Ladies and gentlemen, good day and welcome to the ICICI Prudential Life Insurance Company Limited Q3 FY 2025 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star 10 then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anup Bagchi, MD and CEO. Thank you, and over to you, sir.
Thank you, thank you. Good evening and welcome to the results call of ICICI Prudential Life Insurance Company for the nine months ended 31st December 2024. I have several of my senior colleagues with me on this call: Amit Palta, Chief Product and Distribution Officer; Dhiren Salian, CFO; Judhajit Das, Chief of Human Resources, Admin, and Operations; Deepak Kinger , Chief Risk and Governance Officer; Manish Kumar, Chief Investment Officer; Souvik Jash, Appointed Actuary; and Dheeraj Jagan , Head of Investor Relations. Let me take you through the key developments during the quarter before moving on to discuss the company's performance. Our independent director, Mr. Dilip Chokshi, has retired effective December 26, 2024, having completed his second term of appointment. We would like to express our gratitude for his guidance during his tenure. During the quarter, we raised subordinated debt for INR 14 billion, thereby strengthening our solvency to 211.8% at December 31, 2024.
Recently, the company has approved the proposal to invest up to INR 100 million, not exceeding 10% of the share capital in Bima Sugam India Federation. Bima Sugam is one of IRDAI's initiatives to achieve the objective of insurance for all by 2047. Bima Sugam aims to create and operate a centralized marketplace of insurance products and services. Customer-focused products continue to be at the core of our business strategy. During the quarter, we launched industry-first women's health plan, ICICI Pru Wish, and an increasing annuity variant of GPP Flexi. Amit will subsequently cover the new product launches in detail. Now, let me talk about the key performance highlights. We delivered RWRP growth of 31.4% year-on-year in nine months 2025, outperforming both the private and overall industry over the last five quarters. Our endeavor is to continuously create an alpha on business growth over the industry.
AP growth grew by 27.2% to INR 69.05 billion in nine months 2025. The number of policies increased by 14.4% year-on-year in nine months 2025, outperforming the private industry growth of 8.7%. Our focus segments, annuity AP and retail protection AP, grew by 81.7% and 24.2% year-on-year respectively in nine months 2025. In line with our focus on proprietary channels, agency, and direct, together have delivered 37.9% AP growth year-on-year in nine months 2025 and contributes approximately 55% to our retail AP. Our 13-month persistency stood at 89.8%, and 49-month persistency stood at 69.2%, a testimony to our customers' continued trust in us. We continue to deliver on our claims promise with claims settlement ratio of 99.3% for nine months 2025, settled with an average turnaround time of 1.2 days for non-investigative individual claims.
VNB grew by 8.5% year-on-year to INR 15.75 billion in nine months 2025, with an AP of INR 69.05 billion. The margin stood at 22.8%. Our business growth and profitability has been delivered with risk and prudence and is exhibited in a strong and resilient balance sheet. We continue to be the highest-rated Indian insurer as per two leading global ESG agencies by virtue of our AA ESG rating from MSCI and low-risk rating from Sustainalytics. Our customer-centric initiatives have also been recognized by awards in the area of digitalization, customer experience, learning and development, and claims management by various industry platforms. A complete list of awards won during Q3 2025 is presented on slides 52 and 53. To summarize, we will continue to offer the right product to the right customer and deliver it through the right channel.
Our three C framework of customer centricity, competency, and catalyst will help us deliver sustainable VNB growth by balancing business growth, profitability, and risk and prudence. Thank you, and I'll now hand it over to Amit to take you through the business updates.
Thank you, Anup. Good evening, everyone. We continue to improve our product propositions to cater to the evolving needs of the customers. There is a growing need of women-centric protection products, and to cater to the same, we have launched an industry-first women's health plan, ICICI Prudential Life Insurance, offering fixed lump sum for critical illness and surgeries. This plan ensures adequate financial support during treatment and recovery period and creates a safety net for the family. Moreover, the premium is also fixed throughout the coverage term, which could range up to 30 years.
In the protection segment, we launched iProtect Super, a term plan which offers a unique feature of premium break, whereby a customer can choose to defer payment of premium by 12 months while keeping active life cover. This feature is a beneficial option for the customers with fluctuating income who may want to take a break from premium payment due to other financial commitments for a certain period. We also launched an industry-first variant of GPP Flexi, which offers increasing annuity income every year, thereby safeguarding retirement income against inflation. In the ULIP segment, we launched ICICI Pru Signature Assure, which offers goal-based savings through waiver of premium, family income support in case of uncertainty, and maturity benefit, thereby safeguarding the investment objective of the customer. Let me talk about the business performance now for nine months FY 2025.
AP grew by 27.2% year-on-year to INR 69.05 billion, and retail AP grew by 28.5% year-on-year to INR 57.53 billion for a nine-month period. Linked business grew by 49.8% year-on-year, and its contribution to overall AP increased from 43.1% in nine months FY 2024 to 50.8% in nine months FY 2025, on account of customer preference shifting towards unit products given the market biases. Non-linked savings business, excluding annuity, declined 17.4% year-on-year, and its contribution also declined from 26.8% to 17.5% in the corresponding nine months this year. Group fund business grew by 102.5% year-on-year in nine months FY 2025. Contribution from group fund business increased from 3.7% last year to 6% in nine months FY 2025. This business is typically lumpy in nature. Protection AP grew by 6.9% year-on-year and contributed 16.9% to AP in the nine-month period.
Retail protection business grew by 40% in quarter three and 24.2% in nine months FY 2025 on a year-on-year basis. In Credit Life business, we have witnessed some slowdown due to ongoing challenges in MFI industry. Non-MFI business continued to do well. In this segment, we continue to add partners and introduce propositions aligned to the various lines of businesses of our partners. Group term business, as we have highlighted previously as well, continues to be impacted due to increased competition. However, we have been able to increase our depth of market coverage, as seen in the growth in number of deals, lives covered, and sum assured during the quarter. As a long-time player in the industry, we have a deep understanding of this market, and our underwriting strategy remains focused on selecting businesses which meet our defined risk-reward expectations.
Annuity business grew by 50% in quarter three and 81% in nine months FY 2025 on a year-on-year basis. Its contribution increased from 6.2% in nine months last year to 8.9% of AP in nine months this year. Protection and annuity are our focus segments, which together constitute approximately 42% of the new business premium, and we expect it to continue doing well. We have a well-diversified distribution mix. Agency business AP grew by 41.3% year-on-year and contributed 30.2% to overall AP and 36.2% to retail AP in the nine-month period. To improve productivity of our advisors, we had launched ICICI Prudential Edge, a comprehensive advisor stack which enables them to focus on revenue-generating tasks instead of administrative activities. Advisors using iPruEdge have exhibited an increase in productivity. Direct business AP grew by 31.6% year-on-year and contributed 15.3% to overall AP and 18.4% to retail AP in the nine-month period.
We will continue to invest in our proprietary channels to drive business growth further. Bancassurance business AP grew by 26.3% year-on-year and contributed 27.7% to AP mix in nine months FY 2025. Even within Banca channels, our business is well-diversified among various partners. Partnership distribution business grew by 2% and contributed 10.1%, while group business grew by 20.9% and contributed 16.7% to AP mix in nine months FY 2025. We continue to build capacity and have more than 2 lakh agents spread across geography. We have partnerships with 46 banks and access to more than 22,500 bank branches and 1,250 non-bank partnerships. We will continue to focus on improving customer experience through tech and digital integration in our day-to-day processes. Approximately 50% of policies were issued on the same day for the savings line of business in nine months FY 2025.
Notably, we are also the first insurer to pay out commissions on the same day to our distributors. Our product, process, and distribution are completely aligned with one goal, that is to deliver value proposition to our customers. All these initiatives together will help us achieve our core objective of increasing the absolute VNB while delivering value to our customers. I will now hand it over to Dhiren to talk to you through the financial update for nine months FY 20 25.
Thank you, Amit. Good evening. Now, let me take you through the financial metrics. AP for Q3 FY 2025 grew by 27.8% YoY, while the expenses increased by 10.7% YoY. AP for nine months FY 2025 grew by 27.2% year-on-year, while the expenses increased by 19.8% year-on-year. Our cost to premium stood at 19.8%, and cost to TWRP stood at 27.8% in nine months FY 2025. Our cost to TWRP on the savings line of business stood at 16.8% in nine months FY 2025. Our objective is to bring efficiency in savings line of business while we continue to focus on growth in the protection business. We have been investing in our capabilities, that is people, technology, and process improvements, which will help us deliver an operating leverage into the coming years. The VNB for nine months FY 2025 grew by 8.5% year-on-year to INR 15.75 billion.
As you're aware, our focus has always been on growing absolute VNB, and margins are primarily an outcome of the product mix. The margin for nine months FY 2025 stood at 22.8%. The movement in margins is primarily on account of the shift in the underlying product mix. The company's PAT for quarter three FY 2025 grew by 43.6% year-on-year to INR 3.26 billion, and PAT for nine months 2025 grew by 18.3% to 8.03 billion. Our assets under management stood at INR 3.1 trillion, and our solvency continued to be strong at 211.8% at December 31, 2024, aided by the INR 14 billion sub-debt fundraiser that we had done. Thank you, and we're now happy to take any questions that you may have.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from Pankita Srivastava from Aditya Birla Capital. Please go ahead.
Hi, team. I can see a sudden spike in the Group Fund numbers. So if you could just shed some light on the reasoning for the same.
Pankita, can you just repeat the question again? We didn't catch the first part.
Yeah, so I was asking that there has been a sudden spike in the group fund numbers, so if you can shed some light on the reasoning for the same.
Yes, we had a spike in Group Fund numbers in this quarter. Group Fund is typically lumpy in nature, and it's a good business. We do make money off it, and we're happy to pick it up.
Okay. Yeah. Thank you. And just one additional question. What has been the business for Credit Life?
Credit Life business for us actually has grown by 8%, and this contributes close to 38% of our overall protection business. You know our protection is close to 16.5% of our overall AP, and 38% of that is Credit Life. Within Credit Life, 45% of our business is MFI, and remaining is non-MFI. I'll give you the exact numbers. Okay.
Pankita, anything else, Pankita?
Oh, no, no. Thank you. Thank you so much.
Thanks.
Thank you. The next question comes from Avinash Singh from Emkay Global. Please go ahead.
Good evening. So a couple of questions. The first one, again, regarding the product composition and margin. I do understand the buoyant equity market and demand, but do you have any sort of a product mix in mind? I mean, given that last year this non-linked product has already seen a kind of a retreat from the high pace of FY 20 23, and yet it continued to decline in the mix. And given the cost structure, the ULIP is not really the profitable one, and that is why the margin continues to sort of. And in my understanding, of course, you choose not to disclose, but typically having an idea about composition of non-linked PAR and non-PAR also gives an idea around margin.
That is where, again, if I see correctly, it looks like that the non-PAR side has rather, again, slowed down sharply versus PAR, and that's all contributing to this margin. If you can just help us understand the product strategy, and if you can just sort of provide some color between this, you know, that PAR, non-PAR, and also the kind of idea on the kind of a Group Fund business, why to do it particularly, it is not sort of a, it is coming at such a rapid margin, at least it appears. That's one. The second part is that, you know, the second part is around product. You launched this 100% kind of zero surrender value product even before this new regulation came.
So how has been the experience so far, and has there been kind of, again, related to that, any changes in assumption or something that has led to kind of a margin, you know, resetting this quarter? I'm asking this question in the backdrop of what has happened last year quarter because you had to kind of adjust certain assumption that led to margin drop. So these are my two questions.
So I will not delay any other. So let me pick up some of your questions before I hand over to Amit. So one, if you look at the trajectory of the product mix across the quarters, and I think we should call this out also, a large portion of the group funds also needs to be clubbed along with the Unit Linked when you look at the overall margin profile. So when you look at that, you'll see that for the quarter, you've got nearly 60% of the business that comes in from Unit Linked plus group funds. Now, when you overlay the overall margins, you will find that you're broadly in line with the number that we have reported for the nine-month period. So that should explain how the margins have moved broadly in that direction. Yes, we discussed what the split between PAR and non-PAR numbers are.
They're roughly in the range of about 60/40. We discussed this last time as well. It ranges somewhere between 60/40 to 66/33 in that range. So that should give you a sense of how the numbers have been moving. Be clear that we don't want to put any artificial factors as to how much business we want to do from a particular line because, as we have reiterated over and over again, our focus is not on the margin. The focus is to grow absolute VNB. And what we are very clear on is we want to offer products that customers demand. Now, in this current environment, customers have chosen the Unit Linked product, and we have a variety of offerings within the Unit Linked product, which customers have picked up even in this quarter as well.
Clearly, we are not ones who are going to say no towards a particular product line. What we need to be very cognizant of is we have to build our cost structures to be able to support products that customers demand. Now, what you'll also notice is that when you look at the trajectory of costs from quarter two to quarter three, there is a sequential downward movement. It's part of the work in progress that we have been doing even while we continue to make investments in technology, people, and brand. So you're putting all of this together, and that's why we're looking at how the VNB movement is for the nine-month period.
There is no sort of assumption changes, I mean, that has happened this quarter?
Can you repeat that? What?
No operating assumption changes or anything that had, I mean, it is just a product mix, no assumption changes that is kind of having any bearing on margins.
No, we haven't taken any assumption changes. Typically, we'll do that at the end of the year. We'll review all assumptions at one shot. Of course, we've updated some of the expense forecasts that we see for the full year.
Yeah. Now, quickly, just a follow-up. I mean, again, I understand on the retail side, but that's okay. What customer wants you to sell the product, but why do this group fund business if it is like a unit? Because group fund is not loyalty. I mean, so that's one. And the second also on the cost, because you raised the point, if I look at the savings cost to TWRP, YOI, again, it's a very marginal increase, but given the kind of volume growth coming and also product mix shifting towards ULIP more even this year, why would I expect some bit of a decline here? So what's going on?
Yeah. So let me pick that second question first. Let me just close that group thing. I think you're asking this question for the second time. See, group business is part of our proposition that we give to our institutional clients, and it goes as a composite package both for what you do to the funds which are managed by the corporate for their employees, which we categorize as group funds. And in the same breath, we look at group term as another proposition that goes as part of the overall employee benefit solutions. So it is not a separate effort being made for a category of product. It is an institutional set of customers where we are catering to what they need as a composite offering from group fund as well as group term perspective.
And by the way, for the same set of team members and for the same cost structure, group actually adds to the incremental profits. As you know that we don't go by really a margin percentage, but with the same effort, with the same coverage, if you're able to get group fund alongside group term, we absolutely don't mind. And margin is not the consideration. The absolute profit is what group fund adds, and we are very happy to take that.
Yeah. Just to reiterate that, Avinash, we are not seeking to get a margin outcome. We're looking to grow absolute VNB. And to that extent, the group fund brings profits on the table. We're happy to take that.
To get your other question on cost, actually, if you look at the differential between H1, between what was the cost ratio last year and the cost ratio this year, and if you look at the differential between the cost ratios at nine months last year to this year, you will find that the gap has reduced. And that's also part of the point that I spoke of earlier in terms of the sequential decline in cost, which is roughly about 10%. Pick up the annuity.
Yeah. So you also spoke about the non-par and guaranteed range of products. See, when we look at non-par products, we either want to look at it as non-par and annuity together because both are guaranteed propositions for the customers, or we look at overall non-linked savings business together in one bucket. And we don't really differentiate between a participating and a non-participating product.
We do understand that with current interest rates prevailing and what is available in the market on fixed deposits from banking systems are quite attractive. So naturally, we did not find anything as an aberration when the demand we saw slowing down on a non-participating product. At the same time, what we really saw was cash flow as a benefit, being really taking precedence, customers really valuing liquidity in the long-term insurance products. We offered that liquidity feature in one of our PAR guarantee products. Our PAR guarantee products, the flagship product within PAR guarantee range, which is Gold, has been doing very successfully. From that perspective, there is no bias towards non-participating products. Overall, as a base, we are very happy to take care of the liquidity demand which we are seeing in the market.
Annuity, as you know, from 6% mix to 9% mix this year means that we are catering to that demand in an age segment which is relatively 50+. There are customers closing towards this retirement. So that means, I think, on an overall portfolio basis, liquidity demand is taken care of, and customers nearing retirement is taken care of through annuity. So I don't think we are missing out on any demand which exists and which is not being catered to. In fact, Avinash, we had seen this challenge even over the last year where single premium really wasn't growing well from an annuity perspective, which is why we had introduced the regular pay annuity, which is the product that you just referred to. And that has done quite well since the time that we introduced this in January last year.
That has been a big driver of this demand on the annuity side, and that's an opportunity that we saw, and we took advantage of it. Yeah.
Thank you. Thank you.
Thank you. The next question comes from Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi. Just curious, if I have to sort of look at your VNB ex of the group business, the group funds business, how would that look like? If there's some pointer to this, if you could help us. And if I really try to look at your cost to WRP for the savings business, again, ex of the group business, looks like the ratio has gone up over the nine-month period.
So I don't want to call out the margin on the group funds business. There is rupees on the table, and we're quite happy to take that. Obviously, it's going to be smaller, but we're quite happy to put that on the table. But even otherwise, when you look at the cost and look at the ratios, you will see the decline from a quarter-to-quarter perspective, and we keep working at this. And as I mentioned earlier, the idea is to be able to reset cost structures based on the products that we're selling, which is again based on the customer demand.
No, no, I understand that. Obviously, we discussed that the share of ULIP has gone up. And despite that, I think we just discussed saying that the cost ratio has probably not gone down as much. And so if I kind of try to adjust that with the group funds business, which practically comes in at negligible cost, probably the ratio looks a little adverse. I think that's the point I'm trying to make.
I'm not really, Nischint. See, I think one also has to recognize that one of the biggest components of OpEx is going to be employees, and we are not a hire-and-fire company. So we will adjust our cost structure, and we'll keep working at it systematically, and therefore, which is why you're seeing this overall cost number move down from quarter two to quarter three.
Sure. And on the first question, if you could give some texture on how should we think about the VNB at a product level in group savings?
Broadly similar. Broadly similar to what we had closed earlier.
Okay. Got it. Thank you very much.
Thank you. The next question comes from Shreya Shivani from CLSA. Please go ahead.
Thank you for the opportunity. So I have questions on the.
Sorry to interrupt, ma'am. Your line is not clear.
Yes, I can hear you better. Hello?
No, ma'am. There is a lot of breakage in your voice.
Okay. Let me get back in the stream. Try again.
No, ma'am. This is sounding clear right now.
Okay. Okay. Sure. So yes, I have two questions from this panel. So I wanted to understand the agency channel for most of the year has done quite well in terms of the growth that's been coming through. Even if I look at the third quarter or if I look at the nine-month, that channel has been doing quite well in terms of matching up with how the bancassurance channel has been growing. So how many agents have we added in the quarter or in the nine-month? What are some of the key changes that we're making over here? As this channel becomes open architecture, which is proposed in the insurance amendment bill, how will we manage with those changes that will come through? That would be my first question. And second is on bancassurance channel. So there was a lot of noise around the mis-selling bit, bancassurance channel, etc.
Have you seen any change in the way our Banca partners were behaving? Were there any processes that were going on? Any color that you can give to us on that would be useful. Thank you.
See, I'll start from agency. Sorry, your voice was not very clear, so I'm just assuming what you asked. So correct me in case you want me to answer anything incrementally.
Oh, sorry. Yeah. Sure. Okay.
I heard you ask about what is working in agency. See, agency has been chosen as one of the key focus areas for us over a period of the last few years. And we have spent time in building capacity, both physically as well as on processes, on skill building. And that is something that is now starting to play out. And over a period of the last nine months or so, we have been able to see a growth on the new advisor licensing, which is quite reasonable at 50% plus growth. And then, as you know, apart from new advisor licensing, which anyways contributes little to the overall pipeline if it happens over a period of time, a lot of time has been spent in looking at building skill on the retail side of our advisors.
Very happy to state that almost close to more than 25% to 30% of our advisors' activation is what we have witnessed over a period of the last nine months. That is largely on account of digital enablement that we have done for our advisors. We launched advisor stack through an app called ICICI Prudential Edge, which has been adopted very well with our value set of advisors. The productivity enhancement that we have seen specifically on value advisors has gone up to the extent of 37% over what it was when they were not using the app, or even in comparison to advisors who are not currently using that app. So I think that has really held us in good stead. Apart from that, I think the learning academy right from our own employees to the advisors is something that has, again, worked well for us.
Overall productivity increase at the entire agency base has gone up by almost 10% to 12%. And all this is by, of course, doing a lot of ground-up activity and breaking down the entire process beyond relationship management to having a very strong digital sales process of tracking skill levels and then monitoring and certifying over a period of time. So it sounds all very logical and very simple, but this is something that we've delivered over a period of the last one and a half to two years is what we have been able to eventually achieve. And of course, I want to speak about the fact that segmenting our advisors based on the access that they have on the customer segments that they are catering to has actually held us again positively.
We today have a fair hang of which set of advisors have access to what profile of customers, which allows us to build skills specifically for product propositions which are most meaningful for the advisors, which is drawn from the access that he has from his natural ecosystem. It's not that everybody has been asked to do everything. It is all aligned to the customer access that they bring in to ICICI Prudential. I think very segmented capability building, skill building, and not doing everything to everyone has been the fundamental reason why we have been able to see this result. We are quite confident that we will continue to add capacity.
We will continue to add depth in leadership, depth in frontline management with people who have spent enough time in agency and build it over a period of the next six to 12 months' time frame.
But is that what you said also? With the open architecture coming to, do you think you see that as net positive, or do you think more disruption would come in the agency channel once they're open to bring all these products?
Right now, it is very, see, first of all, it is not something which is entirely in our control. It is a decision best left to the regulator to decide. But if you are to ask us today, intuitively, and with the experience that we have in agency, it's a business which is very different in comparison to what you would typically see in a mutual fund kind of business where also there is a multi-manufacturer distribution existing. It's a very high-intensity business, a lot of training, capability building, skill building is required. And also, advisors tend to gain a lot when they enhance productivity with a particular manufacturer. So that exercise means that even if the multi-insurer architecture was to come, how many will exercise that choice of trying out with multiple manufacturers is something that is yet to be experienced and seen.
I believe that category of products are available with almost any insurance company today. Products are copyable. Anybody can manufacture anything. So from that perspective, product differentiation from company to company doesn't exist. It is all about the capability of how you manage advisors, how you build skills. I think from that perspective, I truly believe that advisors will stand to gain aligned to one set of people in the organization to really accelerate their overall productivity. But anyway, it's too early to comment right now. We'll wait and watch and see how it pans out.
Sure, and so my second question was on the bank side. Any changes you've seen after the regulator's comments, etc., and is ICICI Bank still doing one billion per month? Sorry, per quarter kind of number?
Okay. So I understood the ICICI Bank question. So ICICI Bank has been stable. We have been maintaining every quarter. The focus is on the protection line of business. They are doing fairly well on protection. And the numbers are stable. The YoY growth keeps differing depending upon what was there in the base. But I think we are very happy with the overall focus on protection, overall focus on sum assured. And I think there, the growth from ICICI Bank channel has been quite good. From other bank perspective, I could not understand your question. If you could just repeat that.
So if it was some comments made by the regulator and the finance minister on mis-selling in Banca channels, have we seen any changes happening at the distributor end in terms of tightening of processes to curb mis-selling?
See, first of all, mis-selling is not something that we have ignored ever. We always want to focus on mis-selling and improving it all the time irrespective of what the guidelines come eventually. So persistency, I believe, is a good, fair measure of the quality of sale that you do. And there, I think we are improving very regularly. And every year, we are actually showing an improvement in persistency. And that is the best outcome that you can expect from a quality of sale. Otherwise, our effort on improving quality all the time, not just with Banca, but with every channel, will always be there. And so to that extent, specific to Banca, I don't see trends any different from what we see at an overall company level. So I don't have to anyway comment on specifics about Banca on that front.
So this is useful. Thank you, sir.
Thank you. The next question comes from Supratim Datta from Ambit. Please go ahead.
Thanks for the opportunity. So my question is, I understand that you have a VNB growth target. But looking ahead into the fourth quarter or FY 20 26, you already have a high APE base after the growth that we have seen over the first three quarters of FY 20 25. So could you help us understand that how would you, going forward, drive this VNB growth? Because would it be driven by getting into more products like Group Fund and expanding those, and hence the margin could be lower, but the top line would continue to grow at a similar rate? Would that be the strategy? Also, on the VNB side, while we have been growing the VNB now, if we see we are still, if we look at it on a two-year basis, you are still below where we were in FY 20 23.
By when do we plan to go back to those levels, or what would be the pathway back to that level? Because what is happening is we are growing the top line, but the margins are still weaker than what we used to post and weaker than what your competition is also posting. Just if you could give us some clarity on these two things, that would be helpful. On the third bit, what I wanted to understand is on the zero surrender product. Now, you launched it in January, so there is around three weeks of data. What are you seeing in terms of surrenders? Are you seeing anything different from what you have already budgeted for? If you could give some color on that.
For this product, are you anyways building in higher surrenders in your assumptions or other surrender assumptions similar to your regular annuity products? If you could help me with these points, that would be very helpful.
Hi, Dhiren here. So let me go one by one. With regard to our annuity product, yes, it's a little over a year since we launched. Frankly, we have not seen any adverse trends at this point. Because again, our belief is that this product has been bought from the perspective that the customer wants to take an annuity. And that is the way it has been sold with our distribution as well. So for the customer to walk away with just the premium at this point is really not a win-win situation for him. Because in any case, there is going to be an opportunity loss that the customer would be taking, as of course, the GST loss that he would be bearing.
So clearly, it would be a little out of pocket for the customer to walk away now. The objective of the plan that we had brought out was to be able to build a corpus such that an annuity can be taken. And we believe that's how it is being sold at this point. Nonetheless, we have our eyes and ears open, and we'll keep watching out for any trends as we can pick it up. But at this point, we have nothing to report. The surrender expectations built in are anyway quite minuscule in line with our other products as well.
I just want to add here, Dhiren, Supratim, when we launched this product, it was based on the insight that we picked where customers had large sums, but they were not willing to commit for a long-term commitment on premiums, believing that if there was to be a crisis, then the principal may get lost, so this product has actually taken away that anxiety, taken away that anxiety of losing principal in case crisis was to hit, so if that was the purpose, and if we were to route this product through distribution, who was aligned? Because we did a level commission with our distributors, then I think this product was meant to manage and take the fear away from the customer's mind, which was crisis, and that doesn't give the reason for a customer to surrender just because the feature is available.
Liquidity environment at this point in time, so liquidity is something which we don't see has emerged as a big requirement, and hence surrender experience has been not something which is conspicuous at this point in time. There is no change in the assumption that we have taken. The customers have welcomed that, and it has helped us build our annuity franchise. Coming to your earlier question, Supratim, on what are we looking at for quarter four? Frankly, as we had mentioned to you, in last quarter four, there are a series of multiple items that we have on the table. That, of course, is a natural consequence of the fact that we've got a very, very diversified distribution network. There is not going to be one big lever that I can pull.
There are going to be multiple levers that we have on the table that we have set out. And like we have done for every quarter, these are the elements that we are putting in place. And we will see. Some of them will work. Some of them may not work. But we believe on balance, we should be able to deliver some alpha on the market. And that is what our endeavor would be. For the last five quarters, we've got some alpha. The idea is to be able to continue the alpha of the market into the coming quarters as well. And again, the focus very clearly is on absolute VNB that we want to drive. Margin is an outcome for us.
But Dhiren, what is the path back to the FY 20 23 level VNBs? Because we are still below that. Two years out, we are still below that. So how do we go back to those levels? That's what I'm trying to understand.
It was a very different context. The context was very different. And what you were experiencing as a demand from customers during FY 20 23 was very different in comparison to what you see today. So comparing it with an environment which is not relevant today is a difficult question to answer, to be honest. Dhiren, you want to add?
Yeah. So very clearly, we took a hit last time. We did not have the growth, and that actually impacted the overall margins and therefore the VNB. Now, we've worked beyond that from the first and second quarter of last year to start to deliver growth slowly but steadily from quarter three onwards. And that is what our endeavor will be. Because at the end of the day, when you have to look at delivery of VNB, it has to come from delivery of APE. And as you can see, for the past few quarters, we have been working at it, and we've been able to deliver some bit of alpha of the market. Slowly and steadily, we'll bring this back. No doubt about that.
Thank you. Thank you. Participants, in order to ensure that the management is able to address questions from everyone in the conference, please limit your questions to one per participant. If you have any other follow-up questions, please rejoin the queue. The next question comes from Manas Agrawal from Sanford C. Bernstein. Please go ahead.
Hi. Can you hear me?
Yes, Manas. Please go ahead.
Sure. So sorry to go back to margins. Just wanted to understand and confirm. You said product-level margins were stable. This is slightly contrary to what we are seeing with peers where they are seeing better rider uptake and therefore better margins on the unit side. And they've repriced to adjust for interest rate movements. And therefore, non-PAR/PAR pricing margins have also improved. So if the product margins are stable, why this delta relative to peers? And if you're saying product margins are stable, then the entire movement in margins on a sequential basis or YOY basis coming only from mix, is that the right way to think about it? I'll also squeeze in on margins. Is there any impact from surrender value? Those are the questions.
So very, very limited impact on surrender value. We really don't have that kind of a book as our peers. As I spoke of earlier, a large portion of our non-link savings is in participating business and not in the non-PAR space. That's where the larger impact would have been seen. On product-level margins, they're broadly the same as we've seen from the previous periods. We, of course, are working at improving product-level margins in terms of rider additions as well as elongating term. And some of the actions that we've spoken of are starting to bear fruit at this time.
So we've not cut customer IRRs in line with interest rates. Is that accurate?
We have repriced our non-PAR plans in line with the yields at October. The last time that we had made these changes was at April. In the intervening quarter, we did not have the chance to do that because we had to update it for surrender value regulations as well. In October, we did update the IRRs in line with the yields. In any case, the share of non-PAR for us is quite small in our overall mix.
Understood. Thank you.
Thank you. The next question comes from Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah. Hi. This is a structural question as to how do you think or what would be the factors that will kind of shift the product mix for the industry the way it has been shaping towards units and reducing share of non-PAR? What will kind of drive this mix back towards something like a non-PAR and lower from units? The markets have been weak in the last few months. But is there any evidence that that impact is visible in terms of unit demand? So any thoughts there where how do we see this? What would be the factors that macro factors that can drive this shift in mix?
Prayesh, if your question is what can drive the demand up in non-PAR, I think we'll have to look at the shape of the yield curve. And favorable movement of the yield curve will be the one that will create an opportunity to be able to provide this product and get the demand up over there. What we are seeing in the market is that Unit Linked has got a great appeal. And we continue to provide products in that space, which are favorable for both the customer as well as the company. And very clearly, we do not want to throttle demand, and we want to work at improving the quantum that comes through on that.
Okay. And just a clarificatory question. The group fund business, what is, would there be any element of protection there? No, zero, right?
Sorry, we lost you there. Group Fund?
Group fund business, is there any protection element there?
No, it's savings.
No, no. Group Fund is purely savings. It's managing funds for the clients.
So basically, it will have a lower margin compared to your general unit product, right?
Yeah, it'll have a lower margin in general.
Okay. Got it. Thanks.
Thank you. The next question comes from Aditi Joshi from J.P. Morgan. Please go ahead.
Yes. Thanks for taking my question. Just one more question regarding the annuity product, which is growing rapidly. Can I please confirm the margin of this product as in, was there any repricing being done for this annuity product as well in October as we did for the non-PAR? And just on this commission structure again, if I can ask, the distributed commission structure, especially in the broker and the MFI channel, so is it more like a trail-based commission structure? Any restructuring being done there? These are my questions. Thank you so much.
Coming to commission structure change subsequent to first October surrender guidelines changes that have been executed. I think our options that we have worked with our partners is either differing commissions or clawback of commissions or reducing commissions. So different partners have agreed for different structures, different models. It also had to be in alignment with what their OpEx requirement was, what their business models are. So we have almost closed more than 95% of our partners. We have closed the arrangement, the revised structures. And whatever is pending is something very small. I think also we'll get over in the next couple of weeks' time. So from that perspective, the commission structures have been completely aligned with the change in surrender guidelines. Just to reiterate, the way that we're approaching these surrender value guidelines is that to ensure that the impact to customer is minimal.
What we have passed on in terms of price changes has been largely in line with the change in the yields on the market. With our distribution, we have offered these three mechanisms that Amit just described, which is a reduced commission, or a clawback, or a deferral of commission, and as you pointed out, most of these conversations have now started to come to a close. We didn't get your first question that you had raised, so your line was a little patchy. If you can repeat that.
The first question is related to the repricing of the annuity product. So just wanted to confirm that similar to non-PAR repricing, did you also take IRR cuts, let's say, in the annuity product as well around the October month?
Yeah, the pricing of non-PAR, annuity, all those products linked with G-Sec yields were all corrected effective first October. Something that we could not do in quarter two was corrected as we got into this quarter.
Oh, we got it. That's very clear. Thank you so much.
Thank you. The next question comes from Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
Hi. Thank you for taking my question. So just again, coming back on VNB growth, actually. So this year, we are seeing so far 27% growth year over year on AP. Despite that, the VNB growth has just been about 8.5%. We've been investing in the business, and still, I would have expected a slightly better operating average to play out and the VNB growth to be stronger than this. And especially also, we had also been guiding earlier in the year that sort of mid double digits is the VNB growth that we are targeting. So in that context, our VNB growth is significantly lower than our target. And I mean, the first question is why? What is happening then? Is the cost, just the variable cost of acquiring the business, so high? The commission element and total cost is so high.
That's what is keeping contribution levels down and not helping VNB grow. And two, then for the year, how much VNB can we grow? And then over the medium term, what sort of VNB growth should we be looking at? When do you think operating leverage will start playing out for you?
So one, Madhukar, from a VNB growth of about 4% for half year, we are now at about 8.5% for nine months. So clearly, we're seeing an upward trend in that. But you're right. The top-line growth was 27%. But what you also note is that the mix shift has also happened more towards Unit Linked , which has got a lower margin. So that explains how we are working at the 8 to 9% VNB growth for nine months. The view that we want to take from a medium-term perspective is to work towards the mid-teens, no doubt about that. And we're working at it for quarter to quarter. As you can see from H1 to nine months, there has been a positive improvement.
Right. But then, is that the right way to think about operating leverage? Is the other thing that I had in my mind. Like when you look at Cost to TWRP, that going up, is it that the commission cost or the variable cost of acquisition has just been very high?
So if you look at the OpEx, Madhukar, you are starting to see this come down. And more so when you look at the overall costs, they are also down quarter to quarter. So we are actively working at containing costs and making sure that we are working to the products that we are selling and the suitability of the cost structure to those sets of products. So this is obviously a work in progress. We continue to work at it while we continue our investment in specific areas such as technology as well as people in bank. So this is a work in progress that we are working at at this point, and I'm sure the results are going to come through.
Got it. And finally, just in one of the questions, you mentioned that 38% of the total protection was group protection. So I just, and that has grown about 8%. That would mean that the credit protection is down about 12% year over year. Is that correct?
Yeah. So group protection being down is quite well known for the stress that we see on MFI business. And largely, it is because of disbursements getting lower, which has impacted credit-life side of the business, taking a hit in quarter three. So to that extent, yes, the share of credit-life business in the overall protection actually has come down on account of challenges which are well known in the industry.
That's mainly the MFI industry. No other sort of change up there?
That's the non-MFI business. It has been happening quite good. So I think the slowdown that you see is not a stress that we believe. So I think it is something which is well factored, and we are aware of why it has happened. So from that perspective, we don't see that as a challenge. Once the cycle reverses, we are quite happy that we will get a positive momentum. So I think we are well aligned to get adjusted to the changing cycle all the time. So there is a positivity. Recently, we have seen some numbers reversing. There is a positivity on non-MFI business already visible. Hopefully, with the outlook expected to get positive over the next couple of quarters, we are well present across all our MFI partners to come back to the original share of credit life once the business reverses.
Understood. Thank you. And all the best.
Thank you.
Thank you. The next question comes from Dipanjan Ghosh from Citi. Please go ahead.
Hi. Good evening. Just going back to one of the previous questions. If I just look at the margins, and you mentioned that on a sequential basis, adjusted for the group funds business, margins are almost stable. If I do a sensitivity and let's say, assuming that there is no change in margins of group funds business between H1 and Q3, even if we assume that's a 0% margin on that business, it seems that the other segments, there has been at least a 60 bps to 70 bp s decline between Q3 and H1. Firstly, is that a fair assumption? And to start with, are the group funds margins similar across quarters? And the second is.
No, I don't think that bears out.
Okay. And second, on your unit segment, would it be fair to assume that the momentum is holding on even during the current quarter?
Yes, that's right.
Got it. Thank you.
In the early days of this quarter.
Sure. Thank you and all the best.
Thank you. The next question comes from Nishant Shah from Macquarie. Please go ahead.
Sorry. My question has been answered. Thank you.
Thank you, sir.
Thank you. The next question comes from Sanketh Godha from Avendus Spark. Please go ahead.
Yeah. Thank you for the opportunity. Amit, you launched a new variant of every product, whether it is annuity, health, or a protection. And features to the customers look to be better compared to the existing plain vanilla versions what you have. So is it fair to say that given the benefits are a little better to end customer, will these products have on cumulative basis a margin better than the existing, or it will be lower? And I just want to understand, since the launch, whether the contribution of these products have, I don't know when exactly they were launched. So from that perspective, I just wanted to understand how the trends are in this particular product and whether it will support the growth in fourth quarter, which invariably, to some extent, is higher for you. That's the first question I have. And second is a data keeping question.
Before you move on to the second question, which product are you talking about in this question?
No, I'm referring to the new annuity product which you launched, which is inflation-linked or protection plan where you have a premium break and a health plan. So these products typically are more customer-friendly compared to the current versions what you have. So I'm asking from that perspective, given you are giving more benefits to the customer, whether the margin profile of these products will be better than the existing ones or broadly similar?
Sanketh, in short, we are not looking at any margin drop. We are pricing them to be margin neutral.
Okay. Perfect. Second is just a data-keeping question. You typically disclose ROP protection AP. This time, I don't see it in the PPT. If you can quantify the number, it will be useful.
It's small. I think for the nine months, it's roughly in the range of 15% to 20%. It's broadly been there.
Okay. It was INR 63 crores last year. So it's broadly there, or it's 15% growth on that one?
I'll come back. I don't have the number right now with me.
Okay. Perfect. Yeah. That's exactly my question. Thank you.
Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the Chairman and Managing Director, Mr. Bagchi or Mr. Kannan , for closing comments.
Thank you very much for joining the call. Have a great evening. Thank you.
Thank you. On behalf of ICICI Prudential Life Insurance, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.