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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 SBI Life Insurance Company Q4 Results Call for the financial year ending 31st March 2022.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mahesh Kumar Sharma, Managing Director and CEO, SBI Life Insurance. Thank you, and over to you, sir.
Yes. Thank you very much. Good evening, everyone, and we heartily welcome you all to the annual results update call of SBI Life Insurance for the year ended March 31, 2022. We hope you and your families are safe and well. Update on our financial results can be accessed on our website as well as on the website of both the stock exchanges.
So along with me on this call, I have Sangramjit Sarangi, President and CFO; Ravi Krishnamurthy, President Operations and IT; Abhijit Gulanikar, President Business Strategy; Subhendu Bal, Chief Actuary and CRO; Prithesh Chaubey, Appointed Actuary; and Smita Verma, SVP Finance and Investor Relations.
We are pleased to inform you that we have successfully maintained the new business thrust and have again delivered enduring performance in this year as well. This diverses the company's strength of distribution and expansive outreach to customers in a cost-efficient manner. Our commitment is to deliver sustainable long-term returns to the stakeholders. This would not have been possible without the efforts of all our employees, distribution partners and business associates for their uninterpreted support, which helped to service our customers during this challenging environment.
As mentioned in the last earnings call, we have aligned our value of new business, VoNB margin and Indian embedded value as per industry standards and reported figures will be comparable with peer companies.
Now let me give some key highlights for this year ended 31st March 2022. New business premium is at INR 254.6 billion with a growth of 23% over the previous year. Individual new business premium stands at INR 165 billion, a strong growth of 32%. Gross written premium stands at INR 587.6 billion with a growth of 17%. Protection new business premium grew by 24% to INR 30.5 billion. Individual protection new business premium grew by 26% over the previous year to INR 9.4 billion. Annuity business stands at INR 34.7 billion, registering a growth of 15% over the previous year. Profit after tax stands at INR 15.1 billion. Value of new business is INR 37 billion, registering a strong growth of 39% over the previous year. And the new given margin is at 25.9%, with an improvement of 270 basis points.
Indian embedded value stands at INR 396.3 billion. Embedded value opening profit -- operating profit stands at INR 68.9 billion. Operating return on embedded value stands at 20.6%. Assets under management grew by 21% to INR 2,674.1 billion. Let me update you on each of these elements in detail.
We'll start with the premium. Individual business, one of the focus areas of the company has grown by INR 165 billion, a growth of 32% -- sorry, it has grown to INR 165 million, growth of 32%. Single premium contribution is 24% of the individual new business premium. It is mainly attributed to growth in individual annuity product.
The company gained a private market share by 166 basis points to 23.4%. Individual rated new business premium stands at INR 128.7 billion, a growth of 26%, which is leading to private market leadership with a share of 23.4%, an improvement of 75 basis points over the previous year. Maintaining private market leadership position in new business premium, we collected INR 254.6 billion new business premium and marked private market share of 22%. Group new business premium stands at INR 89.6 billion with a growth of 10%. Renewal premium grew by 12% to INR 333 billion, which accounts for 57% of the GWP. Our gross written premium stands at INR 587.6 billion with a growth of 17%. Total APE stands at INR 143 billion, registering a growth of 25%.
Out of these, individual APE stands at INR 129.6 billion with a growth of 26%. During the year ended 31st March 2022, total 19.2 lakh new policies were issued and registered a growth of 16%. Some are sure that their individual products registered growth of 16% over the previous year as compared to a growth of 3% at private industry line.
Now we go to the product mix. Individual production is at INR 9.4 billion, registering a growth of 26%. Group protection stands at INR 21.1 billion with a growth of 23%. Credit Life new business premium has grown 21% and stands at INR 16.8 billion.
On APE basis, protection contributes 11% of new business and registered a growth of 38%. We are confident that over a period, we will be able to registered an uptick in share of individual pure protection. Annuity business is at INR 34.7 billion and contributes 14% of new business premium. Total annuity and pension underwritten by the company INR 72.3 billion, registering a growth of 15% over the previous year ended 31st March 2021. Guaranteed nonparticipating product is contributing 10% of individual new business, and on total APE basis, this contributes 12%.
Nonpar guaranteed product new business has registered a growth of 62% over the previous year. Individual unit business is at INR 13.2 billion, which constitutes 69% of the individual new business premium and has showed a growth of 32%. Fund management business is at INR 51.5 billion with a growth of 13%.
During the year, the company has launched SBI Life Smart Platina Plus, which provides security, flexibility and reliability through a regular guaranteed long-term income, flexibility to suit life goals and financial protection along with tax benefits. The response to this product is very positive and received record inflows in very short period of time. The company offers comprehensive suite of participating, nonparticipating guaranteed, annuity, pension and unit linked solutions, which are designed to enable our customers live life to the fullest across a wide demographic range and income levels.
Now I look at the distribution partners, we have strength of more than 53,000 CIFs. Bancassurance business marks a share of 65% and grew by 31% in individual new business premium. Bancassurance channel individual APE stands at INR 87.4 billion with a growth of 27%. Agency, our strongest channel registered -- our strongest channel after banca registered new business premium growth of 30% and contributes 18% in new business premium.
Agency channel individual APE stands at INR 36.8 billion with a growth of 22%. As on March 31, 2022, the number of agents stands at 146,057. There is improvement of 21% in agents productivity levels as compared to previous year. And greater use of technology is assisting in better engagement in the entire value chain for recruitment and training through to lead generation, sale and customer service.
During the year, other channels that is direct corporate agent, brokers, online, web aggregators, et cetera, grew by 61% in terms of individual new business premium and 45% in individual APE. Protection new business premium through other channels registered a growth of 41%.
Partnerships like Indian Bank, UCO Bank, South Indian Bank, Punjab & Sind Bank, and YES BANK registered a growth of 49% overall. These relationships contribute almost 4% of individual APE as on March '22.
Now on profitability during the year. COVID claims net of reinsurance paid as well as outstanding stands at INR 15.9 billion, covering various lines businesses. The company has kept additional reserve amounting to INR 2.9 billion for COVID-19 pandemic over and above the policy liabilities. The company's PAT for the year ended 31 March 2020 stands at INR 15.1 billion. Our solvency remains strong at 205% as on March 31, 2022. Value of new business is INR 37 billion with a growth of 39% over the previous year. New business margin is at 25.9%, with an improvement of 270 basis points, sorry. Embedded value stands at INR 396.3 billion, with a growth of 8.9% over the previous year.
Embedded value operating profit stands at INR 68.9 billion, operating return on embedded value is 20.6%. On operational efficiency, cost efficiencies continue to be maintained with total cost ratio at 8.8%, and OpEx ratio at 5.1% for the year ended 31st March 2022. 13-month persistency ratio of all policies that is regular as well as single and limited premium stands at 88.4% as compared to 87.9% of previous year. In accordance with recent regulatory requirements with respect to persistency of individual regular premium and limited premium paying policy, 13-month persistency stands at 85.2%. The company has registered a strong growth in 25th month and 49th month persistency by 221 basis points and 423 basis points, respectively.
As mentioned in my opening remarks, Assets under management stands at INR 2.6 trillion as on March 31, 2022, having grown 21% compared to last March. The company continues efficient use of technology for simplification of processes with 99% of the individual processes being -- or proposal being submitted digitally, 44% of individual proposals are processed through automated underwriting.
Customer satisfaction is a key focus area. Grievances ratio that is a number of grievance per 10,000 new business policies is 16 and grievances with respect to unfair trade practice stands at 0.07%, one of lowest in the industry. Individual debt claim settlement ratio stands at 97%. The macro drivers for the life insurance sector remain well in place. The vision of the regulator for enhancing the insurance penetration and development of the sector is crystal clear and very positive for the industry growth.
We strongly believe that our wide distribution network, along with customer-centric product portfolio are well-positioned to capitalize on the emerging opportunities in order to increase the insurance penetration in line with the vision of the regulator.
These opportunities include an expanding and prospering middle class, significantly higher underpenetration of life insurance in India, a favorable regulatory environment, rapid digitalization among others.
To conclude, we will continue to focus on long-term sustainable profitable growth. Enhance automation and digitalization will ensure customer satisfaction in the long run, along with great value to all our stakeholders. Thank you very much, and we are now happy to take any questions that you may have.
[Operator Instructions] The first question is from the line of Deepika Mundra from JPMorgan.
Sir, just first and foremost, on the effective tax rate change. It seems that if you compare the VoNB last year based on effective tax rate, fourth quarter seems flattish at about INR 11 billion. Whereas on the old methodology, there seems to be a substantial increase. Can you just describe the differences between the rate of change on the old versus the new methodology?
See, as we have mentioned earlier, earlier we need to compute our VNB based on the actual tax basis, and we just show a sensitivity and effective base. Now as we mentioned earlier, we have aligned that and we have aligned in the term of -- to reflect our actual current [indiscernible] position and future in our projection. So total basis we have aligned that. Now if your question is compared to the last quarter VoNB is a flattish not because of any change in the methodologies, it's flattish because of the business mix and what kind of product we showed this quarter versus last year -- last quarter. So you see that we have made certain major in the last time in the pricing terms. This quarter, in August, we have repriced some of the products where our objective is to get the VoNB number and getting the margin and some of the benefit may pass onto the customer and as of that we see the VoNB flattish.
Just to -- Deepika, what we need to see is that our growth business growth is 4% for the quarter. Last quarter, as you are aware, have been slightly subdued for us. And second thing taking the year VoNB and subtracting 9 months is not strictly correct because year-end, we changed our assumptions and so many other parameters. So I wouldn't want to call that 1% growth as strictly speaking, comparable number. Because the December numbers have been valued on a slightly different basis than March numbers.
On the EV sensitivity. Again, the EV sensitivity to interest rate seems to have come down from half year level. Can you just walk us through the change that has taken place over there?
If you see, Deepika, for EV sensitivity for interest rate, we've disclosed the last year on the financial year basis. We -- as you know, we are writing another part and we have done a lot of forward rate agreement as well. So FRA is helping us to reduce the interest rate sensitivity. The purpose of writing the FRA and in particularly with the guaranteed product is to immunize your economic balance sheet in terms of the interest rate sensitivity movement, and that's really paying out.
[Operator Instructions] We take our next question is from the line of Nitin Aggarwal from Motilal Oswal Securities.
Sir, a couple of questions. One is if you can comment on the earnings growth, which for this quarter has been quite strong, probably due to lower strain. So some color on this and how are we looking -- the shareholder earnings to grow over the coming fiscal?
The profit growth, basically, if you look at the growth of our overall business, you will find that there is a very strong growth. So that is one of the things. And in any case in the last quarter, we always have a boost because of our, what you call it, the policyholders share of our -- the par product. So shareholders' share of the par product. So that is generally taken in the last quarter. So there is always a strong last quarter. And plus, we have done a huge amount of business and in various products we have done. So as a result of that, there is a strong growth.
Okay. And sir, second question is around the APE growth. While you explained on the VoNB that we need to look at the full year number. But if I just look at the APE for 4Q, it is down 10% on a quarter-on-quarter. And of course, the base effect is there, which has dragged this growth. But now again, in FY '23, the base will remain high for the coming quarters. So will the growth trends likely pick up in the coming year? Or will it again be a back-ended growth?
See, it will grow. What I'm saying is that I don't really think we track the APE so much as the IRP growth. So -- and the total business growth. So basically, we will grow and if you look at the trend throughout in January and February, there was a fresh wave due to which there were some lockdowns, et cetera, and that has actually affected our performance a little bit. March, we have started coming back. If you see, March we have grown. So overall, if you see the trends are very encouraging.
In spite of having all these problems, like for example, we had hardly started business this year when there were stringent lockdowns in April, May, et cetera, and then again in January, February. So having faced all those problems, we have come out with a 25% growth in APE. So I think that itself shows our strength. And this is on the back of a very good base last year also. If you look at last year, our base was not very small. We had grown over the previous year with a very bad COVID year. So taking all that into consideration, we are poised to grow.
Our next question is from the line of Adarsh Parasrampuria from CLSA.
Congrats on good numbers. A couple of questions. If you can just walk us through the EV changes, right? So your EV has moved and there is a like-to-like adjustment, which is why you show a 9% growth. Can you walk through the adjustment because the EV that you've shown in the chart moves from INR 33,000 crores to INR 39,600 crores, and then you show a 9% EV growth. I think that's the adjustment that's there for the change, so if you can just walk us through the difference between the 2?
Yes. I think what you need to do probably look at the annexure. Do you have the presentation? This is Slide #32, no? Yes. Slide #32, if you see the whole breakup is given very, very nicely. Just go to that. And if you will see the opening EV is given and each and every element is given. And in that if you see, we have given the operating experience variances, others. So that is where you'll find the change in our, what you call it, the methodology has been taken into account. So taking that into account, you'll see, you have the entire picture there.
So basically, the EV impact of that is about INR 1,200 crores, positive?
Not all of it...
Not all. Because there are certain changes in the methodology, Adarsh. But predominantly is a tax benefit. But there are some of the others, and there will be some offsetting impact as well.
Got it. Got it. Sir, just wanted to check, we've been running fairly large variances on the positive side for a few years now. So what's our view about that last year, INR 450 crores this year, persistency and expense is about INR 320 crores and then there would be some sitting in others as well, so what's our view? Do you want to keep maintaining this? Or would you kind of change assumptions at some point to get it in VoNB?
So Adarsh, we always maintain our position that when we set our assumption, our assumption is set in line with that in long term, assumption would be sustainable. So we don't make frequent changes unless evidence. And that's the reason, if you look into the -- our own operating variances is coming positive. Last year, we have taken some measures in terms of -- though we are not making the significant mortality losses, but we strengthened the mortalities. Our objective is to ensure that what number we're disclosing and what we are looking into that will remain sustainable in the future. To that aspect, we're continuous getting this surpluses. If you look into the mortality as well in COVID scenarios, if you explore this COVID claims, we are having positive mortality variance. So we continue to do that. And at the same time, we will also keep mentioning that each year, we revisit our assumptions as and when required, we will refine that rate. But we do expect our operating variance will continue to grow from the current level.
And sir, Slide 12, right, just a follow-up on the EV. The heading says EV grew by 9% from INR 364 billion and the chart has INR 333 billion, I was asking, can you explain this INR 3,000 crore gap?
So Adarsh, if you see we used to report our number on actual tax basis. And we for the comparative purposes, we give the sensitivity as effective tax rate. Now we found that effective tax rate is no longer relevant, and we remove that. So just to give a comparable to you and all others that earlier, our walk on the EV was on base-to-base basis. So that's the reason we started in that basis. So that you can look into each and every component, it's easier to comparable with the previous year.
I understand, sir, my only question was, you showed me in that Slide 30 something that the impact of the accounting change was about that INR 1,200 crores, it was within the INR 1,200 crore number. And the opening EV gap between the 2 accounting methodologies is about INR 3,000 crores. So I'm not able to add up these numbers.
No. No. So Adarsh, what's happened that we need to reflect a sensitivity. Now we look into this methodology and do that, and we consider our current taxation position. We also consider the future tax position of the company, and we have appropriately model that, and that's a reason coming from. And secondly, your business mix will sometimes will keep changing from that. And to that extent, you might be seeing some not like-to-like comparison that we can look into the opening difference between base effect and this.
Because there's some other -- and what I mentioned earlier as well, there is some other adjustment also done in terms of refinement of the methodology. So there are some sitting impact. So that number are referring to that not only on account of our taxation. So that's the reason you are not able to do like-for-like comparable.
The next question is from the line of Arav Sangai from VT Capital.
So I just have a follow-up on the question that the first participant asked regarding the VNB margins on a, say, Q4 basis of this year to the Q4 basis of last year.
So as you mentioned that the margins are near to flattish only, but if I just compare the product mix, the product mix might have changed quite a bit in favor of a higher margin products. So I'm just not able to understand why there wasn't some kind of margin improvement? That's the first part. And the second question is that if we look at the industry and the way our peers reported the number, there seems to be a lot of demand for high-margin products, and that was very much visible in the margins for the fourth quarter, but that is not the case with, say, us. So just wanted to get your thoughts on how will the product mix look like, say, in the next couple of years? And what are the products we might look to guide? So those are the 2 questions.
Yes. So basically, what we have done is -- we -- I -- in my opening remarks you might have heard that I talked about our Smart Platina Plus product. So we have introduced that product, which is a nonpar guaranteed products, which gives income over a period of time. So that has been a very successful product, and we see that in March, there was a huge uptake of that. And going forward, I think there will be a huge demand for that. So your point is valid, that there is demand for high-margin products if it is rightly placed and rightly produced. So we have this beautiful product and we are very confident that we'll be able to do a good volume of those products going forward.
Now as far as the VoNB margins being flattish and the change in composition and all, we have to say that there have been some -- there has been a little -- one of the other participants had remarked that the APE has degrown, so that is one of the components. The other component that we had repriced a couple of products, and so we had passed on more benefit to the customers, especially in the nonpar segment, so all -- and annuity also.
So all those things put together, I think it has been slightly flattish. But if you look at it, it's not a small number. It is a good margin to have, 25.9% is not a bad margin to have. So to that extent, I don't think there is any cause for concern there. Going forward, we will get the benefit of having all these good products, which have higher margins.
Just one follow-up, if I may ask. So you mentioned that we have passed on a little extra benefit on our nonpar products to the customers. So the benefits that we are passing on, is it very different from the industry that we had to take this step? I just wanted to understand the logic behind passing more benefits in the nonpar category, is it because LIC might also get very active in this bit and we want to maintain our ground there? Or what might be the reason?
No, no. Let me explain this. We always mentioned that we do adopt a very active pricing dynamic as well. Now our objective is to grow the VoNB and not much on the margin. So we don't believe that your margin is extraordinary, but wherein we later, we'll achieve our desired number. So to that extent, what we mentioned that if yield has gone up significantly over the period, and we wanted -- and hence, our margin is going up, we wanted to give some benefit to the customer in terms of the higher return.
And so that's not our margin but still margin is much higher than what we're looking to. So that's the reason we mentioned that we reprice and do that because we want to be fair to the customer as well, that what return we're offering is reasonable to the customer. At the same time, you make the reasonable profit to the -- in terms of the margins for the company. And also achieve the reasonable -- sustainable [indiscernible] and that will ultimately pass on the benefit to the company in terms of amortization of expenses, et cetera.
The next question is from the line of Jayant Kharote from Credit Suisse.
I have 2 questions. One is the following up on the previous question on the repricing. Was it done only in guaranteed products or protection products as well?
We have done in the guaranteed products.
Okay. So basically, what -- after the repricing, it's visible that the margin accretion is not there despite the sort of pickup. So going ahead, do you expect that margins may not gain as much even if guaranteed products share moves up?
No, no, in fact, margins will -- we are expecting the margin to further go up from the current level. What's happened that we introduced the product last time we reprice in the month of April. Over the period 6 months, the yield has gone up. We are holding up the pricing on account of our share distribution itself. August we have pass on. And if you look into the August till today, our yield has further gone up, and we are holding up this pricing will not pass on to that basis. So eventually, we are going to gain more and more margin under perspective. Second part is we come out with another part while our [indiscernible] on the nonpar portfolio, which further going to add the margins. So just to conclude, our nonpar portfolio is going to be -- help us to accrete our margin from the current level.
Okay. Sir, and secondly on the FRAs, what is the pricing for FRAs based on currently? And do you feel there is adequate supply, sir? I mean are there supply-side constraints on FRAs?
So currently, we are -- at least for SBI Life, we are not seeing any challenge in hedging. And FRAs are being -- we are able to do FRA within the pricing that we are doing. So whatever guarantee we are able to easily cover under the FRA rates we are getting in the market right now.
Sir, what is the pricing based on?
Meaning? So we have an assumption what is the expected and what the FRA expected rates also.
Okay. Sir, and the MTM hit because of FRA to our shareholders' funds on the debt side, so I mean how...
There is no hit on the shareholders' funds.
So there is no -- we do the hedge accounting. So any MTM gain will also routed through the hedge process and reserve. So there is not a hit on the shareholder side.
And what will be our total exposure to FRA notional as of closing March?
We'll come back to you. Because I don't have right now the number.
Our next question is from the line of Sanketh Godha from Spark Capital.
The VoNB walk, you clearly mentioned that the methodology change improved VNB by INR 410 crores or 2.9 percentage. So on similar lines, if because of the only methodology change, how much has EV got boosted either in rupees crores or in percentage, if you can explain that will be very useful, sir.
No. Sanketh, as you mentioned that. We have done other changes. So if you look at the Slide 32, we have given the other operating variance that's inclusive of that. And we are not having that exact number on that because what we did, we have done refinement in our model, considering all aspects. And there are some other minor refinement in the model as well. So we're not having that exact number on the prospectus.
Okay. Okay. And sir, second point is that in the operating variance number, others, other than mortality and expense and the persistency, which is INR 12.2 billion or INR 1,220 crores. Do we have even factored in that Supreme Court related payback given to the State Bank of India -- to the policyholders where we lost the case that INR 116 crores to be done in the current year? And probably second one is around INR 350 crores to be done in the next year if we lose it, so that number is also getting reflected in that particular number, sir?
Yes. This has already been allowed for.
Sir, you have allotted for both the products or you just allowed for -- provided only for 1 product, sir, INR 116 crores?
Only for one.
That is INR 116 crores for the...
The other matter is sub judice and there is no way that we have made a contingent liability for that in the balance sheet, and that's it. And that is our...
Sir, my question is how much you provided in the current year for that?
INR 116 crores.
Okay. Perfect, sir. And sir, the other part is that I mean 2 data-keeping questions. One is what is your Credit Life protection business in the year or quarter? And second thing is that in annuity business, just if you see the numbers in the third quarter, it's moderated to INR 900 crores. It's just -- in APE terms, it is INR 90 crores, which is 13% growth year-on-year. So is this moderation is largely because you slowed down your business on group annuity or you have seen the moderation in the growth in individual annuity too? And then if you can break down that annuity business into group and individual also will be useful, sir.
See, for the quarter, Credit Life business, if I will answer the first one first. Credit Life for the quarter, we did almost INR 540 crores. And for the whole year, we have done approximately INR 1,700 crores, okay?
Okay. And on the annuity side, sir?
Annuity total, we have done both, I will give you separate numbers. Individual annuity, we have done INR 1,780 crores, and group annuity, we did INR 1,690 crores.
Okay. And sir, the slowdown was largely in the group business, sir?
Individual annuity is growing more than 40%. And group annuity, we are growing in a flattish money. Whatever we have assessed for ourselves in the budget for FY '22, we have done.
And can you just tell individual annuity growth for the quarter, sir -- for the quarter, if possible.
For the quarter, it was -- I told you 40% plus.
Okay. Okay. Perfect. And finally...
Sorry. Sorry. Sorry, Sanketh, for the quarter, it is 25% -- 58%.
Individual annuity, right?
Individual annuity.
Okay. Okay. And finally, sir, this -- the nonpar annuity business, which we did INR 630 crores in the current quarter. You said that we launched income version of Platina, so out of the INR 630 crores, what we have done in the quarter, can you break it down into income plan and endowment plan? I just wanted to understand, I'm under the belief that income plan will have a superior margin compared to endowment one.
Income plan was launched only in last week of March. So it made a strong start, but you will see the numbers actually in this financial year.
Okay. And is it safe to assume, sir, that income plan has a superior margin compared to endowment version?
I think there is no such -- and it's approximately similar.
Our next question is from the line of Neeraj Toshniwal from UBS.
Harping on the same question, the INR 31.1 million different. If you can give more color on that will be helpful as in what led to...
I'm sorry, Neeraj. Can't hear you properly. Can you repeat the question?
See, same question, again on the individual on the EV chain INR 31.1 billion, if you can elaborate more on where the difference is coming in because this looks a little on the higher side. I think it should have been maintained given we are already reporting effective tax rate numbers from a long time. So what offsetting change we are doing? That is not very clear till now.
As you mentioned earlier as well, and I don't want to repeat, but again, I'm repeating the same thing here again. So what happened, we, as a company, report the base number that we believe at that point in time. And for comparison purpose, we do the effective tax sensitivity. Now we have done the appropriate modeling in our model to reflect the current -- company current tax positions and also consider the future tax position of the company. Accordingly, we have done that.
And there are some other minor refinement in the model, we've done the comprehensive review of the model. In some places, we required to make some changes. We did that. And unfortunately, we don't have that number to do that because we have done all together in one moment. And not...
So would this number be setting in operating assumption change, I mean, the offsetting impact, not in the assumption change, right?
Yes. So Sanketh, (sic) [ Neeraj ], if you look at the Slide 32, that number is sitting in the operating variance, other operating variance.
So operating variance is -- that year you have explained the effective tax, but the difference largely sitting into operating variance or operating assumptions because we have moved from gross to effective tax rate? So how to look at it? I mean so operating ROE -- actually getting to operating ROE would that be lower and look optically higher for this quarter? I mean how could one to read into that?
No, operating assumption change is not reflected there.
Okay. And what is this -- if you can just give the 4.5 economic variance movement that [indiscernible] because change in yield, how should we think about it for the -- because the yield are still increasing throughout the split?
No. So basically, we look into what is the reference rate on the discount [indiscernible] and then you look into the what is expected [indiscernible] rating and difference. So basically, unwinding will done on the real return basis.
No, no, not unwinding, the economic variance I'm talking about.
Economic variance is exactly the yield curve. Nothing...
Okay. Okay. And on the new product, which we just launched can you give more color? I mean it's similar margin, but what is the strategy going in, in terms of growth? What we can expect in terms of the APE in current environment? Are we looking to change, alter our mix with the lower ULIP and add additional? And within the protection, the good has been quite good. But have we able to manage to improve ROP and term mix or does it remain largely stable?
See, the first thing is that the product mix, we foresee that we will have more nonpar products being sold. Protection, as you can already see is very strong. We have grown protection by about 26% this year. So which is very much in line with all the other growth of all the products. So protection has also grown by 26%. And we think this trend is sustainable.
And like I said, nonpar, we have now a good portfolio with 3, 4 strong products and that will also grow. So obviously, margins are going to grow and the product mix, we think will shift -- it's not a conscious effort on our part to reduced sale of ULIP or something, but these products are seeing good demand.
And we will definitely -- the higher-margin products are selling very well. As we have said repeatedly that our ULIP products are positive margin products. So we are not losing anything out there. And we will continue to sell if there is demand. So as long as there is customer demand, we will continue to sell the ULIP products also.
And I think the persistency in ULIP are excellent and they are likely to continue that way. It gives a lot of liquidity and flexibility to the customers. So we don't see ULIP being discourage by us. It will depend a lot on the customer demand. But like I said, the trends are that we will have more nonpar guaranteed business in the mix and also more protection. And as far as the question of improving to pure protection, I don't thing that is the right question because TROP is a very good product for the customers, and it gives the similar value and good protection. So I don't think we are consciously trying to shift TROP customers to pure protection or anything like that.
But pure protection has its own challenges today with a lot of reinsurance and all issues coming up. And as things ease out, I'm sure that pure protection will also be sold more. But then not because I want to sell more of pure protection. But because the demand is there, and we will be able to sell more pure protection. Having said that, I don't think we are going to discourage sale of TROP. It is a very good product. And I think it is an excellent product for people, especially the not very educated people and the people in the B towns, et cetera, and also let's say, the middle class people also, it is a very, very, very good attractive product.
That is helpful. Only if you have the split handy between the -- within the pure protection in the ROP and the terms here, please.
It will be about the same. Every time you say is the same in 85%, 15% approximately. Maybe 90%...
And on the credit protect attachment rate, are we seeing improvement?
Yes, it has improved from 46% last year to 50% this year. And we can see trends that it will go further up.
Next question is from the line of Aditya Jain from Citigroup.
I'm sorry. On the VNB bridge, so there are various components there, there is no specific component which talks about benefit of operating leverage because of the size increase there might be some margin expansion. So is it that we are not seeing that? Or is it that it is built into some other components?
Which slide are you talking about?
No. No, see, when we do our assumption for VoNB computation about accretion expenses as well maintenance expenses that truly reflects our current year. So we realigned each year, and that already inbuilt in this process. This is not that we use some long-term assumption, which is not affecting our actual positions. So already built into that.
Okay. So what is the right operating RoEV to look at going forward? The 20.6% number, does it apply going forward as well, I mean, roughly?
If you see the -- historically, our operating RoEV in the range of 20%. So we'll continue to look into that. And as we mentioned in the earlier call as well a different question, that your assumption is at and we're getting positive variance. If that will play out, I think there is a scope for further improvement from the current level.
Got it. The full year margin of 25.9% VNB margin. Would this be lower in the new pricing method? So the new pricing, as I understand, came into effect in more recent quarters on the nonpar side. This 25.9% to a large extent, is reflecting old pricing, therefore. So..
No, it's a part of -- see, what we said was that there are a lot of factors, including a little bit of price change not directly contributed entirely by that. And going forward, like we have said, that this is a higher-margin product. So it is going to contribute to the growth of the NB margin.
Got it. But as a starting point, is this 25.9% the right number to look at or would this be lower...
No. Exactly, 25.9% is the right number to look into. There is no different 2 numbers. There's only 1 number, 25.9% is the right number. And you can look into the margin accretion will happen from the current level. So going forward, you expect because the reason that we're going to sell more and more nonpar product, obviously, because there is demand, and we introduced new products. We are also coming with the deferred annuity on the individual products. So there will be more bouquet of the nonpar product in our portfolio, and that will help us to increase the proportion of nonpar, and that will ultimately help us improve the margin from the current level.
And just lastly, can you talk about the change in margin because of the pricing change specific to the nonpar product, if it's possible? In the nonpar product, how much change from X to Y, so what is the delta of contribution?
We are not -- basically, we are not disclosing details of margins, et cetera. There is a lot of -- there are a lot of products, there are a lot of versions where the pricing is all different and the margins are different. So we are not giving any figures out. But suffice to say that these are higher-margin products than the company's margin today. So obviously, if increases in percentage terms, it will contribute to the increase in margin.
[Operator Instructions] We'll take our next question from the line of Hitesh Gulati from Haitong.
Sir, on operating assumption change, is there a negative mortality assumption change also included there? And also, sir, could you give me the exact COVID claims impact before tax for this year?
So Hitesh, this operating assumption change is mainly on account of the mortality and mortality assumptions. It's not a significant thing, because we have tightened last time. So this is the one part. Second question to -- on the COVID one, if you look at our mortality variance, our COVID claims that we have just mentioned is around INR 1,500 crores net of reinsurance. And our operating variance and mortality is coming to 10.8%. So other than COVID we make a positive mortality variance. COVID has led us to give some a indicative mortality variance.
Okay. The INR 1,500 crores post tax would be around INR 1,350 crore, the impact is INR 1,080 crore, so there is a delta there, right?
Sorry, Hitesh. I'm not getting your question.
The INR 1,500 crores is COVID claims, post tax, that will be about INR 1,350 crores, right?
We should look not into that. We should look into that what is the expected claim that you're looking for and how much you paid for. And then tax will applicable only on the -- if there is any positive variance coming on that perspective. So claims, we should not look into the net of taxes. Claims, we always look into net of reinsurance not net of taxes.
Okay. And just mortality assumption change is only INR 10 crores? Or is it a bigger number offset by a positive number?
No, no. It's only this number, Hitesh. Nothing -- no other changes. So this is purely on the mortality and morbidity side. See, in normal we are making moderate profits and no point of extending decisions...
Our next question is from the line of Abhishek Saraf from Jefferies.
Most of my questions have been answered, sir. Just one follow-up on the ULIP side, so one of our peers had mentioned that in ULIP, there is some changes happening in terms of the products that are being demanded. So more still towards debt ULIP rather than equity given the volatility in the market. So are we also witnessing that kind of change in customer behavior?
So right now, we have not witnessed any drastic change. But what does happen is that -- I think somebody's phone is on. Yes, okay. So we don't see -- we have not seen any drastic changes there. However, in the past also, when markets have been down or have been too volatile or something, customers have opted to switch to more debt than more equity. So that kind of thing, we also expect that can happen if there is a sudden drop in the market or something like that, if sudden changes are there. Similarly, when markets are going up, there is a demand for equity also. So that is there, but we have not seen any significant shift right now.
Just on this, so if you can help me understand what could be the margin difference between a standard debt-heavy ULIP versus an equity-heavy ULIP?
Very difficult. We may have those figures somewhere, but I don't think we want to share those.
And lastly, on nonpar guarantee. So given that EV curve is kind of flattening. Can you help us understand the spread that we would be like locking in the current product versus the earlier products, given that we have also had repricing for our customers?
So just to tell you, currently, we are still able to get FRA rates, which are better than what we have budgeted when we are plying the product. If that changes, we'll refine the product.
Then is it fair to assume that the spread would have been largely been maintained?
Yes.
Sure. If I can slip in last question, sir, if you can help us understand, given trying to change the way [indiscernible]?
Your voice is cracking. Can you...
Please use the handset mode.
Sorry about that. Is it better now?
Yes.
So sir, I was just asking that on the impact of LIC changing the way it does business and being aggressive on the nonpar guarantee side. And also kind of pushing the other products which have not been present in -- be it ULIP or protection. And so are we kind of witnessing any of these at the ground level, is the competition changing?
We have a huge distribution network which is not dependent on LIC doing well or otherwise. So we have the banks with us we have SBI, we have many other banks, almost 75 banks of various sizes we have. And apart from that, we have 146,000-plus agents. And then we have many other partners, brokers, corporate partners. So given that distribution strength, I don't think we are looking at any other player getting more or becoming more aggressive or anything because we have our strength, we have our good products and we have been able to grow year after year even in the pandemic, even in bad situation. So I don't think that we are worried about that or that it is going to affect our business.
Our next question is from the Dhaval Gada from DSP.
I had 2 questions. Sir, if you look at the difference between the EV on statutory tax rate and effective tax rate in FY '21 that was close to INR 3,000 crores. If you look at that same number in 1H '22, that was INR 3,200 crores. I understand that you've given an explanation for INR 1,220 crores on the operating variance, others. And then within that, there is also one more adjustment of INR 116 crores. So if I add that, it adds to about INR 1,336 crores. I'm just not able to reconcile the balance. What are the adjustments because the number -- residual number is quite material. So if you could just break down what are the major buffer or provision that you've created to reconcile the number? So that's the first question.
Let me try to respond question on the way that you're looking for. One is that we should not look into the September number for effective tax perspective because the tax will look into the entire year and longer-term perspective. Now as I mentioned that, that we are looking to the -- in the current number that we have disclosed and we're going to disclose this way in future as well. We have looked at our current financial tax position. We also projected our basic and based on that we do the modeling. There are some other elements because we are, as I mentioned, we have done the comprehensive review in some of the models. So there will be some offsetting impact to our guide.
And unfortunately, we're not having that exact numbers of the tax because we have done only for changing the tax, we do that. If you have anything we can take off-line as well. But as of now, since we have done several other change the model, along with [ predominantly ] the tax, we are not having that number separately. If we have done only the taxes, then it's easier for me to give that number to you. So that will be...
If you could just qualitatively help us understand what are the areas where major changes have been made that would also give comfort in terms of where the residual amount has gone. Because I mean, even if I look at FY '21, the difference between the 2 methods were INR 3,000 crores. And that's the reason. So I'm not looking at September '21 -- September number, but just the March number last year? So that...
Can we take this off-line? If it's all right. Because we are not having that number, we can take it off-line.
Okay. We'll do that. And sir, the second question is on the mortality side. So the INR 1,080 crores, if you could just help us understand. So at the start of the year, in 1Q, we had created about INR 445 crores of extra reserve on top of March number in terms of mortality reserve for COVID. And in September, I think we were comfortable with the level of reserve. December also, we were comfortable. So this INR 1,080 crores, should I understand that this was largely created at the end of the year to sort of see the past experience as well as what we are likely to see in future? So just trying to understand the initial sort of guidance around INR 445 crore to INR 1,080 crores how the reconciliation is. So that's the second question.
No, no, let me explain this INR 1,080 crores is the actual that have been paid over and above the provision that we made at the beginning of the year. If you remember beginning of the year, we make a year INR 1,080 crores. And our COVID claim was INR 1,500 crore net of reinsurance. So this is the shortfall coming from that perspective. And on top of it, we made some normal volatility profit. So that's the number. This number is not about the provision that we have carry forward for the future.
Our next question is from the line of Avinash Singh from Emkay Global.
And we have the Slide 32 walk from INR 364 billion to INR 396 billion. Now INR 364 billion plus INR 37 billion plus INR 27 billion. These are unwind and VNB. That's a very, very clear number. Now from INR 428 billion to INR 396 billion. This INR 32 billion -- out of that, again, around INR 7 billion is from the economic variance and other. INR 25 billion number has to come from operating variance. And now because it's not assumption [indiscernible] variance. So this has to be explained. And there is, of course, a big hole and that too basically variance means what you experience was different [indiscernible] the previous year. So that's a big number. I mean, so what this is? I mean this is not sort of adding up.
I think we have explained quite a few times in this -- in detail, I mentioned that all other, if you look at Slide #32, we explain other variance. We put this method change and other changes all together is INR 12.2 crores. So there is some other offsetting impact on that perspective. So not able to reconcile that number. If required, we can take this question off-line. We don't have that each state level number available that we can tell you.
No, sir. It's variance just 1 year experience versus agents. It's a big number, so I mean you've put on mortality, you have put a smaller number, but this bigger number is not, I mean, adding up. So how do you sort of go about it? I mean INR 364 billion crore to INR 396 billion, what I was asking for.
See, we're not making any change in the taxation or any other methodology. The methodology impact is not only for 1 year. It will be for the future year as well. So if I look into the impact of any changes because when you project your future profits, and even the tax or any other variance you apply you take the -- apply for each feature here and is counted back. So point I'm trying to make is this impact is not only for 1 year that this is happening. I'm not sure whether I'm able to come -- if there is a question, we can take off-line on that perspective. I will be more than happy to explain to you.
Our next question is from the line of Nischint Chawathe from Kotak Securities.
I'm just looking at Slide #13, and this is on change in operating assumptions and economic assumptions. If you could kind of help us understand what is this on account of?
So these -- if you see this VoNB, the economic variance -- purely is the economic variance, 0.9% is just income impact, nothing else. And other operating variance is 0.8% that is INR 119 crores. This is predominantly the mortality and mobility assumptions.
Our next question is from the line of Madhukar Ladha from Elara Capital.
Sir, can you give us some sense of your margins in different segments? So let's say, protection, nonlinked savings, savings, what could the broad sort of margins be of there?
So we have not been actually -- we are not disclosing the margins in absolute terms. We can say that term production has got the highest margins and then terms with return of premium and nonpar guaranteed, and then -- so that would be the way to look at it.
Okay. So can I get some sense on what are the linked margins now? So in the linked business, how different would we be from the company average?
Yes. So linked, I think it will be around 15%, let's say.
Okay. Got it. And sir, what -- I don't know whether this was asked earlier, but it seems in Q4, the growth is slowing down and so I want to get...
Yes, I've already explained, Q4 growth, especially January, February was affected because January, there were some severe lockdowns in some places, and that did affect the business. And then February also, it didn't really bounce back, but we did almost what we did last year. And then in March, we again started seeing the growing trend.
Right. What do you think -- now we are at a pretty high base. So looking into FY '23, '24, what sort of growth do you think we can aim for? Or do you think the growth will weigh down?
We are targeting numbers which we have done before. So similar numbers we are targeting this year also. This effect, yes, I know that there could be a base effect normally. But then with the potential that is available, we are targeting for the kind of growth that we have witnessed in this year. So that is the way that we are going to go.
Right. And last question, sir, you increase the guarantee return on the guaranteed product sometime in August, you mentioned. And again, obviously, interest rates have gone up, so the margins are getting better. What drove that decision? Do you think it's competitive intensity that competitors have started passing that on. Is that what is driving us also to do that? And are we seeing that sort of behavior again play out right now?
No. See, when the rates of interest go up in the market, obviously, the expectations will also go up. So we have to keep a fine balance between making margins for ourselves and also giving the customer a good product. Now whether that is driven by competition or not is a moot point. So what happens is everybody is driven by the same considerations. So if there is an increase in the interest rates in the market and you don't reprice, then obviously, your product is not going to be very attractive. The second thing is that we are banking on volumes. You will see that our growth has been huge. So we have had 26% growth last year in APE. So 26% growth means that with a constant margin also, I keep making more and more money for the stakeholders.
The next question is from the line of Manish Gupta from Solidarity.
Sir, what I wanted to understand is that on a long-term basis, what -- there are so many accounting adjustments that for a layperson it's difficult to understand the economics of this business. So when we look at banking, we'd say banking is like a 15% to 18% ROE kind of business. How do we think about on a, say, normalized product mix basis? What is the ROE of life insurance?
See, let me tell you, it's not a very simple question to answer because different companies have got different products that they sell. Suppose I was a company selling only term-like insurance, I may have a much higher return, okay? And if I were a company selling only ULIP, I may have a different return which will be lower. And the product mix is generally dynamic. The margins of products also change. So today, what the margin is that I'm receiving on a par product may not be what I get tomorrow. So every quarter, I'll have to look at that. So it is not very easy to say life insurance as such.
So every year, we take targets, and we take these targets based on our business expectations. So what we do is we first start with what is the demand that we are seeing for various products? And then what are our competitive strengths in those products. And then we decide that this is the amount that we will be able to sell. And then once we budget for that, after that revert back and get all these things, your ROA, ROE and all those things come out of our business assumptions.
So every time it's going to change. It's not that if I make business assumptions in March, I'm going to stick on to that, hang on to that for June quarter or for -- I mean the next quarter, September quarter or December quarter because I keep analyzing. So it's not very easy to say that. So I will not venture into that. It is very dynamic.
Sir, I'm sorry, I don't understand you. My question is that let's assume that you are only selling term protection, it's a hypothetical scenario. But if you're only selling term protection, over, say, the next 5 to 10 years, right, what would have been the return on equity of a well-run life insurance company that is only selling term protection?
No. So this is a slightly hypothetical question. So let me go one by one. So first thing I want to ask you -- tell you is that unlike some of the other financial services business, I know that our AUM has gone up from INR 10,000 crores or policyholder liability, whichever way you want to look, to almost like INR 265,000 crores without single rupee of dilution of equity, correct? Our only equity dilution has come from ESOP. So completely internally funded growth, which is not true for a banking or NBFC. So now when you don't -- can't compare it on that very first basis because if you see, when we have been growing fairly well across the years, AUM growth will be 18%, 20% every year when you take a 10-year CAGR.
Now our accounting because it's a long-term product and you have to have that new business trend, there are some challenges around how you look at it. So once the new business trend eases and our growth comes down to tepid, I don't know when that will happen, 5, 10, 15 years down the line, 5% type of it, then the accounting profit that you will see will be very similar based on year-on-year number because of the [ past from books ] that we -- and I would not expect if it's a well-run company, why should we make less money than other financial services business.
Okay. My second question, sir, is that if one has to again very -- as a broad thumb rule assume that the accounting policy was such that one could amortize the customer acquisition cost through the life of the policy rather than the first year new business trend, then how much would, say, your reported PAT roughly increased by?
This is a hypothetical question. I think this is not allowed India as well -- in terms of amortizing your acquisition expenses. As far as Indian regulatory accounting environment, you have to do this. So we have never done that, of course, in India to see that what [indiscernible].
So there are 2 things, not only acquisition equity amortization, but that margin for adverse deviation also has to be kept. So there are 2 factors which depress the profit when you are doing accounting. That number would be significantly higher than the accounting number that you are seeing, INR 1,500 crores of profit that we have declared that you can be quite -- and now to say that our net worth is, let us say, INR 11,000 crores, INR 12,000 crores. And if our profit is whatever, I will not give you a number, is some number higher than INR 1,500, then you can do your own ROE calculation.
Our next question is from the line of Rohan Advant from Multi-Act.
Sir, if you look at our APE mix, Q4 FY '21 versus Q4 FY '22, our ULIP share has gone down from 70% to 63%, individual nonpar has gone up from 8% to 15% and protection group plus has gone up from 6% to 9%. So we've had a very favorable product mix from a margin perspective. Even then margins have gone down from 27.7% to 26.9% using effective tax rate for both years. So could you explain what has happened here? And was there any one-off possibly in the base quarter of Q4 FY '21 because those margins seem very high, and those were possibly not comparable to the natural trend that we have. So can you just throw some more light on this? Because in a context of a very favorable product mix from a margin perspective or margins seem to have dropped.
So our APE has gone down. Like I said, one of the factors is that the APE has gone down quarter-to-quarter, if you see, by 4%, so that is one of the reasons there. The other thing, like I said, the repricing of the nonpar product also. So that was one of the things which even though the nonpar percentage went up because we had repriced it very -- looking to the increases in rates that we were anticipating and the interest rates have behaved exactly like that. And so as a result of those, I think all these factors have gone into this being flat.
Okay. Sir, and going forward, do you expect our absolute VNB growth to track APE growth? Or there should be some margin expansion kicker in the future?
Margin expansion will be there. Margin expansion will be there. That is what we feel. I can't predict what will happen exactly. But then we feel that margins will go up because right now, like we say, last time also when we changed the pricing in August, before that, we had a very healthy margin on that. And that is why we thought that looking at the market and the way the interest rates were looking likely to go up, we wanted to reprice the product and get volumes out there. We have been able to start getting volumes there. And we have introduced another product that.
So that has proved to be quite popular. In the end of March, we saw in the first 7 days, 10 days of launch itself, we had a good number. So going forward, we think that these products will continue to find traction. The other thing is, of course, our focus on protection. So when protection grows at the same rate as the entire business or higher, then the margins will go up. So looking at all those things, our margins are likely to go.
Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Mahesh Kumar Sharma for closing comments. Thank you, and over to you, sir.
Yes. Thank you very much. It was great spending the evening talking to you and getting your feedback and also your questions. Some of you who -- whose questions have not been answered in full. I'm sure Prithesh will be very glad to sit with you and talk to you about all those assumptions, and all the changes that we have so that all these doubts can be cleared. Thank you very much for participating in the call. And I wish that all of you stay safe and healthy, and have a very nice evening. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of SBI Life Insurance, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.