for example, how we use analytics to ask lesser questions Because we already know or have a good view of who the customer is, using connecting a lot of data through analytics to be able to give seamless Onboarding preapproved summer short or inksai ensure that we call with a pre click journey, Easy policy for our term, wherein a lot of the fields can be prepopulated. So those sorts of Ease of onboarding through the use of digital and analytics starts becoming a differentiator. 4th is that overall, the brand promise, the comfort That ultimately, this is when it's a moment of truth, the company will honor its promise of paying the claims. So we're finding that evolving wherein, like I said, it's no longer just about the price Whatever it is that the person is trying to buy. Got it. Thanks a lot, Anshul. Thank you. The next question is from the line of Prakash Topkaria from Moneymade Portfolio Manager. Please go ahead. Yes. Thanks for the opportunity. I had two questions. If I look at the employee expenses, they are up 40% on a year on year basis. So Is it some increment or any one off in this quarter? And on a going forward basis, do we expect this $4,500,000,000 kind of run rate on Employee expenses to continue. And on the VNB part, there is one negative item of change in assumption. What is that if you could clarify that? Yes. So as you're aware, last year Q1 was definitely an outlier in terms of The times were very, very different. It was a full lockdown and all of us were sure that there's a lot of uncertainty ahead of us. All of us were very conservative. We were very conservative in terms of hiring. We were very conservative in terms of offering increments. So that is something that Skewed the number in Q1 of the previous year. Since quarter 2, as growth started coming back, we did mention that expenses will start to normalize, And that's what started happening. And since then, there has been a growth in every quarter significant growth in every quarter, including quarter 1 of this year. So expenses have started normalizing. We've got into new partnerships. Subha spoke about some new partnerships that we have added now. We had added significant partnerships last year like Bank and SBI caps. So, of course, we are looking at deepening our penetration in existing partners. So Large part of the hiring happens in sales at our partnerships and it's more normalization in line with growth. And what do you see It's fair to assume this kind of a underach should continue on a quarterly basis? So you will see some sort of efficiencies that will come in with increase in productivities over a period of time. But as long as we continue to distribution, we would continue to invest as we mentioned in the past, both on digital as well as on human resources as in the required. And this Would have the impact of increment also given this year. Of course, of course, yes, absolutely. So we what we did last year as things started Stabilize for a large part of the organization at junior levels, we gave increments from the second half of the year. And We do expect hopefully if the times continue to be stable, normalcy to be restored, yes. And there would be increment impact in Q1 of this year, yes, absolutely. So, Niyal, if I can add one would be the increment, the other would be at a certain level and above last year we had not given bonuses, we had kind of done that. So that will reflect? Absolutely. So mid to senior level is also part of this? Yes. So we were conservative. We had not or rather we had reduced bonuses at senior levels last year. This time it has been more normalized given the way the year has Sorry to interrupt. May I request Mr. Prakash Kapadia to please rejoin the team? We have participants waiting for the tone. It was just that question only and second, you know the BNP being that negative? So The V and P assumptions that you are referring to is to do with the assumption changes that we do every time in the month of March. So this was the assumptions, Chase, that we put through last quarter. And this is with regards to mortality Variance, a little bit of persistency variance or assumptions changes that we put through last quarter. So that's what you're saying. We didn't put anything this quarter. Understood. Thank you, Elizabeth. Thank you. Thank you. I requested the participants to please limit their question to 1 per participant. The next question is the line of Uddit Sariwala from Ambit Capital. Please go ahead. Hi. Thank you. My question is, if I understood it correct, The INR165 crores, which was provided last quarter, was more Keeping in view the claims which were already logged in with the lag and since That was the quantum. Is that understanding correct, given the explanation earlier on the call? It was for debts That may have already happened, but may not have been reported in that period. So given what we are seeing, we did discuss earlier about Looking at India mortality trends and looking at our own experience. So using that, we had looked at what claims could potentially come in From debts that have not been informed to us yet. So largely, it was that. But then just The question was related to that was then why take it as a part of operating assumptions, right? Because my whole point is if You're taking a 500, 600 crores, 700 crores incremental reserve at this point, Which is subsequent to our operating assumption change in the last quarter, which effectively kind of points out that maybe the earlier assumptions were too aggressive. Is that the right way to look at it? So not really, Udit. See, the thing is if you look at the VNB walk Rather the EV work, you look at right from the starting EV till the EVOP, all of it as such It reflects what has happened to the EV from the beginning of the year at an operating level. Now we had made certain assumptions at the beginning of the period. If you recollect, we had also strengthened our mortality assumptions From a long term basis perspective, we had made this INR 165 crore of reserve in anticipation of claims that could come In future, and that's what we did refer to. We had settled X amount of claims in quarter 1, and Our reserves were enough to meet all the claims that we actually settled or all the claims that we recognized in the period. So the INR 700 crores is we do believe that it is fairly Peculiar to the times that we are in right now. On a long term basis, whatever we thought we had to reflect in our assumptions, we did it at the beginning of the year with that INR 120 crores assumptions strengthening. This is not what we believe is the ongoing continuous or rather adverse mortality that we will expect From for times to come. That's the reason why it's reflected as a one time excess mortality reserve, which we've created. But whichever way you look at it, as such, ignoring that one time impact, you look at the EVAP and then we've given you the Impact of this one time setup as well. So after that, it's about a 2% hit on the EV, which has been recognized in the P and L To the extent it belongs to other than power and the hit is reflected in the embedded value as well. Sir, if I may just I'll say one thing here. The 165 is not assumptions change. The assumptions change is separate from this 165. So 165 is a one off hit, If you like, the P and L taken. On top of that, we had a consumption change of INR 120 crores. It proved different things that we did in the last quarter. And this year, when you're setting aside INR 700 crores, that is not assumptions change. It is again One off hit to the P and L. And assumptions there are no new assumptions change that we could through this quarter. So we would put in an assumption change only if we believe it's a long term Trend that we should expect. Like if we expect something to deteriorate on an ongoing basis, then you would reflect it in the assumption change. If there is something which is a one time date, we would recognize it as something which is different from what we had, what we are seeing on the Thank you. The next question is from the line of Netin Agarwal from Othulu Lothfeld Securities. Please Go ahead. Yes. Hi. Good evening, everyone. So a couple of questions. Firstly, what has driven this slight increase in solvency ratio during the quarter despite like sharp Rise in claims and creation of excess modality reserve, the solvency ratio has still improved. So what has driven this? Go ahead, Srini. So solvency typically goes up every quarter. So this is in spite of We're setting up a reserve because, Zimab, in the Q1, as a normal basis also, we see solvency going up because of new business trend being lower in the Q1 typically than the last quarter of the year. Plus also this year, because of the market Very well. Our available solvency margin is also much higher than usual. So both these things combined as central and softness ratio being better in the last March. Okay. And secondly, if you can share some color on mix of claims across savings and protection line of business and like the COVID claims in these line of businesses. And also any insights on the geographical distribution of these claims as like wave 2 was far more deeper versus wave 1. So any particular geography asset, Which has driven more claims on us? Primarily, the western geography like Maharashtra, it sort of falls in line with the overall continual Pattern that we've seen. So primarily Maharashtra, Gujarat, and that is also where our business concentration is also. So I think it falls well in line with the overall country level trends. So what are the other questions, sorry? Sorry? Mix of COVID claims across savings and protection line of business. Right. So I think it also depends on the book that you've got. I mean, in terms of Absolute rupee crores, if you look at the COVID claims alone, that is INR 40 crores on protection and savings, sorry INR 120 crores on Section and her INR410 crores on savings. And this includes this is not like This is the overall actual claims that we received. This includes what you are normally expected to come through Plus, whatever the funds the customer owned funds also included in it. But only stand alone COVID, say, I don't know how much you can Attribute to only COVID, given the cost of debts being a little bit unreliable. But COVID claims that we have received as COVID in our Cost of debt is only INR 115 crores on savings book and INR 40 crores on pure protection. Okay, sure. Thanks so much. Okay. Thank you. The next question is from the line of Deepika Munra from JPMorgan. Please go ahead. Hi. Thank you for taking my question. I just wanted to know on the distribution side, I mean, how is the strategy evolving now? Is there a A greater push towards, let's say, getting the proprietary channels for more nuanced customer selection. And on the bank Given that you have added few more partners lately, what would be the mix between HCFC and newer partners? Yes. So hi. Look, this is Suresh here. So we have in any case decided that we will try and diversify our distribution And grow both irrespective. There's been a focus on the proprietary channel because our control in terms of the mix, the training and what we can do with The agents and the financial consultants is probably a little bit higher. But having said that, look, we have very, very strong partnerships on Bankar, Primarily led by HDFC Bank. A lot of new partners, so we have had look SBI Cash, ISEC, Yes Bank, who have tied up with us. We do expect their contribution to the overall business that we grow. So even if you were to estimate us gaining a market share of anything between 30% to 50 Over a period of time in the kind of bank that they do, it will be fairly significant but may not significantly change our overall bank mix. But on the agency side, the runway is fairly high in terms of the kind of penetration and distribution depth that we can get across the country, Right. Banker is a little limited, but we grow with the way the banks are growing. So many of our banker partners, whether it's the small finance banks, whether it's Bandhan in the East, whether it's IDFCs, another Bank which is going along with the larger banks who have been with us are expanding their distribution base. So what we do find is that maybe the proprietary as a mix May not change dramatically. It will probably keep increasing, but our overall business will keep increasing as we grow with the bank and agency. The good bit is that in some sense when for instance in quarter 1 of last year when the agency and the direct business were under stress because our employees and the financial consultant Partners couldn't go out to source and we had themselves advised them not to venture out given the lockdown. The banks were open at their branches. So we kind of Got the upside on the bank whereas agency was low. This year when some of the banks are going slow, the agency and direct businesses are now picking up again and being able to give us growth. So we will continue to focus on the proprietary done. I think that is one area we have mentioned that we would like to grow both on the Online, the agency as well as the direct business. But there's no reason why we would not want to ring fence and grow our market share and new partners on the distribution on the bank. Okay. Got it. And with that, I can ask, at the product level, are there any How are the margins evolving with some of the tightening of the assumptions that have taken place a little bit larger? So across So savings and protection products, are the margins very similar to maybe a year ago or is there margin dilution at the product level? So I'll take this question. Yes. So the last time, if you recall, there was a little bit of a disruption due to reinsurers Changing the prices and we were awaiting for our products to be approved by the authority and all that. So this time it's a little bit more stabilized and therefore you see Margins of Protection being slightly better than what we had last time. Plus, the interest rates have gone up a little bit. And For the insurance business, interest rates going up is always a good news because you can make a little bit of a spread. So therefore, margins fairly decent in both protection and non pass savings. Got it. And if I can just one last question. Last year in March 2021, in your VND walker had disclosed A 400 odd debt expense impact, I guess, was largely potentially due to the volumes dropping as well as maybe some protection Protection pricing related. But we haven't seen a full reversal of that 400 bps expense impact in this quarter. So Is it I mean, is it related to the employee expenses, etcetera, going up and your renewed statement of incentives, Etra, which was mentioned earlier on the call? So I'll take that. If you look at our 2 year or our growth versus FY 'twenty, we are still marginally lower. So we haven't surpassed FY 'twenty. It's low single digits, but that's where we are. Had we surpassed that this would have virtually been eliminated. So there's still a volume play that we need to get up. Yes, we When you just look at for the quarter, you're seeing a 22% AP growth and 200 plus percent CP growth and so on. So [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] That's curling the margin. But your question on the expenses, that leverage will come in when we're able to wipe out What is ClearBank? Got it. That's very clear. Thank you so much. Thank you. Next question is from the line of Abhishek Suraj from Jefferies. Please go ahead. Yes. Hi. Thanks for the opportunity. I just had a few questions on the reserving that we had done. So if you can just help me explain the standard clause, Would all of it have been expensed in the P and L as well? And is that one of the key reasons that our pack has come down to around 30 Thanks. Secondly, on the EV work, if I see there is a positive mortality variance. Although it is very small, but still the direction wise it's a bit I'm not able to understand given that we are We're making higher reserves on mortality, but yet we got a positive variance in the EV works. If these two things you can help me explain, it will be very helpful. Yes, sure. So I'm sorry, can you come back on your first one, please? I just The 700 crores that we have done would That's Luke. Right. So thanks for that. So yes, the INR 700 crores is basically the overall number, out of which Our funds would be about 115,000,000 and other than power would be 585,000,000 and that is what is flowing through the shareholder P and L. All of it will be flowing through the combination of the revenue and the P and L as a change in reserves. So that's something that you will see an overall level, through the shareholder P and L, you will see the impact of 585. And what you see on the EV walk As excess mortality reserve is pretty much that number adjusted for tax. The Mortality variance that you're talking about is operating variance is not mortality, it is persistency and expense. The 700,000,000 that you see there There's actually a positive variance on expense and persistency. Mortality, of course, given the situation we've indicated What you've seen in this quarter as a separate in a separate column here as excess mortality impact of The elevated mortality that we see, which required us to create this reserve. I will belaboring on this, but just that in the notes Sir, on the EV work, it's mentioned that mortality rate Just because, see, like I think Diva alluded to at the start of the call, After 165 close that we set aside, so we are still there are some leftovers. So overall, strictly speaking, the mortality variance compared to what we had Already set aside was actually not negative. I mean, it was very close to 0, but that's what you've seen in the footnote as 0.03. So we had enough money, thanks to setting aside SEK 1.65 crores in the 3rd quarter. Okay, great. That helps me clarify. Just one thing on the standard cross, so what will be the period over which we think that this will be utilized? Like for 1.65, you said that's probably the first we're looking at Q1. So for the INR 700 crores, what is roughly the period that we are seeing to utilize it? So it depends on the delay pattern that we would actually see, but this we believe I would pan out over, say, the July or the September quarter largely and a little bit spillover into OA and P quota as well. So we believe it will be sufficient. And this, bear in mind that this is in respect of the debts already taken place, You're talking about only the delay in reporting to us. So it's not from new debts. New debts, we have set aside a normal as a DAU, we do set aside This is for normal sort of period debts to occur. That we are sufficient. This we are talking about only the extra debts in What has already happened or what has already occurred in the A and J quarter? Yes, debt is forgotten, but for which we have not yet received claims, right? Is that a Yes, because of the delay in the intimation, yes. Got it. Many thanks for it. Just one last bit. So this telnet crores would not show up in VND as such in the of this quarter's VND. We have not taken any this won't be showing up in our VNB as such, right? No, no. This is not a new business. This is all In respect of the back book, so this won't affect the VNB. Thanks a lot. Very helpful and very clear. Thank you. Thank you. The next question is from the line of Nishreen Sawadez from Kotak Securities Limited. Please go ahead. Yes. Hi. Am I audible? Yes. This again That goes back to the INR 700 crores reserve that is created. Somewhere you mentioned that the claims from the individual book have broadly stabilized And we are sitting with this reserve at the end of the quarter. So can we say that most of the reserve that we are sitting Now sitting on now is for the group business? No, no. I need to clarify, they have not yet stabilized. They are Sending southwards as everyday passengers are tending southwards, but they are still elevated compared to pre COVID. Sure. But then will it be fair to say that since obviously the understanding of or Probably the knowledge of the group claims is still nascent, probably a larger part of this INR 700 crores would be for the group It's possible. Yes, I mean, we are seeing this in totality in a way 1 might subsidize the other, but which one will subsidize, which one, I it's difficult to say. We might get a better sense maybe by the And there is a conservative overlay on top of it because we don't want to keep revisiting. With the only caveat that I think maybe mentioned that we have not provided for wave 3. But for wave 2, hopefully, this should be sufficient for So, Roach, this question is a little bit difficult to say because in the past also over the last 10 days, sometimes Again, gone just spiked up and then back down. So if there were 10 days of Almost steady decline day after day. But so it's Reasonably a small time frame for us to base a hypothesis very, very convincingly to ourselves. And that's why I'm a little bit hesitant to Yes, we are out of the woods and we have a bigger part might be out of group. It might be a combination of both. So how long is the tail is really that $1,000,000,000 question. And that's why we do have a hypothesis. But that we need to see that that's how it's panning out. Sure. Thanks. Just one more point is if you could give some guidance on the dividend Also, last part, I just want to clarify is that this is something for debts that have already happened. That we are reasonably sure of. So the chunk of the debt during the peak that I talked about was the 3rd 4th weeks of May, so that is in now kind of a runoff in terms of intimation. So that, we assure of that in terms of containment of the size of the problem. Yes, there will be further new deaths and so on, but that will start normalizing. But how many people have already died and what is still in the pipeline is really what we are trying to figure out. So one point on guidance on the dividend payouts. Guidance. We don't give guidance, Nishant, but I think it will continue to be This you're talking about next year? That's correct. Because the Indian shareholders approved to pay out of dividends. So Sure. And it works out to a 30% payout ratio. And that probably stays is what one can say. Whatever we do is really a smooth upward curve. So or Yo yoing of anything, all things remaining equal. Perfect. Thank you very much and all the best. Sure. Thank you. Thank you. The next question is from the line of Ajak Fedrick from B&K Securities. Please go ahead. Thanks for the opportunity. I just One question. On the gross claims versus net claims, I see that the retention is much more higher than What we observed in the annual report where the retention is closer to 30%, somewhat sort of being retained by us. So why is this gap coming in? And like how should I read it? So I think you opened net claims would be INR 9.56 crores versus a gross of INR 15.98 crores. I think I'm assuming that you are referring to that In the Q1 of this, yes. So typically, The retention is lower in the case of, say, term products. Term products average sum of sugar For us, it's L90 lakhs, in which of which we retain L20 lakhs in the new business. But in the past, we retain much lower amounts. Whereas the retention in the case of savings products is a little higher. So we retained 30 lakhs. So I think it's a combination of what claims we receive and our Estimate on our experience is that, during COVID, we have received a little bit higher proportion of, say, Term insurance claims for the price of the book that we had. So and therefore, you will see it does vary from quarter to quarter and I know, depending on what sort of claims we get in that quarter. Thank you. The next question is from the line of Harshad Joshniwal from P&C English. Please go ahead. Hi. Thanks for the opportunity. The one thing, ma'am, so it'd be that the COVID period is something which is challenging. But just want to understand that From so we have not changed anything with respect to our mortality assumptions on the longer yields for the similar products. So we are factoring in the higher claims possibly this year or in the near term. But I just wanted to check that at this point of time, Ex of COVID, how the demand for protection has panned out? So I understand that due to the medical restrictions and all, Conversions might be a little low, but in terms of inquiries and new requests, Has that started inching up given this was a wake up event? And wanted to know that so no one knows about the 3rd wave, But at some point of time, you think that we'll have to again start being more optimistic about the entire book itself And maybe possibly factor some of 3rd wave when we price the product because this is a good time to even pass on the price hikes on the reinsurance part. So how is the demand part looking and the pricing part on this term protection? I'll take the demand Part, Harshita, and then I think Srini can cover. We definitely continue to see elevated levels of demand. And like I've mentioned earlier, it's more a supply side constraint than a demand side and more so with the second wave. Today, even when you just look at one data point, that in our bank insurance channel, maybe we end up converting About anything between 65%, 67%. So about 2 thirds of what we get So the door is what ultimately we convert or maybe even slightly lesser now with absolutely little chance of people going in for a full medical. So there is clearly demand and this is when people have paid the money and logged in a proposal. So that is there. It will continue to be like this. Now to your point about pricing, Srini, you want To take that Indupra, if there is Wave 3 and how do we If I can just add on the first point, the Q1 of last There was a very elevated demand for term. We don't see the same level of elevation on term demand. It is Public normalizing now, which is there in place. So actually, our term in this particular quarter, if you compare it to the last quarter, There was at a time when everybody was trying to get a term policy and we haven't fully understood the implications. So it's after slowly when we started slowing down and reinsurers started tightening. But still we see a fairly high level of demand both in terms of Google services, which is there online and in terms of the demand which is coming in through our partners and our agents. Hashi, you asked a question on mortality assumptions as well, right, as I said for this COVID. The question is that, so I understand that at this point of time pricing any third wave is a very difficult aspect, but I'm seeing that if there is a demand And can't it be that we price and possibility of 3rd wave in that pricing itself because that's just a 1 year of additional mortality That we'll have to price in the assumption. And then be more optimistic of the demand and start growing that book. I understand the risks, but I'm just saying that is it a good time to sell because price hikes might be slightly easier to pass? Yes. So, see, reinsurers were telling us, say, in March, April time that payments won't come as I'm back to us with a price case. But after having seen Wave 2, they've again gone back to the drawing board. And so they are able to come back to us. So but as far as COVID-three is Concern, there is at least a belief that it may not be as lethal as the second wave has been Because of various reasons, maybe vaccination levels, oxygen cylinders, etcetera. But the current status is that The reinsurers who were supposed to come back to us with a sort of a stricter underwriting condition and possibly a Price strike in April, they have they've gone back to the drawing board after seeing wave 2. So they have not Come back to us. So maybe they'll come back with some level of price rise or maybe stricter underwriting norms. Then, for that, we will see, but this has been work in progress for the last 3, 4 months. Yes, if they do come up with a Right. Price strength, then we may have to pass it on to customers. But we have few sort of tools around to manage the transition as we did last time around. We can manage the transition this year as well. Thank you. Participants are requested to please limit your questions to 2 per participant. Sorry for that. Participants are requested to please limit the question to 1 per participant. The next question is from the line of Sanket Gouda from Spark Capital. Please go ahead. Yes. Thanks for the opportunity. Just in the press release, we said that individual annuity business is 5% of the total business of Imperial AP. And in slide number 13 of the presentation, we say it is 6 percentage of the total APE. So just wanted to understand the difference between both the numbers Basically, the group annuity business. And if it is so, then then just wanted to understand whether we have incrementally started focusing on the business It was always the case and wanted to understand the margin profiles of a group business compared to individual business, so individual and individual business. That's the first question I have. The margin is the same for individual or group, largely the same. And the size of group annuity would be What percentage of individual annuity or any color you can give? It's growing. Okay. And the second question was on CreditProtect itself. So just wanted to understand that what our growth you have 2 0 4 percentage almost in Q1. If you can give color with respect to the mix, whether how much is mortgage and MFI, because Last year also we benefited because mortgages contribution was relatively higher compared to MFI and also it supported margins. So are we seeing the similar kind of trend in the current quarter also that the mortgages are little higher compared to MFI and in the actual margin and credit, but it is holding up better than what we anticipated? Yes, that is the case in case. The mortgage is indeed higher compared to the other segments. Thank you. The next question is from the line of Liu Genwei from AR Capital. Please go ahead. Great. Thanks so much for this. I just wanted to check on the company's view of The FinTechs going forward, they provide quite a powerful channel for distribution. I just wanted to understand the management thinking On that and what are the potential upsides potentially partnering with more fintechs for distribution and using the underwriting engine that HDFC Life has. Thank you. Yes. Hi. So on the FinTech side, We have been partnering. We have almost 50 such partners, which are there across various types of right from the telecom where we have something on these with Airtel. Similarly, we have been partnering with many or the other players in the financial services technology space. We continue to kind of look at why how we can ease our Journeys with the fintech partners in terms of being able to get pre approved and being able to get single or a 3 click kind of a journey, Looking at how we can push each one of them on an annual basis. The only thing is a lot of the fintech space is right now more towards the term than we have been cautious In some sense, but we do see being able to be going through this channel to reach out to fairly I mean in terms of diversified geography also on the savings side. So we are looking at products which could be simplified. The whole journey by itself can be simplified, and then we will look at how do we expand. On the term side, I think we are being a little cautious with some of our relationships right now. Got it. Thank you. Thank you. The next question is from the line of Madhukar Lada from Elara Capital. Please go ahead. Hi, good evening and thank you for taking my question. First, I noticed that the net new investment flow Is negative at about INR 100 crores in this quarter. So I wanted to understand what could this be attributed to? Is it More because of surrenders in ULIPs? Or is it more because of COVID or some other sort of cohort Maturing some life on that will be helpful. It is indeed attributed to Eulip surrender. While as you can see, the investment income as well as the market movements have been Positive, but we've this can be attributable to you, Mr. Indu. So one point I want to add here is typically in the Q1, Given that Q1 is usually the lowest in terms of acceleration towards growth, but the fixed costs remain what They are. Your addition and accretion to your AUM is the lowest. Last year, it artificially looked like it was higher because of very, very low surrenders, just given the pandemic. People were just not able to get to the branches, and we ourselves, for people to get trained on how to use digital and so on, was it took some And so you see that catch up, but it's really last year that is more an aberration. Thank you. The next question is from the line of Mayank Mukherjeevalla from Stifel Hey, hi, Uddha. Thanks for taking my question. The two questions. 1 is, if you could break down your retail protection, which was flat Between, say, some assured and pricing or volume, number of policies and pricing? And second, in your BNB work, From Q1 of last year to Q1 of this year, you've taken a very small positive impact On cost, but your cost growth versus Q1 of last year is substantially higher. So I just needed to understand Whether we smoothen the cost when we calculate quarterly VNBs or we take the entire cost of that quarter into the VNB? [SPEAKER SRINIVASAN VENKATAKRISHNAN:] So I'll answer the second one. It's a simple one. We take actual cost. Whatever we've incurred, we take it. There is no smoothening. We've never done that. So that is just what you incur. On Nir, do you want to take a question on protection? Yes. Sure. Bank, so specifically, what is that you want to understand in segments within that? No, no, just the retail protection, which is flat by OI. But if you could break it up between how much Was it pricing and how much was it volume? Right. So what we did mention is that we have been Reasonably conservative in terms of writing this business, while it still continues to be a fairly significant part of our mix. The average sum assured in the term business has increased. People are looking to buy more limited pay. That is something that has definitely been the case. On the policy side, we've Been in a situation where the demand has far exceeded the ability to kind of fulfill the entire process. So for every 100 cases that come in, we're able to fulfill about 60 odd. And the rest is basically either in process or We need more information or we need the customer to undertake medical exams as we discussed earlier in the call. So that's where on a base of 50% growth last year, we are kind of a little under about minus 3% or 4%. So it's Very similar to last year's the level before that, and it sits largely on account of the prices Rather the average ticket size is going up. Some repricing is something that had happened compared to same quarter last year. So some part of it would be that Got it. Just if I could slip in one more question, which is our reinsurer has potentially paid something like INR600 crores this quarter and the premiums that they received from us is relatively much lower. So their losses are huge. So do you see the rest of That industry or the reinsurance industry in India getting consolidated between a couple of players. I don't think it's Do you expect a large or some of the fringe reinsurers to bear these kind of losses and still stay put in the market? So Bank, again, it has been a tough market. Things have been difficult for everyone in general, reinsurers have taken a view in terms of how they want to approach the market. So there some of them are recalibrating how they want to look at this And it'll probably take some time for them to come back with how they're thinking about this from a long term perspective. The short term definitely is affecting some of the thought processes, But we'll have to wait and see. Anyway, globally, even in good times, we have about 4 or 5 large global reinsurers, And all of them were or are operating in India. Some of them have maybe decided to take a bit of a They've taken a bit of a pause, and I guess they'll think about how they want to operate. Yes. So your point is this is kind of Valid that some of them have decided to just think this through a bit more, and We will see how that goes. So at this point in time, everyone is looking at tightening the ship Front rather than worrying about claims coming through later. Yes. So my broader question was that this That there is a potential issue around the capital from the reinsurance side or the lack of capital to support Insurance growth in India. How many how long do you think it might take for those issues to go away before some of these supply issues go away and All of that. So, Mike, what you have to think about is in terms of is it still a long term opportunity in India? We all believe the answer is yes. Will we have to be patient to ride this wave out? Of course, we will have to. So As long as people are able to be responsible in terms of the area of price, the way they underwrite and then are able to live with the experience that will come through, It will work out. But yes, in the short term, there could be the supply side considerations are real. There's no getting away from that. And that's the reason why we believe that the growth in this segment has to be more calibrated rather than You know, something which we cannot handle as an industry. Got it. Thank you so much. Sure. Thank you. Ladies and gentlemen, this was the last question for the day. I would now like to hand over the conference to Ms. Vida Paddalkar for closing comments. Thank you. Before I wrap up, my team has pointed out that there might have been an error in my mentioning the NBN. For sake of clarity, we want to reiterate that for the quarter, it's 26.2%. Thank you all for the participation today. Stay safe. And if there are any further questions, please do reach out to our Investor Relations team. Thank you, and good night. 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.