U.S. Markets close in 1 hr 36 mins

Edited Transcript of ICICIPRULI.NSE earnings conference call or presentation 21-Jan-20 10:00am GMT

Nine Months 2020 ICICI Prudential Life Insurance Company Ltd Earnings Call

MUMBAI Jan 24, 2020 (Thomson StreetEvents) -- Edited Transcript of ICICI Prudential Life Insurance Company Ltd earnings conference call or presentation Tuesday, January 21, 2020 at 10:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Amit Palta;Chief Distribution Officer

* Narayanan Srinivasa Kannan

ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director

* Puneet K. Nanda

ICICI Prudential Life Insurance Company Limited - Deputy MD & Whole-time Director

* Satyan Jambunathan

ICICI Prudential Life Insurance Company Limited - CFO

================================================================================

Conference Call Participants

================================================================================

* Adarsh Parasrampuria

Nomura Securities Co. Ltd., Research Division - Executive Director

* Ajox Frederick H.

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

* Anand Bhavnani

Unifi Capital Pvt. Ltd. - Analyst

* Ansuman Deb

ICICI Securities Limited, Research Division - Aviation 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

Jefferies LLC, Research Division - Equity Analyst

* Nidhesh Jain

Investec Bank plc, Research Division - Analyst

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Senior Analyst

* Prakash Kapadia

Anived Portfolio Managers Pvt. Ltd - Principal Officer

* Prayesh Jain

Yes Securities (India) Limited - Executive Vice-President

* Prithvish Uppal

IndiaNivesh Securities Limited, Research Division - Research Analyst

* Rishi Jhunjhunwala

IIFL Research - VP

* Sanketh Godha

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

* Shreya Shivani

CLSA Limited, Research Division - Research Analyst

* Suresh Ganapathy

Macquarie Research - Head of Financial Research

* Udit Kariwala

AMBIT Capital Private Limited, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [1]

--------------------------------------------------------------------------------

Good afternoon. And welcome to the results call of ICICI Prudential Life Insurance Company for the 9 months of the current financial year.

I have with me here my colleagues Puneet Nanda, our Deputy Managing Director; Satyan Jambunathan, our Chief Financial Officer; and Amit Palta, our Chief Distribution Officer.

At the outset, I'd like to mention some of the key developments during the quarter. In line with our agenda of growing protection business and reaching out to under-served customer segments, we launched ICICI Pru Precious Life, the industry's first term plan, specifically designed for customers who find it difficult to get access to life cover due to existing health conditions. Recently, we also launched Lakshya, a participating product, which provides an option of regular lifelong income with a guaranteed capital protection under life cover. So these are the 2 significant product introductions we had done during the quarter.

On the distribution front, we partnered with Paytm for distribution of our flagship protection product, iProtect Smart on their app. This allows KYC compliant users to take advantage of a paperless on-boarding experience and make an in-app purchase of the product in a matter of minutes.

Moving on to the regulatory side. On the regulatory front, within the sandbox framework, IRDAI has approved some of the proposals for health, motor and intermediaries, and we expect an announcement of the life proposal soon.

On the customer metrics in the previous quarter, we had launched the Claim For Sure, an initiative to settle death claims in 1 day. We are happy to inform you that 99.4% of the eligible claims have been settled in 1 day under this initiative. This has resulted in average claim settlement time of 1.4 days for the third quarter of fiscal 2020. We have also built the digital capabilities on our partners portals to accept claim documents and expedite the settlement of claim.

During the quarter, Mr. V. Sridar, one of the independent directors of the company has completed his tenure on January 15, 2020.

I'll now talk about the highlights of our performance for the 9 months of this financial year in the context of our key strategic imperatives. We have put up the results presentation on our website, we can refer to it as we take you through the performance.

After my remarks, Satyan will discuss the performance in greater detail. At the end, we will be happy to take any questions that you may have.

As I mentioned in our previous calls, our 4 key strategic elements, that is premium growth, protection business growth, persistency improvement and productivity improvement, continue to guide us towards our objective of growing the absolute Value of New Business. We had articulated our path forward for each of these strategic elements as well.

During the financial year 2019 results call, we had articulated our aspiration to double our financial year 2019 Value of New Business, over 3 to 4 years. This implies a compounded annual growth rate of VNB of about 20% to 25% range. In this context, our VNB grew by 24.7%, to INR 11.35 billion in the 9 months of current fiscal as compared to INR 9.1 billion for the same period last year. So it's a 24.7% growth of VNB. This growth has been predominantly achieved through the growth in the protection business.

Our VNB margin for 9 months financial year 2020 was 21% as compared to 17% for the whole of the last fiscal. The results achieved so far give us the confidence that we continue to be on our aspirational path of VNB development.

Coming to the first P of our strategic element, which is premium growth. For 9 months financial year 2020, our Annualized Premium Equivalent, APE, was INR 54.07 billion, and the new business premium was INR 81.73 billion. In APE terms, while the growth was 1.2% for 9 months of this financial year, if you look at just the previous quarter, that is quarter 3 of financial year 2020, APE actually grew at 4% year-on-year and 7.3% on a sequential basis.

The new business received premium, without any weightage for 9 months of fiscal 2020 continue to demonstrate strong growth of about 20% on a year-on-year basis.

Also for the retail business, we have put in place various initiatives across distribution and products. And within product initiatives, we continue to focus on diversifying our product mix.

For annuity business, we initiated a facility by which a pensioner can digitally submit the life existence verification documents, which can be completed in a matter of minutes.

With the above initiatives for Q3 of fiscal 2020, non-linked savings business growth continued to be robust as premium almost doubled on a year-on-year basis. This growth was primarily led by annuity and participating businesses. Linked-product mix, as result, stood at less than 70% of our APE for the quarter and for 9 months of current financial year as compared over 80% in the last financial year, providing further diversification in product mix and resilience to the business model.

Similarly, on distribution channel diversification, non-bank channels contributed about 47% of our 9 months APE as compared to about 44% in the last financial year. Within this, while agency channel remained flattish for 9 months fiscal, it grew 11% year-on-year for the third quarter alone. In agency, the focus has been on building a long-term sustainable growth model through deepening our penetration in underserved customer segments.

We also supported the agency distribution team with Chat Buddy, a virtual assistant to address queries on performance, incentives and KPI achievement. These initiatives have led to almost half of the agency business being contributed by annuity protection and participating products, providing further diversification to product mix. We continue to work on adding new distribution tie-ups, such as the one I mentioned earlier in the call.

On the second P of protection business growth, we continue to make significant progress with our focus on retail business and building partnerships. Our protection APE for the 9-month period of current fiscal grew by about 66% on a year-on-year basis. With an APE of INR 7.64 billion for the 9 months of this financial year, the protection business not only accounts for 14.1% of our overall APE but has surpassed the last full year number. This growth was led by both retail as well as group protection businesses, within protection business, retail protection continues to dominate the mix.

I would like to reiterate that our protection business is pure protection cover and does not have a savings component unlike protection with the return of premium plan. The continued growth and increasing mix of protection have contributed to the margin expansion on a year-on-year basis.

Now moving on to the third P of persistency. This metric continues to be a key measure of our business quality. Our 13th month persistency, excluding single premium, was at 83.1%, which is lower as compared to the last financial year. This is primarily attributable to a specific cohort of policies, which show lower persistency, and we continue to work on this tool by encouraging our customers to stay invested longer.

Our 49-month persistency improved to 64.3% at the end of December 2019. I would like to highlight that our persistency rates continue to be one of the best in the industry as well as better than the assumptions used in the VNB and EV computations. Satyan will update on the persistency movement later in the call.

On the fourth P of production or productivity improvement, we continue to leverage technology to improve cost ratios. However, as we continue our focus on protection, we also are conscious that we will have to continue to invest in this segment. With robust growth in protection business, our cost to TWRP ratio was 16.6% for 9 months of fiscal this year as compared to 15.4% for the corresponding period last year. The cost to TWRP ratio for the savings business has significantly improved to 11.1% as against 12% for 9 months of last financial year.

As I mentioned earlier, the outcome of our focus on these 4 Ps has resulted in our Value of New Business for 9 months of this fiscal of INR 11.35 billion, a growth of 24.7% over the same period last year. The VNB margin for 9 months of financial year 2020 is 21% as compared to 17% for the last financial year. We will continue to focus on expanding the absolute Value of New Business going forward as well.

I thank you for your attention, and I now hand over the call to Satyan to discuss the great -- results in the greater detail. Thank you.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [2]

--------------------------------------------------------------------------------

Thank you, Kannan. Good afternoon. Our primary focus continues to be to grow the absolute Value of New Business, that is VNB through the 4P strategy of premium growth, protection business growth, persistency improvement and productivity improvement.

In 9 months FY '20, premium growth in APE terms was 1.2%. Weakness in the environment and volatility of the equity markets has resulted in a 14% decline in the linked business. Through the focus on other product segments, we have mitigated the impact of the linked business decline on overall APE. Specifically, the non-linked savings business and protection segments continue to grow well.

Non-linked savings business was primarily led by protection -- by participating in annuity businesses. Participating business saw a robust growth of 38% during 9M 2020 to INR 6.11 billion, contributing more than 11% of the overall APE. Annuity premium has almost doubled during 9 months '20 to INR 0.71 billion in APE, which is about INR 7.1 billion in terms of new business received premium.

Retail non-linked savings business has almost doubled in Q3 '20, resulting in the growth of 73% for 9M FY'20. With this the ULIP contribution was at about 69% of the total APE in 9M FY '20 as against 80% in FY '19, providing us with some diversification in the product mix.

On the distribution channels, we have continued to invest across channels and specifically in the agency channel. For the agency channel, the approach has been to ring-fence the high productivity agents while increasing the activation of others. For the ring-fencing initiatives such as -- initiatives such as closer mapping with sales support team, increased training intervention were undertaken to sustain the productivity. We also focus on adding new agents to the distribution force.

For 9 months FY '20, we added over 18,500 agents to the distribution force. Almost half of our agency business for 9 months FY '20 was contributed from the participating annuity and protection products.

Within the bank channel, the focus on growing protection mix has continued into 9 months FY '20. The mix -- the protection mix for this channel has reached a high single digit.

In the case of corporate agents and brokers, the focus on protection and non-linked savings segments has resulted in a significant contribution of business coming from this channel. We've also tied up with various nontraditional distributors such as web aggregators, payment banks, small finance banks, insurance marketing firms, and continue to build new partnerships, some of which were highlighted by Kannan in the quarterly developments. We thus have a well-diversified distribution mix with the nonbank channels contributing about 47% of our 9-month FY '20 APE.

In the customer segments, retail business continues to dominate our new business, contributing more than 90% of the APE. The growth in the group business APE has been primarily driven by protection products. As mentioned earlier, we continue to do well on the protection business, which is the second strategic element of growing VNB. With an APE of INR 7.64 billion for 9M FY '20, the protection business grew about 66%, resulting in protection being 14.1% of APE. Within this, retail protection saw the fastest growth during this period.

The third element of persistency, for 9 months, 2020, we have seen some decline in persistency, primarily from the linked business and within linked from a specific cohort. I would like to reiterate that persistency of other product segments have been stable. For 9 months FY '20, our 13th month and 49th month persistency, excluding single premium, was 83.1% and 64.3%, respectively. We have taken various steps across employees, customers and distributors to improve it further. Keeping in mind the assumptions in the margins, early period persistency in particular and surrender experience still continue to be better than the assumptions factored in the VNB and EV calculation.

On the fourth element of cost ratios, our cost ratios have been coming down over the years. Further, we have been saying that as we continue to focus on protection products, the cost ratios may increase as the protection segment cost ratio is higher. Our cost to premium ratio was 16.6% for 9 months FY '20 compared to 15.4% for 9M FY '19. Within this, the cost to premium for savings business continued its decline at 11.1% compared to 12%. The outcome, as Kannan mentioned, has been the Value of New Business of INR 11.35 billion for 9M FY '20, a growth of 24.7% over the same period last year. This growth has been achieved through the 66% growth in the protection business which we spoke about earlier. The margin stood at 21% as compared to 17% for FY '19. There were no assumption changes during this period, and the margin change has been driven predominantly by the product mix.

The profit after tax for 9M FY '20 was INR 8.89 billion compared to INR 8.79 billion for 9M FY 2019. Solvency ratio continues to be strong at 207%. Our AUM was more than INR 1.72 trillion at December 31, a growth of 14.6% year-on-year. Our investment philosophy continues to be aimed at ensuring consistent, stable and better risk-adjusted performance over the long term to policyholders.

To summarize, we continue to monitor ourselves on the 4P framework of premium growth, protection business growth, persistency improvement and productivity improvement to improve expense ratios. Our performance on these dimensions is what we expect to feed into our VNB growth over time.

Thank you, and we are now happy to take any questions that you may have.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

The first question is from the line of Prakash Kapadia from Anived Portfolio Managers Pvt. Ltd.

--------------------------------------------------------------------------------

Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [2]

--------------------------------------------------------------------------------

Congrats on a good set of VNB. I had 2 questions. So If I look at the cost side, specifically employee expenses, they are up almost 22%, 23% this quarter. So is it the impact due to some interest rate or actuarial change or there has been a significant employee addition?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [3]

--------------------------------------------------------------------------------

Prakash, over the 9-month period, if you see our employee expenses, they are up about 8% compared to 9 months of last year. Normally, when we do the buildup of employees, it is keeping in mind the seasonality of the business as we get into the last quarter, which is the most productive quarter for the year, the count of employees generally increases a little bit. But overall, employee costs increased at about 8% versus same period last year, it's actually well lower than the 25% growth in VNB. So we are quite comfortable with the employee cost.

--------------------------------------------------------------------------------

Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [4]

--------------------------------------------------------------------------------

And I think last year-end, we had around 17-odd-thousand employees. Any number you can share as on date in terms of number of employees?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [5]

--------------------------------------------------------------------------------

17,000 employees, Prakash, was in March 2018. By March 2019, we were at about 14,000, 14,500. Even currently, we are at about 14,000 employees as an organization.

--------------------------------------------------------------------------------

Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [6]

--------------------------------------------------------------------------------

That is helpful. And secondly, Kannan did mention and Satyan, you also mentioned on the ULIP side of the APE. So if I look at overall benchmarks, they are pretty buoyant and as in the presentation and in your opening remarks, you mentioned we are roughly down 14%, 15%. So what is the near-term outlook as we enter the busy quarter, Q4 is typically where you see most of the sales happening. So any trends you are seeing, anything you can share? And what is affecting ULIP kind of APE growth, if you could comment, that would be helpful?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [7]

--------------------------------------------------------------------------------

So we had -- Kannan here. Puneet can supplement it. But when we looked at the numbers for 6 months of the current fiscal year, for which we have the data across the industry, we found that on a year-on-year basis across the industry total also ULIP was a decline on a new business side. So it is not that we are alone in terms of a decline is what the first thing I want to tell you.

So based on our analysis, it looks like a little bit of a demand compression on the ULIP side, essentially because while recently, the markets have been doing well, that's been -- if you look at over a longer period of time, there has been some volatility around the market. So that seems to have impacted the flows. So the way we think about it is that ULIP continues to be a very transparent product with a low charge to the customer. So even at 70%, it is a very dominant part of our portfolio. So we'll continue to be focused on that. And as you've seen the cost ratios, we'll be probably #2 in terms of the best cost ratios in the industry. So with that cost ratio, we are able to manufacture ULIP much better than others.

So I think that focus will continue, but the exact growth and the result in product mix will be a function of what the customers need at specific points in time. So that is the way we would look at it.

And also, what we have done during this period is that recognizing that there would be specific customer segments who may not be bothered about the daily NAV, they may not be bothered about very high returns of market investment, but they would like to have a smooth end return over a period of time with the protection of the capital, we have introduced products and in the non-bank channels, we've been focused on non unit-linked savings product as well. So if you see some of the product numbers -- in terms product wise growth, we have seen that they may be savings business, non-linked products have registered a very strong growth. I think on a year-on-year basis, it will be close to 70% kind of a growth is what we have seen. So that is something which we have been doing to address this market. And that is the reason why in the third quarter, if you look at it, the savings business decline, which we have shown in the 6 months, has pretty much been -- pretty much had become flat. So that is something we have been able to achieve.

So to answer your question, our focus will continue to be expanding the VNB and whatever product mix will be a resultant of customer demand during those periods in time.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Anand Bhavnani from Unifi Capital.

--------------------------------------------------------------------------------

Anand Bhavnani, Unifi Capital Pvt. Ltd. - Analyst [9]

--------------------------------------------------------------------------------

I have 2 questions. I was looking at the longer-term performance since inception, in fact, for us and for other peers, private entities. Now what I noticed was we had -- we had been leading the private sector insurance as a pack until 2008 and thereafter we went sidewards. And in the last few years, while we have got back the momentum from FY '14 on, the momentum that other peers have, maybe due to their product mix or due to their higher productivity, has been much higher. So my question to you is, from here on, you are guiding that you'll double the VNB in next 3, 4 years, is that guidance based on your expectation of product mix change to higher margin protection business or is it more productivity driven?

And if you can give me a sense of how realistic do you think it is? Is it an aspirational goal or whether it is something which is within the realms of possibility?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [10]

--------------------------------------------------------------------------------

Okay. So you are right that we have expressed our aspiration of doubling the last year VNB over the 3 to 4 years. And as I said in my opening remarks, this amounts to something like a 20% to 25% kind of CAGR during this period. So if I look at our actual performance against -- in the 3 months -- sorry, 9-month period against the aspiration we have articulated, I said that with a 24.7% kind of a growth rate, I said we seem to be following that path of aspiration. So I would like to say that we have taken our own articulated aspiration very seriously. So to that extent, we want to be delivering on that. So that is the first point we want to make that it is not just an aspirational statement, it is something which we want to actually achieve.

Now if I look at the development of VNB during this period of time, as you know, this has been largely driven by the margin expansion. So it's not so much of a top line growth, but it is the margin expansion. So with the margin expansion some-17%, we have got to 21%, that [takes -- well that movement we'll] be about 23.5%. So little bit we have got on the top line movement. So that's why we put out this 24.7% kind of a growth.

This margin expansion, obviously, has been driven by the product mix change. So during this period, what came in handy was the movement of the protection in terms of overall growth and that way constituting a higher mix. And if you look at the protection number last year, same period, there was about single-digit percentage growth, from there, we have been able to move to 14.1%. So yes, a, it is a statement which we take it seriously, we want to deliver on that, on the VNB. And b, so far, the expansion is caused by margin and which is on account the production mix -- protection mix.

And going forward, to answer your question, our sense is that in the near term, we do expect the protection mix continue to expand over a period of short to medium term, if you look at. Because we expect that the growth rate in protection will exceed the overall growth rate of the company on the top line basis. So -- and given the relative margins, I think one can -- without speculating about a particular number, which we have not really computed, we do believe that there is some room to answer your question on expansion of the margins through our product mix. So that is one part of the story will be there.

Productivity, yes, as you said, our -- one of our key points has been that we are one of the most efficient producers of life insurance in the country today, in the industry. And we have used technology and other aspects very, very well to ensure the productivity improvement. And if you really look at the -- whether if you look at it on the number of branches or the number of the cost itself or if you look at the number of people, whichever way look at our physical resource allocation vis-à-vis our APE development, you would see that over a period of -- a longer period, if you look at about 10 -- 5- to 6-years period of time, we have actually kept the APE almost same by -- or if I look at the largest -- longer period of time, it is that we are doing the same APE with half the resources. Now, that is the way we have produced these numbers.

So in fact, over the last decade, if you look at top line would be pretty much flat compared to what it was 10 years back and now, a number of people, a number of branches and resources can cost everything, look at it, we are half of what we were at that time. So I think productivity mix, we are there. But again, at some point in time, probably in the protection side, the economies of scale will operate. There is some possibility in the future to get better on productivity, but savings, I think we are pretty much -- maybe the improvements we'll get will be only marginal because we have brought down the savings cost ratio quite drastically.

So yes, there is some improvement, but I -- my sense based on our own view is that pickup in margins is not likely to be as high as the pickup in product mix in terms of protection. So at some point in time, to answer your question, finally, that the sales growth will have to contribute to the VNB growth. So that would be the overall volume expansion will have to come handy.

We can afford to manage through a product mix change for some more time before the sale starts helping us -- overall sales starts helping us in terms of the absolute VNB expansion. So the view we have is that during this period, we have tried hard to keep our product mix much more balanced than what it was 1.5 years back. That has been the focus of the executive management team. We didn't really -- we were 85% plus ULIP company, we didn't really panic. We said that given the demand compression, we should look at other avenues. So we have -- one side, we had expanded the protection. Our own estimate is that in the retail protection our market share will be anything between 25% and 30% today. That is our own estimate.

So there, we have made significant inroads. Then, we -- in the savings side also, we have expanded, as I mentioned, annuity, we have been growing -- almost 100%, we have been growing. And we have done participating in other traditional products, we have been introducing. And because of which, we have been able to mitigate the negative growth of ULIP somewhat through introduction of these products. Of course, it is taking a bit of time because ticket sizes, on a relative basis, are much lesser in the savings products -- non-ULIP savings products compared to ULIP products.

So I think by the time we get our act together in terms of good product mix, at some point in time, of course, ULIP demand also will return, we'll be in a position to exploit that as well. So yes, it is a very serious aspiration, something which we would like to pursue, and these are the 3 methods through which we would like to pursue. And this time around, we have kept the -- the product mix much more diversified. So maybe the volatility will not impact us as it impacted about a year back.

--------------------------------------------------------------------------------

Anand Bhavnani, Unifi Capital Pvt. Ltd. - Analyst [11]

--------------------------------------------------------------------------------

Sure. And secondly, I just wanted to understand with respect to our banca partnerships, have you been able to penetrate any of the large PSU banks in our banca relationships?

--------------------------------------------------------------------------------

Puneet K. Nanda, ICICI Prudential Life Insurance Company Limited - Deputy MD & Whole-time Director [12]

--------------------------------------------------------------------------------

So our -- we have a partnership with about 13, 14 banks, of which, the most significant, obviously are ICICI Bank followed by Standard Chartered Bank. Other than that, we have a number of banks, but most of them are smaller to midsized banks. As of now, none of the PSU banks are partnering with us. Having said that, there are discussions, obviously, going on at all points of time. And we will announce if at all something (inaudible).

--------------------------------------------------------------------------------

Anand Bhavnani, Unifi Capital Pvt. Ltd. - Analyst [13]

--------------------------------------------------------------------------------

And with respect to the ICICI Bank, are we penetrated in all the branches? Like, would it be fair to say we are 100% penetrated in ICICI? Or is there any scope for further leveraging that franchisee?

--------------------------------------------------------------------------------

Puneet K. Nanda, ICICI Prudential Life Insurance Company Limited - Deputy MD & Whole-time Director [14]

--------------------------------------------------------------------------------

There are a number of ways to look at penetration, one way is branches. I think in some form or the other, we would have presence. But if you look at it, penetration in terms of the customer base. I think it is still quite modest. There is a lot of scope still to improve penetration levels among the customer base. Within that, of course, if I further segment the customer base, in the affluent segment, I think penetration levels are high. But in the mass segment, penetration levels can significantly improve even from here.

--------------------------------------------------------------------------------

Anand Bhavnani, Unifi Capital Pvt. Ltd. - Analyst [15]

--------------------------------------------------------------------------------

Sure. And lastly, if you can comment your view on credit protection as a product? And how much of our protection business has credit protection contribution?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [16]

--------------------------------------------------------------------------------

So the split of the protection business across the segments, we tend to give at the year-end. So we will give that. At the end of last year, just to give you a flavor, retail was over 60% of the protection business. Credit protect was about 20%, 22%, and the balance was group term. This year, most of the growth has been driven by the retail business. In fact, the share of retail business has, if at all, increased in the current year.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question is from the line of Nidhesh Jain from Investec.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [18]

--------------------------------------------------------------------------------

Firstly, on the ULIP business and on the persistency, our threshold persistency, as I understand, is around 82.5% and overall, persistency for this 9 months is around 83.1%. So we are very close to our threshold persistency and probably on ULIP business, maybe we are very close to 82.5%. So how do you see that impacting our margins going forward?

Secondly, in this quarter, we have seen quite a strong movement in equity markets, but ULIP growth is still negative 11%, 12% for the quarter. Plus, we have seen a negative impact on persistency. So any thoughts on that? Why is that the case?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [19]

--------------------------------------------------------------------------------

So, Nidhesh, -- some persistency experience vis-à-vis assumptions, you're right, 13 month is now fairly close to the assumption. So it's -- the last quarter is going to be very important for us to claw back a bit more from where we are. But as we speak now, we are not unduly concerned about negative impact on margins coming out of this.

Also with respect to your question on the markets coming through into the last quarter and what could be the growth opportunities and the initiatives on persistency.

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [20]

--------------------------------------------------------------------------------

Nidhesh, Kannan here. On the first question, I just wanted to say that it's not that with the 83.1%, we are going to stop there. We are making specific efforts to make sure that we bring up the persistency. In the last year also, if you see, the way it has developed is that we have always brought it back. So that effort is on, we are reasonably confident of getting it up. And as -- on downside as Satyan mentioned, we don't see assumptions getting threatened. That's obviously, as we always mentioned in the past, before we put out the margins, we look at the expectations for the whole year and look at the sustainability of the margins before we put out the number. So 21% margin should be taken in that context. So that is what I wanted to -- otherwise, we would have -- had to adjust it already. I mean, so the fact that we have continued with the margin should give you confidence on that.

On the ULIP side, again, on these 2 aspects, I will ask Amit Palta, our Chief Distribution Officer, to give his thoughts on how he is planning these businesses.

On ULIP side, clearly, it takes some time for it to come back and turn around. So because some of the lower ticket customers on the ULIP side, from our sense is that they may have migrated to some of the non-ULIP products. That could be one of the reasons why you have seen a continued muting. But going forward, as I said, should the market stabilize, generally institutional fund managers -- fund performance is also coming up. At some point in time, I'm sure that ULIP will come back in terms of growth. But in the short run, it has been a continuation of what has happened. Though the negative, as you rightly said, for Q3 has been less than what has been the negative in the past in the ULIP Slide, we continued to be focused on that. Amit, do you want to?

--------------------------------------------------------------------------------

Amit Palta;Chief Distribution Officer, [21]

--------------------------------------------------------------------------------

Nidhesh, Amit this side. So Nidhesh, like in ULIP, as we see that being a long-term contract, the impact of the markets actually is visible over a lag. So like, anything adverse or volatility in the market impacts life insurance as a product a little later. Similarly, an upside in the market also start showing an upside be the lag. So we hope that if a market stabilizes, volatility is taken care and the macro factors start favoring, the sentiment will probably come back.

And while we are now positive -- is that while we have worked on diversification on looking at non-ULIP products on the savings side by reaching out to underserved customer segments in the past, we have not vacated that space. We are very much there and still ULIP in a stand-alone, holds close to around 70% of our overall mix. So we are quite positive that we have the wherewithal to capitalize on any positive upswing that we see from the market, which will have a positive impact on ULIP. And that's the same which is coming across all the channels. And we stay invested very much in our value segment, that is our core, that is the fundamental that we have built the organization by having a strength in our affluent segments. And we, of course, like we stay as positive on the markets as you are. But the only thing is being a long-term contract, even the positive will have a lag effect. So we'll wait and watch and see how it goes from here.

Specific to your question on persistency, Nidhesh, while Satyan clarified that we are working on -- the numbers are still well within watch for us, but our core fundamental on the steps that we have taken on persistency has actually not changed. The core fundamental for us was about smoothening the process at the time of sale to the customer, selling it right to the customer, ensuring that there is a process simplification through an attachment of ECS so that there's an ease of payment of renewals that continues like the way it was in the past. Whether it was a fundamental delivery from the sales management team by incorporating it in their performance management, it is very much there even now. It's just that now, we have got into a deeper analysis on cohorts, which are on a monthly basis, and we are working specifically on cohorts where we see that the behavior or the results and outcome is probably a little different from the rest of the portfolio. So our ability through a very strong analytics in the back end gives us the strength to now work on very sharper cohorts to look at improvement areas.

And of course, through technology, we are finding out ways and means of reaching out to these customers with a proposition which is more meaningful to them to continually keep working on protection. So I am very confident that the core fundamental and our focus on persistency has not changed. The environment may have changed, but it has necessitated us to push more on analytics-based approach towards addressing our persistency.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [22]

--------------------------------------------------------------------------------

Sure. Secondly, on protection...

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Sorry to interrupt, Mr. Jain. Sir, maybe I request that you return to the question queue for a follow-up question. There are participants waiting for their turn. Next question is from the line of Harshit Toshniwal from Jefferies.

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [24]

--------------------------------------------------------------------------------

Two questions. One, when I look at the business segments, so in savings, the other, basically non-linked, non-par -- apart from par and annuity, the non-linked product has also seen a sharp growth. So it grows around INR 2.57 billion for 9 months. Can you throw some light on that particular number? And two, when I look at protection, sir, even if I assume, for example, 100% margin based on what we made in FY '19, my VNB margins for in savings business does not look very high. Just want to understand that despite the protection mix improving, the margin improvement has not been to that extent.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [25]

--------------------------------------------------------------------------------

So Harshit, just to address your question on the non-linked savings, the others that comprises both non-par savings as well as group funds business. Non-par savings still continue to be a much smaller portion of our mix and where we offer non-par savings still like we were doing before is in the up to 15-year maturity, 10-odd years lump sum maturity. So we always said that we do some business there that continues to be there. Compared to last year, yes, the growth is stronger, but some of the growth in this segment has also been driven by the group funds business from the last year.

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [26]

--------------------------------------------------------------------------------

Okay. So that is what majority of this would be the group savings business. It's something like that...

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [27]

--------------------------------------------------------------------------------

So both of them. So the growth is also coming -- growth is also coming from the non-par savings business, but that is still a fairly small part of our overall business.

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [28]

--------------------------------------------------------------------------------

Okay.

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [29]

--------------------------------------------------------------------------------

Your second question was on?

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [30]

--------------------------------------------------------------------------------

Protection. So the simple way, the way I'm looking at it, in FY '19, we had a 109% protection margin, based on the disclosures, which we give. If I assume the same margin or similar margins in this particular 9-month business, then my back calculated savings margin comes down to at around 6.5% only. So that is where I wanted some more clarity that am I going right? Or is there some margin dilution in the protection segment itself?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [31]

--------------------------------------------------------------------------------

No, your approach is very correct. The couple of things that we need to keep in mind are: one, the margins that we are declaring after 9 months are based on projected cost to the end of the year, which is still estimate at this point of time. At the end of the year, it will become comparable to what you had for full year last year.

Second, within the protection business, underlying profitability hasn't changed. But the mix of business has changed a little bit. So compared to the 9 months last year, where regular pay policies were higher in the retail protection. This year, limited pay policies have grown in terms of mix. So that is an underlying mix issue, which will come through in the margin when you look at it for the full year, but fundamental profitability of each underlying segment has not changed meaningfully for us.

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [32]

--------------------------------------------------------------------------------

Okay. And then what would be the difference in margin between a regular and limited pay product?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [33]

--------------------------------------------------------------------------------

So the way we priced it was that in absolute VNB for the same sum assured, both the regular pay and the limited pay will be similar contribution. We have always maintained that our objective on the profitability is to grow absolute VNB, not necessarily a margin driven approach. So the idea was neutrality on absolute VNB.

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [34]

--------------------------------------------------------------------------------

Okay. But limited paid, the denominator is higher.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [35]

--------------------------------------------------------------------------------

That is correct. That is right. That is correct.

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [36]

--------------------------------------------------------------------------------

So the large part of it is because of that?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [37]

--------------------------------------------------------------------------------

That is correct. That is correct. There's no other fundamental change, which has happened.

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [38]

--------------------------------------------------------------------------------

Okay. Okay. Okay. Okay, sir. Got it. And just last, if we can just give the mix of regular and limited pay in the incremental business?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [39]

--------------------------------------------------------------------------------

We have not put that out. Maybe at the end of the year, we'll consider giving this, Harshit.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

The next question is from the line of [Parth Gutka] from Macquarie Capital.

--------------------------------------------------------------------------------

Suresh Ganapathy, Macquarie Research - Head of Financial Research [41]

--------------------------------------------------------------------------------

Kannan, this is Suresh Ganapathy here. Quickly on -- again, we have talked a lot on this growth aspect. The real problem that I've got is that, really, if you want to double your VNB CAGR, you have to get the growth aspect right. So is there a specific growth target which is given to each of the individual businesses? How the performance is assessed against that?

Or as said -- Satyan has been saying it's absolute VNB target so it doesn't matter how it comes, growth can take a back seat. Just wanted to understand and a bit better on how you are really driving the sales business -- sales process here?

The second aspect is on the agency channel. Could we see a similar amount of agency addition next year also? I mean, so far this year, you've added 18,500-odd agents. I mean, will the same pace of agency addition continues so that you can drive the protection business to a greater proportion? Or you think more productivity benefits can come from the agent, and therefore, the level of agency addition can reduce?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [42]

--------------------------------------------------------------------------------

Yes. Thank you, Suresh. Kannan here. On the first question of VNB expansion. As I said to earlier comments, there is still some way to go, in terms of the relative products contributing to the mix expansion from the perspective of margin expansion. So that is something which we believe that it will happen in the short term. But you're right that at some point in time, overall, top line growth because we'll need to push our VNB going forward. But in terms of how we drive, Puneet can supplement. Essentially, we don't give targets for VNB to down the line. It has to be disaggregated to a top line target. And also, specifically, there are targets associated with individual products as well, because protection, there has to be a separate target and so on. So I want to assure you that from a sales process and the sales metric rollout and performance perspective, so we do have clearly, the growth targets, which are given region by region and we have full granularity in terms of resourcing and how to get to the targets.

And as I said, some of the initiatives we have taken in terms of diversifying the product mix should support growth going forward, irrespective of what happens in a particular segment, our growth should be more resilient compared to what has been yet in the past.

Second, on the agency channel. The good news here is that Q3 has been a little bit of a turnaround for us from an agency perspective. So all the hard work we have put in in the last 4.5 years in terms of granular agency formation, the agency metrics computation, driving the agency in terms of incentives have resulted in finally in the month of December. If I look at the agency coming back to a double-digit growth rate. So that is something which is very beneficial. And the fact that we started selling non-linked products in the agency as well has contributed because of the customers' behavior, especially the agency covered customers has been around some kind of a capital protection and the minimal guarantee and so on, where the participating traditional products are fulfilled that need of a client. So probably some of the business in the past, which should have gone away from us has started coming back to us because of which the agency channel now has started going up in terms of contributing to 21% to 22% of our mix.

On the agency additions, we will continue to add a similar number of agents that will be required, because when we look at our expansion of product mix in agency, we do believe that there is a potential to add people, not just extracting productivity from this. So I think what we have done so far in the agency channel is that we have been able to stabilize the diversification. It's -- today, it becomes -- as I said, in call, about 50% of it comes really from the non-ULIP kind of products, which is a -- quite a big change in agency compared to what -- how we have done this channel in the past, having diversified, now we have got the confidence to grow the agency. So let me just ask Puneet to supplement the -- especially the first question on how we drive the sales system in terms of VNB expansion.

--------------------------------------------------------------------------------

Puneet K. Nanda, ICICI Prudential Life Insurance Company Limited - Deputy MD & Whole-time Director [43]

--------------------------------------------------------------------------------

So yes, Suresh, in any large retail team we need to have a set of parameters. You can call them balance score card, you can call them KPIs or whatever, through which you drive the team then obviously, they are disaggregated right down to the frontline salesperson. So in our case, as we've been saying, VNB is actually an outcome of the 4P. So pretty much around the same 4 Ps, there are targets which are given to everybody, which will be around premium growth, which will be around persistency, which will be around protection and indeed productivity. And all of this gets tracked at a very, very granular level. That's the way things are run. So it's not as if VNB will happen on its own. It will be out of all of these things only. Agency remains a very, very important channel for us. It is a channel on which not only will we continue to invest by way of adding more agents, we will also continue to invest by bringing in more use of technology to make it more productive as well. Some examples we have given today, but a lot more will continue to happen.

Ultimately, at the end of the day, we need to, not just make sure that we deliver on the VNB objectives we've set for ourselves, we also need to make sure that we meet the needs of the customer depending on the underlying customer set and depending on the evolving environment. So many of these things actually change based on that. So the preferences of the customers sometimes keep changing depending on the environment. So we do have to keep that also in mind. So it's a combination of all of these things, which will finally deliver the outcome that we've articulated in terms of doubling VNB growth.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

The next question is from the line of Shreya Shivani from CLSA.

--------------------------------------------------------------------------------

Shreya Shivani, CLSA Limited, Research Division - Research Analyst [45]

--------------------------------------------------------------------------------

I have 2 questions. First is on the RWRP. So if we go by the monthly disclosures that ICICI Pru Life puts out, the beginning of the year had been a little tough on this the numbers were quite weak. But in the last few months, we have seen significant growth -- mid-teen growth seen in RWRP numbers. However, when I look at the results right now, the market share based on RWRP has steadily been falling from 10.8% in 9 month previous year to 10.3% in FY '19 to 9.5% right now. So just wanted your comments on this?

And my second question is on the actual change in actuarial liability. Apologies if this is a very basic question, but I wanted to understand that. If I see it on a quarterly basis, this number has increased by 50%. If I see 3Q over 3Q. But your commentary in the press release talks about how on 9-month basis, it has reduced, so could you please help me understand how to look at this number? And should I be concerned with the growth that I see right now in 3Q?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [46]

--------------------------------------------------------------------------------

So let me address the actuarial liabilities first and then we'll get into the RWRP and the APE growth. From an actuarial liability perspective, the elements that drive change are premium income and investment income, given that most of the liability arises from the savings business. So when you actually look at the change in liability in the context of premium income plus investment income. I think you will find it very stable across the quarters. To address the second part of your question with respect to the RWRP growth versus APE growth, RWRP growth was also relatively stronger in certain parts of this year. Because of some of the things on the ground that we were using in the last year. In Q3 of last year, if you remember, we were in a situation where the markets were quite volatile and unit-linked growth was struggling. So 1 of our mechanisms then to stimulate distribution was to encourage our distributors to go out and talk about monthly premium sizes. Monthly premium cases effectively gave us lesser RWRP, but over a 12-month period, it gave us the higher APE. So some of the RWRP, APE growth divergence that you have seeing for 1 quarter in this year was because of the base effect, otherwise, broadly, you will find that the RWRP and APE growth tends to track each other.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

The next question is from the line of [Hitesh Agarwal] from [Unifi Capital].

--------------------------------------------------------------------------------

Unidentified Analyst, [48]

--------------------------------------------------------------------------------

Yes. I think you've alluded to this before, but just on the ULIP APE growth. We understand that equity markets have been lackluster and investor participation comes with a lag, as you mentioned earlier -- to a query earlier. I just wanted to check is there a change in strategy in this particular segment? Or it's basically -- it's a function of the investor preference or the client's preference?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [49]

--------------------------------------------------------------------------------

Yes. As we've been saying, we don't actually have any objective in terms of product mix within savings. We do have an objective that we want protection to grow disproportionately. But within savings, it is largely driven by the customer need.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

The next question is from the line --

Ladies and gentlemen, the line for the management has got disconnected. Please stay connected while we reconnect the management.

Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir.

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [51]

--------------------------------------------------------------------------------

Yes, yes. So basically, I was saying, just to summarize, we do not have any product mix objective within the savings side of the business. Of course, we do have specific objectives on protection growing at a disproportionately higher pace. Within savings, it is driven by the need of the customer, driven by what the distributor thinks is appropriate for the customer. It evolves depending on the environment. It also evolves depending on the mix of customers and the different customer segments who are currently buying our products. So ULIP has been impacted largely because of demand compression in marketing products.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

The next question is from the line of Ajox Henry from B&K Securities.

--------------------------------------------------------------------------------

Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [53]

--------------------------------------------------------------------------------

Sir, my question is with respect to the limited pay, which Satyan was talking about a bit earlier. Since it's a Five Pay and we are covering till 85 years of age, what are the risks with the product? Number one, with respect to mortality? And number two, persistency, obviously, goes up dramatically [61st month]. So have you referred that in actual while filing the product?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [54]

--------------------------------------------------------------------------------

We have adjust, but distinctly, if you look at the risks specific to this shorter pay, longer stay will also introduce an element of interest rate risk. So we are quite conscious of that. So it is not as if we do our business only in Five Pay. A lot of our business is longer pay. But if I were to look at it from a customer's perspective, people with variable income streams were willing to commit for a shorter period of time. The limited pay term life is a very, very useful tool for them to be able to buy the same cover. And that's the reason why we are comfortable offering that.

--------------------------------------------------------------------------------

Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [55]

--------------------------------------------------------------------------------

And sir, has it been -- traction has been increasing over the past few months, at least directionally?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [56]

--------------------------------------------------------------------------------

The limited pay actually picked up for us since December of last year. If you recollect, that is the time when we introduced it. So if you see the base third quarter of last year, there is some unit linked. But since then, unit-linked has -- the limited pay has been quite a popular way of paying premium in the protection business. And just to go back to your other questions on persistency and mortality risk on the limited pay. They are no different from what it is on the regular pay, except that on the limited pay persistency tends to be actually better than the regular pay.

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [57]

--------------------------------------------------------------------------------

And the premium amounts are obviously different because the way we compute it for a shorter period, premium amounts will be quite different.

--------------------------------------------------------------------------------

Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [58]

--------------------------------------------------------------------------------

Okay, okay. And sir, on precious life, what Kannan was talking about, how is the traction for that? And how are the margins for that? Again, is it better than the normal protection product?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [59]

--------------------------------------------------------------------------------

It's very early days, Ajox. I think it's been -- the concept is very innovative. And typically, whenever you have a new concept that comes in, it takes time for people to pick it up. So it's something that we will watch over a period of time. But very simply, our approach -- or the reason for doing it was to go out there and tell customers that you don't have to be worried about whether you are in good health or bad health to buy term insurance. That was the main purpose behind us going out and standing up and launching the product.

--------------------------------------------------------------------------------

Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [60]

--------------------------------------------------------------------------------

Understood, sir. Sir, just one more question on your yield bundled product, which has both ULIP and protection bundle. Won't that impact the NAVs in the long run? Because the multiple is higher. The protection, which is being offered in the premium product it is 10x the premium now has become 50, 60x.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [61]

--------------------------------------------------------------------------------

So I just -- the bundle is actually 2 different products into one. The additional protection component does not affect the NAV at all. Somebody who buys it, buys it consciously to get a slightly higher cover. So to that extent, the person buying it is aware that there is a return-oriented part of his premium and there is a some protection-oriented part of his premium.

--------------------------------------------------------------------------------

Ajox Frederick H., Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [62]

--------------------------------------------------------------------------------

Okay, okay. And your mix also separates this out us...

--------------------------------------------------------------------------------

Operator [63]

--------------------------------------------------------------------------------

Sorry to interrupt, Mr. Henry.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [64]

--------------------------------------------------------------------------------

Absolutely, absolutely. These are 2 different products at the back end. It's a combination of 2 products. It's not one product.

--------------------------------------------------------------------------------

Operator [65]

--------------------------------------------------------------------------------

We'll move on to the next question that is from the line of Nischint Chawathe from Kotak Securities.

--------------------------------------------------------------------------------

Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [66]

--------------------------------------------------------------------------------

Congrats for a good set of numbers. I was just looking at the segmental reporting that you put out on the exchanges. Now I'm looking -- when I'm looking at segmental surplus, basically segments seen on par. And I was just trying to see -- when I'm looking at it on a year-on-year basis, there has been a significant increase out there for almost INR 83 crores or something like around INR 235 crores of deficit. So just trying to understand what could be the reason for this? This, I believe, mostly represents the protection business.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [67]

--------------------------------------------------------------------------------

That is correct, Nischint. That is what it represents. And that is where the new business stream. Like I said also that even within protection for this period, the retail protection growth has been the stronger component and that is getting reflected in the P&L.

--------------------------------------------------------------------------------

Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [68]

--------------------------------------------------------------------------------

Sure. So let's say, looking forward from the next year onwards. I believe next year onwards the VNB growth driver is going to be more a function or more a balance between volume and margin expansion or, let's say, the share of protection expansion, then would it be fair to say that the growth next year we would see is possibly not as sharp as what we are seeing this year? And especially, if I look at the 9-month number that the growth is fairly stark.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [69]

--------------------------------------------------------------------------------

The growth of what sorry, Nischint?

--------------------------------------------------------------------------------

Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [70]

--------------------------------------------------------------------------------

So if I look at the same number for 9 months.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [71]

--------------------------------------------------------------------------------

For the P&L?

--------------------------------------------------------------------------------

Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [72]

--------------------------------------------------------------------------------

Yes, yes, for the P&L. So if I look at the surplus or deficit...

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [73]

--------------------------------------------------------------------------------

Okay. So this is going to depend, Nischint, on the rate of growth of protection business. Eventually, that will determine the outcome. So if protection growth moderates, then the new business stream growth will also moderate. But I think it will still continue to be a negative P&L segment for some time because my in-force profit is nowhere near large enough to be able to support new business stream.

--------------------------------------------------------------------------------

Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [74]

--------------------------------------------------------------------------------

No, no, fair point. But the point -- what I'm trying to say is that if next year's VNB growth is going to be a slightly -- is going to be slightly more balanced between APE growth and protection-driven VNB margin expansion. Then it may be fair to say that the growth or the growth in deficit may not be that stark. And in that sense, your bottom line numbers or your PAT numbers can start really inching up.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [75]

--------------------------------------------------------------------------------

That is possible. But like we have discussed before, I think the priority for us is to grow the VNB.

--------------------------------------------------------------------------------

Operator [76]

--------------------------------------------------------------------------------

The next question is from the line of Prayesh Jain from Yes Securities.

--------------------------------------------------------------------------------

Prayesh Jain, Yes Securities (India) Limited - Executive Vice-President [77]

--------------------------------------------------------------------------------

And just a couple of questions. Firstly, on the ULIP side of the business, there -- is there a conscious strategy to reduce the ticket size and hence, we are looking at instead of normal -- higher than the industry decline in volumes? Or is that a conscious strategy there?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [78]

--------------------------------------------------------------------------------

No, no. There is no conscious strategy in terms of ticket size reduction at all, I want to assure you. Last year, around the same period if you remember, after the October degrowth of last year, we had come back and we wanted to activate the distribution because of which we had introduced the monthly policies last year around the same time. That strategy, again, some people misconstrued as our forcibly reducing the ticket size. That is clearly not the intent at all. So we would -- that strategy was aimed at, as I said, activating the -- deactivating the distribution, which worked well for us. That is one of the reasons, if you look at it on a APE basis, we are somewhat muted on a year-on-year basis because of that base during this quarter. So that is one part.

Second, if you really look at -- though we don't disclose in the intermediate period, the exact average tickets, et cetera. The way it is -- I can give a color on how this has developed that we have not seen any reduction in the ticket size on the ULIP side. So the way it is turning out is that the customers who are belonging to the, not the most affluent segment, but the second, third affluent segments or lesser affluent segments, they seem to be preferring. It's a little bit anecdotal a little bit we have seen the data, they seem to be preferring more like a par product kind of a thing or a traditional product, which either gives you a principal protection and gives you a smoother return over a period of time. Whereas the affluent customers continue to be focused on the ULIP-type of a product, which they understand the market. They understand NAV. They are overbank segments in any way. And they are focused on that. So it is -- overall decline is happening, but not through a decline in the ticket size. That is the sense we are getting on ULIP.

--------------------------------------------------------------------------------

Prayesh Jain, Yes Securities (India) Limited - Executive Vice-President [79]

--------------------------------------------------------------------------------

Okay. Sir, and secondly, on the credit protect part of the business, I understand from the FY '19 breakup that you have provided, it's a small portion. But going ahead, do you see the attachment rate and the penetration moving up and that part of the business also catching up with the kind of growth that you've seen on the retail protection side?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [80]

--------------------------------------------------------------------------------

No, clearly, it is one of the trust areas for us. The -- both retail and the credit life will continue to be the trust area. We keep tying up with the partners all the time to increase our growth in the credit life business. Profitable product, great customer proposition, a great need, so we would like to continue to be there, but we are -- Satyan just mentioned that we -- still we are dominant on the retail side if you look at the overall portfolio of the book. Only area of volatility within that could be sometimes group down type of a product, which becomes a very price-sensitive market. So we walk out of cases where we do not think the pricing makes sense for us. Apart from the balance 2 segments, we're very comfortable growing.

--------------------------------------------------------------------------------

Prayesh Jain, Yes Securities (India) Limited - Executive Vice-President [81]

--------------------------------------------------------------------------------

Okay. This is trying to squeeze in one more. On the overall growth comes from next year onwards, do you see all pieces of the business growing? Or do you think that the ULIP trajectory will continue to head down, and your -- the protection and the other parts of the business will more than compensate for the growth and -- or the decline in the ULIPs?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [82]

--------------------------------------------------------------------------------

No, at this point in time, we have not really put out a number for the next year in terms of what is the expected growth rate. But my sense is that our guiding principle will continue to be expansion of VNB. That is what we will focus on. Yes, of course, ULIP also will help in terms of absolute VNB. To that extent, we will continue to be focused on it. Maybe at some point in time during the next year base effect will start working for us. And the other thing is that if you look at some of the product next year, if you are looking at it, one thing I wanted to tell you that, generally, if you look at within the savings business, non-ULIP businesses tend to be more profitable than the ULIP business, though the ticket sizes may be different. So we will put these equations in our planning and then try and look at overall VNB expansion. That is the way we would like to plan.

--------------------------------------------------------------------------------

Operator [83]

--------------------------------------------------------------------------------

The next question is from the line of Rishi Jhunjhunwala from IIFL.

--------------------------------------------------------------------------------

Rishi Jhunjhunwala, IIFL Research - VP [84]

--------------------------------------------------------------------------------

A couple of questions, one on solvency and the other one on cost ratios. So first, on the cost ratio, so you have said that cost to TWRP for the savings line of business has gone down by about 90 basis points, 9-month-over-9-month. I'm assuming that represents almost like 80%, 85% of our business. So that also implies that for the protection business, the cost ratios have actually gone up significantly higher over the same period. And so I just wanted to understand, I mean, why the ratios for that business gone up so substantially.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [85]

--------------------------------------------------------------------------------

Okay. So Rishi, broadly, when we are looking at cost to TWRP, it is still a kind of a blended metric. It includes both new business premium and renewal premium. On the protection business, the renewal premium is not still large enough to provide that kind of overall cushion and absorption. So to some extent, given that new business is dominating, you will see the cost ratios of the protection business go up until such time as the total revenue will stabilizes. It's not a reflection of inefficiency, it's actually a reflection of the mix between new business and renewal business.

--------------------------------------------------------------------------------

Rishi Jhunjhunwala, IIFL Research - VP [86]

--------------------------------------------------------------------------------

Understood. Fair enough. And secondly, on the solvency. So if I look at, say, from 2018 to '19, solvency dropped from 252% to 215% despite, of course, APE growth was not there, but we were substantially increasing our protection business. Same is playing out this year as well, pretty much similar way, but the solvency is hardly deteriorated. So just wanted to understand, is there -- are we, like, either reinsuring in a different way? Or why is the -- what is the reason that it is not reflecting in the same way considering protection still is growing at a fairly rapid pace?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [87]

--------------------------------------------------------------------------------

The biggest factor for that is dividend payout. Until last year, dividend payout used to be much higher. This year, dividend payout has to be lower -- has been lower. So effectively, we are retaining more of the profit to fund solvency requirement. That's why the decline has been slower.

--------------------------------------------------------------------------------

Rishi Jhunjhunwala, IIFL Research - VP [88]

--------------------------------------------------------------------------------

Understood. And there's no change otherwise in your reinsurance policy or anything of that sort?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [89]

--------------------------------------------------------------------------------

No, we -- at least from a capital management perspective, we manage reinsurance in a way so as to nearly maximize credit available.

--------------------------------------------------------------------------------

Operator [90]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Udit Kariwala, AMBIT Capital Private Limited, Research Division - Research Analyst [91]

--------------------------------------------------------------------------------

Sir, as you mentioned that the ULIP business or the linked business, the cost ratios are one of the best in the industry, that I presume is premised on the fact that the ticket size for your company is higher than any private peer. So -- and we are seeing that there is no growth coming in, in that segment. In fact, there is a decline. But some of the other peers, which are getting into lower ticket-size segment are being able to capture some incremental flows. Is there a strategy? As you said, at this point, you guys haven't thought about reducing the ticket size. But if you do, where would the cost ratios move up? Because then it should ideally move up. And what's the implication on the VNB margin for the same, given it's 70% of your overall mix?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [92]

--------------------------------------------------------------------------------

Yes. This is Kannan here. I will give my explanation then Satyan can supplement. One is that, I want to say that not just savings, even on an overall basis, we are one of the most efficient companies in terms of cost ratio across the industry. My sense is that we'll be #2 in the overall cost ratio, forget about savings or otherwise. We split it and give it savings and protection so that you can understand where we are investing and where we are harvesting. That is the way in which we would like to split it so that we can give you a sense that in the desirable business, we continue to be investing. We want to give that picture.

So coming into savings itself, if you look at it, it's not a ULIP ratio, it is a combined savings ratio of the entire business, which includes ULIP, which includes non-linked savings products as well. And there, if you look at it, actually, we have seen a 70% growth year-on-year on some of the non-ULIP businesses. And despite that, our cost ratio has come down, including that business. So going forward, I don't think ticket size is a issue at all because actually, our ticket sizes have reduced in that business. So I don't think that we need to really budget any say, cost ratio increase just because our ticket sizes may be different in the future. Satyan, anything?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [93]

--------------------------------------------------------------------------------

No, that's it.

--------------------------------------------------------------------------------

Operator [94]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Avinash Singh, SBICAP Securities Ltd., Research Division - Lead Analyst [95]

--------------------------------------------------------------------------------

Sir, first, again, I think it's a repeated question that looking forward to FY '21, I mean how is the VNB growth trajectory going to be given that, okay, I mean, the drivers could be the top line growth, the product mix change, persistency and cost. On the persistency and cost, I hope that we are very, very near to optimal. So it boils down to the product mix changes and top line. So I mean, how do you see it in FY '21?

Now coming to FY '20 I mean how is your -- so far I mean the scope for the improvement in margin because of your cost -- actual cost experience so far being lower than the assumption -- I mean for the full year. I mean that's -- and also I mean given that the industry has seen a strong growth in the last 2 month on the back of push from the channel on account of refiling or the filing of new product. Do you see a chance of, again, a slowdown in Q4? So 2 question, one for FY '21, one on the FY '20.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [96]

--------------------------------------------------------------------------------

Okay. So if I were to look at the current year VNB, which is more of the cost question. Right now, we have 9 months of realized cost experience and 3 months of [forca]. So we are closer to what we think we will end up the year with. What we have taken into account, like Kannan described earlier, before actually putting out the margin, we do a testing of whether, indeed, it will be sustainable through to the end of the year even under certain scenarios, otherwise, to that extent, we smooth it through the year. As we speak now, cost estimate through the rest of the year, we are quite comfortable with. We think that the margin of 21%, in that context, can still be sustained. So the cost forecast and, therefore, the margin outlook for the fourth quarter or over the rest of the year is still consistent with what we have seen for 9 months.

Looking at FY '21, where the VNB growth can come from, again, I'll go back to what Kannan said, that there is still a meaningful opportunity for protection growth contributing disproportionately into the next year as well. And the idea is that as we are progressing through the year that we start getting a bit more of savings growth in as well. The first priority on the savings side, since last year has been to diversify our customer base to make our savings growth more resilient to make it less volatile. And at the very least, if you look at the last 12 to 15 months, our growth rate month after month are far more stable than they used to be before.

So to that extent, the early part of our diversification strategy seems to be settling down, which actually puts us in a good place to go after growth as we go into the future. How much of the VNB growth in the next year will come from each of these element is a hard one to say at this point of time. But the overall VNB growth objective of 20% to 25% that we are setting for ourselves, also, we would like to achieve in the next year.

Your third question on industry growth in the short term, driven by product withdrawal. Any product withdrawal creates excitement and has only temporary effect. To what extent it sustains, we will have to see. Some of it tends to be just an advancement of purchase as well. It's very hard to actually predict what the fourth quarter growth will be. Most of the product-related growth that we saw in this quarter came from non-linked savings products. And it came from companies that had a far greater focus such as LIC. We will see how that emerges into the last quarter. Even when we saw the December numbers after November, we saw some amount of moderation already coming through in the numbers.

--------------------------------------------------------------------------------

Avinash Singh, SBICAP Securities Ltd., Research Division - Lead Analyst [97]

--------------------------------------------------------------------------------

And is this a product refiling leading to some sort of a withdrawal of your products? I mean, if any?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [98]

--------------------------------------------------------------------------------

Fundamentally, we have never driven a scarcity sale as a driver. We have not been led more by a product mix output. Our fundamental approach has been, what are the new propositions that we can introduce. Kannan mentioned early on in his talk that we have launched these new products. So we actually think that putting new propositions on the table is a more sustainable way of delivering growth than just by driving scarcity.

--------------------------------------------------------------------------------

Operator [99]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Just -- if I look at the high-margin products, annuity and the protection, put together it is 16.2% in 1H and in the quarter -- third quarter it is 14.1%. For 9 months, it is 15.4%. So basically, the high-margin product, which compared to overall VNB margins of the company are -- have come off. But still, the margins have remained at 21 percentage. Just wanted to understand what led to maintain the margins to the same level at 21% despite the high-margin contribution -- high-margin product contribution has come off?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [101]

--------------------------------------------------------------------------------

Sanketh, the par mix has also gone up. So if I look at it in its entirety, the relative mix of the higher-margin products has moved up a little bit from what we saw in H1 as well. Par mix moved up in the quarter, annuity mix moved up a little bit and protection mix state dropped a little bit because of the savings growth. So the margin on balance is the culmination of all of these coming through. Like I said early on, there are no assumption changes that we have made on any of the operating elements for this margin reporting.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. But to the extent I understand the par margins are somewhere in mid-teens compared to 21% VNB margin what we have reported. So even if the par would have gone up, it should be margin dilutive in that sense?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [103]

--------------------------------------------------------------------------------

No. Compared to unit linked, the migration has happened from unit-linked savings to the non-linked savings category, and protection has remained fairly stable. I mean whether I'm talking about 14.5% or 14.1%, I don't think there is too much which is the difference. The fundamental shift in mix has come between linked and non-linked, between H1 and 9M.

--------------------------------------------------------------------------------

Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [104]

--------------------------------------------------------------------------------

Got it. And just on the growth point of view, in the protection, if I see the numbers, in the third quarter, you did INR 267 crores compared to INR 283 crores what you did in second quarter and the INR 214 crores in first quarter. The growth there looks a little -- maybe picking out on an absolute this growth basis. And even if I look at annuity, there also, the number of INR 23 crores or INR 230 crores on new business premium terms is lower than INR 280 crores what you did in last quarter. So just wanted to understand whether we are seeing that run rate to be about INR 270 crores, INR 280-kind-of crores in protection business to be steady going ahead?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [105]

--------------------------------------------------------------------------------

So 2 things, Sanketh, the first is that both protection and annuity segments tend to be less seasonal than the rest of the savings business. Second, if I were to see where the moderation has happened on the protection side, it has been more on the 1-year renewable group term. That tends to be a little lumpy. So it goes up and down across the quarters. But I think the broader trend of the retail protection has been that it has gone up.

--------------------------------------------------------------------------------

Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [106]

--------------------------------------------------------------------------------

Okay. And just again, confirmation, just on respect to cost, we are still on -- and our margins are based on 9-month actual cost and projected costs for fourth quarter. And if our cost ratios in fourth quarter are better than what we are projecting then the margins could be further better? Or do you think that the assumptions what you have made with respect to cost are more realistic right now?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [107]

--------------------------------------------------------------------------------

I think it will be in the general vicinity. I don't expect too much deviation from my current forecast.

--------------------------------------------------------------------------------

Sanketh Godha, Spark Capital Advisors (India) Private Limited, Research Division - VP [108]

--------------------------------------------------------------------------------

Okay. And just I have a follow-on. On Margin of 21% just one clarity I need, or 21% VNB margin is based on FY '19 cost? Or it is based on 9-month cost plus the projection for fourth quarter?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [109]

--------------------------------------------------------------------------------

9-month cost plus projection for fourth quarter.

--------------------------------------------------------------------------------

Operator [110]

--------------------------------------------------------------------------------

The next question is from the line of Sanjay Satpathy from Ampersand Capital Partners.

As there is no response from the current participant, we'll move on to the next participant that is from the line of Adarsh P from Nomura.

--------------------------------------------------------------------------------

Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [111]

--------------------------------------------------------------------------------

Two questions. First, on protection. You mentioned higher sale of limited pay this year. So will it be possible to give some sense on what the sum assured growth on the term life business would have been vis-à-vis the APE growth that you've had in the last 9 months? If you could give us a Y to Y comparison?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [112]

--------------------------------------------------------------------------------

This we've not -- we have not given that breakup of sum assured between savings and protection. But you will see from the public numbers the overall retail sum assured growth. Overall, retail sum assured growth for us in the 9 months has been a little over 30%.

--------------------------------------------------------------------------------

Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [113]

--------------------------------------------------------------------------------

So this is the 9 months. So versus the 60% kind of...

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [114]

--------------------------------------------------------------------------------

Yes, the total new business sum assured growth for us for 9 months has been 34% over 9 months of last year.

--------------------------------------------------------------------------------

Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [115]

--------------------------------------------------------------------------------

Versus a 65% odd overall protection APE growth that...

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [116]

--------------------------------------------------------------------------------

That is correct. That is correct. And like I have said before, some of the protection APE growth is also coming because first half of last year, we were predominantly selling regular pay. Since the second half of last year, we have been selling limited pay. So some of the Q3 moderation in growth on protection APE, it is also because of the base effect becoming like-to-like from the limited pay.

--------------------------------------------------------------------------------

Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [117]

--------------------------------------------------------------------------------

And it'd be safe to assume that the underlying CMB growth for protection, right, which you'll probably at the end of the year give a split off, would grow more in line with the sum assured, right? It wouldn't grow in line with APE?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [118]

--------------------------------------------------------------------------------

That is correct. Given the underlying mix of whether it is retail or group, adjusting for that, you are right, the VNB growth for protection has to reflect sum assured growth more closely.

--------------------------------------------------------------------------------

Adarsh Parasrampuria, Nomura Securities Co. Ltd., Research Division - Executive Director [119]

--------------------------------------------------------------------------------

Understood. And second question is on the distribution side. Obviously, we've had a lot of questions on ULIP. If you all can break up for the 9 months vis-à-vis last year 9 months. What's the number of ULIP policies sold? And what's the average ticket size, if -- that will be helpful.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [120]

--------------------------------------------------------------------------------

Some of those numbers, others will, again, put out in aggregate for the end of the year because the challenge sometimes with each of these numbers is that quarter-on-quarter, it can be a little volatile. So we're much more comfortable looking at annual trends of this.

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [121]

--------------------------------------------------------------------------------

And I know that -- I just wanted to tell you that overall basis, we are quite happy with the way the number of policies has developed during the current financial year. Because if we look -- I mentioned for a answer to a earlier question, saying that we have taken some specific steps related to the -- related to reactivating the distribution in the month of November last year, which resulted in several monthly policies being sold, which had increased the policy count for that period during the last year. And that has constituted the base for us now in this period. And this was a tactical initiative too, as I said, activate the distribution, and this resulted in pursuing of lower ticket policies for a brief period.

And in the retail protection space, we had -- in the -- till December -- September last year, we had credit life product being offered under the retail product category. However, subsequently, the same was moved to a group platform. So both these resulted in a higher base for the last year in terms of our last year 9 months in terms of a policy count base. So -- but we feel that we have -- we are quite okay with that because we have grown double-digit in the traditional savings segment and the retail protection policies, excluding the credit life and small ticket protection policies. So we are quite okay. This is the general color I can give you. As Satyan said, at the end of the year, we'll likely put out the numbers.

--------------------------------------------------------------------------------

Operator [122]

--------------------------------------------------------------------------------

The next question is from the line of Prithvish Uppal from IndiaNivesh.

--------------------------------------------------------------------------------

Prithvish Uppal, IndiaNivesh Securities Limited, Research Division - Research Analyst [123]

--------------------------------------------------------------------------------

Yes. All right. Sir, I just wanted to ask a question regarding the growth in the par and annuity products because even last quarter, the par product actually saw good uptick. So what channels and -- is driving the growth here and also on the annuity products? Sir, that's my first question. Sir, can you just, in terms of solvency again. So given that we're looking to grow protection at quite a fast pace. What is this -- I mean how much capital consumption is going to be -- I mean would it be fair to see for protection business to grow given that we'd like to keep solvency levels at probably above 200%. So just some color on that?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [124]

--------------------------------------------------------------------------------

So just a color on the first question, in terms of the par and annuity. On the participating business, it is sold largely in the non-ICICI bank channels that is where we are focusing on the participating business. As I said earlier, that we leave it to the choice of the customers and the distributors in terms of our products they want to sell. So as a result, ICICI Bank focuses more on annuity than ULIP as well as the protection businesses. And my sense is that, by far, ICICI Bank would be the best in terms of -- best and the largest in terms of the retail protection product producers also distributors in the country today. So we would -- par gets distributed in the non-ICICI Bank channels.

And as I said earlier, there has been a good takeup of this product in the agency channel during the quarter as well as during the 9 months. As far as the annuity, annuity, we try to do it across all channels, including ICICI Bank being one of the chief primary channels of annuity. So that is how we have sort of mapped the products to the distributors in terms of our strategy. On the second question on solvency, I'll let Satyan answer the question.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [125]

--------------------------------------------------------------------------------

So from a solvency and capital outlook, we are at 207% solvency ratio as at the end of December. The levers that we have available to manage capital from here on are dividend policy. We currently have a dividend policy which pays out up to 40% of the profit after tax. It will be up for discussion at the Board, whether we continue at those levels or we modify it. The second, we have an ability to raise Tier 2 capital of up to 25% of the paid-up capital. We believe that between these 2 at least for the next couple of years, we should be comfortable on capital to fund growth even with a very robust growth in the protection business.

--------------------------------------------------------------------------------

Operator [126]

--------------------------------------------------------------------------------

The next question is from the line of Ansuman Deb from ICICI Securities.

--------------------------------------------------------------------------------

Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [127]

--------------------------------------------------------------------------------

This is again to do with this non-linked savings business. So we have done a strong growth in this particular segment. Now in relation with our business growth target going ahead, will it -- will we continue to grow this segment in terms of quantum or, let's say, when the demand for ULIP comes back, some of these products will give way to ULIP as a product? That will be my question.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [128]

--------------------------------------------------------------------------------

So Ansuman, the way we have been looking at it is not as if one necessarily substitutes the other. One of our challenges from an outcome perspective, you know from last year was that we were very affluent customer-focused. And since the last 12 months, we have been working on diversifying our customer acquisition strategy. Part of this diversification implies that as the next level of affluence of customers come in, they will have different product preferences. As we go into the future, the intention is that we continue to grow our customer acquisition of the next level of affluence. And as and when the demand for unit-linked becomes more prominent, we are still well positioned to continue focusing on that segment and get growth back. So in a way, we think both of these will operate alongside each other. Yes, you will have some amount of movement from one to the other at the margin. But broadly, we would look at these 2 as 2 different kinds of opportunity for us to go after.

--------------------------------------------------------------------------------

Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [129]

--------------------------------------------------------------------------------

Right. So essentially, the good -- the strong growth that we have seen in the long linked savings business. Some of them would remain with us and you can add on to that once we have growth from other segments as well?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [130]

--------------------------------------------------------------------------------

That is the idea.

--------------------------------------------------------------------------------

Operator [131]

--------------------------------------------------------------------------------

The next question is from the line of Dhaval Gada from DSP Mutual Fund.

--------------------------------------------------------------------------------

Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [132]

--------------------------------------------------------------------------------

Three questions. First is on margins. Satyan, probably, if you could explain what is the percentage point impact for the same VNB between limited pay and regular pay in terms of percentage for the same absolute VNB? The second question was related to distribution for protection. I understand geographically, 3 states contribute a significant portion of retail protection today. How that is sort of moving up? And -- I mean some color around distribution geographically, if you could -- and also channel-wise, since we've been adding new partners, especially mutual fund, distribution, national distributors, et cetera. So some color around distribution for protection? And the third one, is probably Kannan, if you could highlight the bank whenever we meet them ICICI Bank, they sort of talk about their willingness to sell annuities. And they are sort of reluctant or have been reluctant to sell saving -- guaranteed savings product in the past, at least, and we have a very strong view on deferred annuities construct. So how do we sort of capture this opportunity around annuities? And any workaround that you found or any new product design around that part? So those are the 3 questions.

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [133]

--------------------------------------------------------------------------------

Dhaval, on the limited pay versus regular pay, we have not actually given segment-wise margins. Like I said, the way we have priced the 2 options is that on absolute VNB for the same sum assured we should be neutral. I don't think it is appropriate to seek same margin from a limited pay as I can from a regular pay becomes then actually seeking too much of profitability. So whatever the mix, given that our approach is about absolute VNB, we are targeting being indifferent to the mix between RP and LP. However, in the APE growth, the LP shows up as a stronger growth than the RP growth.

With respect to where the protection business is coming from. We have said this before, early on, agency was the strongest on protection on the retail side. In between, we were able to build a very good corporate distribution for protection. This included, like you yourself mentioned some of the national mutual fund distributors, they continue to be a very important part of our retail protection as well as the web aggregators and other intermediaries in that space. So that, again, continues to be very meaningful. But in the last 12 to 18 months, the biggest traction that we have seen on retail protection has been in the bank channel, particularly ICICI Bank.

ICICI Bank for their customers they see insurance, whether it is life or health, as a very significant value addition or a new product delivery to their existing customer base. And that's reflected in the way that they have popularized the concept across the distribution. When Kannan talks about the larger orientation of ICICI Bank towards distribution, he will cover this. From a geography perspective, it is still more skewed towards urban customers but it is slowly starting the spread beyond the urban customer base as well.

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [134]

--------------------------------------------------------------------------------

Yes. Dhaval, to answer the question on ICICI Bank channel, let me give the lay of the land. On the -- on our side, as ICICI Prudential, we are not very comfortable manufacturing with a highly guaranteed savings products. That boundary we have already drawn. High level of guarantee which probably will be justified only based on a customer lapsing. We don't want to enter into the territory. So to that extent, we also should not be comfortable manufacturing such a product. Second, on the deferred annuity, again, we have been not comfortable manufacturing such a product given the kind of hedging and the other issues which are associated with the product. So that is -- it's no, no from our side, as things stand today.

Now moving on to the ICICI Bank. Clearly, they are not comfortable with the traditional products, be par or otherwise, because they feel that the -- when the customer lapses, they end up losing a lot of money, which they have not been comfortable with. And given the customer profile they have, they have not been very comfortable to selling this product. So the ICICI Bank, however, there has been a huge push and focus in terms of protection products, be it retail protection or credit life, because they see these 2 products as a fulfilling a great requirement for the customer which cannot be fulfilled by the bank itself. So that is the way they are looking at this product. And the credit life product is a great proposition for the customers' families. So that is the one area.

The second area where we are focusing a lot is on annuity, largely in the form of immediate annuity products. Again, they feel that they are also one of the large distributors for NPS. They feel that it is a natural complementary product, which cannot be produced by anybody else in the ICICI Group. So they look to push us a lot in terms of selling annuity, immediate annuity products in their shop, which Amit and team have really focused on these 2 products.

So to answer your question on how do we look at ICICI Bank, I look at them more as a core part of our strategy of expansion of VNB. So as a result of this product mix change going forward, the VNB produced by -- the value of new business produced by ICICI Bank is going to be much different in terms of trajectory from the past. Past it was completely dominated by ULIP, very little of par anyway, even then, and very little, of course, close to 0 on protection. From there, as I said earlier in the call, it has been one of the largest distributors of protection in the country today. So I would look at as an executive management of this company, we would be focused on looking at ICICI Bank as a core part of our strategy for expansion of VNB. That's the way and I'll happily take it. So that is the way we have sized our decision.

--------------------------------------------------------------------------------

Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [135]

--------------------------------------------------------------------------------

Right. And then just one follow-up related to that margin, so I didn't want the absolute or the percentage numbers, but just the differential. And in my sort of rough calculation comes to more than 20% between limited pay and regular pay, is that correct? Or it's completely a way off?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [136]

--------------------------------------------------------------------------------

Depending on the premium payment period, it can be.

--------------------------------------------------------------------------------

Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [137]

--------------------------------------------------------------------------------

I think, normally, we have done more Seven Pay compared to Five Pay. So is that...

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [138]

--------------------------------------------------------------------------------

We will have a -- we even have longer pay, so yes, it can be, depending on the term, it can be.

--------------------------------------------------------------------------------

Operator [139]

--------------------------------------------------------------------------------

The next question is from the line of from Nidhesh Jain from Investec.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [140]

--------------------------------------------------------------------------------

Sir, on the protection, we understand that one of the reinsurer has increased the pricing on reinsurance. So do you see impact on our pricing on protection policies going forward? And what impact that will have on our assumptions?

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [141]

--------------------------------------------------------------------------------

Okay. Now let me give my thoughts and Satyan will really supplement this. First of all, sorry, you got cut out earlier in the call, and thanks for coming back and asking this question. See, I'll take it in 2 parts. On the specific reinsurance part, I will ask Satyan to answer. But in terms of the larger issue of competition and the pricing of protection, I want to say that we can never take away the effect of competition on pricing of protection. But we feel that based on our own internal conversation, we need to keep a few things in mind. One is that penetration of protection product is still low in the country. And we do see a multiticket opportunity in terms of protection growth. That is our premise in this sector.

Distribution largely still remains captive to an insurance or tied to an insurance company. And so that is another thing which we keep in mind. It is only the online market, which is pure open architecture. That is the way the market has evolved. And the competitive action has always been there. I think the -- especially in the protection, if you look at about 6, 7 players, there has been a heavy competition in the protection space.

And I want to tell you that we have put out a fantastic growth in the protection despite our not being the cheapest amongst the large players. That is what I want to. So we want to say that just not the pricing, but the brand, the claim payout experience, the ease of buying the product itself in terms of technology and the smooth process, et cetera, they play a much larger role in our view, rather than just the pricing. So that is the sort of positioning we have to this market that is the kind of premise we have in the market.

And our own computations, especially if you look at the 6 months and then based on the numbers which have been put out on our own estimate, it looks like we have a retail protection market share of close to 30%. So that is something which we have been able to achieve despite us being not the price leaders in the industry. So in anything we do in the context of reinsurance, which Satyan is going to be explaining, we believe that this is going to be continuously our basis of competing in this market. Satyan?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [142]

--------------------------------------------------------------------------------

Moving on to the question of reinsurance and what's happening in that space. I think we should go back to the context and look at where term life price in the Indian market currently is. We know it is one of the cheapest across the world. We know that the price is so finally tuned that it is probably more suited to the best mortality profiles in the country. What we are also seeing, not just for us but across the industry is that now distribution is going deeper from a geography perspective. So the underlying mix of customer profiles is changing quite rapidly from the first wave of where retail protection started.

What we understand is that almost every reinsurer operating in the market is having conversations with almost every insurer operating in the market on how this change of customer profile should be reflected in the price. We think this will take a few months to become clear as to what the outcome is. But my sense is because we are all selling in a similar market, all of our changes in price when we do it, if we do it, should be consistent. Rather, it's a question of when not if, it will happen, but it will be consistent with each other. And as long as, again, I go back to what Kannan said that given the underlying demand dynamics for the proposition and the fact that our brand is fairly strong, as long as we are in the general range of the others competitively, we think it should still be all right. So my own view, overall, price will change, price will increase, then we have to see by how much we have to see, but clearly, reinsurers are now starting to see how they can reflect the wider penetration of protection distribution from what it used to be in the past.

--------------------------------------------------------------------------------

Nidhesh Jain, Investec Bank plc, Research Division - Analyst [143]

--------------------------------------------------------------------------------

Sure. Sir, does it mean that the experience in the protection policies as the industry is inferior than what we have been pricing? Or that is not the case?

--------------------------------------------------------------------------------

Satyan Jambunathan, ICICI Prudential Life Insurance Company Limited - CFO [144]

--------------------------------------------------------------------------------

So it goes back to the same thing, Nidhesh. If I were to compare experience with where the pricing was intended to be, it is no worse. But because there are now more and more of our business coming from customer segments beyond that, overall experience is ending up being worse than what reinsurers expected. That is the primary trigger why they are starting to have this conversation on price change.

--------------------------------------------------------------------------------

Operator [145]

--------------------------------------------------------------------------------

The next question is from the line of Harshit Toshniwal from Jefferies.

--------------------------------------------------------------------------------

Harshit Toshniwal, Jefferies LLC, Research Division - Equity Analyst [146]

--------------------------------------------------------------------------------

Sir, the question was answered.

--------------------------------------------------------------------------------

Operator [147]

--------------------------------------------------------------------------------

(Operator Instructions) As there are no further questions, I now hand the conference over to Mr. Kannan for his closing comments.

--------------------------------------------------------------------------------

Narayanan Srinivasa Kannan, ICICI Prudential Life Insurance Company Limited - CEO, MD & Whole-time Director [148]

--------------------------------------------------------------------------------

Yes. Thank you, and this was quite a long call. As one of the participants said, I think this timing ensured that the call was long and the participation was quite nice. Thank you so much to all of you for patiently listening to the call. And we hope that we have answered all the questions you had to your satisfaction. But having said that, all of us are always available off-line for any further questions or any further meetings you may like to have with us. Thank you, and have a great evening. Bye-bye.

--------------------------------------------------------------------------------

Operator [149]

--------------------------------------------------------------------------------

Thank you.