Ladies and gentlemen, good day, and welcome to the ICICI Prudential Life Insurance Company Limited nine months ended 2024 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 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 of ICICI Prudential Life Insurance. Thank you, and over to you, sir.
Yeah, thank you. Good morning, and welcome to the results call of ICICI Prudential Life Insurance Company for the nine months ended September 31, 2023. I have several of my senior colleagues with me on this call. Amit Palta, who heads Distribution, Brand, Marketing, and Product. Dhiren Salian, CFO. Judhajit Das, who heads Human Resources, Customer Service, and Operations. Deepak Kinger, who handles Audit, Legal, Risk, and Compliance. Manish Kumar, our Chief Investment Officer. Biswajit Das, Appointed Actuary, and Deepad Teja, our Chief Investor Relations Officer. Let me take you through some of the key developments during the quarter before moving on to discuss the company's performance. On the regulatory front, IRDAI issued an exposure draft on product regulation for public consultation.
One of the key elements proposed is the concept of a premium threshold for non-linked savings products, where beyond this threshold, no surrender charges shall be levied on the remaining premium if the policy is surrendered when the policy is surrendered. We believe that any changes leading to a better product proposition for the customers will be a great opportunity for the insurance industry. In line with the same, we have launched ICICI Pru Guaranteed Pension Plan Flexi with Benefit Enhancer, industry's first annuity plan that provides customers with an option to receive a 100% refund of premiums paid at any time, starting from the day of purchase. Significantly, this product is in line with the proposed regulation, which aims to ensure that the customer receives a fair and appropriate surrender value, particularly in the event of an early exit on the policy.
For distributors, while the base level commission between the various variants of GPP Flexi are similar, in the Benefit Enhancer variant, the commission rates have been backended and more level-based for initial years. Further, IRDAI has expected to introduce Bima Trinity for insurers, which includes Bima Sugam, Bima Vahak, and Bima Vistaar, with an objective to reach the last mile coverage by leveraging technology and customer-centric initiatives. The Bima Sugam platform is proposed to be a nonprofit company, and we are set to invest in the platform as a founding member. The platform aims at providing an end-to-end digital solution for insurance purchase, service, and claim settlement in a single plan. This is a welcome initiative since it could be a one-stop destination for customers to fulfill all their insurance needs, and it also gives a platform to all stakeholders to participate.
Innovation has been at the core of our business strategy. During 2023, we launched a slew of innovative products, such as ICICI Pru Gold, Pru GIFT Pro, iShield, and Protect N Gain . We also launched industry's first unit-linked plan with constant maturity as a theme. During Q3 2024, we launched Waiver of Premium rider, which allows customers to get policy benefits even if an untoward event occurs to them. On the professional side, we have launched ICICI Pru iProtect Smart Life Continuity Option, again, an industry-first feature, where the customer has the flexibility to either receive the sum assured as a lump sum or a monthly income for a duration of up to 30 years or a combination of both. And of course, we spoke of the ICICI Pru GPP Flexi with Benefit Enhancer as I said.
On the process side, with a set of capabilities encompassing digital tools and analytical capabilities, we were able to issue approximately 80% of the policies on the same day for the same line of business in Q2 2023. Complementing this, we have launched an initiative of crediting commission on the same day of the policy issuance for our top tier advisors. In the last earnings call, we had detailed out the ICICI Pru Stack, which is aimed at making us the most partner-led insurer, and initiatives like this further add to the overall proposition provided to our partners. Well, I would also like to talk about the claim settlement, which is the moment of truth for any insurance company.
As a customer-first brand, I'm pleased to inform you that the company has consistently maintained an impressive claim settlement ratio of 97.9% in Q1 2024, and 98.1% in Q2 2024, securing the top position amongst private sector insurers. Along with that, our average turnaround claim settlement time now stands at 1.3 days for non-investigated claims in nine months 2024. Also, as a testament of our efforts on investing in digitalization and data science, we have received awards for the best use of technology in customer service, best transformative security initiative, best innovation and diversification. The company's 2023 annual report, too, has received the Gold Award for 2023 Corporate Awards by League of Ameican Communications Professional. Recently, we have been ranked number one term insurer by Fortune India.
Lastly, on the sustainability front, we continue to be the highest-rated insurer in India with double A rating by CARE and have received award for best sustainability report and best overall sustainability performance in the sector. Our complete list of awards won in Q2 2024 is presented inside of the page. I will now move on to discuss the key performance snapshot for Q3 2024 and nine months 2024. The nine months 2024, value of new business was INR 14.18 billion, with an APE of INR 54.3 billion. VNB margin stood at 26.7%. The decline in VNB margin is primarily on account of the shift in underlying products towards unit linked and PAR from non-PAR business, decline in group term business, and higher expense ratio for the current year.
We have registered RWRP growth of 10% in Q3 2024, higher than average growth rate registered by the overall industry, as well as the private life insurers. On the proprietary business, that is, direct and agency, constitutes more than 50% of our retail AUM. Within this, direct business has grown by 18.8% for nine months 2024. We have been investing in agency channel by scaling our channel managers and providing our agency with institutional support, complemented by data analytics and data capabilities. The agency channel has grown by 12% year-on-year in Q3 2024, and our efforts are directed towards driving this growth further. Partnership distribution has registered a growth of 9.2% year-on-year in nine months 2024.
The Banca channel grew by 2.4% year-on-year in Q3 2024. Within that, ICICI Bank channel declined by 4.3% year-on-year. The group channel declined primarily on account of group term business, while we saw sustained growth in the group credit life business. On the product side, in nine months FY 2024, banc business has grown by 5.7%, while non-banc savings business has declined by 4.5% year-on-year, primarily on account of shifting customer preference from non-participating products towards participating and unit products. For retail and tied-down ticket price category, we have witnessed growth at the company level within the overall RWRP for Q3 2024. Annuity business grew by 17.3% year-on-year in Q3 2024, and that was strong growth in regular premium annuity.
The group fund business declined by 5.1% in nine months 2024. The retail Protection APE continued to witness strong growth at the end of nine months 2024, with 55.9% year-on-year growth, and with this, we have surpassed the FY 2023 retail Protection APE. Our regular and limited pay persistency have been improving consistently. 13-month persistency stood at 80.4%, and 49th month persistency stood at 60.1%. Our cost to CWRP ratio for savings line of business stood at 16.3% for nine months FY 2024, as we continue to invest to deliver sustainable growth in the future. We have always ensured that customer centricity is at the core of everything that we do, and we have been continuously working on improving the customer-related metrics as detailed out in slide seven.
We believe that the key to market expansion is in getting the customer, product, channel equation correct, which means the right and simplified product to the right customer at the right price through the right channel. Additionally, we have taken major steps to become the most partnerable insurer in the industry, and with the launch of ICICI Pru Stack, we now have an array of platform capabilities available for our customers and our partners. By enhancing the distribution to acquisition of new partners and new sourcing channels, we are setting up the platform for long-term sustainable growth. Our product, process, and distribution is completely aligned with one goal, that is to deliver value proposition to our customers. The hard work done through all these years is expected to start bearing fruit in the shape of steady growth going forward.
Our 4P elements, led by 4D framework, continue to play a crucial role in the growth of ICICI Prudential Life Insurance. Thank you, and now I hand it over to Amit to take you through the business updates. Amit?
Thank you, Anup. Good morning, everyone. As Anup said, our 4D framework is what guides our 4D strategy. Our 4D framework is entirely put in place by keeping in mind our core objective to deliver quality business in a risk-calibrated manner. Let me outline the important actions we are taking to further strengthen this 4D framework. The first element is data analytics. We have been investing in data science over the years, and customer-centric analytics engine has been powering our sales and distribution, operations, business, and channel strategy.
Additionally, we are focused on extensive utilization of AI and machine learning, along with data analytics, to mitigate risk in the insurance business. Our recently developed AI and ML PAC model has been assisting us to mitigate the fraud and early claim risk. This has led to 70% reduction in cases with higher propensity for fraud and early claims for savings policies for the period October 2023 to November 2023. The frame has been detailed on slide 30. The details of our extensive deployment of analytics capabilities are set out in slides 36 to 30. The second element, that is diversified population, has been detailed on slide 31 to 34. We have a comprehensive suite of products and continue to strengthen our product portfolio to adjust changing consumer preference in a dynamic environment. During 2023, we launched innovative products across categories.
We also launched industry's first unit-linked plan with constant maturity as a theme. The launch of ICICI Pru GPP Flexi with Benefit Enhancer in annuity, waiver of premium rider, ICICI Pru iProtect Smart life continuity option, as highlighted by Anup in his opening remarks, are a result of anticipating what consumer needs and delivering it accordingly. The third element, digitalization, has been detailed from slide 35 to 39. We've been working extensively to integrate our digital ecosystem with central agencies to fetch KYC and income estimation details for a simplified digital customer onboarding. As a result, during quarter three FY 2024, around 80% of our policies have been issued using digital KYC, and nearly 40% of our savings policies were issued on the same day. The fourth element, depth in partnership, is presented on slide 41.
We continue to build capacity and have added more than 28,750 agents during nine months of FY 2024, spread across geography. Within the bank and sourcing channels, we are setting up the platform for longer term success. Non-bank channel, we continue to add new partnerships and increase share of shop in existing partnerships. We now have a total of 42 bank tie-ups, with access to more than 20,000 bank branches and more than 1,050 non-bank partnerships, with an addition of 144 non-bank partners during nine months of FY 2024. Through ICICI Pru Stack, we aim to become the most preferable insurer, and we can onboard any new distribution partner in less than two weeks. Let me now talk about the business performance update through the elements of our 4P strategy.
Starting with the first P, that is premium-led element, which is mentioned from slide nine to 10. As you can see on slide 10, our total APE for quarter three stood at INR 19.07 billion, and for nine months, it stood at INR 54.30 billion. While Anup has highlighted the channel and product-wise growth, let me highlight the business mix. Today, we have a well-diversified distribution mix, with no single distributor, excluding ICICI Bank, contributing more than 5% to our APE in quarter three FY 2024. Hence, volatility in any single channel will not have any significant impact on our top line or bottom line.
As you can see on slide 12, for overall nine months FY 2024 APE, agency business contributed 27.2%, direct business contributed 20.8%, bancassurance 27.9%, partnership distribution 10.6%, and group business contributed 17.5% to overall APE. This diversified distribution will enable us to grow sustainably in the long term. Along with channel mix, we continue to maintain a well-diversified product mix, with nine months FY 2024 APE contribution from the link savings product at 43.1%, non-linked savings at 26.8%, protection at 20.1%, annuity at 6.2%, and the balance 3.7% coming from GIFT sales products.
The non-linked APE mix has declined from 28.6% in nine months last year to 26.8% in nine months current year, whereas linked APE mix has increased from 41.4% in nine months last year to 42.1% in nine months FY 2024. Annuity business grew strongly by 17.3% year-on-year during quarter three FY 2024. Single premium annuity declined as customers might have postponed purchases, given high FD rates currently. However, the strong growth in regular premium more than made up for the decline in the APA business. Another important focus area for us is to serve the life protection needs of the customer, and this aspect let me talk about secondly, protection growth on slide 13.
With an APE of INR 10.90 billion, the overall protection segment saw a year-on-year growth of 4%, leading to an APE mix of 20.1% in nine months FY 2024. The retail protection business has registered a strong year-on-year growth of 55.9% in nine months FY 2024. With this, we have surpassed the FY 2023 APE in the current year's nine-month itself. We expect normalized growth going ahead in retail protection. Our total individual sum assured stood at INR 7.2 trillion for nine months FY 2024, and our total sum assured stood at INR 32.3 trillion as at December 31. We believe, given the current level of underpenetration, retail protection business growth is a multi-decadal opportunity, while credit life and group term business also offers significant opportunity as we witness growth in credit and the economy.
Coming to our third P, which is persistency improvement, presented on slide 16. We believe persistency is the most effective indicator of the quality of sale and as a barometer of customer experience. This is reflected in the significant improvement in persistency ratios across cohorts. We have developed AI models, which predict future persistency behavior of the customer at various stages, and these enable us to take appropriate interventions. This will further help us to improve the overall persistency levels for the business. Now moving on to the fourth P, which is productivity enhancement, presented on slide 18. Our total expenses grew by 28.3% year-on-year for nine months FY 2024. As highlighted in the previous quarter, the increase in new business commission is attributed to the redesign of commission structure pursuant to the flexibility provided in IRDAI payment of commissions regulations....
This year will continue to be a transition year, and we expect the rates to settle down as we move to the next fiscal year. The rise in operating expenses is primarily due to sustained investment in capacity creation to support future growth. Our overall cost to PWRP stood at 25.3%, and saving lines of business cost to PWRP ratio stood at 16.3% for nine months of FY 2024. We monitor cost ratios for the saving lines of business separately. Our objective is to bring efficiency in the savings lines of business, while we continue to focus on growth in the protection business. I will now hand it over to Dhiren to talk to you through the outcome of four key strategies and financial updates for nine months of FY 2024.
Thank you, Amit. Good morning. We regularly monitor our experience in respect of various risks, and the diligent and proven risk management framework we operate on is reflected in our strong and resilient balance sheet presented in slide 19. The emerging mortality experience is within our expectations. On asset quality, 96.4% of our fixed income portfolio is invested in fixed income instruments that are rated sovereign or AAA, and we continue to maintain a track record of not having a single NPA since inception. Of our liability profile, 73.9% of liabilities largely pass on market performance to customers. We use derivatives to hedge interest rate risks in our non-participating guaranteed savings and annuities portfolio. We continue to closely monitor our liquidity and ALM position, and we have no issues to report.
The VNB for nine months, FY 2024 was INR 14.51 billion, given our APE of INR 64.30 billion, the resulting VNB margin was 26.7% for the nine months. The decline in margin is primarily attributed to product mix shift and higher expense ratio for the current year. First, let me explain the impact of the product mix shift. The market buoyancy has led to higher growth of the unit portfolio, which, as you're aware, has a lower margin profile compared to the company average. Further, we've been experiencing a shift in product mix from of greater than INR 5 lakh non-PAR cases moving towards the participating under unit linked products.
However, for quarter three, FY 2024, in the greater than INR 5 lakh category, we have been able to seize the market opportunity through unit linked and participating products, and we were able to grow this customer segment in line with the company level RWRP. There has also been an interesting product mix of traditional plans moving from non-participating to participating products, which has led to the PAR product mix to be higher than the non-PAR product mix for nine months, FY 2024. Further, we've seen competitive pressure on pricing in both the non-PAR business as well as the annuity business. Additionally, on the protection side, even though retail protection and group life businesses have grown during the year, group term business has declined from the high base we had in the previous year.
While we are having significant growth in the number of group term deals, the lower deal sizes reflecting normalization of rates post-COVID have led to a decline in the overall APE of group term. Second, the higher expense ratio for the year has also impacted margins. The growth into the top line for the nine months has been lower than the planned numbers. As explained earlier, the redesign of the commission structure has led to an increase in commission expenses. We have also continued investment in capacity creation to support future growth, specifically in the proprietary channels as agency and direct, as well as in IT and brand awareness. This has led to an increase in operating expenses for the year.
Further, from a quarter four perspective, we are now looking to build towards the double-digit APE growth, which we believe can help absorb some of the fixed costs that have been incurred in the current year. On assumptions, we feel quite comfortable on both persistency and mortality experience, and, as with the usual practice, we will evaluate them at the end of the year. For the coming years, we believe all investment and diversification that we've made will help in delivering the APE growth, which will aid in growing VNB. Coming to other financial metrics, our profit after tax grew by 18% year-on-year from INR 5.76 billion in nine months, FY 2023, to INR 6.79 billion in nine months of this year.
Our assets under management stood at INR 2.9 trillion, and our solvency ratio continues to be strong at 196.5% at December 31st. To summarize, we will continue to make progress against the four key framework of premium growth, protection business growth, persistency improvement, and productivity enhancement led by our 4 D framework. We are now well diversified in terms of product and distribution mix, which allows us to manage the impact of the external environment and responsibly to shifting consumer preferences. Thank you, and we are now happy to take any questions that you may have.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions, may please 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 only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, hi, good morning. Couple of questions. The first one on your big dip in margins. I mean, on VNB, the VNB if I look at product mix changes, they fail to explain. So, that means either, you know, the product value proposition for the policyholders has changed materially for the same set of products, or, the overall cost, increase in cost of top-ups has inflated a lot? You know, and that is maybe some sort of dip in the margin. So if you can help explain this sort of, you know, how much of it is product and value proposition change for the policyholders, or, and how much of it is coming out of the recent cost and OpEx?
If the large part was due to recent cost and OpEx, I mean, I would expect you to have a bit guided, because you know better how your OpEx is going to go, based on your strategy. So a bit of guidance, because this margin dip suddenly is pretty big. So that's question one. Second question is more around growth. If I heard you correctly, you were saying beyond Q4, you are looking at double digits. So I mean, if you can just sort of try to explain the value construct for what is. Because, I mean, we are also in the era of some regulatory uncertainty going on. So what gives you confidence for building growth beyond Q4, and what sort of a number of growth you are looking for Q4?
Just one minor again, if I were to look at the retail APE, what do you mean, retail RWRP growth from minor gap, I mean, 10%, 10%. Is it largely, I mean, the quarterly, monthly premium payment kind of a thing that sort of distort the number and normalize over the quarters, or is there something more? Thank you.
Good morning, Avinash. So, Avinash, as I explained earlier, the shift that you see in the margins is on, again, two fronts. The product mix, what you've seen here, is the shift towards unit link. That has definitely happened. What you've not been able to see because we've not given you specifically par and non-par, clearly is the shift towards participating. If you recall, we had initially spoken of, last year's par to non-par mix being roughly about 1:2. That has shifted more towards the participating side, where the participating actually is larger than the non-participating side. That shift in product mix also has a great part to play.
The other aspect, as we also pointed out, competitive action in the non-participating space as well as the annuity space, clearly have led to compression of, margins on that, line of business. So to that extent, there is, of course, a depletion that comes through. Coming to operating expenses, yes, we've seen operating expenses that have been higher. We had forecast our growth for the full year. We've not been in a position to deliver on that growth for the nine months so far. You can see that it's a little over, 1.5% for the nine months put together. That has impacted the real costs for the, lines of business, and which is what we are reflecting at this time.
Coming to your second question, in terms of what are we looking for quarter four, we are seeking to look at a double-digit growth in terms of APE. We're looking at this primarily from the perspective that, if you look at quarter three, we do have a double-digit growth on retail business. We saw the RWRP growth about 10%+. We expect to build that into the coming quarter as well. Initial trends that we see in the first few days of January seem to be quite positive, which is what gives us the confidence that we should be working towards this as well.
Yeah, and given that Q4, of course, you have that last year March base effect of high ticket policy. So what kind of growth, I mean, adjusted for that and available that we will see for Q4?
We are seeking to build double-digit on this, for quarter four, Avinash.
On that base? On the reported base or adjusted for some kind of, you know...
On the reported base.
Okay. Reported base, you are looking at, you know, double-digit Q4. That's perfect. And just, last, you know, kind of, bookkeeping question that was, your RWRP and retail APE as an individual APE reported, that will be largely because of this monthly, quarterly, premium paying accounting, timing.
There'll be a gap between the RWRP and APE from a monthly model perspective.
Okay. Okay. Thank you. Thank you.
Thank you. The next question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.
Yeah, hi, sir. Thank you for the opportunities, two, three questions. First one, as you highlighted, in terms of the mix change, I just wanted to understand also that, you know, if I just, you know, look at the mix in third quarter from a comparison point of view with the second quarter, then, like, unlike if we were to compare nine-month to nine-month, if we do it just on a sequential basis, on a quarterly basis, then the mix does not look very different in terms of, say, how much is unit-linked, how much is protection. I take your point that, PAR has increased very significantly, vis-a-vis non-PAR in the non-linked mix.
Is it fair to understand that this change has happened more in this quarter between par and non-par? Because I think some triangulation suggests that it would have not moved that drastically in the previous quarter. So is it a phenomenon that has happened this quarter? And also similarly for, say, in the protection side, how is the margin profile of group term life now playing out post the price correction? Because I think although retail protection has increased, I think share of group term life in on an APE basis in the mix have increased for overall protection. So if you could give these granularities, so that is my first question. The second question is on the banker channel.
So if you could tell us how it has been between IBank and non-IBank this quarter, what is the split in the bank IP in that and given that you mentioned that you are gaining market shares in your partner banks, but despite that, I think we have done a 2%-2.5% growth in AP in this quarter. So what kind of challenges you are facing there? Is this competitive intensity or is this that banks are focusing on other product segments? If you could highlight on that, that would be great.
Also, on the margin side, I just wanted to understand that do you think that, you know, product mix will kind of change in the upcoming quarters, or is this the margin profile to work with for the next, say, two, three quarters, going ahead? So this will be my questions. And a quick question on the new product would be, sir, that if you could tell us what kind of VNB margin for the new annuity product you are building in, which has more, you know, trail kind of a payout model, as you mentioned, and what kind of lapse rates, et cetera, you are also baking in the estimation. That would—these are, we say, a similar product with, you know, the current kind of surrender charges.
That'd be very helpful for us to understand. Yes, sir. That's all from my side.
Yes, no, no. Quite a lot of questions. Let me try and, if I do not, please remind us. So on the first one that you spoke of in terms of Q3 margins, please understand the way the methodology is that you look at full year, nine-month margin, when you do the computation, and you apply it for the entire books, entire base itself. So typically, when you just look at incremental Q3, it does have a catch-up impact of both Q1 and Q2 also built in. You're right, incrementally between Q2 and Q3, there doesn't seem to be too much of a shift on the outside from a product mix perspective. But clearly, we've seen a shift across both the quarters, in fact, all three quarters, towards the participating line of business, away from the non-participating, businesses.
At this point, the participating is slightly higher than the non-participating for the full nine months put together as well. The other point that I also cited was that, across the years, we've had competitive pressure on both, non-participating as well as annuity lines of business, which has led to compression in margins. Those are the key elements that are coming through. What, of course, we are reflecting also at this point is the expected unit cost, which has, given the higher operating expenses, is adverse to the margins. That also is being reflected at this point. That's how the whole thing comes together. However, what I also, you rightly pointed out, group term has declined.
That overall, when you look at the protection mix of roughly 20%, whatever gains that we had on the retail protection side are being offset by losses on the group term side. Group term specifically, again, has undergone some bit of correction in terms of margin, as we've gone towards post-normalization of rates post-COVID, and again, increased competitive intensity. We are working off a higher base, that itself is leading to a drop in group term CPE.
I just want to add here, this is Amit Palta . I think we also need to understand the context of margins, the way it was updating on non-participating guarantee products last year quarter, while all of us are with the hysteria around the guarantee product in the month of March.
But it also led to a lot of competitive competition activity on competitive practices in terms of pricing, and the margins did compress during the period February and March because of competitive pressures. And we cannot deny the fact that lot of affluent business, last year business, was preponed in the month of March, and there was a scarcity, and there was a proposition for customers to preponed their businesses. Which means that naturally there was a lull in quarter one when it came to guaranteed products, and IRR or the customer returns had to get moderated eventually. So that moderation happened in the quarter one. But however, the base level on margins had already got corrected at lower side in last year, last quarter.
So subsequent to that, all the changes that we made, whether it was, mutual fund indexation benefits being taken away, and relative to other investment products, immediately they attracted only a long-term capital gains tax in comparison to, more than INR 5 lakh, where regular tax was levied on the customers, meant that naturally the pull towards, you know, high potential returns kind of participating product and managing products started gaining momentum. So it was not just a quarter three phenomenon. We saw it the very beginning of quarter two itself, where, participating in managing products started gaining momentum. And slowly, affluent business also, because of relative advantage that they had on tax, started being, the overall mix and non-participating products.
This moderation of customer IRR in the overall industry saw bit of a compression of demand, which actually continued right through quarter two and quarter three. Coming to group protection, I think for the years where we were doing very well during COVID, we chose to be participating in group term business. The pricing was at a different level altogether. Post the experience, which was favorable, the pricing had to go through a correction, but yes, the competitive pressure on the lower pricing meant that there was a pressure not just on the top line, but also on margins. So margin on a standalone basis is still good, but not as much as what it used to be earlier. So that is the only detail which I would like to add there.
Coming back to the original question, which is on mix between iBank and non-iBank.
Yeah, mix between iBank and non-ICICI Bank for this period is actually half-half. You'll notice that ICICI Bank has stabilized in roughly INR 80 crore-INR 100 crore range per month, and that's where it has settled down at. Actually, if you back out ICICI Bank from this quarter three, except ICICI Bank, that business is actually grown by double digits. Coming to your other question on the new product that we've launched and what kind of lapse rate. There's also a question of non-ICICI Bank business in the competition track.
I just want to add there.
See, broadly, the way things have played out in bank insurance business is that wherever we saw collection and prioritization in alignment to direct link momentum and direct link demand, these were business channels doing relatively better. So the overall pie was witnessing a moderate growth in bank insurance banks, barring few exceptions here and there. But what we have witnessed is a growth which is quite reasonable and more than the growth at the individual partnership, which means that the focused effort has actually started giving us better share of business at the shop. So non-ICICI Bank business in terms of share has continued to look like better for us. Right, sir.
So let me cover the last question that you raised in terms of the new product. What kind of margins are we speaking?
This is broadly in line with our current set of margins on the same product variant. We are not expecting any large lapse rates out of this, frankly, because this is an offering that we're making to the customers, which is giving them the flexibility in case something does happen to them. This is not a product; this is not a core feature that we expect people to utilize. This is a benefit that is available to them, and the 100% value that they will get or the surrender value that they will get out of it is clearly beneficial to the customer in case they need the flexibility. Please understand that this product actually is saving towards retirement.
To that extent, if customers needed the money somewhere during the initial period, then he has the flexibility to take all of that away, even though his retirement goal may get affected.
Understood. If you would respond on, you know, how to think about the margin on in, say, near term, say, fourth quarter or, maybe going into the first quarter next year. Should we expect it to remain in a similar range on a quarterly basis?
Yeah. Broadly, if the product mix holds, then I think we should go along the same line. Shifts in product mix are something that we have to account for as we go through the quarter and the next year as well. Mm-hmm.
So if the product mix remains broadly similar, so full year versus nine months, we should see even little bit more contraction from where we are, right? Would that be a fair understanding, sir?
So, Swarnabha, the other thing also is, we are trying to build in a double-digit growth. So to that extent, if we overshoot that, that'd be great. We should have definitely some buffer there. Otherwise, it will reflect in the cost ratio at the end of the year.
Understood, sir. Thank you so much.
Yes, I think focus will continue to be delivering the products which are good for the customer, and we allow ourselves to be aligned to where the customer demand is. And what we get as an outcome is something that we take it.
That's where I would like to actually qualify and put it in.
Sure, sir. Very clear. Thank you so much.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants in the conference, kindly limit your questions to one per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Supratim Datta from Ambit Capital. Please go ahead.
Thanks a lot for the opportunity. So my first question is that, you know, if we have seen that, you know, what has happened over the, you know, the last nine months, it appears to be that, you know, you are going for, you know, for growth. But that growth is coming at the cost of margins. And is this a function of your, you know, ICICI Bank channel not really growing, and hence you have to grow in channels where the competition is higher, and which is then adversely impacting margins? And so going forward, while growth is going to be double digit, the top line could grow at double digits, the margins could be materially lower than what we have seen historically. So is that the way we should think of the business going forward?
That's the first question that I have. The second question is, you know, you have made investments in, you know, your agency channel, direct channel, but just wanted to know that, you know, whether these investments, how long will these investments continue for? And what level of top-line growth do you need to see before, you know, your operating leverage starts to flow through? You know, that's the second question. And lastly, on the new product, the Benefit Enhancer, just wanted to understand how does the margin on the Benefit Enhancer compare with the normal variant?
Yes. Thank you.
Those are my three questions.
Yeah. Thanks, Supritin. On your first question, I don't think that's the right way to look at it. Each distribution channel has chosen a strategy for the insurance business, and we respect every distributor's decision along those lines. And ICICI Bank is nothing new. We've discussed it for many, many quarters now. That has been baked completely into the base. What is good that we're seeing at this point is that ICICI Bank has started to stabilize at the INR 80 crore-INR 100 crore range, and that where we believe it will be, if there's growth out of it, we will take it. We obviously have to work beyond ICICI Bank. We can't just be with this one primary channel.
One of the key things that we have spoken of in the past and that we've delivered is actually a very diversified channel as well as a product mix, which allows us to take advantage of opportunity as it presents itself. So whenever there's an opportunity, we're in a position to take it. So if there is a market buoyancy, unit link definitely did well for us. That of course, the way the product mix shift has an impact on the product margin, and that's what we explained in the past few minutes as well. What is very critical for us is to make sure that we've got all products on the shelf, and we're in a position to offer them to the distribution that is able to reach out to those customer bases.
Whatever the customer chooses, that is good for them, we will offer and allow that to play out. Coming to your other question in terms of the Benefit Enhancer product that we have launched, we just discussed that margins are broadly in line with what we've seen for the other variant of the product.
On the investments in the new channel and-
Yeah, you know, first of all, this focus on non-ICICI channel, which may increase our margins. I just wanted to clarify that, of the retail business that we do, 51% of our business is proprietary, but direct business, which is proprietary sales force and agency. So 51% of the business is not purely a multi-insurer competitive business. It is only around 20%-25% of our non-ICICI Bank insurance business and another 15% of partnership distribution. That leaves us with around 30% of our business, which is actually multi-insurer. Where 30% of our business is close to being captive or proprietary, you call it. So to that extent, you know, impact of ICICI Bank decision on our strategy will not have an implication on margins because our business is increasing on the other side of it.
Secondly, on our investment in direct and agency business, we continue to invest. I think last year and a half, we really scaled back capacity to start licensing more advisors through investing in people, processes, and also institutionalizing on digitization support to our agents. And this is a process which has started. As you know, that the gestation period for setting up the capacity to deliver productivity takes a little bit by the agency, because the cycle involves not only sell trade, but also hiring and then making agents productive, and hence, the cycle is little longer.
But good news is that quarter three, we saw a good double-digit growth in agency, which is close to 12%, and the investment on capacity will continue at the current pace, and we don't intend to pull back our capacity additionally in agency. Direct business is quite on course. It's growing at a really percent growth, which includes both upsell as well as what we acquire on our website. So that business is quite on track. Back to benefit, yeah, we just discussed that.
Yeah. I just wanted to know what would be the top line growth that is needed, for the operating leverage to flow through, if you could take that.
Yeah, that's a little difficult to estimate because we obviously would want to invest in our business as well, because clearly we don't want to let go of the opportunity. So we have to calibrate both along the way, both in terms of how the top line emerges and the kind of investment we continue to make. So difficult to take a specific number to it.
Got it. Got it. Thank you.
Thank you. The next question is from the line of Pankaj Srivastava from ABHICL. Please go ahead.
Thank you, sir, for the opportunity. So the first question is on, so I wanted to understand, like, what percentage of business, the new business that has been generated is, coming out of, the captive ICICI Bank in terms of, group credit life? That is the first question. And what are the other bank partners that they have, in terms of diversification? And you mentioned about the AUM as well, of the, ICICI Bank, ICICI Prudential. So I wanted to understand, what is the group AUM out of this? What is the percentage of the group AUM out of this?
On ICICI Bank share and credit life business, we don't publish this, but it is a double-digit share on the overall credit life business. Specifically, if you were to exclude non-MFI business and look at only non-MFI business, basically mortgage, they are close to around 20%-25% kind of range. So in terms of the AUM, we're largely retail. There is, of course, some group AUM. I don't have the numbers with me at this point. We can pick that up separately.
Okay, sure. Thank you.
Thank you. We would request the participants to kindly limit their questions to one per participant. Thank you. We'll take the next question from the line of Adarsh from ENAM Holdings. Please go ahead. Mr. Adarsh, I have unmuted your line. Kindly proceed with your question. As the current participant is not answering, we'll move on to the next question, which is from the line of Ajox Frederick from Sundaram Mutual Fund. Please go ahead.
Hello, so thanks for the opportunity. So the, again, kind of a repeated question. So from an individual product perspective, on a sequential basis, have our margins changed?
Larger impact has been on the non-participating and the annuity side. Sequentially, yes, the product margins have gone down because we have reflected a higher cost ratio.
Okay. So just to validate, you mentioned that, assuming the double-digit growth holds up in 14, per year, we can end up with the 27 kind of margins, right?
We're working toward it. Where the margin finally ends up, we will see. Margin is not the primary focus for us, absolute VNB is what we're gunning after. And again, wherever is the opportunity, we will go after it. We will offer that appropriate product to that customer segment, and we let the margin evolve from there.
From a slightly longer term perspective, are we having any goalposts or do we intend to have any goalposts in the near term, like doubling of VNB, being such a?
No, no. Ajox has not put out a metric of that nature. I think what we're seeking to do is to build on sustainable growth quarter after quarter. The green shoots are visible at this point. We've seen the fact that we have lagged the market in quarter one, quarter two by a large degree. And in quarter three, on the retail business, we have now come back on par and slightly above. Our focus largely on is on the profitability side to work with absolute VNB, and growth in absolute VNB is all we're looking for. The margin will evolve based on the final product mix. But, you know, obviously, the biggest driver to absolute VNB will be on growth, and we're starting to see those green shoots come through.
Understood, sir. So that's it from me. Thank you.
Thank you. The next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Yeah. Thank you for the opportunity. The question which I have is that you said that you will probably achieve double-digit growth in fourth quarter. So if I do a QQ growth, I'm seeing that is almost like double the AP, what you have delivered in third quarter. And if I look at the historical trend, we never grew at that rate on sequential basis for the fourth quarter. So I just wanted to understand, since you are gunning for that number at that point, higher base, there should be some confidence in some channels which is giving you that growth will be achieved. So just wanted to understand where this growth will come from. That's point number one.
If you manage to deliver that number in fourth quarter, then what kind of growth we can expect in FY 2025, given these channels will deliver growth for you? That's the first question. The second question is that on margins, you have highlighted that it has compressed due to a few reasons. But just wanted to understand that on margin, I think we report margin based on projected costs. Given the cost has gone probably more, have we revisited the projected cost assumptions in the nine-month number, and that is getting reflected in the margin compression? Finally, if you give it in full year, but if you can give it now, it will be very appreciated.
But given the margin waterfall, if you give it because of the mix change, cost pressure and product level margin, which you highlighted is because of non-PAR and annuity. If you give that waterfall, it will be... And an assumption change, if it is there any. If you can give that waterfall, it will help us to understand where the margins are led to compression. That's it from my end.
So, Sanket, let me take your second question first. Yes, we have reflected the higher expense ratios into the nine-month numbers, and that flows into our expectation of net cost for the full year.
So, Dhiren, that number is higher compared to what it was in 1H, right? I just wanted to understand that.
Costs are higher than what we saw on this at 1H.
Okay, perfect. That's it.
Yeah, specifically, your question on growth expectations in quarter four. If you just trace back last year, last quarter, if you remember, the drag actually in last quarter was built actually in the month of March only. January and February were quite moderate in the quarter. So that is what I just wanted to clarify. I remember till the end of February, we used to go to the market saying that we had not seen the impact of scarcity even till the end of February. So to that extent, January and February were quite moderate on overall numbers, and it was only the month of March. So to that extent, I do agree that March scaling up by 10% growth will going to be, going to be a challenge.
But however, January and February are expected to be much better than last year, January and February. Apart from that, you know, your question on where the growth will come from, seem to be a combination of what we do on products and how we have invested on channels over a period of time. And we do expect some of the initiatives taken on productivity and the maturity that we have seen on the capacity added, will enhance our productivity starting January, March. Since we now almost for 18 months that we have invested in capacity, we do expect some of the productivity to unfold in our favor, disproportionately in the month of January and February. So that's how, the expectations are built.
Of course, it is not just about channels, it is going to be a combination of what we do on products, as well as specific interventions that we do with unique channels, within bank insurance as well as non-bank channels.
So if that is the case, then if this capacity utilization stays on a benign base in FY 2025, we can expect a growth it will be in teens, because you are confident to deliver 10, 11 in the current quarter or fourth quarter... then it should trickle down to we see kind of a growth in FY 2025?
Yeah, there is, Sanketh.
So we work towards that, Sanjay, into the coming year. The idea is to be able to build sustainable growth quarter after quarter.
Got it. And lastly, if I can-
I'm sorry to interrupt you.
Sure, sure. Sure, not a problem.
Kindly rejoin the queue. Thank you, sir. Thank you. We'll take the next question from the line of Nitish from Investec. Please go ahead.
Thanks for the opportunity. Well, on the margin still, I'm not able to fully understand that what has actually happened in this quarter, because the cost pressures were already visible in H1. Operating costs actually has declined, sequentially in absolute number. The growth has been better than the previous quarters. So what actually has happened in this quarter, which motivates us to lower our margins? So have we lowered the pricing significantly in our non-par products? Or what specifically has happened in this quarter, I wanted to understand. That is one. Second is, what will be the impact of surrender value regulation? So you mentioned, the margins of GPP Flexi is broadly similar to the overall margin of the company.
So which means that that's how we should look at the impact of surrender value regulation, or you expect any other impact from the surrender value regulation? These are the two things.
Yeah, Nitish, just to repeat the point on margin. We are reflecting the higher unit cost ratio at this point, which is where it's affecting all the previous quarters as well. And the key point is, if we're able to deliver on growth, then we should have been able to absorb the additional cost. We saw that in quarter three, the growth was roughly about 3%-4% on the overall AP. If it was higher, then we would be in a position to absorb that.
Given our outlook, we are now reflecting some of the extra that we have into the current mathematics at this point. With respect to the GPP Flexi new variant, the margin of this variant is similar to that of our existing variant, not that of the company average, but that of the existing variant. That's the key point. In terms of where the surrender value regulations will go, I think they're still in the draft stage, let that evolve. However, we've decided to take a step forward and make this product variant available because we think that from a customer perspective, the objective of the customer who has taken this product, which is to stay till maturity until the time that they want to draw their annuity.
There may be situations in their life which may necessitate a withdrawal of funds, and we want to give this advantage to them.
Just to follow up on that, so to make maintain the margin of this-
Sir Nitish, your voice is breaking, sir.
Uh, hello?
You're just not clear.
Is it better?
Yes.
Is it better now?
Continue.
Yeah. So, just to follow up on this variant, are the IRRs lower or have we reduced the payout to make the margin similar?
The key thing, Nitish, here is that we've backended the commission, so it's actually far more claim-based. It's not upfront, which typically is the structure with most products, where it is higher in the first year and lower in the subsequent years. In this particular product, we have made it on a claim-based format.
Okay. Thank you, sir. Thank you. That's it from my side.
Thank you. A reminder to all the participants to limit their questions to one per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Shreya Shivani from CLSA. Please go ahead.
Thank you. Sir, I have two questions. First is on the commissions. So for the quarter, so for each quarter, first quarter, second quarter, third quarter, your commission YoY growth has rapidly picked up, and in the third quarter, it was up about 156% or so. Now, the only other peer of yours who has reported their numbers, they also have elevated commissions, but their year-on-year growth was sort of similar in the past three quarters. So are there any channels or specific reasons why your commissions have picked up much more rapidly in third quarter? Or I would just want to understand where this comes from.
Second, just continuing the point on the surrender value regulation, sir, any help if you can give us on timelines, where do you expect, when do you expect this to become applicable? That will be useful. Sir, just one last question on Credit Life, the AP growth number.
Yeah. So, Shreya, on the second point that you raised, which is the surrender value regulation, it's still under discussion, so I'm unable to share any timelines at this point. In terms of the first question that you raised, the commissions would be reflective of the channel mixes that are underlying. It will depend upon company to company. Again, quite difficult to draw a direct comparison across each of them. Coming to your third question, Credit Life has grown strong double digits in this quarter as well as it has through all the nine months of the period. We are looking at 20%+ growth on that.
Sure, sir. And just on the... So any channel of yours which is causing the higher growth for you? It's not, it's again, compared with any other peer. Any channel which is increasing its commissions much faster, that you could help us with?
So elements of wherever there's a multi-insurer, there is a higher commission growth there.
Got it. Got it. Okay, this is useful. Thank you.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
My question- ... You know, I'm actually a little confused, you know, on your guidance. Are you sort of, kind of saying that, you know, say for the month of January and February next year, you're looking at a double-digit growth, or are you looking at a double-digit growth in the month of March as well? Because I think, you know, as we discussed earlier, it's almost doubling of business on sequential basis. I'm looking when looking at for the quarter. For the quarter, not just individual month or and any specific channels where you are looking at any acceleration?
We mentioned, still that, it's got to be a combination of products and channels. And some channels where we have invested in capacity, we would see productivity unfolding in the last quarter.
But again, it's not specific to any channel that we are focusing on. It's gonna be diversified effort across our bank as well as non-bank partnerships, along with direct distribution. And of course, there is interventions and initiatives around product.
The commission side, are you sort of saying that this is kind of redesigning of commission structures, or is it, you know, that at a realization level, probably some of it is the better of this year versus last year?
So, I didn't get your question. Can you repeat that?
No. So on the increase in commission expenses, you know, is it sort of more of, you know, redesigning of commissions, or is it something that, you know, agent realizations are better this year versus previous periods?
It is, of course, a redesign of commission pursuant to the guidelines that the larger company and in some channels which have done well, we've seen that commission numbers grow as well.
Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal Financial Services. Please go ahead.
Yeah. Hi, and thank you for the opportunity. Firstly, you know, when you say the pricing or the competitive intensity in the non-PAR segment has increased, what would be the kind of—how would you place yourself in terms of IRR versus the competition? And is there any major correction that you would have done in this quarter that would have caused this? And second question is, when you talk about a 10% growth YoY in total APE in Q4, I'm just trying to understand how here the macro factors will not change materially in the next two, in the next, you know, possibly next two, two and a half months. What gives you that confidence that, you know, things like competitive intensity would reduce, or some of the channels would really kind of pick up momentum?
You know, you alluded to the fact that you have invested in capacity, and that utilization will improve in Q4. What could you cite some examples out here as to which channels, you know, what capacity utilization will increase? Some examples around it, that would be helpful. Thanks.
So, Prayesh, this is the product question, the margin question that you raised on the non-PAR, that's reflected through the years. It's not just this particular quarter.
Okay.
And that is seen, and we discussed this earlier as well, when you've seen the overall margin of the company shift, it has been on a product mix perspective as well. So really it has gone away from the non-PAR, but wherever non-PAR is, those margins have started to fall through the years.
Okay.
In terms of growth, clearly we've invested a lot of channels. We've invested non-proprietary channels. We expect some of that to come through. We're starting to see that growth come through even in quarter three. And that's what we expect to carry through into the quarter four as well. And again, as Amit explained, it is going to be a combination of product and channel as we play it out through the current quarter, the coming quarter, to be able to deliver on double-digit growth for the quarter.
Great. Thanks.
Thank you. The next question is from the line of Madhukar Ladha from Nuvama Wealth. Please go ahead.
Hello, good morning. Just, I want to understand, maybe because I'm not getting a sense. Has there been a big redesign in commission structures for some channels, that's what is driving growth for you? Because if you look at the income statement, there's a steep increase in commissions. And, you know, of that 28% growth in total expenses, what would you attribute? You know, I know because the commission, because the whole EON framework has also changed, so there might be some reclassification. What would you attribute to sort of fixed cost going up, and what would you attribute to commissions in that sense? And, second, what are we seeing structurally, are margins gonna be off, over the... How do we see sort of UMB panning out over the next three, four years?
You know, also, beyond FY 2024, what sort of top-line growth should we expect, let's say over FY 2025 to 2027, if you were looking at that time frame? Those would be my questions.
Yeah. So, Madhukar, on your first question, yes, commissions are being redesigned across all channels, and that is what is the reflected number that you see on the, growth and commission levels. In outside of commission, we continue to invest in building capacity, especially across our proprietary distribution, agency and direct, as well as within, IT and, bank. So you've seen some of the, those numbers also, pan through this particular year as well. If I look at, where we stack up, from the next year's perspective and then on, very clearly, the focus is on growing absolute VNB. This year has been a bit of a flux year, especially when you look at the entire commission changes. We expect that to settle down a little bit into next year.
But having said that, I think the key objective for us to be able to grow absolute VNB, and again, the core driver of absolute VNB will be from APE growth. And as we've spoken earlier, the objective is to be able to deliver on sustainable APE growth. We'll see where the final number comes at, but I think we want to do a steady number for the coming quarters, in the range of 10%+, 15%+.
Understood. Understood.
And, structurally then we should start building in lower margin side.
To interrupt, I will request you to kindly rejoin the queue, sir, for follow-up questions.
Sure.
Yeah, if I could just answer him, I mean, in terms of, I think we are not looking at maybe margin guidance, right? We've discussed that earlier as well. It will go. It will depend upon the product mix that finally evolves. Again, it goes back to the fact that we want to offer all products that are relevant to customers, and depending upon the environment, customers will choose what products suits them best. And we are not putting a hard, boundary across any of the product lines.
Thanks a lot, sir.
Thank you. The next question is from the line of Mohit from BOB Capital. Please go ahead.
Yeah, yeah. Thanks for the opportunity. Two questions. If I look at the agents, you know, I mean, we have hired around 27,550 + agents during nine months. But if I look at the net number, it's pretty much flattish. So I think that number of amount of agents has been deleted. So kind of understand, I mean, try to understand what, what has been going on there. And the second question is in terms of the Constant Maturity Fund. So when you said that, you know, it has been kind of innovative product offering. So last, I think we have launched that in May. So just wanted to understand its response over the last eight to nine months. Yeah, thank you.
Yeah, I think Constant Maturity Fund was launched at a time when MF indexation benefit on debt funds was taken away. So we looked at that as a as an opportunity to introduce debt as an option within our mutual fund portfolio. And from then on, we actually saw a take up from our active customer segments to pick it up specifically on Constant Maturity Fund. Since it was a quarter one, when we launched it, which was relatively muted quarter after a huge spike of business that happened in the month of March. So it was moderate to start with, but eventually now it is settling into one of our active funds that is continuing to mobilize the need to be on a debt platform.
The customer is looking at, debt as an option, debt as an option with a tax advantage on a digital platform, and continuing to use Constant Maturity Fund. So that is, that is how I would like to answer. But at the same time, you will agree with me that, small cap and mid cap, rally and equity, did take away the focus from debt to back to equity, towards the second quarter and the current quarter. So hence, what, what looked most relevant in the month of May and June, when debt indexation benefit for accurate customers was taken away, our Constant Maturity became the most obvious choice as the best relative advantage product on tax efficiency. Eventually it got replaced with the dynamic equity investment equity products.
So Mohit, on your first question in terms of agents, yes, we've added maybe 30,000 agents. But, the way we look at our agent force is that, it doesn't really cost us to keep them on books. So the way we look at our, reduction in agent numbers depends upon... We take a slightly longer view on it in terms of their production. So it's only after a longer period of time when they've not produced, do we look at taking them off the rolls. So to that extent, our philosophy on, agent numbers are slightly different than the rest of the industry.
But, clearly, I think what you should look at, rather than agent numbers and then try and do an agent productivity, the absolute numbers that they're generating and the growth that you're seeing out of the agency channel is, looking more relevant. So to that extent, you see that in the last quarter, we've got strong growth on the agency business, and that's starting to pick up now.
All right. Thank you. Just one question: Have we done any repricing in the Retail Protection? And if you can just quickly answer that.
So there is some element of repricing that happens at all points in time, depending upon segment. We obviously use a large degree of analytics to figure out what are the segments that we could offer differential pricing and differential underwriting processes on. And so that's a continuous process. So you could see some things across customer segments in retail protection.
All right. Thanks, and wish you all the best.
Thank you.
Thank you. The next question is from the line of Yash Jain from CNBC. Please go ahead.
Hello, can the management hear me? Am I loud and clear?
Yes, sir. Please go ahead.
Hello. I just wanted to understand two things. A, I need a clarity on if I have to look at what is the ICICI Bank contribution to your APE in this quarter, how does that compare to last year, same quarter? And the share of ULIP out of your APE, where does it stand this quarter and last quarter? Second thing, if you could give us some guidance in terms of, of course, you've spoken about APE in the fourth quarter and the aspiration to work towards mid-teens APE in FY 2025. But in terms of margins, do we see further issues from the current point as well, considering there is that overhang of higher surrender value?
What kind of margin do you expect and VNB that you expect as far as FY 2025 is concerned?
Hi, yes, this is Dhiren. So the share of ICICI Bank within the quarter, like we said, is roughly about 30-odd percent. That's broadly been the case for the past few quarters as well. With respect to your question in terms of where the surrender value regulations are, they're still in the draft stage, so a little difficult to figure out when they would come in. I think the industry representation is still on. So the final ones have not been notified yet.
Okay. Are the margins, I mean, at the current levels, if it translates in the way it's been proposed in the draft, do we see further impact in the margins, and what could be the quantum? I mean, just taking the example of, you know, if they actually come into force the way they've been proposed.
So I don't think the industry will anyway react. It's not going to be a status quo situation. You've seen the example that we have done with our own product suite. One of the products that we recently launched, which is a GPP Flexi with the new variant. The way that we've handled that is to look at it from a claim-based perspective, where the commissions are far more back-ended. We're seeking to keep margins broadly constant between this variant and the variant that we had launched earlier. So there are going to be... we believe the industry will react. In any case, our exposure is quite limited to that extent because a larger portion will be based on the non-linked side.
But we'll have to wait to see how this evolves here.
Any guidance on the VNB growth that you expect for FY 2025?
No, there isn't a VNB guidance at this point. Our core objective is to be able to grow AT sustainably across each of the quarters. The product mix may evolve depending upon what customers choose. There are no hard and fast guidelines as to the share of business that we want from each line of business. The only thing that we expect is protection liability to be growing faster than the sales business, but within the sales business, allow the customer to choose the product that they'd like. So there is no VNB guidance at this time. Fundamentally, what we are seeking to do is to make sure that we grow sustainably across channels quarter to quarter.
Okay, thank you so much, and best wishes.
Thank you.
Thank you. The next question is on the line of Dipanjan Ghosh from Citigroup. Please go ahead.
Hi, good morning, sir. A few questions. First, you know, you mentioned that your high-ticket business from units and PAR have more than compensated for the other segments. Just wanted to get some kind of mixture. If I just take the non-PAR category, what will be the growth in the low-ticket, less than INR 5 lakh, be it for third quarter specifically or nine months? And then secondly, now on the margin side, you know, you mentioned that last year you had a PAR and non-PAR mix of around one is to two on the non-link side, and this time around PAR is more than maybe 50%, for a nine-month basis.
But would it be fair to assume that the ratio is more disproportionately skewed towards PAR maybe for the third quarter, which has led to the higher margin compression that we have seen? And lastly, you know, coming back to the point on competitiveness, on margins in the non-PAR category, you know, structurally, let's say from a medium-term perspective, if rates were to go down or because of the surrender charge circular, let's say there is some categories where maybe the product becomes less relevant. Do you think that there is further headroom in terms of compression in margins for this product category, for the overall industry and for ICICI also?
So looking at the intermix between PAR and non-PAR, last year it was roughly one to two. This year it is 50/50, but it tilts more towards the participating than the non-participating. It's not true that it has grown disproportionately in the current quarter. You've seen the shift of overall margins also come through in quarter one and quarter two, which also reflects the lower margin that you see on the non-PAR business. What we have done significantly in quarter three now is actually reflect a higher unit cost based on the expense ratio that we see at this point. That's the only difference between H1 and nine months. What is your second question?
Sir, the other question was on the low tickets for non-PAR, how the growth trends have been on that?
Yeah. The way we're looking at the more than INR 5 lakh category, I think, we have really not lost any steam on that. If I put the entire INR 5 lakh category customer, which is an affluent customer, I think putting all our lines of business together, we've actually grown. So we've not lost that opportunity at all. In fact, the growth on that segment of business actually is in line with our company WRP growth for the quarter.
So I was asking more from the less than INR 5 lakh ticket sales, on the non-PAR category, how growth trends have been on that part of the business?
Yeah, that has declined, but that is lower than the decline that you see in the more than INR 5 lakh category for the non-link business.
So -
Where the margins would be for Non-PAR going forward, if yields were to decline, if the industry does not reprice, then of course there will be a impact on the margins on that segment.
All is good. Thank you, and all the best.
Thank you. Thank you. The next question is from the line of Aagam from Flute Aura. Please go ahead.
Hello?
Yes.
Yeah. I just had one question: so, what is the embedded value as of December?
So we bring out the embedded value twice a year, so we had that at September, and we bring that out at the end of the year as well.
Okay, okay. Thank you so much. Thank you.
Thank you. The next question is from the line of Neeraj Toshniwal from UBS India. Please go ahead.
Hi. So I just wanted to understand the non-linearity between the, you know, AP and VNB growth. Earlier, obviously, when you had lower AP, you just stayed on the VNB. Now, given the mix is changing and obviously there have been cost pressures, there have been diminishing impact on margins. But how do you see this going forward? Would we able to grow in near-term to maybe, or do you think that again, there could be some impact, going forward?
Hi, Neeraj. So you're right. Over the past few years, we've seen the VNB margins improve fundamentally based on the product mix. At this point, we are seeing that the product mix is adverse to margins, and that is how it has played out. Of course, as we look at nine months, there has not been too much of an AP growth, but the expenses being higher. The higher unit costs have been reflected at nine months. How do we see this going forward? Again, we have no margin guidance. Fundamentally, we want to make sure that we grow sustainably on the AP front quarter after quarter. And very clearly, the idea is to be able to offer all products to customers and let them choose what suits them best.
We work with our distribution channels to identify those customer segments, make sure that we have the right product market fit within those particular pools, and ensure that we work with our distribution teams to be able to deliver on growth.
Is the cost that has been substantial between the channels, where are the costs significantly higher, so that is, so that is looking adversely for us?
No, overall costs have gone up. I think they're not yet paced with the overall APE growth. That is fairly visible, and that is what is being reflected in the unit cost.
No particular channel to, kind of attribute to?
No, no specific channel to attribute to.
Sorry to ask the same question, AP. During nine months, we had a very, you know, AP being passed. We have very flattish AP. Now we have a higher base. So we are, you know, riding on a double digit AP for Q4. I understand for next year onwards, probably the base may be normalized. But, but what is, I mean, January to February could be even little better, but March, I think you have not called out for the one of impact of the budget. So adjusted for that, or without adjusting, how do you feel, double digit to, you know, kind of being delivered? It's still little, you know, confusing at this point.
So couple of things. One is, the base that the run rate that we're looking at seems quite favorable to us at this point. So we want to carry through that run rate as we exit the quarter into the January to February period, where the January to February period has been far more benign. Of course, March is quite large, but we hope to able to cover everything up by the time we get to the March period.
Any, any, roadmap to that? I mean-
I would request you kindly rejoin us for your question, please.
Sure. No problem. Thank you.
Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equity. Please go ahead.
Yes, thank you. Just one, you know, data point. Can you tell us, say, in 3Q, what would be the commission that would be paying on first-year premiums in the linked products in the non-linked products? My back of the envelope calculation suggests it could be as high as 70%-80%.
Not necessarily.
Any range, sir? I mean, where would, would that be?
We've not brought out those numbers, but, I'll get them this time.
Okay. Thank you.
Thank you. The next question is from the line of Ashwani Kumar Agarwalla from Edelweiss Mutual Fund. Please go ahead.
Morning, sir. It's very good to know that we are very much customer-centric, and we offer products. But as shareholders, sir, we also like to know the profitability that which we can achieve. So going forward in the Q4, do we expect margins to improve up from here onwards? Or the VNB growth should follow the AP growth, or should be lower than that?
So Ashwani, thanks for the question. I think we're very clear that we want to try drive on, VNB growth, which is on the back of, AP growth. The product mix will decide what the final margin ends up, but I think what we are clearly working towards be able to deliver on, both of these parameters.
Because of 500 basis points margin, Q over Q, 500 margins, percent, basis points margin decline is much on the higher side. Life insurance is known as a steady business, where things really don't move materially. But so a 500 basis points dent in the margin is, like, never seen in the last 10 years of the life insurance, ever since they have been listed. That's why there is more anxiety in the markets about how the margins can go down so much, and the way- what's the way forward? And how do we see the ROE going forward? And what are the challenges do you see in maintaining the current margins, if at all?
So I think we've been able to reflect our expectation of unit costs into nine months. That's why you're seeing the drop across from H1 till this period, which is roughly about 2%+. Very clearly, what we are wanting to do is to drive growth into quarter four in terms of APE. That should also reflect into what we are able to achieve on the VNB front as well. Final numbers, of course, will depend upon where the product mix finally evolves at. But clearly trying to build consistent growth, and followed up by consistent growth in VNB, is what we are seeking to deliver.
Okay. And for FY 2025, will we expect some kind of a growth in APE post the changes in the surrender value? Or is there any absolute target, or it all depends upon the surrender value paper?
Surrender value, again, let me just clarify, Ashawani, if I... Our exposure to products which will attract surrender value is relatively much lower. We do believe that, while the regulations are yet to be seen in totality, however, we do believe that the impact of the sale will be relatively higher on non-participating guaranteed products, which actually at current levels is close to around 11%-10% of our AP. From that perspective, you know, impact should be lower. But we'll see how we can still structure, manage the margin, through a differentiated commission structure. But right now, I will reserve my comments and wait for the final regulation to be out.
So my final question, how much of our profit is contributed by the surrender value from the customers?
I think these are all built into the profit, into the product margins itself.
Okay. Thanks a lot. That's from my side.
Thank you. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah. So thanks for the opportunity for follow-up. Quickly, I mean, we know that it's uncertain, the timing and the final form of the surrender regulation by IRDAI. The key idea I know of the, the way I will read, basically, regulator is consistently pushing to improve or enhance policyholder, value proposition or benefits in it for MB. Of course, I mean, if we look at, the three stakeholder, basically, policyholder, shareholder, and your OpEx part, that's the distributor and, employees. Now, policyholder, the IRDAI and the regulator is focusing more on the policyholder side. Shareholder returns so far have not been that great. They were coming great, but again, don't know where the problem comes. However, if you look at the distributors, distribution side of cost, it is still very, very sticky.
I mean, whichever form, so I mean, your business changes, the line item changes, but, the kind of, growth the sector has seen, the distribution still remains a complicated financial product. It has still remains very, very sticky over the last five-year, 10 years or so. Now, going forward, particularly if we are still at the company growing on the higher OpEx and distribution costs, any kind of a change in future regulation comes, after probably that will again going to impact shareholder returns. So, I mean, how do you see this distribution cost emerging over the years? Because there has not been much real change, bancassurance, of course, you will be seeing a dramatic change. But on the non-link side of it, the overall OpEx, including all the payouts, has not changed.
The regulator will consistently try to squeeze out more and more different group policyholder benefits. In that context, I mean, how do you see this evolving, I mean, the margins or the shareholder returns?
So, Avinash, while we are not very certain when the regulations would come out and what form, because it's still under discussion in the draft stage, one thing is clear, that, if there is no action, then it goes through and, in terms of profitability. But I think this entire difference would have to be borne by all stakeholders. One way to ease this whole thing out is to work with the trail-based commission format, where the higher upfront is actually spread across the multiple years, which allows the company to also offer a higher surrender value to customers, if they need to exit in the early periods. So that is one way this can work out.
There are, of course, other formats in which this can play out, but I think they're still under discussion, so we're not very certain how they will all pan out. But I don't think that the industry and the distribution will be stagnant on this. There is clearly value that each of these products provide to customers, and they meet specific goals that customers have, which no other financial products can offer. So there may be, of course, a, you know, small speed bump at various points, depending upon how it finally comes through. But I think we've seen, market after market, industry after industry, adjust to the new reality. And as long as there is customer demand and you're able to make your proposition available to the customer in easy to consume fashion, demand will flow through.
So therefore, I feel something that if this does come through, then we know there are certain ways in which this can get managed. We have taken one step in this new product variant that we have launched. There could be other formats of taking this to market as well, but we'll let that evolve as it goes by.
But don't you think this trail with commission will have some impact on the new business growth again? Because, I mean, the cycling or churn of the customer or the policy is also part of your new business, I mean, industry new business growth. So if the commission was trail-based, lower incentive for the- or distributor to sort of a sell new product rather than focusing more. So don't you think that will again have some kind of a second order impact in getting back on new business growth?
But if you look at it from the customer's perspective, any reservations that they would had to the product in the current form, where the surrender values are quite high, that entire reservation goes away. And therefore, this product becomes far more attractive than you are saving for the longer term. That in itself propel demand.
Okay, thanks. Thank you.
Thank you. The next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Thank you for the follow-up. Dhiren, you said that we will have revised our unit economics in nine months. But when we break in the unit economics, are we-- probably you would have factored in 10% growth in the fourth quarter, and that's why the unit economics are being broken. So between some reason, if that 10% growth doesn't happen in fourth quarter, then unit cost what you will allocate to the policies will increase, and then there could be a possibility of the margin compression. Is my understanding right?
Yes, Sanketh.
Okay. And lastly, on this point, with respect to the non-HDFC Bank channel growth, the growth Q2 seems to be even lower relatively at 11% for the third quarter. And also I wanted to understand, do you see a material risk from IndusInd Bank? Because as it's industry, it's a common news that Hinduja Brothers have bid for Reliance Capital and probably it will become more open architecture than it is today. Then when the third player comes in IndusInd Bank, do you see a risk with respect to some growth in that particular channel?
Sanket, I think the Ex- ICICI Bank that business has actually grown at 11%, which is higher than what the market delivered in quarter three.
Yeah, but 11%, we thought that is gone over that.
Was it what we would have wanted? We would have wanted much more, no doubt about it. Yeah, so specific to banks, available, I can say in current charges, actually in quarter three, grew by almost 22%, for us in quarter three. So to that extent, it is quite robust. I just wanted to clarify, when you look at specific distribution partners, ICICI Bank still is the largest distributor for us at 13%-14% share. There is no other distribution partner which has crossed 5%. So to that extent, any volatility because of one partner will not impact our top line or bottom line. So from that perspective, we are quite isolated from anything happening on one front.
As long as, you know, what is happening in IndusInd Bank, it's very difficult to comment because we've not heard from them on any change in their direction on strategy. We cross the bridge when we come to it. Anyway, in an intermediary business, our partner's priority always takes precedence, and there is nothing we can do about that.
Mm-hmm.
Our job as a manufacturer is to keep manufacturing, keep supporting, and keep enabling our partners through our partner stack, and help them grow and increase their revenue part. We find new partners, we make existing partners more productive. If somebody has a strategic compulsion to move away and do something different, be it, we have seen it, we have witnessed it over a period of time, and we cross the bridge when we come to it. Frankly, Sanket, that's the whole advantage of running a very diversified distribution. We are not dependent on revenues of one particular distribution channel.
Correct.
The ability for us to be able to work with each distribution partner gives us the flexibility to run with our strategies.
Perfect. Dhiren, last one. In individual protection, functionally and sequentially, there is a bit of slowdown. We did INR 128 crore in second quarter, we did closer to INR 105 crore in the current quarter. So, is it fair because now you have a decently big base in fourth quarter of FY 2023. So, but the kind of growth we delivered in one month or nine months, can we say that it will incrementally tone down relatively because the base are still ticking?
Yeah, actually, you're right, Sanketh, because if you remember, last year, last quarter is where there was a surge of growth on digital protection. So that was a quarter where we had grown at 27%-28% for us.
Mm-hmm.
To that extent, the growth numbers will get moderated. In fact, that already started to happen from November, December onwards.
Mm-hmm.
So you're right. The very exponentially high numbers that you saw in quarter one and quarter two, now those numbers will not reflect in quarter four. However, few months here and there, you will know that this business is very, very, very active business. Number of participants in protection has increased, the penetration increased. So one-off months here and there, you will see, you know, one of the insurers taking a lead over other, but we all agree the, the situation, the penetration keep changing every month. But answering your question, growth numbers will definitely be more normal from quarter four onwards, and not in line with what we saw in quarter one and quarter two.
Perfect. Perfect, perfect. Thanks, thanks for the answers.
Thank you. The next question is from the line of Shobhit Sharma from HDFC Securities Limited. Please go ahead.
Yeah, good morning. Am I audible?
Yes, sir.
Yes, sir.
Yeah. So I had few questions. You mentioned, sir, that we will be able to grow in double digits in Q4 and years to come.
So, and my thinking, are we going to suffer onto the product mix side? Are we comfortable going beyond 50% onto the unit side?
So Shobhit, there are no hard limits on any of our product lines. We've let the product mix evolve to what the customer chooses. However, we are also very cognizant that we cannot let one product line dictate the entire mix. We've seen those issues in the past, and we want to continue to maintain a diversified product mix as well as a distribution mix.
Okay, so fine. Another question is that you mentioned that we have seen that, business has shifted from non-par to par up to the unit side. So would we be-- will we be able to continue to see that going forward as well?
That would depend upon as you look across the coming years, that would depend upon where the final IRRs for customers are in relation to other financial products as well, and the general market environment, from a rate perspective.
Okay.
To our approach, our entire approach on managing products is by identifying the right pool of customers. We may find those product categories relevant. It's not about making a choice on a product and then going and pushing that product to the given customer segment that our distribution is dictated. I think the advantage of diversified distribution is that we have access to various profiles of the customers, and we drive our product by reaching out to the customer profiles where those specific products are more relevant. That's going to be our approach, and the product mix is the outcome of the conversions that we achieve by reaching out to those profiles and see that these are not the relevant products which are more appropriate.
Okay, sir. Thank you. And the last one is that, we had, you said that, we have witnessed a growth in greater than INR 5 lakh ticket size on the overall book. Is this because of the INR 5 lakh ticket size business of the non-par book has shifted towards unit or is it something different?
Yeah, I think, non-PAR, we are seeing migrating towards participating, and unit-linked products. The general optimism around markets gives way to unit-linked business and potentially high return product in comparison to banking is participating product. So in a general optimism scenario, you will actually see unit-linked product followed by participating product picking up steam. So that is what migration is happening. Within acquisition segment, we know that relative to other products available in investment space, it is still most tax efficient, and that is what is bringing back more than INR 5 lakh growth from Q1 onwards. That's what we are witnessing.
Okay, sir. Thank you.
Thank you. The next question is from the line of Madhukar Ladha from Nuvama Wealth. Please go ahead.
Hi, thank you for the follow-up. So my question is that, so sort of product level margins have come off, and, you know, you've said that, commissions were redesigned across channels. Now, I want to know whether... When did this happen? Because, you know, if it happened sometime midyear, then we'll see a further impact on margins going in 4 Q and then all the way in FY 2025 as well. Or is it being so right from the beginning of Q1? So, yeah, that's one.
Yeah. So to answer that, Madhukar, commissions have started taking shape in the new, as the new guidelines and the new regulations all through the start of the year. As we mentioned earlier, this is going to be a bit of a flux as we try and figure out what the right levels would be. Going forward, as we get into the next financial year, it is going to be far more stable.
Understood. What would be the impact on sort of gross VNB margins due to increased commission? Some sense in terms of-
Except in the cost ratio, which is what was reflected at nine months.
Got it. Okay, perfect. Thank you.
Thank you. The next question is from the line of Supratim Datta from Ambit Capital. Please go ahead.
Hi, thanks a lot for giving the opportunity for a follow-up question. Again, you know, on the fourth quarter guidance of 10% growth, you know, assuming that March declined by around 10%, that means that you have to grow by around 30%-35% in January and February to hit that target of 10%, on a AP base of INR 33 billion last year. So, you know, what gives you that confidence that, you know, again, 30%-35% is not a small number. How do you plan to hit that in January and February? Is there a new product launch that you are planning or, you know, is there something that's in the pipeline that gives you that confidence?
Yes, Supratim, I've mentioned that to other participants as well. It's going to be a combination of what we do in product, what we do on productivity enhancement and the new capacities, and what we are initiating as specific initiatives around channels. It's a combination of three. At this point in time, it's very difficult for me to divulge details about what drives how much of it, but broadly, this is going to be a combination of these three.
Okay. Okay. Okay, got it. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Yeah, thank you very much. And we will continue to balance three things, which is growth, profit, and discipline, as always, and keeping customer at the center. And customers very much, because there are a lot of questions on that. Customer centricity, I think, again, that is not conflicted with any of the three, which is growth and profitability and our discipline. So thank you very much. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of ICICI Prudential Life Insurance Company Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.