Ladies and gentlemen, good day and welcome to ICICI Prudential Life Insurance Company Limited FY 2023 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. N.S. Kannan, MD and CEO, ICICI Prudential Life Insurance. Thank you, and over to you, Mr. Kannan.
Thank you, Nirav. Good evening to all of you. Sorry about this late call. We just completed the board meeting. We had to have this call at this time. Good evening to all of you once again and welcome to the results call of ICICI Prudential Life Insurance Company for the financial year 2023. I have several of my senior colleagues with me on the call. Satyan Jambunathan, our Chief Financial Officer. Judhajit Das, who heads Human Resources, Customer Service and Operations. Amit Palta, who heads the Distribution, Brand and Marketing and Products. Leena Singh, who handles Product, Legal and Compliance. Manish Kumar, our Chief Investment Officer. Avik Joshi, our Financial Actuary. Dhiren Salian, Deputy CFO, and Dheeraj Chugh from the Investor Relations team. Let me start by talking about some of the key developments during the quarter.
On the regulatory front, IRDAI, our regulator, has notified revised regulations on the expenses of management and commission. Increased flexibility in commission limits, as per the new regulations will allow insurers to react to market forces in an agile manner, thereby supporting the IRDAI's mission of improving penetration of insurance in the country and their focus on ease of doing business. The EOM regulations seek to bring about 3 related shifts in our view. Encourage longer-term products by way of higher allowances related to shorter tenure products. This is in line with insurance products being more suited to the long-term savings and protection needs of the customers. Incentivize renewals to increase allowance, which aligns distributor and manufacturer's interest with that of the customer. This is also expected to improve consistency levels for the entire industry.
Third, provide incentivization for protection at a higher level related to savings products. In our view, these regulations are a welcome change for the industry. As a company, we are very optimistic about the growth prospects and the opportunities ahead of us. The second development during the quarter has been the Union Budget. The Union Budget 2023 to us announced if the total annual premium paid for non-unit linked policies exceeds INR 500,000, then the difference between the total benefits received and the premiums paid will be subject to tax as income from the other sources. This will not affect the tax exemptions provided to the amount received on the death of a person insured and also on insurance policies issued till March 31, 2023.
We do not expect this change to have a lasting impact on our business, as customers who wish to take the benefit of Section 10(10D) taxation can in any case buy policies with the premium amount being capped at INR 500,000. This amount, insurance products have in fact become more attractive than competing debt products in the market. In any case, customers value products which address their specific needs irrespective of the tax levied at various stages of the product lifecycle. There is also the precedent of similar event in the recent past, when in the Union Budget 2021, high ticket ULIPs were subjected to capital gains tax. Despite this, for our company in APE terms, the product mix prior to and post tax regimes change was very similar.
Finally, most importantly, the well-diversified products and customer segments of our company have made the business model much more resilient and allows us to take advantage of opportunities as they present themselves in the marketplace without being reliant on one segment or one channel, nor on specific tax or other such issues specific to a particular segment of business. The third development during the quarter, I am happy to inform you that during the quarter, our annual report was awarded the ICAI Award for Excellence in Financial Reporting for the year 2021-2022. We are honored to be recognized as the most innovative insurer in life category by ICICI. We have also been conferred with the Corporate Governance Awards at the Dun & Bradstreet ESG Awards 2023.
We are particularly delighted with the outcome of independent industry Net Promoter Score, NPS survey, where we were ranked the best life insurance provider in India by Hansa Research. The fourth development during the quarter, I am pleased to inform you that Ms. Vibha Paul Rishi has been reappointed by our Board of Directors as an independent director of the company for the second term of five consecutive years with effect from January 1, 2024, subject to approval of the shareholders of the company. The fifth development, I am happy to inform you that Mr. Anuj Bhargava has been nominated by ICICI Bank Limited as a non-executive additional director of the company with effect from May 1, 2023, subject to the approval of the shareholders of the company.
He began his career with ICICI Limited as a management trainee in 1998 and has successfully completed various assignments in different roles in the bank and the group companies during his career, during his career spanning 24 years. He has a rich experience in investment banking, corporate and government banking and retail banking. The sixth development, as you are aware, the board of directors has appointed Mr. Anup Bagchi as the MD and CEO of the company for a period of five consecutive years with effect from June 19, 2023, subject to the approval of IRDAI, shareholders and other approvals as may be applicable. To ensure smooth leadership transition, the board has also appointed Anup as Executive Director and Chief Operating Officer. With effect from May 1, 2023, subject to regulatory and other requisite approvals.
While the approvals are still awaited, I have immense confidence that with Anup's leadership, the company will continue to grow and bring even greater value to the shareholders. Anup has been my valued colleague at the ICICI Group. I have personally known him for more than three decades since our business school days together. I want to assure you all that my team and I personally will ensure the smoothest possible leadership transition of the company. Anup has been on the board of our company as a non-executive director for more than four and a half years now, and has been one of the biggest supporters of Team ICICI Prudential.
While each new CEO will and should bring his or her own perspective to the business, I expect the overall strategic continuity to be maintained since he has been an integral part of the board and the company's strategic formulation over the years. My journey as the MD and CEO of the company will come to an end as I superannuate from the services of the company on June eighteenth, 2023. I would like to take this opportunity to thank all of you for being extremely supportive during my journey. We faced unprecedented challenges both internal and external during this period. Despite these challenges, you continued to have faith in me and my team, for which I'm extremely grateful. Achieving any of the milestones over the past five years wouldn't have been possible without your support.
I once again extend my sincere gratitude to each one of you and thank you all for your huge belief in me, not just during this five-year period, but all through the last three decades of my tenure with the ICICI Group in various roles in the bank as well as ICICI Prudential. Thank you so much. I will now move on to the company's strategy and performance. We have put up the research presentation on our website. You can refer to it as we take you through our performance. First, let me talk about the strategy and corresponding performance of our VNB journey. Four years back in April 2019, I had articulated the aspiration to double the financial year 2019 VNB, building on the four-step strategy of premium growth, protection business growth, persistency improvement, and productivity enhancement, while keeping the customer sensitivity at the core.
My team and I are delighted to state that we have been able to walk the talk and have successfully doubled the financial year 19 VNB in financial year 2023 with a four year CAGR of 20.1% and the industry-leading margins of 32%. Over these past 15 quarters, we have demonstrated a consistent track record of healthy compounding of VNB and well-diversified pools of profit. As we look back, we started on this journey with a medium-term financial and a shareholder value metric in mind. Along the way, we have also focused on building long-term capabilities to create an organization well-positioned to deliver sustainable growth in the future. Our long-term capability building has been focused on the building blocks of people, process, technology and analytics, and distribution and products.
While without any doubt, these capabilities also contributed to our performance in the last four years, more importantly, these capabilities will serve as a robust platform for sustainable growth, quality of business, and profitability of the company going forward. The details of our work relating to each of these capabilities in the last four years are set out in slides eight to 11 of our presentation. On the people aspect, we have systematically invested in expanding capacity, improving capability, and strengthened our culture of empowerment and inclusion. Across the customer lifecycle, starting from purchase of policy up to claim settlement, you can see technology and digital has strengthened our process journey, and the same is evident through a steady increase in the digital adoption percentages and our net promoter score as presented in slide nine.
As I mentioned earlier, the outcome of this entire journey is the external endorsement of best life insurance provider in India by Hansa Research. For increased productivity, we have invested in technology and analytics, which helped us provide better value to our customers, improve our various processes, and identify new growth opportunities. Last but not the least, creating depth and adding width in our distribution channels and offering a comprehensive product suite to address varied customer needs has been our key focus. Amit will talk in detail about the capabilities on distribution and products in his section. Let me move on to the performance on premium growth and protection business growth. The APE performance across distribution channels in the last four years has been presented on slide 10.
The performance has been split across the first three-year period of financial year 2019 to financial year 2022. Nine months of financial year 2023, which we discussed during our last earnings call, and the period just ended, that is the Q4 of financial year 2023. Specifically, the FY 2023 APE growth of 11.7% was on the back of a 20% growth in APE in financial year 2022. The overall company APE declined in the first three years at a CAGR of 9%, followed by a 4.2% year-on-year growth for 9MFY 2023 and 26.5% YOY growth for Q4 2023. As you can see, the decline in the ICICI Bank channel has been mitigated by the growth across all other channels.
Overall, excluding ICICI Bank channel, during the four-year period, we have registered a very strong CAGR of 18.1% for the company. The accelerated growth registered across channels other than ICICI Bank, as you can see on the slide, is a result of our relentless focus on distribution expansion and accelerating our top line. The APE performance across product segments in the last four years has been presented on slide 13. Over the last four years, we have worked on broadening our product positions through the launch of annuity variants, protection products and protection variants, as well as guarantee products and participating products. As a result, our non-linked savings and annuity business registered a very strong growth across the four-year period, as can be seen in the slide presented.
We've been witnessing an impact on growth in ULIP products on account of life insurance channels shifting its priorities, pandemic-related concerns and market volatility, leading to a shift in consumer concerns towards preserving wealth through guarantee products. These factors have led to our ULIP business declining at a CAGR of 16% over the last four years. However, our systematic approach to building a comprehensive product suite with the product mix being well-diversified has ensured the decline of ULIP business has been more than mitigated through growth across all other product segments. This is reflected in the 36.6% CAGR registered across all product categories, excluding linked products over the last four year period. Moving on to our journey on protection growth.
We've become a dominant private player and overall new business from Bancassurance with a 23.8% growth, four-year CAGR, and with a market share expanding to 15% in 11 months of financial year 2023. For the overall protection business, individual group protection has grown strongly by 20.2% CAGR in the last four years and contributes nearly 1/3 of the new business received premium in financial year 2023. While we face supply-side constraints co-insuring with this product segment, we are focused on revival of the retail protection business. This effort has started yielding results through this year, and we witnessed a sequential growth in second quarter financial year 2023 and third quarter financial year 2023, followed by a strong 27.7% year-on-year growth in Q4 of financial year 2023.
We will continue to direct our efforts in this segment while we leverage the opportunity in the group protection business as well. Protection and annuity products together contribute 47.8% of our new business received premium for the whole of fiscal 2023, a significant increase from 27.2% four years back in financial year 2019. With this, coupled with commercial market share, we've truly become systematically more focused on mortality and longevity, even as we continue to seize opportunities in the savings line of business. While I have spoken about the short-term, medium-term performance on the strategic element of premium and protection growth, let me also talk about the long-term performance built through the building blocks of our investment in people, process, technology and analytics, and distribution and products we talked about earlier.
I'm proud to say that we have become a resilient organization that can successfully seize and capitalize on emerging opportunities despite facing unprecedented challenges, as we have seen in the last few years. Dimensions of resilience can be evidenced through the aspects of removal of skewness in business model through well-diversified business mix and also a strong balance sheet. First, the well-diversified business mix avoids any excessive concentration of risk in any one channel, product or a customer segment. We have the power of a comprehensive product proposition today distributed through multiple channels, catering to a large customer base spread across various income segments. Second, we have built resilience across risk, capital and profitability aspects. We have no liability reserving issues, and our emerging mortality experience is consistent with our expectations. Our asset quality is high, and we have had zero non-performing assets since the inception of the company.
We use forward rate agreements to hedge the interest rate risk for our non-par guarantee savings portfolio. Our solvency levels are strong, with a solvency ratio of 208.9% on March 31, 2023, which is much above the regulatory threshold of 150%. If we propose risky capital under discussion by IRDAI, we can see that our solvency ratio on an economic capital basis is also robust at 382% as at December 31, 2022. On profitability, we are focused on growing absolute VNB, and it has led to industry-leading VNB Margin levels. To summarize, the resilience built over the last few years across insurance risk, investment risk, solvency levels and profitability is reflected in our strong balance sheet, as per pictured in slide 16 of our presentation.
The growth trajectory of the last four years and finally the achievement of the VNB doubling objective despite unprecedented internal and external challenges faced is a testimony to the resilient organization that has been built that demonstrates that we are well-positioned to deliver sustainable growth in the future. Now, as we look forward, we are poised to capitalize on this platform and continue our journey of sustainable growth into the future. Thank you once again. Now, Amit, Satyan and Jit will be taking you through the performance updates for financial year 2023, financial update and ESG update respectively. Thank you for your patience, and over to you, Amit.
Thank you, Kanan. Good evening, everyone. I will be talking about performance update for FY23 through the elements of the four P strategy. Let me start with the first P of our strategic elements, which is premium growth on slide 19 to 23. 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 product distribution mix. Second, continuing to strengthen our product portfolio to address changing consumer preference in dynamic economic environment. On the distribution front, we have continued to invest across channels. Our strategy in the agency channel is to ring-fence our top producing advisors while continuing to have granular focus on expanding the breadth of advisor activation. We strengthened our sales management teams in FY23 to manage our existing advisors and to add new advisors.
We licensed more than 33,500 new advisors in FY 2023. Within the Bancassurance channel during FY 2023, we have added 13 new banks, and with these new bank partnerships, we have now access to more than 17,500 partner bank branches for distribution of our products. Out of the 17,500 partner bank branches, more than 3,000 bank branches of new banks have been added during Q3, FY 2023. Recently, we have tied up with Ujjivan Small Finance Bank in March, and with commencement of business, it will give a boost to our distribution network further. We've added 113 non-bank partnerships also in the year and have more than 900 non-bank partnerships now. For our direct channel, we continue to focus on business generation through our digital assets like website and mobile application.
Additionally, we continue to leverage analytics to upsell to our existing clients. There was a strong momentum across most distribution channels in the last quarter of the year. As you can see on slide 20, for overall financial year 2023, our APE in banks other than ICICI grew by 28.2% YOY to INR 74.46 billion. ICICI Bank channel declined by 38% YOY and contributes now 13.8% of the APE for the last financial year. Among other channels, agency grew by 24.8%, tied insurance under the ICICI grew by 23.6%, direct business grew by 6.7%, partnership distribution grew by 78.2%, and group grew by 26%. Now moving on to the capability built in our product propositions.
In FY 2023, we have strengthened our product portfolio by introducing ICICI Pru Gold, a participating non-linked life insurance product. With ICICI Pru Gold, we have combined savings benefits along with protection, where customer gets income up to 99 years and an option to earn immediate income, which addresses their liquidity needs. Even in the linked savings category, we have launched two new funds during the financial year. We have launched a mid-cap fund where we invest in stocks of company which are currently in the growth phase. We've also launched a mid-cap hybrid growth fund in the month of February. This fund is a combination of equity fund that we dominantly invest in mid-cap stocks, that is companies in the growth phase, and debt funds that invest in government securities and corporate bonds. This equity debt ratio is in 70/30%.
We witnessed strong momentum across most product categories during the year and especially in quarter four of the financial year. As you can see on slide 23, apart from 51.9% YOY growth in non-linked savings product, our annuity products also grew by 69%, group funds grew by 17.2%, and protection products grew by 14.5%, even though these three product categories are not affected by the tax changes announced in Union Budget 2023. Linked business thus declined by 17% YOY in the entire financial year. On the back of strong growth in all product categories other than linked, overall APE grew by 11.7% YOY in FY 2023. Now moving on to second P, which is protection growth on slide 24.
For 2023, protection APE grew by 14.5% YOY to INR 15.04 billion. We continue to be a leading private player on overall new business assured with a market share of 15% in 11 months FY 2023 as compared to 13.4% in the last financial year. Moving on to the third P, which is persistency improvement on slide 25. 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. I would like to highlight here that our 13-month persistency ratio improved to 86.6%. 35th month improved to 77.8%.
37th month improved to 71.3%, and 61st month improved to 65.7% in March 2023, which is the best in the last five years. Our 49th month persistency ratio improved to 64.2%, which is the best in the last three years. Now moving on to the 4th P, which is productivity improvement, which is presented in slide 26. Our total expenses grew by 20.7% YOY. Excluding advertisements and publicity expenses, the increase in total expenses is 14.4% YOY, which are broadly in line with the APE growth. Absolute expenses are higher as compared to the same period last year due to the investment that we have made in order to deliver sustainable growth in the future.
Our overall cost to total weighted received premium, CWRP as we call it, stood at 21.3% and the cost to CWRP ratio for the savings business at 14.2% for FY23. Even with the cost increase, our cost to average assets under management has been stable at 2.6% for the financial year. The outcome of our focus on these four P has resulted in our GNV for FY23 of INR 27.65 billion, a growth of 27.8% over the same period last year, and GNV margin expansion from 28% for last financial year to 32% of FY23. We will continue to monitor ourselves against the four key framework, and our performance on these dimensions is what we expect to feed into our VNB growth insight.
Given all this, we will continue to invest in organizational capabilities, as Kannan mentioned, such as people, process, technology and analytics, distributions and product to enhance our overall growth trajectory. While this investment will lead to elevated costs in the short term, we believe this will yield results in the form of sustainable growth in the future and create value for our shareholders. Thank you. Over to you, Satyan.
Thank you, Amit. Good evening. I will now take you through some of the financial metrics. Let me start with the movement in embedded value during the year. If you refer to slide 29, you will see that our embedded value grew by 12.7% year-on-year to INR 356.34 billion at March 31, 2023, as compared to INR 316.25 billion at March 31, 2022. This growth was led by 15.4% year-on-year growth in the value of in-force business. Our embedded value operating profit, EVOP, grew by 71.9% year-on-year to INR 54.88 billion in financial year 2023, as compared to INR 31.92 billion in financial year 2022.
The breakup of EVOP is as follows: Unwind contribution for FY 2023 is at 8.6% of opening EV. The VNB of INR 27.65 billion is 8.7% of the opening EV compared to 7.4% for FY 2022. Total unwind and VNB constitute 17.3% of the opening EV. Operating assumption change is a negative INR 1.61 billion, primarily taking into account the revisions in group term premiums in the post-COVID environment. We continue to see a positive persistency variance of INR 1.43 billion on the back of an improvement in persistency. Mortality variance for the year is at INR 0.22 billion. The other operating variances are also marginally positive. Consequently, the ROEV for financial year 2023 stands at 17.4%.
Total economic and investment variance is at a negative INR 14.49 billion due to the shift in the yield curve and the equity market movement. Overall, this has resulted in the EV growth of 12.7% for FY 2023, with a closing EV at INR 356.34 billion. Our VNB margin for FY 23 stood at 32% as compared to 28% in FY 22. The contribution of VNB from non-linked savings products has increased to 53.4%. The VNB margin expansion can broadly be explained by the following. 3.5 percentage points of margin improvement is due to the change in business mix, as contribution of non-linked portfolio increased from 32.6% in FY 22 to 45.2% in FY 23, and a corresponding decrease in the linked portfolio.
About 1% of the margin improvement came due to changes in operating assumptions, primarily taking into account some of the improvement in surrender rates under unit-linked products. 0.5% margin reduction is due to the movement in the yield curve, where we saw during the year, for most parts, a rise in the yield curve. A comparison of the yield curve between the two years is provided in slide 74 and 75. On slide 32, sensitivity details have been provided. There is no significant change in the various sensitivities, and overall, sensitivities of both VNB and EV to various factors remains low, reflecting a stable operating model. Our VNB and EV have been reviewed independently by Milliman Advisors LLP, and their opinion is available in the results pack submitted to the exchanges. Slide 33 shows other financial metrics.
Company's profit before tax increased from INR 7.9 billion in FY22 to INR 8.97 billion in FY23, a year-on-year growth of 13.5%. Profit after tax for FY23 stood at INR 8.11 billion, an increase of 7.6% from FY22. Our solvency ratio continues to be strong at 208.9% at March 2023, an improvement of 440 basis points from March 2022. Our AUM was more than INR 2.5 trillion at March 2023, a growth of 4.6% from March 2022. This concludes the financial performance section. Over to you, Jit.
Thank you, Satyan. Good evening. I'll be sharing the salient aspects of our ESG journey. As shared in our investor pack, we received the highest ESG ranking in the Indian insurance industry by two well-known ESG rating agencies. I'm also delighted to share that this year we received a corporate governance award at the Dun & Bradstreet ESG Leadership Summit 2023.
This year, we expanded the terms of reference of our board CSR committee to include review of sustainability activities and key ESG related disclosures. Under the board committee, we have the Executive Sustainability Steering Committee, which comprises members of our management committee, and we are supported by a dedicated ESG resource. This committee sets the ESG agenda and reviews progress every quarter. I will now share the key highlights under each of the ESG focus areas. You can refer to slides 35 to 39 for more details. Starting with human capital, we believe that people are key to strategy execution and a source of our competitive advantage. We identified diversity and inclusion as a thrust area, and our gender diversity has improved to 29% from 27% last year. We have a diversity council comprising senior colleagues, and it's chaired by our Chief Distribution Officer.
This committee recommends reviews and monitors D&I related initiatives. This year, we also formalized a human rights policy to further strengthen our commitment to human rights and providing a professional work environment. I'm also pleased to share that 90% of our employees gave us up to box scores on a five point rating scale on parameters like advocacy, morale, and several others. Our approval ratings were also among the best in the Indian life insurance industry on a top global workforce platform. In the area of responsible investing, this year we put in place a border-proof policy to facilitate ESG integration in our investments. As a signatory to UNPRI, we remain committed towards integrating a responsible framework to promote ESG factors in our investment decisions.
On governance, we continue to have a robust governance framework, with the board having a majority of independent directors with an independent chair, enabling the separation of the board's supervisory role from executive management. In the area of access to finance, we specially designed micro-insurance products targeting socially and economically weaker sections, covering 61.8 million lives as of March 2023. Our 13-month persistency ratio of 86.6% is one of the best in the industry. This year, we settled around 2,46,273 retail and group death claims. Overall, our retail and group death claim settlement ratio stands at 98.64%. As mentioned by Nandan, in the industry Net Promoter Score, NPS, survey conducted by Hansa Research, we were ranked the best life insurance provider in India.
On environment, our focus has been on reducing our carbon footprint. We have already calculated our scope one, scope two, and partial scope three emissions, which have been verified by an external sustainability consultant. Going forward, we intend to have quantitative targets for reduction in carbon footprint using the SBTi methodology, and we are working with an external consultant on the same. To summarize, sustainability is intrinsic to our vision of building an enduring institution as we serve the long-term savings and protection needs of our customers. I would like to once again reaffirm our commitment to creating a culture that embraces sustainability and goes beyond goals and targets, integrating best-in-class sustainability practices with our business processes. Moving on, I would like to highlight that we have added a section on innovation in the investor pack from slides 41-43.
I'm pleased to share that we have created a platform called Pi, which is a digital portal to encourage all our colleagues to share their ideas. More than 1,200 employees participated, and we identified 100 ideas as projects for implementation. These ideas span improving the customer journey, launching new product features, improvements in process, and many more. Some of these projects have been recognized at prestigious forums organized by chambers of commerce such as ASSOCHAM, FICCI, and the Indian Chamber of Commerce. Thank you, and we are now happy to take any questions that you may have.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask 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. Participants, you may press star and one to ask a question. The first question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah. Hi. Good evening. couple of questions. The first one is that, I mean, yeah, very, very impressive numbers, of course, and we've had the last two months of, you know, kind of high-ticket, non-linked policy sales for you and the industry. However, overall, if you look, I mean, numbers, tells a lot of positive story about you and the industry, but, policy count, I mean, despite the retail penetration coming just a bit, the policy count has still been diluted. That again brings me very basic to the very basic point that the entire narrative of, you know, the opportunity on underpenetration but that is not reflecting somewhere, even if you were to look at the policy count overall, it's adjusting for retail penetration, somehow.
Now with the industry changing, it seems like just the participants are a lot kind of, you know, or rather looking at the opportunity in terms of the increased commission and office. Now the question is that, okay, our industry is looking to increase the office and cost, then how is the product, particularly on the savings side, going to remain really competitive for the policyholder? That is my first question. Second question is more. Second question is more on, you know, that the VNB. You know, the VNB margin, as a VNB contribution to EV growth looking pretty strong. Can we expect the EV compounding trajectory to be very, very different now? If I look at over the last four years, I mean, it's close to a 14% kind of a compounding, even adjusted whatever. Can we expect the EV compounding trajectory to be different going forward? Thank you.
Thanks, Avinash. Your first question was actually many questions rolled into one. I'm trying to break down your question and answer them. The first point that you made was with respect to the strong growth in Q4 being driven by high ticket. I don't think that's entirely true for us. It may well have been true for many of the other market participants, equally from the market numbers that you would have seen earlier in the day today, you would have seen that that was not the case for everyone. Particularly the channels that did very well on the high ticket sales were those which had a higher access to affluent customers. Typically some of the large banks, some portion of agency which cater to high-net-worth customers and some parts of partnership distribution or some brokers who had a natural customer base over there.
You will find, Avinash, that most others who did very well in that period got disproportionate benefit, and we may not have got nearly as much benefit in that quarter as some of them did with respect to high ticket cases. Your second question on the same part was with respect to number of policy, and we have discussed this now for many quarters, Avinash. We have said this, that there are two distinct reasons why our number of policies have not grown. One, the decline in one of our channels, and two, a decline in retail protection. I can say this for sure, I have the numbers in front of me, and you will start seeing them in the overall public numbers over the next few quarters.
As the impact of that distribution channels decline goes down, and as we have seen in Q4, retail protection ticking up towards 27% kind of a growth, number of policy growth will start again. I'm not so sure I agree with the view that not growing number of policies in the last year or two years, particularly in ICICI Prudential's case, is about any decline in the opportunity. It is more to do with specific circumstance of our business, which we now believe is behind us. Your second question.
Talk about expenses.
Your second question in the context of compounding VNB and expenses of management. The first point I would want to make there, Avinash, is to say that I don't see anything in the expenses of management regulation to even suggest that costs for companies should go up. I say this knowing that if indeed the industry were to price at the current expenses of management, then we would end up with customer propositions that we would not be able to sell. In a way, the expenses of management is only an enabling framework and a boundary, and effectively costs will depend upon affordability that we create through our business models. That is something that we believe will continue to drive the industry. We do not expect costs for the industry to go up on any of these accounts.
In fact, we are very conscious of the expectation of the regulator that we should systematically bring down costs over a period of time, and that is what I would expect to see for the industry at large. The fourth or the second part of your second question, which was with respect to EV compounding. I think a number of things, Avinash, have changed in the way our business has evolved in the last four years. I would venture to say that what we are today is not nearly what we were four years back. Therefore, to superimpose what happened in the last three to four years into what could happen for ICICI Prudential over the next four to five years, I think will end up giving very misleading answers. I would much rather focus on what Kannan spoke about and what are we today.
A diversified customer acquisition model with varied distribution channels and a variety of product offerings to cater to the needs of all of these customers. Where we are today, we really do not have any qualms about the kind of growth or compounding to VNB that can happen from here on. One, of course, has to keep in mind that again, the EV compounding will also be a function of market. To that extent, there will be some volatility in the shorter term. I don't think we ever had, even in the past, any doubts about our ability to compound EV. If at all today with what we have built, we would like to think that our ability to grow EV from here on will be far more sound and predictable compared to what it has been in the past.
I hope I've been able to answer your rather two long questions that I broke down into four.
Yes. Thanks. Please, with the UEM thing, you have also mentioned that you're passing benefit of direct. What is your position on that and how are you going to handle channel conflict if indeed you want to pass some benefit, of, you know, the direct, you know, sourcing to the customer? How are you thinking all this?
If I may just draw your attention to the current product regulations, which already require that if there are any cost savings, they should be passed on to customers. To that extent, pretty much every company today has an architecture of what they believe they can pass on as benefits or discounts on direct sales. I'm not seeing anything in the current norms to change that approach from where we are today. As a category, as the category moves more towards becoming a full product, I only think there will be a greater ability for insurance companies to offer better propositions to customers.
Okay, thank you.
Thanks.
Thank you. Next question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.
Thank you for the opportunity and congratulations, sirs, for the great set of numbers and also the fact that you have very comfortably exceeded the VNB growth expectation that you had. I will just from the previous question asked, where on the cost side wanted to get your views on this factor. Cost to CW, I think has been bit high for us. You had earlier also commented and sirs commented that the business, I think business would still be elevated at least in the near term. Given the EOM levels and the business that you have right now, how would we be placed in terms of the regulatory method of calculation in terms of EOM, where would we be? Are we comfortably having a headroom in there?
How would, can it pan out over the next year? How should we think about in terms of your profitability and VNB growth, given that the costs are slightly higher, it would have a drag on that. That would be my first question. Maybe also in line with that, some comment on margin, although I understand that you have to purchase more on absolute VNB. With the changing product mix, does new PAR product out, how should we think about VNB and VNB margin? That is the first question. On the second question, just wanted to understand the retail protection growth. The pure term number has started to increase, improve as well, along with the ROC.
The pure term from where the growth is coming and it just primarily from the ICICI Bank channel that is driving this and also wanted to understand that ticket size does not seem to have increased over the last year. What is the dynamic playing out there? If you could take these two questions, and then I will have a couple of more, I mean, bookkeeping kind of questions just to ask you this.
Thank you for your very kind words with respect to the numbers and the results. Like Kannan spoke about at the beginning, it wasn't just about the numbers for this year. It was also about positioning the business for the years beyond 2023. That really is the context of your question with respect to where the expenses are going. You're right, we have been speaking about this for a few quarters now as we have ramped up our ability and capacity to expand. I would just point this out, Parnam, to say that despite the increase in cost ratios, we have been able to still improve our VNB margin for this year. That is through a variety of other factors, such as even the product mix.
Going forward, we are very clear that internally through managing the other levers of business, we want to and we will create capacity to invest in growth, because growth is the primary driver of the way we are looking at the way forward. To that extent, even if costs in the short term end up being higher, it wouldn't really worry us because we believe we have enough ability and capacity to generate the ability to spend for growth into the future. With respect to your question on limits and expenses of management, these do not tend to be very public numbers, but I can say this, we are well within the limits, and we have no intention or desire to expend the costs in a way that it reaches the limits.
We will continue to focus on delivering good proposition to customers, which creates opportunity not just within the insurance space, but across the wider financial savings space, and that is what our focus will be. With respect to your question on protection, I'm going to hand over to Amit to talk through where the growth has come from. Before I hand over, I think I'm quite happy that the growth has not come from average premium. Fundamentally, we have one commentator who would like to see us grow number of policies, and as long as we are able to deliver that, I think we have met our objective of growing the segment. Amit?
Yeah. Thanks, Ketan. Retail protection has been a slow process over a period of last four quarters, because I say, we saw congestion and continuous change in underwriting guidelines and product restructuring and retraining of distribution leading to quite a bit of a slowdown in effect 22, which we saw sequentially quarter on quarter. A lot of time was spent in investing in distribution, retraining and getting used to selling protection in a different way. I call current regime of protection being a regime 2.0 portable, if I may call it as per protection. A lot of relearning had to be done.
Protection product had to be repositioned from being very, very strongly positioned only on a high sub-assured segment through our affluent product. We introduced return of premium product, which helped us become more meaningful to mass and mass affluent as well. We started looking at INR 50 lakh to INR 1 crore sum assured also as a focus area. Suddenly we saw that since we had more diversity in distribution, our access to mass and mass affluent was also much better in comparison to what it was earlier. We started seeing some results going from quarter one to quarter two, quarter two to quarter three, which if you were to track it closely, we saw a sequential growth from quarter one to quarter two, which was very small, at least it was captured as a growth.
From quarter two to quarter three was again a sequential growth. We had kept our eyes on growth coming to YOY in quarter four. While this entire hysteria was being created on non-linked savings business, and we are happy to say that, you know, by deploying the right product to the right distribution segments and access to diversified customer segments, we started seeing variety of results coming from various partners, and it was not restricted only to ICICI. We saw various partners who had access to customer segments which were very diverse from the ones we had in the past, choosing the right product and selling it. There of course, return of premium products also helped and they helped us get the right sum assured being sold to mass and mass affluent.
It's a combination of right product, introduction of new product, introduction of, you know, distinct advantages that we could offer through our product and more and more distribution channels getting used to selling new product and of course, the learning curve that went into from quarter one to quarter two to quarter three to quarter four, which led to 27% growth in quarter four. That is all I have to say. In case you want anything else, sure.
No. Very clear, sir. That's very helpful. I also wanted to ask, a couple of, you know, quick questions on numbers. May I go ahead?
You can but if it's also okay if after the call you want to connect back with the team and get the detail session, that's also okay. Given that there are other people also who might have questions.
Sure. Let me join back with you, if there is time or I will come to talk later. Thank you.
Okay. Thank you so much, sir.
Thank you. This question is from the line of Pranav Gokhale from Invesco Mutual Fund. Please go ahead.
Yeah. Thank you for the opportunity. In nine months, of course, your high-ticket non-ULIP is around 6% of the total business. If you can tell us what it is for first quarter March 2023 and FY 2023, it will give us some indication on the contribution of the high-ticket policy. Second question was, ULIP margins we might see how close it is around 6% in FY 2023, which is unusually low compared to what we have been watching 2021 and 2022. I just wanted to understand that anything to read because persistently everything seems to be better numbers. Still margins in ULIP has taken a hit. Last one. On transaction mix, in the past you used to give the disclosure of transaction mix credit to the detail and HF and non-HF trade size. If you can give that detail it'll be useful.
I think if I may take and talk through the questions. Your first question on the share of the business coming from high-ticket. I somehow get the feeling that we are making too much of an issue of that particular topic, especially in our context. We have been saying this in the past as well. The proposition standalone is strong enough to stand on its own feet, even without tax advantage. As an industry and as a company, we are very clear that over a period of time we prepare for a regime where there are no tax advantages. To that extent, it shouldn't really matter what proportion of our business comes from there. We gave these numbers in nine months, that was in a particular context when the announcement was being made then.
At this point of time, all that we would like to say is that in the context of our 2023 FY full year numbers, we do not believe that the so-called elevated sales of February and March are in any way material. Therefore going forward as well, we do not expect this to impact our growth through a base effect in any adverse fashion. We will remain focused on improving the proposition to our customers, and that is going to be the way we operate. With respect to your question on unit link, why the margin has gone down. I guess it's not always possible to have all shining bright spots in all parts of the results. There are always pockets where there will be challenges. The unit link margin decline comes predominantly from two factors.
One is the yield curve shift, which has reduced the margin a little. The second is our higher expenses in the year, which have also been allocated to that segment, which has reduced the margin for that segment. At the end of the day, if I were to go back to two years back, our unit link margins were in the same ballpark. In FY 22, we saw the unit link margins go up meaningfully on the back of a lower conscious expense level that we had. I wouldn't read anything into this okay. I would actually say last year was an aberration. We have been reverted back to the levels of margins of that category that we had prior to last year.
Got it. Now if I raise my for group section business if you.
We have not fully touted this point of time. We will see whether we can fully tout it sometime, later sometime.
Okay. Last one, if I can squeeze. The unwind rate at 8.6 seems to be substantially heavier compared to what we have even recently in last years. I believe it was around 2.9, 2.2 in last two years, 2021 and 2022. This number seems to be materially way higher. Just wanted to understand better that are we building better returns on equity, is reflecting in the unwind rate or this
Nothing of the sort, Pranav. I will just start off by saying that when others were having unwind rates of 8.5%, somebody told us that ours should be better. Well, we've got that right. Fundamentally, unwind rates are a function of the yield curve, you know that, and also the underlying portfolio composition. Given that our portfolio composition has been changing from being more unit link dominated to including other categories as well, the higher unwind rate is a natural consequence of that. It is not on account of any higher expectation of investment return compared to the past. It is only a reflection of the underlying yield curve and the underlying composition of the books that they reflect.
Got it, sir. Thanks for answering the question. Yeah.
Thank you. Next question is from the line of Deepika Mundra from JPMorgan. Please go ahead.
Hi, sir. Thanks for taking my question. Sir, back to what margin stand on the unit margin when you said higher expenses, is that mainly because of the change in the channel mix for the?
Yeah.
Specifically on the protection margin, we've seen better numbers, despite group mix being higher this year. What is driving that margin improvement within protection? Lastly, on the expense outlook, you mentioned that you were not looking to materially, you know, up expenses. Given the fact that, you know, higher more taxes on non-participating products, do you think more distribution effort will lead to product level change in margin?
Deepika, first question on unit linked margins. I referred to the cost delta. Last year was a conscious lower spending year. The 9% quarter margin that you saw for FY 2022 was in a way artificially elevated. That's the reason why I said to the last question that we should keep that out and look at the trend for FY 2023 compared to FY 2021, and then I don't think it is too far off the mark. There may be some element of channel mix, but I don't think that is the bigger driver. The bigger driver is overall cost ratio this year for us was higher than last year. That is the reality. To that extent, it will get reflected in respective product segment margins as well.
Going forward, like I said, there are a couple of things may end up happening. First, yield curve itself may see a change of shape into next year. To that extent, that will impact margins as well. Second, given that most of my new business now has moved to other product categories, it may well become the case that my expenses allocated to unit link also change from the current levels into last year. To that extent, we are not too fixated on a product category margin. We would much rather look at it as an overall P&L. From our point of view, no real concerns with respect to the emerging trajectory of segmental profit margins. Second question on protection.
Yes, indeed, the composition of group has been higher in this period compared to what it was in two years back. I think last year as well, the contribution of group was substantially higher. In fact, this year the contribution of retail towards the last quarter started improving a little bit. Yes, you do have a little bit of plus and minus. We tend to focus more on underwriting group business also where we are comfortable with the levels of profitability. You will remember, Deepika, we have had in past quarters on the results call conversations about given the strong focus on group term, will this materially affect our margins over a longer period of time?
At least what this year's results on margin for the segment also demonstrate is, yes, there will be some changes in the underlying product mix, but the overall margins have remained stable. Your third question with respect to expenses on the guaranteed return non-participating. I will only say this, Deepika, that if I have to increase expenses, the only way to fund it is by passing it on to customers. From here, if I actually worsen the proposition to customer, that may well be an impact, adverse impact on demand that I don't think the industry will be keen to get to. If at all, I would feel that we have to manage our sourcing strategy in a way that costs are not adversely impacted.
Well understood, sir. One, last one from my side. In terms of, the new banks, contribution, in fourth Q, what would that be in, on APE?
Banks, fourth quarter we have not separated out. The full year we have showed this. For full year ICICI Bank was about 14% of APE. Other banks were 16% for APE. Quarter three was a bit of an aberration for us. You know, our quarter three numbers were generally weaker across all channels. We did see a rebound in the fourth quarter coming through. I don't think we have put out fourth Q numbers specifically, but full year we have seen it more of the 16.
What I actually meant was that any new banks that were signed up in the last couple of quarters alone, not, obviously non-ICICI Bank, was there any incremental contribution specifically in the fourth quarter from banks which were not present in the distribution mix before?
Yeah. I'll take that, yeah. Some of the significant partners that we added in last couple of quarters are the ones who actually got operational only in the month of March, and they are still at a very, very early stage. We were in the process of still integrating the systems, getting the employees trained and the product dissemination was happening in this period. The contribution from the new partnerships during this period was very limited, and hence is not part of the overall growth numbers that you see from banks other than ICICI or new partnerships in the last quarter. Just to give you a number, broadly, it's about to be growing at around 27%, 24% growth for non-ICICI Bank Bancassurance partners. Our growth was in a similar range, a little more, for quarter four as well. It doesn't include any new bank partners. Very, very small number was there in Q4.
Okay. Thank you. That's very clear. Thank you very much.
Thank you, Deepika.
The next question is from the line of Praveen Dutta from Emkay Global. Please go ahead.
Hi. Thanks for the opportunity. I'll start off with firstly seeking a clarification to a earlier question. Is my understanding correct that you expect to deliver growth on top of the elevated FY23 APE? That would be the first question. The second one is regarding the new commission guidelines and you talked about, you know, how, you know, distribution or incremental distribution this has to be passed on. Wouldn't, you know, now that you have the flexibility to design your commission structure, wouldn't the banks who give you most of the volumes demand a higher commission? Are you know, getting similar inquiries from the banks? That's the second question. Thirdly, you know, there has been a lot of talks around composite license. Some of the life insurers have expressed their interest in entering the health, insurance space. How are you thinking about that? Those are the three questions.
Praveen, your first question was with respect to VNB growth on the back of elevated VNB or APE?
APE growth.
I am struggling to see how 12% APE growth is elevated growth to put it quite honestly. If at all, we would like it to accelerate from here on. I don't think there is a base effect challenge with respect to APE. With respect to your second question on will banks demand more, I don't think anything has ever stopped distributors from demanding more in the past. What is now very clear is an overlay on top of that from the regulator to say that I will expect companies to bring down their costs. This is a matter of balance that has to be found between the manufacturers and distributors. It will play out over a period of time. Our view at this point of time is that it should not increase costs.
Composite license.
On the composite license, Kannan, yes, I wanted to say that from our perspective it's a welcome move. We believe that a composite license will be good ultimately for the consumers. On our part, we always believe that health insurance is integral to life insurance and integral to our business, and we used to operate this business till 2016. We would be very keen to watch this space and make our moves. Even in composite license, if regulators can allow us in some form, getting into health or indemnity business, we would be very keen to do that. Apart from health, we do see the allied businesses or business related activities as something which really be of interest to us. That will round up the proposition to the customers in a nice manner.
Wellness and allied business is the second area of this proposed new regime if it gets through, will be of really help. Finally, anything to do with insurtech fintech space, in which, you know, as Sudhir suggests, the draft bill suggests if we can get some form of skin in the game kind of a stake in those businesses, that will also be of interest. To summarize, health, insurance, allied businesses and insurtech fintech. These are the three areas we'll be very keen to pursue.
Thank you.
Thank you. Next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity and congratulations to the team who achieved the VNB acceleration, doubling the VNB over the last four years. Which I think honestly was mission quite difficult indeed. Congratulations for that. Firstly, on the protection, we have seen good growth in this quarter. What give us confidence that this growth is now sustainable? Probably next year we should again see double-digit growth on the retail protection side. Has the underwriting and reinsurance issues are all resolved, and the distribution issues all resolved? Give us the confidence that we'll be able to show decent growth in the coming quarter next year.
Thank you, Nidhesh, for your kind words. Yes, it was not an easy journey. Thank you for the compliment, because we had lots of ups and downs, more downs than ups, but still we managed to double the VNB, so that is quite gratifying. Thank you for that. On the retail protection side, what gives me confidence? I will ask Amit to elaborate, but essentially, how we came to fourth quarter numbers is a lot of hard work across the quarters.
The sequential improvement month-on-month we have been seeing in this business. Amit will talk about the strategy. The bulk of the sort of frequent product changes or the pricing changes, we believe are very less. It's more of activating the channels and having a coordinated strategy. It is a very granular strategy. Amit, do you want to talk about that? This is what gives me confidence to an output perspective, but Amit will talk about how he has been able to drive this business.
Nidhesh, I spoke about retail protection as an answer to one of the questions. First, let me on a lighter note, tell you it's not doubling of VNB, it is little more than doubling of VNB that we eventually delivered. Thank you so much, Sid. Now coming to retail protection, like I mentioned earlier as well, that the process of coming back on retail protection for the industry has been a long one, has been a very arduous one. Protection, the way it was sold prior to all the changes that happened with the ecosystem, was a very different regime altogether. Distribution, sales processes, practices, learning of products, access to customer different customer segments was very, very different.
The landscape had to undergo a change after all the processes and underwriting guidelines had to be, you know, changed because of the challenges with the environment. Subsequent to that, as you know, distribution is generally very granular in nature and spread across various types of distribution, which starts from agency to technician, distributor to partner. Eventually at the ground is being sold by the employees scattered right across the country. What we have been able to do as an investment over a period of last few quarters is to take advantage of the diversity of our distribution and not make one strategy fit all for all our distribution channels.
We looked at the access of the customer segments that our various partners had to their customer segments, and we aligned and made offer on products which were most appropriate for those customer segments. Not everyone was selling a same kind of product, depending upon where the natural advantage was, we positioned an appropriate product and introduction of return of premium product also helped us well. I think this has been a learning process. There's nothing miraculous that has happened. I'm sure this learning curve will further improve, and we'll get into the next dimension there on a sequential improvement trend. YOY has just happened as an outcome. I'm just, I'm looking at a sequential improvement. Quarter two was better than Quarter one, Quarter three was better than Quarter two, Quarter four was better than Quarter three.
In between, we just happened to see that it was a good YOY positive. YOY was an outcome. It was not something that we were intending to work towards. Everything was an result of incremental steps that we were taking every quarter. This gives me confidence YOY will happen on its own. Sequential efforts on distribution and innovation on products will continue. Training, of course, will be very, very important because now it's a very, very different and hardworking model than what it used to be earlier, which was largely focused for me on affluent customers. Thanks, Nidhesh Jain.
Sure. Secondly, on this high policy issue, the management team seems to be quite confident that the impact is minimum. As a outsider, we are quite worried that particular electric take 10% actually came in this year from that segment. But, you guys seems to be much more confident the impact is lower. How are we taking internally to mitigate the impact from a from a high-ticket customer who is buying, let's say, INR 30 lakhs-INR 40 lakhs of policy. For him, there is a meaningful impact on IRR, and he's a very informed customer. The value proposition of the for this customer has materially been impacted. What how how are we continuing the impact of that will be much lower in in in FY22?
Nidhesh, sorry, if I can take your question again. Nidhesh Jain, like I mentioned, in fact, I mentioned about this in the beginning as well. That first of all, the proposition and the opportunity which was available to us, we leveraged it to our distribution partners who had natural access to affluent customers. Of course, there was a value. There was a value because with tax benefit, IRRs definitely look very, very good. Let me just share with you some incremental information as to what we watch and what we observe as a consumer trend, consumer preference within the same segment, which is affluent. I'm very happy to share that, you know, even in the annuity space, which is one of the fastest growing category of products within the industry, and we are no different.
More than 50% of our business sold in annuity segment actually is being brought over by the same customer segment, which is affluent. This means that this customer is still buying the proposition for the need of the proposition, need of need in his worldview. That product happens to be taxable. Imagine the fastest growing. You may have seen this disproportionate growth in quarter four or in March of non-linked savings business. Otherwise, if you were to look at overall year, the fastest growing product category for the year is actually annuity, and that is taxable. More than 50% of annuity sales is actually done to the same customer segment.
Incidentally, even on sum assured, almost 50% of the protection sales still happens here sum assured in excess of INR 1 crore, which makes me believe that this is also a customer who's affluent. There, you like it or not, but it's the highest GST product available in the protection space. He's paying 18% GST for the protection reason that he's purchasing the product for. I think this customer is not averse to paying tax or paying tax for the value that he's getting. It is just that he got the opportunity to save some because of this arbitrage which was available. I'm sure the normalcy will prevail. We need to look at the options available to this customer in light of the fact that physical investments are anyways moving towards financialization.
Within financialization, what are the options available? We believe that unit-linked products in the current form also under INR 2.5 lakhs is still a value proposition which is available on the unit platform, which is much better. Even beyond INR 2.5 lakhs, its tax structure is still favorable to these customer segments. Yes, it's gonna be lesser than what it was in March, look at the options available. I think this is still the best option available within the life insurance space, specifically in long-term savings category.
Are you planning to make any changes to the product structure to mitigate the impact or how are you thinking about this from a product perspective?
That's an ongoing process, and we keep looking at taking feedback from distribution. We have a team keeps talking to customers. We look at insights, and we align our product design as the time goes by and look at what is best for the customer and create it on the go. At this point in time, then we'll see how it emerges.
Thanks. Lastly, on the EV walk, if you can share the reason for negative operating variance in EV walk versus operating variance in VNB .
Sure. EV walk, there are no negative operating variances, Nidhesh. The EV walk operating assumption changes is net negative. If I were to talk through what are the elements that are contained in this, I would call out three specific elements. One, the increase in expenses meant that there was a small increase in the renewal unit cost as well. That was the material impact on EV. Second, the group term business in the last years had in the price an expectation of claims on accounts of COVID. Post the pandemic when those schemes got renewed, that loading was not charged anymore. Some of that is reflected as a negative in the EV walk. The third element is surrender rates in the unit-linked business beyond five years for us have been considerably lower than what we had assumed.
We have capitalized some of that in the assumptions that is seen both in the DNP in the margin as well as the EV. Net-net it is 1.61% negative. If I were to look at it slightly differently and club operating assumption changes to all operating variances, even that is a net positive. Net-net we are looking at an ROEV driven predominantly by unwind and DNP with a small aggregate delta driven by the net operating fees put together.
Sure. The operating assumption change in DNP box is completely driven by surrender rates. To 100 basis points.
That is the predominant one which is there. There may be other smaller persistency related or modality related for certain segments. Yes, nothing to significantly call out today which is of material nature.
Sure. Thanks, Ashwin. Thanks, team. That's it from my side.
Thank you. Next question is from the line of Madhukar Ladha from Nomura. Please go ahead.
Good evening. Congratulations on a good set of numbers. Couple of questions from me. First, we see, you know, further improvement in non-linked savings segment margins. Can you elaborate a little bit on the sustainability of these margins and how they have been derived, especially given now that the interest rate curve is a lot more flatter and let's say, you know, how could these margins behave if interest rates actually go down, maybe, you know, after six months? How could that play out? Second, coming back from GP growth, and for the non-linked savings segment again, do you think there has been some preponement of demand even for the less than INR 5 lakh segment?
I'm coming from a thought process that people might buy a little bit now and just say that, okay, at least I have that 5 lakhs available if I want to buy it in the later years. Could that also impact demand going into FY 24 and onwards? Those would be my 2 questions. Thanks.
Madhukar to answer your first question, non-linked savings margin increase that we saw this year compared to last year is a function of the underlying interplay mix between par and non-par. The last two years have been about non-par doing well. If it so happens that the next few years are about par doing well, then this portfolio margin may well not be the same as what you're seeing, what you're seeing now. It may come down. I have said this in the past as well. To that extent, the way we see it is not about margin, it is about am I still there from an opportunity point of view or not. Product segment related margin expansion opportunities will come as collection mix expands and written protection as retail grows faster than group, which we saw happening in Q4.
You will always have at a sub-product category some changes which happen. I think a really good piece, a very good structural part of the life insurance business is that we have so many underlying distinct needs and segments that we don't need to worry about everything firing in the same fashion every period. I have unit-linked savings. I have par savings. I have non-par savings. I have annuities and savings. I have retail protection. I have credit life. I have group term. I have micro-insurance. I don't think there is any other business model in around us that has so many different opportunities this year. I'm never going to get worried about whether one segment in terms of mix goes up or down. I think there are enough opportunities overall for that to rise.
To go back to your fundamental question, if non-par mix goes down and par mix goes up, average portfolio margin of non-linked savings can go down. We will deal with it as we get to it. The second question with respect to pre-payment of demand, we'll hand over to Amit to answer that.
Yeah, actually, you know, we were tracking it. Good you asked this question. I have actually the answer very, very much ready. As you know that March business generally sees a scale-up over February. That this happened last year as well, and this happened over years. We were also internally tracking this business closely, and we saw that the scale-up that we had last year in less than equal to 5 lakh kind of a premium, which is the premium segment that you are talking about. Actually scaled up almost the same from February to March last year, like the way it did this year. If at all there is a prepayment, let me tell you, the systemic prepayment generally happens every March. If at all you call it as prepayment.
The movement from Feb to March was absolutely identical to what we saw last year. That swing, of course, we saw in the more than INR 5 lakh category, but less than equal to INR 5 lakh is exactly the same.
Got it. I think just, you know, on part B of my first question, how would the interest rate curves and flattening of the interest rate curves sort of impact the non-par margins?
Okay. Sorry, I missed that one. Yes, you're right. I don't think the change in the yield curve or the change in interest rates should affect margins in any fashion. Eventually, what will matter is if the spread between expected return and actual return passed on to customers kept the same or not. To the extent that we can reprice a product practically every month to reflect yield curve, level of yield curve or shape of yield curve doesn't bother us. Competitive action enhances or reduces that can change the spread. I don't think one needs to be worried about the yield curve.
Understood. Got it. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Hi. Good evening, everyone. Congrats, Kannan and entire team, on staying committed and surpassing the VNB guidance. Some questions like, firstly, if you can broadly share the mix of business that you sold to ICICI Bank just better. Do you expect further decline in this channel mix from here? Secondly, on the retail protection side wherein the growth is really picked up. Have you gained market share in this segment? What is the mix of ROP business here?
ROP is disclosed in the slide, Nitin. Whether we gain market share or not, I have to wait for the disclosure of others. Maybe we can have that conversation on the side a couple of weeks from now. On the other question.
Only thing I'll add there is that overall summer showed market share 11 months. We have grown very well compared to last year. Overall the summer showed market share, we have been picking up some momentum. Nitin, thank you for your kind words. Thank you for all the support. On ICICI Bank you asked a question. It's about 14% of my mix. It doesn't really move the needle anymore too much going forward. Yeah, it has been stable. We have started doing the monthly discussions also you would have seen. It's been stable at around INR 1 billion a month. That is what it is currently doing. I would expect that to be around that as we move forward.
Beyond that, you know, it doesn't really move the needle in terms of impacting the overall FP exposures down further. That is a stage we have gotten into. Whatever the bank gives, we'll be happy to take. The, you know, that's it. Those are the two questions you asked. Any other questions you have?
Yeah. Yes, yes. No, no, that's all good. Thank you so much, and wish you all the best.
Thanks a lot, Nitin. Thank you.
Thank you. The next question is from the line of Neeraj Toshniwal from UBS Securities. Please go ahead.
Hello. Am I audible?
Yes, sir. Very well.
My first question is, what is driving the improvement in the 61st month persistency? Follow up on that is, why it's not really, you know, getting into a renewable pool, because renewable pool is still doing much lower. How to reconcile that?
Every cohort's persistency improvement is also a function of preceding cohorts. Today, if you see the 61st month persistency for the industry, it will predominantly be driven by unit-linked persistency for most private sector company and participating persistency for LIC. Given this, and you would have noticed this even through the segmental persistency disclosures over the past few years. We still stand head and shoulders over every other company with respect to unit-linked consistency. What you're seeing at 61st months today is just the accumulation, if you will, of improving prior period consistency over a period of time. Nothing dramatic overnight. Does this flow into renewal? Yes, there is a positive effect to renewal. The bigger driver of renewal again is the pace of new business growth over the recent past.
To that extent, because we have not been that strong for all of these consistency improvement to visibly show up in the renewal premium will only follow once growth also starts to pick up. It is sitting in the renewal without which possibly the renewal numbers would have been a little worse than this.
Sure. Are we looking to change the assumptions which we talked about earlier in terms of consistency we had to suffer?
Slowly and steadily. We did a little bit on surrender this time. Maybe we'll pick up some of the other bits over a period of time.
As we get more confident.
Yes. You know, Neeraj Toshniwal, we have not been of the view that we capitalize everything at one go and then put it at risk to see whether it will be sustained or not.
Sure. Actually, last question from the March month. How much did you have to attribute on the IHHG you have mentioned nominal. If we have to, you know, really attribute how much is having coming from the premium versus claim, what would be the split numbers with that?
Neeraj, I've been very gently trying to dissuade you from asking that question by saying what I did. I go back to what I said. The more relevant aspects are, is the product proposition standalone good enough? two, was it so much of a business in the last year that it should create a base? Did it add more than it normally does in the month of March? Yes, it did. Did we take advantage of that? Yes, we did. Did others take more advantage of that than should be did? That's all.
Does it be confident that we repeat or have we changed strategy towards it or just a March issue? It's not at all not attributing to this thing. Is it seasonality, the March factor or do you think it will be independently going forward till June of 2024?
There's always seasonality. I think both Kannan and Amit have been talking at length about distribution capacity and product capacity build out that we have been working on all of this time. A lot of what you are seeing now in terms of the outcome, Neeraj, is what we have done as good work over all of this period. You see these growth numbers as more pronounced because also ICICI Bank share and that impact has also gone down over a period of time. Reality is four years, 18% plus CAGR on APE ICICI Bank. To that extent, it's really about building of that wider distribution which is creating it, not so much of a seasonal or a mood-based phenomenon. Yes, there may be some of it. There will be some of it.
Awesome. Getting into FY 2024, how to think about growth in terms of AP and VNB going forward?
No different from what we have spoken of in the past. Our expectation of growth across various segments still remains quite stable. Savings business was industry more or less in line with nominal GDP growth. To the extent that we have been building some distribution capacity should we move at those levels or slightly higher, I think that's an opportunity. Protection we still think will grow faster than savings and that may well add to growth in an overall basis. No change in view with respect to growth opportunity from what we have discussed in the past.
Sure. Last question, if I may, is on the ICICI Bank. They're already 30% contribution now. Do we think that will further go down or it will stable or it will improve from here? How we are thinking about overall scheme of things?
Neeraj again Jishan addressed this when he said that they seem to be producing about INR 1 billion of APE each month. If they remain at INR 1 billion a month and others grow faster, I think logically the share will reduce. That's okay. It is what it is.
The drag in terms of decline would go away, hopefully. It's not in our hands. It's their approach towards distributing products.
Thank you, Satyan, Amit.
Thanks, Neeraj.
Thank you. Next question is from Dipanjan Ghosh from Citi. Please go ahead.
Hi, good evening. Firstly, congratulations on the good set of numbers. Three questions from my side. First, on the bank subject. If you can just give some color on the larger non-ICICI banking or some other things going. I mean, maybe specifically the top two or three. On the context front, maybe some of them would also incrementally focus on liability mobilization from a competition perspective or maybe from an RM banking perspective out there. Second also is on the card front. You've been incrementally discussing about opening up or expanding the partnership tie-ups compared to what they already have. If you can give some color on the annuity business and the variants ties to it, whether it's deferred variants which has been sold more or it's some other variants. Maybe more from an ESG perspective or maybe a perspective. Lastly, if you can take on your unwinding in and excess returns.
Let Amit answer the questions on distribution, but the unwind engine we have not broken out in disclosures. We are not expecting to do that at this point of time. You can kind of back work it from the yield curve that you have.
Yeah. I, N. S. Kannan, I'll ask Amit to specifically talk about what is the outlook for top two to three players in banca other than ICICI Bank. He will talk about the outlook, he also asked it in the context of their own, their own, you know, their own efforts towards digitization. He will talk about that. I'll ask him to give a general color. On this opening up, we do see it as an opportunity because over a period of time, now we have got a good handle of how to drive business in multi-partner shops in banks that we have actually been able to push that forward in the last year and a half or so.
Also given that for we'll be one of the largest Bancassurance partners company for any bank promoted company, we do believe that our pitch book is very strong when I go to the potentially opening up partners for the banks. There I can make a strong case in terms of getting into those banks. I do see it as an opportunity. We do have a very strong alliance team which keeps hunting for this opportunity. I think at some point in time we'll be able to add a few mid to large size banks as we go along. You want to talk about the perspective, Amit?
Specifically talking about banks other than ICICI, we have seen that they've been quite appreciative of the need to bring their fee income up, and they've been focusing a lot in building cross-selling capabilities. We have seen most of our partners talking about more and more employees of theirs going through the licensing process and becoming part of the overall insurance sales process. That we have not seen coming down as a focus. While there has been discussions about asset liability mismatch, which typically is because on the growth side across the banking sector. I still believe that almost if I were to take a guess, almost INR 150,000 crores- INR 2 lakh crores is what is the deposit mobilized in a month by banking system.
insurance industry whole, forget about a company, industry as a whole does around INR 7,000 crores-INR 8,000 crores of premium, which is a very, very small fraction of the overall deposit mobilization which is done by banking industry. I think while the focus on deposits will continue, I think almost every bank is very sensitive to drive fixed deposits. Again, the category of products are so different. One is short-term, liquidity as a benefit, whereas our product is much longer term in nature, offers a very distinct advantage. I think most of our bank insurance partners have matured into accepting both as two different category of products serving two different needs of the customers.
In terms of our success rate with all the other bank partners, actually we have been growing our share in most of these shops over a period of time. Large number of these partnerships we switched almost two years back, and we have seen progressively our share actually has reached a point which is highest that we have witnessed in last two years and talking about specifically Q4. That is about the outlook on the other banks. In terms of the opportunity on new banking banks and new partners, I think that is an ongoing effort. Given a choice, we would like to tie up with all. Yes, this is a long process. It has gestation, but we are in it.
Wherever we see an opportunity, we are there, making a proposition on fee income and our principal offer to our partners on increasing the overall revenue by working in the white spaces and helping the partner grow their overall product and take away what they're doing with their existing partners. That proposition stays, and that is something that we are going ahead and meeting newer partners. Non-bank partnerships, we have been quite active and like said in the deck somewhere, we added more than 100 non-bank partners as well last year. That effort will continue. We have seen that what you acquire typically in a year starts yielding results in two to three years time frame is what we have witnessed over a period of last so many years now, having invested in partnership distribution space.
That is something which also is helping our overall partnership distribution to grow much faster than any other distribution channels. That trend is no different for last year in comparison to years prior to that, and I don't see any reason why the trend will change again in coming years. That's how I would like to answer your question.
Sure. Just on the annuity mix, if you can give some color.
One difference that I can speak on annuity is that, you know, as you know, the annuity is typically, for a customer where a benefit starts accruing to him once he is retired. Earlier, it was about retired customers coming and, you know, investing lump sum into immediate annuity products which would start annuity immediately. When the new customer segment was explored, customers started, you know, looking at planning for their retirement much earlier, which we called it as deferred annuity. On a single premium proposition, they started investing much earlier. We saw younger customers starting to invest, annuity where he will invest now and start his annuity eight to 10 years later, which we called as deferred.
What we witnessed in last year and a half or so is that insurance industry introduced regular premium variants of deferred annuity, which means that somebody who doesn't have a lump sum to invest in single premium, and wanted to look at systematic investment as a route to plan for his, retirement started, you know, adopting regular premium annual products. That has been the most successfully run category within annuity over a period of last 12 months as we compare.
Sure. Would you like to comment on it or just leave it?
We don't take it out.
We don't take it out. On the side discussion we can probably share.
We ensure some kind of a balance, Amit has already given, because of late we have seen, regular premium annuity picking up. That's what's differentiated. Let's see how it goes.
Sure. Thanks for the clear explanations and all the best.
Thank you.
Thank you. Next question is from the line of Mohit from BOB Capital. Please go ahead.
Yeah, thanks for the opportunity. My question is that do you foresee any change in the ratio between premium or this is whatever hike had to happen has been done and now it has stabilized?
As of now, we are not foreseeing any changes, and we do believe that whatever has to happen has happened.
Okay. Basically, no pressure from the reinsurers, to have any hike, right?
Yeah, as of now there is no such conversation. We only hope that at some point in time they will come and reduce the price.
Okay. Another question is basically in terms of persistency. If I look at, you know, the Bancassurance persistency is actually lower than your annual both on 13 and 49 mark. Is there a cause of concern or do you think that this will pass away now?
Sir, we have to recognize structurally that high engagement channels end up with a much higher persistency than relatively lower engagement channels. It's a structural dynamic of distribution. I wouldn't read too much into it or worry too much about it. What is very clearly there is that partners recognize the merits of retaining customers for long. To that extent they are aligned to our efforts in improving persistency.
That is where I also feel that the proposed EOM guidelines which incentivize a relatively more renewal premium compared to the new business premium would be beneficial for the customers ultimately, and we can drive through that behavior by all the partners including the partners who cannot have that kind of level of engagement with their customers.
Yeah.
If I could also add, you know, once you have the disclosures from other companies as well, they will share category-wise persistency and you would know and appreciate that category by category unit link, persistency is relatively lower to non-link. That is because customer doesn't lose in unit link. Funds only go into discontinuation and hence, relatively in comparison to product categories, unit link has lower persistency in comparison to other categories, and this is industry phenomena. Incidentally, for bank insurance, ICICI Bank even in current form is half of our business in bank. Bank, half is done by ICICI and half is done by non-ICICI. ICICI, you know, is only unit linked. That could be one of the reasons that you may be seeing an aggregated number in banks, where numbers could be slightly lower to the extent of higher unit link.
Okay. Thank you, Vishal.
Thank you.
Thank you. Next question is from the line of Nishant Shah from Kotak Mahindra Life Insurance. Please go ahead.
Hi, this is Nishant here from Kotak Mahindra. Just a clarification. Do the entire unwinding rate change affects the RSR and probably the, you know, the duration of the process change, right? Have you made any changes to the existing assumptions?
It's exactly these two, Nishant. No other change, no change in method or anything else.
How should we really think about unwinding rates next year? If we sort of make an assumption that, you know, you move some of the assets to a more recourse-based approach. Because what we saw happened is that this year we seem to have got a significant benefit in the unwinding rates. You know, without much movement on the longer end. If we see the shorter end kind of yields coming off, then probably you might revert to, you know, where we were last year. I'm just trying to kind of, you know, understand how it works because we don't really have historical data.
It may still be a function of where my cash flow patterns are. If it is shorter term cash flows, steepening of yield curve should drop in rate of the shorter term could have a reduction in unwind rate. To the extent that most of the cash flows are longer term, short term shape of the curve I don't think should significantly impact the outcome. It's just the level of the yield curve which will be a bigger determinant than just the slope.
You would probably say that large or whatever, you know, observation of the increase in unwinding rate basically reverts the movement of the curve, movement that takes place, not the direction of the curve.
Yes, underlying composition. Given that my non-par and par are significantly higher term compared to a unit link which would have been a shorter term concentration of cash flow pattern, it also feeds to the underlying.
Sure. Got it. Just one small clarification. You think that, you know, change in parental rate assumption for unit, which had a positive impact, on VMC book and a negative on VUL book?
Yes.
Got it. Thanks. Thank you very much and all the best.
Thank you so much, Nishant.
Thank you very much. Ladies and gentlemen, that was the last question for today. On behalf of ICICI Prudential Life Insurance Company Limited, we conclude today's conference. Thank you for joining us. You may now disconnect your lines.