Ladies and gentlemen, good day and welcome to the SBI Life Insurance Company Q4 Results Call for the Financial Year ending 31st March 2022. 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mahesh Kumar Sharma, Managing Director and CEO, SBI Life Insurance. Thank you and over to you, sir.
Yeah, thank you very much. Good evening, everyone, and we heartily welcome you all to the annual results update call of SBI Life Insurance for the year ended March 31, 2022. We hope you and your families are safe and well. Update on our financial results can be accessed on our website as well as on the website of both the stock exchanges. Along with me on this call, I have Sangramjit Sarangi, President and CFO, Ravi Krishnamurthy, President, Operations and IT, Abhijit Gulanikar, President, Business Strategy, Subhendu Bal, Chief Actuary and CRO, Prithesh Chaubey, Appointed Actuary, and Smita Verma, SVP, Finance and Investor Relations. We are pleased to inform you that we have successfully maintained the new business trust and have again delivered enduring performance in this year as well.
This demonstrates the company's strength of distribution and expansive outreach to customers in cost-efficient manner. Our commitment is to deliver sustainable long-term returns to the stakeholders. This would not have been possible without the efforts of all our employees, distribution partners, and business associates for their uninterrupted support which helped to service our customers during this challenging environment. As mentioned in last earnings call, we have aligned our value of new business, VNB margin, and Indian embedded value. As per industry standards and reported figures will be comparable with peer companies. Now let me give some key highlights for this year ended 31st March 2022. New business premium is at INR 254.6 billion, with a growth of 23% over the previous year. Individual new business premium stands at INR 165 billion, a strong growth of 32%.
Gross written premium stands at INR 587.6 billion with a growth of 17%. Protection new business premium grew by 24% to INR 30.5 billion. Individual protection new business premium grew by 26% over the previous year to INR 9.4 billion. Annuity business stands at INR 34.7 billion, registering a growth of 15% over the previous year. Profit after tax stands at INR 15.1 billion. Value of new business is INR 37 billion, registering a strong growth of 39% over the previous year, and the new business margin is at 25.9% with an improvement of 270 basis points. Indian embedded value stands at INR 396.3 billion. Embedded value operating profit stands at INR 68.9 billion.
Operating return on embedded value stands at 20.6%. Assets under management grew by 21% to INR 2,674.1 billion. Let me update you on each of these elements in detail. We'll start with the premium. Individual business, one of the focus areas of the company, has grown by INR 165 billion, a growth of 32%. Sorry, it has grown to INR 165 billion, growth of 32%. Single premium contribution is 24% of the individual new business premium, which is mainly attributed to growth in individual annuity product. The company gained the private market share by 166 basis points to 23.4%.
Individual rated new business premium stands at INR 128.7 billion, a growth of 26%, which is leading to private market leadership with a share of 23.4%, an improvement of 75 basis points over previous year. Maintaining private market leadership position in new business premium, we collected INR 254.6 billion new business premium and marked private market share of 22%. Group new business premium stands at INR 89.6 billion with a growth of 10%. Renewal premium grew by 12% to INR 333 billion, which accounts for 57% of the GWP. Our gross written premium stands at INR 587.6 billion with a growth of 17%. Total APE stands at INR 143 billion, registering a growth of 25%.
Out of this, individual APE stands at INR 129.6 billion with a growth of 26%. During the year ended 31st March 2022, total 90.2 lakh new policies were issued and registered a growth of 16%. Sum assured under individual products registered growth of 16% over the previous year as compared with growth of 3% at private industry level. Now about the product mix. Individual protection is at INR 9.4 billion, registering a growth of 26%. Group protection stands at INR 21.1 billion with a growth of 23%. Credit-linked new business premium has grown 21% and stands at INR 16.8 billion. On APE basis, protection contributes 11% of new business and registered a growth of 28%.
We are confident that over a period we will be able to register an uptick in share of individual pure protection. Annuity business is at INR 34.7 billion and contributes 14% of new business premium. Total annuity and pension underwritten by the company is INR 72.3 billion, registering a growth of 15% over the previous year ended 31st March 2021. Guaranteed non-par savings product is contributing 10% of individual new business and on total APE basis, this contributes 12%. Non-par guaranteed product new business has registered a growth of 62% over the previous year. Individual unit business is at INR 113.2 billion, which constitutes 69% of the individual new business premium and has shown a growth of 32%. Fund management business is at INR 51.5 billion with a growth of 13%.
During the year, the company has launched SBI Life Smart Platina Plus, which provides security, flexibility and reliability through a regular guaranteed long-term income, flexibility to suit life goals and financial protection along with tax benefits. The response to this product is very positive and received record inflows in very short periods of time. The company offers comprehensive suite of participating, non-participating, guaranteed annuity, pension and unit linked solutions, which are designed to enable our customers live life to the fullest across a wide demographic range and income levels. Now a look at the distribution partners. With strength of more than 53,000 CIFs, bancassurance business marks a share of 65% and grew by 31% in individual new business premium. Bancassurance channel individual APE stands at INR 87.4 billion with a growth of 27%.
Agency, our strongest channel after banca, registered new business premium growth of 30% and contributes 18% in new business premium. Agency channel individual APE stands at INR 36.8 billion with a growth of 22%. As on March 31, 2022, the number of agents stands at 146,057. There is improvement of 21% in agents' productivity levels as compared to previous year, and greater use of technology is assisting in better engagement in the entire value chain for recruitment and training through to lead generation, sale and customer service. During the year, other channels, that is direct corporate agents, brokers, online, bank aggregators, et cetera, grew by 61% in terms of individual new business premium and 45% in individual APE.
Protection new business premium through other channels registered a growth of 41%. Partnerships like Indian Bank, UCO Bank, South Indian Bank, Punjab & Sind Bank and YES Bank registered a growth of 49% overall. These relationships contribute almost 4% of individual APE as on March 2022. Now on profitability during the year, COVID claims net of reinsurance paid as well as outstanding stands at INR 15.9 billion, covering various lines of businesses. The company has kept additional reserve amounting to INR 2.9 billion for COVID-19 pandemic over and above the policy liabilities. The company's PAT for the year ended 31 March 2022 stands at INR 15.1 billion. Our solvency remains strong at 205% as on March 31, 2022. Value of new business is INR 37 billion, with a growth of 39% over the previous year.
New business margin is at 25.9% with an improvement of 270 basis points, sorry. Embedded value stands at INR 396.3 billion with a growth of 8.9% over the previous year. Embedded value operating profits stands at INR 68.9 billion. Operating return on embedded value is 20.6%. On operational efficiency, cost efficiencies continued to be maintained with total cost ratio at 8.8% and OpEx ratio at 5.1% for the year ended 31st March 2022. 13th month persistency ratio of all policies that is regular as well as single and limited premium stands at 88.4% as compared to 87.9% of previous year.
In accordance with recent regulatory requirements with respect to persistency of individual regular premium and limited premium paying policy, 13th month persistency stands at 85.2%. Company has registered a strong growth in 25th month and 49 month persistency by 221 basis points and 423 basis points respectively. As mentioned in my opening remarks, assets under management stands at INR 2.6 trillion as on March 31, 2022, having grown 21% compared to last March. The company continues efficient use of technology for simplification of processes with 99% of individual proposals being submitted digitally. 44% of individual proposals are processed through automated underwriting. Customer satisfaction is a key focus area.
Grievances ratio, that is number of grievances per 10,000 new business policies, is 16% and grievances with respect to unfair trade practice stands at 0.07%, one of the lowest in the industry. Individual death claim settlement ratio stands at 97%. The macro drivers for the life insurance sector remain well in place. The vision of the regulator for enhancing the insurance penetration and development of the sector is crystal clear and very positive for the industry growth. We strongly believe that our wide distribution network along with customer-centric product portfolio are well-positioned to capitalize on the emerging opportunities in order to increase the insurance penetration in line with the vision of the regulator. These opportunities include an expanding and prospering middle class, significantly high under-penetration of life insurance in India, a favorable regulatory environment, rapid digitalization, among others.
To conclude, we will continue to focus on long-term, sustainable, profitable growth. Enhanced automation and digitalization will ensure customer satisfaction in the long run, along with great value to all our stakeholders. Thank you very much. We are now happy to take any questions that you may have.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to limit the question to one per participant. If time permits, you may join the queue for any follow-up. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Deepika Mundra from JP Morgan. Please go ahead.
Thank you. Good evening, sir, and thanks for taking my question. Just first and foremost, on the effective tax rate change, it seems that if you compare the VNB last year based on effective tax rate, fourth quarter seems flattish at about INR 11 billion, whereas on the old methodology there seems to be a substantial increase. Can you just describe the differences between the rate of change on the old versus the new methodology?
See, as we mentioned earlier, we used to compute our VNB based on the actual tax basis, and we used to show a sensitivity and effective rate. Now, as we mentioned earlier, we have aligned that and we have aligned to reflect our actual current financial and tax position and future too in our projection. To that basis we have aligned that. Now if your question is compared to the last quarter VNB, it's flattish, not because of any change in the methodology. It's flattish because of the business mix and what kind of product we showed this quarter versus last quarter. You see that we have made certain measures in the last time in repricing terms.
This quarter, in August, we have repriced some of the product where our objective is to get the VNB number rather than getting the margin. Some of the benefit we have passed on to the customer. As a result we see the VNB flattish.
Now just to tell Deepika what we need to see is that our growth, business growth is 4% for the quarter. Last quarter, as you are aware, has been slightly subdued for us. Second thing, taking the year VNB and subtracting nine months is not strictly correct because year-end we change our assumptions and so many other parameters. I wouldn't want to call, you know, that 1% growth as strictly speaking comparable number because the December numbers have been valued on a slightly different basis than March numbers.
The EV sensitivity. Again, the EV sensitivity to interest rates seems to have come down from half year level. Can you just walk us through the change that has taken place over there?
If you see the Deepika, our EV sensitivity for interest rate, we disclosed last year on the financial year basis. As you know, we are writing non-par and we have done a lot of forward rate agreement as well. FRA is helping us to reduce the interest rate sensitivity. Purpose of writing the FRA and particularly with the guarantee product is to immunize your economic balance sheet in terms of the interest rate sensitivity moment, and that's really paying out.
Thank you. Ms. Mundra, I request you to join the queue for any follow-up. We take our next question that is from the line of Nitin Aggarwal from Motilal Oswal Securities. Please go ahead.
Yeah, hi. Thanks for the opportunity. Sir, a couple of questions. One is like if you can comment on the earnings growth, which for this quarter has been quite strong, probably due to lower strain. Some color on this and how are we looking the shareholder earnings to grow over the coming fiscal?
Yeah. The profit growth basically, you know, it if you look at the growth of our overall business you will find that there is a very strong growth. That is one of the thing. In any case, in the last quarter, we always have you know boost because of our what do you call it? The policyholders' share of the par product. Shareholders' share of the par product. That is generally taken in the last quarter. There is always a strong last quarter. Plus we have done a huge you know a huge amount of business and in various products we have done.
You know, as a result of that, there is a strong growth.
Okay. Second question is around the APE growth. While you explained on the VNB that we need to look at the full year number, but if I just look at the APE for 4Q, it is like down 10% on a quarter-on-quarter. Of course the base effect is there, which has dragged this growth, but now again in FY 2023 the base will remain high for the coming quarters. Will the growth trends, like, likely pick up in the coming year or will it again be a back-ended growth?
See, it will grow. What I am saying is that I don't really think we track the APE so much as the IRP growth. So, you know, and the total business growth. So, basically, you know, we will grow. If you look at the trend throughout in January and February, there was a fresh wave due to which there were some lockdowns, et cetera, and that has actually affected our performance a little bit. March we have started coming back. If you see March, we have grown. Overall, if you see the trends are very encouraging.
In spite of having all these problems, like for example, we had hardly, you know, started business this year when there were stringent lockdowns in April, May, et cetera, and then again in January, February. Having faced all those problems, we have come out with a 25% growth in APE. You know, I think that itself shows that our strength, and this is on the back of a very good base last year also. If you look at last year, our base was not very small. We had grown over the previous year with a very bad COVID year. Taking all that into consideration, we are poised to grow.
Sure, sir. Thank you so much.
Thank you. The next question is from the line of Adarsh Parasrampuria from CLSA. Please go ahead.
Yes, sir. Congrats on good numbers. Couple of questions, if you can just walk us through the EV changes, right. So your EV has moved and there is a like-for-like adjustment, which is why you show a 9% growth. Can you walk through the adjustment? Because the EV that you've shown in the chart moves from INR 33,000 - INR 39,600 , and then you show a 9% EV growth. I think that the adjustment that's there for the change. If you can just walk us through the difference between the two.
Yeah, I think you know what you need to do probably, you know, look at the annexure.
Yes, 32.
Presentation, which is
Slide number 32.
Slide number 32, no?
That's it.
Slide number 32 if you see, the whole break-up is given there very nicely. Just go to that. If you will see, you know, the opening EV is given, and then, you know, each and every element is given. In that if you see, we have given the operating expense variances, others.
Yes.
That is where you'll find, you know, the change in our what you call it the methodology has been taken into account.
Yeah.
Taking that into account, you'll see, you know, you have the entire picture there.
Basically the EV impact of that is about INR 1,200 positive.
Not all of it.
Not all because there are certain-
Yeah.
There are certain other changes in the methodology, others. Predominantly the tax benefit. There are some of the other, and there will be some offsetting impact as well.
Got it. Got it. Just wanted to check. We've been running fairly large variances on the positive side for a few years now. What's our view about that, last year INR 450 , this year persistency and expense is about INR 320, and then there would be some sitting in others as well. What's our view? Do you wanna keep maintaining this or would you kind of change assumptions at some point to get it in DMV?
Just see others, like, we always maintain our position that when we set our assumption, our assumption is set in line with that in long term its assumption should be sustainable. We don't make frequent changes unless evident. That's the reason if you look into our operating variances is coming positive. Last year we have taken some measures in terms, although we are not making the significant mortality losses, but we strengthen the mortality ratio. Our objective is to ensure that what number we are disclosing and what we are looking into, that should remain sustainable in the future. To that aspect, we are continuously creating these surpluses. If you look into the mortality as well in COVID scenarios, if you explore these COVID claims, we are having a positive mortality variance.
We continue to do that. At the same time we will also keep mentioning that each year we revisit our assumptions and as and when required, we will refine that range. We do expect that our operating variance will continue to grow from the current level.
Sir, slide 12, right. Just a follow-up on the EV. The heading says EV grew by 9% from INR 364, and the chart has INR 333 I was asking, can you explain this INR 3,000 gap? Yeah.
if you see our, we used to report one number on before tax basis, and we-
Right.
For the comparative purposes we give the sensitivity as effective tax rate. Now, we found the effective tax rate is no longer relevant and we moved that. Just to give a comparable to you and all others that because earlier our work on the EV was on base-to-base basis. That's the reason we started and that basis so that you can look into each and every component is easier to compare to the previous year.
I understand, sir. My only question was, like you showed me in that slide 30-something that,
Mm-hmm.
The impact of the accounting change was about INR 1,200 . It was within that INR 1,200 number. The opening EV gap between the two accounting methodologies is about INR 3,000 . I'm not able to add up these numbers.
No, no. Otherwise what's happened that we need to reflect as a sensitivity. Now we look into this methodology, we do that, and we consider our current taxation position. We also consider the future tax position of the company, and we have appropriately modeled that, and that's where it is coming from. Secondly, your business mix will sometimes keep changing from that. To that extent, you might be seeing some not like-for-like comparison that you can look into the ongoing difference between base effect and this. Because there are some other. What I mentioned earlier as well, there is some other adjustment also done in the interim or refinement of the methodology. There are some offsetting impact.
That number we are referring to is not only on account of taxation. That's the reason you are not able to like to like compare it.
Got it, sir, and, thanks, Sujit. All the best.
You're welcome. Thank you.
Thank you.
Thank you. The next question is from the line of Aarav Sanghavi from VT Capital. Please go ahead.
Yeah. Hi, good evening, sir, and hope all well at your end. Sir, I just have a follow-up on the question that the first participant asked regarding the VNB margins on, say, a Q4 basis of this year to the Q4 basis of last year. As you mentioned that the margins are like nearly flattish only, but if I just compare the product mix might have changed quite a bit in favor of higher-margin products. I'm just not able to understand why there wasn't some kind of margin improvement. That's the first part.
The second question is that if we look at the industry and the way our peers reported the numbers, there seems to be a lot of demand for high margin products, and that was very much visible in the VNB margins for the fourth quarter. That is not the case with us. Just wanted to get your thoughts on how will the product mix look like, say, in the next couple of years, and what are the products we might, you know, look to drive. Thank you. Those are the two questions.
Yeah. Basically, you know, what we have done is, in my opening remarks, you might have heard that I talked about our Smart Platina Plus product, you know. We have introduced that product, which is a non-par guaranteed product which gives income over a period of time. That has been a very successful product, and we see that even in March there was a huge uptake of that. Going forward, I think there will be a huge demand for that. Your point is valid that there is demand for high margin products if it is rightly, you know, placed and rightly produced. We have this beautiful product and we are very confident that, you know, we'll be able to do a good volume of those products going forward.
Now, as far as the VNB margins being flattish and, you know, the change in composition and all, we have to say that there has been a little, you know, one of the other participants remarked that, you know, the AP has de-grown. That is one of the components. The other component is that we had repriced a couple of products and, you know, so we had passed on more benefit to the customers, especially in the non-par segment. All, and annuity also. All those things put together, I think, it has remained slightly flattish. If you look at it's not a small number. It is a good margin to have.
25.9% is not a bad margin to have. To that extent, you know, I don't think there is any cause for concern there. Going forward, we will get the benefit of having all these good products which have higher margins.
Jus t one follow-up, if I may ask. You mentioned that we have passed on a little extra benefit on our non-par products to the customers. The benefit that we are passing on, is it very different from the industry that, you know, we had to take this step or I just wanted to understand the logic behind, you know, passing more benefits in the non-par category. Is it because LIC might also get very active in this space and we want to maintain our ground there, or like, what might be the reason?
No. Let me explain this. It's like, we always mention that we adopt a very active pricing dynamics as well. Now, our objective is to grow the VNB and not so much on the margin. We don't believe that your margin is extraordinary, but the value is lesser. We'll achieve our desired number. To that extent, what we mentioned that if yield has gone up significantly over the period and hence our margin is going up, we wanted to give some benefit to the customer in terms of the higher return and so rationalize margin. Still margin is much higher than the we're looking into. That's the reason we mentioned that we reprice and do that.
We are going to be fair to the customer as well, so that the return we are offering is reasonable to the customer. At the same time, we make the reasonable profit in terms of margin to the company, and also it keeps the reasonable viable sustainable viability, and that will ultimately pass on the benefit to the company itself in terms of utilization of expenses, et cetera.
Okay, sir. All right, sir. Thank you, and all the best for the coming quarters.
Thank you.
Thank you. The next question is from the line of Jayant Kharote from Credit Suisse. Please go ahead.
Yeah. Thank you for the opportunity. I have two questions. One is, following up on the previous question on the repricing. Was it done only in guaranteed products or protection products as well?
We have done in the guaranteed products.
Okay. Basically what, after the repricing, it's visible that the margin accretion is not there despite the sort of pickup. Going ahead, do you expect that margins may not gain as much, even if guaranteed product share moves up?
No. In fact, we are expecting the margin to further go up from the current level. What's happened that we introduced the product last time we priced in the month of April. Over the period six months, the yield has gone up. We are holding up the pricing on account of our distribution issue. August we have passed on. If you look into the August till today, our yield has further gone up and we are holding up this pricing. We're not passing to that basis. Eventually we are going to gain more and more margin prospectively. Second part is we come out with another product what our MD, sir, had mentioned on the non-par portfolio which further going to aid the margin.
Just to conclude, our non-par portfolio is going to help us to accrete our margin from the current level.
Sir, secondly on the FRAs, what is the pricing for FRAs based on currently? Do you feel there is adequate supply side? I mean, are there supply side constraints on FRAs?
Currently, we are at least for FBL life, we are not seeing any challenge in hedging. FRAs are being, we are able to do FRA within the pricing that we are doing. Whatever guarantee we are able to easily cover under the FRA rates we are getting in the market right now.
Sir, what is the pricing based on?
Meaning? We have an assumption.
Underlying.
What is the expected and what are the FRA expected rates also?
Okay. Sir, the MTM hit because of FRA to our shareholders' funds on the debt side. I mean how
There is no hit on the shareholders' funds. There's no. You see we do the hedge accounting. Any MTM gain and loss will look it through the hedge fluctuation reserve. There is not a hit on the shareholder side.
What would be our total exposure to FRA notional as of closing March?
We'll come back to you because I don't have the write-down of the number.
Okay. Thank you.
Thank you. Our next question is from the line of Sanketh Godha from Spark Capital. Please go ahead.
Yeah. Thanks for the opportunity. Sir, in the VNB walk you clearly mentioned that the methodology change improved VNB by INR 410 or 2.9%. On similar lines, if because of the only methodology change, how much has EV got boosted either in INR crore or in percentage if you can explain that will be very useful, sir.
No, Sanketh, I do mention that we have done other changes. If you look to the slide 32, we have given the other operating variance. That inclusive of that and we are not having that exact number on that because what we did, we have done refinement in our model considering the all aspects and there are some several other minor modeling refinement in the model as well. We are not having that exact number on that perspective.
Okay, sir. Second point is that in the operating variance number, other than mortality and expense and persistency which is INR 12.2 billion or INR 1,220 , do we have even factored in that Supreme Court related payback given to the State Bank of India to the policy holders where we lost the case that INR 116 crore to be done in the current year and probably second one is around INR 350 crore to be done in the next year if we lose it. That number is also getting reflected in that particular number, sir?
Yeah, yeah. That's already been allowed for.
You have allotted for both the products or you just provided only for one product, sir? INR 116 .
Only for one.
That is INR 116 for the-
The other matter is sub judice.
So we don't want to-
There is no way that, you know, we have made a contingent liability for that in the balance sheet and that's it. That is our.
Sir, my question is how much you provided in the current year for that?
116.
Okay. Perfect. Perfect, sir. The other part is that, I mean, sir, I mean two data keeping questions. One is what is your credit life protection business in the current year or quarter? Second thing is that in annuity business, just if you see the numbers, in third quarter it moderated to INR 900 . In APE terms it is INR 90 , which is 13% growth year-on-year. Is this moderation largely because you slowed down your business on group annuity or you have seen slow moderation in the growth in individual annuity too?
If you can break down that annuity business into group and individual also will be useful, sir.
See, for the quarter, credit life business, I will answer the first one first. Credit life for the quarter we did almost INR 540 . For the whole year we have done approximately INR 1,700 . Okay.
Okay.
And-
On the annuity side, sir?
Annuity total, we have done both. I will give you separate numbers.
Yeah.
Individual annuity we have done INR 1,780 . Group annuity we did INR 1,690 .
Okay. The slowdown was largely in the group business, sir? The in group-
Individual annuity is growing more than 40%. Group annuity we are growing in a flattish manner. Whatever we have assessed for ourself in the budget for FY 2022, we have done.
Can you just tell individual annuity growth for the quarter, sir, for the past quarter?
For the quarter it was, I told you 40%+.
Oh, okay. Perfect then. And finally, sir.
Sorry, Sanketh. For the quarter it is 25%. 58%, sorry.
Individual annuity, right?
Individual annuity. Yeah.
Finally, sir, this non-par annuity business which we did INR 630 in the current quarter. If you said that we launched an income version of Platina. Out of that INR 630 , what we have done in the quarter, can you break it down into income plan and endowment plan? I mean, we just wanted to understand and I'm under the belief that income plan will have a superior margin compared to endowment one.
No, no. Income plan was launched only in last week of March. Correct. In terms of-
Oh, okay.
Strong start, but you will see the numbers actually in this financial year. Yeah.
Okay. Is it safe to assume, sir, that income plan has a superior margin compared to endowment version?
Well, I think it's approximately, you know, similar.
Oh, okay, sir. Got it. That's it from my side. Thank you.
Thank you, Sanketh. Thank you.
Next question is from the line of Neeraj Toshniwal from UBS. Please go ahead.
Yeah. Hi. Harping on the same question again on the INR 30.1 million difference. If you can give more color on that, it will be helpful. As in, what led to such a big change?
Well, I'm sorry, Neeraj, can't hear you properly. Can you repeat the question?
The same question again on the individual on the EV change, INR 30.1 billion. If you can elaborate more from where the business difference is coming in because this looks a little on the higher side. Ideally it should have been maintained given we are already reporting effective tax rate numbers from a long time. So what offsetting change we are doing? That is not very clear till now.
Sanketh , as you mentioned earlier as well, I don't want to repeat, but again I'm repeating the same thing here again. What happened, we as a company report the base number that we believe at that point in time. For comparison purpose we do the effective tax sensitivity. Now we have done the appropriate modeling in our model to reflect the current company's current tax positions and also consider the future tax position of the company. Accordingly, we have done that. There are some other minor refinement in the model. You know, we have done the comprehensive review of the model. Some places we required to make some changes. We did that.
Unfortunately we don't have that number to do the history because we've done all together in a one moment and not looking.
Would this number be sitting in operating assumption change? I mean, the offsetting impact, not in the variance, in the assumption change, right?
Yes. Sanketh, if you look at the slide 32, that number is sitting in the operating variance, other operating expense variance.
Operating variance is 12.23% of income by effective tax. The difference largely sitting in operating variance or operating assumptions because we have moved from gross to effective tax rate. How to look at it? I mean, operating ROE, we actually are getting to operating ROE. Would that be lower and look optically higher for this quarter? I mean, how to even read into that?
No, operating assumption change is not reflected there.
What is this? If you can just give the open finance in economic variance movement that can be put in and without changing yield, how should we think about it because yields are still increasing to have the spread?
No, I see basically we look into what is the reference rate you discount your rate and then you look into what is the expected real world rate on your rating and difference. Basically, unwinding is done on the real world return basis. If you look-
No, not unwinding. The economic variance, I'm talking about.
Economic variance is exactly the yield curve. Says nothing else.
Okay.
Nothing else. Sorry.
Okay. On the new product which you just launched, can you give more color? I mean, it's a similar margin, but what is the strategy going in terms of growth? What we can expect in terms of AP in the current environment? Are you looking to change, alter our mix with a lower ULIP and higher traditional? Within the protection the growth has been quite good, but have you been able to manage to improve ROP and the term mix or it has remained largely stable?
See, first thing is that the product mix, you know, we foresee that we will have more non-par products being sold. Protection as you can already see is very strong. We have grown protection by about 26%, this year. Which is very much in line with, you know, all the other growth, you know, of all the products. Protection although has also grown by 26%. We think this trend is sustainable. Like I said, non-par we have now a good portfolio with three, four strong products and, that will also grow. Obviously, margins are going to grow. The product mix we think will shift.
You know, it's not a conscious effort on our part to reduce sale of ULIP or something, but these products are seeing a good demand and we will definitely you know, the higher margin products are selling very well. As we have said repeatedly that our ULIP products are you know, positive margin products, so we are not losing anything out there. We will continue to sell if there is demand. As long as there is customer demand, we will continue to sell the ULIP products also. I think, you know, the persistencies in ULIP are excellent and they are likely to continue that way. It gives a lot of liquidity and flexibility to the customers. ULIP we don't see ULIP being discouraged by us.
It will depend a lot on the customer demand. Like I said, the trends are that we will have more non-par guaranteed business in the mix and also more protection. As far as the question of improving to pure protection, I don't think that is the right question because TROP is a very good product for the customers and it gives the similar value and good protection. I don't think we are consciously trying to shift TROP customers to pure protection or anything like that. Pure protection has its own challenges today with a lot of reinsurance and all issues coming up. You know, as things ease out, I am sure that pure protection will also be sold more.
Not because I want to sell more of pure protection but, because, you know, the demand is there and we will be able to sell, more pure protection. Having said that, I don't think we are going to discourage sale of TROP. It is a very good product and I think it is an excellent product for people especially, you know, the not very educated, people and the people in the B towns et cetera. Also the, you know, let's say the middle class people also it is a very good attractive product.
Okay. That is helpful. Only, if you have the split handy between the, within the pure protection, the RPN, the term pure please.
Yeah. That is the same thing. It's always about the same. You know, every time we say it's the same thing, 85-15 approximately. Maybe 90-10.
On the credit protection attachment rate, are we seeing improvement?
Yeah. It has improved from 46% last year to 50% this year. We can see trends that it will go further up.
Great. Thank you and all the best.
Thank you. Thank you.
Thank you. Next question is from the line of Aditya Jain from Citigroup. Please go ahead. Aditya Jain, your line is unmuted. Please go with the question.
I'm sorry. On the VNB bridge, there are various components there. There is no specific component which talks about benefit of operating leverage. Just because of the size increase there might be some margin expansion. Is it that we are not seeing that or is it that it is built into some other component?
Which slide are you talking about? No, no. See when we do this, our assumptions for the VNB computation, both initial acquisition expenses as well maintenance expense, that truly reflect our current year things. We realign each year and that already inbuilt in this process. This is not that we use some long-term assumption which is not affecting our actual positions. Already building that.
What is the right operating RoEV to look at going forward? The 20.6% number, does it apply going forward as well? I mean, roughly.
If you see historically our operating RoEV in the range of 20%. We'll continue looking to that. As we mentioned in the previous call as well, a different question that your assumption is that I'm getting parity variance. If that will play out, I think there is a scope of further improvement from the current level.
Sorry. The full year margin of 25.9%, VNB margin, would this be lower in the new pricing method? The new pricing, as I understand, came into effect in more recent quarters on the non-par side. This 25.9% to a large extent is reflecting old pricing therefore.
No, no. See, what we said was that there are a lot of factors, including a little bit of price change, not directly contributed entirely by that. Going forward like, we have said that this is a higher margin product, so it is going to contribute to the growth of the NB margin.
As a starting point, is 25.9% the right number to look at or would this be lower product-
No, no. Exactly 25.9% is the right number to look into this. There is no different two number. There's only one number. 25.9% is the right number. You can look into the margin expansion will happen from the current level. Going forward, you expect because the reason that we are going to sell more and more non-par product also because there's a demand and we introduce new product. We are also coming with the different non-par the individual products. There will be more bouquet of the non-par product in our portfolio, and that will help us to increase the proportion of non-par. That will ultimately help to improve the margin from the current level.
Just lastly, sir, talk about the change in margin because of the pricing change specific to the non-par products, if it's possible. In the non-par product, how much, you know, it changed from X to Y, what is the delta of that?
No, we are not. Basically, we are not disclosing details of margins, et cetera. You know, there are a lot of products, there are a lot of versions where the pricing is all different and the margins are different. You know, we are not giving any figures out. Suffice to say that these are higher margin products, you know, than the company's margin today. You know, obviously it increases in percentage terms, it will contribute to the increase in margin.
Got it, sir. Thank you.
Thank you. Thank you very much.
Thank you. Before we take the next question, we'd like to remind the participant to limit their question to one per participant. If time permits, you may join the queue for any follow-ups. We'll take our next question from the line of Hitesh Gulati from Haitong. Please go ahead.
Yeah, thank you, sir, for giving me the opportunity. On operating assumption change, is there a negative mortality assumption change also included there? Could you give me the exact COVID claims impact before tax for this year?
Hitesh, this operating assumption change is mainly on account of the mortality and morbidity assumption change. It's a very not significant, I think, because we have tightened last time. This is the one part. Second question too on the COVID one. If you look at our mortality variance, our COVID claims that we just mentioned is around INR 1,500 net of reinsurance. Our operating variance on mortality is coming INR 10.8 . Other than COVID, we make a positive mortality variance. COVID has led to some negative mortality variance.
Sir, INR 1,500 post tax would be around INR 1,350. The impact is INR 1,080, so there is a delta there, right?
Sorry, Hitesh, I'm not getting you, sir.
INR 1,500 is COVID claims. Post-tax that will be about INR 1,350 , right?
We should not look into that impact. What we should look into that what is the expected claim that you are looking for and how much you paid for. Correct. Then tax will applicable only on the, if there is any positive variance coming on that perspective. Claim is to not look into the net of taxes. Claim is always look into net of reinsurance, not net of taxes.
Okay. Sir, mortality assumption change is only INR 10 or is it a bigger number offset by a positive number?
No. It is only this number. With this, nothing, no other changes. This is purely on the mortality and morbidity side.
Okay. Thank you, sir.
In normal we are making mortality profits, so no point of changing decisions.
Great. Thank you, sir. That's clear.
Thank you, Hitesh.
Thank you. Our next question is from the line of Abhishek Saraf from Jefferies. Please go ahead.
Yeah, hi. Thanks for the opportunity. Most of my questions have been answered, sir. Just one follow-up on ULIP side. One of our peers had mentioned that in ULIP there is some changes happening in terms of the products that are being demanded. More tilt towards debt ULIP rather than equity given the volatility in the market. Are we also witnessing that kind of change in customer behavior?
Right now we have not witnessed any drastic change. I think somebody's phone is on. Yeah, okay. We have not seen any drastic changes there. However, in the past also, when markets have been down or they have been too volatile or something, customers have opted to switch to more debt than more equity. That kind of thing we also expect that can happen if there is a sudden drop in the market or something like that, if sudden changes are there. Similarly, when markets are going up, there is a demand for equity also. That is there, but we have not seen any significant shift right now.
Just on this, so if you can help me understand is what could be the margin difference between a standard debt-heavy ULIP versus a equity-heavy ULIP?
Very difficult. You know, we may have those figures somewhere, but I don't think we want to share those.
Thanks for that. Lastly, on a non-par guarantee, given that yield curve is kind of flattening, can you help us understand the spread that we would be like locking in in the current product versus the earlier product, given that we have also had repricing for our customers?
Just to tell you, currently we are still able to get FRA rates which are better than what we have budgeted when we have priced the product. If that changes, we will reprice the product.
Is it fair to assume that the price would have largely been maintained?
Yes.
Sure. Thanks a lot. If I can slip in last question, sir. If you can help us understand given the trying to change it the way and being a bit aggressive.
Sir, your voice is cracking.
I think there is some
Your voice is cracking.
Yeah, your voice is cracking.
Please use the handset mode. Thank you.
That's all. Is it better now? Yeah. Yeah. I was just asking that on the impact of LIC changing the way it does business and being aggressive on the non-par guarantee side, and also kind of pushing the other products which it had not been present in be it ULIP or the protection. Are we kind of witnessing any of these at the ground level, is the competition changing?
We have a huge distribution network, which is, you know, not dependent on LIC doing well or otherwise. We have the banks with us. We have SBI, we have many other banks. Almost 75 banks, you know, of various sizes we have. Apart from that we have 146,000 plus agents, and then we have many other partners, brokers, corporate partners. Given that distribution strength, I don't think we are looking at, you know, any other player getting more or, you know, becoming more aggressive or anything because we have our strengths, we have our good products and we have, you know, been able to grow year after year, even in the pandemic, even in bad situations.
I don't think that we are worried about that or that it is going to affect our business.
Sure. That's helpful. Thanks a lot. That will be all from my side.
Thank you.
Thank you. Our next question is from Dhaval Gada from DSP. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. I had two questions. Sir, if you look at the difference between the EV on statutory tax rate and effective tax rate in FY 2021, that was close to INR 3,000 . If you look at that same number in 1H 2022, that was INR 3,200 . I understand that you've given an explanation for INR 1,220 on the operating variance others. Then within that, there is also one more adjustment of INR 116 . So if I add that, it adds to about INR 1,336 . I'm just not able to reconcile the balance. You know, what are the adjustments? Because the number, residual number is quite material.
If you could just break down what are the major, you know, buffer or provision that you've created to reconcile the number?
So let me-
That's the first question.
Let me try to respond to this question in the way that you're looking for. One is that we should not look into the September number for effective tax perspective because the tax will look into the entire year and longer term perspective. Now, as I mentioned, we are looking at the current number that we disclose and we're going to disclose this way in future as well. We have looked at our current financial tax position. We also looked at our projected, I think, and based on that we do the modeling. There are several other elements because, as I mentioned, we have done the comprehensive review in some of the models, so there will be some offsetting impact to our guidance.
Unfortunately we're not having that exact number, the tax, because we have done only for the changes in the tax we do that. If you have anything we can take offline as well. As of now, since we have done several other changes in the model along with the tax, predominantly in tax, we are not having that number separately. If you have done only the taxes, then easier for me to give that number to you. That will be not.
If you could just qualitatively help us understand what are the areas where major changes have been made. That would also give comfort in terms of you know like where the you know residual amount has gone. Because I mean even if I look at FY 2021 the difference between the two methods was INR 3,000 and that's the reason. I'm not looking at September 2021 number but just the March number last year.
Can we take this offline, if you do that?
Okay.
Because if you're not having that number, we can take this offline anytime.
Okay. We'll do that. Sir, the second question is on the mortality side. The INR 1,080 , if you could just help us understand. At the start of the year in 1Q, we had created about INR 445 of extra reserve on top of our March number in terms of you know mortality reserve for COVID. In September, I think we were comfortable with the level of reserve. December also, we were comfortable. This INR 1,080, should I understand that this was largely created at the end of the year to sort of see the past experience as well as you know what we are likely to see in future?
Just trying to understand the initial sort of guidance around INR 445-INR 1,080, how the reconciliation is. That's the second question.
No, let me explain this. This INR 1,080 is the actual claim that have been paid over and above the provision that we made at the beginning of the year. If you remember, beginning of the year we make a provision for INR 183 and our COVID claim received was INR 150, INR 1,500 some net of the insurance. This is the shortfall coming from that perspective. On top of we made some normal mortality profit. That's the number. This number is not about the provision that we are carry forward for this future.
Okay, fine, sir. Thanks and all the best.
Thank you.
Thank you.
Thank you. Our next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Hi. Being at the risk of repetition, can we have the slide 32 walk from INR 364- INR 396. Now, INR 364 plus INR 37 and plus INR 27, these are like unwind and VNB. That's very, very clear number. Now, from INR 428-INR 396, this INR 32 billion, out of that again, around INR 7 billion is driven by economic variance and other. INR 25 billion number has to come from operating variance. Now because it's not assumption anything of variance, this has to be explained and there's of course a big hole and that too basically variance means what you experienced was different than you had assumed the previous year. That's a big number. I mean, so what is this? I mean, this is not sort of adding up.
I think, I mean, we have explained this quite a few times in this class. In detail, did I mention that all other, if you look at slide number 32, we explain other variance. That's the reason we put this method change and other changes all together is INR 12.2 . There is some other offsetting impact on that perspective. That's why we're not able to reconcile that number. If required, we can take this discussion offline. We don't have that each and every step level number available that we can tell to you.
No, sir. It's variance. Just like one year experience versus assumption. I mean, it's a big number, sir. I mean, if you have put on a mortality, you have put on a smaller number, but this bigger number is not adding up. I mean, how to sort of go about it? I mean, INR 364-INR 396 is what I'm asking for.
See this, we're not making any change in the taxation or any other methodology. The methodology impact is not only for one year, it will be for the future year as well, agree? If I look into the impact of any changes, because when you project your future profits and even if tax or any other credit you apply, you take the apply for each future year and discount it back. Point I'm trying to make is this impact is not only for one year that this is happening. I'm not sure whether I able to convey. If there a question, we can take offline on that perspective. I'll be more than happy to explain to you.
Thank you. Our next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.
Hi. I'm just looking at slide number 13, and this is on change in operating assumptions and economic assumptions. If you could kind of you know help us understand what is this on account sir?
Just one second. Please hold on. Hi. If you see this VNB, economic variance is purely the economic variance. 0.9% is just income impact, nothing else. Other operating variance is 0.8% that we showed, INR 119 crore. This is predominantly the mortality and morbidity assumptions.
Sure, sure. Got it. Thank you very much.
Thank you. Our next question is from the line of Madhukar Ladha from Elara Capital. Please go ahead.
Hi. Thank you for taking my question. Can you give us some sense of your margins in different segments? Let's say protection, non-linked savings, what could the broad sort of margins be of that?
We have not been actually, you know, we are not disclosing the margins in absolute terms. We can say that term protection has got the highest margins. Then, you know, term with return of premium and non-par guaranteed, you know, and then, you know. That would be the way to look at it.
You know, okay. Can I get some sense on what are the linked margins now? In the linked business, how different would we be from the company average? Hello?
Yes. Linked, I think it will be around 15%, let's say.
Okay. Got it. I don't know whether this was asked earlier, but it seems, you know, in Q4 the growth is slowing down.
Yes, I have already explained, you know, Q4 growth, especially January, February was affected because January there were some severe lockdowns in some places, and that did affect the business. February also, it didn't really bounce back. We did almost what we did last year. In March we again started seeing the growing trend.
Right. What do you think, you know, now we are at a pretty high base. Looking into, you know, FY 2023, 2024, what sort of growth do you think we can aim for? Do you think, you know, the growth will weigh down?
We are targeting, you know, numbers which we have done before. You know, similar numbers we are targeting this year also. Base effect, yeah, I know that there could be a base effect normally. With the potential that is available, we are targeting for the kind of growth that we have witnessed in this year. That is the way that we are going to go.
Right. Last question, sir. You increased the guaranteed return on the guaranteed product, you know, sometime in August you mentioned. Again, obviously interest rates have gone up, so the margins are getting better. What drove that decision? Do you think it's competitive intensity, that you know, competitors have started passing that on? Is that what is driving us also to do that? Are we seeing that sort of behavior again play out right now?
No, see, when the rates of interest go up in the market, obviously the expectations will also go up. You know, we have to keep a fine balance between making margins for ourselves and also, you know, giving the customer a good product. Now, whether that is driven by competition or not is a moot point, you know. What happens is everybody is driven by the same considerations. If there is an increase in the interest rates in the market and you don't reprice, then obviously, you know, your product is not going to be very attractive. The second thing is that we are banking on volumes. Now, if you will see that our growth has been huge, so we have had 26% growth last year in APE.
26% growth means that, you know, with the constant margin also, I keep making more and more money for the stakeholders.
Got it. That's it from my side on the.
Thank you.
Thank you.
Thank you. The next question is from the line of Manish Gupta from Solidarity. Please go ahead.
Sir, what I wanted to understand is that on a long-term basis, you know, there are so many accounting adjustments that you know, for a layperson it's difficult to understand the economics of this business. You know, when we look at banking, you know, we would say banking is like a 15%-18% ROE kind of business. How do we think about on a, say, normalized product mix basis, what is the ROE of life insurance?
See, let me tell you, it's not a very simple question to answer because different companies have got different products that they sell. Suppose I was a company selling only term life insurance, I may have a much higher return. Okay. If I were a company selling only ULIP, I may have a different return which may be lower. The product mix is generally dynamic. The margins of products also change. Today, what the margin is that I'm receiving on a par product may not be what I get tomorrow. Every quarter I'll have to look at that. It is not very easy to say, you know, life insurance as such. You know, every year we take targets, and we take these targets based on our business expectations, you know.
We, what we do is we first start with what is the demand that we are seeing for various products, and then what are our competitive strengths in those products, and then we decide that this is the amount that we will be able to sell. Then once we budget for that, after that we work back and get all these things, you know, your ROA, ROE, and all those things come out of our business assumptions. Every time it's going to change. It's not that if I make business assumptions in March, I'm going to stick on to that, hang on to that for, June quarter or for, I mean, the, next quarter, you know, September quarter or December quarter, because I'll keep analyzing. It's not very easy to say that, so I will not venture into that. It is very dynamic.
Well, sir, I'm sorry, I didn't understand you. My question is that let's assume that you are only selling term protection. It's a hypothetical scenario. If you are only selling term protection, over say the next 5 years-10 years, right, what would have been the return on equity of a well-run life insurance company that is only selling term protection?
No, this is a slightly hypothetical question, so let me go one by one. First thing I want to ask you, tell you is that unlike, you know, some of the other financial services business, I know that our AUM has gone up from INR 10,000 or policyholder liability, whichever way you want to look, to, you know, almost INR 265,000 without single rupee of dilution of equity. Correct? Our only equity dilution has come from ESOP. Completely internally funded growth, which is not true for a banking or NBFC. Now when you don't, can't compare it on that very first basis, because if you see when we have been growing fairly well across the years, you know AUM growth will be 18%-20% every year when you take a 10-year CAGR.
Our accounting, because it's a long-term product and you have to have that new business trend, there are some challenges around, you know, how you look at it. Once the new business trend eases and our growth comes down to tepid, I don't know when that will happen five, 10, 15 years down the line, 5% type of it, then the accounting profit that you will see will be very similar based on year-on-year number because of the past profit books that we have. I would not expect, if it's a well-run company, why should we make less money than other financial services business?
Okay, sir. Okay. My second question, sir, is that, if one has to again, view as a broad thumb rule, you know, assume that, the accounting policy was such that one could amortize, the customer acquisition costs through the life of the policy rather than the first year new business expense, then how much would, say, your reported PAT roughly increase by?
This is a hypothetical question. This is not allowed in India as well, in terms of the amortizing your acquisition expenses. As per the Indian regulatory, the accounting environment, we have to do this thing. We have never done that approach in India to see what is out there and do that. There are two things, not only acquisition costs amortization, but that margin for adverse deviation also has to be kept. There are two factors which depress the profit when you are doing accounting. That number would be significantly higher than the accounting number that you are seeing INR 1,500 of profit that we have declared. That you can be, you know, quite.
Now, you know, to say that our net worth is, let us say INR 11,000-12,000 , and if our profit is whatever, I will not give you a number. If some number higher than INR 1,500, then you can do your own ROE calculation.
Thank you. Our next question is from the line of Rohan Advant from Multi-Act. Please go ahead.
Yeah, thanks for the opportunity. If you look at our APE mix, Q4 FY 2021 versus Q4 FY 2022, our ULIP share has gone down from 70- 63. Individual non-par has gone up from 8 - 15, and protection group plus individual has gone up from 6 - 9. We've had a very favorable product mix from a margin perspective. Even then, margins have gone down from 27.7% - 26.9% using effective tax rate for both years. Could you explain what has happened here? Was there any one-off possibly in the base quarter of Q4 FY 2021? Because those margins seem very high, and those were possibly not comparable to the natural trend that we have. Can you just throw some more light on this?
Because in a context of a very favorable product mix from a margin perspective, our margins seem to have dropped.
Our APE has gone down, like I said, you know, one of the factors is that the APE has gone down quarter-over-quarter, you can see, you know, by 4%. That is one of the reasons there. The other thing, like I said, you know, the repricing of the non-par product also. That was one of the things which you know even though the non-par percentage went up because we had repriced it very you know looking to you know the increases in rates that we were anticipating and the interest rates has behaved exactly like that. So as a result of those, I think all these factors have gone into this being flat.
Okay. Sir, going forward, do you expect our absolute VNB growth to track APE growth, or there should be some margin expansion kicker in the future?
Margin expansion will be there. You know, margin expansion will be there. That is what we feel. You know, I can't predict what will happen exactly, but then we feel that margins will go up because, right now, like we say, last time also when we changed the pricing in August, before that we had a very healthy margin on that. That is why we thought that, you know, looking at the market and the way the interest rates were looking likely to go up, we wanted to reprice the product and get volumes out there. We have been able to start getting volumes there, and we have introduced another product, you know, that has proved to be quite popular in the end of March.
We saw in the first seven days, 10 days of launch itself we had a good number. Going forward, we think that these products will continue to find traction. The other thing is, of course, our focus on protection. When protection grows at the same rate as the entire business or higher, then the margins will go up. Looking at all those things, our margins are likely to go up.
Thanks.
Thank you.
Thank you.
Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Mahesh Kumar Sharma for closing comments. Thank you, and over to you, sir.
Yeah, thank you very much. It was great, spending the evening, talking to you and getting your, feedback and also your questions. Some of you, who, whose questions have not been answered in full, I'm sure Ritesh will be very glad to sit with you and, you know, talk to you about all those assumptions and all the changes that we have so that you know all these doubts can be cleared. Thank you very much for participating in the call and, I wish that all of you stay safe and healthy and, have a very nice evening. Thank you.
Thank you.
Thank you.
Thank you very much. Ladies and gentlemen, on behalf of SBI Life Insurance, that concludes this conference. Thank you all for joining us and you may now disconnect your lines. Thank you.