Ladies and gentlemen, good evening, and welcome to the ICICI Prudential Life Insurance Company Limited H1 FY 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 once the presentation concludes.
Should you require assistance in joining the call, please press 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.
Thank you. Thank you very much. Good evening, and welcome to the results call of ICICI Prudential Life Insurance Company for the half year ended September 30, 2023. I have several of my senior colleagues with me on this call. Amit Palta, who heads Distribution, Brand, Marketing, and Products. Dhiren Salian, our CFO. Judhajit Das, who heads Human Resources, Customer Service, and Operations.
Deepak Kinger, who handles Corporate Legal Risk and Compliance. Manish Kumar, our Chief Investment Officer, Souvik Jash, our Company Secretary, and Dheeraj Chugha, our Chief Investor Relations Officer. Let me take you through some of the key developments during the quarter before moving on to discuss our strategy and performance.
On the regulatory front, as a step towards moving to RBC regime, IRDAI has directed insurers to undertake a comprehensive impact study to assess the impact of the proposed framework for modification of capital and solvency requirements following a risk-based approach. Additionally, with the objective of aligning India with global accounting standards, the regulator has notified the phased implementation of IFRS/Ind AS in the insurance sector starting April 2025.
Looking at the recent development in the fixed income market, with the introduction of 50-year G-Sec in the H2 FY 2024 borrowing calendar of the government, a long-standing demand, particularly by life insurance companies. The introduction of these ultra-long-term bonds is a positive move for the entire industry. Third, we had our AGM, 23rd AGM, through the video conference on July 28, 2023.
All the items specified in the notice of the AGM were approved by the shareholders of the company. I'm also pleased to inform you that the members of the company have approved the item of special business pertaining to the appointment of Mr. Solmaz Altin as non-executive director, nominated by Prudential Corporation Holdings Limited, with effect from August 22, 2023, in place of Mr. Benjamin Bulmer, by way of an ordinary resolution through the board of directors.
Fourth, I would also like to share that ICRA and CRISIL domestic rating agencies have reaffirmed the long-standing rating of our subordinated debt program as ICRA AAA and CRISIL AAA, respectively. The outlook on the long-term rating is given as stable by both these agencies. Lastly, I'm happy to share that our company has received an award for the Best Sustainability Report from CMO Asia.
Additionally, the company has also been bestowed with the Best Overall Sustainable Performance and Best Sustainability Report at the tenth edition of the National Awards for Excellence in ESG and CSR and Sustainability from World CSR Congress. I'm also pleased to inform you that MSCI, a leader in ESG research and index provider, has upgraded our ESG rating to AAA, which places us as a leader among the life insurers globally on ESG front.
In fact, among all the listed insurance players, we have the highest ESG rating. Moody's has also improved our ESG rating score, which is higher than the life insurance sector average. Lastly, Sustainalytics has retained our company as low-risk issuer, ranking us among the best among all Indian insurers. These awards and rating updates are a testimony of our commitment to the ESG practices.
I will now move on to discuss the key performance snapshot for H1 2024, as entered on Slide 7. Our VNB for H1 2024 stood at INR 10.15 billion, with a margin of 28.8%. Our total APE at INR 35.23 billion for H1 2024. Our market share based on RWRP has been increasing every month, growing from 5.2% in April 2023 to 6.3% in September 2023. In Q2 2024, multi-partnership channels have delivered a strong year-on-year growth, with partnership distribution growing by 25.1% and banca, excluding ICICI Bank, growing up to 13%.
Direct channel has delivered 19.3%, and agency channel grew by 4.2% year-on-year in Q2 2024. We've been investing in our agency channel over the past few quarters, and we have started to see the benefit coming in through our monthly business performance, where we have registered double digits year-on-year growth, except for the month of September 2023. Our group business credit life has continued to witness very strong growth in Q2 2024 as well.
Group term business growth has been challenged due to decrease in rates post-COVID-19 and increased competitive pressures. We're among the largest players in this segment and understand it well, and we'll underwrite business only if it matches our risk-reward expectations. Our protection AP stood at INR 7.34 billion in H1 2024.
Retail protection AP witnessed strong growth of 73.7% year-on-year to INR 2.38 billion in H1 2024. Our persistency improved significantly across boards. Our 13-month persistency stood at 86.9%, and 49-month persistency stood at 63.8%. Our cost to TWRP for savings line of business stood at 17.2% in H1 2024.
When we look at the H1 2024 performance, let me now talk about the strategy and framework adopted by the company. The customer is at the heart of everything that we do. Our four key strategic elements comprising of premium growth, additional business growth, persistency improvement, and productivity enhancement, continue to play a crucial role in the growth of absolute VNB while we integrate ESG with business management.
As detailed in Q1 2024 earnings call, to drive our four key strategic elements, we have a 4D framework: data analytics, diversified proposition, digitalization, and partnerships. We focus on quality business in a risk-calibrated manner. The framework has been presented on Slide 5. The 4D framework ensures that the products are aligned with the customer needs, are developed with the highest quality standards, and are delivered through the most appropriate distribution channels. The aim is to provide simplified and hassle-free processes to our customers across the product lifecycle.
In line with our 4D framework, we have recently launched first of its kind, ICICI Pru Life , a suite of platform capabilities encompassing digital tool and analytics, to significantly enhance customers' lives and create a differentiated experience throughout their journey. Seven layers of ICICI Pru Life Stack have been presented on Slide 6.
Right from identifying target segments, crafting value propositions as per the customer needs, building capabilities through digital and physical modes to serve the population, integrating partner ecosystems and sales processes to deliver a frictionless experience, to provide best pre and post-sale services. Our capabilities allow us to deliver value across the customer life cycle.
Our intent is to be the most customer-friendly and partnerable insurer for our distributors, and we have anchored our outcome focused on growth, quality, productivity around the company framework. I would also like to talk about claim settlement, which is really the moment of truth for any insurance company. I'm pleased to inform you that ICICI PRULI had a class-leading claim settlement ratio of 99.9% in Q1 2024.
This is a strong testimony to our customer-first philosophy, which is ingrained in the business practices that we follow at ICICI Pru Life . I would like to reiterate that the entire 4D framework has been put in place, keeping in mind our core objective: deliver quality business in a risk-calibrated manner. Thank you. I'll now hand it over to Amit to take you through the updates on our 4D framework and our results on the core key strategic elements, after which Dhiren will take you through the financial highlights. Over to you, Amit.
Thank you, Anup. Good evening, everyone. As Anup highlighted the strategic importance of our 4D framework in his opening remarks, let me highlight the key initiatives we are undertaking towards strengthening this framework. The first element is data analytics. Over the years, we have invested in data science, integrated insights from our own customer data and macroeconomic household data, to develop deeper understanding of customers across life stage and income segments.
The details of our extensive deployment of analytics capability across the customer life cycles are set out in Slide 30-34. A specific example of how we use AI across policy life stages to manage persistency is presented on Slide 34. This has helped us to increase persistency across all cohorts. The second element, diversified propositions, has been detailed from Slide 35-37.
Our company strategy has been centered on continuously expanding the product portfolio to suit the varied customer needs. This enables us to cater to a wide range of customers spread across income segments, age, affluence, and other demographic aspects. Our endeavor to continuously innovate is exhibited through the three unique propositions launched in H1, namely, ICICI Pru GIFT Pro , iShield, and ICICI Pru Protect N Gain .
On the fund side, we launched Constant Maturity Fund, which was industry's first ULIP debt fund with constant maturity in H1 FY24. The details of the same are presented in Slide 37. The third element, digitalization, has been detailed from Slide 38 to 42. Across the customer life cycle, starting from policy purchase to claim settlement, digitalization has underpinned the journey.
We have been working extensively to integrate our digital ecosystems with the central agencies to fetch KYC and income estimation details for customers' smooth onboarding experience. In September 2023, around 80% of our policies have been issued using digital KYC.
Further, ICICI Pru Stack has enabled the company to issue 20% of the policies on the same day for the savings lines of business. Also, customers' income estimation can now be completed through digital integration of various documents, such as through Perfios, GST, CAS, EPFO, Jaan, and Account Aggregator. The fourth element, depth in partnerships, is presented on Slide 44. We are committed to building long-term relationships, and we continue to invest across channels by building existing channels and adding more distribution partners.
So ICICI Pru Stack, we intend to become the most partnerable insurer, and our partner integration team has the capability to onboard any new distribution partner in less than two weeks time. Our strategy in the agency channel is to leverage on strong relationship with agents and their customers, while we provide institutional support to agents in terms of data analytics and processes. We continue to build capacity by adding more than 80,000 agents during H1, spread across geograp
hies. Within the bank and non-bank channel, we continue to add new partnerships and increase the share of shop in existing partnerships. We have 40 banks and more than 1,000 non-bank partnerships, with an addition of 105 non-bank and 1 bank partner during H1. We will continue to strengthen our distribution by onboarding additional partners and by investing in our own proprietary channels.
Let me now talk about the business performance update for elements of our 4P strategy. Starting with the first P, that is premium growth element, which is mentioned from Slide 9 to 12. As you can see on Slide 10, our total APE for Q2 stood at INR 20.62 billion, and for H1, it stood at INR 35.3 billion. Our retail business, excluding ICICI Bank, grew by 12.9% year-on-year in quarter two, giving us the confidence that our business is on a growth trajectory.
The headwinds we have faced in key distribution channels over the past few years have been carefully mitigated by the distribution diversification we undertook. We have no dependency on any single distributor, and we believe our diversified distribution mix will enable us to grow sustainably in the long term.
While Anu spoke about the channel-wise growth, let me focus on the agency channel. A few years back, the agency business mix was skewed towards unique products, and thus the first step in this channel was about building capabilities to distribute multiple product categories to multiple customer segments. For the last 1.5-2 years, we started building capacity in this channel by scaling up the frontline managers to manage advisors with them.
Additionally, we are investing in demand generation tools to expand the agent's natural market, and our analytics-backed digital product nudges are aligned to the right customer segments, which are the underlying segments served by our advisors. We continue to provide agents with institutional support, complemented by data analytics and digital capabilities to drive our business.
Considering these investments being done, we expect the agency channel to contribute a larger proportion of the top line going forward. As you can see from Slide 11, our APE from savings business stood at INR 16.72 billion for quarter two.
Linked savings products contributed 54.9%, non-linked savings products contributed 25.8%, protection products contributed 8.9%, annuity 6.1%, and group savings contributed 4.3% of the overall Q2. The non-linked APE mix has declined from 28.8% in quarter two last year to 25.8% in quarter two current year. Whereas, linked APE mix has increased from 31.1% to 44.9% in quarter two this year.
One of the reasons for the shift in the mix is a significant proportion of more than INR 500,000 ticket size, non-par business shifting to linked and Par guarantee products. This trend has been increasing month-on-month in quarter 2, FY 2024.
The annuity business has declined by 6.7% year-on-year in quarter 2, primarily on account of customer preference shifting to fixed deposits over single premium annuity products in bank insurance channels, given the attractive FD rates offered by banks. The decline in the single premium category has been mitigated to a large extent by the strong growth that we saw in regular premium annuity products during the year. We are very diversified in terms of distribution mix and product mix, which allows us to manage the impact of the external environment and respond swiftly to shifting consumer preference.
Another important focus area for us is to serve the life protection needs of the customer. On this aspect, let me talk about the second P, which is protection growth, on Slide 14. With an APE of INR 7.34 billion, the overall protection segment saw a year-on-year growth of 3.4%, leading to an APE mix of 20.8% in H1.
Retail protection business, which had seen supply-side constraints in the post-COVID-19 era, has come back on track. The retail protection business has registered a strong year-on-year growth of 73.7% to INR 2.38 billion for H1. Our total new business sum assured stood at INR 4.9 trillion for H1, and our total sum assured stood at INR 31.67 trillion as on September 30, 2023.
We believe, given the current levels of under-penetration, the retail protection business growth is a multi-decadal opportunity, while credit life and groups on business also offers significant opportunities as we witness growth in credit and the economy. Coming to our third P, which is persistency improvement, is presented on Slide 16. We believe persistency is the most effective indicator of the quality of sale and is a barometer of customer experience.
This is reflected in the significant improvement in persistency ratios across cohorts. Our 13th-month persistency ratio improved by 100 basis points to 86.9%, and our 49th-month persistency ratio improved by 220 basis points to 65.8% for 5 months 2024. Now, moving on to the fourth P, productivity enhancement, presented on Slide 18. Our total expenses grew by 27% year-on-year for H1.
This increase in new business commission is attributed to the redesign of our commission structure pursuant to the flexibility provided in IRDAI Regulations 2023, issued on March 31, 2023. Our operating expenses increased primarily on account of continued investment in capacity creation to support future growth. Our overall cost to RWRP ratio stood at 26.2%, and savings lines of business cost to RWRP ratio stood at 17.2% for H1.
We monitor cost ratios for the savings line of business separately. Our objective is to bring in efficiency in the savings line of business, while we continue to focus on growth in the protection business.... Our 4P strategy, together with our 4D framework, has been put in place by keeping in mind our core objectives of increasing the absolute VNB while delivering the value to our customers.
I will now hand it over to Dhiren to talk to you through the outcome of 4P strategy and the financial update for H1. Over to you, Dhiren.
Thank you, Amit. Good evening. We regularly monitor our experience in the set of various risks, and the diligent and risk management framework we operate on is reflected in our strong and resilient balance sheet as presented in Slide 19. Our mortality experience is within our expectation.
On the asset quality, 86.4% of our fixed income portfolio is invested in fixed income instruments that are rated sovereign or triple A, and we continue to maintain a track record of not having a single NPA since inception. Of our liability profile, 73.8% of liabilities largely passed on market performance to customers. We use derivatives to hedge interest rate risks in our non-par guarantee scaling and annuities portfolio. We continue to closely monitor our liquidity and ALM position, and we have no issues to report.
As a result of our 4P strategy, the VNB for H1 2024 was INR 10.15 billion, given our APE of INR 35.23 billion, the resulting VNB margin was 38.8% for H1 2024. The shift in VNB margin is primarily on account of the shift in the underlying product mix towards unit link and the decline in the non-participating business. Coming to the financial update, our profit after tax grew by 27% year-on-year, from INR 3.55 billion in H1 2023 to INR 4.51 billion in H1 FY 2024. As presented on Slide 22, the adjusted net worth grew by 21.8% year-on-year to INR 25.66 billion.
The value of in-force business grew by 16.8% year-on-year and stood at INR 289.63 billion on September 30, 2023. Thus, our embedded value grew by 18% year-on-year and stood at INR 385.29 billion at September 30, 2023. Assets under management stood at INR 2.7 trillion, and our solvency ratio continued to be strong at 199.2% as you can see.
To summarize, our financial strength, together with our diversified product, distribution, and customer mix, makes us resilient and allows us to take advantage of new opportunities in a fast-changing business environment. We will continue to make progress against the 4P strategy through our 4D framework.
We expect that the performance in these aspects will translate to our objective to grow absolute VNB, without compromising on our risk management approach. Thank you, and we are now happy to take any questions that you may have.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions, please press star and one on your telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands-free while asking questions. Ladies and gentlemen, please wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, hi. Thanks for the opportunity. Couple of questions. First one is on your shareholder account. It is, for the quarter, close to INR 460 crore or 25% investment income, and for the first half, it's more than INR 760 crore. Roughly, I mean, annualized yield of close to 50-odd% on shareholder investment. So, I mean, why such high, you know, probably in the gain booking, what is driving this? Is it coming from equity or fixed income?
So that is and why such a difference in a very unusual than your past? Number one. Second one, on the margin profile, I do acknowledge that the shift from, I mean, first ULIP, probably within non-ULIP mix, some kind of lowering of non-par guarantee towards PAR.
But at the same time, if I see the most profitable retail protection has, again, for the first half year, YoY, it had been material change. So somewhat it should have some offset. Is it, I mean, also the margin is also a factor of, you know, your costs, because the growth is not coming, I mean, if you look at the commission and office also both costs have gone up.
Is it also coming because of the kind of issues with cost absorption? And, as far as, you know, efficiency is concerned, you kept saying, you know, the capacity to grow. But that is what, I mean, we have done for the last three years, that we have been creating the capacity to grow. The growth has not been coming.
So I mean, what are the areas where we need to start investing in capacity building? I mean, the growth is slower. We have two questions.
Thanks, Avinash. So on your first question of shareholder, yes, we've been able to use the markets to be able to realize some yields. The shareholder fund is not usually in line with what we hold for the policyholder portfolio, and so in this year, we saw an opportunity to book the gains. It brings heightened outcomes of those in line with that trend that we have.
With respect to the margin, Avinash, yeah, this is gain I'll just announce that. With respect to the margin question that you have, there has been a shift of the underlying product mix. Unit link has grown, within the non-link portfolio, there has been an intermix between non-PAR towards PAR. That has had a part to play.
We also have noted that within the annuity portfolio, annuity has declined. We spoke about the fact that there's been a shift away from single premium to regular premium annuities. But by and large, the overall annuity book also has declined. All of which has led to the shift in the product mix, which has resulted in the margin.
You're right, we continue to invest in capacity building, and the capacity building outcome is quite visible when you look at the growth in business net by ICICI Bank, especially on the retail side. We saw a 13% growth. That clearly is an outcome of all the efforts that we've been making in stepping up our capacity and building out our distribution there.
We will continue on this path because we're quite clear that we want to be able to diversify distribution quite diversified and not concentrated. To that extent, some of the newer channels that we have added, the newer distribution partners that we added, we continue to invest in those and build out the channel there.
If you just help me, if you take financial sales that had an APE of INR 5.2 billion for the first half, what will be the contribution from the top three in that?
So by and large, across my entire APE, we really don't have channels that contribute beyond 5%. If I take out the ICICI Bank from a banking perspective, or I take out agency. No single distributor typically contributes more than the 5-6% range. This will be the largest distributors outside of ICICI Bank.
So, Avinash, So if you look at the distribution, this is. We set out in Slide number 10. The mix is fairly clear. You've got agency at 25% for H1. You've got direct at about 14%. I think the net of ICICI Bank is at 15%. Partnership distribution at 14%. So if you look at this, it's fairly well diversified. We don't have large partnerships in the bancassurance space.
Yeah, yeah, yeah. No, yeah, exactly. So, I mean, I was just trying to gather that maybe that 40, maybe 8%, whether there is some kind of distribution around top three, because you will have, you have a pretty deep different sizes and scale.
Yeah, you'll also note that we've got close to 40 banks, that itself gives us quite a margin of space.
Okay.
Avinash, also, Amit Palta this side, if I could just add here. Segment, in fact, you spoke about while there is a very, between 70%+ growth of retail segment. But in absolutes, if you see, of the overall INR 35 billion H1 APE that we have, in absolute, it still remains INR 2.38 billion, which is a very small proportion. So a very high margin on a so low absolutes, it will have its reservation about compensating for a big shift that you may have on savings business. That is just one point that I wanted to add and leave it there.
Okay, thank you.
Thank you. The next question is from the line of Swarnabha Mukherjee from B&K Securitie s. Please go ahead.
Good evening, sir. Thank you for the opportunity. I have two, three questions. So I'll start first on the channel side. If you could explain, you know, say, the difference in how growth is panning out across key channels. Say, for example, in direct, what we are seeing, which has resulted in such strong growth in the last couple of quarters in this sector, which that we are cross-selling more units, which is resulting in that.
Either with that agency growth is yet to pick up as per the investments we have put in, in that channel. And, on the distribution side, what I am seeing is, sustained growth momentum. So is it coming from adding new partners, or is it organic growth that is happening?
If you could give some color on these individual channels, what is driving these different growth strategies? That is on the channel side. On the product side, if you could give us some color on how the non-par margin has been vis-a-vis what it was last year, given the shape of the yield curve and the availability of saving instruments which are there.
And secondly, you have mentioned that there has been a shift in the non-link portfolio from non-par to par. I'm just wondering, we have launched a new product, the ICICI Pru product. How is the picture in that and whether it is compensating for some amount of, you know, this move? These are the two questions on channels and products. And thirdly, a bookkeeping question, if you could call out the economic variance in GB for the first time. Thank you.
This is Amit. So on the channel front, let me just take the question. You spoke about the strategy of our performance across channels. So first of all, let me just share with you. On direct business, which comprises or proprietary business that comprises our agency and direct, constitutes close to 50%, 51% of our overall retail business.
And on this direct business, which is showing a growth of 20% odd for the for 42 and almost 23% for the entire H1, is largely linked to the upselling efforts that we make continually on our existing base. This is one channel which has really invested a lot on digital platforms over a period of time, and is one of the largest digital channels in the industry. So this is not something which has happened now.
But yes, the market sentiment, the buoyancy that happened on unit link has contributed to growth coming from unit link business across channels, and direct channel was no different. But also this channel is really backed with a lot of analytics on the next best product that can be positioned to our existing clients, and is approached very systematically through our distribution team to offer most appropriate wealth solutions to our existing customers.
Because of the changing life stages they experience with our existing customers based on data that we have. One part of our direct business also is what we do through the traffic that we have of our customers on our website.
So there is a lot of effort that is being taken in improving customer experience and also, navigating and recalibrating our customer journeys based on insights that we picked up on our online channels. So that is also something which in line with the overall ecosystem growth, support that we have on retail protection, has contributed to the overall growth in direct business. So partnership distribution, which is a combination of very, very diverse kind of partners of corporate agency and broker, have, you know, an overall net impact, which is positive.
Overall business in this segment, we have experienced has not grown at the partner level, but by virtue of our focus individually with our partners and by institutionalizing ICICI Pru Stack, which is a seven-layer support program that we have for our diverse partnerships, we have been able to work towards increasing our share over a period of last six months.
And that increase in share has led to what you see here as a growth of 17.9% in partnership distribution. Coming to agency, yes, growth relatively is muted at 4%, but this is largely on account of what we saw in the month of September. If we were to look at performances right across May to August, we were seeing a good consolidated 15%-20% rate of growth month-on-month.
However, September, we do understand that it was one area that we could have done better. However, we are applying our analytics to see, deep cohorts for advisor segments, where we can improve our performance going forward. But net-net, most of our diversified channels actually are on a growth path. That is the message that I wanted to give.
Even bank insurance partnerships, other than corporate agency and broker, other than partnership distribution, right across, while the overall size may have been constrained because of more than INR 5 lakh ticket sizes, is coming down drastically in the industry. But by virtue of increasing share and many of our bank insurance partnerships, we've been able to see a growth which is close to around 13% in quarter two and close to around 7% in H1.
Understood, sir. Very helpful. Just on the follow-up on the distribution. So, what I understand is that you are saying that it is basically a function of distributing from this year and not like any kind of additional inorganic growth that is coming through the partner additions that you have done over the last six months, which is now kind of becoming more productive.
See, we continue to add 70-80 partners almost every year. This year, in fact, we added 100-odd partners. As you know, there is always a gestation of new partners getting onboarded and getting to start business. So, it is very difficult to figure out and single out only those 100 additions as to how much they have contributed. It happens over a period of time.
So what you added last year has contributed to business this year, and what you probably added two years back has, well, contributed relatively in a higher proportion. So if you ask me, is it because of new partners added this year, which has contributed to growth? Answer is, at this point in time, no. I think this pans out over a period of time.
Sure.
This is Dhiren. On your question on margins, through this year, we have not seen any movement on margins on the non-par portfolio. So that continues the way it is. With respect to your question on economic variances, we have not broken the EVOP at half year, so we will do that at the full year.
Can you give some colors whether it is a positive or a negative?
Yeah, it will be positive. Given the way the market has moved, it is positive.
Sure. And how, how is the pickup on the GIFT Pro product? Can you give some... I mean, how should we think about this mix between par and non-par moving, going ahead with new product launches?
See, what we observed, going into quarter two and while exiting H1, is that a large proportion of guaranteed products have started gravitating towards Par guarantee, which has potentially higher upside if we were to deliver a good management performance on the participating products and on unit linked products.
What we have seen is that, a high mix of non-participating has moved some part into Par guarantee as well as some part in unit linked products. So to that extent, you know, within a non-participating product, this GIFT Pro was an addition, which cognizes the fact that customer is not probably looking only at IRR end of the day, but it also appreciates the features and benefits that we offer to our customers.
So GIFT Pro is unique in the sense that beyond IRR, it offers specific proposition to the customer, which addresses the specific need of inflation-adjusted income over a long period of time. That is something that we have seen as really a success. Of the 14% of non-participating business that we deliver as a company, almost, 22% of this was GIFT Pro in month 1 of launch, and today it is close to around 40% of our overall non-par business. So we have seen this gravitating towards benefit-rich products and not really customer yielding IRR linked products. That is something that we have seen as a trend.
Understood, sir. Very helpful. Thank you so much and all the best.
Thank you. Next question is from the line of Shreya Shivani from CLSA. Please go ahead.
Yeah, thank you for the opportunity. I have two questions. So first is on the group protection side, you talk about how the GTI specifically within group protection has seen challenges. So, can you help us understand, given that GTI is like the center of the entire protection, which is around 20% of your APE, can you help us understand whether this is an incremental drag on our APE targets, that you've been talking about, that we will be able to deliver industry level growth in the second half? Will this be a negative or will this be a drag or some color around this? My second question is on the performance in the month of September.
So, while I understand that you guys are trying to understand the performance of agency channels better in September, but can you give us some color on whether this could be because of higher drag from high policies? Some of your peers have spoken about certain channels seeing more drag from high policies, et cetera. If you can give us some color on how much drag you guys are seeing on high policies and which are the channels which are getting more impacted, and could that be one of the reasons why September was weaker? That's it. Thank you.
To address this question on group protection, first of all, if I were to look at overall protection, you can broadly say the way contribution is, you can assume that one-third of it is retail protection, one-third of it is what you do on group protection, on credit life, and one-third is what is group term for us. So when it comes to retail protection, we've already articulated it is close to around 74% growth for us.
Credit life growth also is well ahead of the overall credit growth in the economy. That is largely on account of partners that we are adding over a period of last few months, and effort to increase line of businesses within our existing partners, and also working on increasing attachment. So credit life growth also is well and it is part of group protection.
So to that extent, it is well on course. Coming to group term, we articulated separately, group term, as you know, for the large period during COVID and immediately after COVID, there was a time when ICICI Prudential was virtually present.
So it was a proposition to our clients for that period, and we're one of the very few insurers who were quite prominent in our offering to our corporate employees, corporate customers. To that extent, we obviously had a very large base up for renewal, and hence what we have seen after the COVID experience turned out to be much better than what we had anticipated. The pricing went through a big correction subsequent to the experience turning out to be favorable.
So it is good for the customer, good for corporates, and eventually it was not very good for ICICI. So if I were to share with you in terms of number of schemes and number of deals that we have closed as fresh new customers, actually there is a growth of almost 58% on the number of deals that we closed last year, H1, against what we did this year.
But however, the deal size, in comparison to what was last year, has actually come down significantly by almost 40%-50%, which has led to overall APE looking suppressed. So we don't want to lose our sleep on this, because this is an impact of a better experience leading to a better proposition for the customer.
In the interim, during the trust period, we may have a little bit of a stress on overall APE, but that's, that's fine. That's how it turns out, you know, so we would not have kept the price at a higher level when the experience has turned out to be favorable. So that is the color on group term. We are as much present in group term, like the way it was earlier, and w e are one of the largest players in this segment and understand it very well. We will underwrite this business only if it matches our risk reward expectations. That is something that we are very, very clear about.
Even the cases which are coming up for renewal at a much lower price now, we are happy to offer it to our corporate clients as long as it is making sense, both from risk as well as profitability perspective.
Now, Shreya, on your question on September performance, but yes, on a YoY perspective, it seems no. But if I look at it sequentially, I think we're tighter divergence to the market. We've actually grown quite well compared to some of our larger peers, and we actually had positive growth, which is not what most of the other companies have been at.
So it's a little mixed bag when you look at September, but by and large, I think our clear focus is that we continue to work with it granularly and keep growing this business from month to month, quarter to quarter. In fact, you know, our market share has been continuously increasing. It was actually a 6.3% for the month of September on RWRP basis. It's higher than what it had been previous period.
Okay, sir. So just coming back to the last question that I'd asked. So our guidance on APE growth in second half at industry level, that gets challenged, right? Because of group protection. That thesis is correct, or am I reading it wrong?
So, Shreya, we've not given a guidance on APE growth. I think what we have mentioned in our previous calls is that, from a phase-wise perspective, step one would be to move the total APE growth in line with the market. We've not given a timeline because we want to get to that as soon as possible. And once we get there, step two would be to create the alpha over that.
... That's the objective that we want, but I don't, I'm not able to give you a timeline when we'll get there. We've been working hard at getting to these objectives. Getting to the phase one first and then to phase two.
Okay. Okay, sure, understood. Thank you so much.
Thank you. The next question is from the line of Supratim Datta from Ambit Capital . Please go ahead.
Thanks for the opportunity. So I'll ask two questions. On the partnership distribution channels, I just wanted to know what partners of scale are there, you know, scale that you could add in, you know, to continue growing this channel?
That's one. The next question that I had was on the product innovation. So basically, yeah, you know, in the first part, we did not see a lot of new products. Going forward, you know, in the second half, do we, you know, expect to see more product launches happening? And, you know, which segments do those product launches be focused? And lastly, you know, recently there was an article in the press talking about capping commissions to credit life policies with respect.
I just want to understand your views about, you know, how we, you know, what kind of discussions are you having with your partners on, you know, commission structure for this new IRDAI guideline, which has been applicable from 1 st October? Thank you.
Amit, again, let me start with your question on partnership distribution with 1,000-odd partners. See, first of all, you know, let me confess here, the biggest advantage, natural advantage that we have with the partnership distribution is the diversity of partners that we have. So we have partners of very, very different diverse types.
Someone who's cross-selling to a captive customer base, multiple financial products, large partners, that is one cohort. Then there is a cohort which is essentially working on a boss model, looking at secondary distribution to reach out simpler propositions to their customers, coupled with some of the other general insurance products that they are selling. Then there are partners which are largely equity and mutual fund distributors, who are also looking at life insurance as an upsell product.
So what happens is this diversity allows us to play out in varying or a dynamic, environment, economic environment. So at any point in time, any environment, you know, favoring any specific type of distributor, helps us, being at a natural advantage to take, benefit of the positive tailwind there. And at the same time, we may have a disadvantage because depending upon the kind of environment which may be impacting certain clients.
Good part is that we have been net positive, because there are some category of partners who are doing better in the given environment and some partners are getting impacted. But net positive is what we continuously keep working upon.
If the environment favors, we get positive, and if not, it's then we work towards working deeper with our partners through our ICICI Pru Stack, work on seven layers of development, and work on increasing share. If the overall environment constrains the growth, we just try to increasing share to keep on a, keep ourselves on a growth path. That is how the partnership distribution outlook is.
That is what has helped us with a sustained growth over a period of last 4-5 years. If you were to base our performance of partnership distribution, you know, this is one channel which has consistently grown at 25%+ over a period of last 4-5 years, just because of the kind of diversity that we have in our partnerships.
Okay.
So, Supratim, your question on product innovation, I think we've got this, detailed out on Slide 37 as well. And so I could just take a minute to refer back to Slide 36. What you can see very clearly is that we've got products for every life stage, across each of those opportunity segments, and the objective is to deliver value proposition to all of our customer pools.
But specifically, if you look at innovation, there are, four items that we have called out. One, of course, is the GIFT Pro that was launched this year. iShield is another product that we have, launched. Protect N Gain is the third product that we launched, and in fact, we've got a new form of Constant Maturity Fund that was launched, this year as well.
So if you were to look at innovation, I think we've got enough examples of innovation on the product side that we've been able to demonstrate.
Deepak, I was more interested in what is going to come in the second half. If you could give some color on that.
That is competitive information, Supratim, I can't divulge it. So of course, we are at it. We keep taking customer insights, and there is always something which is WIP, and we are working on it, so we'll let you know as soon as we launch those products.
Okay.
So, Supratim, on your other question on credit life, the way we are looking at commissions, of course, there's a relaxation in commission levels that have been enabled by regulation. We keep working with our distributors to see what is the efficient and sustainable level of commissions in the year. That, that's what we had to add to this.
Just one follow-up. So are you seeing, you know, pressure from distribution to higher commissions, or is it still at a negotiation stage?
This will always be in WIP stage, Supratim, but you've seen some evidence of increased commissions across the board, across all lines of business, and it's not unique to us, it's across the industry as well. So yes, after the relaxation in commission levels, commission rates have gone up. Have they settled to a final equilibrium? I think not. It's still a bit of a flux at this point.
... Thank you. Thank you. The next question is from the line of [Raj Seyah from Agam Capital]. Please go ahead.
Yes, thank you. Just wanted to know your strategy in terms of Tier 2 and Tier 3 distribution and business contribution. What, what where you stand currently and what's the strategy? Because I think we have completed, you know, step on this aspect of this now.
Yeah, hi, Amit this side. Tier 2, Tier 3 strategy actually dovetails into our multi-distribution structure. As you know, if you were to look at the picture of our distribution, they have very good presence right across the geographies, across the country. When we look at our product structures, we look at affluence, we look at stage, we look at geographies, and we keep sending out products which are most appropriate for the distribution channels who are present in those geographies. So to that extent, through our distribution partners, we believe that we are fairly representing Tier 2, Tier 3 markets today through small finance banks, small banks, new age banks, existing large banks. Even to that extent of large banks like ICICI also has almost 40%-45% of the distribution in rural.
To that extent, our presence in Tier 2, Tier 3 market has been there. If you were to look at agency, which is the most micro and diverse distribution structure that we have, one-third of our distribution in agency actually is in Tier 3, one-third of our distribution is in Tier 2, and one-third of the distribution is in Tier 3. To that extent, I think we are fairly well represented when it comes to Tier 2 and Tier 3.
Okay, thanks. Another thing, on annual, I just wanted to know, do you divulge information on the split between corporate and retail, MDT and the work coming from MDS at this stage?
No, we've not broken that down.
Okay. Okay, thank you. Okay, thanks.
Thank you. The next question is from the line of Madhukar Ladha from Nuvama Wealth. Please go ahead.
Hi, good evening, and thanks for taking my question. First, you know, on the GTI bit again, you mentioned one-third is, so the protection, one-third is GTI, one-third is credit protect, and then one-third is, retail, protection. For what period is this? Is this for the fiscal year, or is this for the first half of the fiscal year? I understand that these are rough numbers.
And, you know, given the pressures that we are seeing in GTI in terms of pricing, how much do we really see this business growing in this year? If you could help us, just get a sense of what sort of growth we could get here. And, you know, even, I...
Given the pressure in pricing, are we seeing also margins come off substantially over here? Is another question that comes to my mind. And, frankly, you know, I also know that the VNB development of the business which we had written earlier, are we seeing any negative variances due to this pricing pressures currently in this business?
Are we seeing any negative or operating variance over here? So, on the GTI, this is, these are some questions. And, you mentioned that, on the more than INR 5 lakh specific size, there are, there is certain movement towards ULIP, and then you also mentioned the another category. Can you just explain that?
Finally, if you could quantify how much is for more than INR 5 lakh ticket size in the first half versus second half of last year, and how much has been done in the current year? That will also be helpful. Yeah, those are my questions. Thanks.
Hi, Madhukar. So at one level, the first question that you had is, what is the period for? It's broadly for the current year, this one term, 1 to one-third. The second question on GTI and the outlook on growth, I think we called this out earlier as well.
Given the set of challenges in the market, given the increased competition, we're not looking at a growth out of this particular line of business. We continue to seek to defend whatever business that we have and ensure that we deliver adequate profitability out of that business. That's something that I think is very clear.
As we've pointed out earlier also, we are the largest in this group term space, and quite clearly, we understand the texture of the customer that we have onboarded. We understand the mortality, and we will take on business only if it meets the risk reward framework that we set out. By and large, I think margins on this continue to be stable. There are, of course, calls that we take when we look at where the business is at, but we're clear that we wouldn't want the right negative margin business there.
In terms of where this stacks up, therefore, as variance, clearly, there's one element of business which was taken during the COVID period and in the later COVID period, whose renewals at this point are obviously netted off for all the COVID slowing. So that really has a variance element when we look at the walk, beyond which we're not really seeing any drop in mortality, outside of that.
... You asked a question around the INR 5 lakhs.
Just one thing on this. Dhiren, can you give me the GTI numbers for FY 2023?
GTI numbers are actually slightly higher than this, broad street that given out.
Okay. Okay.
What Amit was also referring to earlier when he spoke of the more than INR 5 lakh ticket size migration, one level of migration was towards unit-linked plans. The second migration is towards participating plans. If that was your question that you had asked.
Yeah. Yeah. And, and if you could, just give us some sense on, you know, what is the split between first half and second half of last year, and how much are you doing in more than INR 5 lakh ticket size in the first half of this year?
Yeah, so Madhukar, we've not called that split out, but I think the way we look at it, we do understand where the sectors are at, and what are the relative advantages in the proposition that we have got for below INR 5 lakhs and more than INR 5 lakhs.
We continue to build out those propositions through a variety of new product launches for them. Let us see how that particular segment emerges through the year. I think we're fairly clear that irrespective of whether it be more than INR 5 lakhs or less than INR 5 lakhs, the objective is to be able to build on growth and broad base other customer segments. We continue to work on that line.
See, Madhukar, this H1, Amit this side, H1 has been a story of two halves. I think the first half was impacted because of the deployment of demand that happened on large value cases in the month of March, for obvious reasons. And the second impact was the fact that another story of wealth preservation around these products and mutual funds are going through a change starting quarter one. If you ask me, that was the reason why quarter one impact was quite obvious and was visible.
Eventually, for relatively lesser number of choices available on investments, Par guarantee and unit-linked products is where the acceptance started growing while the markets were doing well, as well as Par guarantee, as you know, since it's also a function of how well you manage your funds and potential returns could be actually higher than what you want can offer on guarantee platform.
The preference started moving towards Par guarantee products, preference started moving towards unit-linked. If you ask me, net-net, as recent as last month, we have started seeing that more than 500,000 cases, more or less, is quite similar to what it was last year. The only thing is it was all skewed towards one category of products last year. Now it is split between participating products, unit-linked products, and also some element of it still continues to happen on guarantee products.
Got it. Thank you. That's helpful.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities Limited. Please go ahead.
Taking my question, so just one or two points. So any sense you can give in terms of, you know, the business trajectory at ICICI Bank? And, you know, how, how do you see the second half, second half next year?
Yeah, Amit this side once again. So ICICI Bank, as they have articulated, their priority on focusing on protection and annuity range of business. On protection, ICICI is showing a growth of close to around 45% over last year for the first half. To that extent, in alignment with what they have stated as their preferred approach, we are seeing a growth on that side.
On relative degrowth, month-on-month, we are seeing on the overall AP coming down. So what it was close to around 35% degrowth in quarter one, came down to 15% degrowth in quarter two. We'll have a date effect playing out in quarter three. We'll see how it goes.
Sure. And if I look at the, you know, overall VNB growth, you know, I guess, you know, obviously we discussed about challenges in the first quarter or especially in the first half. In the third quarter, when I really look at the, you know, the margin base for nine months, I think it's been kind of a strike to the margin base. So in terms of drop of that, how do we really look at VNB growth for the year? I know you have a sort of, you know, plan for doubling VNB in a four-year period, but, you know, how do we really look at this year?
So, Nischint , we don't—we haven't put out a plan of doubling VNB. I think we're very clear that we want to see the absolute VNB as we go through this particular period. Yes, VNB growth has been challenged for the first half, it is down. But as we look at the base into quarter three and into early part of quarter four, I think, the AP bases are a little more benign, and we'd want to build upon, those AP bases, into the coming year.
Quite clearly, what we have also spoken of is that, VNB development would be largely in turn, largely driven by AP developments, with some, movement in the, margin based on the product mix. So our key focus is to be able to deliver on growth.
As Amit pointed out earlier also, in with some of the channels, we should start to see a more benign base going forward.
Yeah. Nischint , also, let me give you a context. If you were to look at overall distribution composition of ours, while all other businesses, whether it is distribution, our trade business, our insurance business, other than ICICI Bank will be on growth path, and the large part of investment that we have done over the period of the past year and a half or so is about, you know, creating enablement for our new partnerships, one, and two, about scaling up agency.
And as you know, the agency scale-up is a little longer and has a decision period, which we need to be patient and watch it over. Close to 4,200 odd frontline managers that we have, who manage close to 200,000 agents, we still believe is a smaller number.
This is one area which has reached to this level only after having hired people over a period of last year and a half or so. Our experience on analytics says that it takes almost 18-24 months for a frontline manager to start hiring, building stability with advisors, understand customer segments being served by advisors, understand their natural markets, build capability on demand generation, and eventually start turning out productivity.
Our singular focus at this point in time, without diluting it with any margin pressure at this point in time, is to build our capacity to start building production. That is where agency and our new partnership enablement will take primacy over anything else at this point in time.
On the partnership side, you know, and as well as on the agency side, in terms of product profile, actually, you know, we should support that, you know, you'd probably focus more on traditional products through these channels. But, you know, if there a change in the strategy and any kind of also kind of, you know, get the release to these channels?
Well, let me clarify, listen, we don't have a product to channel strategy just based on what we want. Actually, we allow our partners to choose based on the kind of customer segments that they have. So we have not mandated to our agency channel to sell only traditional and not ULIP, because ULIP is low margin for us.
It depends on the customer segment we are serving. So the approach that we have is simple. We decide on what customer segments we believe are priority segments or the growth segments for us, where the quantum is, and then we identify which kind of distribution channel has the ability to take the right product and deliver to that customer segment.
Now, if somebody has an access to an affluent customer, and if I control him and not get him to offer unique products, it will be completely against the customer philosophy. So there's no channel which is mandated to follow any product strategies, specific to traditional or non-savings or potential.
So, Nischint Amit also explained earlier when we had a question on partnership distribution. We explained about the various types of partners which we have as part of this pool. And you would have understood that there are different strategies that would follow for each and every one of these segments.
So an equity broker segment, for instance, would have a slightly different approach, than a more traditional, broker that we have. So clearly, the idea is to be able to marry the product with the customer segment and the distribution, and create the product market fit that's appropriate for that particular, segment there.
Actually, this is reflected on the fact that different distribution partners and within distribution partners, different cohorts and geographies and channels within channels actually have very, very different product mix. And in fact, none of the distribution partners have a product mix which is similar to what ICICI Prudential's overall product mix is. So, so the pillar of product mix is drawn from the customer segments of our partners.
Thank you very much.
Thank you. Thank you very much. Before we take the next question, we'd like to inform participants that in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one per participant. We take the next question from the line of Nidhesh from Investec. Please go ahead.
Thanks for the opportunity. The retail protection growth has been visibly stronger. Can you speak about what is driving that? You mentioned ICICI Bank growth around 25%, which means that non-ICICI Bank protection, which is actually growth will be plus 100%. And what is driving that and the sustainability of that? And also, post-COVID, we have changed the insurance strategy, where we were retaining up to INR 1 crore of risk on our balance sheet. Has there been any change in that strategy now?
So, Nidhesh, let me take the second one first. No, we have not made a change in our business strategy post what we discussed last. We continue to monitor the experience, and it's all within our expectation at this point. Both within retail protection across channels are seeing quite strong. Overall, as you saw for the period was about 84% quarter two.
Of course, this is on the fact that the last year's base was quite prime. As we go through into the coming quarters, specifically when you get to quarter four onwards, this issue start to normalize more lower levels. But we've continued to equal growth across channels, and keep it broad-based through the period.
Is there any specific channel which has seen high growth, with online channel, et cetera?
Yes, so some of the online channels have done quite well, but we've seen some momentum across all our offline channels as well.
Just one follow-up is on the product level margins. How are the trends on product level margins on a YY basis?
... So the shift that you saw in the overall margin has been obviously because of the product mix. That's been a large contributor towards movement in the margin. By and large, at the segment level, we've not seen too much of a change.
Sure. Thank you very much. Thank you.
Thank you. A reminder to participants to please limit questions to one per participant. The next question is from the line of Vivek Anand from Prabhudas Lilladher . Please go ahead.
Hi. So I wanted to know, you discussed about group term and group credit, right? I wanted to know what, what is the growth story on the group funds for H1 FY 2023 versus H1 FY 2024?
Funds for us, group fund for us is flattish, but, we are fairly confident because these are lumpy businesses. We have done close to 550 odd deals have contributed to our group term business this year. Two large deals have got deferred, and we are not losing our sleep there at all because we are quite confident of what we have put as a plan for group term business is to pan out eventually in the remaining six months.
Number of deals, number of customers that we're engaging in, is almost showing the 25% growth over the number of customers, that we got our group fund participation last year. To that extent, the distribution has been fairly strong, very vintage, and not just in group funds, but even on group term.
We are fairly present right across, and our participation is among the highest, when it comes to, group fund and group term opportunities across the sector.
On the annuity fund, this annuity fund deposit. So, is it, are you, do you have a growth on the group annuity funds from H1 FY 2023 versus H1 FY 2024?
So, Vivek, this would all be part of the single premium annuity pool. Quite clearly, as we called out, a lot of co-ops are looking to bet on single premium annuity, given that bank FD rates are quite high at this point, competing rates at this point. However, we are seeing good growth come through on the regular premium annuity, and then we continue to push regular premium annuity business at this point.
Okay, thank you.
Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah, hope this is a answer. This is a question with what is the share of ROP products, and you highlight that the ROP products are margin battleship for you with regards to the entire margin. And also how is the ROP kind of moving in the roadmap?
The Return of Premium variant of the product is roughly about 15%-20% of the retail protection business. Okay, and from the public, is it different from the your term?
It depends upon the tenure that you choose. So longer tenure gives you higher margins, shorter tenure gives you lower margins. Yes.
Let me just share the fundamental that, you know, propositions are not changing from non-ROP products to ROP products. It is only the customer behavior that decides whether he's okay to let go of a premium as an expense, or he would like to take his premiums back. Otherwise, the underlying profile of the customer really doesn't change.
We have seen this kind of a behavior more prominent in mass, but we have seen even affluent customers at times preferring the return of premium products and alternate products, where they can get high covers with probably even a higher return of premium, but using a high cover on a unit link platform. So from that perspective, margin really doesn't change by nature of ROP or a non-ROP. So the underlying customer and the cover that you offer is quite similar.
Got it. Thank you.
Thank you. The next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Okay, good evening. Just one question. Are you seeing any change in layout to any of the distribution partners, or any of the partners for this, for any particular partner out there, post guideline changes?
Dipanjan, yes, we discussed this earlier. We have seen commission rates rise, for us, and understanding is this is not just specific to us, it's for the industry as well. Has it settled down? I am not so sure. I think we'll continue to work through this, into the coming quarters as well.
Okay. Thank you .
Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL Institution Equities. Please go ahead.
Thanks for the opportunity. Just one question, I mean, even apart from commissions, if I look at other OpEx has gone up substantially for us on a year-over-year basis as well, whereas premium growth of course, has not been that strong.
So just trying to understand, you know, what is driving that mix of commissions also. And in the backdrop of that, do you think that, you know, given that seems like, you know, a lot of these commission increase are going to stay here for a while, do you think that VNB growth in this year will be possible?
So, Rishi, outside of commission, some of the larger expense items are, of course, employee costs. First, it is the capacity creation that we have invested in, and we continue to invest in, even some of the newer channels that we carry on. There are, of course, some of the advertising and associated costs that are elevated at this point.
Given that commissions are going up, we would seek to kind of keep the overall expenses broadly where they are. This year, of course, will be a bit of a flux, so we'll have to manage it through this coming quarter to see how we can keep that stable at scale.
Also, I just want to clarify that while there has been a question on commission increase, but let me share with you that we are well within the guardrails and the direction given to us by the regulator in ensuring that we align our commission structures to promote long-term business, protection business, renewal business, and not at the cost of customer proposition.
Since we have not let the customer proposition get impacted, for a short period of time, you are actually seeing that OpEx seems swelling up. Additionally, this entire increase in cost needs to get compensated through better OpEx management, and that is what we are intending to do. This first period is where probably, you know, it will take some time before it settles.
We are very clear that, whatever is the increase in the cost, it will not come at the cost of customer proposition.
Some views on VNB growth this year?
Thank you so much, Rishi.
Just, just from the commission part, right? So, wanted to understand, you know, the industry is witnessing an increase in commissions. You know, what are your thoughts in terms of how does that dynamic play out, given that, say, even for us, you know, agency is proprietary, ICICI Bank is exclusive, and we have direct input businesses as well, which are possibly, you know, within our control.
So, you know, what kind of pressure is there for, you know, commissions to be increased across the board? And what is the risk, in case that wouldn't have gone up? Do you really think that the premiums would have severely gotten impacted or the growth around that?
So Rishi, the way we manage each channel is to look at the overall cost of the channel, which, for which commission is only one aspect of it. So yes, this year is a bit of a flux because we've got other operating expenses that are slightly elevated.
But on a steady state, the way we seek to manage each channel is to see whether for a product line that it finally delivers, whether the overall cost that it incurs is in line with what we would want to deliver from a VNB perspective. So it's a balance that comes through. I don't think this has impacted growth at all. And commissions is simply only one aspect of the overall spend that each channel does.
Thank you. The next question is from the line of Sanketh Godha from Avendus Sp ark. Please go ahead.
Yeah, thank you for the opportunity. Again, just, just to come on the margin, if, if I want to draw a waterfall, the margin compression, how much you would attribute it to change and, and, and to the cost ratio? Whether, whether the real problem is cost, which has dragged the margin or is, is more the product. That's my first question.
Mostly product mix.
Okay. And second, cost, just wanted to understand, was expected to move the cost line items between commission and advertising. I thought it was expected to remain on the same line as well. But still the OpEx ratio has moved. I just wanted to understand that is literally increasing the commission cost and other expenses are not going to cut. And therefore, going ahead, we are going to see an elevated cost ratios which could have an impact on the margin.
Sanket, like we mentioned earlier, this is a bit of a flux year. So at that level, we're managing across these multiple line items. We're well aware that we have to keep the overall cost in control to be able to deliver on margins.
Thank you. The next question is from the line of Neeraj Toshniwal from UBS India. Please go ahead.
Yeah, hi. Wanted to understand that, this quarter looks ULIP heavy for everyone. So what are the early trends you're picking up for the, Q3 and going ahead, what, what we can expect? And, are we okay to increase the user, share again back to a certain level? We do have certain mix in mind that we need to, you know, kind of maintain to have a profitable VNB by the end of the year.
So hi, Neeraj. I think we've spoken about this earlier as well. We are not guiding each channel to a product mix. If ULIP is the flavor of the season, we're quite happy to take that on board. Of course, we're quite cognizant that we're looking at the absolute VNB, and so it can will have to deliver additionally on AP as well.
Yeah, on that only, what are the trends you're picking up in other segments apart from business? Can we see... Because one of your peers called out that non-life savings possibly returns back or might see a uptick come now. Are you also in similar camp or it's too early to call out?
It's a little too early to call out with this last 15, 16 days. But, as we mentioned earlier, we constantly are looking for propositions that could work with the various customer segments, even in the non-linked space.
Amit, so, yeah, so let me add here, like I have articulated earlier as well-
... Within customer, customer segments, we have seen a trend of this reservation story, which has been running so well over a period of last couple of years, giving way to unit-linked and par guarantee products, towards the second half of this H1, which is a clear trend that is visible. Of course, it varies from customer to customer, and the composition of these customers at the partner level decides the mix of what kind of products are selling there.
But if you were to look at these set of customers, eventually on our overall household, that you look at the urban centers, these are only 10%-15% of the overall number of households that you have. Almost 80% of the households actually are ranging between an income segment closer to around INR 300,000 to 7-- 2.5 lakhs.
Means that there, the simplicity of the product and simplicity of the proposition actually takes precedence over any complexity or differentiation that you want to create. There, the demand for simpler propositions continue. And as you know, it is about our disability to reach out to these customer segments, identify which distributors have access to these customer segments.
That degree of success is a function of, you know, how, we'll convert this opportunity on simpler products, non-linked products or, participating products, finally to the overall product base. That's how it will eventually pan out. There, if you ask me, the trends have not changed drastically.
How this digital stack will help us to achieve this goal? Can you elaborate more on that, which we have created a seven-layer stack distribution?
Yeah. So seven-layer stack is, is our thought process, our enablement framework, for our partners. Over years, we have spent a lot of time in analyzing our own data as well as the data which is available in the ecosystem, on understanding customers, on geography, on demographics, on income, on life stage. And we have clearly been able to segment, customers which are there in the market and customers which are part of the partner ecosystem.
And based on the natural advantages of the customer segments of our partners, we have actually worked together and co-created value propositions which are most meaningful to their customer segments, and then convert those value propositions into a capability framework for their team, both on digital as well as, non-digital platforms.
Of course, we do believe that when it comes to life insurance, the best value propositions and capability eventually need to be supplemented with demand generation model. That is where our entire processes sit across all distribution channels to work exclusively in demand generation. Coupled with sales process integration and network integration with a partner, this gives us the ability to onboard our customers, give them the experience, give partners the empowerment to manage the entire policy life cycle, which is what we have seen as a seven-layer process for us.
This is something that we are doing in a workshop mode with all our partners, and it actually changes partner to partner, and it's largely a function of the customer base and the primary model of business for partners.
Thank you. Next question is from the line of Yash Jain from CNBC. Please go ahead.
Hello, everyone. Am I audible?
Yes, Yash Jain. Please go ahead.
So most of the questions which I had have been answered. One thing that I wanted to understand, and this is with respect to distribution, especially ICICI Bank. We have a set of players, I mean, your peers, closest peers, HDFC B ank get about 50%, 60% of their AP from their main banking partner. That is Axis Bank and HDFC Bank.
For us, it's come down significantly. It's kept coming down over the quarters. It's about 13.5%, just last quarter it was about 20%. I have three very specific questions on this one. One thing, at ICICI Pru Life, do you have an intention to sort of increase your sales across product categories through ICICI Bank? If yes, then my second question is: Are you doing something about it?
You know, looking at ways in which this can, this will help the growth come back as well for the company. Just wanted the perspective from the management on this.
Yeah. So, Amit this side, Yash. So there's one central partner philosophy that we follow across the new set of partners that we meet and the way we take up our partner stack to other partners, both in banks as well as non-bank. Is to give the decision of what to do and what to propose to their customers, leaving that question and value with our partners.
We do believe that their brand is supreme, and we are subservient to, you know, provide services in terms of insight, technology, product to our partners. We don't play a role in influencing that decision because we do believe and respect the decisions of our partners and what they believe is most appropriate for what they want to do and which fits into their overall scheme of things.
So that is still we appreciate that ICICI Bank does look at annuity and protection as two complementary products, which is not competing on investment space with banking. And we do appreciate that they prioritize banking products. They prioritize SME, they prioritize lending, they prioritize deposits, and we have complete appreciation for that. We'll take it as and when they have any priorities which are aligned to any specific proposition that we have in the basket, we'll be more than happy to offer and put it on the table.
... At this point in time, we do see a value in what we have on offer, which is retail protection, and what they want as a proposition for their customers. That's where we are seeing growth of 24% in retail protection with ICICI.
Thank you so much on that one. One final question. I mean, since you know, earlier, you had one guidance on the VNB side, which was doubling VNB in four years. Under the new leadership, I just want to understand, is there one large guiding ambition in terms of quantification that you have, let's say, for the next two to three years, for a slightly longer period, that you would want the markets to look at and you would want to work towards?
So yes, Dhiren here. No, we've not put out a target as we have done earlier. I think what we're very clear on is that our objective is to work within each of our partners, look at it granularly, granularly, look at their customer segments that they operate in, and ensure that we have got appropriate products that can be delivered to those customer segments.
And so to that extent, we would go deeper into each of those partnerships and, as Amit articulated, help them grow those particular segments using the partner stack that we just discussed. The idea is that if you're able to sustainably grow each and every one of the diversified channels that we have at this point, then we should be able to look at sustainable growth into the coming years.
The fact that we don't have any large distributor outside of ICICI Bank in our distribution mix, gives us the confidence to be able to sustainably build out this particular pool of business, by looking at it very, very granularly and looking at it, with a deep lens of analytics as well. That is the core focus, and that's what we'll continue to work towards.
The overarching theme, which has been articulated over a period of last six months, is, customer to product to right distribution channel, who has access to that customer and taking the appropriate product. Customer to product to distribution is the overarching theme.
To support this theme is these 4D framework that we have created, which is power of analytics, data analytics, diversified propositions on products and taking it to diverse geographies and diverse partners, digitalization by making an experience which is differentiated for the customers, and eventually converting it into a deeper partnership. Becoming an inspiration for us to come out with this seven-layer, ICICI Pru Stack to enable our partners. Eventually, the strategic direction is to become the most customer-driven insurer in the industry.
Okay, thank you so much for taking both the questions and all the very best to each one and going forward.
Thank you.
Thank you.
Thank you. Please limit your question to one per participant. Next question is from Aditi Joshi, from J.P. Morgan. Please go ahead.
Yeah, thank you so much for taking my question. So my question is on agency side, and I actually wanted to understand if we are targeting further increase in the headcount of the agent in the second half of this year. And, I'm sorry if I missed it previously, I just wanted to understand what portion of this new agent are still giving Tier 1 or Tier 2 and Tier 3?
And just one more question, if I may. On the rider side, we have a pretty good incentive suite of rider available to us. So just wondering that, how much is the push from the management or what is the strategy across the channel on increasing the rider attachment? Thank you.
Hi, Amit Palta. On the distribution side, in agency, like I mentioned earlier as well, we are fairly, fairly, spread out across all types of geographies, whether it is top cities, Tier 1, Tier 3, the way we spread out internally. So we have a fairly deep distributed representation of advisors, as well as our business. The outcome as well as our advisor count is quite spread out across cycle geographies.
And on new acquisitions as well, new customer, new advisor licensing also is fairly in line with our state of business. To that extent, going forward, even at H2, I don't see that being different from what we've been following in agency for some time. Idea in agency is about the capacity that we have built to manage this advisor force, not just the existing ones, but also to acquire ones.
That is what, like I mentioned earlier, for some period during COVID, we had refrained from adding costs to capacity addition of frontline managers. That is something that we started doing, some 18 months back, and that is something that we are going through a test period of building capacity there, to manage our advisors better and improve efficiency and productivity over a period of time.
I think they are in the task, it is expected to improve, and we want to accelerate it and try to cut the learning curve and improve efficiency so that we manage our advisor force even better. Coming to the second question that you had, which was on-
Riders.
- riders. See, first of all, riders, we don't see riders as an attachment product, first of all. So riders need to really add value to our customers and the proposition. We do believe that riders make our proposition very distinct in comparison to anything which is available across financial industry on the investment space. And, accidents or disability or critical illness add value.
So from that perspective, the fabric of, attachments, are quite, similar across health as well as accident and disability, and we would like to offer it as part of, our protection as well as savings proposition. You know that these riders are not available standalone... in the industry, and we want to offer it as a value add to our customers on the savings track. That is what we have been doing.
Even on protection, we look at riders as a very specific strategy to convert our protection solution into a wholesome mortality and morbidity solution, which we offer through our flagship protection product, where the customer has an option to choose critical illness, accident, ability, and actually, both as well, which we call it as an all-in-one proposition, to give a most wholesome proposition on protection for our customers.
Thank you very much.
Thank you. Next question is from the line of Pradeep Kumar from Nippon Asset Management. Please go ahead.
Hi, sir, I have just one question. You called out the mix shifting, right? The high ticket platform sizes from primarily non-par to par or specialist. So you also called out higher investments as well as higher protection. In that backdrop, how should we think about VNB margins for the full year ?
Is it fair to say that given the shift we are seeing towards ULIP platform and higher investments, which we need to do because of, you know, growing your industry slash other channels, margins would be under pressure this year and next year? Is there, you know, a 1-2 year here?
Sorry, to me, it is difficult to call. I think it emerged through the year. There are, of course, product mix shifts that can emerge and that can drive where the margin would be. That'll be one of the core components, which is, which of course, let us look at some of the expenses here, we could manage them through this year as well. I mean, it's difficult to call.
I think we'd look at the way the product mix evolves over the second half of the year. You anyway know that a larger portion of the business happens in the second half, so that can kind of dictate where we end up.
Okay. You also talked about wallet share gains across some of our agencies or our partnership distribution side in this timeline. How much more potential is there for you to gain personal wallet share or the wallet share, whatever we collect on average this year?
So I don't think there's an end to wallet share as such. I think the key point is, while you look at wallet share as a outcome, I think the one clear thing is we're looking at how we're able to deliver value to our partners, and that's where some of the elements that come in scope of, come into frame.
Idea is that if we are the most partnerable insurer, then naturally we should have most of the business flowing through us, and that ends up, as a higher wallet share. Because very clearly, as we spoke of earlier, we're looking at this, product, we're looking at the customer, we're looking at the distribution channel in each of those, subsegments.
So once we were to ensure that we've got some, the highest, best fit in, and that naturally will give you the, you know, the move towards our sets of products and our set of distribution, rather than, some of the other partners that will be there in the shop.
Sure. Thanks.
Thank you. Next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Hi, thank you for the opportunity. So I have two questions. One, speaking o n this call. They are focusing on protection and annuity, which is very similar to what ICICI Bank is speaking of. So just to understand how big is ICICI as a channel for us, and if we continue to follow the way ICICI Bank follows, what impact in the near term will we have on the group?
That's point number one. And the second question, honestly, the question still remains for me is on non-ICICI Bank channel. Because the growth on it, if you look, it seems to be around seven or eight, seems to be very weak. Is it largely driven because of the macro factors people are deploying, or making more or putting money in deposits?
Is it macro related or something somewhere we are studying the market share in the existing channels and things are leading to some different growth than expected on ICICI Bank?
Sanketh, Amit this side. First of all, let me answer question on ICICI Securities. You're right. ICICI Securities also is looking at augmenting their proposition to their clients on protection and annuity. However, unlike ICICI, they are very small part of our overall pie.
They contribute close to around 2.5%-3% of our business. And, like I mentioned earlier as well, we allow our partners to choose what they think is most appropriate for their customers. They will be more than happy, even if the top line is lesser and the protection is higher, it is value neutral for us. To that extent, that is fine. We appreciate and respect the decision and direction taken by Securities. So they are a very small part of our overall business.
So second, you spoke about the overall growth momentum in non-ICICI channels, and let me just stitch it together once again. First of all, let me give you a number of 13% growth of non-ICICI in quarter two. 13% growth is what you witnessed in the quarter. I did mention that loss of share was not a problem for us, because while the overall pie at a multi-insurer shop was severely impacted, more severely impacted because of guaranteed products becoming relatively unattractive in comparison to what was available in the H2 of last year on the smaller ticket size and also on like large ticket size were obviously best proposition. So all the multi-insurer shops were severely impacted because of this change in the environment.
However, we still grew in partnership distribution by close to around 25% in quarter two. So this is largely on account of increasing share. Otherwise, the overall pie was almost similar or slightly lower than what it was last year. So this increase or this growth that you see in partnership distribution is largely on account of increase in share.
And by the way, Sanketh, let me also mention it to you that partnership distribution, what you see here, actually factors in ICICI Securities as well. So despite that 2-3% business that we have, which is part of our partnership distribution, having a change in direction actually did not have any impact on the overall partnership distribution growth. It still stayed at 25% in quarter two. Very similar situation.
Direct business, like I told you, both on online as well as upsell, we are growing well. Agency, I've already articulated, we are still at a cusp stage. We are very confident that industry will turn into an outcome for us very soon.
Got it. Perfect. Thank you very much.
Thank you very much. That was the last question in queue. I would now like to hand the conference back to Mr. Anup Bagchi, MD and CEO of ICICI Prudential Life Insurance, for closing comments.
Thank you for staying b ack. Good evening. Thank you very much. Bye.
Thank you very much. On behalf of ICICI Prudential Life Insurance Company Limited, this concludes this conference. Thank you for joining us, ladies and gentlemen. You may disconnect your lines.