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Edited Transcript of HDFS.NS earnings conference call or presentation 27-Apr-20 11:00am GMT

Q4 2020 HDFC Life Insurance Company Ltd Earnings Call

Mumbai May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of HDFC Life Insurance Company Ltd earnings conference call or presentation Monday, April 27, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Niraj Ashwin Shah

HDFC Life Insurance Company Limited - CFO

* Srinivasan Parthasarathy

HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary

* Suresh Badami

HDFC Life Insurance Company Limited - Chief Distribution Officer & Executive Director

* Vibha U. Padalkar

HDFC Life Insurance Company Limited - MD, CEO & Director

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Conference Call Participants

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* Ajox Frederick H.

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Avinash Singh

SBICAP Securities Ltd., Research Division - Lead Analyst

* Dhaval Gada

DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials

* Harshit Toshniwal

* Hitesh Arora

Unifi Capital Pvt. Ltd. - VP

* Madhukar Ladha

HDFC Securities Limited, Research Division - Research Analyst

* Nidhesh Jain

Investec Bank plc, Research Division - Analyst

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst

* Pavan Kumar

* Prakash Kapadia

Anived Portfolio Managers Pvt. Ltd - Principal Officer

* Ravi Naredi

* Rishabh Parekh

* Sanketh Godha

Spark Capital Advisors (India) Private Limited, Research Division - VP

* Shreya Shivani

CLSA Limited, Research Division - Research Analyst

* Sumeet Kariwala

Morgan Stanley, Research Division - Equity Analyst

* Suresh Ganapathy

Macquarie Research - Head of Financial Research

* Udit Kariwala

AMBIT Capital Private Limited, Research Division - Research Analyst

* Vinod Rajamani

HSBC, Research Division - Asia Insurance Analyst

* Jatin Jain

* Raja Kumar V

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the HDFC Life Insurance Company Limited FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Ms. Vibha Padalkar, MD and CEO. Thank you, and over to you, ma'am.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [2]

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Thank you. Good evening, everyone. Thank you for joining us for the discussion on our results for the year-ended March 31, 2020. Our results, including the investor presentation, press release and regulatory disclosures are already available on our website as well as that of the stock exchanges. I have with me Suresh Badami, Executive Director; Niraj Shah, CFO; Srinivasan Parthasarathy, our Appointed Actuary; and Kunal Jain from Investor Relations.

I will run through the key highlights of our FY '20 results and would be happy to take questions post that. Starting with an update on the current situation. As a result of this pandemic, human lives have been disrupted and organizations around the world are witnessing challenging times. As a responsible corporate citizen, the safety and well-being of our employees, customers and partners and ensuring uninterrupted service to our customers are our foremost priorities.

The impact of the outbreak has been seen across both new business and renewal collections with customers wanting to conserve cash till clarity emerges. While it might take some more time for things to settle down and a new normal to emerge, we believe that the structural story for insurance remains intact, and we expect business to emerge stronger at the end of this pandemic.

Our existing suite of digital assets has enabled us to continue providing a seamless experience to the end customer from a new business and servicing perspective. On the servicing front, adoption of our digital servicing avenue has seen an overall increase of 67% during the lockdown period, while usage of our bots across WhatsApp, Twitter and web has increased by 70%. We have settled around 3,000 maturity claims, around 300 death and health claims, made nearly 21,000 annuity payouts and processed close to 95,000 transactions in the first 15 days of lockdown.

With regards to new business, we have seen a jump in the adoption of assets such as chat-based identification tool, pre-conversion verification chat, which allows customers to self-authenticate their details. Our virtual frontline sales model, [VIF], (sic) [InstA] enabled our sales representatives to connect with customers via video calling and complete the sales process.

Next on business performance. While there was disruption in the last 10 days of March, we have been able to exhibit steady performance and delivery across all key metrics in FY '20. We grew by 18% based on individual and overall APE, covering over 6.1 crore lives in FY '20.

Overall, new business premiums have grown at 15% in FY '20, leading to a market share of 21.5% amongst private players. We grew by 19% based on individual WRP compared to private industry growth of 5% and overall industry growth of 6%. This led to a 170 basis point increase in market share from 12.5% in FY '19 to 14.2% in FY '20. We maintained our leadership position in the group segment with a market share of 29%.

Our new business margin for FY '20 was 25.9%, an increase of 130 basis points over the same period last year. Value of new business grew by 25%, increasing from INR 1,537 crores in FY '19 to INR 1,919 crores in FY '20. A sharp fall in interest rates during the year led to lower EV unwind. This, coupled with strengthening of our persistency and mortality assumptions, resulted in our operating return on embedded value reducing by 200 basis points to 18.1% compared to 20.1% last year.

In anticipation of the possibility of worsening mortality due to COVID-19, we have created a COVID reserve, the adequacy of which would be reviewed at regular intervals. Our profit after tax saw a marginal increase over the previous year to INR 1,295 crores. This is after providing INR 106 crores for the Yes Bank AT1 bonds held by us. New business stream was offset by our robust back book surplus, which grew by 17%.

Our solvency position remains strong at 184% compared to 188% a year ago with the drop being due to fall in equity markets. We have received Board approval to raise Tier 2 capital via subordinated debt. It is an enabling resolution, and the extent and timing of the fund raise will be assessed in due course.

The sub-debt would provide greater ability to increase our protection business, an additional cushion against further market volatility. Additionally, in line with the IRDAI circular to conserve capital, we have not declared any dividend for FY '20.

Next, on channel performance. The share of proprietary channels has increased to 36% in FY '20 from 32% in the previous year. We remain focused on strengthening our relationship with all our bancassurance partners, including HDFC Bank, and maintained our market share with HDFC Bank. Additionally, our broker channel crossed the milestone of INR 500 crores APE, growing by more than 1.5x over FY '19.

We continue to diversify our mix beyond the traditional modes of distribution and have deepened our relationships across 270 partners, including more than 40 in the new ecosystem space.

Moving on to the product performance. Our focus on maintaining a balanced product mix has helped us weather multiple business cycles, and we continue to actively pursue the same. Our savings business grew by 18%, while protection grew by 22% in FY '20. We continue to address longevity risk for customers through our annuity and long-term income proposition. Protection remains a key focus area for us and accounted for 27.6% of our business in terms of new business premiums and 17.2% on weighted premium basis. Individual term protection was at 7.6% of individual APE and grew by 33% over the previous year. 13-month persistency has improved from 84% to 88% and 61st month persistency has improved from 51% to 54% for individual business.

We continue to monitor persistency in this difficult period for customers, especially for ULIP segment. We have also strengthened our assumptions in anticipation of any weakness in persistency.

To conclude, we believe that while there are challenges in the short term, as detailed in our IR presentation, there would also be opportunities in terms of increased demand for protection, inorganic growth and a (inaudible) to our reimagining insurance framework, such as work from home and offering innovative digital solutions to customers. We are preparing for multiple scenarios to pan out this year and will dynamically review and react with agility as events unfold.

We endeavor to protect our downside risks while staying well poised to support demand revival as the devastation caused by COVID-19 recedes. The detailed disclosure on our results is available in our investor presentation.

In the end, I would like to thank all of you for your continued support of our company and hope that you and your families stay safe. We're happy to take questions now.

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Questions and Answers

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Operator [1]

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We will now begin the question-and-answer session.

(Operator Instructions) The first question is from the line of Suresh Ganapathy from Macquarie Capital Securities.

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Suresh Ganapathy, Macquarie Research - Head of Financial Research [2]

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Vibha, 2 questions. One was on the -- any anecdotal thing which you can share with us as to how the -- what is the on-the-ground feedback with respect to how people are reacting to this COVID-19 situation? Is there a demand for a higher sum assured? Are more inquiries picking up? Are companies asking for more cover for their employees, anything that you can share with?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [3]

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Yes, Suresh. Yes, certainly. So some things are coming out very clearly. So while -- if I were to look at March, last 15 days and the de-growth that all of us witnessed, however, my online channel in the same period grew 13%. So against the de-growth in the month of March of 28%, my online channel grew by 13%.

Similarly, I'm seeing term APE growing. And again, just for the standalone month of March, my term share was 10% as against an overall annual share of about 8%. So that, too, again is showing -- again, intuitively, that's what you'd expect, that's what we are seeing. We're also seeing slightly smaller ticket size emerging. So people are somewhat reluctant, again, understandably, to have an outlay of higher ticket sizes.

Another aspect is that we are getting a lot more inquiries on group term insurance from lots of employers. Unfortunately, this is not the time only to cover COVID, it needs to be a more holistic level of coverage that employers should be looking for all their employees. We are also looking no reduction, for example, in annuity business. We're also not seeing that much of a reduction in some of our non-par business, which is a lot more of -- in fact, it augurs well when people think that the -- everything is just going smooth. But clearly, unit-linked is not favorable season and hasn't been for a while, and it just deepened in terms of people staying away from that and from the market. So I think this is what largely we are seeing, Suresh. What we're also seeing another aspect is that customers, after refusing to engage at all, our prospective customers, are now somewhat willing at least in some of the geographies that are showing signs of ending -- the lockdown ending, apart from the metros, we are seeing willing to engage in conversations about slightly lower ticket sizes.

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Suresh Ganapathy, Macquarie Research - Head of Financial Research [4]

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Okay. And can you ask someone to explain the Page 22 of your presentation, which is the Milliman report on ALM approach because I have some clarifications which I wanted?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [5]

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Certainly. Certainly. Niraj, you want to have a go at that?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [6]

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Suresh, so this is basically -- Milliman had actually reviewed our ALM approach, as what we've mentioned last time the on the call as well. What you see on Page 21 is the overall risk management framework and what you see on Page 22 is a summary of what Milliman has put out.

Over the scope of the review is to basically assess appropriateness of the ALM strategy for the non-par business. That business, as you're aware, has 2 portfolios. The first one is the non-par savings and the Credit Protect portfolio, which is portfolio 1. And the second one is all our annuity business, which is both immediate and deferred.

So if you go to -- just go back on Page 21 at the bottom, what you will see is that our embedded value and VNB sensitivities to interest rate or the overall book have been laid out. You can compare it with what we've disclosed in the past as well. And both on embedded value as well as on VNB margins, the sensitivities are fairly contained.

And on the non-par book, we put it next to that. What we've mentioned last time as well is that sensitivity or dollar duration is typically something that helps you manage small changes in interest rate without any slope change. What would be more appropriate for a liability like regular premium non-par savings would be cash flow matched, which will not just cover small and parallel shifts in the yield curve but also slope changes and larger changes and convexity as well. So that's where cash flow matching becomes so important.

So we are happy to take a little more sensitivity in terms of dollar duration if we are able to get a good cash flow match. So that's what is there on Page 22 as well. So the stresses that we've actually tested are over and above what we showed you on Page 21, which is a 1% interest rate up and down.

If you look at the scenarios, the first one is basically 150 basis points shift in interest rate up and down. The second one is combining this interest rate variation with changes in persistency and mortality experience. And the third one is the risks of all guarantees being called in, with 100% persistency, and interest rates dropping sharply over the next few years. So just about 4% for the next 5 years, then dropping to 2% over the next 5 years and then 0% thereafter.

Even in that situation, the net asset position remains positive. So what this exercise was meant to do was to validate our approach and also give comfort both to management team, our Board as well as to investors that this approach is appropriate, not just in terms of ensuring that policyholder liability cash flows are protected, but also limiting the impact of the shareholder value.

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Suresh Ganapathy, Macquarie Research - Head of Financial Research [7]

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Okay. So the gap is positive throughout, right, Niraj? 4.5%, 7%, the gap still remains positive in the first 2 scenarios also?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [8]

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Yes, of course, it's positive, for sure, but the changes are also fairly contained.

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Operator [9]

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The next question is from the line of Prakash Kapadia from Anived Portfolio Management -- Managers Pvt. Ltd.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [10]

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Yes. I had 2 questions. Do we have any arrangements with some vendors to ensure renewals for our existing policyholders or some back-to-back arrangements? Because these are tough times, so any such arrangement is there?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [11]

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When you say arrangement, yes we have...

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [12]

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For a loan or some mismatch.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [13]

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Yes. So on a loan, apart from unit-linked, we are able to give a loan against policy, especially after 2 or 3 premiums have been paid, and there is some level of surrender value that is being firmed up. So against that, the regulations permit us to give a loan. It is an over-the-counter loan and can also be repaid by the policyholder once that immediate cash flow stress scenario eases off. So we are telling our policyholders that rather than surrendering or lapsing their policy, why don't you take a temporary loan in case you think that -- unsure of the cash flow situation, and then you can always close the -- foreclose the loan. There is no minimum tenor. You can foreclose the loan. And so that's something that we're doing. What unfortunately we can't say is for unit-linked policyholders. Regulations earlier used to permit that, if that's no longer the case.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [14]

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Okay. Okay. So this is excluding the ULIP portfolio?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [15]

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That's correct, yes.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [16]

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And how do we charge -- what is the interest rate for the tenure?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [17]

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It is cheaper than taking a personal loan, quite cheap -- much cheaper than a personal loan.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [18]

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And there have been talks and discussions that IRDA for a health product. So how different is that product, which standalone health insurers currently offer? And what is the advantage if a life insurance company have to do it?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [19]

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Yes. So we also, as a life insurance company, we used to be allowed to sell health indemnity products, but that was withdrawn a few years ago. Our limited point is that the health opportunity has -- is very, very underpenetrated. So largely if you were to look at -- India has one of the highest rates of out-of-pocket spending in health care, almost 70%. And when you look at some of the even emerging markets, a lot more coverage is there. So our humble submission is 2-prong: one is that penetration really is still very, very low. So the pie really hasn't expanded. So we would like to help expand the pie. And second is product innovation. That, if you're allowed health indemnity, then we can also have product innovation wherein we can ramp down life cover, ramp up health, have health savings account wrapped around health indemnity and so on. And third is the ease for the customer because we need to put the customer in the center of everything. And that is if he goes for medical one, and I can just with very little pain to the customer, I can give him a more comprehensive cover. So all of that means that it makes eminent sense, and it is just too premature for comfort -- different parts of insurance sectors to say that this -- somebody will do and not do. I think really keeping all these things in mind, that's our appeal as a investor.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [20]

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And if you (inaudible) on the Board approval for Tier 2, is it what due to COVID or the provision which you mentioned because of Yes Bank or reducing reinsurance for higher growth? What's the objective of the fund raise?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [21]

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So, no, it isn't -- really nothing specific. It's something that we have been toying with even towards the end of February. It's simply that our solvency ratio has been hovering -- we ended at 184%. It was 188%. So it's been hovering around 190% and thereabouts. We have said that as a Board approved policy at 170%, we will have to think about raising capital. Although even at 170%, it is a fairly comfortable situation, but nevertheless. So given that and given the equity market fall, so our solvency has been impacted by about 10% due to the equity market fall, not specifically the AT1 bonds or something. So it is an overall generic fall that we have witnessed of about 26%.

As a result, we thought that when green shoot starts appearing, and hopefully, it's not that far away, then we should not be strapped -- because imagine a situation wherein lockdown progressively starts disappearing in non-metros, but at the same time, equity markets remain extremely volatile. So there is a pressure on solvency, but demand is also there. And that situation is not entirely inconceivable. And hence, we thought that for growth capital, especially from protection point of view, this is -- it makes a lot of sense to just make one's capital position and balance sheet a little bit more robust. But even today, we are in a comfortable situation. And the final point is when you separate our economic solvency versus a factor-based or a rule-based solvency, economic solvency is even more comfortable risk or a risk-based solvency.

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Operator [22]

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(Operator Instructions) The next question is from the line of Ajox Frederick from B&K Securities.

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Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [23]

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My questions are pertaining to protection. So we have been hiking protection prices at the far-end like INR 1 crore plus kind of sum assured, whereas our competitor has been hiking prices on the lower-end of sum assured. And as you have pointed out, our recent scenario was tilting customers towards lower ticket sizes. So will this impact our demand in protection sales -- retail protection sales going forward?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [24]

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So, for us, we have never been the cheapest just for the reason that, that tends to be very dangerous game. India has had one of the lowest levels of term prices. And when you look at -- when you move towards interior India and whether that is really sustainable, one has to be very cautious about it. And plus, the limited amount of KYC that is available for us to do any risk-based monitoring. So even before the reinsurance pricing and after, I think we haven't really wavered that much. I think we need to price it at a sensible level wherein the mortality risk that we see emerging especially are something that we are able to cover. So to your question, I think we will have to stay competitive, no question about it. But at the same time, we don't want to carry the kind of risks on our balance sheet that we either don't understand or we are very aggressive.

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Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [25]

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So margin impact is not there, that's what you're trying to say here. You've passed on all the reinsurance rate hikes completely to the customer?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [26]

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No. That is not the case with us. We will still be competitive and not necessarily pass on all the increases, but we will find other ways of ensuring that we are margin neutral.

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Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [27]

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Okay. Okay. And just one more question, ma'am, on servicing clients through video calling. So how many clients -- I mean, my question was more with respect to the sourcing side. So how many clients are okay to do a telemedical? Or have they shifted -- are you seeing a shift dramatically on ground?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [28]

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Yes. We are seeing a pretty major shift on the ground. So if you were to look at telemedical itself, earlier, before COVID, it was hovering -- and I'm going back in time, start of FY '20, it was about 8% to 10%. That went up to 24%. Today, we are trending at almost 55% of telemedical. In volume terms, it has gone up by 50%. So our telemedicals, along with a lot of data analysis and making sense of the data that we already have as well as enriching it with the data that is available, legally available, means that we're able to separate out and understand risk a lot better, and hence, be able to increase the amount of telemedical. So this is going to be an ongoing thing. So it's not just a COVID-related thing that we are relaxing something for COVID. That's something that we would stay away from.

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Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [29]

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Okay. Ma'am, final question on, again, COVID. Since not only us, most of the private players have good exposure to Maharashtra and Bombay. During our stress testing, have we factored those things into our mortality risk?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [30]

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Yes, very much.

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Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [31]

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If things required.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [32]

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Yes. I can pass it on. So we set up a COVID reserve covering about 4,500-odd life. Srini, you want to give some color on how we went about that?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [33]

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Yes. So the way we went about setting up this COVID reserve is, we sort of mapped the actual COVID cases across the geographies versus our own lives that are spread around the country and sort of saw where all -- which all pockets are more exposed. And accordingly, we've come up with a number where we think we can sort of provide for an extra 400 -- sorry, 4,500 lives and over and above the normal mortality that we would experience. And that translates to about INR 40-odd crores in terms of those earnings. So think that there's lot of science gone behind whether it's a group product and individual and whether it's metro and/or town B or C. So a lot of analysis has been sort of done. And we mapped the entire geography of the country and across -- with the actual number of lives that we return considering both the individual as well as the group protection products, which are -- in the last few years. And thereby arrived at this number of 4,500 extra lives that are going to be covered through this additional reserves.

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Operator [34]

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The next question is from the line of Sumeet Kariwala from Morgan Stanley.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [35]

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Just wanted to get some color with respect to change in operating assumptions during the year. And also some color on operating brands, what came down, what went up for fiscal year '20?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [36]

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Srini, why don't you give a go?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [37]

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Yes. See operating assumption, you would have seen in the investor deck that the operating variance has been largely positive. But in spite of that, we've gone about strengthening the assumptions, mainly on the back of the COVID scenario. We've primarily strengthened our persistency assumption across all cohort -- I mean, across all segments we were participating in non-par because we don't know what the customer's propensity to pay would be. But like I said, the operating variance is largely positive. It's only because of this COVID that we sort of set up these additional prudence and the assumptions, and they are mainly centered around persistency for the 3 segments I mentioned. Mortalities, by and large, fairly neutral. And the COVID reserve that we set up is the only extra bit that we set for mortality.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [38]

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Okay. So what would be 13-month persistency assumption for ULIPs in your -- as of fiscal '20 now?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [39]

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The actual experience you would have seen is somewhere around the slides we've shown. The actual experience is around 88%, I think -- 80 -- yes, 83%. Yes, so 83%. But we have strengthened it fairly sharply from 83%. And we just wanted to wait and watch. And if everything moves normal in the first quarter or in the 3 quarters, then we'll probably unwind those prudence from the persistency assumptions.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [40]

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See, because, just to interrupt, Sumeet, we are seeing cash conservation, like I mentioned in my opening comments. So while us and I'm sure all our -- all other insurance companies also will try and reach out to the customers once this immediate panic situation people come to grips with it. And hopefully, with a lag, they will pay their premiums and we're able to reinstate their policies. But really, we don't know how long and how -- so we're just being a little bit conservative.

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [41]

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Yes. Also, IRDA, you would know that they've given extra window to pay, so that extended the grace period. So people may just avail of that extended grace period. So policies where the premiums were probably due in April, and most of them would pay by May earlier, now in the new scenario they may actually pay up in June. So -- since the situation is evolving, we were a little bit more cautious in setting the assumptions in spite of the fairly positive experience we've seen in the various segments.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [42]

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Okay. So final short question for you...

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Operator [43]

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Mr. Kariwala. Sorry to interrupt, sir. But if you have any follow-up, request you to rejoin the queue, please.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [44]

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No problem.

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Operator [45]

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The next question. Mr. Kariwala? Sir, you may go ahead with your question.

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Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [46]

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No, I was just trying to check the persistency numbers that have been given. Is that as of 11-month ending? Or that also incorporates March with some grace period?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [47]

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This is for the 12-month ending February. So it's from previous March to February, Sumeet. Only 12-month number because the -- up to March numbers will only come in around this time.

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Operator [48]

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The next question is from the line of Harshit Toshniwal from Premji Invest.

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Harshit Toshniwal, [49]

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One question. So in the retail protection, can we get some color on the policy ticket sizes and number of policies within FY 2019? And then how do you think that's changing because you have taken the reinsurance rate hike, but simultaneously, there's a demand for lower ticket price policy? So some color around growth on that aspect.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [50]

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Yes. So it's not necessarily that for protection it's a lower ticket size. I'm saying -- my comments were more in terms of a savings which were lower ticket size. So protection we're not really seeing a lower ticket size. But if you -- but if you want to -- if you want the numbers maybe Niraj, you can just pass down the numbers on ticket size.

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [51]

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Look at...

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [52]

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I just...yes, go ahead.

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [53]

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From a ticket size perspective, one big shift that we've seen over the last few quarters is the switch to limited pay, which is now a significant part of the business, where customers are actually preferring to pay in a shorter span of time and have a coverage over a longer period of time. So that way they get done with the commitment sooner, but the coverage continues for a longer period of time. So that, as you would appreciate, has only increased the ticket size significantly over the past few quarters. So lower ticket size, I mean, we can see demand coming through various modes. Some people might actually prefer return of premium because they believe that the value doesn't come to them in case nothing happens. Some people may actually want to take a decision every year in terms of how relevant the coverage is. So the thing is that we are offering all of these options. And depending on a particular customer's thinking in terms of how he or she wants to go about it as well as in terms of the environment, what you just mentioned right now. So we don't know which way the demand will evolve. We have all these options available, and we're happy to kind of offer all of them to customers.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [54]

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Yes. And final point I had there, Harshit, is that if I were to look at March exit rate ticket size and that has grown overall by about 19%. So for protection, it hasn't -- we are not really saying that, that has gone down, but savings has gone down.

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Operator [55]

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The next question is from the line of Avinash Singh from SBICAP Securities.

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Avinash Singh, SBICAP Securities Ltd., Research Division - Lead Analyst [56]

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Quickly, 2 questions. One, if you can please provide that INR 10 billion or almost 5.5% economic -- negative economic variances in your EV walk-through, what is the contribution of reference rate going down? And what does impact of the equity market fall? And the second one is that if I look -- put together the revenue account and shareholder accounts, our total bad investment provision for the full year this year is almost close to INR 8 billion. That was last year almost just INR 1 billion. So apart from Yes Bank, Tier 1, what are the other key names there?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [57]

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Yes. Srini, do you want to take the first part and then maybe followed by Niraj?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [58]

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Yes. I can. Yes, I can. Yes. So largely, say, the fall in the equity market is sort of more pronounced than the upside with a little bit of upside from the fall in the yields. So by and large, you'll see a more sort of a predominant effect from equities on the VIF component close to around INR 700 crores, INR 800 crores, and then you have a little bit of this AT1 bonds effect of another INR 100 crores. And -- but the upside from falling yields primarily on the ANW side -- I mean, the net worth is only about INR 100 crores or so. So a large effect is actually due to the fall in the equities. And the foreign equities is felt primarily in the UL products where the loss of future fund management charges as a result of the lower equity is the main reason for the -- that itself is around INR 500 crores of the INR 1,000 crores fall that you see there. And around INR 200 crores is because of the equity fall impact on the shareholder funds. So that's mainly due to the equity fall and a little bit of upside coming through from the drop in the V curve.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [59]

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And Niraj, do you want to just talk about the impairment?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [60]

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Yes. So in terms of impairment, the number that you mentioned is broken down into shareholder and policyholder. So for policyholder, it's in the region of about INR 560 crores. And for shareholders, it's in the region of about INR 200-odd crores. This is largely on account of the diminution in the equity value as per our impairment policy. So we basically stuck to our policy, which is approved by our Investment Board -- Board Investment Committee and taken the diminutions because of the volatility that we've seen in the market. We have seen 40% dip in the last quarter and a 30% dip in month of March in terms of the key indices. So that is something that we've reflected. A large part of the diminution that you see here is in quarter 4. More than about 80% of the diminution for the year has happened in quarter 4. A lot of -- apart from the Yes Bank AT1, which Srini referred to, most of these others are names which we do expect things to kind of change over the next few quarters and the diminution would then get adjusted accordingly. But we've not taken any exception to our diminution policy in a volatile time. And we've stuck to that and taken all the diminution and equity as required by a policy.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [61]

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And just to add to that. Even within the policyholder funds, it is in various segments because you would find that it is there in unit link, par and so on. So not all of it is impact to profit -- direct impact to profits.

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Operator [62]

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The next question is from the line of Udit Kariwala from AMBIT Capital.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [63]

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My first question is in terms of the sensitivity analysis. I think the numbers for persistency, interest rate and tax rate have gone up. Can you throw some light on this?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [64]

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Srini, you want to start off? And then maybe Niraj can add?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [65]

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Yes. So the numbers are fairly stable. In fact, we saw on account of -- persistency has actually come down from the previous quarters because of the strengthening of the assumptions I talked about earlier in the persistency. The EV itself has taken a hit because of the assumptions changes. And because the EV itself has come down, any stresses on a reduced EV would actually come down correspondingly. So the sensitivity is actually lower on the persistency from what was the case earlier. So it's not actually gone upside. I don't know which one you are comparing...

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [66]

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But I'm talking to sensitivity to VNB and not EV, why it has moved up? And if you could give some color, even for tax and on the reference rate as well?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [67]

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So when I say it's gone up, the due -- I mean, the VNB.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [68]

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Yes, the sensitivities are higher.

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [69]

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So it was -- it is 0.5 and 0.6. So you're saying it was higher from the previous quarter, you mean? Or it's -- you mean, it's a higher amount?

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [70]

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The last published sensitivity, what was there?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [71]

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Right. I may need to check because I -- my understanding is it should actually...

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [72]

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So if I give out the number, last persistency sensitivity was 0.8, minus 0.8 and -- for increase in 10% and plus 0.6 for decrease in 10%. Now it has gone up to minus 2.1 and 2.1 for increase and decrease, respectively. Even the tax rate sensitivity has moved up from 17.4 negative to minus 20, and the reference rate has also gone up. So just wanted to understand this.

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [73]

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Right.

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [74]

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Srini, this would be a change in product mix to some extent and also the assumption changes. So you could maybe refer to that and...

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [75]

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Probably I can connect after the call on this. The other thing, which I wanted to check is on the effective tax rate, has that been factored in? And what is the impact, if any on the VNB?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [76]

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Niraj, You want to have a go?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [77]

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Yes. So that's being done. In fact, we discussed this at the time of whole budget situation as well. So the effective tax rate for us, in fact, this time, has gone down, and whatever changes that we expect in FY '21 have already been factored into our embedded value and our VNB. So this time, the ETR, our effective tax rate was lower because of lower surplus due to higher growth and higher dividend income that we received. So we had a lower effective tax rate this year, FY '21 because of the abolishment of DDT, the impact of that we have stated earlier as well is about 0.2% on our EV -- VNB and about 0.2% on our EV.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [78]

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Sorry, 0.2 on VNB and 0.2 on EV on a negative side, right?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [79]

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Yes, on the negative side, 0.3% on VNB and 0.2% on EV.

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Operator [80]

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The next question is from the line of Ravi Naredi from Naredi Investment.

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Ravi Naredi, [81]

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Just would like to know how much reinsurance we are doing and whom we do this insurance?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [82]

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So we have various reinsurance companies with whom we have treaty agreements. And the amount that we retain also varies from different lines of business. So what we retain, for example, on our individual protection is very different from what we would retain on our -- some of our savings products, and we also have a quota share. So it's quite varied in terms of different lines of business. And the reason for the increase -- the reason for the increase in reinsurance premium that you see is largely because of us writing more protection business.

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Ravi Naredi, [83]

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Okay. And this reinsurance, we are doing from Indian companies or foreign companies?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [84]

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We do from all companies. Whoever is willing to work with us, we do it.

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Ravi Naredi, [85]

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Okay. And ma'am, income from investment is loss around INR 10,229 crores. Will you highlight what's the matter?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [86]

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Yes. Because everything is on track except the mark-to-market loss due to the equity markets having fallen about 26%, and that is in the range of INR 12,000 crores. We are required by regulation to whatever portfolio that we have, the INR 1.24 trillion or INR 1,24,000 crores, that we have to mark-to-market at least in terms of whatever the price is prevailing -- rates are as of 31st of March, and this is nothing but the mark-to-market loss that you see.

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [87]

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And the reason for this is basically because insurance companies need to recognize premium as revenue. And any change in that is basically coming as either increase or decrease in revenue or income. What happens here is that if the markets are down and the income is shown as lower, that would also reduce your reserves and liability to the same extent. So the impact on P&L is really a second order effect of any lower FMC on a lower base.

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Operator [88]

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The next question is from the line of Sanketh Godha from Spark Capital.

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Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [89]

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Just I wanted a clarity that since we have not taken the entire pass-on of the reinsurance rate to the end customer, just wanted to -- you told that there will be different strategies to maintain -- make it margin-neutral. So just wanted to understand a few which could help us to understand that the margins could be maintained in protection business.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [90]

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Yes. So for that only our product, Sanketh, is awaiting regulatory approval. So whether we will pass it on or not and how much we pass it on right now is on the drawing board. But as and when we get the approval, that's when -- in the past -- because we do believe that just because reinsurers are charging us more does not mean that the customer should automatically recharge everything to retain margins. So we have to find other ways. And some of those ways are -- product mix is one. Even if you look at on pars, and our margins on par without really giving specific numbers have expanded 150 basis points. So there are different ways of the stretching margins. There's also bringing down the cost of acquisition. There is also some -- also, in terms of how much we retain on book that we feel fairly comfortable. So we don't have to necessarily reinsure every part of our business and so on. So it is -- we have 4 or 5 different kinds of levers, some big, some small, for us to be able to cushion the part that we don't pass on.

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Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [91]

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Okay. So basically, it means that probably, if you don't pass on the rates hike completely, we might take a bit of hit on the protection margin, but it should be compensated by the better margins in the savings side, like -- by increasing the margins in power business or more retaining or cost of acquisition coming down kind of a thing. Is my understanding right?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [92]

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Yes. So we always take a portfolio approach. So we look at portfolio margins rather than at a segment level. Because ultimately, it's at a company level margin. And there will always be the pushes and pulls.

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Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [93]

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Yes. And just one more thing, which I wanted to understand, is it our VNB margin assumption changes is 60 bps, negative 60 bps? But 20 bps is coming from effective tax rate. So just wanted to understand where is that 40 bps coming from? And similarly, that operating assumption changes of INR 1.2 billion what we made in the EV. Can we get that broader breakup into effective tax rate, cost and persistency?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [94]

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Niraj, you want to start off on that?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [95]

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Yes. So if you look at the VNB sensitivities range...

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Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [96]

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I'm referring to Page #35 with respect to VNB, where you say that VNB margin is impacted by 60 bps because of the assumption change. I understand 0.2 is coming from effective tax rate. So I just wanted to understand where the 40 bps is coming from. And second, with respect to the EV waterfall chart, which is in page, #10, where operating assumption changes is minus 0.2, so I believe some proportion is effective tax rate. And where is the other part coming from?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [97]

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So we mentioned earlier on the call as well. So what we've done is this time, but -- effective tax rate is one. But also, we mentioned that we've strengthened our assumptions. Assumptions are both in terms of mortality as well as in terms of persistency. So what we've done is that we've reviewed the experience of March that's happened post COVID. We've also taken some sort of estimates in terms of how we believe persistency will pan out going forward. Srini alluded to that in terms of actual persistency versus the steps that we've taken.

So some part of it -- a large part of it is obviously on the back book, which is reflecting in the VIF change. But the business written in the past 12 months also has to be given impact or rather has to be given effect to. So that is what you see as the assumption change in the VNB as well, in addition to ETR and in relation to the COVID reserve. So that's basically the -- on the VNB side.

As far as EV is concerned, if you can -- I'm sorry, if you could just repeat your question, sorry.

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Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [98]

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No, no. No, broadly, I think you have answered it with respect to VIF fall. So that INR 1.2 billion is combination of effective tax rate, persistency strengthening and COVID reserve strengthening? That's the...

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [99]

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That's right. That's -- so basically we've given effect to the entire book, not just the past but also the last 12 months. So we split that into the 2 parts, yes.

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Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [100]

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And just in Slide #21, this is little contraintuitive that when the interest rates were going up by 100 basis points, we -- our margins on -- VNB margins are showing negative for a non-par business. Actually, we will end up earning more. So net-net, your margin should be positive with respect -- rather than being negative. I'm failing to understand the point. If you can give a clarity, that would be really useful.

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [101]

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Yes. So typically, what would happen is that if you're unhedged, then when interest rates go up, you will get higher margins out of your non-par book. And if the interest rates go down, obviously, you'll see a lot lower margins.

In our case, given that we are fully hedged and not just on duration but on cash flows and we have locked in our earnings through either assets that we bought or through FRAs that we've locked in, that's how the sign change is possible in our case. And that, in fact, is actually giving us more comfort and it's giving more comfort to investors as well. That when interest rate actually go down, which is what people think will happen over the medium to long term, the margins will only see an upside.

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Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [102]

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Got it. Fair enough. And finally, just on your credit -- okay, no problem. I will take it subsequently.

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Operator [103]

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The next question is from the line of Vinod Rajamani from HSBC.

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Vinod Rajamani, HSBC, Research Division - Asia Insurance Analyst [104]

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I had a question on the -- in your EV walk, that INR 10 billion number which you have talked about in terms of the operating variance, if you could just give a split in terms of how much is related to equity? And how much is it related to debt?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [105]

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Srini, you want to? Do you have it handy?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [106]

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Yes. So that's broadly about INR 900 crores would be equity. And if you classify AT1 bonds as equity, that will be another INR 100 crores. But there is a slight contra-movement on the debt side as well. So broadly, a significant proportion of INR 1,000 crores is actually equity.

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Vinod Rajamani, HSBC, Research Division - Asia Insurance Analyst [107]

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Okay. And in terms of the tax rate change, what is the impact in the operating variance that you'll have in terms of the EV walk as well as the new business value walk?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [108]

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Niraj, go ahead.

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [109]

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So we did discuss, it is in the range of 0.2% to 0.3%.

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Operator [110]

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(Operator Instructions) The next question is from the line of Nidhesh Jain, an individual investor (sic) [Investec Bank].

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [111]

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I'm from Investec. So with respect to the Credit Life business, which is most likely to see a decline in FY '21. So -- and we have been hedging our non-par portfolio, we are doing cash flow hedge using Credit Life inflows. So do you see a change in hedging strategy going into FY '21? And will there be a consequent impact on your ability to underwrite non-par savings business and offer the levels of guarantee that we were doing historically?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [112]

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So Nidhesh, I'll just start off and then Niraj can add. So we have been mentioning that Credit Life, as a portfolio, at the beginning when FRAs were not allowed that's when it came in handy. Today, it is no longer the only way that we hedge our non-par portfolio. There are various other partly paid bonds as well as, like I mentioned, FRAs themselves. And this aids in both ALM as well as cash flow hedge -- cash flow matching.

So it is not that everything is only dependent on Credit Life, which, yes, and we do agree with you, apart from certain parts of the lending environment, most of it is in a fairly bearish mode. Anything, Niraj, you want to add?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [113]

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No. No, you covered it. Just a couple of very quick things. So there are 2 things here. One is in terms of the rate and second is in terms of the amount of business. Now rate is not really dependent on any of the hedging instruments. It's really dependent on what's available in the economy and based on our ability to take any credit risk locking the rates. So the rates that will be available to customers will be completely based on that as you've seen in the past with our dynamic repricing, both in Sanchay Plus as well as in annuities.

As far as the amount of business is concerned, with the added revenues that we have for hedging, we'll not see that to be a constraint. But of course, we will monitor our ability to write new business on the basis of the ability to hedge as well. Whichever instrument is effective, we will use that. And if at any point in time, any of these become a constraint, of course, we will monitor our product mix.

Like we said in the past, our willingness to write this business is more governed by our balanced product mix approach. So every quarter, you've seen us bring down this business to a particular level. So that approach will continue.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [114]

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Sure. Sure. And secondly, from a product mix perspective, if I look at over the next 2 to 3 years, I think one should not expect a further increase in non-par savings as a percentage of overall mix. So hence, from here onwards, the margin improvement lever is largely from annuity and protection. Is that the right understanding? Or do you see margin improvement levers in the savings business also?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [115]

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We definitely see them in savings as well, and if we get help even more so. So we don't want to be slotted into -- it's either this or that as whatever is visible today. There are so many other product innovations that we can do which could be hybrid between different segments.

Technology is something that we have just scratched the surface in terms of how we offer. It's not just what we sell but also how we sell. So we feel fairly enthused over a lot of these innovations that would be first to the market. And so it somewhat will become not as important as to slotting it into protection, being the only savior or reducing something else or putting a cap on non-par or -- so it's a combination of both technology as well as product innovation.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [116]

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Sure. Sure. And just lastly on the operating variances, if you can share the breakup in terms of persistency, mortality, expenses and others, that would be very helpful?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [117]

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Srini, you want to give color on that?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [118]

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Sorry, can you repeat the question, please?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [119]

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Operating variances, giving more details on that.

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [120]

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Right. So operating variances, largely the -- on the persistency variance and mortality and expense variance, so by and large, we are positive on every one of them. And because of the various initiatives we put in place to strengthen the 13th month persistency and mortality due to optimal reinsurance protection we've got and also cost control, and all these things have resulted in various aspects of the operating variance broadly within our assumptions.

But like I said, in spite of the operating variance being favorable, we have decided to strengthen the -- a few assumptions, primarily on account of the uncertainties resulting from the COVID crisis we are going through. But as things pan out over the next quarter or 2, we will see whether there is any merit to unwind any of those assumptions.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [121]

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Sure. Sure. And these operating...

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Operator [122]

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Mr. Jain.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [123]

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Sure.

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Operator [124]

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Sorry to interrupt, sir. The next question is from the line of Dhaval Gada from DSP Mutual Fund.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [125]

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Just a couple of questions. First, could you talk a little bit about operating costs and its ability to sort of help in this time on the margins? Just how much ability do we have on the cost front to maintain margins and improve them?

And the second is, I missed the comment that Niraj made around the amount of sort of additions we made related to persistency. So if you could just quantify that? Yes, those are 2 questions.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [126]

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Yes, sure. So if you were to look at the breakup of the cost, about 26% odd is our employee-related costs, about 50% is all distributor and new business sales, variable costs. So if you were to see what are all the controllable versus noncontrollable costs and leave the employee cost as is because the need of the hour is to have a little bit more of empathy.

So like I said, 50%, 55% sales variable, there's also volume-related costs which is another 7%, which is all your things like stamp duty and medical and those sorts of things, again new business related. So that is 62%. And then you have your fixed cost, which is your infrastructure, your technology investment, which is about 12%. So 62% to 65% is almost entirely variable. That just leaves about 35% to 38% that we have to deal with in the event of a slowdown because that's what I'm assuming that you are alluding to.

And even within that, things like branches. So we have 421 branches. We have a plan, as we speak today, as to -- if this is -- if COVID-19 takes a very long time to, really, for us, for normalcy to come back, as of today, we are able to service our customers, like I said in my opening comments as to the number of claims and the 300 death claims and the 21,000 annuity settlement, et cetera, there's virtually nothing that we are not able to do today, which means that we are in a position to be able to roll this out to reasonably for good. And which means that we might not require that many touch points.

Of course, this will be subject to some of our conversations with the regulator. But the point is in terms of -- if there is that much of deep pain as a survival of the sector, some of those measures might become very, very pertinent.

But as of today -- so we want to have a very calibrated approach. All the homework is done as of almost a fortnight back of what we need to do in which scenarios. We have 3 scenarios that we have worked out on, and we will wait and watch and react as those scenarios hopefully don't pan out because we also need to have an eye on when growth starts coming back. We have good people. We have good investments made, and it's very easy to roll back, but more difficult to build once again.

So really it needs to be in a calibrated manner. But like I said, the homework has been done and we are ready with plans under the different scenarios.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [127]

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Understood. And just on the...

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Operator [128]

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Sorry to interrupt sir, but for any followup, request you to rejoin the queue please. Next question is from the line of Nischint from Kotak.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [129]

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Just 2 things. One was if you could give a breakup of -- I actually dropped off in between, but if you could give us a breakup of the operating variance of INR 150 crores. And just on the investment variance of INR 1,000 crores, I think somehow looking at the sensitivity that you put out last quarter, I think it doesn't really add up.

And second one was on the COVID 2019 kind of reserve, what kind of impact do you really see on the business?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [130]

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Srini, you want to have a go ahead?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [131]

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Yes. See I think the same question got asked a while ago from someone. So the operating variance on all the parameters, they are positive. They add up to around INR 150 crores, and every one of them is positive.

On the investment variance, I was saying earlier that out of INR 1,000 crores, broadly around INR 700 -- sorry, INR 900 crores is due to equity fall. And if you classify AT1 bonds as equity, then it is another INR 100 crores fall due to equity and remaining small amount is due to debts.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [132]

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The debt you should have are positive, right?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [133]

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Yes, very small positive. But you have a contra because of this -- I don't know how you classify the AT1 bonds and all, but that's action, that diminution. So yes, debts you will get a positive because of the drop in the yield curve, but that's not as much asset because that's more than contra...

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [134]

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I mean, are you suggesting that's sort of offset by the credit downgrades?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [135]

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No, since you have the EV on a risk-free curve, the EV is always on a risk free basis. You don't get credits for any -- so it's on RFR basis, the industry curve that we use for valuing EV. So there -- but when you actually have a market crash or bonds not sort of having a repayment issue like in the YES Bank AT1, then there is the actual downgrade or a diminution.

So -- but of the INR 1,000 crores, predominantly more than INR 900 crores is due to equity fall.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [136]

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Sure. This time on COVID 2019. If you could just kind of maybe put some numbers to what you're really looking at?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [137]

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So COVID reserves, we've set up around INR 40-odd crores for COVID and that is based on what's the actual spread of the pandemic across the country. And we mapped that geographical spread with our number of lives where we have written in the -- across various states and cities. And we also overlaid the age profile because COVID typically affects certain age band. So mainly say, 45, 50-year plus, plus co-morbidity in people who have diabetes or hypertension. So we sort of classified the various pockets of our book and compared that with the actual spread of the pandemic in the country. And we also have taken account of the various age bands in which people have -- fall under and accordingly come up with this number of around INR 40-odd crores which translates to around 4,500 or extra lives that we have provided for due to COVID.

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Operator [138]

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The next question is from the line of [Mayank] (inaudible) from Franklin Templeton.

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Unidentified Analyst, [139]

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I just have a follow-up on those disclosures that you have provided on the non-par guaranteed book, the 3 stress scenario tests that you've done. And I understand under every scenario, the equity value on that particular book remains positive. But I want to understand that under which of these scenarios, while the equity value is positive, we would start seeing significant negative variances versus what we have already assumed altogether.

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [140]

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So [Mayank], basically, this net asset liability position is reflective of change in shareholder value or the volatility in that. We -- I mean, if your question was around equity values, there is no equity that we hold in this portfolio. It's all debt. So this what you see, net asset liability position change is basically the upwards or downward change in that given many of these stress scenarios. So that's what this indicates.

And if you see it in conjunction with earlier slide, it tells you the impact at an overall level. It gives you impact for the entire non-par portfolio on base case interest change -- interest rate changes as well. So these are the 3 additional stress scenarios that we've taken, which combines or rather talks about a higher change in interest rate and combining with demographic changes as well in terms of persistency. So this is the change in shareholder value in case these changes do happen.

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Unidentified Analyst, [141]

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Got it. Understood. Also in terms...

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Operator [142]

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Sir, for any follow-up, request you to rejoin the queue, please. The next question is from the line of Shreya Shivani from CLSA India Private Limited.

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Shreya Shivani, CLSA Limited, Research Division - Research Analyst [143]

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I have 2 questions. First is on the guaranteed product, the non-par savings product. So can you give some light on what is the current guaranteed IRR that you're offering? And how much cut have we taken overall with the first product, which was launched back in March '19 to now? And how much demand, I mean, do you think the demand of this product over FY '21 keeping in mind that it is a year impacted by pandemic. So what is your demand outlook on this product? And my second question is on the unwind rate. So I wanted to understand if the FY '20 unwind rate is based as of March '20 or is it based as of March '19? Because I see that the unwind rate has come down to 7.5% now. So if you can help me understand this? And any guidance on how it will be going ahead?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [144]

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As far as demand for non-par is concerned, it's -- you have to see it and -- so before that, in terms of repricing, we repriced our product numerous times. We've discussed this, whether it's annuity or the non-par product. We started with offering guaranteed rates of around 6% when the interest rates were in the 8% range. And we've kept these in line with what's available in the market and ensuring that our spread is enough to our manage risk expenses and margins. So we've kind of maintained that.

From a demand perspective, we do not see this in absolute terms. We need to see it in relative terms. I mean interest rates go down in the economy, they will also affect fixed deposit rates, savings bank rates, small savings rates as we've seen recently. So what our product needs to compete with is with all of these instruments and on our tax adjusted basis, the proposition still remains attractive. So in an uncertain environment, even if interest rates go down, the demand for this product category should be fairly healthy.

How much we want to do will depend on what we've all discussed earlier in the past and -- in terms of maintaining a balanced product mix and ensuring that the portfolio is always fully hedged.

As far as the unwind is concerned, we did mention that interest rates have come off in the 90 to 110 basis points range over the last year. And our unwind rate which was in the 8.5% range has come down to about 7.5%, 7.6%. So it's about -- it kind of completely reflects the change that has happened in the interest rate scenario over the last 12 months.

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Operator [145]

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The next question is from the line of Rishabh Parekh from Sunidhi Securities.

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Rishabh Parekh, [146]

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I had 2 questions. One is, Vibha, how are you seeing the behavior till date of renewal post this COVID crisis? Are you seeing a sharp reduction while I appreciate that you have taken -- you've strengthened your persistency assumptions, but just how has the behavior has been on the ground? That's the first question.

And my second question is the persistency -- I just heard a previous caller ask if the persistency was only till February because the March data would be coming out now. So all the -- I just wanted to clarify all the persistencies mentioned in the presentation were till February and not March?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [147]

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Rishabh, yes, what we are beginning to see is that there is a slowdown. How much is the slowdown? Anything between 40% to 50% in terms of delayed collections is what we are saying. Is it alarming? We'll need to see because it could also be a function of the fact that they have now one more month to pay premiums while we are still counseling people and reaching out to say that pay your premiums on time.

So -- but as of now, there is a strong, like I mentioned, cash conservation. To your second question, yes, it's as of February.

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Rishabh Parekh, [148]

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And just wanted to understand if this is the kind of experience that we have baked into our operating assumption strengthening? Would that be fair to assume?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [149]

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We have baked that into our assumption strengthening and more so on Unit Linked.

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Operator [150]

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Next question is from the line of Pavan from IIFL.

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Pavan Kumar, [151]

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My question is on the future growth of the business. Like you mentioned that you will be looking at protection of the main focus area and also mentioned that the non-par and the interest rates have reduced, it still remains competitive with respect to what are the other products in the market available.

But if you look at the savings -- the protection product, it has become like race to bottom with all the other players coming in and focusing more and more on the protection. Like every call you attend everyone says that protection is their new focus product. ULIPs are out of favor because of the market conditions. And non-par while you say that it still remains attractive, the interest rates are regularly going down year-over-year, I mean, at least over the last 1 year.

So looking at next 3 to 5 years, what would be the like focus areas for the growth? Where would the growth be coming from?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [152]

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Yes. So I'll start off and maybe, Suresh, you can add. We -- and even my earlier comments, we don't believe that protection is the only lever and protection is the only way forward for insurance. There's a reason why in India savings-led insurance made a lot of sense.

And even today, if I were to look at who are my customers and who is buying insurance, there is a sizable population that's about, say, 48 years of age, and perhaps not still a happy convert to only buying protection. And so we are a firm believer that we are catering to India and Bharat and want to penetrate into smaller ticket sizes, more into interland, more into non-salaried class and that's when all parts of our offering become very, very relevant, including, say, participating products and participating products today, especially are Sanchay Par Advantage is significantly more accretive to the bottom line than maybe other asset classes and so on. So -- and there is a place under the sun because there is -- it makes sense for a risk-averse policyholder who wants very little exposure to equity and so on, like money-back schemes, et cetera, with a life cover.

So our balanced product mix is something we will continue to focus on. We've been saying that for a long time. So we'll continue to focus on that. Credit Life is something that as long as we price it sensibly because there also we are beginning to see a lot of irrational behavior and we are actually beginning to exit some of the relationships because, again, there's a race to the bottom because of the kind of pricing, either to the distributor or to -- or in terms of how cheap you make the product and not really covering your -- the kind of claims experience that one is seeing, especially in MFI.

And so -- and GTI also is making a lot of sense to us, help through on the group platform is making a lot of sense. Pension continues. This is the first time we've introduced the slide. Maybe it was too early in terms of the call, but pension is another different way of looking at longevity risk.

So for us, it is many tongs in the fire as against only protection. Suresh, you want to add something?

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Suresh Badami, HDFC Life Insurance Company Limited - Chief Distribution Officer & Executive Director [153]

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Yes. So you covered it. But just to share with you, I think one of the things that we see is an opportunity across mortality, liquidity and longevity. We have probably a maximum range of products which we have been selling to on goal base. So if you were to really look at our customer base, it's not that there is no opportunity for unit even in this market. So there is a set of customers who've seen a correction and who probably get to rebalance their portfolio. A lot of the customers who are looking at non-par products still see us as compared to many other asset classes. Even for the earlier questions which have come, a lot of customers who had invested in non-par products at higher interest rates earlier, you can see very high persistency, which will probably remain. So we don't see that -- these steps.

Similarly, in terms of protection, I don't think customers out there are only going to go just based on pricing. A lot of the decisions by the customer depend on claim rates, depends on which company, which brand, what are the features of the particular product and we do believe there is a lot of innovation which can happen in -- even just not the vanilla product in terms of being able to cover.

So we're not really worried about the markets, like Vibha said that there are the annuity market and the annuity segment in that age groups, even if you were to look at our own customer base, the opportunity to upsell and cross-sell is so large that we can go back to a certain set of customers and sell any of these products. So we don't really see a worry in terms of which pool we want to remain profitable, but I do think that there's enough opportunity out there to reach out to a lot of customers who anyway are getting more ever and inclined towards life insurance now.

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Operator [154]

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The next question is from the line of Hitesh Arora from Unifi Capital.

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Hitesh Arora, Unifi Capital Pvt. Ltd. - VP [155]

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Ma'am, could you give a sense of the business that was lost due to COVID in the last, say, 15, 16 calendar days of the financial year?

And the second was, because the medical checkup it's not possible these days. Do you limit at what sum assured are you going forward currently? And that, what is -- how do you tackle that? So there's some lost business there as well, right? So how do you tackle that?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [156]

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Yes. So on that, in terms of loss of revenue, about INR 1,000 to INR 1,100 crores of new business and renewal premium put together is our estimate. Suresh, you want to add anything?

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Hitesh Arora, Unifi Capital Pvt. Ltd. - VP [157]

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I meant in terms of, say, in terms of VNB, what would be the number?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [158]

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You can assume a similar kind of a product mix.

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Hitesh Arora, Unifi Capital Pvt. Ltd. - VP [159]

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Okay. So this is somewhat similar with the margins?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [160]

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This I'm talking about both new business and renewals put together.

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Operator [161]

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The next question is (inaudible) Pratik from Nuveen Asset Management.

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Unidentified Analyst, [162]

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Ma'am, just one. I was just thinking this. There are 2, if I may say, headwinds for us this year, which would be, as you just talked about Credit Life being a muted year because of lower disbursement growth. And secondly, on the protection side, the reinsurance cost might be passed on in a graded manner or you would look at alternative strategies. And given that the protection segment for us, when it comes to VNB is a substantial part, I'm just thinking as to if you could again talk or give some clarity as to how will this get compensated when it comes to VNB margins because as I said, this is a substantial part of your VNB?.

And second is, ma'am, in your individual protection, I see growth of 23% on a Y-o-Y basis. But given that share of limited pay would be higher, could you also talk about in terms of number of policies what kind of growth have you seen?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [163]

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Yes. So you asked 2, 3 questions so -- if I recall. The first question is in terms of your VNB and what your protection could have -- was that your first question?

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Unidentified Analyst, [164]

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No, my first question was that your protection in VNB is a dominant -- I mean, within your VNB protection is the dominant part and there are 2 headwinds...

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [165]

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No. So I just want to -- it is an important part, but not necessarily a dominant part. Now I recall in terms of your credit life, in fact, the credit life slowdown will actually be some of -- and are existing some of the partnerships like I talked about, wherein there is irrational pricing or the trends on mortality. Absolutely, we are unable to price those kind of trends. It will be margin accretive rather than depletive. So that's on Credit Life.

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Unidentified Analyst, [166]

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From a margin perspective, not absolute perspective, I'm assuming. Because the lower-margin products...

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [167]

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No, even on that -- even on absolute VNB because some of this are loss making.

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Unidentified Analyst, [168]

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Okay.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [169]

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Right. So -- and that's why we want to exit. Otherwise, we won't exit it. It just doesn't make sense at all. And there's no road map also for us to get some clarity as to when are we likely to -- and if we are going to breakeven at all. Yes, and the last one?.

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Unidentified Analyst, [170]

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Yes, the question was on limited pay. Could you just split the growth of your individual protection into number of policies versus ticket price, if it's possible?

Niraj, do you have that information ready? Otherwise, you can give it to him separately.

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [171]

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Yes. I think we'll just connect offline, please, for this.

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Unidentified Analyst, [172]

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Sure. And, Vibha, what is Family Policy Density and Client Policy Density? This is on Slide 32.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [173]

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Just give me a second.

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Unidentified Analyst, [174]

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Some additional customer insight. I'm assuming these customer insights are based on your own customers, right?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [175]

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Yes. Yes, yes, this is -- these are all our own additional insights. Yes.

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Unidentified Analyst, [176]

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So what is Family Policy Density, Vibha? How do you define it?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [177]

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So this is number of people in that family. So on average, close to 4 people.

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Unidentified Analyst, [178]

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And Client Policy Density is what?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [179]

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So this is wherein...

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Unidentified Company Representative, [180]

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This will be at a unique customer level and what will be there in the overall family. So you could have various policies in a particular family across multiple products.

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [181]

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Yes, correct. And Client Policy is that where we have upsold to that client. So 1.3 policies is the average policy that our customers have.

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Unidentified Analyst, [182]

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And 3.7% is per family?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [183]

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Per family, yes.

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Unidentified Analyst, [184]

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Ma'am, so then the potential to farm is lower than hunt right now? Because if there are 4 policies per family for your customer, that incrementally you'll have to add new customers. Is that the way to think about it?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [185]

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Not really because not all of them unfortunately hold on to their policy. If you look at persistency data, that would be the case if they continue to pay their premiums. But for whatever reason, they stop paying, they are completely underinsured, so you can go back to them. And even when you look at term rates versus term rates that prevailed in India maybe 4, 5 years ago, the rates today are -- even before the reinsurance and all that saga started, but the rates are as -- anything between 30% to 40% cheaper. So there's always a conversation or there's a product innovation that has happened and we are known for product innovation.

So for us to go back and say that, okay, you now have very little cover, are you interested in doing this at a much lower cost?

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Operator [186]

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We take the next question from the line of Raja Kumar V., an individual investor.

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Raja Kumar V, [187]

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I have a question on the provisions for dilution of investments. I see the provision line appears right in the middle. So it would be helpful if you could give some color to that? And also want to know that the markets have recovered since March, and whether any of these positions should reverse in the coming quarters?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [188]

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Sorry, your voice has been very difficult -- can you please repeat that?

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Raja Kumar V, [189]

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Hello?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [190]

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Yes. Please if you could repeat that question?

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Raja Kumar V, [191]

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Yes. Sir, my question is on the provision for the diminution of investment. I see that provision appearing twice, in 2 lines in the P&L, totaling to about INR 560 crores. Just wanted to know, since the markets have recovered since March, just want to know whether any of them would be reverting in the current quarter? And if so, if you have any color on the amount?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [192]

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Yes. So we did discuss, right? And last part of the deposition for FY '20 was in the last quarter, and this is as per impairment policy. So that's basically largely a quantitative factor of the change in price since the securities were bought. And second is in terms of the movement in the last few months. So it's a combination of that.

And if the trend reverses, of course, we will be very happy to write that back. We will stick to the policy, whatever the policy approved at any point in time and payments would take cognizance of upward and down movements in the market. So yes, if there is a positive change that happens in this quarter, which we've seen since March 31, we will see what can be crystallized as on June 30 as per the policy.

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Raja Kumar V, [193]

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Okay. The second question is, despite having INR 550 crores provision, the bottom line has just moved down only by like INR 60 crores between the March '19 and the March '20. So what is driving despite the final [co-position], what is making up for this bottom line?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [194]

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Basically, there are 2 things. One is the policyholder surplus that comes to shareholders. That's a large chunk of what constitutes shareholder profit. And the second is the investment income from the shareholders. So investment income for shareholders is much -- is a lot higher than last year on account -- in terms of dividend income as well as in terms of dividend.

The gains on realization have been lower than last year. And of course, we've taken definitions. So the policy holder surplus has flown through from our Unit Linked book largely because of lower business and also in terms of the regular transfers from the participating book and the surpluses that rise from the non-par as well. So we've had a good year in terms of new business growth as well as healthy rate and healthy growth in renewals in spite of the situation that we just discussed. So all of that contributes positively to the shareholder accounting profit as well.

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Raja Kumar V, [195]

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Okay. Okay. Great. Just the last question is...

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Operator [196]

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Mr. Raja Kumar, sorry to interrupt, sir. But for any follow-up request could you join the queue, please. The next question is from the line of Jatin Jain, an individual investor.

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Jatin Jain, [197]

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Ma'am, actually my question is that for the insurance companies, March is a very important month. So due to the corona effect, how much the percentage income has been effected, if I compare to last year?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [198]

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How much of top line, yes, please go ahead.

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Suresh Badami, HDFC Life Insurance Company Limited - Chief Distribution Officer & Executive Director [199]

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So normally, you're right. The last month of March has a fair percentage contribution to the overall business. But however, if you have seen over the last few years, the skew of the business which was done in the last quarter has started coming down. So if you remember when we had the post-budget discussions also, we came back and said, look, tax is probably not one of the largest reasons why people buy insurance, which is one of the reasons this Q has moved from Q4 to Q1, Q2 and Q3.

However, March still remains significant as an overall in terms of percentage. So you would normally find that the last 15 days or the last 2 weeks of March contribute to anywhere between 8% to 10% -- 8% of the annual number. Now that is where more or less it has got affected. You would say in the industry, the impact would be around 6% to 7% of the annual numbers, which have come in from the COVID last 15 days. So that would probably be proportionate across all. And you would find that in March, most of the numbers, obviously, the IRDA numbers have now been published, most of the insurers have degrown. We've probably degrown the least in terms of what was our March. But I estimate it would be anywhere between INR 300 crores to INR 400 crores of new business which have got impacted in the last 10 days of March.

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Jatin Jain, [200]

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Okay. As you said just that your company has degrown least in the insurance sector. So can I assume that due to the -- your March effect, your profit is little down, it can be related?

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Unidentified Company Representative, [201]

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No. So actually the new business, the strain actually affects the profit a little bit more in the sense that the more business you do, there is more of a strain. So to some extent, the new business strain has actually come down because for a slightly lesser business. So maybe Niraj you can add on that. But effectively, we are looking at significantly much higher numbers.

If you have seen the year-on-year growth which has (inaudible) like amongst the large private players, it really can then be higher or doubled.

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Operator [202]

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We take the last question from the line of Madhukar Ladha from HDFC Securities.

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Madhukar Ladha, HDFC Securities Limited, Research Division - Research Analyst [203]

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A couple of quick questions. You mentioned that the equity hit was about INR 900 crores on the VIF. So this INR 900 crores is purely just because of the fund management charges on a lower equity value? That is the right way to read it, right?

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Srinivasan Parthasarathy, HDFC Life Insurance Company Limited - Senior EVP, Chief Actuary & Appointed Actuary [204]

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No, I said earlier, fund manager. UL is only about INR 500 crores, then you have the equity impact on the shareholder net worth. That is about INR 200 crores. And then on the diversificating products also, you have some equities. And if the equities fall, the ability to pay the future bonuses from which you will actually get a shareholder transfer, they also fall. So it is a projection of how much the total loss in the future transfers as bonus to the par customers also has a contributory effect in all of equities. But the ULIP alone is around INR 500 crores and INR 200 crores is around par...

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Madhukar Ladha, HDFC Securities Limited, Research Division - Research Analyst [205]

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The shareholders.

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [206]

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And INR 200 crores -- another INR 200 crores is in the shareholder equity.

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Madhukar Ladha, HDFC Securities Limited, Research Division - Research Analyst [207]

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Understood. And then back to the non-par additional disclosures that you have given. So on the 3 scenarios, our net asset position actually becomes -- is still positive, but it is slightly lower than what we had incorporated in our EV, right? That's the right way of reading it, right?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [208]

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No, the right way to look at it is basically the base EV capture are best estimate assumptions of each of these elements, whether it's interest rate or policyholder behavior. Stresses in normal course are something that we put out in our sensitivity slide. These are severe stresses to one part of our portfolio. So the impact of which is mentioned at the bottom of Page 21 and the results of these stresses are what you're talking about on Page 22.

Now this is basically to give the management, the Board, shareholders and all of us comfort that even if there are severe stresses, what is the movement in the value of the shareholders. That is what this tells you. Because if you look at any extreme cesses, for example, if equity markets go down by 30%, the impact on embedded value and VNB will be higher than what it would be in normal course. Now that's obviously going to be the case. Interest rates fall by 3%, it will affect the portfolio in different ways from what it would affect if interest rates fall by 2%.

So this is basically the severity of the test. If you were to look at it in terms of the regular sensitivities that you do, sensitivities, like Srini explained, have, in fact, come down across each of those elements, whether it's persistency, interest rate because of a balance portfolio.

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Madhukar Ladha, HDFC Securities Limited, Research Division - Research Analyst [209]

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Yes. But this is -- this minus 4.5% or minus 7% is on a baseline EV, which we have -- on a baseline sort of assumption that we have incorporated. So what percentage would these 2 portfolios sort of contribute in our EV?

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Niraj Ashwin Shah, HDFC Life Insurance Company Limited - CFO [210]

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So in terms of our value of inforce that's fairly well spread between Unit Linked participating and nonparticipating. So the impact that you see is on this portfolio, which will be one portion of the VIF. We are not talking about how much of VIF is coming from each of these components, but it's reasonably well distributed across Unit Linked participating and nonparticipating. And what you see on Page 21 is the result of the interest status that you would apply on interest rate.

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Operator [211]

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I now hand the conference over to Ms. Vibha Padalkar for closing comments. Ms. Vibha?

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Vibha U. Padalkar, HDFC Life Insurance Company Limited - MD, CEO & Director [212]

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Apologies. I was on mute. Thank you, everyone, for being part of this conference call. Stay safe. And if there's anything further in terms of clarifications, please do reach out to Kunal Jain from our IR team. Thank you, and good evening.

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Operator [213]

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Thank you. Ladies and gentlemen, on behalf of HDFC Life Insurance Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.