Ladies and gentlemen, good day and welcome to the ICICI Prudential Life Insurance Company Limited nine months 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. If you need assistance during the conference call, please signal an operator by pressing star zero on your telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. N.S. Kannan, MD and CEO of ICICI Prudential Life Insurance. Thank you, and over to you, sir.
Thank you. Good morning to you all, and welcome to the first call of ICICI Prudential Life Insurance Company for the nine months ended December 31st of the current financial year, 2023. Sorry for the early start. We had our board meeting very late last evening, so we thought it's best to schedule the call in the morning. I have, as usual, several of my senior colleagues with me on the call. Satyan Jambunathan, Chief Financial Officer. Judhajit Das, who heads Human Resources, Customer Service, and Operations. Amit Palta, who heads Distribution, Brand, Marketing, and Products. Deepak Kinger, who's responsible for Audit, Legal, Risk, and Compliance. Manish Kumar, who manages our investment portfolio. Souvik Jash, our Appointed Actuary. Dhiren Salian, Deputy CFO, and DS Chugh from the Investor Relations team.
Let me start by talking about some key developments during the quarter. The first and foremost development is on the regulatory front. As discussed in our previous earning call, our regulator, IRDAI, has articulated their vision of insurance for all citizens by the centenary year of India's independence. Recently, authority has notified multiple regulations covering registration of Indian insurance companies, intermediaries, other forms of raising capital, solvency margin, as well as regulatory sandbox. The intent of these regulations from our point of view is focused on increasing the insurance penetration, development of insurance industry, and also enabling ease of doing business. We believe that the new regulation on registration of Indian insurance companies will potentially attract higher foreign and domestic investments and encourage new participants in the insurance industry.
Increase in the number of permissible players for corporate agents from 3 to 9 and the insurance marketing firms from 2 to 6 will provide a broader choice of products and manufacturers to the customers. Given our extensive experience in working with 850 plus partners and specifically, 24 banks, we see ourselves as a natural partner for banks and others looking for future partners as per these regulations. We believe that the key strategic focus areas to expand our distribution network further. Additionally, the requirement of prior IRDA approval to raise additional capital has been eliminated. The ceiling of 25% of paid-up equity capital and securities premium for tier two capital has been doubled to 50%. This helps improve solvency and the ease of raising uncertain as and when required.
Further, reduction in the required solvency margin for business in 40 countries and the Prime Minister's scheme, PMJJBY, has resulted in improvement of the solvency ratio by about 10%. With our current solvency level of 212% as of December 31, 2022, and with the ability to raise further tier two capital in the form of sub-debt as and when required, as and when appropriate, and the impending distributed capital norms from the regulator, we believe we may North require external equity capital in the foreseeable future. The authority has also proposed the creation of Bima Vahak, which is a new sales channel focused on improving penetration in rural areas, and Bima Vistaar, which is a composite insurance product intended to be distributed through the Bima Vahak channel.
These initiatives are expected to boost the insurance penetration further and help companies reach out to mass customer segments by addressing their needs for bundled insurance products. Moving on, the Department of Financial Services, Ministry of Finance, Government of India, has also released a proposed insurance amendment bill. The draft bill further proposes to permit composite licenses for insurers, seeks to allow insurers to provide services related or that are incidental to insurance business, and to allow insurers to distribute other financial products. These proposals are fundamental reforms in the legal framework governing the insurance industry. These proposed amendments present an opportunity for companies like us to manufacture adjacent products such as health insurance and personal accident.
We can also consider manufacture or distribution of other classes of insurance, as well as even other financial products through our extensive distribution network. The enhancement of our customer proposition, coupled with the distribution of other financial products, will give us an opportunity to fulfill the customer's financial needs under one umbrella and also enable better alignment with our distribution partners. These proposed changes can also present both organic as well as inorganic growth opportunities for the industry. We will need to wait for the final approved changes to the law and associated regulations before concluding on our specific strategic responses. To conclude, the set of regulations both notified and proposed by the authority and the proposed Insurance Amendment Bill will change the fate of the insurance industry dramatically, whereby insurers will benefit immensely. We are very optimistic about the growth prospects and the opportunities for us as a company.
Now moving on to the second development, during this period, I'm delighted to share that the assets under management of our company have crossed two and a half trillion INR in October 2022. I once again take this opportunity to thank all our customers for their support in trusting us with the management of their long-term savings. The first development is about the bank partnership. We have recently entered into a partnership with UCO Bank, which is one of the leading public sector banks in the country, with a pan-India presence of more than 3,000 branches. This tie-up gives us an opportunity to serve customers of UCO Bank with our comprehensive product suite, as well as expand our distribution reach further. With this tie-up, our reach has expanded to over 16,000 branches of our partner banks.
The fourth development, similar to the last quarter, the rating agency ICRA has reaffirmed the rating of our subordinated debt. I would like to share that the rating agency CARE has also reaffirmed our long-term rating for our subordinated debt program as stable. The fifth development, I'm happy to inform you that during the quarter we have won multiple awards across business functions. I would like to highlight a few of the awards we've got. We are the winner of the Life Insurance Provider of the Year at the Outlook Money Awards. We have also won the Excellence Award in Innovation in Customer Proposition and Experience category, awarded by 13th Global Insurance Summit and Awards Recently, our annual report for financial year 2022 has been awarded the Gold Award from the League of American Communications Professionals Spotlight Awards.
I will now hand over the call to Satyan to talk through our results on the four key strategic elements, that is premium growth, protection business growth, persistency and product mix improvement, which guide us towards our objective of growing our absolute value of new business VNB. Satyan?
Thank you, Kannan. Good morning, everyone. I will now talk about the highlights of our performance for nine months, financial year 2023. We have put up the results presentation on our website. You can refer to it as we take you through our performance. Let me start with the first P of our strategic elements, which is premium growth. Our annualized premium equivalent, APE, grew by 4.2% year-on-year to INR 53.41 billion for 9 MFY 2023. APE from channels other than ICICI Bank grew by 19.9% year-on-year to INR 44.36 billion for 9 MFY 2023. Our focus on distribution expansion over the last few years is working as planned, the same is reflected in the growth registered across these channels.
Our total new business premiums grew by 10.1% year-on-year to INR 112.87 billion for 9MFY2023. As you can see on slide six, for 9M financial year 2023, the contribution of APE from linked products stood at 41%, non-linked savings products at 29%, protection products at 20%, and annuity products at 6%, and the balance at 4% from group savings products. On the distribution front, we now have a well-diversified distribution mix. The detailed distribution mix of 9 months financial year 2023 APE is 21% from ICICI Bank, 17% from other banks, 32% from the agency business, 16% from direct business, and the balance from other partnerships at 14%.
Here, our focus is on investing in building existing channels and also widening the distribution to maintain a diversified distribution mix. During nine months financial year 2023, we added more than 24,500 agents, eight new banks and 66 non-bank partnerships. We have leveraged more than 13,000 bank branch networks of our partners and have more than 850 non-bank partnerships today for the distribution of our insurance policies. We believe that the additional 3,000 bank branches of UCO Bank and the recent increase in tie-up limits for corporate agents and insurance marketing firms will give a boost to our distribution network further. Moving on to the second P of protection business, it is presented on slide seven. We continue to do well in the protection business, which is the second strategic element of growing VNB.
The total protection APE is at INR 10.5 billion for nine months financial year 2023, a growth of 22.7%, resulting in an increase in the protection mix from 17% for financial year 2022 to 19.7% for 9 months financial year 2023. Retail protection growth, which has been challenged for the past few quarters, has now started to see sequential growth this quarter, even as we continue to leverage the opportunity in group protection. I would also like to highlight that based on the total new business measured, our market share has increased from 13.4% for financial year 2022 to 14.6% for 9 months financial year 2023. The third P of persistency is presented in slide eight.
Our 13th month persistency ratio has increased by 150 basis points from 84.6% at March 2022 to 86.1% at December 2022. Similarly, our 49th month persistency ratio has increased by 260 basis points from 63.4% at March 2022 to 66% as of December 2022. There has also been an improvement across all cohorts. That is 13th, 25th, 37th, 39th, and 51st month from the same period last year, and the same is presented in slide 23. Moving on to the fourth P of productivity, which is presented in slide 9. Total expenses grew by 18.5% year-on-year for 9 months of FY 2023. The absolute expenses are higher as compared to the same period last year due to investments in distribution capacity for future growth.
Our overall cost to total weighted received premium stood at 20.8%, and the cost to DWRP ratio for the savings business at 13.9% for nine months at FY 2023. Even with the cost increase, our cost to average assets under management has been stable at 2.2% for nine months financial year 2023. For increased productivity, we continue to invest in technology, which is central to our strategy, thereby helping us to provide better value to our customers. Additionally, data sciences and analytics have enabled us to leverage data and information, which helps us in improving our various processes such as distribution, operations, et cetera, and to identify new growth opportunities. Some details of our extensive deployment of data sciences are set out in slides 41 through 44.
Alongside our 4 P strategy framework, we continue to maintain a resilient balance sheet as presented in slide 10. We have evaluated the insurance risk. The emerging mortality experience is within expectation, and we will continue to monitor it closely. Our solvency ratio continues to be strong at over 212.2% at December 2022, as compared to the regulatory threshold of 150%. Our AUM stood at INR 2.52 trillion at December 2022. On credit risk, only 0.2% of our fixed income portfolio is invested in instruments rated below AA, and we continue to maintain a track record of not having a single NPA since inception. For total liabilities, non-par guaranteed return products comprise about 3.1%, while 76.4% of the liabilities are primarily linked to market performance.
We continue to closely monitor our liquidity and ALM positions, and we have no issues to report. The value of new business, the outcome of our focus on these 4 Ps has resulted in the VNB for 9 months financial year 2023 of INR 17.1 billion, a growth of 23.2% over the same period last year. The VNB margin was 32% for 9M FY 2023 as compared to 27.1% in 9M financial year 2022. I will now hand over to Kannan for his closing remarks before we take questions. Thank you.
Thank you, Satyan. We are now, as you know, in the last quarter in our aspiration of doubling our financial year 2019 VNB over 4 years. Given this, I thought I'll take this opportunity to talk about our transformation journey during this period that's helped us stay on track to achieve our aspiration. The path we took to achieve this objective was to have a well-diversified product suite offered through multi-channel architecture to a wide range of customer segments as well as customer needs. First, let me talk about products. In financial year 2019, the composition of our APE was highly dominated by and skewed towards linked products. Over the last few years, we worked on broadening our product propositions through our launch of annuity variants, protection products and protection variants as well as guarantee products.
We also enhanced our focus on group term business. As a result, in the nine months of this current financial year, we have a much more diversified product mix, with almost 16% of the APE generated from protection, annuity and non-linked savings products. Today, we are one of the largest pension and annuity providers in the market. In fact, our annuity and protection business together contributed almost 50% of the total new business ratio premium during this nine-month period. The continued strong growth in the protection business is reflected in our sum assured of INR 6.9 billion at December 2022. Satyan has already talked about the market share in this regard. Second, on the distribution mix, in financial year 2019, our dominant distribution channel was ICICI Bank. The partner priorities changed over the last four years.
On our part, we, NHAS, focused on expanding the distribution network through acquisition of new partners as well as investing in creation of new sourcing channels. As you can see on slide 12, our distribution mix is much more diverse now, with no excessive reliance on a single distribution channel. Talking about the customer segments being catered to. In financial year 2019, our customer base was mostly affluent individuals from metro and top-tier cities. This was true even for our agency channel. Over the past four years, we have targeted the mass and mass affluent category with the launch of various products and selling of these products through appropriate distribution channels.
We now have the power of a large customer base spread across various income segments. During this 4-year period, you would recall that we also faced unprecedented events of the COVID-19 pandemic, rising geopolitical tensions and increasing inflation and their consequent impact on the capital markets as well as our own markets and businesses. Reinsurance-led price changes in the retail protection, supply chain challenges in the retail protection segment, as well as frequent changes in the retail protection process as we were calibrating the product propositions or the processes based on emerging pandemic-related issues. Despite these multiple challenges, I'm happy to share that our diversification journey has given us well-diversified pools of profits, thereby keeping us on track on our stated VNB doubling objective. Over these last 15 quarters, we have demonstrated a consistent track record of healthy compounding of VNB and near doubling of VNB margins.
To conclude, the agenda that we had articulated four years back has undergone substantial changes and positions us well for the next phase beyond this period. The diversified channel mix, product mix, and most importantly, the customer segments have helped us create a resilient platform for growth. There is no compelling need today to tweak our business model any further in terms of diversifying our channel or economics. Given this resilient platform, the insurance opportunity around us and also the favorable legal regulatory environment, in fact, I would say that we are, as an industry, in a policy sweet spot. Given all this, we would further invest in distribution and technology to enhance our growth trajectory, given, as we said, the platform we have created.
While this may lead to cost growth in the short term, we believe this will help to build sustainable growth into the future and value for our shareholders. Thank you so much, 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, you press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press stars and two. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Suresh Ganapathy from Macquarie Capital. Please go ahead.
Yeah, hi, Kannan, and Satyan. The question is very clearly on, you know, sustainability of VNB growth. Of course, this quarter, if you were to back then calculate, you said you deliver another 20% with the cycles. I'm looking beyond that quite quickly now. I mean, the challenge here is that the entire growth is coming from margins, Kannan. How long does this continue? Because ICICI Bank is down to 15%, this quarter, if I look at only this quarter's numbers. Even if I look at Banks, excluding ICICI Bank, the growth in 9 months has been 31% and previous year it was 52%. The base is catching up, right?
At some point in time, does the management realize that we cannot get margins beyond 34%, then growth has to come back because sustainability of VNB margin is a big question now and VNB growth without growth coming in.
Thank you. Thank you, Suresh, for joining in and asking this most relevant question. I will ask Satyan to supplement. Let me give my opening comments. The first thing, while you have back calculated the third quarter number in terms of VNB, as always, I would like to say that let us look at it as a nine-month as of whole because that will be more appropriate in terms of the metrics. For example, the yield growth, et cetera, get completed at the end of the period. Nine months, over nine months would be more appropriate in terms of VNB growth.
Having said that, I fully agree with you that, we cannot be really, dependent upon, the margins alone for delivering VNB. That point is, well understood. At, some point in time, we need, the top line also to help us in terms of the, VNB growth. Let me, talk about, what are the plans we have in that regard. Towards the closing comments of my opening remarks, I mentioned that now that we have created a resilient platform in terms of diversification, there is no need to really tweak, the product, or the channels in a particular way or other. The growth can be, free, growth, going forward.
Separately, I also talked about various opportunities, including health and other things which can come along the way. Your immediate question around the non-bank partners, I would like to respond in this manner. As yet, on a base of a 50% growth, we have grown at about 30% plus growth in this year. I want to assure you that even the partners where we have been, you know, we have recently or rather for two years where we have tied up, there's still long way to go in terms of activity and productivity enhancement. Partners lever still available to us. By no means we are fully saturated in terms of their branch network.
Yes, of course, quarter-to-quarter things could vary depending on the partners' priorities, in terms of what they do in a particular quarter or say, sorry, internal priority. The fact that we have 34 bank partners mitigates that risk. The next lever available is the future bank partners. As I said, Yes Bank is coming just now. We've not even started the business. In January, we have just about starting the business. That can give a runway in terms of growth going forward. I think, the way I look at it is that, the much more, you know, much more, runway is available in terms of growth in the partners we have tied up, recently as well as in the past.
Now-Future market tie-ups, Amit and team have done a full sort of strategy around who to pitch for and where we think is a possibility to, you know, tell the bank to add as one of the partners, fourth partner also and that work is going on as we speak. I'm quite. When you go into the second quarter, first quarter of the financial year, there is going to be a base effect next year, which is working for us in terms of the growth levers available because as you rightly said, ICICI Bank percentage distribution has come down quite sharply in the last few months.
And also at the end of the day, we have grown in non ICICI Bank channels for 9 months period at 20% growth rate we have put out. Lastly, you have seen the costs going up largely because of the investment including in the agency channel and the agency channel, as you know, takes about 6 months to 1 year for yielding, you know, benefits. With all this we do believe that FY24 would be the time where top line will really start kicking in, all the levers are available. While I will not rule out the margin expansion beyond this because we do believe that our product, you know, mix is continuing to be in favor of margin expansion.
While I will not rule out FY 2024 will be a time when top line is going to help us achieve the VNB. You asked a question on what kind of VNB growth one can look for. We would believe that we can grow the VNB in line with the growth of VNB product itself given all these levers I talked about, because the, you know, if you ask me what is the real number you're talking about, our sense is that it could be anything between 15%-20% per annum as a compounding of VNB we can generate, depending on the environment.
Sorry for the long answer, but I think, today also we are in a position that so many small levers we have put together that really all of them will kick in next year is what I think. Anything else Sachin you want to add?
Yes. Kannan, can I ask couple of more quick questions?
Sure.
One is ICICI.
Go ahead. Go ahead.
What does ICICI do now? What are the things? Do they sell even ULIPs properly or they don't do even that? I mean, I just wanted to know what is the bank willing to do? The associated question with that here is when you do a new product launch, whether it is par, non-par, the problem is that your captive channel which is only 15%, the potential of the captive channel is to do 60%-70%, right? That is not being utilized. This is not a structural disadvantage. Finally, I just want to know your tenure in the company. I mean, is there a restriction of age limit, compulsory retirement age? Just want an understanding of the picture on that.
First, question about ICICI. I think it is a valid question on how much what they do and how much further they will do. The way we and my management here, looks at, is that, we look at is really that, leaving credit cards for a given and then focus on, what, we can do within those circumstances because, the partner priority is something which we cannot influence. That is the first point I want to make on ICICI. Second, what they are selling. I would say that they are selling, from the order of priority perspective, first protection, second annuity and third ULIP products, linked products. This is the order of priority.
Also this is the sort of order of priority from most active to most passive. In that full spectrum these are the products. As per your question on non-linked and what have we done in this regard on production, what we have done is that we have both the analytics teams are worked together on algorithms, looking at the customer base of ICICI Bank, and we have been able to get a very large catchment in terms of being able to roll out the pre-qualified offers. They've been extremely supportive, and we are grateful to them for that of, because we're not seeing any questions based on the track record, we have been able to roll out the pre-qualified offers.
Our focus in the next few months will be to fulfill those pre-qualified offers for retail protection segment. This is a very active part. Similarly, annuity, as you know, we have a subsidiary of NPS fund management. They are also the partner presence for distribution of NPS. All those customers as well as ICICI customers on the annuity is really available to us and that is something which is doing quite well in ICICI as well as non-ICICI bank channels. And here we have also got more customer segments in terms of the younger age group through our different annuity products. These are all the areas where there has been lot of focus.
Your question about the captive channels, when they are not doing any non-linked business, what is going to be impact on the company? There I want to say that it has been quite well baked in the base. If you look at the non-linked business ICICI are not doing, it has been a two-year phenomenon. It is not a current phenomenon. With that, we have been able to handle it. I wouldn't see it anymore as a disadvantage. Your first question is probably more relevant on what we do today rather than bother about them not doing non-linked because that is very well baked in the base for the last two years. That's how I'll answer the question.
The second question is probably easier for me to answer regarding my tenure because my current tenure is up to June and it is really left to the board and shareholders so I have nothing further to say on that. I'm sure the board and shareholders will take a appropriate call on this.
Is there an age limit in the organization, Kannan? I mean, 58, 60, what is the thing?
ICICI group has employee policy is retirement age of superannuation age of 58.
That is applicable even for the MGN CEO or they are an exception?
Other than the bank, CEO, it is applicable to all the employees unless the board and shareholders decide otherwise.
Unless board and shareholders decide. Otherwise, CEO tenure ends in June 2023.
That's correct. That has been the empirical evidence in the organization also.
Okay.
That is the empirical evidence.
Thank you so much, Kannan
Thank you. Thank you, Suresh.
Thank you. Next question is from the line of Avinash from Emkay Global Financial Services. Go ahead.
Yeah, hi. Good morning. Quick question.
Sorry to interrupt you, Mr. Avinash. Can you please speak little bit louder? You're not clear, sir.
Yeah. The first question is if I were to again ask, of course, it's great to hear that your 23 doubling of appointment in the lease is on track. More about 24. Now, everything else remains the way they are today, whether it's product distribution and asking. If I see that the page is at least overall licenses industry is to say, see an X% growth, where do you peg your growth with all this realistic, you know, situation of current times? How do you see your growth in APE for 24 versus industry? If I said industry was something, that's question number one.
Second, in terms of headcount in your banker sales, given that it has changed in the banker sales or business volume has changed over the last, you know, four years dramatically, I mean, how many sort of headcount we have in banker sales and how it has moved at ICICI Bank? That is question number two. Thirdly, if you can help some bit for nine months because back book surplus has been giving us a strain. Because why I'm asking this that, you know, our surplus of, I mean, even adjusting for, you know, transfer from of shareholders on has sort of a nine-month year-on-year move at close to INR 500 odd crore. Whereas, in nine last year had a big impact of COVID.
It would be helpful if you can just some provide some color on this, you know, on new business strain and back books surplus business because in the absence of that then it becomes kind of, you know, throwing in dark when we have to sort of look into how deep opportunity. Thank you. Three questions.
Okay. Thank you, Avinash. Let me take the first two questions of yours, and then I will request Amit to supplement if anything is there. The third question I will pass it on to Satyan. On the first question on the APE outlook, from an opportunity perspective, we do believe that savings business is going to be in line with the nominal GDP growth of the country and protection annuity business will continue to grow ahead of the savings business growth. This is broadly the opportunity space in which we are going to be working in the next financial year. Given that, what could be our derivative in terms of APE growth?
I have to calibrate it based on the partner priority. That is how we approach the top line equation for the next financial year. Coming to the partner priority perspective, first I'll talk about agency. As I said earlier, the huge deployment of people, unit managers and everything we have done especially in the second half of the current financial year, so in the last few months. They have not yet come to full productivity. As you said earlier, that takes several months in terms of training activity, productivity equation to come up. Agency definitely we are seeing that through already some retail business perspective, it is 30% plus in terms of their contribution.
That lever and given that, they've grown only at about, single-digit % for 9, yeah, 9, 10% also for the 9 months over last 9 months. That base, given the levers available and given the base, I think that is gonna be leading the growth in the next year. Second is on the bank partners. Again, as I said, several of the partners we have, contracted in the last 2 years, still the productivity and activity to pick up. Banks, as you know, are always hungry for fee income. Given our much more comprehensive product profile today, we should be able to push that also.
We are expecting in decent growth in the non ICICI Bank banker, including some of the banks like Uco Bank, which we have added. I'm hoping that as we go along in the next few months, we could be looking at adding more banks. That will be the second big growth lever from a partner priority. The last part is that given the second half, you know, when we come to the second half of the next financial year, hopefully, you know, ICICI would be, you know, probably, you know, such a small proportion of our total channel that it is not going to impact the top line as it has impacted so far.
These are the sort of three points I want to make when it comes to the top line. My sense, as I said, I, as I addressed Suresh's query, is that the VNB development will be a function of both sustaining the margin. If we are very lucky, if we are based on the product mix, even expand the margin, but focus on the top line for delivering VNB. From our side, I want to reiterate that our objective will continue to be focused on absolute growth of value of new business to be aided by the top line growth. That is how I will answer the first question. We have not put out a specific APE growth target, and that's why I'm shying from answer that question very specifically.
This is how the approach is going to be in terms of our top line. You talked about the banker headcount. We don't break out the headcount across channels because that becomes slightly commercially sensitive information, as well as, it is quite dynamic. What we have done is that wherever there are some partner priorities changing.
When we contract new bank partnerships, we have not been shy of redeploying our manpower. A mix of trained and fresh manpower is what we give even to a new bank, so that we can kick-start the business without waiting for a large manpower to be retrained or to be trained. That is the approach we have taken. To that extent, to answer your question regarding actual bank versus non-actual bank partnership deployment, you know, I can only say that the headcount deployed would have reflected the partner priority. Let me answer it in that manner. These are the points I have. Amit, if you want to add to that, then otherwise we can ask Sachin to talk about the back log.
Yeah. Just to elaborate and give a principal philosophy that we have followed on building up our capacity, both our existing channels as well as in the new partnerships which we have stitched over the last couple of years. Our entire focus has been, of course, to align our resource deployment to channels which are growing or channels who have the potential to grow. To that extent, all the new partnerships will have a significant capacity building exercise that we have done over a period of last 9 to 12 months, which started ever since we joined hands with them the last couple of years. Two, specifically talking about our direct channels, our proprietary channels, which is agency as well as our direct upsell channel.
While, you know, the entire focus was at the start of the journey to look at product diversification as the first paramount and deliverable in terms of focusing on right product to the right customers by introducing products in various categories and ensuring that full found baskets available for distributors to sell. Large part of the period which was impacted by COVID, we focused more on product diversification and enhancing productivity of our existing distribution. A very serious scale-up is something that we started doing ever since the revival of the sentiment happened after COVID, issue was relatively tapering down. Large part of our scale-up in some of these proprietary distribution, which is now close to 50% of our business, has started happening from December last year.
That is something which Kannan spoke about. We'll have some kind of a gestation in building productivity to optimal levels. We do believe some of the work that we have done in direct channels will start paying out over a period of next 6-12 months. Net-net, to cut a long story short, direct channels, build capacity, allow gestation to play out, even early onboarding, improve productivity at early stages, and see how we can cut down on decision period. Two, align our resources on the new partnerships that we have deployed both on bank as well as non-bank new partnerships that we have stitched over a period of last 2-3 years. This is where I would like to articulate. Thank you so much.
As to cover the question on the P&L, I would just like to reiterate that our primary measure of financial outcomes is still GNB and EBITDA. Accounting still is distorted. I would like to wait for IFRS to get implemented before we start talking more extensively about P&L and impact. For nine months, to summarize, unit link, strongly cash generating because of the big back book or small cash generating because it is no new business strain, so profits are very back loaded. Non-link, non-PAR savings is a new growth engine for us. To that extent, it is much higher new business strain, which will result in a deficit. Protection continues to be on a strong growth trajectory, so that will continue to be in good shape. Overall, from a profit point of view, we are seeing stability of profits.
More importantly, despite this level of profits, our comfort on capital adequacy is quite high. To that extent, I wouldn't unduly worry about where the sources of P&L profits are coming from today.
Okay. Great. Thanks.
Thank you. The next question is from the line of Swarnabha Mukherjee from B&K Securities . Please go ahead.
Thank you, sir. Good morning, sirs, thank you for the opportunity. Few questions from my side. First on the protection, piece. You mentioned, sir, the ICICI Bank, as order of business that protects the annuities and links. I was of the understanding that when you reoriented the protection strategy at the start of the year by having a higher retention and then targeting I think prime customers with the BFF piece then those customers should be coming from the ICICI Bank channel also. However, when we look at how the numbers are coming out this year, that particular piece of the business for the near term, continues to remain, I think, muted.
While there has been some sequential growth this time, but I think bulk of the sequential growth in regional protection has come from ROP, not from that part of the business. We wanted to understand what are the challenges there still, despite you are now increasing the retention levels and now have a fixed BFF customer who would not maybe be wary of a higher ticket size. That is the first question. Second, on the term protection side, the next question was on the product mix vis-à-vis the margins that we have done for Q3. Product mix looks fairly stable. In fact, unit seems to have gone up two percentage points.
Despite that, the margin expansion is superb and just wanted to understand, is there been some significant shift within the non-linked savings portion of the business, which is actually the reason why this is at this stage? That will be a second question. In terms of persistency, if I compare the third quarter numbers vis-à-vis the second quarter numbers, I see slight weakness in premium growth. I wanted to understand, is there any, anything to read in there or is that something just happening and we'll see an improving number next quarter? These three will be my questions.
Let me take your second question first, then I would request Sachin to answer the first and third. First is on protection term. Though we could not hear you very well, we will try and attempt to answer what you have probably asked. The third question on persistency, you know, we will... I don't have any concern, but we'll just look at the numbers and Sachin will answer. Now, coming to the product mix, you asked a question on, not, you know, apparently significant changes on how margin has increased. That's the way I understood your question. I would invite your attention to the last year nine-month product mix versus the current year nine-month product mix. Probably I will answer the question based on that movement. Last year nine months our margin.
Sorry to interrupt. I was actually pointing more towards the sequential movement, so Q2 vis-à-vis Q3. There has been more-
As I said in my opening remarks, you know, a particular quarter's VNB is not a right thing to look at all. That is the first thing I want to make because as you see now, we have given in our presentation the yield movement is such that so every time at the end of the period, be it a quarter or a or a nine month, we compute the VNB based on those yield curve parameters, and so on. When I do that, automatically there's an adjustment of what we have put out also in the first two quarters, for example, for the nine quarter number, nine-month numbers.
I would look at this VNB number really as a nine-month, over nine months number. That is where probably I'm expecting the margin movement also from 27% margin, the margin has moved to 34%. Sorry, 32%. If I look at the units within that has moved from 52.5%- 43.4%. That's a good 9% plus movement, you know, reduction in units. Our protection has gone up by about three percentage points and non-linked has gone up by about six percentage points. Obviously, this is extremely attractive to the margins. That is what explains the difference largely between 37% and 32%. That is how I would like to look at the numbers.
While we have computed it annually, I'm giving a recent kind of top-down perspective. Sachin, go ahead. Anything else you want to add on this question? After that the other question.
Just to add on this question, Kanav, the point really is that we have said it before, for a quarter, margin can always be volatile. It is driven by multiple factors like Kanav described of changing yield curve, reforecast of expenses, senior mix within a product, inter-space product mix, between PAR, non-PAR, within protection, retail, group term. Lots of moving parts and therefore to ever look at a quarter margin in isolation to my mind would be misleading. We should always look at it as 9M. I read the nine-month margin at 32% as being stable in the context of the 31% that we had for six months. It is not a dramatic shift from what we had for six months. I can confirm there are no changes to assumptions that we have made.
This is purely reflecting the underlying business and estimation of expenses over the year. To that extent, I don't see any unusual patterns even in the context of product mix as far as margin is concerned. On protection, you did mention that a lot of the sequential momentum has come from ROP. That is correct. In fact, we have been saying that the ROP is a new category creation and with passage of time we would expect this to pick up momentum and contribute more. Even without ROP, we are seeing a sequential pickup. A lot of the initiatives that we have been rolling out on the ground with respect to pre-qualified offers for our bank partners are more recent. I would expect that to take some time before they find traction.
One also has to keep in mind that distribution is a very, very large organization, and therefore to expect distribution to change overnight would be quite an unreasonable expectation. Even as the protection momentum changes, it is something which will happen systematically over a period of time and not dramatically overnight. From our point of view, we are very happy with the way the protection category is emerging, and we see a continued progression even from here on. Persistency, quite honestly, with the improvement in all of the buckets that we have seen, I don't quite understand where the difference with respect to particular quarters of persistency is coming from.
I would have liked to think that this is the strongest movement in persistency that we have ever reported across periods in the history over the past 22 years. Where we are, I can confirm the persistency experience is better than what we expected. Even from where we are, we see opportunity for improving persistency going forward.
Got it. Very good, sir. Just a follow-up on the protection side. What we wanted to understand was that on the pure term piece, are there still any kind of challenges in terms of, say, a supply side, supply side factors that were playing out earlier or any kind of challenge like because the ticket sizes have gone up materially, you see some demand impact also coming in from customers?Sanketh , on the protection side, we don't see any continuation of either supply side challenges or any sign of demand side weakness. This is purely about distribution getting used to the changes in underwriting norms, picking up the product category once again and running with it. We don't see any environmental challenges. This is really about distribution momentum from here on.Sanket if you can see the slide 7 of our presentation, we have given the trajectory of retail protection development. We are now at the same level as Q4 of the last year. I'm not talking about Q3, I'm talking about Q4 of the last year. That means that the trajectory hopefully should help us as we move forward. We're very confident of pushing out a year-on-year growth over last year Q4. That is the trajectory. I would say that in a quarter or so from now, you would just see us completely back on track on retail protection. Bulk of the issues you mentioned are behind us. That's what I want to confirm.
Yeah. Just to elaborate on on what Sachin just mentioned on distribution aligning their efforts to sell protection in a different regime. Just to give you a context, you know, the entire protection scale-up in the industry prior to COVID was experienced with a process which was very, very different from the current regime, right? There were alternate ways of evaluating income, where the focus largely was built around affluent customer segment, which has now of course changed with the change in underwriting guidelines and with the change in norms. Hence, the way protection was sold in the pre-COVID levels to where how it is expected to be sold now is a big shift. It's almost like version 2.0, which needs to be now reintroduced in the distribution ecosystem and start driving it differently now.
That is the adjustment that Sachin is talking about, which is like almost looking at protection as a new product category altogether and to start the journey, all over again.
Thank you, sir. That's very helpful. Just I mean, one last question, about the solvency ratio that has improved. Now, wanted to know your thoughts about how we can plan out going ahead, you know, in terms of say, incremental profit, generation vis-à-vis any kind of capital stream or definite amount as we see protection have also started to grow. Your thoughts on that, please. Thank you.
Sanketh, we have already had the benefit of reduction in solvency factors forULIP business without guarantee. That is reflecting in the improvement in the solvency ratio that you have seen for the quarter. Going forward, like Sanketh described in his opening comments, we also have access to subordinated debt and enhanced limit. At 210-212% solvency ratio, we would be one of the most best capitalized amongst the large companies with the additional headroom for year two and potentially with a transition to risk-based capital over the next 2-3 years. We really have no concerns with respect to needing to raise equity to fund growth, and we think we can be self-sufficient or excess with subject raising at a suitable time to support our growth aspirations.
We don't see capital as being a constraint as far as growth is concerned.
Great, sir. Very helpful. Thank you and all the best.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to 2 per participant. The next question is from the line of Supriya Singhal from Ambit Capital. Please go ahead.
Hello. Thanks for the opportunity. two questions from my side. Starting off with the banker partnerships, you have onboarded 4 new banks during the quarter. You said that, you know UCO was one of the prospective partners, but the names of larger key partners that would be helpful. Moving on, UCO is a public sector bank, and typically your experience has been on the private sector bank side. Just wanted to understand how ICICI Pru as a company is going to adopt, adapt to this new customer cohort. three, with, you know, IRDA now removing product-wise commission caps, do you see, one, bank partners demanding more commissions or two, bank partnerships becoming unprecedented in commission increasing as you stay onboarding new partners? That's, question number . Question number two is more on the accounting side.
The investment income has dropped significantly in this quarter compared to the second quarter. Just wanted to understand, you know, what are the factors driving this?
I will take the first question first. Supriya, N.S. Kannan here. On the first question, apart from UCO Bank, what are the bank partnerships we have added? These would be smaller banks, including cooperative banks. That is what the banks are. That is the answer to the first question. Within that, you have asked a question about PSU banks partnerships, and how do we approach this. And I want to assure you that these are all questions which have been part of the pitch competition itself, because that is how they choose a partner and they look at their culture, our culture, to look at how we'll be able to driving the business in tune with their culture.
All these have been, you know, factored in their choosing the partner. I can assure you that it has been a very competitive and very not a very easy process to get into this partnership. That is something I want to assure you. In terms of our own approach to PSU, I think, you know, by now we have got experience working with a variety of banks, large bank like an IndusInd on one side. If you look at some of the small finance banks we have done, we have done cooperative banks for several years. In fact, before some of the PSU banks started floating their own life companies, we had a relationship with PSU bank as well.
It had to be terminated because they themselves promoted an insurance company. That is the reason why that was, you know, terminated. Other than that, we have had successful partnerships, including with the PSU banks. We do not see any concern whatsoever. The type of products we sell, the type of people we deploy, the type of engagement we have on the ground and with the top management, those could change. We are very dynamic about it. The fact that we have 34 different partnerships, including foreign banks, private banks, small finance banks, cooperative banks, we know how nimble we have to be in getting the best outcome. That is why we have been included as a partner as well.
We have absolutely no concerns, and we are quite prepared for driving this engagement, you know, in line with the bank's priorities. Your question regarding the demanding of commission. Yes, of course, this market is extremely competitive when it comes to commercials as well as the general, you know, interested partner market share. It will be competitive. Again, you know, there has to be a level playing field. We have seen such situations before when it doesn't make sense for us commercially, we have walked out. Right now, we are not going to be extremely, you know, aggressive in terms of commercials to cut our own development of VNB. That's not going to happen at all, I want to assure you. That's a really competitive but beyond commercials, the banks are also looking for other parameters such as quality of business, then the kind of sales practices, the congruence of culture, and so on. I think there we score much better. Those are the things which we will focus on and commercials to the extent which is, which is, you know, something which can be afforded by us, only we will be competing. I do believe that, you know, just because the regulations are changing, we are not going to, you know, change the dynamics of the industry. It will be orderly, and it will make sure that it's a win-win partnership between the banks and the insurance companies. Satyan, you want to talk about the investment income? Supriya
Got it. That's very helpful. Thank you.
Thank you. The next question is from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.
Hi. Good morning. I have a few questions around distribution. Firstly, like on the ICICI Bank channel, if you can share the mix of ULIP, annuity and other businesses that the bank is selling. I guess just to understand where should the flow be when it comes to assessing the premium volume from the bank.
I think channel specific product mix we tend to disclose annually. We will do that at the end of the year. We have not at this point of time disclosed product mix for each of the specific channels.
Satyan, I was really looking for a specific split from ICICI Bank, not even the whole channel. It's like specific to ULIP to ICICI Bank.
We don't disclose that, Satyan.
That's what I'm saying, Nitin. We will disclose channel specific only at the end of the year because we have not done it even independently.
Okay, sure. Satyan, on the non-ICICI Bank channel, like, both the first rate have been relatively better, quarter-on-quarter numbers have been in a range in terms of total premium volume. Do you feel that banks are focusing on deposits rather than selling life insurance?
You see deposits, of course, is an ecosystem phenomena that we are witnessing in banks. That is something which is quite natural to happen given the macro environment. While the degree of focus on life insurance may vary from partner to partner. Yes, one common thing, as you rightly pointed out, is that focus on deposit is extremely high. At the same time, we don't see any short-term impact on life insurance business given the current levels of penetration that respective banks have on life insurance business.
To that extent, I don't see that as a worry because even if you were to look at banking ecosystem overall deposit base, we are talking about almost what, INR 1,70,000 crores kind of a deposit base with a monthly mobilization close to around INR 1 lakh crores, which is happening in a month.
Even one bank, or one large private bank may be actually doing a gross mobilization, which is in excess of the entire life insurance industry monthly premium. To that extent, the quantum of life insurance versus the quantum of deposits has changed only a fraction. To that extent, for a INR 1,70,000 crore kind of a deposit base with INR 1 lakh crore of gross mobilizations, to have an impact on insurance, which is a very, very small pie, is anybody's guess. To that extent, I don't see this as a direct impact. But yeah, the focus on deposits will continue. To that extent, the mind share moving away into one line of business by bankers, is quite significant.
However, in quantum, in absolute values, we don't see this impact, emerging in the shorter period of time given the penetration that we have.
lastly on the direct channel like.
Mr. Agarwal, may we request you to please rejoin the queue. We have participants waiting for your turn. Thank you. The next question is from the line ofSahej Peter from HDFC Securities. Please go ahead.
Hi. Good morning, everyone. Thanks for the opportunity. Firstly, on the group protection business, can you give out the spread between the credit life and group term for that?Sahej Sajesh, we give the split across protection product categories only annually, so we would expect to give that in April.
Got it. My question was more directed towards the group term insurance business. Given that the prices have shot up in FY23 after the kind of mortality experience which the industry faced in FY22, but in FY23, given that the mortality experience has improved significantly, it is resulting in these kind of VNB margins. Given that the prices in this business will mean revert in FY24, do you expect the VNB margins also to drop materially, and what's your strategy with this?Sahej already in FY 23 we have seen prices drop after the pandemic period. We saw the prices increase around June of 2021 during the second wave is when it started. Already this year's renewals are excluding an expectation of pandemic related claims. We are already seeing that. Despite that, we are seeing a growth in that segment. Despite that, we are seeing the margins holding up strongly in that segment. I don't quite see a cause of concern as we go into next year.
We have a time advantage in group proposition. As you know that it is a one year renewable term. To that extent, our ability to reflect the actual mortality experience is available to us within a year. Any adverse, positive or a negative actually gets factored in when we get the opportunity to price our product again. What has happened subsequently with COVID is that, you know, there were three actions that happened during COVID period. One, certain companies got extremely sensitive and got more and more employees to get ported into this group term policy. They looked at enhancing some assured of existing employees.
Also at the same time, there were a certain category of companies who decided to self-finance and probably not go with the high pricing which was available during COVID period. It has overall led to an increase in sensitization towards group term as part of the overall employee benefit proposition. To that extent, what we're witnessing now is that while pricing may have come down because of, as you articulated, mortality experience was relatively better, and pricing came down and went back to the pre-COVID levels. Also at the same time we are seeing more and more number of companies showing and expressing their keenness to get into group term.
The drop in premiums has been compensated by new customers that have got added and enrolled to group term proposition this time. This is something I just wanted to add on group term.
Right. Do you not anticipate any further price drops going into FY 2024 for this business? I mean, given that this is so commercialized business, commoditized business,
Like I mentioned, you know, again, the actual experience will play out next year and depending upon the actual experience, our price will again get recalibrated, which will take into account the mortality experience, margin expectations and the new pricing that could emerge, subsequently in FY 2024. To that extent, group term is relatively easier to price because it's a 1 year renewal product.
Right. I mean, given that we are already done with 9 months FY23, you'll be very sure that there will be price drops going.
Sajesh-
It has already happened, Sajesh. Already all renewals that started from May, June of 2022 have started seeing a drop in price. To continue that, all renewals until the next May, June, you may see some drop in prices continuing. Beyond Q1 of next year, I wouldn't expect any material drop in prices because all renewals would already have factored in this COVID pricing.
Right. I mean, answer to one of the earlier questions you highlighted that, in second half FY 2024, you believe that ICICI Bank will be a materially lower portion of your overall channel mix. Are we still not confident that ICICI Bank, given that the base will settle down or the base will reset in FY 2024, are we still not confident that ICICI Bank will show 15 odd % growth going into the next year?
The thing, the way we are looking at it is not to focus on that at all, but to focus on the growth that is being delivered by the other channels put together. The other channels put together, if I were to take the last 3 years CAGR, has been a 15%-18% per annum CAGR. More recent trend of this year has been a 20% growth over same period last year. Given that ICICI Bank share of new business is coming down, we would much rather focus on growth driven by the other channels into the future. Whatever comes out of the ICICI Bank distribution, we will accept it and take it as it comes. In that channel, our focus will be far more on growing penetration and new business.
Got it. This was helpful. Thanks and all the best.
Thank you. The next question is from the line of Madhukar Ladha from Nuvama Wealth Management. Please go ahead.
Hi, good morning. Thank you for taking my question. First, your corporate agency channel actually has been doing quite well. Can you give me some color as to what kind of business to be right up there and what is, what is driving that business? On agency is now our largest sort of channel. If I look at, you know, a 5-year CAGR, the growth is really just about 3%-4%. What are the steps that we are taking to ensure that this channel, which is now getting more and more, which is more and more material now, will grow like 15%-20% year-over-year? These two would be my questions. Thanks.
Yeah. First let me first answer your question on partnership distributors, which is Partnership Distribution. You're right. That is one channel where over a period of last 3- 4 years, we have been continuously adding new partners. We have added close to around 300 odd partners in our overall partnership distribution space. There is a natural diversity which is built into the channel. You have various category of partners that you have. Partners who would be aligned to existing customers, partners who are distributing traditional savings products as their primary business, partners who are into web aggregation, partners who are into old house retail distribution, financial shops, hence...
There are all these partners which are contributing and the ability of this distribution channel to tie to any change in the economic environment and events, because some category of partners would always have a payment available in the economic environment. Hence the ability to withstand any change in the consumer preference is well factored and designed into the distribution channel. Adding of new partners has definitely enhanced our ability to deliver growth sufficiently. That is one. At the same time, we continue to look at increasing our share of shop in some of the large distributors within this space, which we have been able to grow over a period of time.
These two things, new partners and increasing the share of pie in the large shops is something which has contributed to our overall growth of partnership distribution space. Coming to agency, let me just, you know, take a step back and say, share with you as to where we were to where we are now. Four years back when we started agency, it was very similar to what we had at a company level, which was a large dominance of Unit Linked business which was close to around 70%-80% of our overall business. Hence the step one in this journey of four years was about reaching customers and creating capability by making products available where we could reach out to different set of customers with products which are more appropriate for those customers.
For having sold unit link as a primary product for 2 decades, this was a Herculean exercise of 12 months, where re-skilling was required in the entire agency channel. Instead of adding capacity, without building the skill, we actually spent those 12 months into building the skill and walked the product diversification route in the year 1 of the journey. Year 2 and year 3, as you know, were impacted, majorly, by COVID. As you know, with the long gestation period that it takes, for a new capacity to start delivering productivity, would have probably added cost to us, but not the productivity in the initial period. Hence we continue to drive productivity as a major lever, with a continued journey of diversification.
Last three years, while the top line may not have grown as much, but product diversification was almost a U-turn was taken where close to around 70 odd % of unit link business came down to close to around 35%-40% as we speak now. As the sentiment reversed and once the COVID environment eased out, we started now building capacity over a period of last 12 months from December last year to December now, that we have been able to add new capacity by almost 30% in agency. As you know, we are just waiting to play it out and see how productivities emerge over a period of 18-24 months.
Our experience in agency suggests that it takes around 18 to 24 months, for agency new capacity to start delivering optimal results.
What I can assure you is that in terms of new distribution build up, new advisor signups, we're already seeing our new capacity contributing to close to around 70% of new advisor licensing that we have done this financial year. To that extent, early signs of expanding distribution on advisors is already visible. How is our productivity will play out? Vintage employees who have delivered good productivity and helped us during the COVID period is something which is sustained, is continuing to grow even in this period. That's the reason why agency on top line, we may have seen a lower single digit growth over a period of last 4 years.
While we don't completely share VNB by channels, but the profile by virtue of product diversification has changed dramatically when it comes to VNB for our agency channel.
Thank you. The next question is from the line of Deepika Mundra from JP Morgan. Please go ahead.
Hi, sir. Thank you for taking my question. Just a couple of things from my side. Firstly, on the margin front, can you remind us that like every year, this year also we will likely see a true up in assumptions, in the fourth quarter, and thus far, whatever margins are being reported are not adjusted for any assumption change. Am I correct in my understanding?
That is correct. There may be an opportunity at the end of the year for assumption change. I cannot confirm that now. That will only be assessed at that point of time.
Just to follow up on that, if, you know, what type of a top line growth, or if you can please give us some context around what kind of growth should we look at to see to maintain our current expense assumptions, because obviously with going more into third party channels and the investments being made in distribution, we are seeing the expenses move up.
I can confirm, Deepika, that as of 9 months, we are factoring in the projected unit cost of higher than last year, reflecting the year to date growth being lower than what might have expected at the start of year.
Got it. In terms of, you know, the mix, in the future potentially tilting more consecutively towards protection, again, if your some of the savings line don't see the requisite amount of growth, from a risk perspective, you know, what level of mix are you comfortable with on protection, overall, given the higher summer short? Or would you have to end up, you know, taking some sort of a pricing action on protection?
Deepika, we are very comfortable with the current level of protection pricing that we are offering. To that extent, we are very comfortable with the increase in retention that we executed in December last. Technically, if you ask me, is there a limit to how much protection we would like to have or not want to go beyond, I wouldn't mind going to becoming a 100% protection company also.
Got it. There is no, thought process either I mean, you already have, sufficient capital, but even from a, risk perspective, there is no hesitance in terms of potentially to ramp up the protection mix substantially.
My answer, Deepika, was mainly from a risk perspective. I don't see any challenges at all there. Practicality, however, will dictate that we can't be 300% protected over a period of time, but I do not see any capacity constraints or risk management considerations stopping us from exploiting the opportunity.
Got it. Okay, as late here, sir. Thank you so much.
Thank you. The next question is from the line of Dipanjan Ghosh from Citigroup. Please go ahead.
Hi, good morning. Hope I'm audible.
Yes, Dipanjan . Please.
Yeah. Two questions from my side. First, you know, going back to the mix and, you know, within the non-linked business, you have historically highlighted that it depends on, you know, product development strategy and the macro environment. On, on that context, you know, how would you allude to the fact of on the ground customer demand towards your guaranteed return products or the longer tenure products? How has that been shaping up, sequentially or YTD? Second, more on the, more on the banker side of things and specifically on the non ICICI Bank channels. You alluded to the fact that there are, there is also quarterly volatility when banks, maybe central parties focus more on liabilities and then insurance and so on.
On that context, has there been any publisher movements or is it just a natural deep growth in the banking partners non-ICICI Bank to banking partners during the quarter because of the internal strategies? Just one data keeping question, if you can give your rider attachment rates across some of the product strategies or on the overall basis, and how it has moved quarter-over-year on year.
Depending from a product mix point of view, guaranteed return at this point of time still is very popular. We have not seen any perceptible shift out of guaranteed return products yet. Like we have said in the past, even if it were to happen into the future, we think we have a comprehensive enough set of products across the PAR and the unit linked product to be able to absorb whatever are changes in customer preferences. Margins will be an outcome. We would much rather focus on opportunity and let margin remain an outcome. Second, in the context of your question on the banks, I don't think other banks have declined. They have also grown.
One needs to keep in mind that the same period last year was a very, very strong period for those new partnerships. You may well have periods of time shorter periods of time where growth is a little bit more volatile. That can happen, that will happen. I don't think one should read too much into 1 quarter's growth numbers for a channel or some channels. On the ground, we are not seeing any concerns with respect to growth from all other banks that we have been talking about. Third, in the context of your rider attachment, I still think that the range of riders that we have is small. I still think that the products that riders can be attached to are small. Within what it can be attached to and what is available, rider attachment could be 30%-40%.
Going forward, the priority will be in expanding the rider portfolio. It will be in expanding the range of products to which riders can be attached, and hopefully, if this becomes available to us, that can become the positive with respect to further fiction growth into the future. Right now, while I can talk about it as a very strong attachment, I think the practicality will really tell you that it's a small portfolio that I'm attaching it on.
Thank you. Next question is from the line of Neeraj Toshniwal from UBS India. Please go ahead.
I wanted to understand, basically on product level, have you seen any improvement in margin? Because if we just suppose, especially if it comes to margins on the credit mix, probably I'm not getting to see any kind of a margin improvement. Any particular product mix improvement are we looking at or how we are seeing through? Because we haven't changed any assumption as of now.
Neeraj, I would encourage you to compare the 31 for half year versus 30 to 9 months and not look at for the quarter. Given that, you will find that the margin movement is not as significant. I did mention that there are multiple moving parts in determination of margin. It can well change from a shorter-term point of view. At a product level, for if at all what is seen is non-par products have become more competitively priced. Therefore, to that extent, that a shorter period of time will be a pressure on margin downwards. All said and done, what you are seeing is the net outcome of senior mix, par/non-par interest rate mix, retail group protection mix, expectation of claims on account of COVID not being there anymore, reforecast of expense with emerging business volumes, all of this is getting there.
What I can tell you is I don't see this as a very material or a significant movement in margin. While in a spreadsheet I may not be able to explain it to the last 10 basis points, I would like to think that broadly it reflects the underlying mix and nothing else.
Got it. Any product level improvement also are we factoring in? Because we haven't changed any assumptions this year.
Product level margin, Neeraj, can only improve when mix of product changes. To the extent that any product category has a change in the term mix, it is reflected in the margins.
Sure. Second question would be with the rising deposit. I think you partially answered that within last answer. Wanted to know with the rising deposit rates, what is the on-ground trend we are kind of, you know, seeing through, will non-par... Because non-linked actually started cooling off compared to, the last quarter number. Within which obviously non-par, excluding the annuities would have just grown at the same, and essentially we are down. Is it some bit of, change towards deposit acquisition by the banks is leading to some bit of impact or how should we read that?
Neeraj, so far we are not seeing anything on the ground which is suggesting that. You will have some movement across months, across quarters. It's also to do with the number of working days. This is a quarter which has had a lot of festivals attached to it. We are not seeing anything on the ground which suggests a concern led by bank focus on deposits.
Nothing as of now in kind of, you know.
Yeah, Neeraj, Amit Palta . Only thing I would like to add here, like I answered already on deposits, we've not seen the direct impact on this business. At various point in time, on a shorter-term basis, whether it is a month or a quarter, one may see some kind of movement happening from one partner to another on account of very, very price-sensitive nature of this product, which is on the guarantee platform, both on annuity side as well as on the non-participating product side. At various point in time, as you know, that we have been extremely cautious about the way we would build up our VNB. Hence, we may exercise a choice to participate in some of the price interventions and may decide to stay away in an environment which at times becomes extremely price competitive.
Given the fact that we have high focus on VNB, and we would not like to compromise on the trajectory of VNB as we would like to build that product.
Neeraj, Kannan here. I just wanted to add only one additional aspect to what you mentioned. That based on my own observation of interest rate cycles in the banking sector, my feeling is that as and when deposits get repriced and start flowing through in the course of months of time, NIMs do tend to plateau or even come down over a period of time. We are probably somewhere there, you know, I can't really predict. I'm not a deep analyst of a bank. At these previous times there is a tremendous pressure on the bank's funding cost.
That is how the fee income has come to help the, you know, lack of that kind of growth we are seeing in the net interest income. To that extent, this is the time when there will be a lot of push from the banks also for fee income. I think we can leverage that trend a lot as an insurance company, which gives the most fee income for any bank per time spent by the banks. That is where we can position ourselves well. I think there are pluses and minuses moving forward, but net-net, we are not really worried.
Sure. That is helpful. One more question, if I may take them, is on the pre-qualified offers and protection, who would be the target audience? Is it cross-selling or upselling that we are seeing through and how is being the traction?
Yeah. Given the penetration that we have in the banking system, I still believe that cross-sell is much larger opportunity for us when it comes to our banking partners in the pre-qualified offers that we provide. Our focus is, of course, to improve our penetration and focus on customers who may still be part of the affluent category, the seekers category for the bank, who have still not purchased retail protection as part of their portfolio. Hence, these qualified offers are mostly directed towards cross-sell and not as much an upsell.
Sure. Thank you. No question actually.
Thank you. The next question is from the line of Rishikesh Jungade from IIFL Institutional Equities. Please go ahead.
Yes, thanks for the opportunity. One question on, you know, the ICICI Bank channel. Now, given they have decided not to sell particular segment of products to their customers, just wanted to understand, you know, as a, as a partner, do we get access to those customers at all in, you know, direct access through bank, even though they may have decided not to sell, doesn't necessarily mean customers don't want to buy it. You know, these are guaranteed returns or something which is, you know, selling a lot, across the industry. Just wanted to understand whether do we have access to those customers directly or is it completely shut out for us, given the massive volume that it might have?
Yeah. Just to clarify, Rishi, not just for ICICI, but across all our partners, our philosophy and our partnership approach is about us becoming us subordinating to the partner priorities and letting them choose what is most appropriate for them. To that extent, in line with our philosophy, we focus on what banks and partners ask us to focus on. To that extent, we don't encourage any access which is not in support or in alignment with what banks would have asked us to do. That is something not just limited to ICICI, but it is across all the partners that we have.
Rishi, as you know, Kannan here. As you know, we are a highly intermediated business. About 85% of our business comes through partners. The last mile for customer connect is through the partners. Given that, we have to respect the primacy of customer ownership by the intermediary. To that extent, underwriting direct access to customers for many of the intermediaries, we don't encourage at all. I think that is one of the key principles for running an intermediated business. To answer your question, no. We don't encourage that.
Okay. The only reason.
Not just for ICICI Bank across banks.
Yeah. No, the only reason I asked is, you know, ICICI Bank has a massive customer base, and to a large extent, it is a decision taken by them not to sell some of the products which are otherwise getting sold pretty comprehensively by other insurers to their customers as well. In effect, those customers of ICICI Bank do not have access to it through the ICICI channel, given this, you know, arrangement. I'm just wondering, are we just, you know, losing market share as a result of that because they might-
I see where you are coming from. I just want to say from my vantage point, I just wanted to say that we just completely respect the partner priority. Beyond that, we don't cross the line. We subordinate ourselves to the partner priority. That is true across all the banks.
Okay, sir. Thank you.
Thank you. The next question is from the line of Sanket Godha from Spark Capital. Please go ahead.
Yeah. Thank you for the opportunity. Given the recent bank relations, you probably compete with LIC and HDFC in this particular channel. Just wanted to understand the potential size of this channel, whether it is INR 200 crores, and how much it can potentially add to the AP number. That's the question number one. Second, again related to bancassurance, we might be having some kind of a market share in the new bancassurance relationship, especially with the new IDFC RBL.
Just wanted to understand whether we have touched the aspiration levels of market share in these channels or you believe there is scope for further increase in the market share or we will grow in line with the channel growth because currently you have achieved the current market share you can penetrate in these new relationships? These are my two questions if I might.
I'll try to answer this question first, starting with UCO, Sanketh. The way we look at our partnerships is on the way and how much we have scaled up on our distribution capacity. To that extent, you must have seen us quoting our access to 4,000 odd bank branches through the tie-up with UCO Bank. With UCO Bank, now we have access to 3,000 additional branches of UCO, you know, specifically in geographies like East and North which are most relevant for us. To that extent, we have added almost 15%-18% kind of capacity to our overall distribution coverage on the bank side by having UCO. In terms of aspiration, of course, our efforts have always been during our partnership engagement as well with potential partners to work towards improving their overall revenue pie.
We see that the hunger for fee income is clearly visible. That's the reason why UCO has looked at a third partner. We really appreciate the white space and the opportunity that they have identified within their overall distribution and expectations from us to actually go and leverage that white space available. To come to very specific on the opportunity, the way we see the next couple of years, of course, INR 200 crores is something we can definitely expect from UCO Bank and probably look at multiplying their revenues by 2x to 3x of where they are today. That is what our aspiration of the partner also is. Coming to other partners, which is IDFC, AU, RBL that Vijesh spoke about.
Of course, we onboarded these partners, based on the technology integration that we built at a very fast pace. Within very short span of time, we could gain a significant market share. Good part is that ICICI through partnerships, we've been able to contribute to the partners growing their overall revenue pie. If you were to track performance of these banks, they have grown significantly on their overall revenue income, I would say, tied up with us. To that extent, the objective one of getting our partners to increase the pie, is achieved in phase one. Of course, the phase two is going to be partially linked to their continued hunger and their current penetration levels, with the customer base.
I also believe for the stage of business scale-up that IDFC, RBL, AU, IndusInd Bank are and for the existing penetration, I believe that, you know, the growth can be anywhere in excess of maybe2x or 3 times To that extent, we would like to be partnering that growth and of course, at least aligning to the overall growth expectations of the partner. Of course, given the wish, if you were to ask me, of course, we want to increase our pie and have a larger share of the infinite business that these partners aim for. We are deploying resources. We are aligning our efforts both on building capability as well as introducing products on a continual basis.
We will continue to stay competitive in these places through robust processes, without getting our eye off on the quality of this.
Thank you. The next question is from the line of Amit Jain from Axis Capital. Please go ahead.
Yeah. Hi, sir. Good morning. Thanks for taking my question. Sir, as we see, you have added around 25,000 agents in 9 months of fiscal 2023. Just want to understand that, do you further intend to add more agents or would you like to stop and see how these new agents are progressing? Any aspirational channel mix that you have that currently agency is 30%, where it could reach? In terms of bank also, how would we see the channel mix? Secondly, in terms of these pre-qualified offers, are these specific to ICICI Bank or they will roll out to other larger banks as well? That would be my two questions, sir.
Yeah. I'll start with your question on agency. Of course, as you may understand about agency channel, it's a very organic build-up of distribution that is required to be done continually. If you stop hiring for a few months, is where you will start seeing the impact of overall decaying in the agency business, in six months to nine months down the line. It's almost like a perennial business where you need to constantly keep working on expanding your distribution. Like I mentioned in, as I said in the answers to one of the questions, the capacity that we have built through our new unit heads, over a period of last 12 months, you know, they have started contributing to widening our entire agency licensing over a period of last 12 months or so.
They have started contributing to almost 70% of the scale-up. Now, since this is a new capacity, which we want, going to continue over a period of next six months as well, we will look at focusing on licensing continually and certainly improve it from a credit perspective. They are only one-third of the business and large part of this journey from being 22%- 33% has been mostly product-led by the vintage units of agency business that we had built over a period of time. Now with the additional capacity, we can expect the percentage share to go up further. However, we are not aggressively look at this becoming the most dominant and significant channel. I would like to ideally grow almost every channel in absolutes.
I will be happier growing every channel by absolutes and look at share as only an outcome. That is how I would like to respond to our agency scale-up. Coming to pre- qualified offers, of course, given the priorities of ICICI Bank and the focus on retail protection, we have done this exercise with ICICI to start with. At the same time, as we speak, we are working with all our bank partners to turn out similar kind of offers for their priority customer segments. This is not restricted only to ICICI, to answer your question.
Thank you. Next question is from the line of Anand from RBC Capital Please go ahead.
Thank you for the opportunity and congratulations on being up to double-digit NIM despite all the challenges. Two questions from my end. It has been four quarters since we changed our retention policy. If I were to, you know, calculate our VNB margin, had our retention been what it was, let's say until December 2021, what would have been our VNB margin for calendar year 2022?
Anand, since the change in the retention limits and simultaneously the pricing change to customer as well, it was designed to be margin neutral. The change in retention has not had either a positive or an adverse impact on technical margins.
Noted. Noted. Second question is about capital efficiency of the VNB. While we have, you know, our VNB is on course to double, how is the capital efficiency of, you know, the current VNB vis-a-vis what we originally envisaged when we had this plan for doubling the VNB?
If I were to go back, I would have expected more from protection, less from non-par savings. Where we are today is a little bit more from non-par savings, a little less from protection. Protection is the more capital intensive. In a loose sense, we've probably done this with lesser of a strain on capital now than we would have expected.
Fair to say that because we are retaining more, even the protection VNB is more capital intensive than what we had envisaged?
To some extent, but the fact remains that on an overall book, the retention does not change it dramatically. It's only on the incremental book. Yes, for the protection business, capital intensity has gone up a little. Overall the VNB trajectory, because it has also been supported by par and non-par growth and group protection growth particularly, where retention limits have not changed at all. Overall, I think while I've not done the exact math on this, but my sense would be that the VNB that's been generated in a slightly more capital efficient way than I would have expected at this point of FY19.
Sure. Last question, if I might squeeze in. From the capital intensity perspective, can you give us a sense of what the, you know, return on capital through the lens of VNB and capital used within the VNB as of today?
That's a very difficult question to answer, Anand, because quite honestly, it's not like I can make an active replacement strategy of one segment with another. For example, if protection turns out to be more capital intensive from a VNB point of view, it is not as if I can replace that VNB with savings VNB. I actually have to think each as distinct opportunities. All I can do is appreciate and contrast the difference, but I don't think I will be able to replace savings VNB with protection VNB, but I don't think I will ever have an ability to replace protection VNB with savings VNB.
Sure. Thank you. I'll come back in the queue.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand over the conference over to Mr. N.S. Kannan for closing comments.
Thank you all for joining this call. I hope we have answered all the questions to your satisfaction. In case there are any further questions or repeat questions, you know, my team and I are available. Thank you so much and have a great day ahead.
Thank you. On behalf of ICICI Prudential Life Insurance, that concludes this conference. Thank you for joining us, and you may now disconnect your line.