Q2 21/22

Oct 22, 2021

Ladies and gentlemen, good day and welcome to HDFC Life Insurance H1 FY 2022 Earnings Conference Call. As a reminder, all participant lines will be in 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 over to Ms. Viva Patulkar, MD and CEO, HDFC Life, thank you and over to you ma'am. Thank you. Good afternoon, everyone. Thank you for joining us for the discussion on our results for the half year ended September 30, 2021. Our results, including the Investor presentation, press release and regulatory disclosures are already available on our website as well as that of the stock exchanges. I have with me Suresh Badami, Executive Director Niraj Shah, CFO Jaini Watson Pazakhty, Chief Actuary Ishwani Murugan, our appointed I will run through the key highlights of our H1 FY22 results and would be happy to take questions post that. With the vaccination program going well, approximately 70% of the adult population has received at least one jab, And we are hopeful that the intensity of any subsequent COVID wave will be muted. In addition, the recent macroeconomic data augurs well for the economy And is indicative of swifter recovery trends. Consumer sentiment remains buoyant, and we are optimistic about sustained increase in business in the coming few months. Moving on to our business update. The 2nd wave of COVID has largely receded. We settled around 200,000 claims in H1. Gross and net claims amounted to INR 3,640 crores INR 2,466 crores, respectively. While individual claims tapered off, group claim intubations were high in quarter 2 FY 'twenty two, both on expected lines. The overall experience has been well within our projections. Excess Mortality Reserve or EMR of INR 700 crores as on June 30, has been sufficient to cover claims received to date. Further, we have created an additional EMR of INR 60 crores in quarter 2. With this, we carry unutilized reserves of INR 204 crores into H2. We continue to remain watchful and are monitoring claims Our business performance delivered a strong growth of 22%, resulting in a private market share of 16.2% in terms of individual WRP in H1 FY 'twenty two. On a 2 year CAGR basis, our growth was 12% compared to industry growth of 5%. The product mix was balanced Nonpar Savings at 32%, participating products at 30% and ULIPs at 26% on APE basis. Our annuity business recorded a healthy growth of 47 percent visavish1 FY 'twenty one with annuities contributing About 24% of our new business premium. On the protection front, the CreditProtect business registered a growth of 108% versus H1 FY 'twenty one On the back of normalization of disbursement by lenders, the absolute APE for individual protection was in line with H1 FY 'twenty one levels, which had grown by 38% last year. Protection APE, including group, recorded year on year increase of 41% for H1 and comprises 21% of our new business premium. We remain confident about the medium- to long term growth prospects of protection in India, And we'll continue to scale this business in a calibrated manner. We're also happy to announce that our subsidiary HDFC Pension has crossed the milestone of INR 20000 crores AUM, registering 97% growth year on year. The pace of growth has accelerated significantly. It took us 7 years to achieve the first INR 10,000 crores mark and only 14 months For the next INR10,000 crores, HDFC Pension is also the number one private pension fund manager in terms of NPS AUM with a market share of 36% on 30th September 2021. Moving on to key operating and financial metrics. Our overall persistency Showed an improving trend on the back of strong growth of 18% in renewal premiums. The 13th and 61st month persistency was 91% and 56%, respectively, versus 88% and 53% in H1 FY 'twenty one. The 13th and 61st month persistency for limited Regular trade policies calculated as per IRBI's recent circular, which excludes single premium and fully paid policies, was 86% 52%, respectively, versus 82% and 47% in H1 FY 'twenty one. New business margin expanded by 130 basis points to 26.4 percent for H1 FY 'twenty two versus 25.1 percent in H1 FY 'twenty one. Value of new business was INR1086 an increase of 30% over last year. The sustained increase in value of new business has been driven by growth across channels and a balanced product portfolio. The operating return on embedded value before and after factoring in EMR was 18.4% and 16.1%, against 17.6 percent in H1 FY 'twenty one. Solvency remained healthy at 190% post payout of dividend. Our profit after tax was INR 5.77 crores for H1, which is 26% lower than H1 FY 'twenty one. The decline in profit after tax is primarily on the back of higher claims reserving warranted by the 2nd wave of the pandemic. Next on channel performance. All channels recorded healthy growth. The Bank Assurance channel recorded a growth of 20% Based on individual APE, HDFC Bank continues to add meaningfully to our top line, whilst maintaining focus on a balanced product mix. We are also seeing good momentum in many of our new partnerships like Bandhan Bank, IDFC First, ICICI Securities, YES Bank, to name a few. We aim to expand our reach to a wider customer base through these partners. After a short period of disruption in quarter 1 last year, our agency channel Saw rapid adoption of technology and has recorded a strong growth of 27% on individual APE. The channel has licensed 18,388 agents in H1 capability building and productivity improvement has been encouraging participation with 90% of our branches and 96% of our financial consultant base in Agency Life locations covered under this program. There has been a 21% increase in Agency Life, unique HC participation And Aireon's productivity has grown by 25% year on year. Our direct channel registered a robust growth of 19% on individual APE basis. On the product front, we are pleased to announce the launch of our new non par guaranteed savings product, Sanjay's Fixed Maturity Plan. This plan offers complete flexibility in terms of age coverage, premium payment and policy terms, age agnostic returns and has industry first liquidity features. It can cater to multiple financial goal horizons and offers lucrative IRRs across variants. Moving on to our tech initiatives. Digital remains a key pillar of our growth story. We continue to collaborate with startups through our Future in programs. Through this program, we have been able to enhance our process efficiency, reduce non value adding activities, increase sales productivity amongst others, thus helping reshape our core business. We continue to deploy data analytics across our value chain. We have introduced an automated underwriting engine, which has helped us reduce manual interventions and increase objectivity in decision making. We've also partnered with Insurance Information Bureau, IIB, To tap into and analyze their customers' data repository for better decision making and mitigate fraud. We continue to take meaningful strides on all the 5 pillars of our ESG strategy, Ethical Conduct and Responsible Investing Diversity, Equity and Inclusion Holistic Living and Sustainable Operations. We have shared our approach and progress in our investor presentation. Our thought process and initiatives have been articulated in our ESG report. These initiatives have enabled us to be rated BBB by MSCI, which is the highest amongst the ratings currently assigned to Indian life insurance. Next is an update of the Exide Life acquisition. We have received shareholder approval for the issuance of Equity shares to Exide Industries in the AGM on 29 September 2021. This issuance is subject to receipt of final approvals from IRDAI and CCR. We have filed an exquisite application with both authorities and are engaging with them as necessary. To conclude, we believe That the current environment is conducive for the robust growth of the life insurance sector as there is an increased awareness about life insurance as a financial protection tool. We remain focused on achieving sustainable new business growth and maintaining an upward trajectory on new business margins whilst adhering to A clearly articulated risk management approach. The detailed disclosure on our results is available in our investor presentation. We wish everyone good health and safety. We are happy to take questions, sir. Thank you very much. We will now begin the question and answer session. The first question is from the line of Suresh Gantheti from Macquarie. Please go ahead. Yes. Hi, Vibha. So first is on this elephant in the room, which is reinsurance hikes. So what you are hearing from your reinsurance partner? What they are planning to do? And of course, your competitors of yours are telling that There are negotiations which are going on. So I also want to know what is the thought process behind these reinsurance companies to Hike, rate, because as COVID structurally altered the mortality that they have to go ahead and This one pandemic event to permanently hiking reinsurance rates. So I just wanted a complete picture on what you are going to do. Yes. Hi, Suresh. Yes, we have also received information that they intend to increase rates. We are in discussions and negotiations with And that should get concluded in a quarter or so. To your point about why are they doing this and they did this once earlier at the start of pandemic at that time, it was nothing to do with the pandemic, but it was just the timing seemed like that. The way I see this is, I don't think it is only on the back of COVID per se. I think there are 2, 3 things happening here. The Expansion and the fact that everyone now is focused on term and protection, which you'll admit that 5 years ago, nobody was talking about except maybe 1 or 2 players like us. So that just means that we are moving away from the top 10 cities to more and more into smaller towns, Different risk profiles, different human life value profiles and so on. So that will See, the mortality trends will be quite different from a very small microcosm of metros, Salaried employees and the like that are perhaps buying term through online, and that was the genesis. So would hazard a guess that rather than just saying that the reinsurers are increasing rates, I think that hypothetically, these are retaining all the risks on our books As insurers and supposing there were no reinsurance that picture, even then I would hazard a guess that we would want to increase rates to some extent if we really wanted to expand the pie. Also in terms of long COVID, I think they are being watchful that We hear of a whole host of fallouts health wise of people who've suffered due to COVID, especially those who have been hospitalized. We it's too early to say whether mortality will get impacted or not. That's the space that we are watching. But I think it's more in terms of developing nations. Everyone wants to increase protection. Information asymmetry is very high compared to other developing nations in Asia. So all of that is to other developing nations in Asia, so all of that as a melting pot has resulted in this is how I see. And overall pricing also, we should admit, is on the relatively low side. We are India is still one of the lowest in the world. And this is something that was somehow, to some extent, Not something that could be sustainable on a large scale going forward. Sorry, Vibha, I have 2 questions Because this is very essential for all of us to understand. If this is the case for Afrosan, we've got this is going to be an annual recurring feature. Because every time they will see the mortality experience is not good, again, they will go ahead and hike rates 1 year down the line. Where does this stop? I mean, I don't know how the mathematical calculation works here, but these guys will keep on telling us penetrating into lower markets and we will hide the insurance rate. And secondly, what is going to be your strategy? Do you think you can keep your margins protected by passing it on fully to the customers without jeopardizing growth? How are you guys looking at it? Because the sensitivity is huge. You don't hide rates by 5%, your margins will drop by 50%. So it's a very, very tricky situation, right? Yes. So over here, it will depend segment to segment. Right now, it looks like we are talking at a 20,000 feet that all of India is being increased. What we will do perhaps is ask us to tighten Underwriting standards in certain segments, whether it is financial underwriting or health underwriting or a combination of that, so that They are eventually able to segregate the good life, if you like, from the subprime life, for want of a better terminology. The ideal thing, I think we are looking or barking up the wrong tree. I think that We need to move towards risk based pricing as far as term is concerned, wherein there could be somebody who He has recovered from a very significant illness, doesn't mean that, that person should just be not be able to buy term. We should be able to price appropriately. Same thing in terms of there could be someone who has sporadic levels of income. That again doesn't mean that we are unable to price it because we only know how to price a salaried employee. Very akin to what is happening on the credit side, wherein there started off with giving loans to salaried Employees, but now you see a whole host of things happening on the small finance banks and MFIs and also some of the NBFCs. So that granular pricing starts becoming increasingly important. So I think we are just focused on reinsurer, but I think it's broader, even Allowing us to price differently. Okay. Any response? Pardon? Sorry, I missed that. I said your response to that, will you hike rates or what are you planning? Yes, right. So like we did last time, When similar kind of situation happened, we said that we will use a risk based pricing because we have we work In a multi tie environment, we need to be competitive. At the same time, we need to protect margins. Also, there are several levers for us that Deliver margins, and this is one of them. Credit Life delivers almost the same level of margin. So and right now, we're only talking about individual terms. So margins will not be impacted, Suresh. So there would be some lever or the other or combination which would ensure that upward trajectory Margins, like we've demonstrated every year for the past 7 years, will continue as is. Okay. Thanks, Deepa. Thank you. Thank you. The next question is from the line of Arav Singh Sanghay from BT Capital. Please go ahead. Yes. Hi, ma'am. Hope all good with you. So I have two questions. My first question is on the demand side of protection. So we have been hearing that the industry took Hi, Glassdoor. So I just wanted to understand how is the demand on loan because we know that the supply has been constrained. But in the number of queries that you have been getting even after price hike, how has the demand situation panned out on round? So actually, if you were to look at quarter on quarter, while as a percentage, it might have looked like we are slightly lower. In rupee terms, we are actually higher, about 10% higher quarter 2 versus quarter 1 on individual term. So that's your answer to demand wherein demand is increasing. And presumably, your question is only to do with individual retail protection, right? Right. Yes. So that demand has shown an increase. We don't drive protection as a percentage because really whatever Is topical for that quarter will sell. And there will be some segments that do well in a particular quarter because of a combination of events, Including macro things that are a little bit outside our control. But what we do drive is that each one of the segments should grow, and that's exactly what we're seeing. Okay. And ma'am, on the protection part, you all have mentioned in your disclosure that on the group side, we have seen some more like more claims in Q2 Compared to, say, Q1. So are we anticipating some hiking on the group side as well? We haven't heard yet on the group side. I think what right now, what we are doing is that to tighten underwriting, things like having a COVID The question is ensuring that we have our member information forms, those are the things that we Also the use of analytics to try and see whether there is any early warning indicators on any of the policies So that we don't have to later on either decline a claim or have that under a bit of a question mark. So that's what's happening right now. Also, we retain more. So there's this overall reinsurer dependency to some extent is a lot less over there. Not on the horizon as of now. Ma'am, so with this price hike coming in, what has your experience been in the past 1 year as the elasticity of demand because in all my thoughts, I'm not able to understand how can someone we can pass on 10% to 15% of high end. You just answered that we are Going more towards the risk based pricing, but if we go more granular, it means that someone like it will become Insurance might become unaffordable for some people and they might just alter their choose not to get insured. So I am not able to understand the elasticity of demand in the Coming 1 or 2 years for the protection. So I think we are quite some distance away from reaching a point wherein it is inelastic. Right now wherein it is that elastic. Right now, we are in an inelastic zone and will continue to remain that, in my opinion, for quite some time Because term insurance is not an IRR kind of a game or something that you will defer. It has a very deep seated Underlying thought process, wherein the realization that you need to cover your loved ones And price is not necessarily something that will stop people from doing that. In fact, I feel the reverse will be true, Wherein when people realize that they can get a 200 to 400x cover and the prices are only probably going to go up, There will be additional demand, that's my view, over the next year or so rather than people not buying it. At least over the next 2, 3 years, I don't see demand being an issue at all. Right. Understood. Just one last Question, ma'am, on the Sunshares, it's majority plan that you'll have launched. So are the margins there similar to our other nonpar or is it a little lesser? Because I think the liquidity features are more enhanced. No, they are very similar. Great. Perfect. Thank you so much, Anand. All your best. We have a lot of options in that, Right. So single premium to very bespoke terms of both PPT premium payment term and Policy terms. So we expect also in terms of the reception to be very good and margins continuing to be in the similar zone. Okay. Thank you so much, sir. All the best. Thank you. Thank you. The next question is from the line of Prakash Kapadia from Anewet Portfolio Managers. Please go ahead. Yes. Thanks for the opportunity. I had two questions. If I look at the current rate of unwind, it's Trending slightly lower than last year or so. Should it be in this range in the near term? Srini, you want to take that question on Unwind? Yes. Unwind is around 8.6% annualized. I don't know how where we are looking at Unwind. In our walk, you can see that Unwind is at a very Fixed rate of 8.6 percent on a annual basis. Okay. Okay. So based on last year's EVM current H1 whatever unwind we've seen, so I was calculating that and trying to analyzing that it's getting slightly lower, right? So the unwind is 11.1.6 crores, I think, for first half and that It's 8.6% per annum based on the opening EBIT. And it was the same percentage for the Q1 as well. And given where interest rates are, we don't expect a major change in that. So, online doesn't change during the because it's the expected return as of the start of the year. So any operating variance, any change that The investment returns or equity markets will be reflected in the investment variance and any operating changes will be reflected in operating results. The runway doesn't change at a rate. And secondly, any claims on Which are pending, I think Vibha mentioned in the opening remark, on the group side still claims are on the higher side individual are lower. So any major Backlog, in terms of claims to be processed and the reserves should be enough for any further claims, if any, or any Scenario which is not as per our expectations in the coming months? No, absolutely. So just to clarify, whatever claims We have received, have already been booked and accounted for. And despite that, we have excess to which we have added INR 60 crores and hence we're carrying forward INR 204 crores. The INR 204 crores are more in terms of Just giving us comfort that if there are any deaths that have happened but not been reported Because group business does have a longer reporting cycle than individual business and also the summer short tends to be Typically lesser than in individual terms, so people probably don't report it immediately. It is more to cover that. It is more it is as a comfort rather than wherein deaths have happened and we haven't accounted for it. Okay, okay. That's helpful. And lastly, given the low base of ULIP and what we are seeing in markets, do we expect ULIP To have a positive momentum for the year end, given that Q3 and Q4 typically would see Higher demand, are we seeing that to the ULEPS? So ULEPS have a very close correlation to equity markets. And time and again, we have seen these cycles. As a philosophy and you'll see in our case, quarter 1 and quarter 2, ULIPs are as a percentage of total is very similar. We have stayed away from swaying with the market because that goes against the grain of balanced product mix. And also we in the past, we have seen wherein people do enter markets at a high and then are somewhat disappointed, leading to Surrenders and so on. So to your question, we will see as long as equity markets stay Elevated, it's very possible to see that demand. And for that same demand to possibly turn if there is a we start entering into a bearish phase. Fine. Understood. Thank you. All the best. Thank you. Thank you. The next question is from the line of Sanket Gouda from Spark Capital. Please go ahead. Yes. Thanks for the opportunity. Just a data keeping question to start with. Can you give us the COVID claims paid in 1st of all in 2nd quarter? And if possible, breaking down into group and individual? Because I think we paid around INR 2.45 crores net of last quarter Q1. So a single number, what was the number in Q2 or Pammesh? Yes. So I can give you in terms of so Q1 and Q2 is what you're looking for? Yes. Even one is fine, ma'am. We can see how Q1 numbers, Sita. Yes. So YTD, in terms of COVID claims, Number of claims is 11,114 total, of which individual was 7,300 approximately and group was about 3,800. And in rupees? And in rupees for H1 COVID claims is the excess mortality Claim was 2,466, of which individual was 976 and group was 1490. This $460,000,000 is total claim, right? I'm just looking at the COVID claim, pure COVID claim, how much we have paid? So OFSAPS and COVID claims was 462, and for individual and group was 124, adding to Okay, perfect. And the second question which I had was that, Honestly, you said that you launched a new Sanjay products, but given our Sanjay Plus was doing very good already and there is a Actually high demand for that particular product. Then the logic of introducing the new plan, maybe you are seeing that there are additional So is it really to cater to new customer segments, which are probably not treated by Sensient Plus? And that's why this product has been launched. And don't you think that it will cannibalize into the Sunshine Plus or it will add to the market basically? Shruti, you want to answer that? Yes. So that new product is well, it's a lump sum product. Saltjet Plus is an income paying product. So this will it's called fixed maturity plan and you also have a single premium option in it. So, people are looking for to surpass their one off money in a bond like structure, They can package here and minimum term is 5 years and they can take their returns on a tax free basis. So this provides a different market from a single premium perspective, where the IRRs are very competitive compared to Alternative instruments available elsewhere. So that is a new market for this. And then lump sum, yes, partly it was already there in our old Salja, but Salja aircraft that you talked about is an income product. Got it, got it. But does it Change our strategy of capping the total nonpar contribution to 30 odd percent if the demand is great this particular product. So, just wondering whether it will cannibalize into the other product or So that strategy of capping on par to 30% is more from an interest risk management perspective. Now if you sell this product in more to, let's say, single premium, where the interest rate risk So we can be very easily managed without the use of derivatives or other strategies we talked about in the past. Right. This doesn't have half lakh interest rate. Fair point, yes. Got it, got it, sir. And finally, just one small observation, Given the first time you have disclosed a persistency excluding single premium, so the unit persistency at 78% page Seems to be very, very relatively very weak compared to what others have reported on unit persistency. Sir, just wanted to understand, a 78% proficiency unit actually makes even a single Is it VNB large deals for us on not only just wanted to understand and more importantly why it is so relatively less weaker for us Compared to what, maybe the largest player in industry reports, maybe 80% to 80% to 4% is kind of the number. Yes. Here, I don't At least I'm not aware of people having reported at a segment level. But nevertheless, Even before, our disclosures show that ULIP has a lower level of persistency. And main reason there is an inherent structure of ULIP, after 5 years, there is no A downside to someone surrendering his policy or exiting it. And not just that, even if one were to stop paying halfway through, there is a very Level of return that one gets through the discontinued policy fund, which is almost competitive to most or even Better than some of the net products that are today available. So that is that needs to be fixed, and that's something that is critical to increasing It's on the persistency on ULEP. But yes, and that's why about a fourth of our business is ULEP. And that's why we want to keep it that way because until the contours of the or the structural aspect of ULIPs are addressed, Exit barriers are relatively low. And we don't really have a lot of 5 ks unit products which the industry is moving towards. Because if you have a 5 pay, then you're in a way saying that that's all you need to pay. But that again Is not in line with long term nature of your cost to insurance. Got it. Got it. And finally, if you can squeeze 1, last one. So, just wanted to understand because one of the best way to negotiate or Overcome the reinsurance problem is selling lot of ROP and we introduced ROP plan in the Q4 of last year. Just wanted to understand the trajectory, how it is growing and what is the contribution of the total ROP plan and that can be used as a tool to overcome the reinsurance challenge what industry as a whole is facing because I believe Retention will be much higher than ROP compared to a pure term plan. Yes. That's the wrong end of the stick, I feel that to Try and address that problem. We do believe that ROP is more for someone who is really first about getting his Leaving a corpus for his nominees and there is both savings and term, Nothing wrong with it, but it's not the purest form of insurance. And so we want to be able to offer all sorts of insurance, and it's really up to the Prospective policyholders and what is suitable to them. ROP also tends to have a lower sum assured, so more like 200x rather than 400x Because also the premium is more expensive, is costlier. So don't really want to try and fix One issue by something else like that. We need to figure out in terms of how overall we can address that issue As well as through pricing as well as some of the other levers that we have to make good the drop in NDM, Which is we have demonstrated time and again and a combination of these factors. Srini, you want to add anything over here on ROP? And by the way, it is about 17%, 18% of our overall Yes, yes, yes. It's gone up from the low sort of teens to 17%, 18%. But broadly, I agree with what Midas said. See, the fundamental issue is not about reinsurance. So the reinsurance are increasing prices because the experience warrants that. See, for the pre COVID levels, the inherent longevity assumption achieved in the crisis were That the population will or the cohort to which this caters to this product and the market caters to, The longevity was 93 years. Now with the repay that took place last year, it had come down a little bit to say late 80s, so 87, 8 years. So, but the average population longevity, as you all know, is close to 70 years. You can say that the insurance population may be slightly healthier, every 75, 80 years. But still even after this, the replay that we So last year, it is still for the population it caters to, it is quite low. The prices are fairly low even now. So which is why reinsurers are hardening the prices. So it is not that patients are wanting to harden because of COVID or To boost their profits, it's because the underlying mortality experience is sort of warrants that's kind of the price. Got you, sir. Yes, thanks. Thanks for the feedback, Manseil. Thank you. Before we take the next question, a reminder to the participants, Please limit your questions to per participant. Should you have any follow-up, maybe request you to rejoin the queue. The next question is from the line of Deepika Munra from JPMorgan. Please go ahead. Hi, Wizzah. Just two questions. Firstly, with Any impact on the Credit Protect segment in terms of pricing over the last year? And has that impacted attachment At all? Or do you see that segment to be relatively not impacted despite rising pricing? It has been fairly stable, largely business as usual on Kiripotec. It's just that in some situations wherein we've had quite terrible mortality for various reasons. We've had to go back to our partners to either tighten some of the underwriting requirements or look at it look at Segmentation, look at analytics, those kind of conversations. But we do retain more on the Critical Tech business and reinsurance letter. So this year has been a phase of growth as far as Credit Protect is concerned. Okay. And just secondly on the Sanjay SMP product, what are the type of IRRs it varies by age. So let's say 5 year term to 10 year term varies from 4.8%, 4.9% To about 5.5, 5.7, so depending on the age and the total term one takes. And versus Sanjay Thak? Sanjay Thak is a Sanjay Thak is a lot of comparative products. I think that's an income product, which offers Income for a very long term, 30 year, 40 year or some of the options even offer income for the entire life. So there the IRRs will be again very Faiyesh that we can be starting from say 5.5 to can go up to 6.1 also in some cases. But that's an income target, it's a different market. Here you should be more comparing with sort of short term deposits. Got it. And just a follow-up to that with the hardening of yields of late, is the profitability of these products Improving on the margin, I know your VNB sensitivity shows otherwise, but intuitively, shouldn't the profitability improve? Yes. So if the price to the customer is the same and you're earning more, yes, your profitability should decrease, yes. Okay, got it. Thank you so much. Thank you. Thank you. The next question is from the line of Sheraj Sivanee from CLSA. Please go ahead. Hi, this is Raj. Question on this supply side tightening. Since last year, a lot of these price hikes have also come with no qualitative tightening of what The insurers will write and what insurance companies themselves would have done. So if you can quantify what happened in the last, like Just talk about what happened in the last 12 months. And whether in this round you expect the terms also to be further tightened or we are just looking at a price hike? Shirdi, you want to take that? Yes. So the underwriting Terms are not going to be tightened, at least for our company, but it really depends on the experience of different companies. I know some sort of some market sources that some companies are asked to change their underwriting norms As well as changing the prices. But for our company, there are no changes to the underwriting notes. Sorry. And can you talk about what were the changes we would have had to do in the last 10 months? We brought in some video call for PCDC and The some such short, which certain types of relaxant writing is allowed And some geographies where we've seen some adverse experience. So all those things are those are known to the minimum income levels For which you can give a little bit lenient underwriting. So all these other So, Adrian's bear correcting some changes. So, income levels at those locations, whether it's Education Living as well and some such short, so these are the broad parameters based on which the unwinding terms have changed over the Perfect. Thanks. And my last question is, Revant, as you got into second round over the last 12 months, there could have been some, I believe there were some self imposed restrictions or also self imposed breaks on issuing policies, right, which are not linked to Reinsurance demanding something. So given the trajectory of COVID, will the industry and HDFC Life relax So we should get to better growth in protection or how do you look at that? Adesh couldn't hear you very well, but I gather you're asking is the outlook for protection, individual protection? Yes. I was asking which in the context of As we were in the 2nd round of COVID, there were some self imposed restrictions or breaks that Companies put on themselves on what they wanted to underwrite as well. So as the COVID trajectory goes, at least that part can easily be relaxed by companies themselves. I'm just trying to understand Yes. I mean to some extent, yes. So at least the COVID related, wherein if somebody had recovered from COVID, we would ask them to wait for some I am not undergo some further tests and so on. So that hopefully will recede. It will go back So largely business as usual, unless long COVID starts wearing its head. That's an unknown unknown. We know that Especially people who have been hospitalized and very critical when they were suffering from COVID, there are some lingering Other health issues that are manifesting in different manners, but whether mortality experience is going to deteriorate, that's April watch, but I don't think we know very much about it in terms of trends, at least for another couple of years. We'll be watchful, but Yes, it should get better on from where we are today. That's it. With that, thanks. Sure. Thank you. Thank you. The next question is from the line of Madhukar Latta from Elara Capital. Please go ahead. Hi, good evening. Thank you for taking my questions. First thing on Just a data taking question. This time, I don't think you've given the net fund flow, net investment income and market movement, the change in The change in AUM disclosure. 2nd, The rates are pretty low. So even in the new product, we are offering 4.8 to 5.6 sort of a range in the Sunjay F and P plan. Now I wonder what can be the offtake or how much can we actually sell in this low rate environment? And the individual protection rates are very going to go higher. So what are your thoughts on the product mix Going into FY 2023, the balance half of FY 2022 and FY 'twenty three, and the markets have done well, they've stabilized now at a pretty high level, the interest is much higher. Do we again see unit sort of the share of unit increasing in the overall mix and the traditional products Coming down a bit and what sort of an impact could that have on the margins? Any sort of comments on that would be appreciated. Right. So on your first question on analysis of assets under management. So H1, AUM went up by about INR17,372 crores. And within that, Market movements were 8,141, and net investment income was 8,871. Net fund in flow was 360. To your question about how Unit Link and vis a vis traditional products, there is a Close correlation, as you know, between markets, equity markets and how the pool of the market for UnitiLink products. Not surprisingly, that's what we're seeing right now given the overheated nature of equity markets. From our point of view, we want to stay focused on balanced product mix as well as what is Suitable to a particular channel. And that's why you'll see that quarter 1, our ULIPs was 27% and quarter 2 was actually 26%. So we haven't allowed that to go up to 40 odd percent that you're typically seeing in the industry. And seeing very much To our balanced product mix philosophy. Even in our agency channel, typically, you will find amongst Several leading players wherein unit linked sold to agency channels is anything between 50% to 70% or 75%. That's not the case, Vithat, wherein typically it is less than 20%. So to summarize, what you see happening overall is slightly different to We have driven our product strategy. Got it. Ma'am, just to follow-up on the net fund flow number. So at INR360 crores, that would mean That only about INR460 crores have come in, in 2Q. That number seems a little bit lower. Any particular reason Largely, it was all the claims payouts, all of that resulted in an exit. We did see a large Chunk of claims, all the conversations we've been having, we did see that both in individual claims, group claims, Some level of surrenders also because while overall it is within our assumptions, but in first We hardly saw any surrenders because of the impact of wave 2. That picked up on a YTD basis, it's very much in sync. But just if you were to look at Quarter 2, that surrenders did pick up quite substantially. Again, unit lead surrenders, which Are a function of markets. So the combination of these aspects is what resulted in that lower number. Any particular product which is sort of responsible? ULIP, would it be? Yes, largely, ULIP. In fact, the persistency on our track book is pretty good, largely on ULIP. And as you know, units, even after you discontinue, you do earn a fairly handsome return. So, as long as the deterrent, people want to earn cash and so Understood, ma'am. Thank you. All the best. Thank you. Thanks, Anush. The next question is from the line of Avinash Singh from MK Global. Please go ahead. Yes. Hi, good afternoon. Two questions. The first one, I mean, on And I mean, whichever way we look, I mean, the product mix is broadly stable, the distribution remains stable, But there is hardly any sort of a benefit of operating deliveries now coming from it. I mean, we are gaining a scale, but cost is something where I mean, that has also been one of the factors that is keeping, I mean, sort of our new business stream higher. I mean, so at certain point, one would expect the Cost flatten a bit and that should provide some operating leverage and preliminary. So then I mean going ahead, if not for cost, I mean Product mix, you can sort of keep moderately because you have certain preferred mix. Then if cost is not going to be growing operating yield, I just wanted to ask what would help in terms of margin trajectory? That's first. Second one, I mean, because there has been a lot of talk around mortality of steel. So if we go back couple of years, I mean back when particularly I mean, resource rates were broadly stable, can you just sort of give an idea Your mortality experience on the retail production side in terms of how sort of a different they were from that standard that IALM Mortality table that was published. I mean, typically, if I'm not wrong, the private licensing of the retail protection mortality experience is very, very different than that following the mortality That's correct. So if you can just provide some color around that. So Avinash, on your first question in terms of the kind of role that expense and operating leverage can play in terms of our margin development. A couple of things. One is in terms of if you were to look at it from a 2 year kind of perspective, the rate at which the costs have grown is less than half at which Sir, revenues are growing. So that basically does tell you that if you take out anomaly of what we saw last year because of Very different year in terms of deferral of expenses, hiring, cuts and bonuses and so on and so forth. When you take all that away and you go back to a normalized kind of a comparison, you find that that is starting to come through at scale. In terms of Sanawa, margins have also developed over on a sequential as well as on a Quarter half yearly basis as well, there was significant impact of volumes that's coming in, which is actually, again, In some sense, the operating leverage that's coming through, where costs are not going linearly in line with volumes. So it's already something that we have seen. And we've mentioned in the past as well from time to time, the margin expansion is going to be a combination product mix as it evolves towards protection and annuities and more longer term products and benefits of scale as they come from time to time. Again, there could be some sort of variations within quarters and within years depending on the kind of volume impact that we'll see as well. Yes. I just want to add to that. Avinash, if you remember, last year, H1 of last year, we would not have had any salary increase and bonus and so on Because of going through COVID. In fact, beyond a certain grade, we skipped an entire year. And even below a certain grade, it was only for half year, which is the second half of the year. So like for like, think it will long overdue in terms of back to normalcy and so on. And so the comparison with 1 year prior is what we believe Is the correct comparison? And H1 FY 'twenty one, like Niraj said, was 14%. H1 this year was 12%. Okay. And is this ad and marketing expenditure? I mean, it's a combination of 2 things, of course, 1 is your advertisement and one is Innovate advertisements via your distribution partners. So is there some sort of a breakup between how much what series So the distribution partner marketing ad via them and the other via any new electronic or TV or print media? Today, we are in an increasingly connected world. And I might be Having my ad on one of our bank partners and several bank partners, ATM, for example, while you're waiting to withdraw cash. Now who's to say that, that ad is less effective than if I had a hoarding outside an airport Or digital marketing, for example, that I might do on a partner or some allied partners who has a large customer base on their platform. And that's why this kind of simplistic classification, I think, will not doesn't we don't track ad spend in that manner. Okay. Okay. And now if some color on that mortality experiences prior every 2 years back on the retail side and how they were different from that Vinu, you want to take that question? Yes. So this is broadly in line with Whatever we assumed in the prices, I mean, it does vary quite a bit between savings and protection book And depending on whether medical has been done or whether it went through non medical, but largely at least question is more in that, okay, typically your expectation of pre COVID, I mean, so I mean, was like your You showed pool mortality experience in material or in themselves materially different from what is that India population mortality ILM table. Yes, I mean, was there a huge difference in terms of the U. S. Pool or one is like, I mean, some color on that, one is closer or one is, I mean, you got a very sort of a different mortality profile? Yes, it would be. Generally, in short, The number of population always has a favorable mortality or lighter mortality compared to the population mortality. And within that also, within the insured lives, the private players mortality will be much lighter than The overall mortality for the industry. And even within the private sector, you will have, So, THC and sort of similar types of profiles will be even more lighter. I don't want to give you an exact number, But it's certainly much later than the population mortality. Yes. And within that also, I would expect your retail mortality experience will be Far, I mean, lighter than your current life's portfolio. Yes, that's right. Thank you. The next question is from the line of Arjun from Spark Capital. Please go ahead. Hello. Thanks for the opportunity. I'd like to know what percentage of term insurance comes from web aggregators. And As the range has tightened the underwriting norms, what would be your approach towards this channel? Can the price In fact, the mitigated to some extent by changing the channel mix or from where the term insurance is sourced? And would you be shifting the focus to other channels, If so, that's the first question. Yes, I will follow the second question afterwards. Yes. So less than a 4th comes from your question. Less than 4% of the termination comes from the broker rate, that is it? One fourth. One fourth. Okay. Yes. Between 1 fifth and one fourth. Okay. And if I can add on the other part, so look, the term pricing is kind of fixed Based on what we are finding with the regulators, so we do, of course, look at the pricing, how we deal back across channels. You can't Change the pricing across channels and then change it across the various margin differences between the online pricing as well as the offline pricing. But what we normally do is we try and maintain that balanced product mix for Gizar was talking about, by ensuring that a certain channel focus long term or We push a certain particular product based on what the customer requires and what the demand is. So like across products, there is The balanced product mix across channels also will try and make sure that all our products are present in the right volumes. Okay, yes. Thanks. Now the second question is within annuity, what percentage would be coming from HDFC's pension fund? I believe in the NPS Mutual, the customer can opt also to other life insurers. So what percentage would be from HDFC pension fund that flows to HDFC, Any sense over there? And also what would be the kind of the mandatory annuity part that is coming? So in terms of annuities, the sources of business have been evolving over a period of time. A lot of initial amount of business came from the compulsory underwriting. And over the period of time, more and more business started coming the group side where we have tie ups with various corporates, public sector as well as private sector. And in the last year, year and a half, ever since the NPS Book has been opened up especially for the government sector. That's where more and more business has started coming from the annuity side. So it's a bit Difficult to kind of talk about NPS annuity as a percentage in the current scheme of things, But it is becoming a more and more meaningful source anywhere between 15% to 20% of the business over a period of time We can expect to come from this too. So Neel, if I can add. I think look in H1, Neel is right, there are a few Channels from where we get one of the vesting ways on the open market, the One Rail Road Group and the NPS. So NPS in H1 was almost 17% of our business. We expect this to grow. In fact, we saw a fairly solid growth of almost 300% or 3 20% in terms of the NPS annuity in terms of how we are growing. So clearly, the investment that we made in the NPS, the pension company and the AUM that we are now delivering NPS will lead to a significant annuity route for us. Yes, the customer can choose. But frankly, in many of these cases, LVT is like a strong brand. Our pension funds have been performing best in class, And it's a known one. So we do find that we will gain significant market share on the overall You know, I'm happy, choice by the question. Thank you. Thanks a lot for that. Yes. Thank you. The next question is from the line of Vineeth Mehta from Samixa Capital. Please go ahead. Yes. Hi. Thanks for the opportunity. So my question was regarding that we had an EMR of around INR 700 crores at end of quarter 1. And if I calculate the claims COVID claims in Q2, it's somewhere around INR 1500 crores. So why has This has been is our experience more than what we estimated at the start of Q1? Yes, Ashu. What we did mention at the beginning, the Revi overall change have been in line with what we've expected for H1. And at the end of quarter 1, we had made a provision of INR 700 crores, as we had mentioned, split between individual and group. You had mentioned that on the individual side, we have a lot more visibility with at that point in time itself, claims have started tapering off, And we saw a lot more pronounced effect of that in quarter 2 as anticipated. But on the group side, we had said that it's still early days. The trends are yet to emerge. And we had created a provision level high level for group claims, which we anticipated will get re elevated in Q2. And that's exactly what happened. At an overall level, like we mentioned, even at the end of the quarter, we carried a surplus reserve of INR144 crores At the end of quarter 2 and to which we supplemented that by another INR 60 crores to take care of any more delayed reporting situation that we may have on the group side. So today, we carry a number of more than INR 200 crores into H2, Which we believe would be sufficient to cover any sort of elevated claims that would come through on the group side. Okay. Thank you. Thank you. The next question is from the line of Dhavalacharya from Kotak Life. Please go ahead. Hi, thank you so much for giving me the opportunity. My question is along diversified distribution. While we are Constantly building our proprietary workforce and partnership business. If you can give some color and future also as to how emerging ecosystems Are likely to come into play as far as life insurance distribution is concerned? Sudesh, you want to take that? Yes. So, look, it is a growing segment. Firstly, imaging ecosystems help us reach out from our technology, ease of convenience, 3 click, Multiple ways to wider markets, which probably the traditional markets may not allow us to. So for instance, what we did in terms of the bundle for us with Airtel Help us to reach to the prepaid platform for very, very large set of customers. Now where we emerging ecosystems and one of the reasons why we are Look, it allows us to build small ticket, it allows us to build flexible products, it allows us to build pre approved products. And on tech platform, we're able to reach out to customers who are anyway on to a certain platform for one of their needs. So there are multiple verticals within the emerging ecosystems, whether it's telecom, whether it is in terms of health platforms All these platforms which are available and we do believe over a period of time, all of them will have a reach out to the customer. So we continue to invest in these. We're trying to make the gains as possible. And what we really see in the future is an ecosystem building, right? And when some of these ecosystems build, Then we have certain trigger points where we were able to grow. And we have similarly like this, we've tied up with Paytm, we have a tie up with fixed capital, we have a This is Dharm. So we do believe over a period of time, it may not be immediately in terms of percentage contribution, but maybe significant Contributed to the overall insurance. And we started seeing that in general insurance, but you will find that maybe over a period of time, even life insurance, Thank you. The next question is from the line of Ashwin Akarwal from Akashyunaga Investment. Please go ahead. Hello. Yes. Go on, Ashwin. Yes. Sorry, my answer has been answered. The question has been answered. Thank you. Thank you. The next question is from the line of Gaurav from BNP Paribas. Please go ahead. Hi. Most of my questions have been answered. Just one question. So even though the share of Protection has decreased, that is, quarter on quarter based on my calculation, still margins have increased by So can you please explain what has led to this margin, Krish? Yes. When we say protection, I think you're only looking at individual protection. Our group protection Has more than increased by more than 100%. Credit Life has grown by 108%. So that is a big contributor to margin expansion. Okay. So actually, yes, that answers my question. Thank you. Thank you. As there are no further questions, I now hand the conference over to Ms. Viva Patilcar for closing comments. Over to you, ma'am. Thank you, everyone, for participating in the results call. Stay safe. Good evening. Thank you. Ladies and gentlemen, on behalf of HDFC Life, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.