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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the HDFC Life Insurance Company Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vibha Padalkar, MD and CEO, HDFC Life Insurance Company Limited. Thank you. And over to you, ma'am.
Thank you, Faizan. Good afternoon, everyone. Thank you for joining us for the discussion on our results for the quarter ended June 30, 2022. Our results, including the investor presentation, press release and regulatory disclosures, are already available on our website as well as that of the stock exchanges. I have with me Suresh Badami, Executive Director; Niraj Shah, CFO; Srinivasan Parthasarathy, Chief Actuary; Eshwari Murugan, our Appointed Actuary; and Kunal Jain from Investor Relations. I will take you through the key highlights of our Q1 FY '23 results and would be happy to take questions post that. Starting with the business update. We continue to maintain a consistent growth trajectory, growing by 22% in terms of total APE in quarter 1 FY '23. This has enabled us to maintain our market leadership as top 3 life insurer across individual and group businesses. Our product mix remains balanced with non-par savings at 35%, participating products at 30%, ULIPs at 25%, individual protection at 5%, and annuity at 6%, based on individual APE. On a total APE basis, our non-par savings segment has grown by 29%, protection by 31%, annuities by 39%, par by 23%, and unit-linked by 10%. Within the non-par segment, our shorter tenure product, Sanchay FMP, continued to grow well and now contributes almost 1/4 of our non-par individual APE. The prevailing high interest rate scenario augurs well for demand across our traditional savings products. While elevated inflation has not materially impacted savings products, premium flow into retail protection has remained tepid for the quarter, possibly due to postponement of expenditure on account of tight household budget. However, we see this as a temporary phenomenon and with resolution of the ongoing global conflict and consequent easing off of macroeconomic stress, we expect to see traction in the second half of this year. We continue to steadily improve our individual protection policy conversion ratios and will adhere to a risk-based approach to underwriting. Our credit protect business has registered strong growth of 96% on the back of rise in disbursements across most of our partners. We continue to look at overall protection growth across individual and group platforms in an agnostic manner, since we assess risks as well as service members covered under the group platform at an individual level. Our protection share based on APE has improved from 15.7% last year to 16.9% during quarter 1 FY '23. On the retirement front, our annuity business has grown by 10% on received premium basis, compared to a 9% de-growth for the industry in the quarter. Growth of annuity on an APE basis was 39%. The regular premium variant of our recently launched annuity product, Systematic Retirement Plan, has been well received across channels and is almost 1/4 of our annuity in APE terms. We have also launched a new product, Systematic Pension Plan, which is a participating pension plan. This product adds to the existing suite of pension products being offered to customers. Moving on to key operating and financial metrics. Renewal premiums have grown by 19%, supported by improving persistency. Our 13th and 61st month persistency for limited and regular pay policies is at 88% and 54%, respectively, which is an expansion of 2 percentage points and 300 percentage points -- 2 percentage points and 3 percentage points, respectively, I beg your pardon. New business margin for quarter 1 was 26.8%, up from 26.2% in quarter 1 of the previous year, on the back of profitable product mix and growth in protection business. Value of new business has consequently grown by 25%, and is at INR 510 crores for the quarter. Over the past several years, we have seen a distinct seasonality in quarter-on-quarter new business volumes and, therefore, a steady uptick in new business margins. We expect this trend to continue. Our standalone embedded value as on June 30, 2022 was INR 29,709 crores, with an operating return on embedded value of 16.5% in quarter 1 FY '23. The drop in embedded value since March end is primarily on account of dividend payout and anticipated adverse economic variances caused by interest rate movements and fall in equities. We expect the latter to reverse as macroeconomic volatility subsides. The profit after tax for quarter 1 FY '23 was INR 365 crores, an increase of 21% over quarter 1 FY '22. As highlighted in our last earnings call, we completed raising sub-debt worth INR 350 crores during this quarter. Post the dividend payout of INR 1.70 per share, which was approved by our shareholders in the AGM, our solvency stands at 178%. In order to further strengthen solvency to fuel growth, we will continue to evaluate raising equity capital as needed. Next on channel performance. Our bancassurance channel grew by 18% in quarter 1 FY '23 based on individual APE. Within bancassurance, while HDFC Bank continues to grow steadily, we are seeing strong growth momentum across our newer relationships such as YES Bank, Bandhan Bank, IDFC Bank, amongst others. Agency channel grew by 26% based on individual APE. We added about 9,500 agents in quarter 1 and continue to focus on innovation and productivity across our base of financial consultants. We are also taking multiple initiatives to augment our direct channel, including geo-based lead management for increasing efficiency, AI-based incentivization for promoting productivity and cloud telephony for simplified sales process. With these tech-enabled initiatives, coupled with capability building programs, we aim to build a robust, agile and empowered proprietary distribution. Moving on to tech and innovation. Post the successful implementation of the initial rollout of our in-house automated underwriting engine, we continue to expand its scope across a larger range of businesses. Tools such as MediEasy enable customers to schedule real-time video medicals and get assistance for financial underwriting. Innovative solutions such as enabling cardiac risk assessment at the customer's residents for medical underwriting furthers our motive of simplifying customer journey and provide best-in-class service. Now for an update on our subsidiaries. Subsidiary number one. We are delighted to share that our pension subsidiary, HDFC Pension, crossed the INR 30,000 crore AUM mark and has almost doubled its AUM in just 15 months. As on June 30, 2022, HDFC Pension had a market share of 38%, maintaining its leadership position in the private pension managers -- private pension fund manager space in terms of NPS AUM. Subsidiary number two, HDFC International, our oversea subsidiary has received an in-principle approval from International Financial Services Centres Authority, IFSCA, to set up a global in-house center at Gift City. This entity will pool and optimize all processing activities of our international business. This is an important step for us towards eventually setting up an IFSC Insurance Office, IIO, at Gift City, which can cater to the overseas insurance needs of the Indian diaspora. Subsidiary number three, Exide Life, witnessed strong growth of 34% based on individual WRP in quarter 1 FY '23 and continues to enjoy a healthy product mix and growth across channels. The integration of Exide Life is on track. We have received the initial NCLT approval for triggering the merger process, including intimations to various regulatory authorities and related NOCs. Subsequent to receipt of the NOCs from various regulatory authorities, we can expect to receive the final NCLT approval. We expect to receive the final nod from IRDAI and to be able to merge the subsidiary in the second half of FY '23. On the regulatory front, we have been in regular dialogue with IRDAI and working on charting a roadmap to deepen life insurance penetration in India and welcome the initiatives taken by the regulator in this direction. Moving on to the impending merger of our promoter, HDFC Limited with HDFC Bank. As you are aware, an in-principle approval was received from the RBI on July 4, 2022, on the merger application. We look forward to a further strengthening of our relationship with HDFC Bank with our largest, also becoming our promoter, subject to all regulatory approvals. To conclude, our objective remains to empower individuals to provide financial protection to their loved ones and widen insurance coverage through a mix of innovative products and diversified distribution. The detailed disclosure on our results is available in our investor presentation. Wishing everyone success as we embark on a new financial year. We are happy to take questions now.
[Operator Instructions] The first question is from the line of Avinash Singh from Emkay Global.
Two questions. Firstly, on the margins, I mean, our protection, retail continues to -- I mean, I think appeared to be [ sharpening ], yet overall protection mix has improved. Even non-par has increased. All in all ULIP has gone down. With this and also improving a scale, we could have expected a better margin expansion, but it seems that the operating lever actually, I mean, somehow missing and then margin improvement as compared to product mix looks a bit, I would say, on the disappointing side? So that's number one. And second on your EV WACC, the economic variance, if I look at your kind of our interest rate to EV sensitivity that like 2% for every 100 bps and also consider some bit equity market related sensitivity, yet close to 3.5% kind of a negative economic variance looks a bit on the higher side. So anything also on this.
I'll take the first question and maybe the second one I'll pass it on to Srini. The first one, you're right. However, just keep in mind that our margins are mark-to-market in terms of cost, so whatever we incur here and now. So there is no straight-lining of that and sequentially, you should see the throughput of fixed cost coming through as you know every quarter is sequentially higher, ending up -- typically quarter 4 is the highest. So you will see that coming through. Some of it is back to business on COVID receding and so on. So a lot of activity travel investments that perhaps will -- some more on the back burner. You will see a fair bit of that coming through. So that's why you have in the WACC, you'll see the expense impact having a 0.6% drag on the margin. Srini, you want to take that?
Yes. So on the economic variance, the negative economic variance, see, there is an equity fall that's contributing to about INR 400 crores of the total INR 1,200 crores of negative variance and the remaining INR 700 odd crores is on account of rising interest rates. So if you look at the sensitivity separately for equity and interest rates, it will broadly tie in with the overall impact at least beyond the economic variance.
Okay. So I mean, we are looking from a March to June. So if you broadly say INR 700 crores, that is kind of 2.5% broadly, or 2.4% of your March 2022 EV. So that is also -- I mean, that sort of a sensitivity, more than 100 basis points or 1% movement in interest rates. So that, I mean, from March to June?
We're expecting a 2% positive, right. So the expected returns or the expected returns for the year roughly is around 8%, right? So for the quarter, you will expect a positive 2% for one quarter as against that you have actually see an equity fall. So you have to relate it with the positive 2% as expected, and the actual drop that you see in the equity markets.
No, no. Equity is fine. I'm talking about the yield led. Yield led, you were saying INR 700 crores, the balance, that is like almost reflecting more than 100 basis points move in yield curve. So I mean, from March to June, more than 100 basis point, it looks a bit, I mean, unlikely move. I mean, the yield curve would have moved like...
So it is a shorter end of the curve that's risen a little bit more. And as we are holding, say, shareholder funds, which has got no liabilities and there are some excess assets in the VIF, the value of in-force. So those ones are exposed more to the shorter end of the yield curve. So they have risen by 130 basis points during the quarter.
The next question is from the line of Hitesh Gulati from Haitong.
I just wanted to check on your function change in the VNB WACC that we have shown. And also on -- what is our view on unwind rates at this year given that risk-free rates are generally expected to be higher?
So Hitesh, on the first question, we are fairly pleased that for the -- right from inception, from when we started disclosing our embedded value and the WAAC, our operating assumptions have been positive and we continue to do that even against a more -- of course, excluding the COVID impact that we've seen. Barring that, it has been positive and we continue to show that. On your second question, Srini, do you want to take it?
Sorry, ma'am, if I can just interrupt, on the VNB margin also there is some change on operating assumption. Can you talk about that?
Are you talking about the VNB?
Yes.
So these are change in assumptions versus the assumptions that we put in last year, right, in the month of March typically that we put in. This has come through, which is an annual exercise. This is really a strengthening of assumption that we do annually.
That's right. So primarily, say, mortality assumptions on the protection book that we strengthened in March. So that's the impact that we captured in this slide. And as far as your unwind rate is concerned, see, we are not very gung ho on the equity markets for this year. So that's reflected in our lower unwind compared to last year.
Okay. So sir, should we expect this kind of a rate for the full year as well because last year's rate was about 8.6%?
Yes. We will -- we can expect the same 8 point also. We basically set the unwinding rate at the start of the fiscal year and we keep it flat throughout the fiscal year. So next time we will change the fiscal year.
So any change from this, Hitesh, will be reflected in the investment variance through the rest of the year till we reset this rate at the beginning of next year.
Next question is from the line of Adarsh from CLSA.
Yes. My question is relating to protection, right, term life. Both you and the peer group has seen a 30%, 40% drop. Just wanted to understand the tightening of norms has been there for about 6 months. So looks a little awkward and just wanted to understand from a little more [indiscernible], do you all see this -- some of the tightening in underwriting and norms to really affect the population set of at least over the next 2 years, 3 years as to how much protection could have been underwritten earlier versus what you can do now?
So Adarsh, I'll give you a background to this. Our industry was hardly writing any terms just before the pandemic. Maybe few years before, a couple of years before the pandemic, maybe overall, typically it was 1% or 2% in APE terms, individual APE terms. I'm leaving out credit life. And then suddenly to expect that to ratchet up for the sector, we just need to put it into context. Yes, there was an uptick that we saw during the pandemic and we don't want to lose there and we've been a believer in this story. However, again, it's been a continued perfect storm. There was COVID that happened, the reinsurers, like you mentioned. Now there is inflation and we think and like I said in my opening comments, like in the basket of goods in terms of disposable income, we are sensing that either there is a pullback to say this is my outlay that I can afford and then let me bear down on my sum assured or else let me defer it a little bit or I'm taking a loan, let me cover it through credit life at least, so at least I have some cover or I want to lock in at higher -- the more attractive interest rates that we're seeing currently, so that will anyway give me 10x to 20x cover depending on which product and so on. So these are various things that are going on in people's minds and so relative to what we saw, last year first quarter, again, which was in the thick of the pandemic, it appears that it is muted. But what we are certainly no longer seeing is that, why do I need insurance? So why do I need a protection? I don't think that question is coming up very much right now. So that's a good progression in the minds of people. But it will take time, I think. Another aspect is that, if you look at IRDAI's Annual Report and if you see each company and how they are retaining risks on their balance sheet, you will find that some of the smaller companies have shown a fairly steep rise in what they are retaining on their balance sheet. We always maintained that this has to be somewhat calibrated and we will do -- we will triangulate between top line, whether it's a retail protection or anything else, top line as well as bottom line, risk management persistency. And this will grow steadily. So we still expect second half with some tempering on inflation for retail protection to come back. Suresh, you want to add anything?
I think Vibha has already covered it. If I can add, the overall demand in the market, if you look at the, search has come down a little bit for the whole industry. Secondly, from a risk perspective, we are also looking at [Technical Difficulty] while that's improving, there's a fair amount of [Technical Difficulty] management also. So how the journey goes, we will touch more on that. [Technical Difficulty] We will expect. So not to take away the stories, [Technical Difficulty] written gap in our country is very large.
Sorry to interrupt you, sir, the audio is not clear from your line. Please check.
We are getting a lot of disturbances.
Yes. One sec. It's the line itself. Can you hear now?
Yes.
Yes. Okay. So I mean, not to take away the story of the overall protection gap and the opportunity, I think there is enough opportunity for us to be able to grow protection. But yes, for the next 6 months to 7 months given that there are certain good products in the market, even for the field teams on the channel to look at return on effort on some of the other products and all the factors that Vibha mentioned, you may probably see a little tepid growth. But again, this on the back of a fair amount of demand, which came in last year.
And the last point I'll add, Suresh has touched upon it, is on the Google Search trends. While they have come down, whatever searches are happening, HDFC Life continues to remain right up there.
If you actually look at how the inspection journey has gone [Technical Difficulty] in the developed markets [Technical Difficulty].
Mr. Adarsh, sorry to interrupt you. Sir, the audio is not clear from your line. There is a disturbance coming. Please check.
They've tried to mute the line, I think.
Yes. So I mean, when we are looking at the current environment, interest rates going up and it's about starting to maybe pinch household budgets and disposable income. There are couple of these things to look at. One is, if you look at some of the surveys that have come off recently in terms of our people feeling about their prospects, job prospects and pay hikes in the current environment, lot of people are optimistic. 2/3 of the people surveyed are optimistic about that, which basically means people are not worried about disposable -- income coming through. At the same time, savings is something that is -- this is what is going to give a tailwind to the savings. But on the expenditure side, anything that was seen as a discretionary expense, people do start looking at what is really coming for the same rupee that was spent earlier. So these are trends that you will see for some more time in a fairly low middle income country like India. So that is something that we should not be too surprised with. We've always maintained that retail protection will grow over a period of time in India, and this is something that we will have to be comfortable with, so that we continue to balance growth with profitability and risk management. So that's how we're thinking about it.
And just a follow-up here. Majority of the reasoning looks to be more like discretionary power of spending going down. Just wanted to just reflect on how much do you think is it caused by the tightening, right? Like, what kind of populations set it cuts off at least for the near term in terms of processes becoming onerous or the ask rate of processes going up, including medicals?
I think people start getting used to whatever is prevalent in the industry. Yes, there are looser and then on the other spectrum, tighter guidelines, but largely people do start getting quite accustomed to the new normal. So my hunch would be -- it's always difficult to exactly pinpoint, but my hunch would be that it's more to do with the inflationary aspects rather than the process per se. I think largely companies have stabilized on their process. We have and so have others, to the new normal, that these documents are required because your reinsurer requires it, or we have tried to triangulate, ooze this customer through other means and so on. So whether it's 50-50 or 30-70, difficult to know, but the new aspects certainly is inflation.
[Operator Instructions] The next question is from the line of Sanketh Godha from Spark Capital.
If you look at the credit protect business in the current quarter, around INR 250 crores to INR 260 crores, it is back to pre-pandemic levels on a lower base, but almost a doubling of the business has happened. So just wanted to understand the sustenance for this particular business in the immediate quarters, Q2, Q3, Q4, because we have got to that run rate of 200 to 230 kind of number even in the second quarter, third quarter and fourth quarter of last year. So just wondering do you think that this growth to moderate going ahead given the low base effect is over? Just one question here.
You want to take this?
Yes. So from what we have seen most of our partners and we have fair spread across banks, NBFCs, small finance banks who we work with in this space, the growth has really come in from the loan disbursements, year-on-year growth that they have seen which range anywhere between 70% to 90%. Some of the larger players have -- even the larger players have grown fairly fast. Now at our end, we look at higher value penetration, we look at rider attachment, we look at a little bit of a price increase based on that, so that has led to a faster growth for us even above the loan disbursements, which is happening for our partner. So I would assume that the loan growth would continue at a certain rate. It may not be as high as this given that last year the base effect started coming into place between Q2, Q3, Q4, but a significant growth on the partner loan disbursement and a slightly higher growth on our CP business can be expected for the rest of the year.
Got it. And within the products, probably, is it still -- because you are the market leaders in MFI segment. So it's largely led by MFI segment or it's mortgage, which is driving the growth?
No, we are very well diversified now across almost all the verticals. If you really look at it across the partnerships that we have got, we are present across mortgage, we are present across MFI, we are present across each of the segment. So it's not just we have housing, we have LAP, we have MFI, we have others and each one of them has grown by. So while some of the other ones have grown by almost 70%, 75% also, MFIs have grown slightly higher. But if you look at H Bank itself, the growth in terms of their overall has been 70%. Some of the NBFCs, large partners have grown at anywhere between 60% to 150%. [ NPS ] is across mostly vertical.
Yes. Got it. Sir, the second question is, just wanted to understand on the part of protection itself. We have almost 15 months or more than 15 months, we have launched -- 6 quarters we have launched the ROP plan. So just wanted to understand any tractions there, whether it still continues to contribute around 16% to 18% of the total protection business? Because the entire pie has -- or the absolute amount has come up -- whether ROP somehow has supported -- or you don't see the trend, ROP supporting the growth for the protection business?
It continues to. So we are present in all offerings and all parts of the possibilities. So ROP continues to become more and more meaningful. Today, it's about a-third of our business on the retail just on a standalone quarter basis. It was about 1/4. It is about a 1/3. Could vary here and there, but we don't really drive, Sanketh. It depends on which channel, what is the preference of the customer, but it is there as an offering.
If I can add, I think, as a trend, as we go more into Tier 2, Tier 3 and some of these markets, the ROP product share in some of those markets will be fairly high.
And also coming back to the earlier discussion in terms of the impact of higher interest rates on both savings and spends, ROP is seen as a hybrid in terms of buying protection, but, yes, if nothing happens and money comes back. So in some sense, a bit of a hybrid between protection and savings. So that does address the current sentiment as well.
Perfect. Perfect. And last one from my side. Sir, it is just from a data keeping point, what is your market share right now in HDFC Bank compared to what it was probably for the same quarter last year or full year last year or FY '22 in total?
So we're not really giving out numbers like that, because each partners -- it changes quarter-on-quarter. Suffice to say that at HDFC Bank, we will continue to write business that makes sense. Accretive on VNB, we will look at what is our persistency because often just taking one lever will not make sense, because we might say no to some business, because we either don't believe philosophically in some kind of a product or the persistency we might not be very convinced about and be okay to say no to. On term, there might be a price war in a particular quarter. So I think we'll have to say -- typically, we've been about 2/3 of their business and like I mentioned in the opening comments, as the merger fructifies, we are hoping that this strengthens further.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just the first question on solvency margins. 176% went to 178%. You did some sub-debt, raised during the quarter as well. So are we now full up in terms of capacity to do any more incremental sub-debt? I think, Vibha, you made a comment that you could look at equity as well. So just want to understand what is the comfort level on where solvency is? Let's assume it is at this level, how much -- how many years of growth can we do without having to raise equity? If you can help us understand some of the dynamics around solvency please?
Right. So the straightforward answer is that, today, our growth is not getting impacted, our retail growth because of the solvency. Our stated objective has been around 180% -- we've been in the 180% to 190-odd percent range. Sometimes been about 200%, but anywhere between 180% to 200% thereabout, so slightly shy because of the Exide Life merger. Now in terms of looking at raising equity, we might look at it depending on whether if there are growth opportunities or we perceive prolonged stress in the system, so that we feel a little bit more comfortable with strengthening our solvency, we might do that. It should not be a very large amount, but back into the kind of zone that I just mentioned.
Got it. So you are at the lower end, so you think once you cross 182%, you should be okay from a growth perspective?
Yes. I mean -- Yes, I mean, anything 200%, 220%, something like that would ensure that we don't have to keep tapping the markets again and again. But we are still in the process of evaluating and seeing how prolonged some of the global tensions are and are they receding, some of the macro -- the largely macroeconomic factors.
Yes. So just to add to what Vibha has mentioned, if you recollect before the Exide transaction, we, like Vibha mentioned, operate in the 180%, 190% band. And we've been fairly comfortable that this will support organic growth for 3- to 5-year period. Two things have happened since then. Exide Life transaction, yes, and also the environment has become a lot more volatile compared to where we were talking about this maybe a couple of years back. So that pushes up our threshold marginally from, say, 190-odd percent to maybe a little over 200%, but that's about it really.
Got it. That's helpful. Just back on to retail protection. I was just looking at your Slide 19 to understand where the weakness in terms of this is most exemplified, right? Seems to be at least some bit in agency and some bit online seems to be the biggest drop. So is the whole push thesis around this coming off because -- or am I reading this kind of table or chart wrong? And I would assume online people have higher income. So just trying to understand, even from a demand perspective, what's happening across these channels on retail term?
You want to take this?
Yes. So let me just address the online first here. Like Vibha had mentioned earlier, the Google Searches really have started coming off as compared to the previous year and you're also right that in our online channel as well as overall for HDFC Life, the profile of customers is slightly higher on the affluent side. So we remain the #1 brand when it comes to search. We remain there, but the numbers are coming down a bit in terms of the total online conversion that is happening. So there has been a dip, which we've seen and we assume this probably holds true for the full industry because the same trending in terms of Google Searches seems to be happening on keywords either on term or in terms of the specific brands, which are there in the market. So there has been a little bit of a slowdown on online, but we are putting in our efforts in terms of digital marketing and all of that, and we expect that to pick up over a period of time. Agency, like we mentioned earlier, I think, yes, it's probably a little lower than what it was. But there, again, there are a combination of factors what we explained in the previous question, I think a little bit of inflation, a little bit of a push on the ground where people are being able -- the agents are able to sell non-par kind of a product at much easier return on effort as well as the fact that there are some of the -- the customers are waiting for this whole thing to go through before they come back and take term maybe at -- maybe easier processes or better pricing. But frankly, for us, it's broadly in the range in terms of how we expect agency business and product mix to happen. We should be able to push the pedal in terms of agency protection as we go forward.
Got it. Last data point. I know you share this for every 100 applications that come through. I remember fiscal 2022 was 60% for retail term in terms of what we were able to close. Is that number changed at all?
Yes. So that has started improving for us now. So it's around 3 basis points improvement in terms of the conversion, that's 3 percentage points which is improving, has improved in terms of what we are. It is a combination, again, in terms of what persona and profiles we are sourcing on the ground, what are the underwriting credit easing that we have done as well as a little bit of analytics at the back end that we are able to push some of these down. So we have moved up a bit in terms of the conversion throughput.
Also, you would have picked up during the last month, we had mentioned about how we are doing cardiac risk assessment. This is one of the things that would help. And this is something we've been solving for the past 24 months at least because getting people to go to a hospital or a nursing home to do their stress test during COVID and so on was just becoming roadblock. Now with this -- and it's there in our investor presentation. With this, now, we are able to use this [ steeper ], go to the individual home, be able to assess cardiac risk and so on. And this would have been a bottleneck earlier, for example. So just systematically working through each one of these bottlenecks to be able to, one, give ease to the customer and equally important not take on risks on our balance sheet just because somebody else is willing to do it.
[Operator Instructions] The next question is from the line of Akshen from Fidelity.
A question on the EV WACC, on the investment variance. Could you just maybe help us understand on how much of the hit was due to interest rate and how much of hit was due to equity market, just if you could break that up?
Srini, you want to take?
The equity is around INR 400 odd crores and the balance is from interest rates out of the total INR 1,200 crores.
Okay. Because I was just looking at the sensitivity that you had published in F '22, which called for a roughly 2% hit on EV for a 1% move in interest rate. The interest rate movement has been slightly lower than that, if I'm just looking at year end or average, maybe 80 bps, 90 bps, and then the sensitivity to EV seems to be a little higher than that? Can you just sort of help us understand?
So the shorter end of the curve has actually gone up by 130 basis points during the quarter.
Sure. Okay.
So it's more than 100 basis points.
So it's more sensitive to shorter end? Or to -- like, if we just use 10-year as a proxy, but you're saying we should look more at the shorter end of the curve.
Yes.
So you need to look at -- okay, so you need to look at the full curve because different assets are sitting at different ends of the curve. So what we discussed a little while back as well, at the shorter end, the hardening has been a lot more, 130 odd basis points. At the longer end, it has been, say 50 basis points to 60 basis points. So basically wherever the assets are sitting at the shorter end, that's where the impact is. To give you an example, shareholder assets and also the excess assets sit at the shorter end of the curve and the non-par assets, for example, backing the 15, 20, 25 year products or annuity product sit at the longer end. So the effect is different at different parts wherever the assets are being held. So collectively, you will see that this is the impact of about INR 700 odd crores in debt at about, like Srini mentioned, INR 450 odd crores in equity.
And Niraj, assuming interest rates remain steady here on and markets remain flat here on, incrementally, there wouldn't be any negative investment for us, right?
So okay -- now take a base scenario of, let's say, the yield curve going up parallel. If the yield curve is going up parallelly, then you will have absolute -- you'll be able to then correlate one-to-one with the sensitivity table that you see, like you started off with a 1% sensitivity, that's basically a parallel shift. If there is a slope change that happens, which has happened in the past few quarters, this is the result of that. A parallel shift upwards or downwards will have the linear impact that you see in the sensitivity table, Akshen.
Got it. Got it. No, my question, Niraj, is that, assuming that 30th June rates yield curve and market levels hold, incremental investment variance wouldn't be there, right?
On account of interest rate, it would not. But equity would have other aspect of it and then it -- that's your question, right, interest rate, nothing changes?
Yes. Okay. Got it.
Yes. We are basically expecting around 8 point, whatever percentage the unwind is, what we are expecting to earn on the assets. So if you are saying there is no further shock, we assume that it will earn 8%. The assets will earn around 8%. So if that -- there is no variance against that expected, then you will not see any further investment variance.
The next question is from the line of [ Surya Kumar ] from Birla Sun Life Insurance.
As there is no response from the current participant, we'll move on to the next question from the line of Prakash Kapadia from Anived Portfolio Managers.
Just one question from my end. Recently the regulators come out with risk-based capital adequacy norms and the idea of the regulator is to increase penetration. So they've set growth targets. So how does this change the dynamics for the industry and for us, if you could comment on that?
So we are still awaiting in terms of some clarity on RBC, and we are hopeful that they take into account some of the asks of the industry, say 8 committees have been formed and at least in couple of committees, this has been an ask. Yes, they have rolled out targets to insurers and we appreciate that the regulator is equally focused on developing as much as it is on regulating. So that is welcome. But having said that, I think I'm sure all the life insurers would -- whether the regulator is directing them to focus on top line or not, they would anyways want to solve for low penetration and so on. So more of that will continue.
But this wouldn't, Vibha, in a sense lead to margin erosion or profitability being compromised in lieu of higher growth or it's too early too?
I think it's too early because I would hope that it is more in terms of cajoling life insurers to continue with their attempts that insurance penetrations rather than mandating.
Sure.
Even today there are companies that perhaps their persistency is a lot lower than the listed players. There is next to no disclosure on their margins. There is next to no disclosure on their operating variance on embedded value or embedded value itself. So all of that is there. So in the absence of -- apart from the listed players disclosing these numbers, it's very difficult to say what are companies operating at today and where -- and post the drive on top line, where have they ended, everything is fairly difficult. So we'll have to wait and see, I think. Directionally, it's welcomed, but personally, I would hope that it's calibrated because especially life insurance is a very long tail product and risk management and quality of business, right-selling, customer mis-sell complaints, claims, settlement ratio, all of those aspects are equally important and that happened post sale. So I would -- and I'm sure regulator is very cognizant of all of those aspects. So we'd like to see this holistic ask from our service sector.
The next question is from the line of Nitin Aggarwal from Motilal Oswal.
So Vibha, one question around the competitive intensity. How do you see it in the non-par savings business? And with the recent increase in product IRRs, how do you see the margins trending in this line of business?
So given -- I'll answer from -- towards the end of your question on margins. Given our upward trajectory continued smooth upward curve on margin quarter-on-quarter, year-on-year, doubling in 4 years in terms of VNB, all of that, that will continue to happen. No change in that. Yes, some quarter here and there. What we do find is more the mid-tier, apart from the listed players, a lot of competitive intensity, but again, there is very little disclosures, next to none on any of their metrics. So that is expected, I guess. And if we extend the horizon a little bit, things do normalize, things do tend to normalize and that too will happen. There is a trade-off in the minds of the customer between a market leader. For example, a Sanchay Plus has been our innovation. Sanchay Par Advantage has been our innovation. So there is a [ little ] premium that customers are willing to pay for that. Yes, we have to stay in the zone. But if you were to look at annuity, we have grown by about 10% when market has de-grown by 9%. This is on NBP terms. So -- and there too, there is competitive intensity. And I think that is [ part of our core ].
Okay. And one clarification regarding our shareholding of HDFC Limited. I just want to know, like, how easy or difficult it is to do a issue to HDFC Limited? And will there be any regulatory hindrances in that?
See, they are our promoter. It is every promoter's obligation for them to extend support to the life insurer. So they have always expressed that. I don't see there to be any issues per se, because the capital that we might want to raise and might feel comfortable about, like I talked earlier, depending on market volatility, is not going to be huge. It's going to be, like I said, put us in the zone of maybe 200% to 220% or somewhere along that line. So none of that should take it above the currently permitted regulatory norms.
Right. No, I'm asking this question not from your perspective, but from HDFC Limited's angle. Can it, like, go up?
Yes. From their angle only, they are permitted to hold up to 50% today. Had the Exide Life transaction not happen, they would have been there.
So they are currently at 47.8%, Nitin.
Yes. No, the question was like, if they now want to increase, then is it easy to, like, do a fresh issue and get this done? Or will it be a quite a task?
In what -- from what angle? From a funding angle or a regulatory angle?
From the regulatory angle, yes.
So that's what I am saying. See, regulatory, what is the extent regulatory requirement that they should not exceed 50%, right? What Niraj just mentioned, the kind of capital we might want to look at, we'll not take it above 50%. So there is no regulatory issue here per se apart from -- yes, they are in the midst of a merger. Yes, all regulatory people will be kept in the loop. But it is -- when you look at underlying, that your subsidiary would feel more comfortable against the volatile situation on having a little bit more of capital, the current extent regulatory norms will not define it.
That will be a normal course of business, Nitin.
The next question is from the line of Atul Mehra from Motilal Oswal Asset Management.
Just one follow-up on the previous question. So the current regulation says that maybe if you were to imply HDFC's shareholding and HDFC Bank shareholding in the life insurance company, then they are at 47% and the regulator basically says that either you be at 30% or you be at 50%. So there have been some instances where there has been some confusion around this. So just to reconfirm, what we are saying is -- going from 47.5% to 50% doesn't require any kind of regulatory approval in the current scheme of things?
No, I want to make it clear here that extend regulatory guidelines -- this is -- when HDFC ERGO bought Apollo Munich, that's when HDFC was asked to bring down the stake to 50%, right. And that's -- and we would have stayed there had it not been for the Exide Life merger, right? So that still holds. And the capital we are looking for is within what already holds.
Right. And ma'am, is there any timeline to this fundraise?
No. I have not -- we have not said that there's going to be a fundraise. All we're saying is that, we will evaluate all options in front of us and also whether we need to have more. But given extended volatility, it's something that we might feel comfortable about, but it's an evolving situation as you know on the macroeconomic front.
Right. Right. Ma'am, just one more clarification on the same point, right? We have also seen one more instance in case of, say, ICICI Lombard, where even they've entered...
Sorry, your voice is not very clear.
Is it better now?
Slightly.
Hello?
Yes. Sorry.
So I was just saying that there was another parallel in the industry around ICICI Lombard, where they went through an M&A and it's not perhaps too clear now what's happening there, where ICICI Bank shareholding has got down to, say, 30% or they'd be allowed to get it back to 50%. So from our perspective, do we see that as a parallel at all or not at all?
So boss, you are selectively picking an example. What about at least 5 examples, wherein there is 100% or 60% or 55% and so on. So all the senior companies -- and I think this is a point that has been mentioned by HDFC Bank leadership, HDFC Limited leadership to say we would welcome parity. This is not a new application. This is an existing application. We were the first one to get an insurance license, life insurance license. And there are enough examples, wherein there is more than 50%. The example that you gave, in that particular scenario, the other insurance entity under the bank was not asked to -- they were not asked to bring that down.
Correct. Correct.
I'm sure this is a well-known reason. So -- and has been said this by our current promoters and new promoters, so really very little that I can add here given that the regulators are looking at it.
And just another fact here really is that, if you look at the HDFC's shareholding in HDFC Life, it was 50% before the Exide Life transaction. Exide Life transaction is not undertaken by HDFC Limited or HDFC Bank. It was an HDFC Life transaction, which resulted in HDFC Limited's holding falling from 50% to 47.8%. So that's the other difference between -- and that Lombard transaction that was -- it was -- that's the difference between this and the Lombard transaction.
And final point is, I think, HDFC Bank leadership have also clarified that in their minds, whether it's 50% or 30%, it is going to be there and it is a material investment. And they see it and they will be the promoter, subject to regulatory approvals.
Mr. Mehra, may we request that you return to the question queue for follow-up questions. The next question is from the line of [ Rohit Jain ] from Carnelian Capital.
I had 2 questions. One is on the EV. I heard Srini say impact of INR 700 crores on the shareholder and the excess of VIF assets. I would guess the change of long-term interest rates and the size of our book. Wouldn't that be much higher impact on the debt portfolio? That's point one. And point two, if my interest rates rise, ideally, I'm able to invest at a higher rate whilst my savings rate or offered rate is similar, wouldn't my VNB margin increase?
So yes -- so this is on the back book. So the VNB will increase for the new policies that will be written at a higher interest rate. You're right. Also bear in mind that we hedge -- as and when we write any new policies, we immediately hedge the book as well. So what we are actually exposed to when interest rates rise is to the extent of the shareholders' assets, where there is no corresponding liability and also the excess assets on the non-par book as well. So those are the ones that are sensitive to the interest rates going up. And like we explained earlier, the shorter end of the curve where these shareholder assets and the VIF assets or excess assets in the VIF, so those are the ones that get exposed and there, in the short end of the curve, the yields have gone up by 130 basis points during the quarter. So that's why you see this INR 700 crores on the interest rates -- interest rate sensitivity. On the new business, like you have rightly pointed out, on the new policies as and when we write it, we will be able to write it at higher interest rates. And all things being equal, we will be able to get a higher margin as well.
Sure. But our margins in Q1 have not increased materially, right?
Corresponding to the same quarter of last year, it has gone up because you understand there is a little bit of a seasonality to our business. So it's gone up by 60 basis points compared to the first quarter of last year.
Yes. And typically in quarter 1, you will see about, give or take, 15 odd percent of the year's business coming in Q1. Expenses typically get front-ended in terms of things like manpower, technology, et cetera, and you will see that effect unwinding through the rest of the year.
And also our expenses are reflected in our VNB margins. We don't normalize it throughout the year. So it's -- as and when it gets incurred, we reflect in the margin for the quarter.
The next question is from the line of Nischint Chawathe from Kotak Securities.
I'm just looking at margins on a year-on-year basis, which is up essentially 1Q to 1Q, and trying to understand if there was -- if there were any changes at the product level margins. I do understand that I think there were some higher expenses because of travel and new investments, et cetera, kicking in. But at the product level, have you seen any pressure on margins, given the fact that probably the cost of hedges would have gone up or maybe even on the protection side, you would have seen that the insurances rates going up?
So Nischint, if you look at the Q-on-Q product mix, you will find that the changes are fairly small. You'll find that unit-linked has come down marginally. Par is at the similar level. Term has gone down Q1 to Q1. We've discussed that. On the non-par side, it's gone up, but the profile of the non-par products have changed. We've discussed. We have Sanchay FMP, which is a significant part of this business. Annuities have gone up. So they have fair -- the fair number of compensating effects in terms of what's happening in the product mix itself. Product level margins may not have moved too much. There could be instances in the period where the spreads may have gone up to some extent on some of the products like annuities and maybe non-par, but that again depends on what the rate is at a particular point in time, how are we reacting to competition within the quarter. So lot of these effects are kind of canceling out each other and the key really is 60 bps in expansion and basically the smallest quarter of the year. And the expenses are not necessarily in that sense to that extent. So expenses are more front-ended compared to what you will see in terms of the revenue pan out over the rest of the year. So it's -- all of these effects, which are creating this net effect of 60 bps expansion.
So on the expenses, Nischint, for example, HDFC Bank added about 700 branches in Q4 of last year. Some of our other partners, the newer partners, I mentioned quite a few names on my opening remarks. So there is a lag in terms of us having manpower feet on street versus beginning to see business. And that is also a bit of a COVID impact. We had rained in quite a bit of these sorts of investments and now it is full throttle. Also, some of the activities that we have in order to kick start sales, that's also front-ended, and you will see this evening out as a percentage as we go through the year. But like Srini said, we mark-to-market every quarter, we don't straight line our NBMs.
Yes. That's right. Just the second one is on the term business. Do you see -- I mean, I understand that, at this point of time, probably the return on effort for the team was to sell some of the products versus term, et cetera. But do you really see that changing in the second half of the year or should we kind of remain in negative for the entire year return?
Take this, please.
Yes. So look, I think, it's a combination of multiple things that we will need to do. One is, of course, like we said that the overall customer sentiment has improved in terms of the overall awareness and what kind of ease of journey we will be able to provide to the customer. There is a little bit of effort on our side in terms of ensuring that all channels, all frontline is activated in terms of being able to convince customers in terms of term being available for them. A little bit of innovation is also possible in terms of the product and the features that we can do. But frankly, there are a few positives also. Customers are now more willing to go for medicals. So some of those trends we have started seeing. So as we go into quarter 3, quarter 4, a little bit of push in terms of how do we activate all the channels, the product proposition and the journey is becoming easier, will lead to, we believe, an increase in terms of the terms. So we've still budgeted higher numbers in term, but we'll have to wait and watch as to how the overall industry grows over quarter 3 and quarter 4. But these are trends that we see across the industry. We can easily do it by changing pricing, but really that is not what the end objective is.
The next question is from the line of Nidhesh from Investec.
Two questions. First is, with this inflationary expectation going up and interest rates going up, how do we see the growth for non-par savings business for us through the year? That's the first question. And secondly, how do we think about the sustainable operating RoEV for our business? I think it has declined from 18% to 16.5%. Is the 16%, 17% is the new normal? Or we expect to go back to 18%, 19% in future?
So I'll answer the first one and then hand it over to Niraj. The first one, we continue to see a very robust demand for non-par and that will continue. We are -- even versus bank fixed deposits, even on the shorter end, the Sanchay FMP, we are at least 100 basis points to 130 basis points more attractive. This is the highest marginal tax bracket. And even lower tax brackets, we are -- come out meaningfully more attractive than just parking it in fixed deposits. I think that's well understood. Apart from that, the longer tenured non-par also, the category has been born. Now we've launched this about 4 years ago and people understand reinvestment risk and no longer confuse debt mutual fund or parking it into fixed deposits with long-tenured Sanchay Plus and so on, because locking in and getting assured returns until you're alive, all of that is now well understood. So no issues on that front. We also repriced fairly swiftly. So taking advantage of what we are able to earn, we look at it in a -- on a dynamic manner. So really no major concerns on that front. On RoEV, Niraj, do you want to take this?
Yes. In terms of RoEV, if you look at the key -- if you deconstruct RoEV, you'll look at the 2 key aspects of unwind and the NBC accretion. So in terms of unwind, we already discussed. We are expecting our assets to earn a little over 8% in this year. Anything over and above that will get -- or rather, different from that will get reflected in the investment variance. And NBC accretion has started on a strong footing in Q1. We expect that to continue with gradual steady margin expansion as we have delivered in the last couple of years. With that, you will look at an RoEV, which -- so last year, if you look at the RoEV, it was about 16.5%. This is after normalizing the impact of COVID. Prior to that, it has been in the 17%, 18% range. So that band of 17%, 18% is something that we believe is possible to achieve and, of course, this will depend on the interest rate environment over the years as we go forward. Given our philosophy, we expect operating variances to be in a fairly small territory in the neutral to positive territory. So these 2 blocks of unwind and PNB accretion is what would dictate this number. So we would expect this to gradually inch upwards as the year progresses.
Also, I hope you are not comparing the first quarter RoEV with the full-year RoEV because there is a fairly large uptick in terms of seasonality.
Sure. Sure. And lastly, just one question on the reported profitability.
Sorry. Just in terms of the numbers because you -- it is important that we compare quarter with quarter, quarter 1 with every quarter 1 of the previous years and it has been in the range of about -- between 14% to 16%, somewhere in that zone over the last few years on the Q1 to Q1 basis.
Sure. And just lastly on the reported profitability, how should we think about that given that last year in Q1 there was a major disruption because of COVID and COVID claims would have hit our P&L? Despite that, Y-o-Y growth in PAT is not that significant. So any light on that?
So if you deconstruct it further and we do give what is the shareholder versus policyholder, last year there was some -- because of the market being good, there was a profit booking that we did on the shareholder. But when you look at what the policyholder back book generation has been, that has been extremely robust.
50% growth.
So about a 50% growth, which you will agree is a fairly decent growth.
The next question is from the line of Dipanjan Ghosh from Citi.
Just 3 questions from my side. First is, you have highlighted that all the new banca channels have demonstrated strong growth. If you can just quantify something on that, what is the mix [indiscernible] Y-o-Y growth? Second is, if you can qualitatively mention your counter share or how it varies between HDFC Bank branches with vintage of less than 5 years and vintage more than 5 years, more qualitatively? And third, I think, one point you have discussed on the non-par side, we have seen IRRs of the Sanchay Plus product increasing significantly during the quarter. So does that reflect competitive intensity? Do we still hold up the spread for the margins that we're doing in the business? Again, if you can give some color on that?
So I'll answer the last one on the spreads. Margins have not been impacted any significantly. So yes, more or less the spreads have been -- spreads -- it's not just the spread business, there is expenses in there as well, how we underwrite. So all of that goes in. So into that melting pot, we have been able to hold our margins on non-par. Suresh, you want to take that?
Your first question was on term growth across 3 channels, or was on overall growth across 3 channels?
Overall growth across the non-HDFC Bank channels and also what is the mix today on the overall -- or this non-HDFC Bank channels in an overall mix?
So we have seen fair growth, firstly, on our proprietary channels, which was in line with our overall strategy. We have been investing both on our agency as well as the direct. I think, also plus to note that Exide, on the other hand, while we run as a subsidiary on the agency, has also grown in the first quarter. So you will find that our strategy in terms of being able to grow agency and direct. In broking, we continue to maintain our market share and the growth there has also been much higher than what we are seeing at an overall growth level. The other banca relationships, which is other than HDFC bank, in most of our other partnerships, whether it's YES Bank, Bandhan, IDFC, we are seeing significant growth, almost 90% to 100% growth, which has come at an overall other banca relationships. So if you were to leave aside HDFC Bank, which has also grown at a fairly decent rate in Q1 given that they've always had a large base and there we have a different pressure on multi-type, but we have seen growth across proprietary, which is agency direct. The only cause of concern, which like I mentioned earlier, right now is the online business where there is a little bit of pricing war which is happening as well as a lower sentiment on the direct. So those are the 2 probably channels, which we probably need to focus on, but other banca, broker and proprietary on agency and direct have been growing reasonably fast.
Sure. And on the vintage, counter share at HDFC Bank based on branch vintage?
So typically some of the larger branch -- so HDFC Bank obviously now has the huge number of branches and they have been growing. They have been growing 700 branches. We do track branches based on city categories as well. As you know, they have a A, B, C, D to I categorization, which is happening. Their presence in terms of the large branches in the metro Tier 1, Tier 2 is obviously very large. The productivity of these branches is huge because, one, they have a very large customer base in most of these A and B category branches. So there, of course, again, we have more or less similar market share across each of these type of branches. Probably the presence for HDFC Life in some of the upcountry markets is higher, but now more or less that has evened after 3 years, 4 years of multi-type. So obviously, the productivity of the larger branches as well as the growth -- the growth has been fairly similar across. I think some of the Tier 2, Tier 3 branches have been growing faster. But it is not huge deviation in terms of how -- I don't have the exact specific in terms of how the greater than INR 5 crores and less than -- no, greater than 5 year and less than 5-year vintage branches are, but I would assume that the growth would be on similar lines.
Sure. Just one data keeping question. Can you quantify the non-HDFC Bank, the other banca channels, what is their proportion in your overall individual business today?
So approximately 15% to 20% is the kind of number, but they are growing very, very rapidly.
[Operator Instructions] The next question is from the line of Jayant from Credit Suisse.
Just one question. This change in assumptions of mortality strengthening, is this across the protection book or specific to any segment like CP or individual?
It's both.
It's both. And after this change, are we provided for FY '23, or this will be an evolving situation?
We don't provide anything. Like you said, we set the assumptions at the sort of start of the year. So that goes through -- so the next revision, if at all, depending on the experience would be in next February, March of next year, 2023.
The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities.
Most of the questions have been answered. Just one quick thing. You mentioned about the decline in the protection, term protection business on the online channel. Is that trend similar between your own online website versus web aggregators because it seems like the largest aggregator is still doing reasonably well?
Yes. They are along similar lines. I think, look, for us, we needed to ensure that there is clarity on our pricing between our own sourcing as well as what we have on the largest aggregator. There is a little bit of a price differential, which you can see on the web aggregators level, which is one of the reasons we have, like Vibha mentioned earlier, any kind of pricing, which we have on any particular is what we would like to maintain across all our partners and all our channels. So the trending is similar. And we've also tried to ensure that we have the right product mix even with the large aggregators or whoever we are playing with.
Understood. And just you've mentioned in your PPT about new product Click 2 Protect Optima being launched in FY '23. Just wanted to understand here the health cover is something that, again, it's a benefit one or is it something that you're doing with your general insurance sister concern?
So we have been doing this Click 2 Protect Optima for some time. It's ERGO, which has launched a new health indemnity product called Optima Secure. So they had Optima Restore earlier. So now they've got Optima Secure. So this combi product is to reflect their new product.
The next question is from the line of Dhaval Gada from DSP Mutual Fund.
So just one question relating to the GTI business. If you could just comment around, sort of prospects there and profitability around that business? Yes.
So GTI is now coming to some sort of a normalcy now, more recently. So we believe that the pricing is more reasonable now. So therefore, we have also seen some uptick in our business and we believe that at these prices it will make some money for us.
It will be a fairly -- relatively a tactical kind of a business because it's bid out every year, right? So this really depends on how the pricing kind of works for the risks that we take and that's how we look at this business.
The next question is from the line of [ Prateek ] from Nippon India Mutual Fund.
If I were to look at individual protection and compare it to 1Q FY '20, the absolute amount is the same, but there is a pricing element sitting over here, plus this quarter you had ROP, which was not there in 1Q FY '20. So adjusted for that, on volume terms, the de-growth seems substantially to the extent of 30%, 40%. Is only consumer discretionary the reason for it? Or is there something more to this?
So there is also tightening of the underwriting norms, right? When you look at FY '20, we are talking about a couple of years ago. And in the last 2 years, you've seen there is lot of stringency in the underwriting norms. So that's also sort of contributing to the drop in the NOPs.
Yes. But then it looks like that -- I think someone who was asking also, there is a cut-off, right? With higher pricing, the size of opportunity has reduced, right? Is that a fair understanding for protection?
So it's either that or people are saying that I will reduce the sum assured. So either they reduce the premium or they reduce their sum assured. These are the 2 levers that are there, or they will postpone.
And when I look at your number of individual policy sold, on a 3-year basis, the CAGR is just 1%. The lives insured is minus 6%, whereas our total individual APE has grown by 15%. Can you help me reconcile this in the sense is there an element of volume de-growth happening and only average ticket size increasing? I'm asking on a global basis.
I mean, given the some of the products that we have launched on the non-par and par side, the average ticket size of some of these products has been significantly higher. And it's also been, like I mentioned earlier, an ease of sale for some of these products given the high demand, which has been there for these products. The NOPs on the term have actually degrown. That is right. Like Vibha mentioned, there were a few reasons in terms of whether the customer postponing or not taking it up based on the pricing and we are also tightening our underwriting norms. So if you were to look at it, without the term, our growth has been -- on NOPs has been there. But overall, the industry has been struggling with NOP growth, which is really where the challenge is for the industry in terms of the number of lives, which we need to cover. But we have grown -- if we exclude this quarter, we have over a greater than 3-year CAGR of almost 10% in terms of NOP.
And Srini, if you can give me a number of...
Sorry.
No, no. Go ahead. Sorry, sir.
No, I just mentioned that there were certain cohorts on the low ticket size that we have exited because we found the quality of the business either in terms of persistency or in terms of claims or mortality being higher.
Okay. And Srini, can you give me some rough idea of number of unique customers which you would have and the growth over there, let's say, over FY '20 versus '22?
We might feed that in subsequently. We don't have it handy.
[Operator Instructions] The next question is from the line of Avinash Singh from Emkay Global.
So quickly, one thing on retail protection. So I mean, is that -- again, in terms of the volume, all entirely led by the subdued demand? Or is it that -- I mean, if you can quantify that, okay, how much subdued demand is contributing and how much of it is -- because, I mean, your acceptant rate from proposal coming to acceptance has gone down? And second, if you are able -- if you are already able to launch this combination product with your HDFC ERGO, if at all, regulatory allows you to distribute a health product, what does it change really?
So I'll take the second question and otherwise Suresh can answer the first one. We have been at the forefront of nudging the regulator to allow us to sell, and this is something that we have been selling in the past until about 2015. What this will do is, I mean, it will depend on what form or shape we are allowed to. The ideal would be right from manufacturing to distribution, we can do both. Otherwise, it will just be distribution, which is what we have given, what we were allowed to recommend. So distribution is an ask that is there in the report that has been submitted. So first is that it will depend on the form or shape. If we are allowed to manufacture, great. What this will do is not just offer Mediclaim products, that's fine, but it will allow us a lot of product innovation, which today that's a missing piece. And while we can collaborate with -- and we do collaborate with companies like HDFC ERGO. It is at best a force fit and it's somewhat clunky from the customer's point of view. So this will allow us to give a feature and build in a feature into our existing product offerings, wherein it is -- becomes very customer-centric as a one-stop shop for everything from mortality to wellness to morbidity, everything in between, right? And for us to ratchet up down to be able to add riders, similar to what we see in some of the other geographies and I talked about wellness as well. So it will allow us to do that. But we'll have to see what we are allowed to do and then do the best that we can under that new regulatory regime.
So I'll add first to Vibha's second point. I think the overall value proposition and the improvement in productivity that we can see at a customer touch point or engagement, especially when we have a combination product like that, I think, can significantly add value both in terms of the customer coverage that they will get as well as the total sales that we can generate or the additional sale that we can generate at every engagement. On your first question, look, frankly, Niraj had mentioned this in one of the earlier questions. If you really look at it, our product mix has more or less remained stable across par, non-par, UL and term. So there is a slight dip of a 1%. In term, the par has more or less remained. We've mentioned this earlier. I think, look, we do tend to balance our product mix based on what the overall market scenario is like and we have been managing to do that across each of the channels. So while on the term side, there has been a -- we do see a little bit of a customer sentiment slowdown in terms of searches. We see that happening, like we had mentioned, and there is maybe the impact of inflation or a delay in postponing. There has been a little bit of a tightening at our end because we are looking at all product lines across all channels to help us deliver on both the risk side as well as the quality of business. So if you notice, our persistency continues to remain top in class, our product mix remains the same. And if for a certain quarter, we see a little bit of terms slowing down, we have tried to make sure that the overall sum assured or the protection that we grow has helped us from the credit protect business. So both protection and annuity combined put together are going up. Our credit protect business is leading to the overall protection in terms of both number of lives as well as the sum assured that we are covering. And depending on how we find the overall market evolving, we will be able to change the product mix as we go forward.
I mean is there any sort of quantification in terms of your acceptance risk from proposal origination to your [ fixed deposits ], maybe some metrics? I mean, how much sort of it had to become attractive from your [Technical Difficulty] or if you are trying to kind of get out of a proposal in a hypothetical way [Technical Difficulty].
Sorry to interrupt you, Mr. Singh. The audio is not clear.
Yes. Again, there was a little bit of a disturbance here. Now it's improved a bit. So look, I think there is a fair amount of effort in terms of understanding which persona, which profile, which markets we want to source and where we want to push the channels to source. So while our throughput has increased, like I mentioned earlier almost 3 percentage points, 4 percentage points, our throughput has increased. What we have tried to do also is to ensure that we are getting the right profile in today's underwriting norms. Like, we had mentioned earlier, there were certain cohorts where we saw the risks higher or the persistency lower, we have tried to go back and say that we probably don't want to source those profiles. So there has been an improvement in terms of our throughput. We are looking at that, but it is very closely balanced to the risk that we would want to take on these kind of profiles.
Mr. Singh, may we request that you return to the question queue for follow-up questions. The next question is from the line of Madhukar Ladha from Elara Capital.
You mentioned that the shorter end of the yield curve has risen more than the longer end of the yield curve, which obviously implies the yield curve is flattening a little bit. And so the question is, if this trend continues and if we go back to a yield curve, which was probably prevailing 2 years or 3 years back, which was very much more flatter than what we are right now, how would you see that to impact the supply of FRAs? And then would it be that easy to sort of construct the non-par products, right, that the market seems to be doing now? Your comments on this would be helpful. Yes.
See, we don't expect the shape of the curve to change the supply of FRAs. More and more banks are coming into this -- the banks are increasing their capacity and more banks -- both domestic and foreign are coming into this. So we don't expect the supply of FRAs to get impacted by the slope of the curve. What can get -- what will -- what can change is in terms of the economics in terms of what happens to the spread that gets dictated by the difference between the spot and the OAS yields and that is something that can change from time to time. But ultimately, from our perspective, it's about managing the spread, right? We will discuss -- we were doing non-par using our internal capacity before FRAs were allowed. Then FRAs were allowed and we started using that. Even today, when we look at our entire risk management approach, it's not disproportionately dependent on FRAs. So what we are doing today, if you look at our FRA numbers for the last couple of years, you will find a INR 10,000 crore odd number in FY '21. We brought it down in FY '22 in spite of business having going up. So as such, dependence on FRAs is -- it is a good instrument. We use it for risk management, but we are not overly dependent on it. So the economics of it, we will try and manage by managing our spreads. So if we're getting a positive spread on that, some of it can be reflected in the rates given to the customers. Some of it can get reflected in terms of the spreads that we get. So that's how we look at it, Madhukar.
Right. And just a follow-up on this. From the bank's perspective, obviously, a flattening -- a more flatter interest rate curve would mean lower spreads for them. Don't you think that would then dis-incentivize them from sort of writing more FRAs?
So again, you can, of course, talk to the counterparties. But actually, if you look at the way this business works is really -- the bank is using the balance sheet to earn this spread themselves. Now unless that balance sheet is being used to write some other business at higher levels, it's very, very different. And also in terms of -- you see the economics of global banks, the kind of returns that they may have in their own global balance sheets. What you get in India is still fairly attractive, no matter how flat the curve gets just because of the level of the interest rates itself.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Ms. Vibha Padalkar for closing comments.
We would like to thank all of you for participating in today's results call. Good evening.
Thank you. Ladies and gentlemen, on behalf of HDFC Life Insurance Company Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.