Ladies and gentlemen, good day, and welcome to the LIC's Q1 FY 2025 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Siddhartha Mohanty, CEO and MD, LIC. Thank you, and over to you, sir.
Good morning, everyone. I am Siddhartha Mohanty, CEO and MD, LIC. On behalf of the senior management team, I warmly welcome you all to the results and performance update call of Life Insurance Corporation of India for first quarter ended June 30, 2024. The results and the presentation can be accessed on our website and on websites of both the stock exchanges, BSE and NSE. Along with me on this call, I have Managing Directors, Mr. Satpal Bhanu and Mr. Doraiswamy with me. Senior officials of the corporation present on this call are Mr. Dinesh Pant, Appointed Actuary and Executive Director, and Mr. K. R. Ashok, Executive Director from the Actuarial team, Mr. R. Sudhakar, Executive Director, Marketing and CMO, and Mr. Hemant Buch, Executive Director, Bancassurance from our marketing team, Mr. Ratnakar Patnaik, Executive Director, Investment Front Office and CIO, and Mr. K.
K. Seshagiridhar, Executive Director, Investment Back Office from the investment team, Mrs. Manju Garg, Executive Director, Pension and Group Schemes, Mrs. Rachna Khare, Executive Director, CRM Policy Servicing, Sri C. V. Ramana, Additional Executive Director, CRM Policy Servicing, Mr. Sanjay Bajaj, Head, Investor Relations, and Mr. Satyamanyu Srivastava, Chief, Finance and Accounts. I would like to thank all of you for sharing your valuable time to join this call today and listen to the LIC team. Let me now mention the key business, operational and financial highlights for the quarter ended June 30, 2024. Premium income.
For the quarter ended June 30, 2024, we have reported a total premium income of INR 113,770 crore, as compared to total premium income of INR 98,363 crore for the quarter ending June 30, 2023, registering a growth of 15.66% on year-over-year basis. The individual new business premium income for quarter ended June 30, 2024, is INR 11,892 crore, and for the corresponding quarter of last year, it was INR 10,462 crore. It can be seen that we have grown by 13.67% in individual new business premium income on year-over-year basis.
Renewal premium income, individual business for quarter ended June 30, 2024, is INR 55,300 crore, as compared to INR 52,311 crore for quarter ended June 30, 2023. Therefore, for the quarter ended June 30, 2024, our total individual premium income, including renewals, is INR 67,192 crore, as compared to INR 62,773 crore for the quarter ended June 30, 2023. The group business total premium income for quarter ended June 30, 2024, is INR 46,578 crore, comprising new business premium of INR 45,570 crore. In comparison, for quarter ended June 30, 2023 last year, the group business total premium income was INR 35,590 crore and, comprised new business premium of INR 34,398 crore.
Therefore, for quarter ended June 30, 2024, the total group premium was increased by 30.87% as compared to similar period of previous year. Our market share by first year premium income is 64.02% as per IRDAI figures for the quarter ended June 30, 2024, as compared to 61.42% for the similar period ended June 30, 2024. If we were to split this total market share of 64.02% into segment-wise share of individual and group business, we would have a market share of 39.27% in individual business and 76.59% in the group business for the quarter ended June 30, 2024. On a comparable basis for the quarter ended June 30, 2023, the respective market shares for individual and group business were-...
40.84% and 72.5%. At this stage, I would like to mention that for full year, ended March 31, 2024, our overall market share was 58.87%. Therefore, you can appreciate that we are making rapid strides in regaining market share now. Premium APE, basically, breakup of businesses are as follows: Total annualized premium equivalent, APE, for quarter ended June 30, 2024, is INR 11,560 crore, which is comprised individual APE of INR 6,747 crore and group APE of INR 4,813 crore. Therefore, on APE basis, the individual business accounts for 58.37%, and the group business accounts for 41.60%.
Further, of the individual APE, the par business accounts for INR 5,132 crore and non-par amounts to INR 1,615 crore. As you can see, our non-par share of individual APE is 23.94%, and par is 76.06% for quarter ended June 30, 2024. You'll remember that our non-par share for quarter ended June 30, 2023, on APE basis, within the overall individual business was 10.22%. Thus, our individual non-par APE share has increased from INR 608 crore to INR 1,615 crore, and from 10.22% to 23.94%, as a result of our intense focus on non-par business.
There is growth of 165.60% in individual non-par APE on year-on-year basis, implying that the momentum we built on non-par products is continuing. Profit after tax. The PAT for the quarter ended June 30, 2024, was INR 10,461 crore, as compared to INR 9,544 crore for the quarter ended June 30, 2023, an increase of 9.61%. VNB and VNB margin. Net VNB is INR 1,610 crore for the quarter ended June 30, 2024, as compared to INR 1,302 crore for the quarter ended June 30, 2023. It can be seen that the VNB has registered an increase of 23.66% on year-on-year basis.
Further, the net VNB margin for the quarter ended June 30, 2024, is 13.9%, as compared to 13.7% for the quarter ended June 30, 2023, showing improvement by 20 basis points on a year-on-year basis. Solvency ratio. Solvency ratio as on June 30, 2024, improved to 1.99, as against 1.89 on June 30, 2023. Assets under management. AUM as on June 30, 2024, was INR 5,358,780.97 crores, as compared to INR 4,611,066.52 crores as on June 30, 2023. Therefore, our AUM has shown a growth of 16.22% on year-on-year basis. Product mix. We continue to focus on our strategy of increasing the proportion of the non-par business.
We have modified two products, namely LIC's Jeevan Akshay-VII and LIC's New Jeevan Shanti, and re-introduced during April-June 2024 quarter. While we are discussing the Q1 activities here, I am sure all of you have seen the recent product launch announcements from LIC during this week itself. We shall explain more about these launches during our subsequent results calls. Number of policies sold. During the quarter ended June 30, 2024, we sold 3,565,519 new policies, as compared to 3,216,301 new policies in quarter ended June 30, 2023, registering a growth of 10.86% over the corresponding period of last year. Agency workforce.
As of June 30, 2024, the total number of agents was 1,424,847, as compared to 1,343,540 as of June 30, 2023. The market share of number of agents as of June 30, 2023, June 30, 2024, stands at 48.64%, as against 50.94% for June 30, 2023. As already informed to you earlier, FY 2024 analyst call, held on May 28, 2024. We have started working on a project to transform our agency business to make it future ready and to be the best in class always. The project is called Jeevan Samarth, and we have onboarded global firm Kearney to lead this project.
On number of policies sold basis, the agency force sold 3,469,809 policies during the quarter ended June 30, 2024, as compared to 3,119,611 policies during the corresponding period of last year, registering an increase of 11.23%. It can be seen that approximately 97% of our policies in the quarter ended June 30, 2024, were sold by our agency force. Even on premium basis, approximately 96% of new business premium came from our agency channel in the first quarter of current financial year. Contribution by bancassurance and alternate channel.
During the quarter ended June 30, 2024, bancassurance and alternate channel collected new business premium aggregating INR 400.27 crore, which was INR 336.36 crore for the quarter ended June 30, 2023, registering a growth of 22.27% on year-on-year basis. With this, the share of bancassurance and alternate channel by new business premium has increased to 3.46% for the quarter ended June 30, 2024, as compared to 3.22% for similar period last year. Further, bancassurance and alternate channel sold 55,795 policies for the quarter ended June 30, 2024, as against 62,970 policies for the quarter ended June 30, 2023, registering decline of 11.39% on year-on-year basis.
If we look at the contribution of purely bancassurance channel, it contributes approximately 70% of new business premium to bancassurance and alternate channel. Our overall expense ratio for the quarter ended June 30, 2024, was 11.87%, as compared to 12.85% for the first quarter of last year. As you can see, there is a decrease of 98 basis points on year-on-year basis. Persistency.
On premium basis, the persistency for 13th, 25th, 37th, 49th, and 61st month up to the quarter ended June 30, 2024, stands at 78.23%, 72.16%, 67.53%, 66.97%, and 61.62% respectively, as compared to 78.37%, 72.11%, 70.75%, 64.54%, and 62.73% respectively, up to the quarter ended June 30, 2023.
On number of policies basis, the persistency for 13th, 25th, 37th, 49th, and 61st month up to the quarter ended June 30, 2024, stands at 67.81%, 59.24%, 54.73%, 54.08%, and 49.39% respectively, as compared to 66.15%, 59.28%, 57.72%, 52.04%, and 50.79% respectively up to the quarter ended June 30, 2023. Therefore, persistency has improved for 25th and the 49th month on premium basis, and on number of policy basis, it has improved for 13th and 49th month, year-on-year. Operational efficiency and digital progress.
In our digital initiative through the agent-assisted ANANDA app, we have completed 249,643 policies through this app during the quarter ended June 30, 2024, as compared to 222,167 policies for the corresponding period of previous year, thereby registering a growth of 12.36% on year-on-year basis. There is a growth of 88% in number of active agents in ANANDA app for the quarter ended June 30, 2024. Further, I am happy to mention that ANANDA app has also been integrated with WhatsApp. Claims.
On the claims front, during the quarter ended June 30, 2024, we have processed 40,54,920 number of claims, which includes 38,68,253 maturity and survival benefit claims. On an amount basis during first quarter ended June 30, 2024, total maturity claims were INR 41,954 crore, and total death claims were INR 5,467 crore. On a comparable basis for first quarter of last year, ended June 30, 2023, the maturity claims were INR 34,611 crore, and death claims were INR 5,147 crore. Therefore, death claims are higher by 6.22%, and maturity claims are higher by 21.21% on a year-on-year basis. Awards and accolades.
The list of awards won during Q1 FY 2025 is presented on slide 58 of the results presentation, which indicates that our customer-centric efforts have been recognized by various industry platforms. Overall, I believe this has been a quarter where we have fired on all cylinders and delivered growth across parameters, and I believe we are on track to meet our objective. Before I close my opening remarks, I would like to list down significant achievements during the quarter. There has been a sharp increase in our Q1 FY 2025 market share to 64.02% from 58.87% for full year ended March 31, 2024. Also, first quarter of FY 2024, we had a market share of 61.42%. Second, our overall AP growth is 21.28% on a year-on-year basis.
This represents a strong underlying growth in both individual and group business. Our non-par share of individual business has further grown to 23.94% for Q1 FY 2025, as compared to 10.22% of the same quarter previous year. VNB has also increased by 23.66% on a year-on-year basis for this quarter. VNB margin has shown as positive basis, with positive bias, with 20 basis points increase to 13.9% for Q1 FY 2025. While maintaining growth in all parameters, we have kept a focus on cost, and, as you can see, the overall expense ratio is down by 98 basis points to 11.87% in Q1 FY 2025.
Our agency is growing in numbers and now stands at 14.25 lakhs as at end of Q1 FY 2025, increasing by approximately 6% year-on-year. Now, I would like to end by stating that LIC is progressing on its stated objectives of gaining market share after having focused on, during the last year, on consolidating changes in product mix, channel mix, and margin improvement. We are committed to further optimizing our product and channel mix and improvement of margins. With the digital transformation exercise underway, we intend to create a seamless experience for our customers and partners. We thank our customers, shareholders, distribution partners, and employees, whose continuous support allows us to create a superior, sustainable value as we move to next stage of our journey. I now request the moderator of this call to open the floor for question and answer session. Thank you.
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 handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, hi. Good morning. Thanks for the opportunity. A couple of questions. The first one is around this new surrender regulation. I mean, so virtually, this increases the payout to the lapsing policyholder. Now, if I were to look at LIC's premium persistency drop at 13 months or nearly 22%. Now, in today's context, those lapsing policyholder will be getting a zero. Now, going forward from October, they will have to be paid depending upon the formula calculated number. Now, that means that, okay, you will have to sort of compensate to those policyholder by sort of a cutting benefits on the persistent policyholder or tweaking your commission structure or taking a hit to the margins.
So can you just elaborate and help, I mean, what would be the strategy, how to compensate for the sort of at least this 13-month extra payout that comes under the new regulation? So how is that going to happen? That is my question number one. Second question is on the margin front. If I look, I can understand that, okay, the margin on the non-par side, non-par individual side could be, you know, an outcome of increased benefit payout due to maybe competition, increasing guarantee, increasing annuity rates. And also on the group side, it could be a mix of, you know, factors, including how the composition is changing between group saving, annuity, and maybe per group term. That is right.
But a big puzzle that, okay, how is that margin issue such a sharp drop on participating side, particularly because now even in the profit sharing and all, you know, you are nearly 90-10 and all. So what is driving this kind of a margin drop in the, you know, par sharing side? Because your scale is too too big. So, you know, what is happening here on the, you know, individual participating side that is driving your margin so low?
Ladies and gentlemen, we have lost the connection for the management line. Please stay connected while we reconnect them back. Thank you.
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Ladies and gentlemen, the management line has been reconnected back with us. Mr. Avinash, please go ahead.
Yes, sir. So I believe there are two questions. The first one was on how are you sort of going to respond to this new surrender regulation when you will have to sort of at least if I look like the 22% of the lapsed in premium at the 13th month. Today, you are, I mean, based on regulation, you are not paying anything. Now, going forward, and of course, I mean this surrender money was anyway going to the, largely to the par pool. So going forward, I mean, the impact has to be felt by the persistent policyholder, you know, the distributor in terms of commission tweaking and also some bit at the margin.
So how are you sort of foreseeing, you know, this impact of now the new surrender regulation with the, the lapsing surrender, sorry, policyholder being paid, is going to play out across the three stakeholders? So that was my question number one. Second was that, okay, on the margins, I understand that, okay, on the group side, there are so many things that play out, even the kind of annuity ratio offer, even within group, the kind of a product changes that happen, so that margin change Y-o-Y is understood. So is on the group non-par side, I mean, because of the change in guarantees and maybe ULIP increasing, having lower margin, those partly understood. But at your scale, and the other thing, I mean, what is driving down this par margin Y-o-Y?
I mean, that's a material drop, and you have a bigger scale, and I mean, so I mean, what is happening on the individual par side margin?
Yeah. I will repeat what I had mentioned earlier. As far as the surrender value question is concerned, we all appreciate that, yes, this entire, the focus is now about how to strike the right balance for the people who are exiting policy during the term of it and for the continuing policyholders. That's why we all appreciate there has been a very long engagement within the industry and also with the authority on the factor, that what would be the right approach here. We appreciate the regulations which we are in, the principles which are laid down there, and we also know the circular which just come about.
As we intend to implement those two factors, we need to consider is that, first of all, as far as the first year lapsation is considered, the requirement to pay in the first year for all policies is only applicable when the term is up to five years. For the policies beyond the five-year term, the requirement is that first year, full year premium should have been paid. So when we consider customer persistency, the number which comes in the numerator is not inclusive of all the policies which have actually paid for the full year. It could be policies which are paid only for a month, which are paid for a quarter or half year and may still not be eligible for surrender value back. So to that extent, the impact gets mitigated in lapsation.
But that's not our, you know, aim. What we are looking forward is as an institutional company, we continue to intend to provide, you know, the services in a manner so that our policies continue to remain persistent and not first year, second year, third year. That's what we are engaged, still engaged, industry is also engaged in how to ensure a smooth implementation and orderly implementation so that we can strike the right balance for the continuing policyholders, and all the stakeholders, vis-a-vis and, you know, the people who are surrendering their policies for whatever reason during the term of the policy.
And yes, as you rightly mentioned, there could be many alternatives to whatever is the final form of implementation, which we are going to consider different solutions, including the review on ticket size, the mode of payment, the structure, the designs, which can also include the review of, you know, costs, including distribution cost. But we try to strike a balance. We have to be cognizant about the interest of all the people who are involved, including our distributors. And we try to do it in a manner so that any adverse impact is minimized to the extent possible. We continue to see more clarity and more, you know, ways for effective implementation for the regulations also, so that will be our approach when we consider these things.
Second aspect of which you talked about on the VNB margins, as you rightly mentioned, VNB margin is dependent on the business mix of the company. It also depends upon the marketing strategy of the company, overall company, because VNB margin is really significant from shareholder reporting point of view. But more significant is maybe as a value, because there's a value which is coming, which is therefore the combination of the business mix and the margins there. So sometimes we do take strategic decisions to bring down the margin so that the VNB growth can happen, which we have seen.
Actually, that's one of the reasons that if you see in the first quarter, we have been able to achieve good, not only AP growth, but also VNB growth of something around 4%, which was just around 5% in the last year, because we took a calculated, you know, decision in which the benefits were readjusted. In specific to the par segment, which you're talking about, par is also a big, has got a big bandwidth of products, large number of products. Within them, the margins are different, and significant. So there also, business mix is one of the things which drives the value of VNB margin within it.
But another important component is risk-free rates or the discounting rates that are used for the valuation of VNB margins, and they may be assessed. We have seen this upward trend in the RFRs during this period, which has also significantly impacted the VNB margins in the participating line of business, specifically which you have. I hope that answers your query.
Yeah, thanks, sir. So, quick follow-up on that, the first surrender regulation. So very specific. Now, will it be possible, because you have a large agency distribution, there's a first year's commission, will it remain viable to not have a clawback or a trail-based commission for the policies that if likely lapse, say, in 13 months, especially? So, I mean, under the new surrender regulation, will it remain viable that you still have the usual payout structure that you are doing today, if the policy were to lapse, say, in 13 months after paying one year premium?
Since we mentioned about surrender regulation, and if we read the regulations clearly, I don't think we are ensured that we have got challenges. The bigger challenge is possibly from some provision in the draft circular, not, well, not draft circular, but the master circular. So, regulations are consistent with the pricing rates, so that's not a big point. Will it be possible? This world is full of possibilities. Many solutions are possible. Clawback is one of them, but it's not a necessary provision. We'll try to see ultimately the final shape in which we have to work out. We are in constant interaction within our, you know, teams, marketing teams. Whenever product review or product redesign has to be considered, we have to consider all the aspects. So, everything is possible.
Clawback is an option, but not a necessary option. At this stage, we'll not like to preempt and say, this is going to be, everything. Everything is possible. Like, the review on the ticket size is possible, but every action has got an implication. So we have to see what is the best, possible combination of decisions, that we have to take, in product review. Product review is anyway a very regular affair for us and is a continuous requirement for us. Whether product regulations, you know, are there or, you know, they are not changed, still, review will always be there, whether from the participant point of view, we have to consider all these aspects. So yes, this is an option, but not a necessary, action that is in this stage, right.
And sir, one data question, if you can help. I believe around INR 1,400,000 crore would be your equity investment. How that is spread across your par and non-par books? And what is the fair value gain sitting in these two books?
See, not talking about specific numbers, but as a conscious decision for the participating business, we consider that, you know, because it involves discretionary benefits, we would, you know, always be happy to have an equity matching ratio of around 15%-25% in that range, ideally around 20% plus, going forward. As far as non-par business is considered, I'm talking about the business which is for the transportation of policyholders' liabilities. Largely, because the guarantees are involved, and the guarantors being involved, there is the requirement of asset liability matching to that extent. So, very small portion of equity backing is there.
But our ASM fund has got, you know, substantial amount of equity backing. So this is a mix in which so we consider, you know, the nature of the business, the requirement of maximizing and/or rather optimizing the benefits for that class and also ensuring ANM in that context. So that is, in principle, that is our approach which we are taking.
Okay, thank you, sir.
Thank you.
Thank you. The next question is from the line of Suresh Ganapathy from Macquarie Capital. Please go ahead.
Yeah, sure. So I had a question on your again, margins. So, you know, what do you-- I mean, the, the fact that, we are giving increased benefit payouts, to the customer, and it's a strategic decision that we have taken, perhaps that's what is causing a reduction in both par and non-par margins that you're talking about. And also, we are looking at the surrender value regulations. So how do you look at the full year margins? You were around 16%-17% for FY 2024. I know there is a complex product mix aspect also. Would that also be, considering that, do you think you can maintain margins on a full year basis? And also carrying on Avinash's question on the equity book allocated.
I mean, you are saying that the guaranteed products and non-par as higher, what you call government securities. But when I look at the part of your IPO document, you have allocated a massive INR 5 trillion to your non-par book equity. We know at the time of IPO, out of INR 9.8 trillion. So I think right now, out of INR 14 trillion, it looks like even almost 50-60% of the book would be allocated to non-par, if I look at your IPO document on an outstanding basis. Can you please provide a clarity on that? Thank you.
Yeah, you see, to the second part of the question, I think, please note what I mentioned. I clearly mentioned that, for the participating business, this is the equity backing ratio. What, when you're talking about non-par book size, you are including the assets allocated to ASM, Available Solvency Margin fund, which is in our non-par fund. So there the allocation is there, but the accretions from that fund is goes to the shareholder side. There's no allocation which you are seeing on the books. And that's why, when I'm talking about lower equity backing ratio, that is in context of the liabilities which are in the non-participating contracts. So that is,
Okay, that's clear. That's clear. Yeah. Thank you. Okay. Yeah.
Thank you.
The first question?
The first question was about surrender value.
No, no, overall margin outlook, sir. I mean, how do you look at the full year margin outlook versus last year?
I'm aware that, you know, some people have given their estimates on this thing. We'd like, not like to, you know, get into the... For example, let me say, for example, you go by the version, then surrender value have to go up. The actual outcomes would depend on the customer's behavior. Does it necessarily mean that when the surrender value factor actually go up, surrender rates also go up? It may happen, it may not happen. For example, strategically, an insurance company may come up with the products with the higher side, where the surrender behavior is less, or with the different duration or different appeal to the customer. So I personally feel it will be, you know, sort of, speculating without...
Because the customer behavior for this type of surrender, you know, factor is not available with us as of this point of time, and that will evolve. And I'm saying that there will be some, you know, continuous thinking about, you know, balancing the benefits for the continuing policyholder vis-a-vis the withdrawing policyholder. We still are, you know, thinking that something from here onwards may change here, because the regulation allows for provisions for that thing. So if we consider the product as of today, and then they continue to be the case, then definitely surrender values have this impact.
But we also appreciate that if these surrender values, you know, have to be done or increased surrender values have to come into play, this will be a requirement for re-review and redesign of this product, so that, that value can be protected. Now, that may have an impact on the business volumes, that may not have an impact on the business volume, that may create higher acceptability of products or lesser than that, only time will tell. So, you know, it's not something which is very static and, on those basis it can be projected what is the impact.
We are confident that, insurance companies, together along with the authority, will work out the ways and the avenue in which, the growth of their, the business will continue, and the profitability and the margins and, you know, to all the stakeholders will also continue to be reasonably good and fair. So, we will all, we'll continue to strive in that direction. Thank you very much.
Okay, and just one final question on your strategy itself. I know it's a bit complicated, but the point here is you are bringing down your par margin, non-par as well as non-par margins, more so on the non-par margins. I was looking 1Q FY 2023 was 72%, 1Q 2024 is 43.3, and 1Q 2025 is 39.8. So you have consistently brought down the margins by a massive 30 percentage points over the course of last 2 years, just to push up the non-par growth. So, I mean, how long can this continue? I mean, the point here is, do you really want to prioritize growth over margins? How do you strike the right balance, especially when you are also going to see a regulatory change? Because it looks like growth is coming at the expense of margins.
Yeah, that's a, that's a very good question. Great question also. But if you would see that, when we have brought down margins in some other products, we have also introduced products with, you know, higher margins in between. Now, and during this period, it's not that we have been continuously bringing down our margins. For example, for the annuities, while in the last quarter, of the previous financial year, we did bring down, our margins and fees annuity, we have reviewed and revised our rates, in the current quarter. So it has to be attuned to, as we said, our larger focus is to ensure that our VNB growth, VNB by amount, that is actual profit numbers are sustainable and upward looking.
And that all of us or anybody who understands and appreciates the insurance business, it is going to be a combination of the AP growth. We can have very significant high margins and stay with it, with the, but the business probably may not come about there, so it doesn't result to any VNB as such. So therefore, it is going to. And so what we are trying to do is, as on the competitive lines of business, wherever we have to, we have no option, but we have to make our products as competitive as anybody else is giving.
So, when we give it, we are simultaneously bringing out other products, and some of them have been blockbusters for us. Introduce them through better benefits, the products which are value proposition for the customers. They are good for the shareholders, and they are good for even our internal stakeholders. So those type of products also we have introduced. We continue to rebalance, and it, actually, this is something which should be noted that despite of many, the challenges on the VNB front for the industry itself, and a large of it is also coming from the discount effects that we talked about. For LIC, the quarter-to-quarter VNB margin is better than the last first quarter of the last year.
We have seen our trajectory changes from first quarter towards the fourth quarter, and that is what directionally we are expecting and working for.
Okay, thank you, sir.
Thank you. The next question is from the line of Supratim Datta from Ambit Capital. Please go ahead.
Hi, thanks for the opportunity. My first question is on your hedging strategy. So last quarter, you had indicated that you are working towards putting up a hedging strategy for your non-par book. Just wanted an update on that. Where has that progressed, and how far are you towards putting up a hedging strategy for your non-par book? That would be the first one. The second one was on the VNB book. You know, there has been a 230 basis point impact due to change in assumptions. Just wanted to understand what's contributing to that, what has moved. So if you could help with that, you know, that's something that I would like to understand.
Lastly, last quarter you had mentioned that you were working towards to get the composite license and what opportunities that could throw up. If you could give us an update on what, you know, what's happening with composite license, how, you know, and what work have you done in the last three months to take to make use of it whenever it's available? Thank you.
I will answer last question first. Regarding composite, actually, we know that there will be some amendments so that, composite license is coming. For that, we have, because I have already given statement, we are now exploring all possibilities to have some stake in some standalone health insurance company. So that, because internally we examined it is not, appropriate to develop our internal health insurance, vertical, so better to acquire some stake in some company. So that work is going on. I think, within this year something will materialize. Regarding, your hedging strategy, we have our derivative policy in place. We have taken approval, and, our team is working on that. Any further input?
In fact, yes, we have our, you know, hedging strategy in place. It is approved by the board investment policy. We have already tied up with the bankers on that thing. And as our non-par portfolio increases, we are actually started to work upon that already. Besides that, in fact, I'm also aware that within industry, there is also call whether the direct participation of insurance companies into this segment could also be considered, which is a very good idea being thought about and currently at the third stage. So we'll remain open to utilization of this hedging strategies for this segment.
As to that, the assumption impact of assumptions on VNB book. The major impact comes from the fall in RFR, and there's a minor, actually, additions to the assumption in the way of a better improvement in mortalities, which we have observed in case of term and group businesses. That has been updated because as per the standards, we like to factor in whatever the information we have to date basis. And then we have also observed there is an improvement in the withdrawal assumption in case of group that is towards the better end. So these three are the most prominent assumptions that we have made.
The major being the fall in RFR, which has impacted the margins in a negative way.
... Got it. And, on the mortality experience before in term insurance, you know, what is that contributing to? Have you, have you, you know, looked into that? That would be one follow-up. On the, on the composite license, sir, you know, thanks a lot for the clarification. Just wanted to understand that you are looking at taking a stake in one, you know, one of the SAHIs. All the SAHIs are privately held, so, you know, are you looking at, you know, acquiring something, or would it be a strategic stake? You know, what are your thoughts on that? If you could give us some clarity, that would be very helpful. Thank you.
Actually, at this stage, we are exploring all possibilities which will be in the best interest of LIC, all its stakeholders. That we are exploring, and when we finalize, you will also be able to know that.
Sir, your first question was not very clear, sir, from-
So, yeah. Sir, you had said that on mortality, the experience was poor in term insurance, which was one of the contributors to the adverse assumption change.
No, no, no. Actually, in case of term and group, it is better.
Okay. Okay. Okay.
Negative impact is the fall in RFR. The other contributions are positive in nature.
Okay. Got it. Understood. Thank you.
Thank you. The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.
Hi. Thanks for taking my questions. You know, again, going back to the same point on, you know, the margin change, in the book. So what I understand is that the change that we can see on the PAR side, was not because of benefit enhancement. So I think in your VNB walk, you have sort of cited two reasons, you know, for change in margins. One is, you know, impact of product benefits, and the other is impact of assumptions. And, I think what you seem to be now saying is that, the PAR book is affected purely by impact of assumptions. Is it?
See, there are impacts on PAR book. One is, there are different parts in the PAR book, which each has a different profit signature. And, there's a business of mix within the PAR book is also impacting, to some extent, the margins of PAR. And, most important contribution to, the movement in the, what we observe in the movement in the PAR book is, due to the fall in PAR.
I think we lost him, right?
I'll repeat once again. See, PAR book consists of different products with a different profit signatures, and the business mix also contributes to the movement of that we observe in the PAR business. And more importantly, in the interest of PAR business, the impact of RFR fall is profound.
Okay. So because if I look at it, you know, now, this year onwards, you have almost 10% sort of a economic share. Shareholders have almost a 10% economic share in the PAR book. And, you know, if we had kind of sustained it at 5%, you know, what we had during IPO, probably margins would have been around 4%. So, you know, does RFR have so much of an impact? I think it's what my question is. And, you know, kind of coming back to the broader question on margins, I understand that, you know, at this stage it's a little challenging to sort of give an outlook on margins. Obviously, a product mix shift is definitely helping you.
But at a product level for PAR or non-PAR, is there a particular threshold margin below which you would probably not want to go and then say, or probably on a risk-adjusted basis, it doesn't make sense. And you would then say that, "Look, beyond this, you know, all of it is something that we'll pass on to either our customers or distributors." So if you could give us something in your mind saying that, you know, we can't go below a particular percentage, whether it's a five or a seven or whatever, and you know, beyond that, we will pass on.
See, I'm just skipping on that issue. Yes, it's pretty good participating business. You know, RFR is critically a significant aspect. But we also need to appreciate that nature of products which are in the different parts, participating, non-participating, are differentiated, but at times very similar also. And within the participating book, there could be products, again, within the PAR book size, as I explained in my first response, and the really margins within the products would have significantly changed. So if we have a product which becomes a very blockbuster or very, you know, attractive and, you know, taken with open arms in the non-PAR side, and you've got a similar product in non, participating book side, there's going to be trade-offs. And so for a short period of time, that will impact.
So the business mix is bound to change when you are taking a strategy towards a particular line of business. That is something possibly which can't be seen on quarter to quarter basis. It has to be allowed to settle down over a period of time and then see. As far as your point about benchmarking or referencing, I think I indicated my earlier response also. What we are looking towards is a very, you know, robust and sustainable growth in VNB. So we are working on a overall strategy of business mix, business volumes and maybe margins.
As a reference point, definitely another indication is we have seen from our results in the past that we have always referenced and benchmark to the corresponding period of the previous period, and try to go upwards from there. So the strategy is to gradually move upwards in this business margin overall last. If you see in the first year, it was around 15.2, we moved to 16.8 at the end of the year, and that is the direction in which we are moving towards, you know, possibly 20% plus in near to middle term. And, of course, during that period, because the numbers on the margins only come after the quarter is over or the period is over.
So to what extent that strategy of mix and will the margin change or sacrifice or in fact, you know, not allowing it to be sacrificed, has worked out is seen at end the quarter and recalibrated for the next quarter. But the direction is that we are going consistently towards upward trajectory that to be in line with the industry. We have seen in the industry also, there are some, you know, there have been achievements of high 20s or even 30s, and they have settled down, some come down.
So, there is always a shift in the industry level and margin, but we are very, again, confident that over some period of time, our business mix, as it is changing and changing sharply, actually, in the right direction, will be the standard benchmark for the entire industry also.
Got it. Just one small question, and maybe, you know, this is probably a suggestion, is that if you could break up your equity book, you know, between, basically your investment book between equity and debt. And again, you know, that breaking up into par and non-par, because I believe last year you had made some transfers, you know, for equity, you know, from the non-par. As in basically, the equity share in the par book had gone up. So, you know, when we try to kind of corroborate, you know, the market value of LIC's investments, it just helps us to understand how the allocations are happening. So maybe if you could either share a number or maybe, you know, subsequently kind of put it in your quarterly presentations.
Sure, sure.
Sure. Thank you very much.
Thank you.
Thank you. The next question is from the line of Paresh Jain from Motilal Oswal Financial Services. Please go ahead.
Yeah. Hi, good morning, everyone. Sorry to harp on this VNB thing again. So, you know, we on the par side, have we moved from 7.5% sharing to 10% sharing? And you've been alluding to the fact that, you know, the mix has been adverse in the par side, which has kind of dented the margins. Could you give some more granularity as to, you know, what is the kind of mix that is impacting, whether it's the tenure of the products or it's the different nature of the products that's kind of impacting this? That would be my first question. I'll ask the other questions later.
See, if we look at the par products, there, there are different types of products which cater to different customers. And we have observed that the customer, the product, the customer profile, that is the distribution of term, as well as the distribution of the ticket size has changed, and that is the contribution. That has the, that has contributed to the impact to the margins.
Okay. We have moved to so 10% sharing, right?
Yeah, yeah. In spite of we, because the RFR impact, as we have... The RFR impact is more performant.
Okay.
Everything is long term, and therefore the impact on interest rates.
Yeah. The other question is, you alluded to on the surrender charges. You have mentioned that, you know, if the premium is not paid for more than one year, then only then the surrender charges impact would not be there in the first year. Could you give some persistency color on that particular cohort where, you know, the premium has been paid for more than one year? What is the kind of persistency for you guys in the 13th month for that kind of a cohort?
I think that is, you know, we will appreciate one thing that, you know, by by overall analysis, that yearly policies tend to last the least, the highest persistency or cessation, sorry, happens in the policies where the ticket size is small and the mode is like particular. That has been the trend. So... But again, we can't speculate based on that because the benefits change. People will tend to change their the preferences also. Customer behavior will change. That's what I was indicating.
Mm-hmm.
And, how it pans out, how the customer behave, just because the surrender will affect the thing, customer will anyway use some part of his, you know, investment, now that he's gaining out of it. So it does not necessarily mean it will translate into higher surrender. So all the sectors will have to be considered if we can, you know, tailor our products or make them more impact distributor behavior and all those things can be linked together. Insurance company can flesh out design. But yes, it has got an impact. It has got a financial impact on the way we have the products right now. It's a challenging environment that we have to take care of.
But we cannot say, for example, this five-year thing, we hardly have any product where there are less than five years term is available, so that's not going to impact us for that for sure or something.
Mm-hmm. Mm-mm.
Just because one year is going to pay, you know, surrender values, we are not going to discourage people for taking a yearly mode. That's also for sure.
Mm-hmm.
We'll work out and we'll discuss all those things, and we'll try to look into our product design accordingly and engage in the discussions wherever they are required and where they are fruitful to find the right way forward.
Got that. And secondly, you know, there have been a recent push towards ULIPS. How do you see that kind of scaling up? And if I have, whether I've heard it correctly, that your medium-term target for VNB margins is 20%. You know, with the, with this kind of, so do you think that can be achievable with your focus, increasing focus on ULIPS and, those products?
We mentioned about 20% plus, just to clarify.
Okay.
So 20% is not as a number, but 20% plus is weighting, which I think ULIP has got the importance in the portfolio, not necessarily from the you know margin point of view. I appreciate that point. ULIP has got advantages in the current setup of team, and therefore insurance rules and through. We also, as I said, because it's a customer preference, which is very important. If customers have got an appetite, even margins are low, because that cannot be the only criteria, that because margin is low and customer need is there, we'll not fulfill it. So at times it's not only the decisions to provide which product or which direction, it's not necessarily constrained or bound by margins only. So that's. Let's be clear on that.
However, for the top line, for satisfying customer, for the, you know, larger, I should say, leveraging those products for satisfying more customer needs, ULIPs are going to be important. So, that's the direction, you know, way in which we are going towards it. But, we are also focusing. Our big margin is coming from our saving products, so that continues to be our main focus.
Got that. Thank you.
The growth in saving non-par is even much higher than the ULIP. In our case, ULIP is around 134% in this quarter, whereas we are almost at 600% growth in our non-par saving, resulting in overall around 160%+ growth in our non-par, you know, in non-linked products. So that, that's the, that's the direction in which we are.
Got that. Thank you so much.
Thank you.
Thank you. The next question is from the line of Sanket Godha from Avendus Spark. Please go ahead.
Thank you for the opportunity. Sir, my question is pretty simple. Assuming the surrender rules are implemented on the current product structure, if you don't do any tweaking, what is the likely impact on the margins? This, just how much you need to adjust to protect that margin is the reason I'm asking that question. Assuming it's ceteris paribus, what is the likely impact on the margin? That's my first question. The second thing is that your drop-off rates are assumed to be 22% at the 13 months. You also said that there are some policies which are quarterly, half yearly, and they are part of the 22%.
So if you can break up the premium of 20-22%, which is dropping off, how much is less than one year premium? I mean, the paying term is quarterly or high frequency compared to annual. That's my second question. And lastly, somewhere the par business seems to be struggling to grow. Anything to read between how... Is it because you have increased focus on non-par, so naturally weakening the par, or you think someday this business will come back and contribute to the growth? Yeah, those are my questions.
Yeah, yeah. See, first of all, as I just said, I would not like to assume anything. We are still, we are, you know, perennial optimistic. We remain optimistic, that, you know, something better will come about. So I don't see any reason to assess. In fact, we have assessed, but it's not, it's not about VNB margin. Let's be clear. It's the surrender value is not an issue about only VNB margins per se. It is about, you know, the best value proposition from the customer. That's how we look into it. As I said earlier also, margins, let's be very, you know, clear about it. Margin is something which can, any product, you can just design a product, it can have margin. So that cannot be the ultimate focus.
The focus is but how that margin leads into the business growth and industry growth and for us as a company growth. So that the value is achieved. So at point of time, the 20% or 25% or 100% is not that significant, but what is the ultimate value which are coming in terms of the business growth, and, the margins? That's going to be the consideration, and that is the direction in which we are working. The second part of the question is... Yeah, see, again, we need to appreciate something that, it has been a big part of our life, to move away, not actually move away, but to rather, see, let's see, it is not that we are moving away from participating business.
We are towards the better client, at a point of time, they will decide what type of product they want to do. So there's a function of their needs. For example, let's talk about ULIP. ULIP is driven by, you know, what market sentiments and what market understanding customers have. So it is not necessarily insurance companies pushing. At times, it is sought by the customer, that's why it is done. Same customer, suppose you come out with a new product. As a strategy, we felt that we have got good number of, enough number of products in participating, and in case it grow, we can come out with more guaranteed type of products which a customer need.
So it's not only from business position or margin point of view, we consider it's a value proposition, good for the customer point of view and for the, for us, the insurer also, that's why we come out with more offerings. So it is possible that at the time, as a customer, every customer would have a budget of his own, and that's what, how much they can spare in a particular year. So possibly, if the larger spend or larger, you know, investment is or larger preference is, I think, was non-par product. The same customer at that point of time may not be able to afford or buy a similar car purchase. So the functions, you know, or the outcomes cannot be seen in a short period of time.
So it's not that we want to reduce our business and grow into non-par business. Our ultimate aim is that we want to offer all the product solutions to the customer and tell them the value, the guarantees, as well as the choices for the discretion, and we are doing it. But as a corporation, we have realized that we have been in par business for long, and there was an effect of saturation in that market. We do not see substantial growth at this point of time in par business, but we still expect, and we are working towards reasonable growth in participating business also. In fact, in the recent quarter, we have seen an uptick in our participating sales also and the volumes also, as compared to the trends which were there in the previous year.
So as a company, the direction from CMD is continuously that what we have to offer is value proposition for the customer, and that is what is happening. The great growth which is coming in the non-par segment is the outcome of the number of products, the, which have been appreciated by the market that we have been able to offer. An area which has been largely untouched from the point of the distributor, the policyholders, which have been there. So that is happening. And possibly there's a dent as an outcome of that in the participating business. It's not as a conscious strategy to reduce par business. We want to improve our book size on both the sides of it.
But we realize exponential growth can come from non-par at this point of time, as compared to the participating.
Got it. The second question, which I asked, basically out of that 22% drop-off which we experienced after 12 months or 13 months, how much is less than one year premium paying plan? Because that naturally will not be part of your surrender rules, so you'll benefit out of it. Just wondering whether we can assume it is 50% or less than 50% of the drop-off what you experience in 13 months?
See, what will happen, you know, why, you know, the—I don't see, as I was explaining earlier, I won't see much, you know, purpose in examining the current portfolio. If there is something to be done, we will redesign our products to ensure that they're in line with what we want them to, right? So I'm not bound by offering the same thing which I'm offering currently. So I have to first decide if this is the direction, these are the decisions which are going to make. And, we'll make decisions in a way to protect that.
Of course, that can have business implications, because suppose we increase the ticket size or we take decisions, that can help, persistency, but then we have to see whether it has got a, it will lead to any better, you know, outcomes or that will change. That's an area which will then, we'll appreciate that this long discussion and productive discussion has happened on this concept. Whether it is immediate, thing is good or it is to be a gradual approach, which will work out. But, we have to comply with whatever is the expectations of the regulators.
We only have the right to discuss and present our case before them, and ultimately we'll do what is required and comply with those things and take a design review to ensure that customers continue to stay as best as possible, distributors continue to get, you know, benefits which are as best as possible, and shareholders interests who are deeply involved into the business are also fully protected in line with the expectation that we create for them.
Got it, sir. Thank you, thank you, thank you so much.
Thank you, sir.
Thank you. The next question is from the line of Gaurav Jain from ICICI Prudential Mutual Funds. Please go ahead.
Hi, sir. Thank you for the opportunity. Just two questions from my side. One is on the new launches, sir. So the Jeevan Utsav product that we launched has really helped us ramp up the non-par AP side of it. So, are there any new launches that you are working on, either on the non-par or anything on the annuity or, say, protection ULIP? So if you can help us understand what kind of new launches are you thinking on. And second is on the distribution side, sir, if there are any steps, I can see there is some increase in the bank APE and the direct APE also. So if you can help us understand what are the strategies that we are taking on the distribution side to increase the more mix coming from these other channels also. Thank you.
You see, recently we have launched two very innovative term products, Yuva Term and Yuva Credit Life. And already we are getting very good response, getting traction in the market. And in coming days also, we'll be launching some more products, depending upon whatever credits we aggregate from our customers as well as from our field force. It is a continuous process, as our appointed actuary told. It's worth launching, depending upon market need and, other things also. We, we imagine all those things. Keeping those things in mind, we'll be continuously launching innovative products. So that is one thing. Second question was?
Marketing.
Marketing strategy, you see, our banca has already improved. Focus will be on alternate channel and digital marketing also, without compromising agency channel. Agency channel will grow, but the share of other channel we plan systematically it has to grow up. And already banca has shown in last quarter, Q1, they have shown, we are more focusing on alternate channel. Apart from bank, alternate channel means broker, IMF, corporate agents, those will be focused area in the current year.
Got it, sir. Thank you, and all the best.
... is from the line of Dipanjan Ghosh from Citigroup. Please go ahead.
Hi, good morning, everyone. Just one question from my side. You know, when I look at your persistency ratio trajectory between Q1 of last year with Q1 of this year, and the decline in some of the buckets, especially the early ones, wanted to understand if you can give broad color on the product categories which are, which have witnessed a decline, or is it across the board that you have witnessed, a deteriorating persistency trend? Also, you know, if you can break it up between, you know, some of the customer cohorts in terms of, high ticket versus low ticket. That would be my question.
Yeah. Yeah, as far as this, you know, thirteen-month persistency is concerned, I think on the policy basis, it has improved as compared to the last year's on premium basis is there. But the changes are very, you know, small. The difference is, you know, because we have taken certain decisions, in the previous years, in which we have reviewed, various products, where the, where the persistency experience was not good, particularly in the micro side. So possibly there is a shift from those businesses to some other lines of businesses. But as far as policy is considered, in the policy that, thirteen-month persistency is actually by policy is improved, so, from 66.15% to 67.81%, so that's the case.
Okay. Yeah, yeah.
And these are the cohorts, you know, which are over previous period of time. Another important aspect of persistency which needs to be noted is that for the corporation, we have a very, you know, a very, very different role from any other, possibly, because of the, the, the, we have a 50-year decade, and we have always been trying to balance, between ensuring just the number of persistency and also making our availability. You know, this insurance for all concepts, reaching every nook and corner. So persistency can be possibly significantly improved if the ticket sizes are increased. But then there's the deprivation to the large segment of society, which can afford, you know, lesser amounts, so they have to be given, smaller ticket size also.
But by the nature and, we have seen that in the lower ticket size, the persistency experience is less, because of the affordability is issue. So, you know, in case a certain percentage is lapsing, that's one way of looking at it in that segment. But a certain segment which can afford and continues with that policy, if we do not provide them those ticket sizes, then possibly they cannot never benefit from the benefit of the insurance. So that is some call which is very critical and important for us. And, this persistency ratios, again, line by or business wise are different. We also show very high persistency in some business and all those things, but this is largely coming from small ticket size policies, their contribution.
As we continue to review, we have reviewed a lot of products in that direction, but that has also impacted the business volumes also. So, we have to look into that aspect and the persistency, we are closely monitoring, doing all the efforts in that direction, and in fact trying to incentivize the behavior of distribution also, as well as in the product designs, we have tried certain experiments. At times it takes little time for them to get implemented because the numbers, other than 13th month, are the ones which have been done in the previous period. Another important aspect is that this way of persistency calculation, I've seen from public disclosures, and some of the companies may not be including micro business into it. We do include micro business into our persistency calculation.
That makes smaller impact, but I never did that has got an impact. So, we have therefore had to review our micro insurance products. That's what we'll continue to do. We realize the importance of persistency, and that remains a focal area for the corporation.
Got it. But just a follow-up for, you know, would you like to give some color between ULIP, par and non-par savings in terms of how the persistency trends have been? I mean, excluding the ticket size and the customer cohorts, in terms of the product category, which class, has witnessed, pressure?
The overall, the experience, if I would say, by non-par savings, would give the best persistency to us. In that also, the term business would give the best persistency, followed by non-par saving products. Of course, the annuities give good persistency there also. Then comes the participating business has got lesser persistency as compared to that, mainly because of the ticket sizes, again, being less available in various products there historically also. And ULIPs also show lesser persistency, but within ULIP, some of the products have shown, the new products have shown very good persistency. The old products that we had, their persistency is low. So within ULIP also, the trend is different across different products.
That's why we are having a close look into which products to continue, which products to now redesign, and which to phase out.
But would you, would it be fair to assume that on a YOY basis, par has witnessed some pressure at a small ticket front? Par has, in the 13 months, par has witnessed some declining trajectory?
You are talking in context of persistency?
Yes, yes.
Yeah. Some of the products within the par, which have got lower ticket size, their persistency seems to have dipped. Therefore, we'll have to re-review those products.
Got it. Thank you, sir, and all the best.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today's conference call. I would like to hand the conference over to Mr. Mohanty for their closing comments.
So thank you, friends. Thank you for patiently listening and for your very, very thoughtful questions, and we hope that we have been able to answer all your queries to your satisfaction. Given the momentum in our business and rollout of various strategic initiatives, we are hopeful and confident that we'll be able to demonstrate all-round growth and improvement in parameters as we move forward. Thank you very much, and have a good day. Thank you.
On behalf of LIC, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.
Thank you very much.