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

On operating assumption changes - what parameters drove the assumption change given operating variances are positive this year? Why do this when variances appear positive?

If you recall last year, we had seen a large negative variance in mortality. That is one of the components that has gone into this operating assumption changes at this point. Our philosophy has been that if you start to see some variances and there are negative variances, then we would like to correct them as quickly as we can. We hadn't seen that through most of last year, but we saw that at the end of the year. With the negative operating assumption of Rs. 2.5 billion roughly, with the positive variances that you see across the other line items, we believe we have been able to cover for what we see at this point in time.

On capital strategy - what is leading to the decline in required capital, and why raise sub debt when solvency at 212% is comfortable?

We raised Rs. 14 billion in Q3. That roughly contributed about 18% to 20% of our solvency. About four and half years back, we had raised Rs. 12 billion sub debt as well, which has a call option coming up in November 2025. The choices will depend upon how RBC gets implemented and the timeline for implementation of RBC. We are not sure of the final contours of the RBC. Once you've got some degree of certainty in it, we'll be in a position to determine whether we need to re-raise it, or we would let it lapse once the Rs. 12 billion has been called back. So, in anticipation of this is why we had raised the Rs. 14 billion.

On partnership distribution - what is leading to the growth struggle? Is it product environment or surrender value?

It contributes 11% of our overall distribution APE. Largely it is on account of them not participating enough in the tailwind which was available in the first half of the year - unit linked business was supported with positive market sentiment. Partnership distribution channel focuses more on non-linked side of business. Second, there was an adjustment subsequent to change in surrender guidelines. Third, our mix of protection in partnership distribution actually went up from 15% in the previous year to close to around 20% this year. On a CAGR basis, they have contributed to around 17% to 18% growth over the last three to four years. I would like to look at FY25 as only a transitionary phase.

Any discussions happening on bancassurance regulation or parent bank?

No, Avinash, we are not aware.

On operating assumption in VNB - the EV part is mortality, but on the VNB part what has been the reason? Was it cost structure shifting to ULIP?

Yes, part of it that we discussed in the EV walk has come through from some of the mortality changes that we had to do. Within the VNB also, there will be some element that comes from the expense affordability. Given the fact that there has been a shift towards unit linked, that does create a little bit of an expense affordability from a margin perspective.

On EV walk - persistency and other variance is Rs. 0.17 billion but footnotes say persistency was Rs. 0.73 billion. What has gone negative in others?

You are right, the persistency and other is positive of about Rs. 17 crores and there's a negative that you see in others. Others essentially a set of small items that are residual within the EV walk. These are the residual components that will be left after accounting for persistency, expense and mortality.

Why didn't you change the assumptions last year itself when you saw the negative variance? Why wait until FY2025?

The way we think about operating assumption changes is to understand what kinds of variances we get and whether we have a view on these variances being sustainable at that level. At the end of last year, we weren't certain. We had seen delays in the claim reporting in group lines of business, specifically on credit lines. As we monitor this experience through the year, we've been able to ascertain what kinds of strengthening we need to do in our underlying assumptions. That is what you now see resulting in the overall negative Rs. 2.54 billion. Our philosophy is to be able to catch variances as early as we can and then take them into account as part of our assumption changes.

On cost - if growth slows, how do you manage investment vs operating deleverage? And on the zero-surrender annuity launched last year, what is the surrender experience?

We've been able to manage our cost ratios sequentially over the last couple of quarters. It is for us to be quite calibrated as we look at growth into the coming year. We wouldn't want to get into an operating deleverage situation. On the benefit enhancer, we did deferred commission. So there is no real reason for any customer to ask for the money back just because they are looking at some sort of return. They are going to lose the GST component on top of it. The distributor also has got his commission deferred across the board.

How is ICICI Prudential looking at normalising commissions given regulator concerns about commission increases?

The idea is to actually look at overall costs. While we've been able to respond to the market in terms of increasing commissions where relevant, we've also taken steps to reduce our opex cost elements. If you look at the overall cost base from FY2024 to FY 2025, that overall cost has gone up by about 12% to 13%, where we've seen the topline grow at 15%. We will have to ensure that our residual opex has got some sort of a decrease such that we are able to keep our overall expenses under control.

On VNB walk - product mix shows positive 200 bps but ULIP share has gone up, protection down, group fund up. Where has this benefit come from?

The business profile that you see as positive factors the shift in the product mix, which would have been negative given the shift towards unit link and the drop in MFI. We've been working towards improving the underlying profitability of our portfolio through increasing policy terms, sum assured multiples and rider attachment. The overall retail sum assured has grown very strongly by 37%. So what you now see is the impact of the shift in the product mix that's again countered by the effects of repricing and the underlying profitability that we've built into it. That has resulted in the positive 2%.

Last year you took Rs. 2.88 billion hit and now Rs. 2.3 billion. Is everything factored in or can we expect more changes?

What you saw last year was a variance of negative Rs. 2.88 billion. What you see this year is a negative Rs. 2.5 billion of assumption changes, which essentially is multi-year variances built into it. When you look at the current set of variances, it's positive across other line items of persistency, mortality, and expenses. Seeing those positives, we believe we've been able to take into account all that we have been able to observe out of our portfolio so far. Otherwise, you would not have ended up with the positive variance.

On VNB margin walk - economic assumption change of -60 bps. Why negative impact on VNB margin given EV sensitivity to reference rates is positive?

The economic change you see in the VNB walk is largely on effect of the yield curve. Technically, we should be able to reprice every month. Unfortunately, that itself is a challenge that one cannot execute. To the extent that we were unable to reprice in the first half of the year, because we had to make all the changes due to the surrender value guidelines, we were unable to reprice some of our interest rate sensitive products through most of the year. But this element at the end of the day is small. It's about 0.6%.

On longer-term cohort persistency seems to decline. Is it from COVID years and will it improve?

I believe you are referring to the 61st month. A large portion of the portfolio that sits in the 61st month is unit linked, where we've been able to get our customers to continue staying in the product even though they are not paying premiums. There's something called a cover continuance option, which allows the customer to continue to enjoy the benefits while they are not making the premium payments. While it is value accretive to the company because we do earn FMC of the funds and residual mortality elements, it does show up as a minor negative in persistency.

On annuity - why was there a decline on year-on-year basis for full year FY25?

Last year when we had introduced the product, we actually had a lot of ATL support along with our new product thrust. We had a very high base. In Q4, it was roughly about 20% of the business was coming in from the annuity. As you look through the year, that has stabilised and come more closer toward the 8% mark. On an incremental basis, we still do in the range of 8% towards annuity. But when you compare year-on-year, you do see this base effect come through.

Can you share approximate share of ICICI Bank in your APE for FY2025?

Yes, Nidhesh, it's roughly in the range of 14%-15%. It's been broadly steady through the year.

On VNB margin walk - why is ULIP unaffordability in operating assumption change rather than new business profile? Have you changed unit cost assumption?

Under the IEV, we are supposed to reflect all costs at the end of the year. So if there is an update to the expense unit cost, then that gets reflected under operating assumption. Unlike other formats where you could work with the long-term cost and show an expense variance, under the Indian embedded value you can't do that. Under the IEV, there is no concept of long-term unit cost. It is just that whatever expenses that we have, we have reflected that within the VNB walk itself under the operating assumption.

Is FY2025 22.8% VNB margin slightly overstated given operating assumption variance includes some current-year component? Should it come off in FY2026?

When we take the operating assumption changes for the current year as part of the EV, this reflects all known experience that we have at this point. The VNB margin that at the end of the day accounts for all of these adjustments as well. Having made those adjustments, what you are seeing residual are small positives around persistency, mortality and expense. To say at this point that we would see something negative coming through, I don't think is correct. To the extent that we know and we have been able to see, we have reflected that as part of the assumptions.

Retail APE growth around 11% versus 15% total APE. Realistic expectations for retail APE growth in FY2026?

For this year we've seen retail grow quite strongly. One of the challenges that we came across was on the credit life and specifically on the MFI side. While the MFI business may be soft for the coming quarter or maybe further, we do not have any control over that. What we will do is we will work beyond that and will be able to build other lines of business. If you look at Slide 9, retail APE is at 13.3%, which along with group, takes the overall APE at 15%.

Why did protection VNB margins drop from ~75% to ~55%? And what about VNB sensitivity to reference rates being higher than peers?

If you look at the reference rate change to VNB, frankly, this precludes any management action. We would be in a position to reprice it. Sometimes you are not in a position to reprice it every month, but the idea is to be able to catch up and reprice this at every possible opportunity. Some of the changes also in terms of the protection margins are largely around the updates that we have done on the mortality which have flown through. But a large portion of the business again is on the group side, which we'll continue to look at pricing as time goes by. We would expect these margins to improve as time goes by, and we've got an opportunity to correct these via pricing actions.

On 13th and 49th persistency on non-linked business - decline year-on-year. And on non-par - even on two-year basis there is high single-digit CAGR decline. What gives confidence this segment picks up?

On non-par, yes, through the year, this had declined. But what we've seen in Q4 is a resurgence of non-par primarily on the back of the GIFT Select product that we had launched there. Given the current economic conditions where things are a little volatile, we believe this would be a product that would do well. With regard to persistency, there have been some changes, some minor drops in terms of persistency, but that's largely around certain segments which we will look at correcting as we go through the year.

On protection margins ex group term, are they stable? And what is the Q4 par/non-par mix?

On the retail side, we are holding margins on the protection side. Roughly for Q4, par/non-par has been roughly half-half.

On ULIP margin - given strong volume growth, should margins improve? And what about full impact of attachments next year?

The margins on ULIP are slightly higher than they were last year. But a large portion of that does come about based on the features and riders that we have attached as part of the products. As we continue to attach more of them, we should be in a position to improve the underlying profitability of that line of business. If we are able to sustain the momentum, it should help.

Is steepening of yield curve positive for non-par business? And any comments on bancassurance and agency regulatory amendments?

It does allow flexibility, but of course it is depending upon the environment and we've been in position to correct our prices or update our prices based on how the market also evolves. None at this time on the regulatory front. We have not heard anything on that front till now.

Q4 non-commission cost has meaningfully come down - is this a new normal or sustainable? Also, are assumption changes largely related to non-retail protection?

Yes, the assumption changes can largely be explained by the group side of business, which is the non-retail side. Coming to your other question on cost ratio, rather than look at the split between commission and non-commission, the idea is to be able to manage the overall cost ratio put together. The endeavour will be to keep our overall costs in line with the product mix and therefore the affordability that we are able to generate. We would like to keep this as low as possible while continuing to invest in areas such as IT digitisation, as well as supplementing channels with feet on street where required.

Has new non-par GIFT Select cannibalised regular pay deferred annuity zero-surrender product?

We don't believe so. These are two different lines of business. The annuity product is targeted more towards a person who is nearing retirement. The Gift Select would be targeted at a much lower age. Prior to the annuity launch, our annuity mix used to range between 4% to 5%. Even now, after having stabilised the momentum, we are still at 7% to 8%. So annuity is holding on its own. Gift Select is targeted for relatively younger customers looking at that product for his own consumption needs.

On agency counts - 60,000 hired but only 20,000 net add. Is 35,000-40,000 agent attrition the structural reality?

The idea is that we would like to add productive agents, but the reality of the market is that most agents in India start off being part-time and then they graduate to full-time. The reduction of agents comes about from agents who have not really been performing. Typically, agents who have not generated any business for four years, five years, they are the ones who come onto the deletion criteria. There's no reason to be able to cut them off as quickly as possibly a year or so. So some of the agent count deletion that you've seen are from agents who haven't performed for the last few years.

Have we done any repricing on retail protection front for sum assured greater than Rs. 10 million?

Repricing does come about through the year. Whenever we see some segments that we would like to update prices, both up as well as down, we do that through the year. So there isn't a single point where we take a big step change, but we would rather do this in segment and across the year.

If I add back assumption change to protection VNB, normalised protection margin is 70% - lower than last year. What is the right number to work with?

We will work at bringing the protection margins up back to last year's levels. That will be our endeavour. The pool put together and it's fair to look at 60% to 70%.