FY26 closed at 24.7% VNB margin / +10.9% VNB.

Looking ahead over the next five years and projecting toward 2047, what do you see the key government policies that could drive strong revival in industry growth? Secondly, regarding the product margin outlook, could you please share a bit more detailed management insight on the product design and margin outlook in context of the ongoing regulatory changes and managing the macro development?

If you look at what's been happening over the last few years, there have been a series of regulatory measures which have opened up the market in terms of ease of doing business. So, by and large, you have seen the regulator move from, more towards a principle-based regime and therefore giving companies a lot of flexibility to be able to respond to market in different ways, depending upon their strengths and the positions that they hold. I believe that is the position that the government will also continue to take as well as with the new regulator in place, the Chairman of the new regulator in place. Very specifically, when you look at the most recent change, which is on GST, very clearly that's a positive. Well, of course, there is a short-term impact, on the manufacturer. But I think net-net, this is going to be a much bigger positive than most other actions that have been taken in the past. Because very clearly, at one level, with 0% GST, this elevates insurance, life insurance and health insurance from being just any other service to that of an essential. On the second question, very clearly, there are a set of levers that are available. One is a conversation with distribution on how we could look at sharing some of the costs. The second element is around operating expenses, where there will be some element of GST increase due to the ineligibility of the input tax credit. We have been working very hard on managing our cost ratios, 280 basis point improvement. While, of course, there may be some short-term increase as we go through the rest of the quarters, purely because of the GST ineligibility coming through. But I believe the work that we have been doing on improving cost ratios will help us as we go into the coming quarters as well. And product mix for us is a function of where the customer demand is. Our perspective on product mix is that we continue to be agnostic of that product mix. Therefore, the next point is that how will you manage your profitability? That comes about by ensuring that your cost ratios as well as your costs are in line with the kind of products that you sell. Given that a large component of our business is savings business and the core profitability driver of savings business is managing costs, that is an area that we will continue to keep working on.

Continuing on the cost reduction part - are these cost reduction measures sustainable, particularly in the backdrop of whatever sustainable growth we aspire? Will this kind of cost reduction have no bearing on growth? Is this kind of cost reduction also coming because of rationalisation of headcount? Also on EV more particularly looking at ANW and VIF on slide 15 - if I look at the March-September, March and now again September, there is a huge volatility in terms of where ANW is moving. Is it kind of these movements happening because of the yield movement or some equity related? Is there some kind of impact of GST related on EV going on in this ANW here? And if you can confirm that the 1% kind of impact on EV from GST you have taken in this H1 number?

Let me address your ANW question. You're right. A large portion of this is a yield curve movement. And that's fairly significant in the period. Coming to your other question on cost ratio movement, frankly, this is work that has been going on. You cannot turn around cost ratios in a day. The key point is that you have to be able to support the business with the relevant costs, as well as the initiatives that you have to take and the investments that you have to make towards it. So, it is not something that you can turn around on a dime. This is a piece of work that we have been doing across multiple quarters now and you're starting to see the benefits of that come through. Clearly, one of the ways that you can look at it is in terms of identifying very, very closely what are your discretionary spends. The other bit in terms of people is very clearly, rather than focus on headcount, it is reallocation of our employees and people forced into the areas which have got the biggest bang for the buck. It is about reallocating people to where they are able to generate the maximum value for the Company. The third component, which is not very well spoken of is actually on the core operating expenses, which is operations, where you are looking at creating capacity, increasing digitalisation. This becomes a very big winner along the way. Last and not the least, brand awareness is important. While most of our focus in terms of brand cost has been more below the line and digital in nature, this is something that helps cement the position of the Company in customers' minds. Having said that, as we get into the new era, given that we have got GST input tax unavailability, it will from our optics perspective create a short-term bump up in cost ratios as we get into the next quarter.

On VNB development this quarter - if I look at the product mix vis-a-vis Q1, the mix has moved in the direction of products where VNB accretion or margin accretion might be lower, towards linked and group fund. Our ability to keep the VNB more or less stable despite such larger categories coming up - is this only on the back of retail protection and non-par or is there anything else? Has there been a major change in product designs? Could you highlight the par-non par mix during the quarter? Also, is there an impact of the GST input tax credit we could not take for the sales of the last eight days? On persistency drop - is there any change of persistency assumptions expected in our VNB calculations? On yield curve movement leading to ANW and VIF change - why the impact would be different from March 2025 while ANW went down, VIF saw a very strong growth?

Let me pick up in the reverse order. The ANW point fundamentally is around the MTM on the debt and the duration of the debt that we hold in our part of ANW. So, large portion of it is explained just because of the MTM of debt. The VIF growth if you want to explain is largely explained by way of unwind as well as VNB additions and some bit will come because of some economic variance. Those are the three large components that come as part of it. Now, persistency, the right threshold to look at is two years back because it does not have the period of March 2023. But having said that, there are a variety of product and channel combinations that we need to be able to take certain additional action on and that is in progress. So, when you look at from what numbers that were disclosed at last quarter to now, we have been broadly stable. But the efforts are on all the teams to improve on persistency and we hope to be able to recover whatever loss that we have through the year as well in most cohorts. Now, you had a question on the VNB. The positive movement in margin is largely due to one of these four factors. One is the higher mix of protection. So, if I look at what the full year protection mix was to where it is now, there is a significant movement up. The second bit is in terms of the share of non-par business. And given the fact that we had launched a product in January this year, January 2025, that has started to become a larger portion of the traditional book. So, even at this point, it stands at about 50:50 roughly in terms of the par to non-par, whereas earlier it used to be the ratio of 2:1 for the par to non-par share of the traditional business. The second thing is in terms of underlying product level profitability, where we are looking at increasing sum assured multiples, longer tenure policies, and of course, increasing rider attachments. So, this factor has started to play out now and that is helping us improve underlying product profitability. Third is in terms of the favorable movement of the yield curve across this period, that helped a bit. And the last is another offsetting impact that we have. What we have done is in terms of GST, we have taken an estimated impact of the GST disallowance on both the commissions as well as operating expenses, whatever is relevant for this half year. We have taken that hit onto the new business that we have reported for this period as well.

Given the reduction on individual life policies, how will you treat the impact within the embedded value framework? Specifically, will the benefit flow through the expense variance or the operating assumption change line in the EV waterfall? The other is that since group products remain taxable with input credit eligibility, is there a plan to kind of balance the trade-off between retail and group?

On the first one, that will be an assumption change. It will not be a variance, it will be an assumption change, which we will disclose at the end of the year. And essentially, whatever expenses are directly attributed to retail business, you cannot really set that up directly against group business. Theoretically, it might make sense to say that I will play one against the other. But, practically, it is not possible because those two business lines are different, the distribution lines are different, the products are different. So, you cannot really play one against the other. Theoretically, on excel sheet does make sense, but practically, it becomes quite difficult. But at the end of the year, any case, depending upon the total quantum, that will show that as part of an assumption change. And that is the right place to put it because that is going to be an impact of the GST change on to the way the business model will carry on into the future.

The GST claim which we are getting and it will increase the cost. So, how we are discussing the commission structure? And is this discussion also with the agency where we will reduce the commission for agents as well?

Yes, we are in the process of renegotiating commissions with all of our distribution. This conversation is on at this point.

What is the mix of ICICI bank channel in the total banca? Secondly, expecting some improvement in growth in the second half, my question is that, if we are not able to achieve the growth which we had expected in the starting of the year, will that impact our VNB margin as well because it's based on our expected cost absorption?

On your first question, the ICICI bank has been stable at the 100 crores per month range. It broadly stays there. That's not so much of a change in the share of ICICI bank as part of our retail mix. Second, the way that we have architected the business, I think we are quite confident to be able to deliver on growth. As I mentioned earlier in response to Neeraj's question that the H2 base is quite benign. We do have a favorable bump up that's coming out of the GST reform as well. So, I believe we should be able to deliver on growth in the second half.

The Rs. 505 billion EV what we have reported, it doesn't have that 1% negative impact in the numbers, right? Or it is already incorporated in that Rs. 505 billion what we reported in H1?

Broadly with the impact of this GST on the existing book to the extent that we know has been factored in as part of the declared VNB. The full walk, we will do that at the end of the year.

When we report our margins, we report it on estimated cost. So, the 24.5% what we are reporting is still based on that estimated cost or we have already incorporated that GST input credit negative impact already in the 24.5% what we reported now?

Yes, we have taken in what we know of GST into the 24.5%.

GST typically, in my view, will impact largely two products, individual protection and ULIPs. So, individual protection, till the time you don't take a price hike, it will have an implication. But ULIP seems to be a permanent damage. So, when you speak about renegotiating commissions, it is predominantly a ULIP phenomenon or you will do across the products. And whether you have headroom in RIY to take that impact of ITC to still maintain the margins on ULIP?

Okay, so Sanketh, then let me put some facts on the table. See, the impact of GST input tax credit disallowance is felt most on non-par. And if I am looking at the savings line of business, and I look at the severity on the margin impact, it will be highest on the non-par. It will then come through to unit linked, which will be of small impact. And then par, of course, is a very, very small impact because it cycles through the fund. And at the end of the day, will go back and impact the customer bonuses and Shareholder portion of the bonus. This is the order of priority. So, the reason why the entire industry is renegotiating commissions with distribution is primarily because of the varied impact that it has based on the mix that they carry. So, protection is another element. Of course, it has an impact on protection, no doubt about it. Protection in that sense will behave like a non-par because it will carry through completely to the Shareholder, any impact that you are not able to manage with the distribution. So, your order in terms of severity is going to be around non-par and protection, then to a very small degree on unit linked and a very, very small degree on participating.

In non-par, probably you can change the IRR if you want to renegotiate that, I mean, it's to mitigate the impact. So, is it fair to say that?

If you want to take away customer benefit, that's a different position, Sanketh.

This banca slowdown what we are seeing in the first half, though the base was not meaningfully very high last year, is it largely because of the IndusInd bank channel where probably Hinduja's has taken a little lion market share or it is in general weak demand in the banca channel?

Bancassurance is 30% of our business. Last year, growth was close to 30% and this year is flattish. So, ICICI Bank is half of 30, which is 15%. And remaining 15% is fairly distributed. You took an example of IndusInd Bank, but we have other bank partnerships as well. And it is a fact that in a multi-banca partnerships, you will have different ecosystem challenges with different partnerships at various points in time because of the cycles or unique challenges with some partnerships. But that is part of the game. That's how things operate in multi-distribution network. So, to that extent, I cannot single out any one unique issue contributing to overall banca flattish performance. All I can say is 30% growth last year was quite significant. And that business has remained flattish now. So, on a 2-year CAGR basis, it is still 13.5%-14% of growth that we have seen. And again, we need to also be cognizant of the fact that some of our banca partnerships like ICICI Bank has predominantly focused on protection and unit-linked business. And typically, unit-linked business does well in a buoyant market. To that extent, that also had an impact.

On that RIY headroom which I asked you, whether we are at the threshold on most of the products what we sell or we have a still headroom to maybe if you want, we can navigate the ITC issue?

No, we have some headroom.

From a persistency perspective, is it in line with your assumptions or it is lower than your assumptions?

So, Prayesh, there are certain pockets that are lower than assumptions and that is what our endeavor will be to bring them back up towards the end of the year so, that there does not remain a variance. Secondly Whatever is residual, we will take that as part of the assumption change at the end of the year.

In the EV, you have taken the hit only on the VNB, which is on the new business, or whatever you have written so far in the first half on the GST cut. But on the back book, the impact is yet to come on the EV that you have reported, right?

No, we have taken the impact on the EV as well. But like I said earlier, whatever we know, we have taken an impact on to the EV as well, the EV walk that we will disclose at the end of the year.

Any changes to the IRRs that you have done on the non-par side just to mitigate or just to kind of adjust to the yield curve, whatever has happened in the last three months?

No, we haven't made any updates to the IRR of our non-linked products.

Increased volume on protection is anticipated, but on savings business, because the impact is not very significant and quite invisible, do you see increased volumes in the savings business also?

Yes, we see it on the savings business as well, because see, within the unit-linked, if you look at the benefit illustration, you should start to see a uptick in terms of the returns that you make at the standard fund growth values. Very specifically, you will see this in terms of both traditional businesses as well, both traditional businesses, which is par and non-par. Non-par, you will see uptick in IRRs, because very clearly, what the customer should ideally be looking at is the total amount of money that goes out of their pocket, which is the base price plus GST. So, now that the GST is no longer applicable, the base price itself is going to give you a better return.

On retail protection, there also we are seeing that the growth has slowed down, specifically in quarter two. So, anything specific to highlight in this quarter?

Q2 for us last year was a fairly strong base, and we had grown at 31% in Q2 last year. So, against that base, this minor growth number clearly is something that I think we should be able to go past that into the coming quarters. Very clearly, I think the underlying are quite strong. So, in terms of absolute numbers that we have been generating quarter on quarter, that's been on the uptick. We saw very strong growth in Q1 as well, 20% plus growth in Q1. But given that last year, Q2, we had a very, very strong growth number. I think against that this falls a little short. But this does not in any way mean that we are seeing a shortage in demand. Very clearly, we are seeing a lot of demand come through on our website, which is largely protection oriented. We are seeing a lot of customers come through and ask about retail protection. And now with the GST cut being applicable, protection suddenly is 18% cheaper.

Whenever we have seen a growth slowdown, we have tried to tackle it through cost focus, focus on cost, etc. While in that process, how are we thinking about long-term investments, because if we are curtailing costs and have a lot of focus on cost control, at some point in time, your focus on investment for longer term will get impacted. Why don't we try to sacrifice near term margins and build investment which will give you much more sustainable growth from a 3 to 5 year perspective?

Yes, it's a fair question. I think your point is, if I were to summarise is that, are you cutting into the muscle? And I think the answer to that is clearly no. Because what we have been doing is ensuring that there is further alignment of our resources to where we are able to drive value. Now, be that in terms of reallocation of our organisation structure, reallocation of our people into more productive areas. Along with that, we have looked at greater degree of digitalisation. The idea is that if you're in a position to deliver on the underpinnings and make them stronger and stronger. And very clearly, one of the things that we have continued to invest in, and you can see that as part of our disclosures as well, we have not stopped investing in technology. That continues. I think that will become a game changer as you look at the coming quarters and the years ahead.

It's been less than a month also with the GST cuts. In this three to three and a half week period, how much of the impact have we been able to pass on? How much of the ITC that you estimate have we been able to cut? How much of the thing have we been able to pass on to the distributors?

No, nothing has been passed on to distributors yet. As Amit also mentioned, this is a set of renegotiations that are on at this point. Nothing has come to close.

If there is going to be some ITC loss, which line items should it affect on the P&L? I know there's practically no impact in this quarter, but which line items, it would affect or it would have already affected?

So, the way we represent this input tax reversal, which we continue to have for the last few quarters and few years as well, is that we reflect across each and every element of our Schedule III expenses. Yes, to the extent that the GST input tax reversal comes through. But if you're looking at your P&L, then each of these Schedule III items will be inflated going forward to that extent that we get the reversal.

I am just trying to say that the actuarial liability that you have reported kind of assumes that adjust the reserves for ITC losses I believe is what it is. And probably that gets reversed as you probably have some discussions with distributors. Is that a fair reading? Have you assumed any renegotiation in this? If anything, there could be some reserve release only in the later quarters, because, assuming that you probably have a middle path with the distributors, right now we assume that there's nothing and this is the P&L. And if I look at it optically, the earnings are not distorted.

Yes, to the extent that we know we have factored that as part of the reserves. No, we have not assumed any renegotiation. Yes, you're right.

On the retail protection - how has been your mortality experience and have we done any repricing for the same?

I think we monitor the mortality experience quite continuously and repricing of contracts or other policies happens at all points in time depending upon the kind of advantage that we see in the market and the kind of benchmarking that we do on a continuous basis. So, there's nothing we haven't done. Yes, business as usual. You will continue to see some changes across pockets, but nothing massive or something that has to be done for the entire book at one shot. In fact, if you pay attention to our early claims, look at the ratio of early claims that has started to improve quarter after quarter and we are now at about 22% share of claims as early claims. And that gives you a sense of what we have been able to do in terms of improving the underlying mortality of the book.

Towards the Banca channel - I was just looking at your PPT. Basically, we added 2 new Banca partners in H1 and now we have overall 50 banks as our bancassurance partners. But if I look at the numbers, numbers look pretty flat at the end of H1. So, do we have any roadmap for the bancassurance growth?

So, in terms of bancassurance, see, there are no large banks that are currently available that we could partner. We are open to a partnership, but of course, depends upon whether the bank themselves wants to partner with us or not. Our objective in all of this is to make sure that we are able to spread as much as possible. And any bancassurance opportunity that comes with it, we are able to add and onboard as quickly as we can. You rightly noted that we added banks, two banks in this current period. Of course, these are small banks, but we have been working with each of our banks, bringing them up to speed and working on improving the throughput as well as in terms of quality. And also note that as part of our pack, we have got a section that talks about how we would like to integrate with our partners and our position is that through the ICICI Pru Stack, we'd like to be the most partnerable company in the ecosystem. In fact, now from an onboarding perspective, we are able to onboard distribution partners in less than two weeks and get them productive.

At what speed do we start to essentially hit customer benefits? Do we have something in mind that this will be the VNB margin outcome due to the ITC or maybe if the growth is not picking up, maybe 2 or 3 quarters down the line, we can consider hitting customer benefits?

Raghvesh, in response to a question earlier, I mentioned that it's important for us to be able to keep the customer at the center of everything that we do. The rest of the ecosystem, which is the distributor and manufacturer, have to be able to manage this and ensure that whatever best for the customer can be provided has been provided. We also have to be cognizant of the fact that this is not the only avenue for savings in the market. There are other products as well and we clearly have to keep our products competitive in that context. Of course, in the context of these being long-term savings. So, I don't think the right approach is to cut customer benefits. I think we have to find a middle ground between the ecosystem participants to be able to find an outcome. Clearly, our position on the VNB is to look at the growth in absolute VNB and believe that with the demand that is potentially going to be spurred because of the GST reform, that should enable us to meet our growth numbers on VNB.

On the renewal book, on the policy written in previous years, do we have any leverage to change the commission structure on the book, which was written say in FY2024. Can we change the renewal premiums now on that book?

So, that is part of the conversation that we are having with distribution as well. We have no ability to change renewal premiums. But in terms of renewal commissions, this is also on the table in terms of the set of items for conversation. The other bit, like I mentioned earlier, is to be able to manage cost. And you're seeing the improvement in our cost ratios for a variety of activities that we spoke of in response to earlier questions as well, that I believe should hold us in good stead as we go through the quarters.