Ladies and gentlemen, good day. Welcome to ICICI Prudential Life Insurance Company Limited Q1 FY 2024 earnings call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. 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.
Hi, good afternoon, everyone, welcome to the results call of ICICI Prudential Life Insurance Company for the quarter ended June 30th, 2023. Let me begin by highlighting the recent changes in our key managerial personnel. On behalf of the entire team at ICICI Prudential Life Insurance, I would like to express our heartfelt appreciation to Mr. Kannan for his exceptional leadership in scaling up the organization prudently and sustainably. We'd also like to express our gratitude to Mr. Satyan Jambunathan, who served as our company's CFO, for his invaluable contribution to the growth and success of ICICI Pru Life. Satyan, he was a founding member, has decided to pursue early retirement after a remarkable career spanning 2 decades with us. I'm pleased to announce that Dhiren Salian has been appointed as the CFO, effective May 18th, 2023.
Dhiren has been associated with the company for 20 years and has held various positions across functions within the company. Would also like this opportunity to extend our best wishes to him in his new role. Dhiren is with me on this call. I also have on the call several other senior colleagues: Amit Palta, who heads Distribution, Brand, Marketing and Products, Ajeet, who heads Human Resources, Customer Service and Operations, Deepak, who handles Audit, Legal, Risk and Compliance, Manish, our CIO, Souvik, our appointed actuary, and Dhiraj, our Chief Investor Relations Officer. Let me take you through some of the key developments during the quarter before moving on to our performance. Firstly, on the regulatory front, IRDAI has extended the Use and File mechanism towards launching new products that include group unit-linked life and health insurance products, as well as combi products, where the life insurer takes the lead.
Additionally, the approval process for new funds have also been simplified. These measures are aimed at providing insurers with greater flexibility to swiftly react to market dynamics and meet the evolving needs of the customers, thereby supporting IRDA's vision of insurance for all. Secondly, aligned with our customer-centric philosophy, we further strengthen our product portfolio in Q1 2024 by launching new products and fund that complement our offerings. iShield, this was launched in 2023 in partnership with ICICI Lombard, offers a comprehensive protection proposition that combines the benefits of life and health insurance under one umbrella. In addition, we launched ICICI Pru Protect and Gain, a protection-oriented unit life insurance product that addresses both the protection and savings need of the customers.
To further strengthen our savings portfolio, with the addition of two new optional attachments, ICICI Pru Non-Linked Accidental Death and Disability Rider, and ICICI Pru Linked Accidental Death and Disability Rider. Both are optional. These attachments provide additional protection against accidental death and disability and can be currently be added to many of our products. We have also expanded our products of funds by adding Constant Maturity Fund, a debt fund offered with our unit-linked insurance plans. Against the backdrop of rising interest rates, this fund is suitable for customers looking for wealth preservation and tax-efficient returns. Thirdly, I'm happy to inform you that during the quarter, our company was awarded with the ASSOCHAM Award for Organizational Excellence in the field of data science and analytics.
At Customer Fest Awards for 2023, our teams were honored with a slew of awards, namely, Best Data Analytics Team, Best Use of Data and Insights in a Transformation Project, Best Use of Mobile to Enhance Customer Experience, and Best Data Enablement Campaign in a Loyalty Program. Our corporate communication team was featured in the top 30 corporate communication teams for 2023 at India Inc., instituted by Reputation Today. I will now move on to discussing our company's strategy and performance. We have uploaded the presentation on the stock exchanges and our website. You can refer the same as we go through our performance. In FY 2023, we successfully accomplished our stated objective of doubling the 2019 AUM. This achievement was made possible through the meticulous execution of our four P strategy.
That is, protection growth, premium growth, persistency improvement, and productivity enhancement. These four P strategic elements will continue to play a crucial role in growth of our absolute VNB, while keeping customer centricity at the core of everything we do, along with integrating ESG with business management. Our very purpose of existence is to provide financial security to our customers and their families. We believe we are the trustees of the life savings entrusted to us by our customers in order to achieve their protection, health, retirement, and long-term savings goals. Our philosophy is to understand the latent needs of our customers and curating products that address the unique needs of diverse customer segments. We leverage digital and analytics capabilities to distribute our products through the most appropriate channels. Our goal is to provide a superior experience throughout the customer life cycle while following a diligent risk management framework.
To ensure that we remain true to our philosophy and improve our performance across all the four P strategic elements, we have a four D framework, which drives our four P strategy. The elements of the four D frameworks are data analytics, diversified propositions, digitalization, and depth in partnerships, with focus on quality business in a risk-calibrated manner. This framework will ensure products are aligned with the customer needs, are designed to meet those most needs most effectively, are developed with the highest quality standards, and are developed through the most appropriate channels. Also, this framework will help us provide simplified and hassle-free processes to our customers across the product life cycle. The framework has been detailed in slide 5 of the presentation. The first element of the four D framework is data analytics.
Over a period, we have built a significant analytics capabilities that help us to provide better value to our customers and partners. We have leveraged data and information to help us improve our various processes, such as distribution, operations, et cetera, and to identify new growth opportunities. We understand that customers expect seamless and personalized experience. Data analytics plays a crucial role in making this a reality. We have therefore invested in machine learning and artificial intelligence to provide tailor-made insurance solutions to our customers. Our analytical capabilities help us to identify customers through machine learning-based segmentation across demographics and customer behavior, create geographic clusters, and position appropriate products in those geographic clusters. With data sciences and analytics, we aim to reduce barriers and points of friction in the entire process that prevent customers from buying life insurance.
These capabilities are also extended to our partners to help identify opportunities to cross-sell our products. Machine learning models are enabling us to improve persistency, streamline claims, and bolster our risk management practices. Through AI, we analyze customer sentiments to improve the overall customer satisfaction. The details of our extensive deployment of analytics capabilities are set out in slides 36 to 38. Our analytics teams' awards during the quarter are a testimony to our constant efforts in deploying extensive data analytics. The second element of the four D framework is diversified propositions. Over the years, our customer product strategy has been focused on expanding the product suite and continuously providing innovative propositions to our customers.
This approach ensures that our products are suitable and accessible to a wider range of customers spread across customer segments, age, affluence, and other demographic aspects, enabling us to serve a large market effectively. Further, the continuously recalibrates its product offerings to align with the evolving need of customers. This proactive approach has allowed us to effectively navigate the changing landscape and ensure that our product remains relevant and impactful. Building on this approach in Q1 2024, we have successfully launched new products and fund offerings. Moving on to the third element, that is digitalization. Together with our customer-first philosophy, as a company, we realized very early that digitalization would be a differentiator in times to come. We use technology to help us make life insurance accessible and an empowering experience for customers.
As a part of that belief, we were one of the first life insurance companies to begin our digital transformation journey way back in 2012. Across the customer life cycle, starting from policy purchase to claim settlement/maturity, digitalization has underpinned our journey. Our endeavor is to create simplified and hassle-free processes for our customers. We have fully digitalized our pre-sales, onboarding, issuance, and servicing processes. Through digitalization, we have empowered our customers on servicing aspects, including self-service, renewals, and quick claim assistance. More than 99% of all our policies issued are logged digitally. Our digital platform has been extended to employees and partners, too. We have been leveraging digital tools to strengthen our sales digital capabilities. We empower our partners with customer-centric digital support across their processes, with a very clear focus of ease of doing business and creating a better customer experience.
Few examples of the digital support, including our own technological capabilities, to identify customer opportunities within partner database, utilizing our demand generation tools to enhance partner productivity, and leveraging digital onboarding to reduce issuance time. As we look forward, we will continue to reimagine all our processes to leverage the ever-changing digital ecosystem and continue to provide a better experience to all our stakeholders. Moving on to the fourth element, that is depth in partnerships. Distribution in life insurance business is a critical link that bridges the gap between the products and the customers. We have made significant strides in expanding our distribution reach by onboarding additional partners and investing in our own proprietary channels. The natural advantage that it gives us is access to a heterogeneous set of customer bases that spans across geographies, demographics, age, and affluence.
We believe that to have a sustained competitive advantage, we need to equip our partners to grow their overall insurance business, and we continue to focus on increasing the depth of our customers and distributors base. We extensively work with our partners to deep mine the customer opportunities while remaining focused on the quality parameters. We empower our partners with a suite of digital tools to help them position life insurance more effectively and in a more holistic manner. We support them by integrating the ecosystem for easy onboarding of customers and post-sales service, and build capacity by training partner employees in products and processes. This entire four D framework has been put in place by keeping in mind our core objective to deliver quality business in a risk-calibrated manner.
Our risk management framework sets out the risks that we are prepared to accept, given the expected risks, rewards, and consistency with strategic objectives, and those risks for which we have no tolerance and want to avoid. We regularly monitor our experience in respect of insurance risk, that is mortality, morbidity, persistency, and expense, and take actions to ensure that our emerging experience is consistent with our expectations. We minimize our investment risk by following a prudent investment philosophy. Our investments are made with regard to nature and term of liabilities. We have a low exposure to interest rate guaranteed products, and we hedge the risk for these products. We continue to diversify our product and distribution mix to avoid any excessive concentration risk in the business. To summarize, the diligent and prudent risk management framework we operate on is reflected in our strong and resilient balance sheet.
Moving on to the key quarterly performance highlights for Q1, 2024, presented in slide 6. Our VNB for Q1, 2024, stood at INR 4.18 billion, with a margin of 30%. Our total APE stood at INR 14.61 billion for Q1, 2024. We have witnessed a very strong growth momentum in our retail APE from non-ICICI Bank channels in the month of May and June. Amit will talk in detail later during the call. Our protection APE stood at INR 3.44 billion in Q1, 2024, on account of strong retail protection growth of 61.8% year-on-year. Our persistency improved significantly across all cohorts. Our 13-month persistency stood at 86.4%, and 49-month persistency stood at 64.7%.
Our cost to TWRP ratio for savings lines of business stood at 18.8% in Q1 2024. I will now hand it over to Amit to talk you through our results on four P strategic elements, after which Dhiren will take you through the financial highlights. Thank you, over to you, Amit.
Thank you, Anup. Good afternoon, everyone. I will now talk about performance updates for quarter 1, FY 2024, through the elements of the four P strategy. Starting with the premium growth element from slide 7-1 2, we have used a two-pronged strategy to drive premium growth. First, investing in building existing channels and widening the distribution to maintain a diversified distribution mix. Second, continuing to strengthen our product portfolio to address changing consumer preference in a dynamic economic environment. As you can see on slide 8, on the distribution front, we have continued to invest across channels. Our strategy in the agency channel is to leverage on strong relationship of agents with customers, while we provide institutional support to agents in terms of data analytics and processes. We continue to build capacity and have added more than 7,400 agents during quarter 1, spread across geographies.
Within the bank and non-bank channel, we continue to add new partnerships and increase share of shop in the existing partnerships. We now have a total of 39 bank partnerships and more than 950 non-bank partnerships, with addition of 49 non-bank partners during quarter one. As you can see on slide 9, for overall quarter, our APE, excluding ICICI Bank, grew by 3.7% YOY. Agency for the quarter grew by 4.4%. We have witnessed a strong growth of 20% in May and 23% in June 2023. Direct business grew by 28.5% year-on-year. Partnership distribution grew by 7.7% year-on-year, our excluding ICICI Bank retail business witnessed strong growth momentum of 20% in May and 21% in June 2023.
As you can see from slide 10, we have a comprehensive suite of products. As mentioned by Anup, we continue to strengthen our product portfolio to address changing consumer preference in a dynamic economic environment. As you can see from slide 11, our APE for quarter one stood at INR 14.61 billion. Our APE from savings business stood at INR 11.17 billion for quarter, and we continue to maintain a very diversified product mix, with quarter one APE contribution from linked savings business at 38.8%, non-linked savings at 27.7%, protection at 23.5%, annuity at 6.2%, and the balance 3.8% coming from group savings products.
As you can see from slide 12, we are well 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 13. With an APE of INR 3.44 billion, the overall protection segment saw a year-on-year growth of 4.2%, leading to a business mix of 23.5% in the quarter. The retail protection business registered a strong year-on-year growth of 61.8% to INR 1.1 billion. Our total new business sum assured stood at INR 2.4 trillion for quarter, and a growth of 8.8% year-on-year.
Our total sum assured stood at INR 30.41 trillion as on June 30, 2023. Coming to our third P, which is persistency improvement, it is presented on slide 16. We continue to have a strong focus on improving the quality of business and customer retention, which is reflected in the significant improvement in persistency ratios across all cohorts. We would like to highlight here that our 13-month persistency ratio improved to 86.4, and our 49-month persistency ratio improved to 64.7%. Now moving on to fourth P, which is productivity enhancement, which is presented on slide 18. Our total expenses grew by 21.9% year-on-year. The expenses are higher as compared to the same period last year, on account of continued investment in capacity creation to support future growth.
Our overall cost to total weighted received premiums stood at 27.7%, and cost to TWRP ratio for the savings business at 18.8% for the quarter. Even with the cost increase, our cost to average asset under management has been stable at 2.3%. Through the four key strategy of premium growth, protection business, persistency improvement and productivity enhancement, our objective remains the same, to increase the absolute value of new business. I will now hand it over to Dhiren to talk you through the outcome of four key strategy and financial update for quarter one, 2024.
Thank you, Amit. Good afternoon. I will now take you through some of the financial metrics. We continue to maintain a strong and resilient balance sheet as presented in slide 19. We have evaluated insurance risks and mortality experience, and they are within our expectations, and we will continue to monitor them closely. On credit risk, only 0.2% of our fixed income portfolio is invested in bonds rated below AA, and we continue to maintain a track record of not having a single NPA in current section. Of our total liability, 74.7% of liability is largely passed on market performance to customers. We continue to closely monitor our liquidity and ALM position, and we have no issues to report.
As a result of our four key strategy, the VNB for quarter one was INR 4.38 billion, given our APE of INR 14.61 billion, the resulting VNB margin was 30% for quarter one. Coming to the financial update as presented in slide 21, our profit after tax grew by 32.7% year-on-year from INR 1.56 billion in quarter one last year, to INR 2.07 billion this quarter. Our assets under management stood at INR 2.6 trillion, our solvency ratio continued to be strong at over 203% at June 30th. To summarize, we will continue to make progress against the four key framework of premium growth, protection business growth, persist improvement and productivity enhancement. We expect that our performance in these aspects will translate into our objective to grow absolute VNB.
Before concluding the call, I would also like to share that during the quarter, we released our FY 23 annual report, which was themed: Delivery on Promises and Delivering Sustainable Growth. Along with that, we also released a standalone ESG report, which articulates our approach and outcomes of our efforts towards sustainability. The integrated reporting structure prescribed by the International Integrated Reporting Council has been followed for developing the annual report. Thank you. We're now happy to take any questions you may have.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Suresh Ganapathy from Macquarie Group. Please go ahead.
Yeah, thanks. Okay, my first question is to Anup. Anup, it's been maybe a couple of months for you as a CEO. You know what, in your assessment, I know it is still early days, what do you think are the areas of improvement, or what are the gaps that you have identified? That's my first question. Of course, related to that, how well do you plan to leverage the ICICI Bank distribution channel? Is there a change in mindset with respect to distribution of products by them? How do you plan to leverage that network? That's the first question. Second question, maybe Dhiren can take it: What explains the sharp rise in expense ratios and the fall in margins this quarter, despite a sharp pickup in protection APE?
Overall APE was down. Still OpEx is high. Just the clarity on these two questions. Thank you so much.
No, thank you, Suresh. I'll just answer your two questions, area of improvement in ICICI Bank.
Yeah.
First of all, I must say that the team here is very good. Kannan has left a very good balance sheet, very sound and prudent balance sheet. There is really nothing really to worry on those counts at all. The other thing of transformation is largely complete, and the transformation by way of diversification of products and diversification of channels is also largely complete. There is no area of improvement. One, the area of focus certainly will be growth, because as you know, our margins, you know, were largely was at 31, this year it is 30%. Margins, we are, you know, at the toppish level in the first top decile or top quartile of the market.
Mm-hmm.
The real driver of VNB, our plan will be towards to get it through growth rather than the margins. To activate, many of our channels are 18 months old and 24 months old, so they are not really fully mature, in the sense that our share of shops in those channels we can improve. We can help them through data and analytics, co-understanding of their own client base, making sure that we are able to train them on the most suitable products, ensuring that during the life stage, that we are able to help and support them so that, you know, both of us generate good business. That is really the area of focus and not really area of improvement, but I'll say area of focus.
I must also say that the team here is very, very good and fully aligned to this objective. As you know, we have been, you know, focusing on getting the transformation right, and successfully, I must say that in four years, the VNB was doubled in absolute amount, but the driver of that was margin more than EP growth. With the bank, in a way, the contribution of the bank coming to on the lower side, all other channels will now start to or must start to show up on growth. As far as bank is concerned, I must say that bank has two distinct roles: one as a shareholder, one as a distributor. As a shareholder, they are a fantastic shareholder. They are extremely supportive, both ICICI Bank as well as Prudential.
In the context of distribution also, because Prudential is not a distributor, ICICI Bank also is a distributor for us. They are focused on protection and annuity, and that is something that, you know, it is up to them as a distributor, what is their view on distribution. Our plans largely are now because it's a small proportion and contribution is lower for ICICI Bank, we can get our growth primarily from all other channels as well. If bank comes, it is bonus, but it is really up to the banks to respond to that question. Over to you, Dhiren.
Hi, Suresh. Some of the larger contributions of the expense growth are manpower costs, which of course, additional people that we have on the ground to be able to activate some of our newer channels. Some other elements around distribution costs, which are fundamentally around advertising and sales costs. Mostly, I think when you look at the VNB, you're aware the way we look at it is more from a full year perspective of where we expect costs to be. When we look at the VNB, you see that largely it is driven by the indicative product mix profile that has been shifting. What you can see anyway is from a traditional perspective, you are anyway aware that there is a INR 5 lakh cases.
There are anyway the taxation aspects that have come through from 1st April. Within the traditional pool, we've seen a drop away from the higher ticket size, non-linked, guaranteed portfolio, to some level that has gone across to the participating side, which has picked up quite smartly. To another level, we're seeing some signs of moving towards the unit-linked side. While you are right, at one level, we've got a growth in retail protection, there are some counteracting elements that have come through overall.
Okay, that's clear. Thanks, Anup and Dhiren.
Thank you.
Thank you. We have our next question from the line of Supratim Datta from Ambit Capital. Please go ahead.
Thanks for the opportunity. I'll start off with, you know, your point on investing in the newer channels. You have 39 bank partners. Could you give us an understanding about what could be a share VNB bank, outside of ICICI Bank, and how do you plan to grow here? Because, 26 of these partners, 25, 26 of these partners have been there for more than two years. How are you planning to grow this channel going forward? That's one. Next, on the agency side, that has been a strong growth driver for you. From a productivity perspective, your agents, the new business premium per agent is still at the lower end compared to the industry. How do you plan to grow that?
What are the steps that you are taking, you know, if you could share, give us some light on that.
Yeah, yeah.
For data question, your when I look at your RWRP and compare that with your individual APE, your RWRP seems, comes out to INR 10.6 billion, whereas your individual APE is INR 11.7 billion. If you could help me understand what's driving that difference between these two lines, that would be very helpful.
Yeah. Amit, will you just take those questions, and then I'll come in?
Yeah. I'll come in here. Let me start with share of business with our new bank partners. See if you were to look at new partnerships that we have stitched over a period of last 18-24 months, we saw a huge traction of business, which was driven through tax scarcity that we witnessed in January to March, specifically February and March. We saw that some part of the business pulled into last quarter of last year, and hence there was general overall slowdown, which was witnessed not just in bank partners, but also in some non-bank partnerships as well, which spans across corporate agency and broker.
The good news is that while overall pie may have shrunk because of half of the quarter, the remaining half of the quarter, actually, that we have seen the growth coming back. Overall, pie has started growing in the second half of the quarter, and our share of business actually has incrementally grown across all our large partnerships. Where we were to where we are, though, of course, the delta share could be different partner to partner, but large number of our partnerships, we have seen our share growing, even though the overall pie was kind of static. That is the status on all the bank partnerships, and not just bank partnerships. I'm extending this argument to even other multi-insurer CDR partnerships that we have.
That is one thing, one area I would like to just articulate. Second point, you spoke about agency productivity. Now, I would understand that probably the way you are calculating agency productivity is on the total number of agents, total business done, divided by total number of agents. If you recollect that for long period of time in the past, we were actually not terminating advisors, right? As you know, the advisors over a period of time, they held on to the insurance business, they continue in insurance business, and large number of advisors also kind of, you know, stop doing insurance, after they exhaust their natural market.
... Even after they had exhausted the natural market, we tend to stay away from terminating those advisors, and hence they are reflected in the pool. What is most important in agency distribution while calculating productivity, is to see our manageability of these advisors. This manageability of advisors, we used to look at 3,000 odd unit managers who used to manage these advisors. That manageability we have improved over a period of last 12- 15 months by increasing our unit manager capacity from 3,000 to almost 4,000, which is almost like adding capacity of 33%. If you look at productivity of the units, that we have seen significantly growing over a period of last two to three years.
In between, there was a period during COVID, when we refrained from adding this capacity, as you know, that this is direct addition to our cost. However, whatever investment that we have done in last 15 months or so, we have started seeing the results already. As we speak in quarter one, we can clearly attribute some 4%- 5% of our top line in agency being contributed by the capacity that we have built over a period of last 12- 15 months. Which means that at an early gestation period, if you were to look at, in a low vintage pool of our units, to contribute 5%- 7% of our top line is quite significant.
As we go deep into the year, we expect this capacity to deliver anywhere close to around 15%-18% of our business as we have planned annually in the agency business.
Supratim, your third question was the divergence between what is RWRP and AP. That can come through if there are, let us say, non-annual modes that are being written. Of course, it will not show up in RWRP, it will show up in AP.
Sorry, just non-annual, what? I could not get that.
Monthly mode. Monthly mode policies.
Okay, got it.
Mr. Datta, are you through with your questions?
Yes.
Thank you.
Thank you.
We have our next question from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, hi, good evening. A couple of questions. First one, if I just try to look within protection, as we can see on the group side, I mean, there has been sort of a decline, and it would appear, given the kind of a retail credit growth, it is largely into the GTI, where you would have seen decline. Can you just help us sort of because you have been a pretty, kind of a dominant player in this market, so how has been the market and what has been the reason behind sort of your going cautious or withdrawing from some parts of the GTI market? That's number one.
Second question, a bit continuing from what Mr. Bagchi said on, sort of, you know, things being in place and growth being the sort of, top on agenda. The sort of, if you can just help, I mean, if I look back for the four years, you had a clear VNB, absolute VNB growth plan. If you were to look ahead, with the focus on growth, what sort of, relative or absolute growth of kind of a range or expectation you will have over the medium term? Related to that, I mean, your direct has been growing very sort of strongly in this quarter. Is the sort of, that is driven by retail protection growth or is the other way? I mean, how sustainable is this direct channel growth? Thank you.
Avinash, let me take some of these questions. Within the group protection, there are two parts of it. There is credit life, and there is group term, which is employer-employee. The credit life continues to grow, if you recall our earlier conversations on group term, which is the employer-employee space, if you recall that we actually had higher prices, which was an offshoot of COVID pricing, that was still remnant in last year's portion of last year's business. As you are renewing business this year, all of those COVID loadings have gone away. To that extent, there is a challenge in staying in the same place. While even though we're doing much better in terms of deal closures, the absolute premium, therefore, is a little challenged to that extent.
As you go through the year, we expect this to wash away. That's at one level. In terms of what we are starting to see in terms of VNB from a medium-term perspective, clearly, as Anup pointed out earlier, the profile shift in terms of the product has actually happened over the last four years. Going forward, I don't think there's going to be large shifts in the product profile, which means you're not seeking to grow VNB through margin. You seek to grow VNB primarily from APE growth. To that extent, some of the trends that you could see over this last quarter, specifically when you look at the months of May and June, you'd see one, sequential growth, plus you'll see strong year-on-year growth.
In fact, in the month of June, we had a double-digit growth in AP for that month. Clearly we're seeing good movement and strong movement in terms of APE. Where this would end up, I think, would be a function of two key segments. One, of course, how does savings actually pan out over the rest of the year? There are, of course, these transient elements in terms of the taxation aspect that have possibly impacted. As we had mentioned before, we kind of expect to see that wash away as we look through the full year. Of course, the environment factors will continue in terms of macro, but we'll have to see how that pans out through the year. Fundamentally, we don't think that this is going to be a drag.
I think, more from a medium-term perspective, there's an expectation that same business will continue to grow in terms of nominal GDP. Where the seeker can be is obviously in terms of protection, and more specifically in terms of retail protection. You've seen those green shoots come through. We've been speaking about this for the past few quarters, and now as you see the strong growth of 62% year-on-year for the quarter, I think it gives us a lot of comfort to say that the entire sales distribution team has understood that this is the new way of doing business. That has started to seep through, not just across sales, but in terms of the back-end operations teams as well.
I think we are a lot, we're in a far better position today than what we were even 18 months back. From that perspective, I think from a medium term, we will see how this evolves. At best, this could be another. We've always held that, from a protection perspective, a retail protection perspective, it's not just a few years in terms of the trajectory. We think it's a multi-decadal opportunity, and we continue to hold on to that view. Yeah.
In fact, just to add, Dhiren, see, today, businesses other than ICICI is now close to around 87% of our business, this 87% of our business grew at 20% in May, grew at 20% in June. That gives us comfort, Avinash, that even if ICICI stays where it is, I think 87% of the business will help us be in line with the industry growth. rest margins will allow customer preferences to dictate how the margins will pan out. overall, on AP growth aspirations, I think we are in a better position now with 87% of the portfolio already exhibiting the most recent growth rates of May and June. Coming to one more question you had on direct business.
Yes, we do have an upside on direct channel. As you know, direct channel is proprietary sales force, largely looking at upsell opportunities within the existing customer base of ours. We continue to use our deep analytics to identify spaces, how we can leverage in a dynamic environment where tax benefit was going away, and we capitalized on our ability to reach out to our existing customers with alternate propositions of fastest. You have the advantage of direct channel being fastest to get this proposition going to our customers, and that is something that we have seen as a conversion. This has also given us a fuse to create enablement to our partnerships, intermediarily driven businesses as well.
I do believe that this is sustainable, not just on upsell, but we are looking at going beyond upsell and explore some of the strategic segments that we can address through our proprietary sales force, which is part of direct. Also, as you know, the direct business also comprises our ability to cross-sell through our digital, our digital assets, which is our website and application. We continue to improve our customer experience at our website as well as application. Of course, we'll explore opportunities around our partners to see how we can leverage their digital assets as well. It looks quite sustainable in a nutshell, if I were to tell you.
Okay. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to answer queries from all participants, please restrict your questions to two at a time. You may join back the queue for follow-up questions. We'll take our next question from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.
My questions have been answered. Thank you.
Thank you.
Thank you.
We have our next question from the line of Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
I, I...
I'm sorry, we are not able to hear you clearly.
Hello?
Yes, please go ahead.
bout that. I wanted to get a better sense of, you know, why our other bank channels in Q1, if we look at that segment, they've been flattish. In fact, there's been a decline of about half a percent. What is sort of hindering growth over there? And maybe if you could let us know or tell us about, you know, what is our counter share in some of our major bank partners, and whether growth will be driven more by the channel growth itself, or are we looking at increasing our share? Some color over there will be helpful.
Yeah. Madhukar, I answered this question previously as well. Let me in brief just reiterate once again. Growth, which looks flattish for the quarter, actually returned to growth in the month of June. They are close to around 6%-7% of our growth. That is bank partnerships beyond ICICI Bank. Like I mentioned, multi-insurer banks as well as CADR partners did see a huge scale-up on traction built around tax clarity in the month of March, hence, we cannot rule out some part of the demand being pulled into March. Hence, we saw some impact of that in the first half of the quarter. The overall pie at these banks was relatively constrained, but however, our share at these shops still continued to increase.
I can't give specific numbers around partnerships, but all I can say is it was quite significant in terms of overall growth in the, in the share of our business. We believe that with growth returning in the second half of the quarter, even if the current share we hold ourselves into good stead, and probably we'll gain having picked our market share up in the second half. That is what I would like to articulate here.
Understood. Just a follow-up. On the ICICI Bank channel, you know, Mr. Bagchi clearly mentioned that, the decision of what they want to sell lies with them. Having said that, what is your expectation in terms of, you know, numbers from there? Do you think that, this channel, which did about INR 500 crore, last year in business, does it, has it plateaued, or will it decline further from here? What are you guys building in, when you make your business plans?
No, no. This is Anup here. Today, the proportion of ICICI Bank is small, so to that extent, I see it as a positive thing in the sense that 85%-87% we have full control of growing. The balance 13%-15% it is on ICICI Bank as to what their stance is. They have said that the two products that, you know, the two categories that they would be focused on will be protection and annuity. Our plans essentially are not so much dependent on ICICI Bank now, ours are independent plan basis other channels. On the other channels, we are very clearly seeing that these are all 84, 18 months, 24 months older channels.
The share of shop there is increasing. Clearly there is a good acceptance of that. We certainly want to be the partner of choice for all our partners, and we would want to help them do more and more of these businesses. In many cases, we have seen that the absolute penetration of customer, that is customer divided, policy divided by the customer base, is all less than 1%, 0.5%, somewhere 1.5%, 2%. It is inconceivable that only 0.5% or 1% would be wanting insurance products would be suitable to only 1% of the customer base.
To that extent, what we have to really work hard is to move the penetration up and also show value to the partner, that by selling an insurance product, which is a long-term product, in a good way, that is with high persistencies, indeed increases the stickiness of the customer with the partners. Long-term stickiness of the partners, it really helps them in their other products as well, particularly in banking. That is the value that we will, with our full data analytics and four D, we would want to demonstrate to them and keep increasing our share, number one, of the existing business that they do, but we will also help them create new drivers of business for their insurance businesses, which is going to help us. That is going to be the approach in general from our side.
I understand that, you know, it's up to ICICI Bank as to how much business they want to grow. What do you think? What is sort of your expectation of growth from ICICI Bank?
As a manufacturer, all manufacturers think that distributors should do good business. Our expectation also is that if ICICI Bank does well, we will only be very happy.
Okay.
Just to give you some quick sense, Madhukar, in the businesses that they have chosen to prioritize, ICICI Bank is already on a growth path. To that extent, in protection, ICICI Bank is on a good double-digit growth.
Okay, all right. I'll come back in the queue. Thank you.
Sure. Thank you.
Thank you. We have our next question from the line of Prithvish Uppal from AMSEC. Please go ahead.
Yeah, hi. Thanks for taking my question. Just, firstly, wanted to understand, you know, the retail protection growth has been quite strong for us, for this quarter, and even sequentially, we've, you know, we've been more or less at a similar kind of run rate. What channels has this been driven by, A? Second is, have you seen an increase in policy count in retail protection as well, or is it more driven by, you know, sum assured, like a greater amount of sum assured being purchased? That would be my first question.
Second is, if you could just highlight, you know, what could possibly be the average ticket size in your non-par segment during the quarter, compared to probably, say, you know, last year and possibly even, you know, how much the policy count has grown? These are my first two questions, and then I'll come back for a follow-up.
Yeah, Amit, you want to?
Yeah.
Yeah, Dhiren, you want to take this? Yes.
Yeah, Prithvish, in terms of policy count for retail protection, of course, we've seen an improvement. It's not just a ticket size angle, it's also a policy count aspect there. Yes, the uptick actually has been on more number of cases being sold. This is actually quite broad-based, it's not just one or two channels. Of course, at various points in time, you might see some shift across from one to another, but it's a broad-based effort that has been going on across all channels through the years, and we start to see that in this particular quarter as well. In terms of the ticket size that you mentioned for non-par, I think we're seeing it broadly stable, and this is trending downwards.
Because, of course, we don't have the more than INR 5 lakh cases in the same quantum that we had last time. As you're also aware, the total cases over INR 5 lakh was not that large for us as a company. To that extent, we are not unduly worried. More importantly, I think we're starting to see some migration away from non-linked more than INR 5 lakh towards the unit-linked pool, which means we're not losing the customer. We're able to offer them something else as they come and approach us.
Also on the, just to add on the income, on the retail protection side, essentially four, there are four things that you require to do. One is on the KYC side, second one is income estimation, that is in general for life insurance policy. Third is health, and fourth, more and more, if you want to do pre-approved sum assured kind of products for retail protection, you would then want to only take it essentially as a question answer, where customers give information. So the fourth element becomes a critical thing: how do you establish authenticity of the information?
If later on during the claim, if the information given is, doesn't turn out to be fully right, then there could be an issue on the claim, which is something that, you know, no insurance company would want to do, because we are there to give claims for good customers. Now, if you see over the last three, four, five years, many of the things, either are fully digitizable, devices fully digitizable, better and better income estimation models are coming in, better and better health models are coming in and with all, with better path labs, et cetera. That ecosystem is also developing. If you go towards pre-approved sum assured, there also, on the authenticity of data, there are other markers that you can bring in to get more authenticity of data.
Actually, more and more, we see that the congestion levels on the protection, if it is brought down, we are also seeing a shift in the society wherein the demand for protection is coming, albeit for a certain segments of customers. When there is a demand, if you are able to then streamline the processes of meeting the demand through de-congested processes, without trading of risk and prudence, I think this is a business of growth, and this is a business that we will certainly be focused. We are focused on this business. We will be focused on this business, and I think this is a good business to be in.
It is margin accretive, it is good for customers, it increases policy count, and it indeed is what insurance companies, life insurance companies particularly, we all strive to do more and more of that.
Okay, sir. Thanks. That's well understood. Coming to,
I request you to join back the queue, sir.
Sure.
Thank you. We have our next question from the line of Anirudh Shetty from Solidarity Investment Managers. Please go ahead.
Hi. Hi, thanks for giving me this opportunity. I had two questions. My first question is, you know, within protection, you have, you know, this employer-employee type of protection. Just wanted to understand, as of today, like, what is this % of premium that comes from this segment? From a long-term perspective, do we see this as strategic to us, or this is more of a, you know, a tactical business wherein where the pricing is right, we could consider it, but it's not, you know, core to ICICI Pru? My second question is, you know, in your opening remarks, you mentioned that, you know, your guaranteed product is, you know, not very large as a share of business.
If you could just quantify how much comes from this interest rate guaranteed business. Just another question here is that some of our peers have a larger share of business coming from this category, and they claim that they are able to hedge it quite well. What would explain our hesitation in growing this, you know, business to, you know, larger percentage, you know, more closer to what our peers are doing today?
Yeah, Dhiren, you can take this.
Hi, Anirudh. In terms of the group term business, I think some of the improvement in protection share that you've seen over the past few years has come through group term. To think of it as a one-off and a tactical move, I think is the wrong way. We've fundamentally been able to establish our position quite well in the group term market, because we've been able to invest in our group sales business for the past many, many years. We've held the relationship all this while, especially in the period of COVID, when there weren't that many companies quoting to clients. We were the ones who were willing to quote and quote appropriately.
Of course, COVID was an evolving scenario at that time, we were able to correct prices as they went through. Fundamentally, this is part and parcel of our strategic element, I don't think we are treating this as a one-off in that aspect. Coming to your second question that you called off. Fundamentally, the way we look at the non-par guaranteed business is that at the core of it caters to the mass affluent customer, which means that there is adjacency between the participating and the non-participating business. There may be shifts between these two businesses, depending upon the interest rate environment, fundamentally, they would cater to the similar set of consumers, which is why we have called them out as a traditional business in our disclosures.
Of course, what also happened over the past couple of years is that given the interest rate cycle and the steepness of the yield curve, there were, of course, some element of pickup that is coming in from affluent customers. But that was a transient point, and as you see the new taxation rules, there is of course, some hesitancy that will come in from that particular set. Even though we think that, from a long-term perspective, these sets of products, even at above INR 5 lakh, even if being taxed completely, do make a lot of sense because they do take away reinvestment risk. From the assets available that the customer may be able to invest money in, this should definitely form part of their portfolio.
Coming to your third question on whether we're able to hedge it, I think we've been very, very categorical. The reason we did not step into this market four years back was because of the lack of heavy instruments. As instruments were made available, primarily through FRAs, we grew that business quite well. We run a very, very tight strategy in terms of hedging, and we also run a tight strategy in terms of repricing. That is how we've been able to manage any residual risk that comes out of this book. It's extremely important to recognize that this particular book has to be managed tightly from a hedging perspective, because world over, insurance companies have gone down for mismanaging interest rate risk. I don't think insurance companies have gone down from a mortality risk perspective.
This is a portion that we have been extremely watching very, very closely, and we continue to work on that. When we mention that a small portion of the book comes in from this pool, it's obviously from the overall book and not just the incremental segment, Anirudh.
Yeah, Anirudh, just one thing I wanted to clarify. You know, over a period of last few years, our effort has been to be most comprehensive product provider, which takes care of consumer preference changes that may happen because of the environment change. Once we complete the product portfolio, which could be, you know, within savings, linked, non-linked, within linked, which is equity, debt, balanced, within non-linked it is participating and non-participating, we allow the environment to take over and consumer preference to eventually decide what they want to buy. After that, we don't carry a bias against a bit in the one category of products. We allow it to play out the way it is. We build capabilities over a period of time to adjust to that, and that is what exactly we did.
When we saw an opportunity on the guarantee side, we adjusted our capability to deliver on what consumer preference was, and that's when the hedging opportunity came, and we capitalized and converted and catered to the consumer preference change.
Got it. Would it be possible to quantify how much of our premium in Q1 FY 2024 comes from this guaranteed products and how much comes from this employer-employee protection?
No, we've not called those numbers out, Anirudh. We've been consistent about the way that we've put out our disclosures. I think, at one level, like I explained earlier, the way we look at the traditional book, is fundamentally because of the fact that this caters to a different set of consumers. The interstate mix between the two can vary at, a point in time, depending upon the rate cycle.
Okay, no problem. Thank you for answering my questions.
Thanks, Anirudh.
Thank you. We have our next question from the line of Shashank Mundra, an individual investor. Please go ahead.
Hi. I was seeing the margin, it has dropped year-over-year, despite being high protection business mix, which is, I think, 70%-80% plus margin. I want to understand the reason behind the drop in the margin. Another one is on the cost side. Despite the business being flattish, the expenses have increased so much. Thanks.
Yeah, Shashank, hi. Dhiren here. I picked up this margin question earlier, and the reason for that is basically the interstate mix between the product profile. At one level, yes, you're right, retail protection has gone up. As we discussed earlier, there has been a drop in group term. Similarly, in the high-value non-par guarantee segment, that has dropped. To some extent, those customers have gone towards the participating and more towards unit-linked. It's essentially the underlying product profile that has resulted in this margin that you see here. Having said that, margin is not a focus as we've been reiterating on the call. I think our vision is to be able to grow absolute VNB.
Given the way that the product profiles have actually transformed over the past four years, I think the core driver of VNB is going to be absolute APE. To that extent, while we've had a drop in APE in the quarter, that is the core driver of where the VNB drop is. Having said that, through the quarter also, we have seen improvements in sequential improvements in absolute APE. Much so that in the month of June, we've been able to double-digit growth numbers. The cost numbers, of course, as I mentioned earlier, also had risen.
Some of the larger cost elements where this has gone up has been on employee costs, as we've been investing in adding more people on the ground, fundamentally along EPC, along new banks, along new partnerships, and other elements of distribution cost as well.
Okay.
Mundra?
Okay, one more thing, you mentioned about the agent termination in one of the earlier question. I assume there must be some cost if you don't terminate some inactive agents.
That's a good question, Shashank. Fundamentally, the way we look at agents is because these are completely commissioned agents, it doesn't cost us to keep them on books. The first point of fixed cost and the efficiency that the fixed cost element draws out is what is very critical, and that is the manager on the ground. To be able to manage productivities of the managers who manage these agents is what becomes very critical when looking at agency productivity and profitability. I'd also like to add that, you know, we spoke about the fact that we've been on a digitalization journey for many years. In fact, we've actually built out an agent platform which allows spans of these frontline managers to run as low as 10-12, to as high as 200.
Again, because it doesn't really cost us to keep these agents on books, we pay no fixed costs, we're able to eke out, even from a long-term perspective, some of these businesses as well. Yes, while it looks like an agent productivity, which would be the total AP divided by the 200,000 agents, looks like not so great as compared to rest of our peers. I think more important, we look at productivity at the frontline level.
Yeah. Okay, thanks.
Thank you. We have our next question from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity, sir. Firstly, how should we think about the VNB margins going forward? Do we think that we have already made the required investments which were required to scale APE growth, or that will still is ahead of us, and which will probably drive APE growth, but may have impact on VNB margins going forward?
Nidhesh, again, no guidance on VNB margin. Absolute VNB growth is what we seek. Again, a lot of it would be a function of the product profile that comes through. As Amit also pointed out earlier, essentially, we're laying bare the entire product profile. As Anup pointed out, what we're seeking to see is what is the specific product that can fit a particular customer through that specific distribution channel. Understanding the nuance of the distribution channel to see what kind of customers they have, and therefore, what are the products that we could sell to them. The outcome of all of that is what we would end up in terms of the VNB margin. Again, we hold no targets on VNB margin.
Absolute growth in VNB is what we seek, and again, based on the way the product profile comes through, we will take it as it comes.
Like I give you an example, Nidhesh, you know, like what we mentioned, that changing the consumer preference, whenever it happens, we want to be there, catering to customers' changed requirements. Like, for instance, what we saw towards the end of the quarter is where large value deals, which typically were coming in non-participating platform, we started seeing large part of this business shifting towards unit-linked products, right. Internally, at the organization level, we don't get partial towards any one category of products. If customers started choosing unit-linked products, we were more than happy to serve them through that. That is what is evident in the way we have looked at our average premiums in non-participating and unit-linked. Unit-linked went up by 10% and non-participating went down by 10%.
It was all about consumer deciding as to what it is. To answer your question on VNB margin outlook, while absolutely right, what Dhiren mentioned, that we will not be guided on margin %, we will allow the ecosystem and the environment to drive the margins for us. We will stay focused on the drivers that we have identified for our distribution, through which we intend to deliver our AP growth. I think that is what we will focus more, as a controllable, rest the market forces and the environment will take over.
Sure. Just a follow-up on that, if you look at last 4-year journey for us, we have delivered on VNB growth despite a lot of headwinds that we were facing. In the process, we have maxed out on my product mix changes. We have probably also invested less in our distribution, at least till FY 2022. In FY 2023, probably we started with this investment journey in our in the distribution. How, where are we currently in the investment journey? Do we think our investment will continue to accelerate going forward in FY 2024, leading to sharp growth in cost ratios vis-a-vis top line growth that we have seen in Q1? Is that likely to continue in FY 2024, 2025 or not?
Absolutely. Absolutely. We want to stay invested in building capacity. I think proprietary channels already are close to half of our business today, and we want to stay invested there and want to build capacity. As you rightly mentioned, Nidhesh, in between, during COVID, adding to capacity would have added cost without any bottom line or top line, because we know the attrition period for settling into reasonable productivity is much longer in proprietary channels. Hence, for a very reasonable reason, we stayed away from investing during times which were very difficult, and we were banking mostly on efficiency and productivity enhancement of our existing distribution. The journey that we started 12, 15 months back, we want to continue, and for next couple of years, we want to stay invested relentlessly.
That is what, like I mentioned in the previous to the previous question as well, almost 5%-7% of our agency business, we are seeing coming through from the additional capacity that we built in last 12 months. That is something that will continue. This is incrementally going to only add and become significant as we go deep into the year and in the coming financial year. That will only happen if we continue investing, and that is what is one of the reasons also that we invested in first quarter. We did not stop, though, for seasonality of business, typically, you'll see much lower business in quarter one. Percentages look haywire in the, in the earlier quarters, but as you go deep, it will all get squared up.
Sure, sir. In FY19, we put out our aspiration.
I need you to join back the queue, sir.
Sure.
Thank you. We have our next question from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Thank you. Thank you for the opportunity. I just wanted to check on this protection business again, that probably there was a campaign run on, run in bank or even the agency channel and even into some extent in Policybazaar, that the price hike is coming in. Just I wanted to understand, that led to an upfronting of the growth in the current quarter in the individual protection business. That's point number one. If the price hike is coming, just wanted to understand the reason for it, because I don't see any competitor increasing price. Have we changed our reinsurance strategy? We have a different reinsurance strategy compared to the peers.
Just wanted to understand that part little better on protection. Second question was more on margin again. I mean, there should be some level where you might be thinking that below this number, I am not comfortable to go margin, whether that number is 30% or 29% or 28%, I am not sure. But there should be some number in your mind, probably beyond which the margins going down might not be comfortable. At that point of time, you will take a calibrated step on more product mix rather than just chasing what customer wants. Just wanted to understand these two parts, Sanjaya.
Okay, Sanketh, let me try addressing first of all this protection part. I think the protection pricing part that you are quoting, actually, this is an ongoing exercise that we keep doing. You know, internally, in a committee-based approach, we keep looking at profiles in various cohorts and keep looking at our risk to pricing, balance between the two, and we do correct our pricing on a regular basis. Now, this is something which is not periodic, but it is something that we take stock every month. Sometimes we may decide to increase pricing in some cohorts and some months we may decide not to. It is generally at some pockets and some cohorts where we find an experience, where it necessitates us to correct pricing, and that is what we're doing.
It has no implication on demand going forward to that extent, because protection product is more or less now standardized in terms of pricing. There's not much of a disruption that we've seen in the industry. To that extent, there is nothing in terms of demand, which is affected because of some price changes that have happened in the, in the past. That is on protection part. Second, on margins, you spoke about what is the bare minimum. Let me answer by saying that, you know, the biggest driver, if you were to ask me, you know, as to what we should be doing to look at enhancing our overall margins, if at all, is of course, to reach out to customer segments where the natural demand of the products from those customer segments is the one where-
Mm-hmm
where we see, same as margin accretive. For instance, typically mass and mass affluent, where the entire industry is gonna be focused on to increase width and increase number of policies by reaching and penetrating more and more. Amit spoke about the fact that current penetration is 0.7%, 1%, 1.5% across various partner shops. I think if you were to move towards 5% kind of a number, you have to go deeper and go beyond affluent, go to mass and mass affluent. There, naturally, you will understand that probably simplified products like participating and non-participating will make more meaningful sense.
Our effort will be to increase width, reach out to more and more customers, increase penetration, and by virtue of reaching out to this customer segment, probably, you know, you will see a category of products will start growing, where probably margin accretion is relatively better in comparison to what you see in unique products.
Can I just come in here, just to add to what, you know, Dhiren and Amit said. On this margin management thing, there were a couple of questions that come on the margin management. What is the approach and philosophy of margin management? Margin management essentially just mathematically is a function of product. If it is a function of product mix, then it is then a function, but ultimately it emanates from the customer segment. What we have seen is that there is a wide-ranging quality parameter on when you triangulate the persistency, the product and the customers cohort. Wherever we have seen that the customer suitability and the product suitability is not right, there the persistency drops perceptively.
Yeah. Right.
Wherever there is a customer suitability and the product suitability is there, even after five years, we have seen 90% plus persistency, although the market persistency, as you know, on the 61st, you know better, Sanketh, is hovering around 15, mid-fifties and sixties, but we have seen 90%.
Right.
The real question that comes back is that why is it that some people are at that level and some people are at 90 plus? The real answer to that, and that's the only answer to that, is that wherever the product suitability is proper and there is continuous customer engagement, you get high customer propensity because that is where the customer needed the product, they understand the product, and it is well sold, and it is well accepted, and then you have engagement. The ops follow-up doesn't happen, that they forget whether to pay premium, not pay premium, and they understand that these are locked up products, and they understand why they have bought the product. The question really is that if you really want to do margin management, then we have to find out pairs of such products and such customers.
If you don't diversify on products and you just allow the customer to play, they obviously will pick up a particular kind of product if you put a control on quality.
Right.
While your quality may be good, if you don't diversify your product customer base, you will have lesser growth, but you will have quality growth and you will have our product. That our product depends on it could be a low-margin product, it could be a high-margin product.
Yeah.
As a company, you cannot allow that fully. Because ultimately, VNB will come from margin multiplied by the top-line growth.
Yeah.
Because of the heterogeneity of the partners that we have, we have seen that you have all kinds of customer cohorts within us, within our customer partners base. We are digging deeper into the partners base to see which are the kind of cohort and which are the kind of products, cohort that you bring, and you pair them for higher quality business. You go after that one by one, by one, and make sure that the channel is activated for that product through the channel for the correct customer segment. That is the way in which your quality also will be maintained, your growth will also come, and your margin will also come. That is going to be our approach.
We have seen working very closely with partners, that wherever we have done this kind of a workshop, we have seen that the green shoots are very good, and they understand it, and it is easy, and then the partners don't see it purely as a fee income. It is a fee income product, but they also see it as a part of their overall bouquet of products, wherein they will get attachment for a long period of time. If you are a bank, where ultimately you require attachment for you to lower the volatility of your liability, lower the volatility of your customer, this is a very, very good product because it is dropped the product, and if understood well, you have to sell it only to 10, 15% of the income.
Just like you cannot overleverage in lending, you cannot overleverage in insurance as well, otherwise you'll have persistency problem.
Right.
This is a slightly multivariable issue that we have to solve, and that is the approach that we are taking, and this is the approach that is going to be useful to us. I'm very confident that it is going to be useful to us, and I'm also very confident that the game that we have to play is not 0.71% going to 1.1%. The eye we have to keep is two. Of course, we have to month-over-month, quarter-over-quarter, we have to grow, but really the big problems that we have to solve within our company is: how do you set up the foundation that you can go from 1%- 10%? How do you do the full penetration on the customer base?
How do you understand the barrier to adopt this adoption? How do you understand that why customers don't buy? You get to know why customers don't buy from the customers who buy. Which is the pair, which is the agent, which is the channel through which the customers buy in a more persistent manner without complaints. Really, I thought I'll just answer it comprehensively because what I was hearing is that these are this is coming across as disjointed question. It is actually just one big problem that has to be solved, of course, by breaking this into four, five variables, but doing it in a cohesive, integrated manner.
Perfect, sir. Perfect. This is very useful. Yeah, thanks.
I request you to join back the queue, sir.
Okay, thank you.
Thank you. Ladies and gentlemen, please restrict your question to one at a time, so that the management is able to answer queries from all participants. We'll take our next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Good evening, thank you for taking my question. Just the first one, just the only one on ULIPs. I think in the opening remarks, there was a mention that ULIP demand is starting to come back. Maybe it's also a result of this, you know, tax breaks going away. Just want to understand what are the demand dynamics here. It still is the 40% kind of a APE contribution. When we talk about growth, both APE and VNB, you know, can you talk about what's happening on the ULIP demand dynamics and also the constant maturity product? Thought process behind it, was it a missing product in our portfolio? Any color here will be helpful. Thank you.
Thank you. When it comes to the philosophy of product, essentially, the Constant Maturity came up because on the mutual fund side, the tax advantages have gone up. Here, the tax advantages remain the same, and there are a segment of customers who don't want to take. Of course, ULIP is associated essentially with equity, I must admit, or address balance advantage funds equivalently. There are certain set of customers who want their wealth to get compounded in a tax-free manner for a long period of time, and that is where this product comes in.
Like I said, essentially, it is not about coming up with a product, it is about understanding is there a positioning, that there is a product positioning for a segment of customers, and then searching for those customers, segment of customers, and which channels can that be paired to with what product. That is where we are seeing reasonable traction on the product. Customers who have taken this product, they seem to be generally happy, because it is clear that they are taking, for example, in constant maturity product, that they are taking a debt product and they should not expect equity type of return. I think selling and expectation is very, very critical. All of us in this call belong to financial services, and it's important that everything is against an expectation. Disappointments and happiness all comes against expectation.
This is a product that is basically tuned for that kind of customer segment through these kind of channels. These are not traditional equity ULIP kind of channels also, that also we are seeing. But they search for this kind of product, and then they sell it, and the experience so far has been quite good.
Sir, just on the first question, ULIP overall, non-constant maturity.
Non-constant maturity, I think what has happened is a little bit of spillover has happened greater than INR 5 lakh, because they are affluent. Affluent, essentially, if you look at ULIP and if you look at ULIP equity, they were all non-affluent type. Part of the spillover has come to ULIP, but it is 40%, so it's not too much of a deviation from our general product mix. Dhiren, am I correct?
Yeah. Specifically, if you were to see in unit-linked business, there is a bit of a channel color as well that we have internally, which is very unique to us. If you were to keep ICICI ULIP aside, then you will see actually some 11% kind of growth on link business that we are seeing in channels other than ICICI. That is largely contributed by what we witnessed in the second half of the quarter, where large value deals instead of coming in non-participating range of products, started coming in unit-linked business.
That is when it coincided with CMF launch, Constant Maturity Fund launch. Since the story came at a time when the number of options available for tax savings, relative tax savings, was very attractive on this kind of a platform, we saw an uptick in the channels that were organized this year.
Jan, all the best.
Thank you. Thanks, Shyam.
Thank you. We have our next question from the line of Shreya Shivani from CLSA. Please go ahead.
Hi, thank you. I have two questions. First is on the Credit Life business. In the annual report, for the full year, you've given about INR 4.8 billion of Credit Life. In previous years, you used to give us the breakup of Credit Life between ICICI and other banks, if you could help me with that. Also, any color on what kind of attachment rates are we seeing in the other banks? Because I'm assuming that the majority of the growth should be coming from that segment. First is that, second is just a clarification. You said that agency channel in May and June grew at 20%-23%. Is that correct? That implies a 50% decline in April. Just these two from me.
Yeah, yeah. On the second question, yes, agency broadly, right. You got the numbers broadly right there.
Okay. Okay.
Yeah.
Yeah, as you know, that there is generally a traction of spillover business that happens from March to April.
Yeah.
That has been the trend in the past. This year being special, most of the launches that we experienced in the last week of March was issued by us March itself, because there was sensitivity around the tax proposition. We actually dislodge our sales from April performance, because large part of spillover, which was a trend in the past, did not happen for us this year. April looks a little skewed, but you are right. May, June is 20% and 22% growth for agency, and result is whatever you saw in the month of April. On the first question that you asked on Credit Life, we actually don't share specifically channel-wise numbers on this. If you ask me about on attachments, see, this is something that we completely go by our partner priority.
You know, depending upon the type of customer, the type of businesses they are in, whether it is NFI, whether it is home loan, personal loan, vehicle loans, you know, that Credit Life today is being sold across category of loan products. We have seen attachment rates are varying from product category to product category, and also depending upon partner priorities, right? To that extent, there is no standard number that I can reply you with, but it varies from partner to partner.
Got it. That's useful. Thank you.
Thank you.
That number varies, as such, Shreya, in terms of what is the share that of ICICI Bank that comes in. It can anywhere between a quarter to half, depending upon the period.
Yeah, last three years, FY 20-22, the annual report did have a breakup of Credit Life between ICICI Bank and other banks.
A lot of it also is addition of Credit Life across new partners.
Yeah. Yeah.
That's where some of the growth is coming from.
Okay, got it. Got it.
Thank you. We have our next question from the line of Aravind R from Sundaram Alternates. Please go ahead.
Hi, thank you for the opportunity. You were talking about the agents, you know, some of them are not active. Can you give some color on, you know, number of active agents in the system?
Aravind, we've not called that out. Like I said, one of the core reasons is, looking at total APE and, looking at channel economics, it makes more sense to look at what is the frontline that we have. Also, as I mentioned, given the way that we manage the channel using our digital platform, span for the unit managers can be as low as 10, which can go all the way up to 200+. I think it becomes a little more important to kind of look at what the channel delivers in terms of absolute APE. End of the day, the agent is completely variable for us. He takes his commission only if he performs and delivers business. If he doesn't, he doesn't.
That's the way we actually run that business, and it's not looking at number of agents that we have overall on our books that that is changing at any point. Obviously, at some point in time, there will. Through the year, there will be a change in number of agents who are active at that point. Again, it's also a function of the underlying nature of those agents. Some of them are far more professional, some of them are semi-professional, and so to that extent, their activity levels will vary through the year.
Just one more question, if you can, if it be permitted. Like, I understand that you are talking about, you know, changes upon, with the, you know, addition of the ICICI Bank, bank itself. In terms of, you know, business per branch of bank, when compared to other peers, it's one of the lowest among the peers. Is there any target or something in mind, you know, to improve that to some average levels in the industry? That's what I'm thinking.
Aravind, you're referring to, ICICI Bank productivity per branch?
Yes, yes, yes.
I think we've discussed quite a bit on ICICI Bank's philosophy on what they, what they're looking at from a third-party perspective. When you put that out, I don't think, comparing ICICI Bank's core bank's productivity with any other bank would make, you know, it would be an apple to orange comparison, actually. The bank is very clear that the kind of products that they're focused on are going to be protection and annuity, and, given those ticket sizes, it's obviously is going to be much less than that of, other products.
Okay, sir. Okay, thank you.
Thank you. We have our next question from the line of Supratim Datta from Ambit Capital. Please go ahead.
Yeah, hi, just one follow-up question. From April this year, the new IRDAI guidelines have come in, which has removed product-wise commission caps. Just wanted to understand how has that resulted in, you know, some of the negotiations with the non-ICICI Bank partners? How are commissions there now trending post these changes?
Supratim, the short answer to that is this is still an evolving scenario. There are conversations on, at some level, one would expect commissions to go up. From a company perspective, I think what we would seek to do is to keep overall, unit cost, broadly stable across where we were. Because end of the day, there is only so much that can be put into the product from a pricing perspective. If there is going to be an increased commission, then there is going to be a reduced set of operating expenses that will have to happen there. I don't think the market has stabilized at this point. That is our sense in some of the conversations.
Yes, to some level, in some cases, there have been some increases in commission, but I don't think all of it is played out. I think we'll get a much better picture as we go through to the end of the year. This could just be a little premature at this point.
Got it. Thank you.
Thank you. We have our next question from the line of Neeraj Toshniwal from UBS India. Please go ahead.
Yeah, hi. My first question is on the ULIP. Since you discussed that we are selling products driven by demand, wanted to understand, anything we are doing towards increasing the productivity margin, particularly for ULIP, because, in the last call, I think, you discussed that the margins will normalize to a much lower level and would remain as is. If that is the case or there is a change in strategy here, we can see the margins might improve from that maybe?
Neeraj, taking a question on ULIP margins, I think by regulation, there's only so much that a ULIP product can deliver in terms of margin. There could be variations from year to year, period to period, depending upon how efficient we are in that period. I don't think this is going to be like a high double-digit kind of a margin product at all. I think the guidelines are fairly clear in terms of what has to be given to customer. To that extent, this is not going to be a fairly high margin, relatively speaking. Again, as we have said before, it's a question of where is the customer opportunity? This product clearly caters to our affluent customer segment.
If we're able to sell much, much more than what we would have sold in another customer segment, clearly it gets VNB on the table. Again, I come back to the first point: we are not guided with margins. We're looking at growth in absolute VNB. This is a opportunity pool that we should not be letting go of. Traditionally, you know, we've had great strength in this pool. We continue to have strength in this segment, we'll continue to innovate and bring new products that would be relevant for customers in this segment. One example of that is this Constant Maturity Fund that we launched in the month of May.
Clearly, that was a opportunity we saw, given all of the changes that were happening in the environment, and the fact that there wasn't a credible offering from the life insurance table, which is where we moved quickly and got that out.
Got it, sir. My question.
Mr. Neeraj Toshniwal, I request you to join back the queue, sir. Thank you. We have our next question from the line of Sahej Mittal from Creepy Investment Managers. Please go ahead. Mr. Sahej Mittal, please unmute your line and go ahead with your question. Since there is no response, we'll move on to the next question from the line of Akshay Sekar from Fidelity. Please go ahead.
Yeah, hi. Just couple of-
Sir, we are unable to hear you. Can you use your handset, please?
Is it better?
It's a little better, Akshay.
Yeah. Okay. Couple of questions.
Yeah.
one on retail protection, strong growth this quarter. you know, in the past 2-3 years, we've spoken about constraint in terms of underwriting, in terms of, you know, ability to for customers to pay that much. If when you think, I'm not saying this year, this quarter, et cetera, just the next 2-3 years, would you say that this business has now got back to a run rate where you feel confident that it will deliver the kind of growth, which an underpenetrated category like this deserves? That's question one. I'll wait for you to answer and then ask a follow-up question.
Akshay, I think, we're getting a lot more confident in the numbers that are being generated on a month-to-month basis. There's a lot more stability that we see. Of course, as you pointed out, in the past periods, the environment challenge was a key factor in the drop that we saw in retail protection. As we had mentioned earlier, also, we have been working hard actually at a unit level to try and understand what are the core drivers, be it at the sales side, be it at the operation side, be it at underwriting side, and we've been slowly working at addressing these over these years.
As we stand today, I think we've moved in a much further direction, and we're getting a lot more confident the way the numbers are actually shaping up. Can we do more? Of course, we can do more. As I mentioned earlier, we fundamentally think that this is a multi-digit opportunity. We are not shying away from that. It is essentially coming out of that period of adjustment that we had to work through. As we see it, I think we're far, far better positioned today than what we were, let's say, a year back. Amit, do you want to add?
Actually, just to explain it further and understand what happened in protection over the last few years, I just want to mention that one part of congestion was created because of underwriting policies becoming stringent on account of unforeseen impact on mortality risk, which was envisaged during COVID. That is one factor that you can now, you know, factor that, you know, this is no longer as big a fear or apprehension as it was two years back. Experience is definitely much better than what we thought two years back, which is leading to process becoming simpler. Two, Amit mentioned that congestion, actually by natural process over a period of last three years, has actually eased out because of the overall data which is available in the ecosystem.
Anything to do with process today, our ability to get KYC from the customer, get income documents from the customer, is getting easier and easier, and newer options are emerging to make process more seamless for the customer. I want to believe that, one, because of experience, two, because of ecosystem data, processes are becoming simpler. Third element, which is also critical, is the distribution reset. Distribution was selling protection in a certain way till FY17, FY18, and subsequent to COVID, it had to take some time to reset and follow a different regime of selling protection. All three things have contributed towards retail protection now turning around. I do believe that all these three are quite sustainable, because ecosystem will only get stronger and stronger. Ecosystem will get data rich.
Experience, I don't see it undergoing any drastic change because all those calamities are behind us. The distribution reset has already happened. More and more participation we will see from distribution going forward as well.
All right. Great, thanks for that answer. Second, Dhiren, to you, a little bit of a housekeeping question. You know, you mentioned that growth in April was a little bit of a little muted because, you know, March month had seen a big bump up in premium growth. When we think through growth for the full year, would you say that the, you know, the extra bump that you got in March, the effect of that would have played out in Q1 largely? Or do you think as we look at growth in Q4, you will have some residual impact on YOY growth in Q4 as well? Just I'm not looking at exact numbers, just directionally, how are we thinking about that?
Yeah. April was not a great month, and I think to some extent, we were fairly clear that we needed to get the operational efficiency fairly high in the month of March, given that some of the policies were in the traditional pool, and some of them, of course, were in the more than INR 5 lakh range, and there was no way that we want to let those spill over into the month of April. Typically, April is one of those months where there is new business generation that is quite low. That has been the case of the industry, and depending upon different years, looking at whatever spillover comes through, because you are unable to issue all the cases in the month of March, you'll see some of the April numbers shape up.
Having gone beyond that, I think looking at May and June are the ones that are more critical. There you could see even within, as we've disclosed earlier as well, there has been a sharp movement up in terms of the overall business for the month of June, sequentially, as well as on a year-over-year basis. We continue to see those trends even now, and the way we look at it is that, while quarter one is only about 15% of the overall business, we are cognizant of the fact that March last year was a fairly strong March. Therefore, it's important for us to be able to drive growth in the balanced month as we go through to the end of the year.
I'm not giving a set of numbers, difficult to call out, but effectively, there is a certain amount of color that I can provide in terms of what we're driving towards.
Yeah. I mean, it will be a volatile year, but I think Q2 and Q3, from what you are saying, should give a better reflection of the growth cadence in your business, rather than looking at Q1 or Q4 or full year numbers, because there will be a lot of noise either side of the quarter.
You're right. You're right.
Yeah.
Akshay, as we spoke of earlier, one of the core drivers of VNB development is going to be AP growth, and therefore, this is clearly top of our mind. Not that it wasn't top of our mind earlier, I think people are not able to appreciate the overall movement across those channels, given the preponderance of some of our channels that were not doing so well. But as you now see that portions of the business are much smaller, overall, you can start to see the AP growth come through quite strongly.
All right, great. Thank you, guys, and all the best for the rest of the year.
Thanks, Akshay.
Thank you. We have our next question from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hi, good evening. Just two questions. One, on the persistency improvement, can you give some color on whether it is led by mix change on the product side that you have seen or, on the individual product classes also, you're witnessing improvement across cohorts? Second, if you can give some color on your individual rider attachment rates, that across your policies that you're seeing, and whether there has been any trend shift on that particular segment out there?
On persistency, Dipanjan, answer is both. We're seeing some improvements at the LOB level as well as some amount of mix change. The first one is what is more critical. I think irrespective of where the product mix, underlying product mix is, it's important for us to be able to deliver on persistency, because that's essentially the promise that we've got from the customer.
All efforts are on towards improving the unit level persistency as well. In terms of riders, I think they're quite small at this stage. We just started another drive on improving rider attachment. Let's see how that shapes up through the year.
Sure. Thank you and all the best.
Thank you, Dipanjan.
Thank you. We have our next question from the line of Nishant Salve from Kotak. Please go ahead.
Yeah, fortunately, you know, now that we sort of look back, you know, over the last six months and, you know, kind of, you know, kind of say that March was extraordinarily a strong month, which obviously had a rebuff in this quarter. Would you want to call off the extraordinary in the month of March?
Call out extraordinary month. Nishant I don't think that's a fair question on the perspective that if we hadn't taken the businesses on the table, you would have asked a different question of us now. I think it's we took, we saw the business, we took it, and I think we move on to the coming quarter. We know it wasn't that large overall, but clearly we know our, what our work has to be from a cut, what's cut out perspective. Important to see that on a sequential basis, you are seeing positive trends. And like I said, coming into June, it is a double-digit growth number, and that's what we want to build on.
I guess the where I'm coming in is that for March this year, you're probably kind of, you know, be looking at growth over growth, right? it's not something that.
We want to stay optimistic because March is still quite far away, and I'm sure the journey that we have started building and building capacity will also start playing out through the year. Right. There are a lot of things that we probably have built up over a period of last 15 months, and that only will go and become more and more efficient and productive as we go deep. March is still far away. I'm sure we will work towards filling up for the scale-up in March through the build-up capacity in next few months.
Nishant, these kind of, see, Anup here, see, these are two independent questions. Whether March was a strong month? Of course, March was a strong month because there was an event, and so March was a strong month. Should we have taken the business? Yes, we should have taken the business. Why leave the business if the March is strong? You don't leave a business or you don't take the business thinking that year-on-year, next year will be low. That's an independent thing. Now, whether the next March will be strong or weak is a function of what capacities we are building and what is the market opportunity there. Our general focus and our approach will be that, you know, whatever be the March, last March, we will see. It's an independent thing.
It's a thing that is behind us. We have to look forward and ensure that we have to keep growing, and we have to build capacity for growth. Whether March was good or bad, you know, we will see. We will want to make last March an ordinary March. We will all, you know, push and focus to make it an ordinary March so that when you look back, you say that while it was an extraordinary March, your growth is so strong that it was an ordinary March. This is also my request to Amit and team.
Sure, you know, on the product strategy side, you know, it looks like ULIP is kind of making a comeback. I think at the same time you are investing in the franchise, investing in the agency force. Typically, you know, the trend that we have seen over the last three years is that, you know, agency tends to be sort of more non-link heavy than ULIPs. Probably may be driven by persistency outcomes. How do you see, you know, both adding up, you know, in terms of.
No, no, good question. I am not seeing. See, ULIP. See, we have all products, and what happens when the marketing generally is good, et cetera, there is a bit of shift towards ULIP. Also, because non-part has guarantee has moved off, some part has shifted towards ULIP. Our sense is that, you know, it is not as if there is a secular trend moving towards ULIP and it will not go back. It is for us to discover different customer segments and come out with more suitable product to manage our product mix so that we are a balanced company. Now, of course, through a channel which is, let's say, more ULIP-focused, and if they have got ULIP customers, they obviously will sell more ULIP.
It is up to us to also find out other channels, develop other customer cohorts, so that we get more balance. I think that is nearer to the situation. I don't think it's a secular thing. When the market moves, you know, ULIP is a market-focused business, so when it moves, it moves. When it moves, one should take.
listen, just to add effort, like what Anup in one of his answers to the previous question mentioned, idea is not to say no to ULIP. Let ULIP grow in absolutes. How to reach out to customer segments who need a product which is different from ULIP? That is the journey that we have started. It's a journey which is about understanding customer segments of our partners, and with only 1% kind of penetration that our partners have, I'm sure there are customers which are beyond affluent, who may need products other than ULIP. That is the journey that we have to traverse, and that is what we have started working on.
I think absolute growth in ULIP is welcome, but at the same time, we have our task laid out in terms of what we want to do to increase width by increasing number of policies in segments beyond ULIP customers.
Thank you, and all the best.
Thank you. We have our next question from the line of Mohit Mangal from BOB Capital. Please go ahead.
Yeah, thanks for the opportunity. My first question is towards the annuity. We saw annuity declining, and if you look at last three to four quarters, we saw a very strong growth. What went wrong this quarter in the annuity business?
Yeah, I'll take that. First of all, let me just put it in context that last year we had an introduction in one of our new products on a regular premium platform. Last year, first quarter was a good 60% plus kind of a growth for us in annuity. It was on a very large base that we saw annuity growth declining. That is one, which is a very technical Excel file, mathematical explanation. Second thing which I want to articulate here is that if you were to segregate annuity business into regular premium products and single premium products, then we actually saw a constrained growth in single premium products, right? Regular premium continued to grow at around 30%-40% for us in this quarter. However, single premium was impacted.
As you know, that, you know, currently rates available in deposits are at an all-time high at this point in time, some of our bank partners did prioritize at this point in time to look at deposit mobilization as a primary objective. We believe that it is transient. Eventually, you know, what a regular premium annuity product serves is a customer who's nearing retirement against a customer segment, who's already retired when it comes to single premium product. It's not a customer segment issue, it is a transient issue, which we do believe that demand will come back as we go during the day.
All right. Very clear. thanks, and all the best.
Thank you. We have our next question from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah, hi, good evening, everyone. Just a couple of questions. Firstly, you know, the INR 5 lakh plus ticket size, what would be the share of that premium in 1Q and versus, say, 1Q of last year? If you could help us with that. Secondly, with respect to the retail protection, what is the kind of risk that you are taking on your own balance sheet, and what is the level that you're passing out, beyond which you're passing it on to the reinsurers? Any change there. Yeah, that would be my two questions.
Hi, Prayesh. I think breaking it down back again into less than INR 5 lakh and more than INR 5 lakh, I think would want to stay away from that, fundamentally because we still are looking at the opportunity. Like we said, there is going to be some shift that happens across. It is not a large amount that used to be for us, nor is it at this point. I think our focus overall is to be able to reach out to different consumer segments and offer products that are relevant there.
If at some level, more than INR 5 lakh ticket size, we are seeing some, if you see some drop coming from non-PAR segment, there are other products that we are offering, and we're starting to see some pickup on that, which is what we mentioned earlier on the call. I think our focus will still be to be able to grow overall business irrespective of which segment it comes in from. Coming to your second question on retail protection, we've not changed our reinsurance levels on retail protection. The retention levels continue to be at INR 1 crore, and we're comfortable with the experience that we've taken on.
Thanks.
Thank you. We have our next question from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity again. In FY 2019, we put out an aspiration to double VNB over four years, 3-4 years. What are our aspirations for VNB and AP over medium to long term in terms of growth?
No, no, we'll just continue to work hard to ensure that VNB keeps increasing and with a slant towards growth.
Okay, sure.
Mr. Jain, does that answer your question?
Yes, yes. Thank you.
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Anup Bagchi for closing comments. Over to you, sir.
Yeah, thank you all very much for joining, this evening, and, we'll just continue to work hard to ensure that all our customer needs are met, through the suitable products, through the most appropriate channel. Thank you.
Thank you. On behalf of ICICI Prudential Life Insurance Company, that concludes this conference. Thank you for joining us, and you may now disconnect your line.