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HDFC Life Insurance Company Ltd
Earnings Call Analysis
Q1-2025 Analysis
HDFC Life Insurance Company Ltd
HDFC Life Insurance has kicked off FY'25 with a robust start, registering a significant 31% year-on-year growth in individual Annualized Premium Equivalent (APE). An increase in policy numbers by 22% and ticket size expansion by 7% has bolstered this growth. Tier 1 markets have seen a resurgence, while Tier 2 and 3 geographies continue to be vital, contributing two-thirds of the business in terms of APE.
The company's product mix for the quarter saw ULIPs at 38%, non-participating savings at 35%, participating products at 16%, term at 6%, and annuities at 5%. While ULIPs started the year with a high mix, it moderated over the quarter. Retail protection saw a 28% growth in individual APE. Annuity and protection segments together contributed 47% to the new business premium.
For Q1 FY'25, HDFC Life reported a value of new business (VNB) at INR 718 crores, an 18% growth year-on-year with margins at 25%. Although margins compressed slightly due to product mix and investments, the focus remains on APE and VNB growth. The profit after tax grew 15% YoY to INR 478 crores, supported by an 18% increase in profit from the back book. The company's solvency ratio stands at 186%.
The bancassurance channel grew over 40% in individual APE, with HDFC Bank counter share rising to 66% from 56.5% last year. The agency channel also showed strong growth, adding over 18,500 agents and expanding to 60 new locations, bringing the total to approximately 600 branches. These efforts are aimed at broadening geographical reach and tapping new customer segments.
To further strengthen its solvency position, HDFC Life plans to raise up to INR 2,000 crores in subordinated debt over the next 12 months. This will support the company's growth aspirations and maintain a solvency ratio above 180%. The upcoming risk-based capital regime is expected to allow more business to be written with existing capital, enhancing profitability.
HDFC Life continues its technology transformation initiative, Project Inspire. The group business transformation is expected to launch between Q3 and Q4 this year. Additionally, expansion efforts in Gift City and new product introductions tailored to NRI segments are showing encouraging results.
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Good day, and welcome to the Q1 FY '25 HDFC Life Insurance Company Limited Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vibha Padalkar, MD and CEO of HDFC Life Insurance. Thank you, and over to you, ma'am.
Good evening. I would like to welcome everyone to our earnings conference call for the quarter ended June 30, 2024. Our results, which includes the investor presentation, press release and regulatory disclosures have already been made available on both our website and the stock exchanges. Joining me are Suresh Badami, Deputy Managing Director; Niraj Shah, ED and CFO; Vineet Arora, ED COO; Eshwari Murugan, our appointed actuary; and Kunal Jain, SVP, Investor Relations and Business Planning.
Moving on to key highlights of quarter 1 FY '25. Starting with operating performance. We have kicked off the year on a strong note, achieving a robust year-on-year growth of 31% based on individual APE, translating to a 2-year CAGR of 21%. This healthy growth is bolstered by a strong performance across all metrics. We registered an increase of 22% in the number of policies and a ticket size expansion of 7%. Our growth outpaced both the private sector and overall industry on a year-on-year basis as well as a 2-year CAGR basis. We experienced growth resurgence in Tier 1 markets whilst maintaining strong growth in Tier 2 and 3 geographies. Tier 2 and 3 markets continue to account for 2/3 of our business in terms of APE and 3/4 of our business in terms of number of policies sold.
We observed healthy growth in the number of policies across both savings and protection segments as well as across geographies. The proportion of new to HDFC Life customers in quarter 1 remains robust, exceeding 70%. We achieved a strong growth of 46% in retail sum assured driven by expansion in retail protection, higher sum assured multiples for saving products and robust rider attachment.
Regarding our product mix for the quarter, ULIP accounted for 38%, nonpar savings for 35%, participating products for 16%, term for 6% and annuities for 5% based on individual APE. While we began the year with a high ULIP mix, we have been successful in lowering it during the quarter. We anticipate this moderation to continue in the coming months, driven primarily by product launches across other categories. We have observed strong growth in non-par products with the segment achieving a year-on-year increase of 41%. Additionally, our continued introduction of newer variants within the Click2Achieve umbrella has resonated well with customers with the latest variant garnering INR 100 crores of new business in nearly 16 days.
Retail protection experienced significant growth of 28% based on individual APE and a robust 36% on a 2-year CAGR basis. This is despite us continuing to follow a calibrated pricing and risk management approach. The credit protect segment remained flat due to slower disbursement in certain lines of business and increased competitive intensity across select partners. Our focus remains on building a sustainable and profitable business in this segment and we are prepared to temporarily step away if a segment or a partnership becomes unviable. We continue to be ranked amongst the market leaders in both credit protect and retail protection segment, and are committed to maintaining sustainable and profitable growth in the overall protection segment. The annuity business in India is still in its early stages, presenting significant long-term growth potential. Despite intense competition and aggressive pricing by some peers, we continue to adopt a calibrated growth strategy, focusing on enhancing our product offerings while maintaining pricing discipline. Together, annuity and protection contributed 47% to our overall new business premium.
Moving on to key financial and operating metrics. Our quarter 1 value of new business was INR 718 crores, reflecting a healthy 18% growth both year-on-year and on a 2-year CAGR basis. Our new business margins are 25% compared to 26.2% last year. The margin compression is primarily due to the product mix and continued investments in infrastructure, manpower and technology. We are committed to investing for long-term growth by expanding our geographical reach and tapping into new customer segments. These initiatives will help drive our growth trajectory over the next 3 to 4 years.
As the year unfolds, our focus remains on achieving absolute APE and VNB growth. We will be flexible in trading off margins within a range in order to pursue this objective. Our embedded value is INR 49,611 crores as on 30th of June, with an operating return on embedded value of 15.5%. Profit after tax has grown by 15% year-on-year, reaching INR 478 crores, driven by an 18% increase in profit emergence from the back book. Our solvency ratio stands at 186%.
To strengthen our solvency position, we will be raising sub debt up to INR 2,000 crores in one or more tranches over the next 12 months. This update raise will help fuel our growth aspirations. Renewal collections grew by 10% year-on-year. Persistency for the 13th and 61st month improved to 88% and 56%, respectively, marking increases of 108 basis points and 282 basis points versus the previous year.
Next, on distribution. The bancassurance channel experienced over 40% growth in individual APE. Our counter share in HDFC Bank continued to be healthy, reaching 66% by the end of the quarter, up from 56.5% in quarter 1 of the previous year. Our close collaboration with partners ensures that we are able to offer the relevant products that suit the needs of our bancassurance partners diverse customer segments. The agency channel achieved strong growth this quarter with a robust 2-year CAGR of 17% based on individual APE. We are expanding our agency network by enhancing capacity for future growth, which includes expanding our footprint, recruiting top talent and investing in technology and capability development in order to improve productivity. We led the industry in net agent additions, adding over 18,500 agents during the quarter. Additionally, we expanded our network by adding 60 new locations this quarter, taking the aggregate number of branches to around 600. Further, we continue to actively forge strategic partnerships and have recently partnered with Upstox Fino Payments Bank, Peerless Financial Services These collaborations will enable us to reach new customer segments, expand into new markets and strengthen our presence.
Now regarding our subsidiaries. The assets under management of HDFC Pension Fund Management grew by 67% year-on-year and surpassed INR 88,000 crores. We continue to build the pension business, maintaining a market share of over 43%. We are advancing our expansion efforts in Gift City through our subsidiary in Dubai and are already seeing encouraging results in the NRI segment. Going forward, we aim to enhance our footprint by introducing more products tailored to their needs. The recent expansion of the scope of remittances under the Liberalized Remitted Scheme, LRS, will enable us to extend our offerings to Indian residents as well.
Update on project Inspire. Our technology transformation initiative is progressing as planned. We are on track to launch our group business transformation between quarter 3 and quarter 4 this year. The business process reengineering under this project will greatly improve operational efficiency, establish a unified data platform for enhanced decision-making and collaboration and bolster risk management capabilities.
Moving to regulatory update. We welcome the IRDA's progressive reforms outlined in the master circular on life insurance products. Measures such as mandatory policy loans to enhance liquidity, extended prelooking period, robust processes to address customer grievances and higher value to customers on early exits should further the regulators vision of insurance for all by 2047. We are confident that these reforms will significantly strengthen the life insurance proposition in India making it simpler, more transparent and ultimately more attractive to prospective customers.
As indicated in our press release on the stock exchanges, we anticipate a growth impact of approximately 100 basis points on the company's new business margin due to higher surrender value payable on early exits. Impact for us is limited due to our balanced approach to business. We have consistently employed a calibrated pricing strategy and maintained a prudent approach to risk management as demonstrated by our regular quarterly disclosures over the past few years. Our actual experience of surrenders is negligible based on which our assumptions factor in close to 0 surrenders. This implies that we have not been factoring in any surrender profits after the customer pays the first renewal premium. This is illustrated on Slide 8 of our investor presentation, where most of our customers prefer to continue their policies in paid-up status rather than surrendering them. Our persistency experience is also strong and improving across cohorts and geographies. We are reasonably confident in our ability to mitigate this impact without compromising our customer value proposition. We endeavor to achieve this primarily through restructuring distributor payouts using a combination of deferment and clawback. We also believe this regulation will improve market conduct, moderate competitive intensity and benefit players who have relatively prudent.
In conclusion, the substantial gap in financial protection across India presents a compelling growth opportunity for our sector. We are committed to securing India's future through innovative insurance solutions. We believe our dedication to excellence is visible in our consistent, predictable and sustained performance over the years where we have doubled on our key metrics over multiple blocks of 4 years.
Looking ahead, we remain focused on maintaining this high growth trajectory while prioritizing value of new business growth. For a detailed overview of our results, please refer to our investor presentation. We are now open to take any questions from the audience.
[Operator Instructions] Our first question is from the line of Avinash Singh from Emkay Global.
A few questions. The first one is rather not earlier to do this quarter or even the surrender values. It is more regarding the sensitivity to taxes and the corporate tax rate being increased. So if I see your sensitivity to the VNB margins, it appears reasonably higher. Just wanted to clarify that when you are sort of showing the sensitivity from corporate tax going to 25%, are you also assuming all the exemptions being taken away, I mean, in certain business lines like pension and all the way today, I guess, is the 0 tax. Are you assuming that? Or it is like that, okay, of 14% where it's applicable going to 25% and then you have so in sensitivity? Because there is a kind of a reasonable variance in sensitivities as far as the VNB is concerned. So a bit clarity, I wanted how are you sort of calculating these sensitivities? So that's a question about one. Second, related to your credit life, can you help out a bit more into the kind of the product? Is it like in the competition is intense in the likes of the mortgages or more into the short product like the personal loan or micro finance or durable where I mean you are seeing kind of an intense competition? And has that kind of led that on a like-to-like basis, this quarter, the margin profile overall on the group side of product is also maybe lower than what it was last year same quarter?
I'll hand it over to Niraj on the first question, and then we can take the second one.
So was on your question on tax, which we have it on Page 26 of the investor deck, we've also given a note there, which basically talks about what our assumption is that we are stating this impact. It's basically assuming that the current tax rate of 12.5% gets changes to 25%. And the policyholder and shareholder segment surplus gets taxed. Everything gets taxed at the higher rate. It is not allowing for any benefit of policyholder surplus being tax exempt, which was an within the DTC. So we'll have to wait and see how this really pans out, but this assumes that everything gets taxed at this rate. And it's not factoring any other exemptions that may be available or may not be available in the future.
Okay. Okay. And just a follow-up. So of course, whatever gumption, I mean, completely exempted you are assuming to continue, but you are assuming that the policyholder surplus that get taxed in par as well as your shareholder PBT, both getting taxed at 25%.
That's correct.
Okay. So you are assuming basically a 25% taxation. So basically, with that way, I mean if you are having a certain par business, then I mean you are penalizing yourself a lot more in the sensitive -- because, I mean, it is the power business basically when a policyholder surplus will get taxed.
Yes. I mean ask because while DTC was very clear in terms of how it wants to treat policyholder surplus generated out of those segments. So don't know whether it is going to come in that form. So we didn't want to make any assumptions of that lower tax on that segment. So we've taken the maximum rate on every thing. We'll have to wait and see how it really comes out.
Yes, I just want to add here that there was a particular reason why the rate is 12.5% plus surcharge. I won't go into the technicalities of it, but I think it is somewhat misunderstood or just in terms of speculation that this is -- and given that the last 3 terms, DTC has not been talked about. There was a particular reason why, like I said, the rate, what it was, there was later on and going back '25 and there was an committee, which then subsumed the way policyholders and shareholders profit together and because the intention was not to tax policyholders, the profits emerging from their funds and to tax shareholders. So this was seen as an amalgamated or an averaged out percentage. So I think a lot of younger people who are tracking it perhaps don't know the back story on why it is what it is. As again, just that there was just a random rate that possibly is being applied in life insurance. But like I said, this is probably not the forum to get into the details. If anyone is interested, we can always go back in history as to why it is about -- overall landed cost at about 14.5%. On your next question, Suresh.
So just to get the context on the credit life business and your question on competitive intensity. I think one, I would like to clarify that, look, we work across the spectrum, from more than 200 partners in terms of credit life. And that is across banks, SLBs, MFI, NBFCs and other ecosystem players that we work with. Secondly, we are -- we work on almost every possible line of business, whether it's mortgages, whether it's whether it's commercial, personal loan, auto. So there is a fair amount of spectrum that we work in terms of the type of partner as well as the line of business. Even within that, we work on many other partners which are there in certain geographies, we don't work in certain states. So it varies in terms of where we are present and what is the profile of the underlying customer to the loan has been disbursed. And finally, even in terms of product, we have a very clear strategy in terms of what kind of value penetration is that we can do. What are the products that we can offer in terms of riders. So really, it is not an easy like-to-like comparison in terms of how you can offer the pricing. In the simpler lines, we do find that some of the other players are also coming in. And then coming back and ensuring that the rates. But having given the experience that most of the partners have had with us over multiple years, we have probably got the best in terms of the lowest claim repudiation ratio, in terms of the claim settlement tax, in terms of what is the value penetration that we are able to bring. So we are working more in terms of ensuring that our margins remain more stable. I don't think it is true that our margins have in some places where we find that the quality of business is not good enough, we are letting some of that business go. Some places, the disbursement on the credit life on the underlying loans itself has slowed down in certain lines at the partner end. There, obviously, the numbers have come along. But I think as a calibrated strategy, we are very clear to say that we will work in a certain margin range and ensure that value penetration where we cover the loan to the maximum with our partners. And that's broadly been the way we've been working on the credit life
Also to add here on the pricing and irrationality sometimes, and we will see fairly balanced on this. In the past, on credit life, where it doesn't make sense we have exited certain lines of coverage. And then down the line, the partner has come back to us because they can't continue forever by a new insurer. There will be penetrated pricing. But down the line, if they raise prices, then the partners -- the strong relationship means that they'll come back. So we just have to build a brick by brick, and that's why it will always be 2 steps forward, 1 step back, but we are in there for the long haul in terms of the relationship.
And how is the pricing environment in GTI this year?
That remains competitive as every year, given that -- I mean, in most cases, a few players who have been looking at it. But that is sometimes balanced more with the relationship that we have with the particular corporate and the overall relationships that we have got. But that is the segment which remains competitive in terms of pricing, which is why if you find that we are at a certain market share, and we don't want to go beyond that market share. And in any case, every 1 year, it keeps getting renewed. So wherever we find it reasonable or where we find our existing relationship, which comes in for renewal, we go back and ensure that
And to add over there, because of this 1-year churn, you end up paying stamp duty every year, right? And that makes it onerous. So if JTI was say, for 3 years, then it could make very different commercial than this annual bidding out to the lowest insurer and so on. So again, there will remain calibrated. .
[Operator Instructions] The next question is from the line of Prayesh Jain from Motilal Oswal.
Firstly, now that you had time to look at the discharges and there is a talk in the industry that there will be obviously a kind of aggressive selling in Q2 and then possibly we'll go through a period of new product launches in Q3. So how should we look at the industry from the next 9 months perspective and within that, what would be your strategy overall in terms of premium we look at it for the next 9 months perspective?
Prior to this aggressive selling is something that we don't like, and we did not do it when the budgetary changes were happening. We did not resort to fire sale and so on. And even more so now because the product will actually be better for the customer in the event that they want the liquidity. So just because somebody might be saying, okay, the IRRs might drop and so take my product right now. So we're not going to -- it's going to be absolutely business as usual for us between now and the transition period.
Got that. And from a margin perspective, the product mix has been favorable when share of protection has gone up, share of annuities has gone up. More looking from a sequential perspective. But still, our margins have kind of come off its primarily led by expenses. And so how do we look for the full year margins?
So like I mentioned, even in the April call, we are focusing on two outcomes. One is growth that is faster than industry growth. This is new business APE, retail APE growth. And the second is in terms of VNB growth, again, getting back to doubling every 4 years in a very consistent manner. So margin will be, to some extent, an outcome, while at the same time, we don't intend for it to yo-yo excessively. And by that, I mean 300, 400, 700 basis points. That's not what we have in mind, but a little bit here and there. Also, the reason for that by saying is that -- clearly, there is an uptick for unit linked has been over the past several months, thanks to the market. And so that is something we cannot ignore. Second is that customer acquisition continues to stay to be important so that we can upsell to the customer and so on down the line. And so we'll remain range bound as far as unit linked is concerned, while at the same time delivering VNB growth.
Last question on protection, retail protection. Is there a pricing action that's happening in the industry? And is there some pressure from reinsurers? And what will be the reason for saying if there is any major pricing have seen that's happening?
Prayesh, on pricing, we've always maintained that. This is an ongoing exercise, whether it is protection or annuities or nonpar, like in any any product in any industry, you will review pricing based on what the, let's say, raw material cost is, in our case, what the experience is, depending on which customer segments are you addressing and so on and so forth. So I mean, referring to some media report that was there a couple of days back, I think there hasn't been any change that we made, which is a significant. What was reported was at least in our context, wasn't appropriate. For one segment, which is above 60, there was a I think, up to a 5% change in price, and this business is less than 0.1% of our overall business. So honestly, nothing of any consequence at all. And pricing will evolve based on how we go into the country in terms of customer segments. And it is not really going to be something which is something out of the blue. It will emerge over a period of time, after which we will review our experience, look at our pricing, talk to our reinsurers. And of course, we have to compete in the market as well. So a lot of these things will come into consideration. And as we've articulated across all our businesses, we will maintain a calibrated approach. So with our pricing, we are reasonably comfortable with the kind of share that we have in the market, and we'd like to continue maintaining that discipline.
The next question is from the line of Madhukar Ladha from Wealth Management.
I wanted to get a sense of this new slide that you've added in the presentation about the surrenders. Now I wanted to understand what is the paid-up policy is actually been. So these are sort of non-surrendered policies, but that's where they've stopped paying premiums. So how does that really flow into your VNB. So maybe you could like clarify that part a little bit. And yes, then I can ask my follow-up questions on this.
Yes, I'll hand it over to Eshwari.
So when we calculate the margin of the profitability, we look at what is the proportion of policyholders who will pay the premiums and continue to be enforced throughout and get the full benefits. We also have an assumption for policyholders who discontinue premiums during the tenure of the period, but we'll not surrender, but they will continue with the policy for a prorated benefit. And then we also have assumptions for policyholders who could completely exit the policy. Now as shown in the slide, the experience for us in both non-par savings and par on the policy orders who exist is very small, negligible. We only have policyholders who continue paying the premiums or policyholders who stop paying the premium, but continuing the policy. And those are the two assumptions we have factored in our calculation of margin or the VNB. So that is what we are trying to explain here because of the change in the regulations where surrendered rate has gone up, since we don't assume any surrenders in our calculation, there is no impact on the margin post year 2. The only impact we have is in the year 1, where our experience is quite good. And further, we have a conservative assumption on the year 1 also. Our assumption on or exit in the first year, it's even lower than our assumption -- sorry, experience, and that is what we're trying to explain in this slide in terms of what the experience is, what our assumptions are and what is the relation in terms of the impact on the margin.
Okay. Got it. So just a follow-up on this. So when a paid-up policy holder or this is sort of partly paid up, right? He's probably paid up for 2 years and then stopped paying premium. Then when the policy matures for him, that's what you mean, but even not surrender the policy and the policy will mature in a partly paid status. What benefit does he get at that point of time? Or...
Can benefit so to give an example, suppose a policyholder a has taken 5-pay policy of, say, INR 1 lakh premium. And just as an example, suppose the maturity value is at INR 10 lakhs. He stops paying premiums after, say, 3 years. He pays only premium for 3 years. Then you just pay 60% of the premiums he had committed, then we will get 60% of the summer 10 lakhs, he will get 600,000 at the maturity. This is what the policy pro rata benefits.
Understood. So within the prorated benefit policy marginally lower than the margin that you get on a fully paid-up policy?
So that could vary depending upon when the policy is made paid up, what is the original remitting term has taken the structure of the product, what kind of benefits, the composition. For example, in a par it could depend on the the bonuses, et cetera. But what is important is that the impact on margin will depend upon what is the assumption on how many policyholders are making a policy paid up and what is the experience. Since we keep calibrating our assumptions to the experience on the policies being paid up, whether it is the higher or lower profit that's already captured in the margins. As long as the experience is going to be nice assumption, we don't see any major impact on the margin. And you see -- as you see in our review disclosures, our operating variance has always been positive. So our assumptions are slightly conservative when compared to the experience, that's why the operating variance is positive. Question policies been paid up for premium paying or surrender. It's more about what the experience in an assumption. The major change that has happened with regulatory is the changes are surrender value. And there, we don't have any impact because of the factor that you already explained. .
Understood. Understood. And this is another question for maybe Vibha and Suresh. With these sort of changes happening, the industry would be in a flux and you'll probably be back on the ground board designing products and talking to distributors. And what is the feel that you're getting? And I think it's very important that we are able to defer the first year commissions over maybe the first 2 years, the first 3 years. Do you think that the distributors will agree? And this also, to a certain extent, depends on whether the industry, the manufacturers actually come together and are able to do this, right? So what are your thoughts on this?
Yes. So we have put out a likely impact based on Eshwari just explained. So we will have these conversations with some of our key partners. But that will happen in an organic -- there is no fire situation per se because our assumptions, not only the assumptions of what is -- how much is getting surrendered. But equally, or if not more important is to be fairly restrained in terms of aggression on IRR. If one is more aggressive on IRRM, there have been competing products that give me say, 70 bps to 100 bps or if not more, even today differential in IRR. So if that's going to happen and one is really banking on surrender profits beyond the first year, then one is going to hurt more. And also what 1 has to return back to the customer will be more. For us, it's been always there is repricing of new business that we write very, very quickly if the macro situation moves. So given that, this is -- we're having conversations, but not on an SOS basis. It's a little bit more organic. I mean we are in multi-time mode situations. So the the interface conversations between us and our distributors will also depend on the conversations they are having from other manufacturers. So it's a dynamic process.
Suresh, you want to add anything?
No. I think broadly, we were over it. And given that the quantum of change impact on us is probably lesser than some of the other players in the industry, and I'm sure everybody is assessing their impact. As I think we can look at 3, 4 options. One could be to say that we continue, we have a product, we have a deferral or we look at maybe lower which IRDA, would want the product to remain as good for the customer with better So our objective would be to say, do we look at differ, which will probably so the impact on each of the manufacturers or the partner has extremely high persistency, we are comfortable. Maybe we'll just continue and have a little bit of a progress. So we really don't want to jump into this immediately. I think we are having like mentioned each of our partners. And in turn, they are having with their respective insurers, given that we are probably in multi-tie with different insurers at different partners. So we will probably single through. And by end of September will be not any more comfortable position as to what we would want to do.
The next question is from the line of Suresh Ganapathy from Macquarie Capital.
Two questions. One is on margins and in general, the BMD growth outlook that you have painted, right? So first on the VNB margins, you are at 25% for this quarter. So you mean that you will have a further 100 basis point compression because of the new surrender rules, that is not a fact, part of this 25% that has been reported in 4Q, how should we look at it that further from 25%, you're going to see any impact?
So Suresh, the 25% is for the quarter. And usually, the margins get better as we move towards full year because so the business is that much more while your fixed costs remain more or less the same, right? So margins do have a pickup. So on a full year basis, wherever we are likely to end before these regulatory changes, again, those margins, it will be 100 basis points impact, if we did nothing.
Okay. So these new rules are not a factor of the 25%. Okay. So just wanted a clarity on that. And the second thing, is saying you want to double your VNB in 4 years. So that's a 19% CAGR. Now the problem there Vibha is, indeed, the upside from margins is very limited, right? I mean all the margins have a downward bias across the industry, not only for you. In that sense, you are actually indirectly indicating that you want to grow your APE at 20% plus for the next 4 years. Is that not at all as we're not seeing 20% for quite some time. So you think it would add over a period of 4 years consistently. .
Yes, I'm reasonably confident, Suresh, because underlying about -- because we are assuming the current dynamics of competitive intensity, relative advantage, the products being the same. And just now we are going through a massive overhaul of product, something that we knew all along, and that is something that's happening right now. And that itself could reveal a very new normal. Another one that could be fairly disruptive is, for example, IFRS. Now under IFRS, unit-linked the way we see unit linked now in terms of top line and the competitive intensity with unit linked that could undergo a significant change because a lot of that is going to get shaved off. And only the net income will reflect on your income statement. So we are assuming a from now for the next 4 years, which itself is probably -- there are already some visibility of largest changes where we feel we have a competitive advantage. Third point is on HDFC Bank. And as you know, just over the past maybe 7, 8 months, our counter-share has meaningfully gone up. And it will organically as we work more closely together and so on will go up. And also a little bit of product tweak. For example, if I were to see my agency channel, that has -- that has term at about 12%, 13%. While at HDFC Bank, it's low single digits, like 3%, 4%, closer to 3, right?
So that is just going up to, say, a 5% just because there's a little bit of focus can have a meaningful uplift in margins. So we have many tongs in the fire to keep chipping away and to see how we can continue to add margins while there will be investments that we need to make in business, but we feel that the doubling in 4 years are still doable. Niraj, do you want to add?
Yes. Suresh, and just to your point in terms of inherent margins going in one direction, which is downwards. We don't necessarily think that because in each of the product segments, there's an opportunity to improve margins for a couple of things. One is obviously scale. Second is also in terms of the ability to attach embedded protection across not just in the term products to writers, but also the savings products. All of these things, along with dynamics being very different as you go defer into India. The ability to keep reserves inherent product margins and even expand on that in a calibrated manner is very much possible. So not all the VNB growth needs to come from top line growth. Some of it can come from mix like we discussed and also increasing inherent product margins.
And again, I want to add a final piece. So for example, when you look at sum assured, the growth in our sum assured is significantly higher than our APE growth, which just again means protection is growing. So 46% growth in individual sum assured,-- all of these are large chunks of mortality cover, which is the result of sum assured. So that itself means on the fact that we are raising sub debt, also means that we are writing more of protection business. So we're slowly moving towards the higher margin, brick by brick, and also 70% of our new customers are new to HDFC -- 70% of our customers are new to HDFC Life. This quarter as well as last quarter that we talked about and before that. So ability for us to upsell to them is that much more at a slightly reduced cost and therefore, uptick in margins. Agency channel is another one where we are investing quite heavily in Tier 2 and 3, as we have talked about in the past, including the Exide Life acquisition that's grown significantly higher than company level growth even in the first quarter. But it is in a growth phase and investment phase. So all of this should start delivering and reaping dividends for us in a slow but sure manner. And that's why we say that it's not going to happen overnight, but that's why we said for doubling should certainly happen.
Some procedural clarification question, can I ask just quickly? Yes. So the new IRDA regulation is effective when?
On 1st of October. So last date of selling the -- under the current structure is 30th of September.
Yes. So just to understand this better. So what will happen is we already started filing the new product? Or will you start in this 2Q the new product filings with the regulator, and then you will have to launch in first October, how well prepared you are with respect to some of your new product structures and stuff because the approval from IRD will also take time, right? So there could be a lead lag issue in between.
So, Suresh, all the existing products, which need to be made compliant with the new regulations do not need to be filed for approval. They have to be self-certified by the companies as per their product management committees, which is a Board level committee. So we certify it, and we can launch it as soon as we are ready to operationalize. So it does not have any lead time as far as ID approval is concerned. Of course, any new product that we launched now, depending on which the process that needs to follow, whether it's use in file or file in use will require prior approval in certain categories. That will be an ongoing process. And also, you would appreciate that what's happened over the past few months is that many products are now getting filed and -- rather getting launched in the use in file. So the bandwidth to approve products by the regulator has improved. So that has actually brought down the lead time to launch new products as well. So while it's an exercise, we will be in a position to offer all the products that matter and will comprise most of our existing business, we should be able to offer it by October 1 without any disruption.
[Operator Instructions] The next question is from the line of Aditi Joshi from JPMorgan.
Yes. So just my question is related to the margin work. In full year 2024, we had some negative impact coming in from the expenses. I'm just wondering that for the first quarter, do you have such impact persisting? Or how was the work for first quarter, if you are able to share your view, please?
So the negative impact earlier was due to what -- sorry, we could not hear you very clearly?
Are you referring to this quarter versus the last quarter? Okay.
So last year, if you recollect what we have said is we had 130 basis points gap. Out of that, about 70 basis points was on account of lack of operating leverage because on an actual basis, we were -- we grew at 1%. I mean, of course, normalizing, we grew at 11%. But that scale gap is what caused a significant part of that margin gap and the rest of it was the product mix. In the Q1 context, everything is pretty much product mix because the scale is back. The growth was 31% for the period. So you will see a positive fixed cost absorption of 0.3%, but we have a 1.3% negative on the product mix, which is largely the unit-linked mix increasing from 25% to 38% on a like-to-like basis.
I just want to add that, Aiditi it is that while for the quarter, it was 38%, but exit rate in June has come down to about 35%.
The next question is from the line of Gaurav Jain from ICICI Prudential Mutual Fund.
I just have one question. We are at 186% solvency margin as of June '24, with this subdebt if we were to do it on this space. How much will the solvency go up to? And post the sub-debt raise, will we still have room to raise more subdebt? Or how do we think about capital biting?
Yes. So our headroom today, based on the regulatory limit is about INR 2,000 crores is what we can raise. We will see in terms of how we want to go about it. We have an approval to raise this over a 12-month period in one or more tranches. The solvency position that we are comfortable with is in the 180% plus range. So we'd like to operate in that. And I think the first tranche at least that we will raise will probably help us to maintain that level for the foreseeable future, and then we can reduce the rest of the headroom based on our requirements. We are also expecting over the next 12 to 18 months risk-based capital regime to kick in. When that happens, our understanding is that we'll be able to write more business with the same amount of capital. The regulator will obviously take a view in terms of how they want to establish that regime. But based on our interactions with the regulator, we believe that if you're writing business prudently, long-term business with appropriate risk management, you should be able to write more business with the same amount of capital.
And to your other question, it will add about 20% to 22% if we went -- we raised a whole of INR 2,000 crores.
The next question is from the line of Swarnabha Mukherjee from B&K Securities.
A couple of questions. One is on the channel. So where you had mentioned that you were having a conversation on how the -- eventually the structure, the commission structure, et cetera, will pan out. I just wanted to understand from you in our open channels as well as, say, the agency channel, -- what would be -- since multiple players will have a maybe a varied approach on how they are going to pay out, you'll also have varied approach based on the kind of what kind of business you source from a particular channel. Can there be a risk that there can be aggression from players in terms of commission that can move counter shares in those channels. So I just wanted to understand how you think that can be risk or a challenge in, say, open architecture or agencies, which one would be tougher to correct. And secondly, on -- in terms of IRR cut on the non-par product where there is the impact of this new regulation is much good. So just wanted to understand from your perspective, how do you see the product competitiveness vis-a-vis say other similar products like, say, FDs or
Our product competitiveness should definitely go up. And like I mentioned earlier, today, one is that we reprice with a lot of frequency as and when interest rates move materially. That is number one. And number two is, even today, there is a material difference in IRRs, and that IRRs can't come out of It has to be funded somewhere either by the customer or by the shareholders or the company. So from that point of view, we believe that there will be some calibration in IRR due to the surrender charges going down. And therein, if it's very similar, then we can only get at a better place than the competitive -- intense competitive intensity today in non-par. Suresh, you want to mention the first point.
I think the first point is related in the sense that the market share depends on the IRR of the product in terms of what is the pull. The second is the commissions that are available in the market. And three is the resources you put in terms of supporting the partner. Now given the lesser impact that we have, we do believe that it may lead to a much more competitive advantage over a period of time in terms of what we should be able work out with partners. Most there's a combination of all 3, whether it's resources on the ground, whether it's the IRR only product in terms of the differential as well as the commission structure, whether it is d deferred or whether it's slightly lower commercial or clawback. So those options are all available. It may lead to a certain I don't see this market changing dramatically. At least for us, we don't see a huge shift. There will be obviously some change here and there. But with some of our top partners, we should be able to account something which is clearly better than what we are as a relative advantage at long-term. .
Right, sir, just quickly wanted to follow up that on the HDFC Bank channel as for your conversation goes, do we expect that the counter share would kind of remain around that 70% range, which is our aspiration in the new scheme of things?
See, I'll just leave it by saying that it's apparent in the last 7, 8 months, counter share has gone up very meaningfully from 56%, 57% to 65-odd percent in that range. And there is 70%, 72% -- I think it is a matter of time before some of that organic movement upward should happen regardless of surrender charges, surrender charges, whatever it is that they're selling a share of that should go up automally.
The next question is from Vinay from Jefferies.
I had a question on the non-par savings business. So the absolute amount of business done in the quarter, about INR 860-odd crores seems to be quite reasonable. How do you think the momentum builds on from here? And just generally, how should we think about the growth in this segment. At last year subsequent quarters saw some decline due to change in tax norms.
I'll start off and then hand it over to Suresh. We are seeing good traction in this category. We are seeing traction both in above 5 lakhs and below 5 lakhs. We are seeing traction in Tier 1, 2 and 3. So any which way we cut non-par, we are seeing traction. And this is something we've been saying all along that once this whole focus on tax starts weaning away and it has to happen because ultimately, money has to flow somewhere. Not everything can flow in equity. And that's exactly what we are seeing. Also, there are new product launches to get mind share. There are some of the other aspects to it, for example, on pension, which has a very unique way of delivering value on a post-tax basis to the customer, especially the slightly older customer. So really, it is a holistic growth, Vinayak. You want to add, Suresh?
I'll just add I think the market continues to remain large for the non-par also given that the household savings for the customers will finally have to invest, whether it's fixed deposit or any of these products which as a competitive product to some of the other fixed benefit kind of products which are available in the market on the guaranteed product. We believe the non-par product still has a fairly large scope in terms of growth. So in some of our products like which we have now launched. It's a very unique bulls kind of a product, which kind of solution. So when we go out with a product like that in the market, I believe it is for us to expand the market in terms of the activation that we have at our specified persons at the level or our financial consultants in the agency level as well as the number of new unique customers that we bring in. And as mentioned, the Tier 2, Tier 3 expansion, especially on this product will get us more the ticket size as well as the number of unique customers.
The next question is from the line of Nischint Chawathe from Kotak Institutional Equities.
Just one, how much was the growth from HDFC Bank this year on a year-on-year basis?
It was 41%.
And that -- you said that account to share increased to around 65 from 55.
Yes. So about 18% is to is about due to counter share increase, and about 20%, 22% is due to just a holistic increase.
Okay. And just on the agency side, your growth sort of still muted at 10%.
I can't hear you very well,
On the agency side, -- so yes, on the agency side, your growth is still at around 10% versus some of the peers who have been growing in kind of at around 20%, 25%. So we are not sure when the investments in agency are really going to play out in terms of numbers.
Also two, three things there. Our agency growth is around 14%. And over 2 years CAGR, our growth has been along that, so it is fairly good. Two, three things that are happening in the market. There is a shift in terms of the unit-linked contribution as a source of the business. So we don't really compare. I think we are very clear to make sure that our is a profitable agency business. We calibrated in terms of how do we grow based on a certain product mix. The third thing, like Vibha had mentioned earlier in all of the questions, we Exide agency channel, which had come on board. We are investing a lot in terms of that growth. So that will take some time. And hopefully, the pickup will happen over in that particular period. So -- and the growth in the Tier 2, Tier 3 market, we have expanded from 60 branches. We are looking at it in terms of the number of new agents that we have added, that continues to be the best in market also. Three, four things are working out for us. There is an NOP strategy that we are putting into place. We have invested heavily in our full advisory financial consultant program that we are looking at. So the building blocks are clearly in place. On the agency side, we had kind of -- because of the greater than 5 lakhs in certain segments, we have slowed it down, but I now think the base effect has fallen into place, and we should be able to grow significantly. So we added like 18,500 agents net in Q1 of FY '25, which was the highest in the industry. So the distribution is building. The locations are expanding. I think the site channel has also been growing. So fairly confident that the agency side will start
The next question is from the line of Supratim Datta from Ambit Capital.
So on the surrender value Slide 8, just wanted to understand have you done any sensitivity that at 10% to 15% of customers who are going to a fully paid up -- who are taking the fully paid up route, if they move sand their policies...
We can't hear you very well.
Yes. So what I was asking is, if you assume that these 10% of people who are going to fully paid-up policy as compared to surrendering their policy. If these people now surrender because of the highest SSV, then what will be the margin impact? Have you done any sensitivity analysis on that?
That's the first question. And the second question I had was that if I look at your non-par savings policy tenure, then it seems like it has gone from 13 years last -- in the fourth quarter, it was 16 years, and now it has gone to 21 years. So what is driving this change in -- I don't know what's resulting in this higher tenure? And how would the margin of a higher tenure product compared with the lower tenured product? If you could help me with these two questions?
Yes. On the first question, is the policyholder now surrenders compared to keeping it paid up. Economically, the value to the company will not be different because if you see how the surrender value has been defined, it is linked to the paid up value and it is a present value of the paid up benefit at the current So the company -- for company will be -- will be very neutral, whether the older continues in a paid-up status or he surrenders. But for the customer, it's a good proposition to continue the paid-up policy because he to be debt cover though it's lower, the debt cover. And they also get the logged in interest rate for a long tenure. The contract may be 20 or 30 years. So you get the benefit of it continues in the paid-up policy. But from a company perspective, the impact on margin will not be material because of the way the linkage is in the pay benefit and the surrender value.
Got it. Understood. Understood. On the second question. .
On your second question in terms of the increase in tenure, that's something that we've been consciously driving because longer-term products can offer better value to customers. And this has been enabled by our new launch of Click2Achieve that we had launched a few months back, and we have been launching new variants in that, which encourage customers to stay for a longer period of time and get a higher value proposition. And that completely sinks in with the economics for us also, the longer the policy term and premium payment terms, the better the margins as well. So it works by everybody, and that's something that we've been driving consciously as well.
And what would typically be the margin differential? Could you give us some sense that versus a 13-year policy versus a 21-year policy, how would the margin differ?
We can't get into specifics on that, but it will be meaningfully different. And I think one thing you can maybe look at is in terms of a nonparticipating product, the margins are higher than company average. You can expect a significant delta on that for a longer-term policy. So it is fairly meaningful.
The next question is from the line of Nidhesh from Investec.
Do you see any change in the new business strain with the higher surrender value post 1st October? .
Not in our case, because of what all Eshwari had mentioned, prudence in pricing as well as current assumptions, it does not result in a very significant change in our reserves. So that does not affect our accounting profit. But the impact would be different for different approaches that people -- companies may follow.
Sure, sir. And why don't we go with the strategy of no change in the commission structure and try to gain market share because the impact on us is quite low versus some of the other peers. So why don't we take this opportunity as a market share gain opportunity versus profitability neutral in the strategy?
Yes. I think, Nidhesh nothing that is off the table. We will explore all options with different partners. However, I think our regulator is also looking at a little bit of collaboration with partners in seeing how payouts can be more back-ended. So that is also a placid kind of expectation from the regulator but we will have all sorts of options and iterations, I'm sure, between now and 30th of September.
The next question is from the line of Shreya Shivani from CLSA. .
Most of my questions are answered. Just two. First is on the VNB I know it's a very small number, but there is some change in assumption. I'm not sure if this is -- if you can give some details of these assumptions have we changed? Is there any change that we should know about? Second, again, on the surrender value itself. One of my questions was that it's very useful that the data that you've put across on Slide 8 about how much surrenders you actually face in the different years. But given that the surrender format now is such that probably after third or fourth year, the customer can actually get 100% of their principal back, unlike earlier when it would be at 50% or 60% or whatever the old format was. So in that situation, do you -- are you also accounting in for any change in customer behavior? Or have you guys thought about how will you go about that? Those are my two questions.
On the first question, the assumption we do as a year-end exercise based on the experience that they're emerging, we have changed assumptions in mortality, persistency across product segments. It had a small material -- a small impact of -- a nonmaterial impact on the margin, which is what is getting carried forward to the quarter 1 of this year because whatever was reported in last quarter 1 didn't have this assumption change. So if you see the last full year disclosure, you would see some similar impact in the VNB work.Okay. That's the first question. The second 1 one.
There could be some difference in the customer behavior because of surrender value. But the reason we say that that behavior may not impact us because today, we are not assuming that any customer is surrender for a over under value, and the company will make a surrender profit. So if our assumption is that no one surrenders, then we don't make any profit currently. And going ahead of the customer surrenders, she gets the value which is equivalent to the paid benefit that you would have anyway assumed. So there won't be any impact on the margin. So the customer behavior will not impact our company's margins so much. Whereas if assumes surrender, there could be some increase margin. And just optically, persistency could -- 3-month persistency could look bad, but not the economics of it.
The next question is from the line of Sanketh Godha from Avendus
Just on the ULIP business, I just want to understand to what extent our ULIP today has higher sum assured that is more than 10x? And to what extent it has supported the margin -- and to the extent I remember last time, it was around 60%, 65% of the total unit what we are selling has higher sum assured. So is there any further headroom available to do that more to improve the margins or hold up the margins even if the contribution goes up on ULIP? And then the second is you're raising sub debt maybe during the year, you will do it, then the difference between what you will pay as interest and where you will invest, how much likely impact it will have on VNB margins? If there is a 100 bps difference, I believe that impact could be somewhere between 60, 80 basis points. So just wanted to understand how it will play out?
Yes, Sanketh, so on the first one on unit-linked, we had, I think, mentioned a few quarters ago that we've started attaching riders as well as the multiple of sum assured which shows which customers were used to taking, say, 10x and move to 20x in the last couple of quarters, and it has, in fact, started expanding beyond 20x as well now. So there is room when customers are preferring to use this as a vehicle to not just save, but also to get meaningful protection in the same product. So that journey is very much on and moving in the right direction. Also, our rider attachment as a journey which started a few years back is still in its nascent -- very nascent stage. We are yet to see the full benefits of the rider approach in terms of multiple riders per policy. So that journey has just started. So the headroom is very significant from here on.
Sir, what is the weighted average sum assured today in ULIPs? And what extent of the business you sold in ULIP has higher sum assured?
So I mentioned the 20x was the number some time back. Now it is close to 30x.
And proportion -- in the proportion of the total premium, what we did, how much is higher sum assured?
No. So we don't look at it that way. We basically to it level. And I think it really depends in terms of which channels are selling, what kind of tenure, et cetera. So we don't really have that as as a target or any of that. We're basically just seeing if customers across the board are willing to consider buying protection through this in a more meaningful manner, and that is happening, and we are quite happy to drive that as we go forward. On subordinated debt, we will raise it over a period of time, and we'll decide the timing based on our requirements as well as the market appetite. And in the past, the sub-debt that we carry has a fairly negligible negative carry of about 20, 30 basis points because we have the ability to invest. I mean all the sub debt that will be raised will get invested and the negative carry on that, we don't expect it to be significant because we don't necessarily need to match the duration of what we raised with where we invest, given that we have a fairly large book, and we'll be able to minimize the negative carry and will not have any material impact on our VNB.
Perfect. But honestly, what is the need to raise capital because because honestly, if you look among all the companies, you guys are the ones who have raised the highest amount of capital, whether it is sub-debt or direct equity. So still because 186 is healthy. You also said that our safe number is INR 180. Is it only because you expect more growth in HDFC Bank or your high sum assured strategy is asking for new strain, more strain or more ULIP demand is resulting in more strain and that's the reason? Or this is it difficult to understand why you need sub-debt because your sum assured is still very decently healthy.
Yes. So it is healthy. It's just that our preference is to not be in a situation where we have to manage growth just because the capital is getting to a 180% zone or 175% zone. Anything above 150 is great. That's absolutely fine, given that we know that directionally, we are in an excess capital regime today, but it is the regulation. And we have our internal policy is on the current regulation. So we don't want to be in a situation where we need to manage those tightly when the growth is indeed moving in the right direction for longer-term products as well as more protection. So yes, it is, to your point, sum assured is increasing faster than overall company growth, and capital is getting deployed for a longer period of time. So we want to do this ahead of time. And if the cost of carrying the sub debt or the negative carry is minimal, we don't see a reason why that should be an issue. To your point on equity, the reason for that. It was basically the -- to fund the acquisition. There was no other requirement for that. So yes, that's our thought process.
If I can squeeze one. This is the unwind rate.
Sorry, just to answer your question on competition, the foley ratio for all the players is coming down because of the reason that Niraj just mentioned, the type of contracts the companies are writing. So maybe some companies have been at 300% solvency ratio, may not be raising capital, but if you see the trend for any company, the solvency ratio is coming down.
Got it. And a data keeping question, your unwind rate seems to have been off in the current year -- current quarter 7.8%. Anything to read there? Is it only just because of the yield curve movement? And lastly, if you can break down your economic variance number into equity and fixed income, INR 400 crores?
The unwind rate is 8.1%. This yes, it's mainly due to the yield curve change, offset by some positive outlook on equity. Last year, 8.2%, this year is 8.1, 10 basis point reduction. On the economic variances, it's mainly coming from equity. The equity market share is around 8%, 9% this quarter compared to our unwind rate of 8.1% that is given a positive upside in the equity. On the debt side, there's a small increase because of the short-term curve reducing by 8 to 10 basis points, that's a small amount. Most of the economic variance is from equity.
The next question is from the line of Arvind from Sundaram
I actually have two questions. One is that in the current quarter versus the last quarter, sequentially, VNB margins have declined. Despite mix of ULIP is coming down, manpower protection mix has gone up sequentially, that VNB margins have declined, like is there anything to read here like in terms of a lower profitability in the product or like investments in any particular channel or like your tech investments leading to this VNB margin decline?
Not really. I think in product margins are only either sustained or improving. Product mix also year-on-year basis, obviously, there's a big movement, as you can see, 25% versus 38% in ULIP linked. On a sequential basis, there isn't much difference in product mix. But yes, the difference is largely on account of absolute scale of business that gets done in quarter 1 versus quarter 4. That's probably the difference.
Sure, sir. So annuity has degrown in this quarter, when I compare it year-on-year, any reasons like do we expect anality to pick up again in the coming quarters?
Yes. So we mentioned this earlier as well in terms of having a calibrated approach. There are multiple sources of annuity business. It is a fairly large market as we see it going forward as well. So it is going to be a long-term opportunity. But there is some irrational pricing in certain pockets. So we have to take that into account, and we are not in the business of writing business which is not viable for us in terms of either managing the risk or the pricing. So we will take these calibrated calls. We had a similar kind of conversation on credit Life, what Suresh spoke about as well. So it applies to all our businesses wherever we see some sort of pricing or risk management, which we are not in a position to compromise on. We are happy to step back temporarily. And given that the opportunity is long term, we are not really worried about missing out on certain parts of growth, which are not viable.
And just to add here, at least deferred annuity will also -- also, the surrender charges will have an impact on deferred annuity. And so we do see some level of calibration coming through post 1st of April on this product segment.
Sure. And just one last question, if I may ask. Do we see any pushback from the -- like any agency or any distributor or any other channels in terms of implementing trial commission or like in -- any other structure of commissions yes?
Yes, we are in very early stages right now. That if no one will agree immediately. I'm sure there will be -- there's some bit of convincing, some bit of expectation from regulator and so on. So I think those conversations are on as we speak. And as you will understand that we don't want to really put out everything in a public forum for some of these private discussions.
The next question is from the line of Dipanjan Ghosh from Citi. .
Just two questions from my side. First, on the non-par business, you clearly mentioned that growth has been across a spectrum, be it geography or ticket size, but if you can give some breakup of the low ticket growth in non-par versus the INR 5 lakh plus growth in nonpar the quarter? Second, just a data keeping question. If you can give your HDFC Bank mix in your individual business for the quarter.
So the product mix by channel is there on Page 16. HDFC Bank is a subset of bancassurance, and it's reasonably representative of the product mix unit-linked is in the 40s in HDFC Bank, and non-par is fairly healthy in the mid- to -late 30s. And as Vibha mentioned earlier, the term mix is increasing fairly steadily. So that's probably the the mix. So not very different from the other bancassurance channels, but by and large, moving in the direction that is right from a customer perspective as well as for all the stakeholders. As far as growth on non-par, it's across the board. And obviously, as you will appreciate, on a very low base, greater than 5 lakh growth is extremely high. So I mean, it's not a number that we want to talk about, but it's just a base effect. So there is a fairly healthy growth of over 30% on up to 5 lakh as well. And on a very low base, the growth is much higher in more than 5 lakhs.
Just a follow-up. I just wanted to know that out of the INR 100 of individual APE that you have written, how much was the HDFC Bank for the quarter?
About 51.
How much should that be in the base, I mean, 1Q last year?
I'll just explain. So we grew about 40%, and about 18% is because of share increase. And the rest is -- about 22% is just normal growth. also has grown about 22-odd percent in the mid-20s, there on -- all put together.
The next question is from the line of Rishi from IIFL Institutional Equities.
Just a couple of questions. One is our is now at high. And even adjusting for any kind of reclassification of commission payouts, it looks like both year-on-year and sequentially, it has gone up. So just wanted to understand what is driving that, given that even on a year-on-year basis, our growth was So have commission payouts gone up? And the second question is, when you are offering a guarantee-written product, what kind of rate of return do you make or do you assume. Is it higher or lower than a
Sorry, you see, you have to come back on the first one. We didn't completely -- I mean, capture what you were asking. The second question is in terms of the spread, is it changing? Is that what you're asking in terms of nonpar?
No, I just wanted to understand how much rate of return do you actually end up meeting on non-par?
Okay. So that really depends on -- the product pricing is based on the tenure in which the investment is happening. So our rates that we offer to the customer ranges anywhere between -- in the current context, maybe, say, 5.5 to maybe 6.5. So for us to give the customer 5.5 to 6.5, we need to have a spread to manage our risk as well as have the baseline profitability in and cost of capital. So that is factored into our pricing. And that's the reason why we reprice fairly dynamically based on how the interest rates move. And we've been reasonably disciplined in this manner ever since we lost this product category over 5 years back. So we have broadly managed to maintain our spreads even in a fairly intensely competitive environment. And we've done that through multiple things. One is, of course, the strength of the distribution that we have and also new products that we launched from time to time, which -- in which the customer and distributors as well are able to see beyond just the rate. And like in protection, there are many other considerations that go in when a customer is buying a product, so that works for us fairly well in the segment.
Okay. I mean the only reason I asked that question is for the surrender regulations, we have been allowed to discount with a factor of 50 bps. So what I was trying to understand is, at a portfolio level on that, say, guaranteed return product, do we end up earning more than that or less than that?
More than that, Basically.
Okay. Understood. And just the first question that I was asking was on as a percentage of NEP now up to almost 22%. It is pretty much at a decadal high, and even adjusting for any kind of reclassification from OpEx to commissions, it seems like our commission payouts have gone up substantially because it's visible in the sequential pickup as well. So just trying to understand whether -- what is driving that?
So it is -- if you see the total expense ratio for full year FY '24, it was within 20 basis points of the previous year, right? And the commission structure started changing last year after the regulations that were effective from beginning of last year, right? And that journey continues as we speak in FY '25 as well. So nothing really materially different from that. Our cost of acquisition on a like-to-like basis hasn't really changed meaningfully. At the margins, there could be relationships in which there could be some changes. But at a very broad level, there are no significant changes in the overall cost of acquisition. So it's largely -- if you see it is more in terms of -- the overall cost of acquisition being at similar levels and the expense ratio is also being fairly close to where it was at the beginning of the period. For quarter 1, the change that you see in the expense ratio is more in terms of the investments that we made in terms of infrastructure as well as people that we've deployed in partner branches, nothing much to do with the commercial arrangements.
[Operator Instructions] The next question is from the line of Arul from Independent Advisors Private Limited.
I just had one bookkeeping question. On Slide 33, it says that your current solvency ratio is given -- after assuming the dividends -- I'm sorry, without assuming the impact of the dividend, so could you just tell me what would be the solvency ratio after including the impact of the proposed fial dividend?
Around 5%
The next question is from the line of Anurag from Oxbo. .
My questions have been answered.
The next question is from the line of Neeraj from UBS Securities.
So wanted some sense on the distribution. Obviously, we have already mentioned a 41% or HDFC Bank in the in the wallet share change. But is it correct to understand that last year, second quarter, we already had a higher wallet share. So that base would be or you'll have a normalized growth from banca in Q2. So is it the right understanding?
Not the entire Q2, it started moving up slowly from August and meaningfully from September onwards.
Okay. And in terms of agency channel growth, it looks a little tepid literally. Obviously, you look at the -- one of the reasons, but how do we see that growth picking up from second quarter?
We did address this in one of the earlier questions also. I think there are a few parameters which are in place for agency, and we do believe a little bit of the base effect of last year will help us grow our agency faster. So the Exide agency channel over is expanding. We believe that will happen with Tier 2, Tier 3 expansion with the new branches that we have set up last year, that should help us expand into newer locations and newer geographies. Third, of course, is the fact that we have invested heavily in terms of training as well as a lot of new products that have got launch which are getting picked up by agency. So we do believe that agency should also pick up in quarter 2 as compared to quarter 1.
Got it. That is it. Any your composite license, last question?
So we are hopeful that it gets introduced in the House of -- both the house of parliament. And hopefully, it gets passed. We've been waiting for a long time. And if that were to happen, we'll evaluate our options, but the bigger picture is how do we expand the pipe, not much interest in this doing the same thing. But this hopefully should open up a lot of new product ideas, innovation ideas. And that's what we'll be focused on if this comes through.
You started evaluating kind of products we'll be launching if at all, this takes through?
Yes. We do have some ideas internally.
The last question is from the line of from JM Financial.
So you mentioned that credit protect was flat Y-o-Y. So how much was the decline in
I can't hear you.
Okay. So on the group protection, please, you mentioned the credit protect was flat Y-o-Y. So how much of a decline did we see in the group term? And how does that fare on the margin perspective as compared to the company level margins, the group term business?
So both are almost flattish. And yes, I mean these are profitable segments when you get it right. And -- but credit life is a lot more impactful than GTI. GTI for us is small, it will probably remain small. As we have said in the past, we'll do GTI only where it makes sense. And given it's largely 1-year business, it's -- we find it difficult to ignore past experience and so on. So at the right time, we will but it's fairly negligible for us in terms of margins or premiums.
But the y-o-y decline in protection comes out to be around 15%. So if the credit protect was flat, this has to be a substantial decline.
GTI itself is not substantial. So
Credit protect is also not a substantial decline, is flattish.
Where do you see substantial decline? I'm not seeing.
I see around 15% when I try to back calculate from the protection number.
We Will connect offline because the numbers are not adding up. It's flattish. 2%, 3% negative, not percentages we have seen.
Ladies and gentlemen, as there are no further questions, I now hand the conference over to Ms. Vibha Padalkar for closing comments.
Thank you, everyone, for joining today's call. Please feel free to reach out to our IR team in case of any further queries. Have a great evening. Good night.
On behalf of HDFC Life Insurance Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.