ICICI Prudential Life Insurance Company Ltd (ICICIPRULI) Q4 FY22 Earnings Concall Transcript

ICICI Prudential Life Insurance Company Ltd  (NSE:ICICIPRULI) Q4 FY22 Earnings Concall dated Apr. 16, 2022

Corporate Participants:

N. S. Kannan — Managing Director and Chief Executive Officer

Amit Palta — Chief Distribution Officer

Satyan Jambunathan — Chief Financial Officer

Judhajit Das — Chief Human Resources

Analysts:

Arav Sangai — VT Capital — Analyst

Nischint Chawathe — Kotak Securities — Analyst

Deepika Mundra — JPMorgan — Analyst

Prakash Kapadia — Anived Portfolio Managers — Analyst

Swarnabha Mukherjee — B&K Securities — Analyst

Nitin Aggarwal — Motilal Oswal Securities — Analyst

Avinash Singh — Emkay Global — Analyst

Nidhesh Jain — Investec — Analyst

Shyam Srinivasan — Goldman Sachs — Analyst

Sanketh Godha — Spark Capital — Analyst

Anand Bhavnani — White Oak Capital — Analyst

Hitesh Gulati — Haitong — Analyst

Akshay Jogani — Exponential — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the ICICI Prudential Life Insurance Company Limited FY 2022 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. N.S. Kannan, MD and CEO of ICICI Prudential Life Insurance. Thank you, and over to you, sir.

N. S. Kannan — Managing Director and Chief Executive Officer

Thank you. Thank you, Aman. Good evening to all of you, and I welcome you to the results call of ICICI Prudential Life Insurance Company for the financial year 2022. I have several of my senior colleagues with me on the call, as always, Satyan Jambunathan, Chief Financial Officer; Judhajit Das, who heads Human Resources, Customer Service and Operations; Amit Palta, who heads Distribution, Brand, Marketing and Products; Deepak Kinger, who is responsible for Audit, Legal, Risk and Compliance; Manish Kumar, who manages our Investments portfolio; Souvik Jash, our Appointed Actuary; and Dhiren Salian, Deputy CFO of the company.

At the start, I would like to talk about three major developments during the last quarter of the financial year. One, as you know, the country saw the third COVID-19 wave hit us in the last week of December of 2021 and continued till mid-February 2022. While the mortality outcome of the wave was materially lower than the second wave, the rate of infection was quite significant. The higher infection rate amongst our employees as well as partners employees resulted in loss of productivity in the months of January and February. Since the receding of the third wave and other restrictions being eased by the state governments across the country, we have started to see an easing back to normalcy across the country.

The second development, the global economic and financial environment has worsened with the escalation of the geopolitical conflict as all of us are aware of. Consequently, the financial markets have exhibited increased volatility. Amongst other consequences, this event has exacerbated inflationary pressures across advanced as well as emerging market economies alike.

Third development, on the regulatory front, the insurance regulator, IRDA, Chairman has been appointed in March of 2022. The new Chairman has met with all the life insurance companies and has stated his 25-year vision for the industry to coincide with India’s centenary of independence. In a public statement, the Chairman has stated his intent to shift to a principle-based regulatory regime; to use the strength of technology and data for closing the protection gap; to support the growth of the insurance sector. We view these developments as a huge positive for the industry, and we expect to engage and collaborate with the regulator even more closely in the months to come. Our results in the current context of our company needs to be viewed in light of the above three developments.

Before I go on to talk about the results, I’m happy to inform you that during the quarter, we have won multiple awards across business functions. Innovation in products has always been a focus area for us. Our product, ICICI Pru Guaranteed Pension Plan has been voted the product of the year in the life insurance category by Product of the Year India Private Limited. Recently, we also won the Tech Innovator Company of the Year awarded by the India Insurance Summit & Awards 2022 organized by Synnex India. I would also like to add here that our revamped customer app has crossed the milestone of 1 million downloads. With ratings of 4.5 on the Android Play Store and 4.3 on the iOS App Store, our app is one of the best rated in the industry. Today, one out of every four service transactions is carried out on our mobile app.

I will now move on to our performance for the quarter. Our 4P strategic elements, that is premium growth, protection business growth, persistency improvement, and productivity enhancement, continue to guide us towards our objective of growing the absolute value of new business VNB. While ensuring that our customer is at the core of everything we do, we operate on these 4P strategic elements.

Along the way, we have been integrating ESG aspects into the management of our business itself. Our robust performance across customer-centric parameters is presented in slide five of our presentation. Our 13-month persistency for non-linked savings has reached 89% as of March 2022. Our claim settlement ratio stands at 97.8%. The company has settled around 260,000 claims in the financial year 2022, which is more than twice the number of claims we handled in financial year 2020. This surge in volumes was handled through various initiatives implemented by the company by way of ramping up the claims’ adjudication capacity, deployment of analytics and claims processing, and facilitating hassle-free claims documentation through offering doorstep document pickup services amongst several other initiatives. These initiatives ensure that the average claim turnaround time for non-investigated claims was just 1.5 days from the receipt of last requirement in financial year 2022, despite the higher intensity of claims that I talked about and also the challenges prevailing in the ecosystem in handling claims.

I’ll now take you through our performance on the 4Ps through slides six to 10 of our presentation and then conclude with a commentary on the VNB.

Let me start with the first P of our strategic elements, which is premium growth. As mentioned earlier, despite the impact of the third wave of COVID-19 during the months of January and February, our annualized premium equivalent, APE, grew by 4% to INR26.08 billion in the fourth quarter, resulting in a robust 20-year year-on-year growth of APE for the entire financial year. Our new business composition over the years was dominated by unit-linked products. As you can see on slide seven, in financial year 2019, which was the year prior to our articulation of VNB doubling, linked products alone had contributed 80% to our top line. Since then, we have been systematically working on broadening our customer base through a combination of distribution buildup as well as product propositions. Through the year, we introduced two new fund options within our linked products and some new products on the non-participating as well as protection platforms. My colleague Amit will talk about this in more detail later.

As we speak today, for financial year 2022, linked products contributed less than half of our top line with 28% being contributed by the non-linked savings products and 17% by protection products. With this, we believe that our diversification agenda on product mix is well on track, enabling us to manage the impact of external developments, and respond to changing consumer preferences much better than any time in the past. The testimony to this has been our performance during the year on premium growth despite market challenges and fulfillment-related challenges. Similarly, on the distribution front, we continue to maintain a diversified distribution mix. In financial year 2021, we had added significant bank partnerships as we are all aware of. I’m pleased to note that the share of other banks has further grown from 11% of APE in financial year 2021 to 14% of APE in financial year 2022. Coming to the other channels, in our financial year 2020 to APE, ICICI Bank channel share was 25%, agency share was 24%, direct business share was 13%, the share of other partnerships was 9%, and the balance was contributed by group business.

So with this, let me move on to the second P of protection business, which is presented on slide eight of our presentation. As you are aware, during the year, we saw an increase in end consumer prices for retail protection plans, driven by reinsurer-led price increases. Supply side constraints in the live pandemic environment, including the general reluctance to visit medical centers, and revised underwriting guidelines also impacted the retail protection business. As discussed in our results call last quarter, our response was to emphasize sourcing of preferred customer profiles with only minimal price increases and by increasing our retention limit from INR2 million to INR10 million in our retail term product. We haven’t changed the retention limit in other aspects of our protection business.

Our solvency ratio has been broadly steady across the quarter and stood at 204.5% at March 2022, well above the required ratio of 150%. As also mentioned in our last call, we launched the return of premium protection product in December 2021. Given that this is an entirely new consumer proposition, it’s quite heartening to note that in the very first quarter of our launch, the ROP product contributed to 17% of the retail protection APE. We continue to take advantage of the opportunity available in the group segment, specifically on group term products. As a result of all these steps, our total protection APE grew by 33% to INR4.57 billion in the fourth quarter of the fiscal, resulting in a 25% year-on-year growth and increasing the protection mix further to 17% for the entire fiscal 2022.

I would like to highlight that based on the total new business sum assured, our market share has increased from 12.5% for financial year 2021 to 13.4% for the 11-month period of fiscal 2022. With this, we continue to maintain private market leadership. This performance gives us a lot of satisfaction having overcome the challenges posed by the environment in the protection line of business. We expect supply side constraints to reduce with the easing back to normalcy across the country, and therefore, we expect a revival of the retail protection business over the coming quarters.

Moving on now to the third P of persistency, which is presented in slide nine. You can see that we saw further improvements across most cohorts of persistency. Our 13th month persistency ratio has increased by 90 basis points to 85.7% at the end of March 2022 as compared to March 2021. Similarly, our 49th month persistency ratio has improved to 63.7% at the end of March 2022.

On the fourth P of productivity presented in slide 10. Our total expenses grew 27% year-on-year for fiscal 2022. As you would recollect, our total expenses in financial year 2021 had declined by about 6% over the previous financial year 2020. In light of the ongoing COVID-19 pandemic, we had curtailed some of our discretionary spend in the financial year 2021. However, given the relative improvement in the economic activities in the current fiscal, we have focused on increasing our distribution presence and strengthening our brand. If you were to compare our new business premium growth with our expense increase in fiscal 2022 over fiscal 2020, the new business premium grew by about 22%, while the increase in the expenses was about 20%. The improvement in productivity is also demonstrated by 11% increase in APE per employee in fiscal 2022 over fiscal 2021.

Alongside our 4P strategic framework, we continue to maintain a resilient balance sheet as we have presented in slide 11. On mortality risk, for financial year 2022, gross claims on account of COVID-19 stood at INR21.07 billion and net of reinsurance the claim amount was INR10.17 billion. This net claim amount includes settled as well as notified and in-process claims. Further, at March 2022, we hold reserves of INR0.24 billion towards COVID-19 claims. Our solvency ratio, as I said earlier, was 204.5% as of March 2022 as compared to the required ratio of 150%. On credit risk, only 0.3% of our fixed income portfolio is invested in bonds rated below AA, and we continue to maintain our track record of not having a single NPA since inception of our company. Of our total liabilities, non-par guaranteed return products comprise about 1.9%. We continue to closely monitor our liquidity and ALM positions and we have no issues to report.

Moving on to the value of new business, VNB. This is presented in slide 12 of our presentation. As a result of the above drivers, the VNB for financial year 2022 was INR21.63 billion, a significant growth of over 33% over financial year 2021. Given our APE of INR77.33 billion, the result in VNB margin for the year was at 28% that is for the fiscal 2022, as compared to 25.1% in the previous fiscal. As we have always articulated in the past, we continue to focus on absolute VNB growth, which is our stated objective. You may recall that when we articulated our objective to double the financial year 2019 VNB, our reliance on unit-linked as a product category was significant. Also, we had been heavily dependent on one partner’s contribution to new business. In the journey since then, we have encountered a number of challenges like limited bank partners, change in prioritization of our key distribution partners, COVID-19 pandemic, subsequent country-wide lockdown, capital gain tax on higher ticket ULIPs, supply-side constraints in the protection business, devastating COVID-19 second wave and the consequent elevated claims, volatile financial markets, and reinsurer-led price increases in protection, just to name a few significant challenges over this period.

I’m happy that while all these challenges had an adverse impact on our business growth and profitability levers, we continue to pursue a resilient and growth-oriented strategy with a series of interventions such as the right product for the right customer, comprehensive product suite to cater to all customer preferences, greater digital adoption, new partner acquisition, limited protection price increase for the customer, recalibration of underwriting guidelines, and also capitalizing on group protection segment, which was a great opportunity in the market to grow our protection business. I believe that the results of all these interventions is what you see and it’s visible in our results for fiscal 2022. I’m happy to report that we have met our expectations on each of the 4P strategic elements, as is evident in our results.

Just to illustrate, on premium growth, our APE has grown by 20% year-on-year. On protection, our year-on-year APE growth was 25%, well above the overall growth in savings APE. On persistency, our metrics have improved significantly across most cohorts. And on productivity front, our APE per employee has grown by 11%. So I get a lot of satisfaction from the outcome for financial year 2022 along the lines of our stated objectives. Going forward, for the immediate term, we continue to maintain our objective of doubling financial year ’19 VNB by financial year 2023, which requires a growth rate of about 22% to 23% over fiscal year 2022 VNB. With a VNB growth of 33% for fiscal year 2022 and with more growth levers and margin expansion levers available with us, we believe we are on track to achieve this immediate aspiration.

Now, as we look at 2023 and beyond, we are poised to take advantage of all the good work that has gone into building a strong foundation for sustainable growth in the company. Our pursuit towards building a sustainable and growing institution will continue. And the unfinished agenda, such as the revival of retail protection business, expansion of annuity business streams, expansion of agency business, and direct channels would be pursued in a focused manner. Our primary objective is to outperform the industry on VNB growth over the medium-term, even if our APE growth related to the market may be influenced by the distribution strategies of some of our partners. Towards this, we believe that all necessary levers are available with us.

Now Amit, Satyan, and Jit would be taking you through the business update, financial update, and ESG update, respectively. Thank you once again for joining the call. Thank you for your patience, and over to you, Amit.

Amit Palta — Chief Distribution Officer

Thank you, Kannan. So I’ll be taking you through the business update, which I have divided into three sections: product, distribution, and persistency. Let me first start off with the steps taken on the product front from slide 16 to 18. In the early phase of the pandemic, we witnessed volatile markets, reduction in incomes, and uncertainty around loss of jobs and pay cuts. This led to a significant shift in consumer preferences towards products with guaranteed benefits, especially in the form of regular income.

Recognizing this trend, in the last quarter of FY ’21, we launched Guaranteed Income for Tomorrow called GIFT. GIFT is a guaranteed income product on the non-par savings platform with income period up to 10 years. We also launched Guaranteed Pension Plan called GPP, which is guaranteed lifelong income plan on the annuity platform. It has the option of deferred annuity for those customers who wish to plan for retirement well before their retirement. Both these plans had innovative, industry-first features, and were very well received by customers in FY ’21 itself. In FY ’22, we strengthened our product portfolio even further by introducing long-term income as a benefit under the GIFT product. With GIFT Long-Term, we have extended the duration of guaranteed income from 10 years to 30 years now. This product also offers life insurance cover to the customer for the full income tenure. So with GIFT Long-Term, we are now in a position to address the income needs of the customers right from the duration of five to 30 years now. We also introduced the GPP Flexi plan, which is a regular-pay variant of our GPP product in March 2022. With GPP Flexi, we created a proposition for the customer who intends to save for his retirement in a regular and systematic manner over a period of time. Now with immediate and deferred annuity options, we are able to cater to a much wider segment of customers, those who are planning for retirement well before retirement, those who are nearing retirement, as well as those who are retired.

Moving on to protection, iProtect Smart has been our flagship term plan, which has been recognized as one of the most innovative term plans in the industry. We do recognize that there is a segment of mass and mass affluent customers who value return of premium at the end of policy term. Keeping this in mind, we launched iProtect Return of Premium in FY ’22, wherein 105% of premium paid are returned to the customer at the end of the policy term. In addition to the return of premium feature, the product also offers customer the choice of either a fixed life cover or a dynamic cover option wherein the insurance cover changes with the changing life stage. This feature has found favor with younger customers who see the merit of having a plan with a cover which increases with their age. The new products introduced have been identified in orange on slide 16.

In the linked saving category, we launched two new funds in FY ’22. We launched Balanced Advantage Fund in August ’21. BAF as a category has become well established to ride over the volatile market conditions that we see. Later in the year, we launched the Sustainable Equity Fund, the life insurance industry’s first ESG fund. This fund invests in companies which conduct business in a socially and environmentally responsible manner, while maintaining governance standards. While ESG, as an investment theme is an emerging trend, we believe that having this fund in our portfolio allows us to have a differentiating presence in the unit-linked space. It is heartening to note that the new funds introduced on the unit-linked platform, guaranteed products in the non-participating platform, and the return of premium product on the protection platform have contributed in excess of 25% of our FY ’22 APE.

In terms of our performance on slide 19, we have registered a strong growth year-on-year across all segments, except group funds business, which tends to be a little lumpy in nature. Our annuity business grew by 31%, linked savings grew by 21%, non-linked savings grew by 19%, and protection grew by 26%, resulting in an overall APE growth of 20% year-on-year for FY ’22.

Moving on to slide 20. Given the pandemic environment, supply-side constraints, including revised underwriting guidelines, continue to impact the pure-term retail protection business. However, for FY ’22, the overall protection APE, that includes retail, group term, and credit life, grew by 26% to INR13.13 billion. We had launched the return on premium product in December ’21, and like what Kannan mentioned, for quarter four FY ’22, its contribution to retail protection APE was at 17%. In terms of new business received premium, protection segment contributed 29% of total new business premium for FY ’22. Our overall new business sum assured stood at INR7.73 trillion for FY ’22, a growth of 25% year-on-year. It continues to be the private sector market leader on overall new business sum assured with a share of 13.4% as compared to 12.5% in FY ’21.

Moving to slide 21. Annuity business contributed 19% in terms of total new business received premium. With the premium amount of INR30 billion in FY ’22, we were one of the largest pension and annuity providers in the market. Our wholly-owned subsidiary, ICICI Prudential Pension Fund Management Company distributes products under the National Pension System, and is registered as a Pension Fund Manager and a Point of Presence. This business we believe is synergistic to our annuity offerings and is expected to support growth of the annuity business in future. The AUM managed by PFM has increased by 54% from INR76 billion in March ’21 to INR116 billion at March ’22. The PFM has a market share of 15% in the private sector AUM at March 31 FY ’20. With this, I would like to highlight that almost 50% of our new business premium has been contributed by the protection and annuity segments, which are significantly underpenetrated parts of the market.

Moving on to distribution on slide 23. We are continuing to enhance our distribution network across channels. In the agency channel, the approach has been to ring-fence our highly-productive agents. We also added about 25,000 new agents in FY ’22. Within the bancassurance channel, we have a total of 27 bank partnerships. On partnership distribution, we added 107 new partnerships during FY ’22 and now have about 800 partnerships across traditional and non-traditional distributors such as web aggregators, payment banks, small finance banks, and insurance marketing firms. For the direct channel, the strategy has been that of upsell to our existing customers aided by analytics.

Coming to the performance of these distribution channels on slide 24. We saw strong growth across distribution channels. Our bancassurance channel APE grew by 10% year-on-year to INR30.12 billion in FY ’22. Within the bancassurance channel, ICICI Bank channel declined by 5%, however, the other banks grew by 53%. Specifically, the business share of ICICI Bank channel to overall APE was at 25%, while the share of other bank partnerships grew significantly to 14%. The annuity business from ICICI Bank channel grew by 25% year-on-year in FY ’22. Our agency channel APE grew by 19% to INR18.28 billion and direct and partnership channel grew by 23% and 22%, respectively in FY ’22 over the same period last year. We will continue to consolidate the gains of our product and distribution diversification efforts.

We aim to ring-fence our presence in the affluent customer segments and work towards deepening our presence in mass and mass affluent segments by offering the right product to the right customer and reaching them through the appropriate distribution channels. In the agency channel, we will continue to ring-fence our value advisors and invest in growing our geographical footprint by expanding towards smaller cities. We will work towards identifying whitespaces in customer segments and geographies within our partnership network, leading to an increase in the overall business of our partners. We will also continue to explore opportunities for new tie-ups. In the direct channel, we will leverage synergies between physical upsell and online digital sales processes.

Lastly, moving on to the element of persistency on slide 26. We continue to have strong focus on improving the quality of business and customer retention, which is reflected in our persistency ratios. We’ve seen further improvement in persistency ratios across most cohorts during FY ’22. Our 13-month persistency ratio improved from 84.8% last year March to 85.7% in March ’22. Similarly, our 49th month persistency ratio has improved from 63% last year March to 63.7% in March ’22.

That is all from my side. Thank you and over to you, Satyan.

Satyan Jambunathan — Chief Financial Officer

Thank you, Amit. Good evening, everyone. I’ll be taking you through some of the financial metrics. The outcome of our focus on these 4Ps, as you may see on slide 28, has resulted in a VNB of INR21.63 billion for FY 2022 as compared to INR16.21 billion for FY 2021. Our VNB margin for FY 2022 stood at 28% as compared to 25.1% in FY 2021. The diversification in the sources of profits that we have achieved gives us a robust base for the future. The movement in margin from 25.1% to 28% can broadly be explained by the following: one, 4.3% of margin improvement on account of business mix, which includes higher non-linked savings and protection mix compared to last year; two, a negative 2% in the margin on account of operating assumptions change, primarily reflecting current costs and some strengthening of assumptions on the group protection on the credit life part of the business; the remaining 0.6% margin improvement is due to yield curve movement, which was favorable during the year. A comparison of the yield curve is provided on slide 65.

If you refer to slide 29, embedded value at March 31, 2022 was INR316.25 billion as compared to INR291.06 billion at March 31, 2021, a growth of 8.7%. This growth was led by an 18.8% growth in the value of in-force business. Our embedded value operating profit for the year was INR31.92 billion as compared to INR35.05 billion in FY 2021. The breakup of EV operating profit is as follows: first, the unwind contribution for FY ’22 was at 7.2% of the opening embedded value, similar to FY 2021; second, the value of new business of INR21.63 billion was 7.4% of the opening embedded value compared to 7% that we had in FY 2021. The two of these together, that is unwind and VNB, was 14.6% of the opening embedded value; third, operating assumption change was a negative INR0.91 billion, primarily on account of strengthening of mortality assumptions for some of the credit life businesses. We continue to see a positive persistency variance of INR1.51 billion on the back of an improved persistency across most cohorts.

Mortality variance for the year was negative at INR11.87 billion. In FY 2022, there were COVID-19 tagged claims of INR10.17 billion. Even in the claims not reported as caused by COVID-19, particularly in the group protection portfolio, such as credit life and micro insurance, we have seen patterns of claims that synchronized with the COVID spikes. In our estimation, this could be as high as 20% to 25% of the non-COVID claims. Allowing for these patterns, we believe that claims for the year have been broadly in line with the assumptions used in the VNB and EV computation. The true underlying mortality patterns, however, would only be clear by the end of 2023, if there is no further spike in COVID cases.

As a consequence, the return on embedded value for FY 2022 stood at 11%. If we were to exclude the impact of the mortality variance, the ROEV would have been 15% for FY ’22, broadly in line with the past three to four years. The negative mark-to-market impact on shareholder debt funds due to a rise in the yield curve primarily contributed to the negative INR4.37 billion impact on EV through economic assumption change and investment variance. The closing EV, therefore, stood at INR316.25 billion at March 31, 2022, with the VIF growth, like I said, of 18.8% and an overall EV growth of 8.7%. Our VNB and EV have been reviewed independently by Milliman Advisors LLP and their opinion is available in the results pack submitted to the exchanges.

On slide 31, sensitivity details have been provided across various parameters. Within the financial metrics, the profit after tax for financial year 2022 stood at INR7.54 billion. Our solvency ratio continues to be strong at 204.5% at March ’22, an improvement from 202.2% at December 2021. At our last results call in January, we had discussed at length the changes to our retention strategy in retail protection and had also spoken of there being no change in the other business segment’s retention. This retention strategy has now been in place for Q4 of FY 2022. Our solvency ratio has remained stable over the quarter even with the higher retention. Our AUM was over INR2.4 trillion at March 2022, a growth of 12% from March 2021.

Our COVID-19 claims, gross and net of reinsurance, stood at INR21.07 billion and INR10.17 billion, respectively, for financial year 2022. With claims due to the pandemic reducing in the quarter, we have released most of the COVID-19 reserves that we had been holding. We now hold reserves of INR0.24 billion towards potential COVID-19 claims that have occurred but have not been reported to us, also referred to as incurred but not reported or IBNR.

To summarize, we monitor ourselves on the 4P framework of premium growth, protection business growth, persistency improvement, and productivity improvement to improve expense ratios. Our performance on these dimensions is what we expect to feed into our VNB growth over-time.

Thank you, and I will now hand over to Jit.

Judhajit Das — Chief Human Resources

Thank you, Satyan. Good evening. I’ll be taking you through ESG at ICICI Pru Life. Sustainability is intrinsic to our vision of building an enduring institution as we serve the long-term savings and protection needs of customers. We are committed to integrating sustainability in our business processes and embedding sustainability in our culture. We adopted the ESG framework in 2020, and our ESG initiatives are monitored by the Sustainability Committee, which comprises all members of our Management Committee. Each ESG focus area is anchored by a senior leader who oversee implementation of initiatives and they’re supported by a dedicated ESG resource. Their collective efforts have led to upgrades in our ESG ratings by two of the leading rating agencies. We understand that we are the highest ranked ESG company in the Indian life insurance industry.

I would now like to share some key highlights for each ESG focus area. On human capital, employee health and well-being has been our number one business priority. 99% of our workforce is fully vaccinated and we have successfully transitioned to a work-from-office mode with all our offices now fully operational. We are an equal-opportunity employer, and this year, our diversity has improved to 27% women employees with women constituting 40% in non-sales roles. On responsible investing, ESG is now integrated in our equity investments and the investment team refers to ESG ratings of companies as provided by an external service provider. Where ratings are not available, the team analyzes ESG issues based on company disclosures. We continue to focus on stewardship by engaging with investee companies and corporate actions of material importance and disclosing our voting actions.

As Amit alluded, we launched the ESG fund recently, and we are the first Indian insurance company to become a signatory to the United Nations Principles for Responsible Investment. On governance, our Board is Chaired by an independent Chairman, and all our committees are headed by independent directors. The Board has a majority of independent directors, enabling Board independence and also the separation of the Board supervisory role from executive management. On data privacy and risk management, for third-party service providers who process customer information, we have included requirements on data security standards in our agreements with them. We have integrated sustainability as part of our risk management framework. This involves stress testing of risk to our balance sheet, like mortality risk arising from any severe incident and other risks like customer data privacy risk, outsourcing partner risk, etc.

On access to finance. This specially designed microinsurance products targeting socially and economically weaker section covering 45.6 million lives as of March 2022. We settled around 2,60,000 retail and group claims last year and provided bereaved families with a financial safety net. On CSR, we spent INR68.2 million for CSR initiatives, largely through ICICI Foundation. Over 1,55,000 children and adults have been the beneficiaries of the COVID-19 vaccination program that we ran.

On environment, being a financial services company, our focus has been on recycling and reducing what we consume. Approximately, 1,700 tonnes of carbon footprint was saved during FY 2022 through initiatives that reduced energy consumption. We focus on water conservation and waste management and we have transitioned to green energy in some of our offices. Our efforts will be to reduce the carbon footprint going forward each year and increase employee awareness. We ran a Go Green campaign where 4,000 employees participated in activities like planting a sapling, working in a paperless environment, and so on and so forth.

In closing, I would like to, once again reaffirm our commitment to creating a culture that embraces sustainability and goes beyond goals and targets by integrating best-in-class sustainability practices with our business processes.

Thank you, and we are now happy to take any questions that you may have.

Questions and Answers:

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Arav Sangai from VT Capital. Please go ahead.

Arav Sangai — VT Capital — Analyst

Yeah. Hi. Good evening sir. I hope all are well going. Today I have a couple of questions. Mostly on the sensitivity table, I just wanted to have your thoughts on the increase in the sensitivity of references, like why is it such a steep increase.

Satyan Jambunathan — Chief Financial Officer

Arav, the increase in sensitivity on interest rates is a consequence of the increase in the non-linked, non-par savings in the product mix that we have. The way we are managing that, again, is explained in the appendix. Our risk management strategy is explained through use of forward-rate agreements. The way we approach it is that all future premiums are locked into yields at inception through forward-rate agreements. Through that instrument, we are trying to reduce the implication of any downside risk that may happen from an interest rate perspective. So the sensitivity changes on reference rate are predominantly coming from product mix changes.

Arav Sangai — VT Capital — Analyst

The second question I had was on the sensitivity of the mortality reference that you have given. So assuming that our retention has increased last quarter and we have been selling the newer products from Q4, so I just wanted to have your thoughts on logically, going ahead, should we see an increase in the mortality sensitivity because we have increased the retention rates in our protection products last quarter? And also that if we have to see [Technical Issues]

Satyan Jambunathan — Chief Financial Officer

Arav, we lost your voice.

Arav Sangai — VT Capital — Analyst

Sorry, sir. Just let me check that please.

Satyan Jambunathan — Chief Financial Officer

Okay. Let me anyway try to answer the question to the extent that you had asked it and maybe if I can connect back with Arav later, I will. From a retention strategy, when we increased the retention in December, yes, progressively on new business, there is a higher retention. But as a proportion of the overall book, it is still a very small movement from the time we increase our retention. Therefore, going forward, as the book grows on the increased retention, the sensitivity will increase to some extent. But I would go back to what I said at January during our results call where I had indicated that given the capital credit that we get for protection on reinsurance at 50% of the sum insured, it will gravitate back to 50% over a period of time. So the higher retention is more of a here and now thing. But over a period, we will let it gravitate back to 50%. So overall versus last year, I wouldn’t expect to see a very meaningful change to the mortality sensitivity over-time, except if the mix of protection increases quite dramatically into our product mix. Otherwise, I would expect the sensitivity to remain stable or if it changes, change gradually over a period of time.

Arav Sangai — VT Capital — Analyst

Am I audible to you now?

Satyan Jambunathan — Chief Financial Officer

Yes, you are.

Arav Sangai — VT Capital — Analyst

Yeah. Sir, just one final question I had, sir, on the assumption changes that we have done in the operating assumption changes, so any color on that? Even in the margin, we have a huge impact, so.

Satyan Jambunathan — Chief Financial Officer

So the impact on margins, Arav, we have seen is about 2%. Like I said, there are two main contributors to that: one, we strengthened the assumptions on some of our credit life partnerships where we felt that we should be increasing the mortality assumption. This has also been passed on prospectively in prices to those partnerships. So going forward, that should stabilize. It should not cause any margin impact.

Second, the expenses for this year, given the strong growth that we had over the first nine months of this year and given the development of VNB, we actually felt comfortable, like Kannan described in his opening remarks, to increase our outlay in some of the discretionary expense elements to make sure that we build for the future. In the short-term, that has indeed resulted in the cost ratios being higher than last year, which is the other impact that you see. As this in the next year helps us generate a robust new business growth, I wouldn’t expect expenses to worsen our margin in any sense going forward. But this year, we had the capacity to invest and we chose to invest.

Operator

Thank you. Mr. Sangai, request you to join the queue for any follow-up. We have our next question from the line of Nischint Chawathe from Kotak Securities. Please go ahead.

Nischint Chawathe — Kotak Securities — Analyst

Yeah. Hi. Kannan, you’ve guided for sort of doubling of VNB in 2023. And that kind of implies almost a 22% growth in VNB for the next year. Now what kind of confidence do you have for this increase, given the fact that when it comes to growth, you probably don’t have full control in terms of what ICICI Bank is doing. And even in terms of margins, I think we are sort of almost in line with the — almost at peak with some of the other peers. But the difference between us and peak is not as much. So what is the — if you could kind of spell the breakout between growth in terms of APE and margin expansion.

N. S. Kannan — Managing Director and Chief Executive Officer

Yeah. So let me take this question, Nischint. Then I’ll ask Satyan to supplement. So the way we look at this year’s number is exactly what you said that to get to about 22.5% growth on VNB over the last year. That’s the ask we have, so to say, for doubling of our VNB aspiration. So to answer your question, are we confident? Yes. Absolutely, we are confident. So we are not changing the aspiration number which we had put out earlier. So what’s the confidence we have in giving this? On the growth, I think several of the areas have sort of bottomed out we feel. If we look at retail protection as an example, we’ve been in a very sharp decline over the previous year into financial year 2022. So with the environment also getting a little better, and we have got our act together in terms of calibrating our underwriting norms as well as desired profiles, so we do believe that we should be able to expand from here on. So that should not only give us a growth on the top line, but also on the margin expansion.

On the annuity side, we have introduced a regular premium annuity product, which we have just about launched and that becomes an additional lever for us to market to our customers. And again, if you talk about ICICI Bank, one of the reasons for decline in ICICI Bank has also been the protection supply-related challenges which really did not help the bank distribution. So even ICICI Bank, we do believe that these couple of products will provide growth from here on. And of course, the other banks, I talked about 14% being constituted by other banks in terms of channel mix, and that as well, yes, we are into the second year in some of the shops, but we think that the potential is much higher going forward. So we do have a set of growth levers available with us as well as some product levers available. So it will be a combination of both through growth and expansion of margins.

Getting to about 28% margin, I do not view it as something which cannot be crossed because it is a very focused hard work which we have done over a period of time, a product mix work within a particular product line, work relating to elongating the maturity of the products with a view to get higher margins, a lot of that work has gone in. So at this stage, we wouldn’t be here to say that there is a limit to our margins. We expect the margins to grow from here on and at some point in time, the efficiencies also will kick in.

And as Satyan mentioned I think in one of his comments or the opening remarks that the persistency gains are still there for us to take. So there are enough and more levers available and as an executive management, I can only assure you that we are confident of achieving that 22.5% growth, which is required for the doubling of our VNB aspiration which we have articulated.

Anything else you want to add, Satyan or should we move to the next question?

Amit Palta — Chief Distribution Officer

Yeah, Kannan, just one thing. Apart from the product levers that you just spoke about, we also mentioned in our opening remarks that we are going about investing in scaling up both our agency as well as direct business where we have started investing towards latter part of our quarter four as well, which holds us in good stead because as you understand, these are organic channels and need upfront investments and that is something that we’ve already initiated. So with the pandemic behind and with the kind of cost containment measures that we have taken in FY ’21 now behind us, we are very well-poised with the investments in these two channels also to further add to our top line aspirations, which of course will go on to add to our absolute VNB.

N. S. Kannan — Managing Director and Chief Executive Officer

Thanks, Amit. Nischint, anything else you want us to address?

Nischint Chawathe — Kotak Securities — Analyst

This is fine. Thanks. Just two micro questions. One is the margin on the protection business this year looks like has gone down. I think somewhere you have guided that on an overall blended basis, for the protection vertical, your margins should remain stable. So just trying to understand, has anything that’s changed this year?

N. S. Kannan — Managing Director and Chief Executive Officer

Yeah, that could be essentially, Nischint, because of the mix in terms of group and retail within protection. That would primarily account for this thing. But as we said, in both these cases, including the term return of premium product, which we introduced, we are very confident that as a portfolio in protection, we should be able to hold the margins.

Satyan, any other color you want to give?

Satyan Jambunathan — Chief Financial Officer

No, Kannan.

Nischint Chawathe — Kotak Securities — Analyst

And just one last point is, when does the unwinding rate of 7.2% sort of start going up given the fact that you’ve already seen a rise in interest rates?

Satyan Jambunathan — Chief Financial Officer

So it will show up in FY ’23, Nischint, because unwind happens at the opening yield curve. To the extent that 31 March 2022, yield curve is higher than 31st March 2021, FY ’23 unwind should start off at a higher level than FY ’22.

Nischint Chawathe — Kotak Securities — Analyst

[Technical Issues] for increasing the unwinding rate?

Satyan Jambunathan — Chief Financial Officer

It may not be that straightforward, but it will give you an indication. At the end of the day, it’s still the weighted average of the duration of the cash flows. So it’s not going to be just the 10 years.

Nischint Chawathe — Kotak Securities — Analyst

Perfect. Those were my questions. Thank you very much and all the best.

Satyan Jambunathan — Chief Financial Officer

Thank you, Nischint.

N. S. Kannan — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Deepika Mundra from JPMorgan. Please go ahead.

Deepika Mundra — JPMorgan — Analyst

Hi sir, good evening and thanks for taking my questions. Sir, firstly, on protection, I mean this quarter after a potentially supply-side challenges coming down and your pricing strategy being put into place, volume trend actually weakened sequentially. So while we understand the longer-term opportunity, any color that you can give as to why the trend weakened even further in the quarter?

Amit Palta — Chief Distribution Officer

Yeah. Deepika, this is Amit. As you know that the investment in change in guidelines is a process which takes a little long because we are actually moving from a regime of selling protection in the times when the environment was very different. And hence, I would believe that it is a transition phase that we are going through. Distribution will have its own learning curve. And we will see over a period of time distribution will get used to selling protection in a different way. So I think this is a learning phase. I will qualify it as a starting point where, as we go quarter-on-quarter, we will see learning curve moving up and probably the results will start returning. But this is too early to comment on that. For very, very long time, protection was sold in a way which has now been changed driven by the entire change in the ecosystem.

N. S. Kannan — Managing Director and Chief Executive Officer

So, Deepika, Kannan here. Let me comment. Apart from what Amit mentioned about some of these changes being recent and slowly will settle in, the fourth quarter normally, Deepika, what happens is the general push to close the year well always means that savings sometimes take precedence. So this we have seen tactically happen in the fourth quarter in general for our company. So that could also be one of the reasons why Amit mentioned during his call and I also mentioned that March number was the best monthly APE we ever had for this company in the last 20, 21 years. So that momentum sometimes takes the savings line of business far ahead compared to protection. And you know that distribution partners are focused on their income for the year, they’re focused on the commissions and so on. So whatever can be done quickly, that sells a bit more easily, especially in the last quarter of the financial year and especially in the month of March. So I think these two factors you should keep in mind. Otherwise, as I articulated to, I think, Nischint’s point, that we would expect this base to have got set at a lower level. And from here on, we can grow into the current financial year.

Deepika Mundra — JPMorgan — Analyst

Got it, sir. And just a second question would be on the rising interest rate environment. How are you tweaking your product offering to customers as well as on the risk management side for a non-par? So given that the interest rates are set to rise, do you think you would want to leave some of the premiums slightly unhedged because of a potential benefit of better reinvestment rate?

N. S. Kannan — Managing Director and Chief Executive Officer

Yeah. So let me start and then Satyan can supplement. One, Deepika, if you look at it from a strategic perspective, how we have moved the company in the last four years is that we do have all the product lines available to sell to the customers. It’s not that we would prefer one product line over the other. So that has been made clear. Now that we are so well diversified to our addressable segment, we are happy to sell any product which the customer wants. I think as a company, we have moved to that stage rather than having to say that I’ll have to prefer product A over product B. That’s the good news. So we will be very nimble to the emerging opportunities in terms of consumer preferences and be ready to sell the product what is appropriate. That’s the first point.

Second, the same approach will continue for non-linked also. We are not going to put any artificial limits on how much to sell and how much not to sell. That’s the second point. And third, how much non-linked we will sell, I want to assure you or rather tell you that we are not in this situation of taking open calls. We don’t want to do that. We would be totally hedged, like we have articulated, irrespective of the interest rate regime because it’s a very long-term business. We don’t want to be putting too much of net PVO and risk on the books. So we will continue with our approach to hedge it through FRAs as we have articulated.

And the last point I want to make is that as of now I do see no constraint on the hedging capacity available from our counterparts. We do have limits which we have put on counterparties in terms of how much we can do with them as a percentage of the networks. We monitor the mark-to-market counterparty-wise and all those things are currently under control. And over a period of last few quarters, Satyan can correct me, we’ve been able to add two, three more counterparties to our list, all blue-chip names. You should not have any credit risk issues there. So given all this, the capacity today is available for future non-linked business. We will continue to be fully hedged. That is going to be our approach. And we are very happy to align our product mix to meet the customer demand. So those are the points I want to leave.

Satyan, do you want to add anything in the context of increasing interest rate and leaving open positions?

Satyan Jambunathan — Chief Financial Officer

The only thing I would say is reiterate what Kannan said, Deepika, that we are not comfortable leaving open, unhedged risks in anticipation of interest rate movements. We are much more comfortable locking into rates. So far, every tranche of hedging that we have done, we have been able to lock in at rates which are better than the implied guarantees. And that is, to our mind, is a good place to be in.

N. S. Kannan — Managing Director and Chief Executive Officer

And Deepika, we’ll also keep adjusting our future rates depending on what is a hedgeable basis what we can deliver at that point in time. So that is some — for fresh stock of businesses, we could keep looking at it, but we won’t take any open calls.

Operator

Thank you, Ms. Mundra, request you to join the queue for any follow-up. [Operator Instructions] We have the next question from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Yeah. Thanks. In the backdrop of rising interest rates, what’s the outlook for non-par products? Are HNIs preferring that? And on the ULIP side, what are we seeing given the current volatility in the current environment?

N. S. Kannan — Managing Director and Chief Executive Officer

Amit, do you want to take the question, the ULIP part?

Amit Palta — Chief Distribution Officer

Yeah. So what I want to mention here is that during my opening remarks as well I mentioned that having introduced our Balanced Advantage Fund in the month of August last year, actually, it holds us in good stead because in these times, volatile times is what we anticipated as a concern coming from the customer, which was I guess through this introduction of new funds. So what we have seen is that as markets have turned volatile towards the end of quarter three and a large part of quarter four, large part of our unit-linked composition has actually moved towards balanced advantage and debt-oriented funds. So to that extent, the same customer either has started looking at options which are outside equity, which is within Balanced Advantage Fund. And second, also, what we have looked at is that our affluent customers have started looking at an option of non-participating guaranteed products as part of their overall portfolio. So I think in these volatile times, we’re seeing the pickup rate go up on balanced advantage as well as non-participating guaranteed products. This is now we have seen as a trend as recent as March.

Prakash Kapadia — Anived Portfolio Managers — Analyst

And this balanced fund which, Amit, you mentioned, so earlier also we had some balanced funds, right, in our portfolio? You said August we launched this ULIP at Balanced Advantage Fund, but earlier also there were balanced funds as an option available, right?

Amit Palta — Chief Distribution Officer

Yeah, that was a Balancer Fund, but this Balanced Advantage Fund was designed differently. It was also a tax-free product which allows unit-linked large value ticket size to be tax-friendly for the HNI customers. So it was really different from the Balancer Fund that we had in the past.

Prakash Kapadia — Anived Portfolio Managers — Analyst

And just one data keeping question. Satyan, in the EV walkthrough, there’s a INR4.37 billion negative variance on the investment side. Is it debt or [Technical Issues] if you could quantify the amount?

Satyan Jambunathan — Chief Financial Officer

Prakash, it is debt mark-to-market on fixed income securities in the network.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Understood. Thank you.

Operator

Thank you. Our next question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.

Swarnabha Mukherjee — B&K Securities — Analyst

Yeah. Good evening. Thank you [Technical Issues]. Sir, so my first question is in terms of the group term life segment and your margin from the protection and the VNB aspirations. So in FY ’22, a large portion of your growth in VNB as well as in the protection section segment came from this category, the group term life. Now generally, you have mentioned that this segment is [Indecipherable]. So wanted to know from you your thoughts on whether you see any downside risk in terms of your VNB growth in FY ’23 that might come from how this segment grows? And also the margin from the protection business that we have recorded this year, how can this segment impact that? That is the first question.

N. S. Kannan — Managing Director and Chief Executive Officer

So, Swarnabha, the way we look at it and we have said this in the past as well, our focus is on growing absolute VNB. Margin as a percentage is not the primary driver of our making some of these decisions. I say this particularly in the context of the protection business because the protection business comprises three pools of opportunity which are distinct and non-overlapping: one is retail protection; one is employer-provided group protection; and one is credit life. Now to the extent that they are non-overlapping business opportunities and do not cannibalize each other, we see each of these as distinct absolute VNB opportunities, and it wouldn’t worry us or bother us if the portfolio margin went in line with whatever was the emerging mix.

Particularly in this year, because of the challenges on retail protection, we had to make sure that in an absolute VNB level, there were other levers and engines available to deliver absolute VNB. And therefore, to that extent, the success that we have been able to achieve on the group term is giving us that protection and cover against the environmental challenges that we saw. Going forward, we are perfectly comfortable for this mix to drift in whichever way depending on the opportunity. It really doesn’t matter too much what the composite portfolio margin is. What is most important, Swarnabha, to us is each of these might in isolation, retail protection, credit life, and group term, are we diluting margins or not? And that I can confirm to you in this year, there has been absolutely no dilution in margins in each of these categories. That’s the way we approach this business.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. That is extremely helpful. A couple of smaller questions. First one, on credit protect project to ICICI Bank, so the growth looks a little bit flattish. So I wanted to know your thoughts on what would be the banks that will be going forward in this while you are clocking very good growth with other banks.

And the other one is the persistency in the protection business that is even lower than what is there in the non-linked segment. So is there any specific developments related to this cohort or could this actually be a growth headroom which you can capitalize on this product?

Amit Palta — Chief Distribution Officer

So let me answer the second question first, which is around persistency on protection. See, large part of our portfolio on protection is of the age segment of the customer, which is much younger, which is customers with less than 35 years of age. And these are good, healthy profiles, which we have seen as larger part of our overall portfolio. As you know that this is a segment which is most price sensitive and last year actually went through quite a few visions on pricing change, whether it was us or with other players in the market. So in between, we observed some kind of price sensitivity and leading to some impact on persistency, but we are watching it closely and see how we can improve it further up from current levels. But this is something which will settle because now these transitions, these couple of movements, couple of changes that happened in the ecosystem are now all settled. So probably now we will have a clean run of 12 months to see how persistency pans out now in the newer ecosystem.

Coming back to ICICI Bank, there have been a few changes in the way we are approaching our attachment business at ICICI. There are a few segments that have been prioritized over short-term loans business that we have been attaching in the past. So that is something that will pan out, but we are working on some product innovations as well to increase our attachment on the long-term mortgage product at ICICI Bank. So there has been a conscious decision to move away from very, very short-term loans and attachment on those businesses. That may have been the reason that you have seen relatively a flattish growth on credit life in ICICI Bank.

N. S. Kannan — Managing Director and Chief Executive Officer

Swarnabha, the only other thing I would add to what Amit said is I would actually agree with what you said on the protection persistency. That is actually an opportunity of upside. And in any case, when I look at the margin assumptions, the margin assumptions are indeed set to be consistent with emerging experience. So I wouldn’t be too concerned about that at this stage.

Operator

Thank you. Mr. Mukherjee, request you to join the queue for any follow-up. Our next question is from the line of Nitin Aggarwal from Motilal Oswal Securities. Please go ahead.

Nitin Aggarwal — Motilal Oswal Securities — Analyst

Hi, good evening everyone and thanks for the opportunity. It’s really commendable to see that how the company has compensated for the decline in share of ICICI Bank without giving up that VNB doubling guidance. The share of ICICI Bank has now declined to almost half of what it used to be. So just want to understand is like how do you see the banca channel mix moving from here as ICICI Bank share bottomed out? And overall, which channels are you more positive in terms of premium growth when you talk on FY ’23?

N. S. Kannan — Managing Director and Chief Executive Officer

Yeah. So let me start, and then I would request Amit to supplement. The first thing I would like to say is that ICICI Bank side we still have a lot of room to grow on the protection side. Again, all the supply changes we have seen in rest of the channels were applicable for ICICI Bank as well. So that created its own challenges. And Amit and team have worked very hard with the ICICI Bank analytics teams to look at some of the prequalified offers and so on. And that, I think, going forward will really come in, in terms of supporting the growth as well as more importantly, the VNB development.

Now coming to the other banks, as I said, they have gone up from, I think, about three years back we would have had about 4%. Now we have 14%. So it’s been a tremendous journey. I can only tell you that we have not really put any target on the teams on how much percentage it should be. The mandate to the team is that there are so many whitespaces in those banks that we should be able to, with the additional products in our own case like a term ROP, for example, then annuity RP and the various products we still have a huge room to grow. So I would not be too concerned about how much we should be putting as a percentage mix, but I would expect the whole banca piece to actually grow. That’s the way we are planning.

You asked about apart from this, what are all other channels which we will be putting energy on. As Amit mentioned during his speech, two channels we have picked out where we will put in a lot of effort: one is agency, where again agency if you really look back, you would know that we were pretty focused on the top agents and ULIP again in the agency channel also. Today, we have all this par, non-par products being available, we are able to give a better proposition to the agents who are covering mass and mass affluent customers. So that we believe is a big lever available, agency.

And finally, as Amit mentioned, direct-to-consumer is one area where, as an industry, we can do a lot. So if some of the other aggregators can do, we could also do. So that is an area where we would focus on going forward. So banca, other banks will continue, the agency will be momentum, and the direct business. So these are the three, four areas, which we can pick.

Your question about the percentage of the APE, we have come to a stage again to say that we should be able to manage the VNB growth in line with the private sector irrespective of what happens on VNB. That’s a statement I have made in my opening remarks.

So with this, I will request Amit to talk about any other channel dynamic in this context and what energy he wants to be putting behind these channels.

Amit Palta — Chief Distribution Officer

Kannan, you covered all. What I want to believe in bancassurance channel other than ICICI, Kannan mentioned that we are looking at whitespaces being our primary objective to contribute to the overall pie growth of our banca partners. And we do understand that there is an opportunity and this fee income is being seen as one of the priority items for our banca partners. So in their effort to grow over their fee income of previous year, we will participate in addressing some of those opportunities that exist in whitespaces. And hence, there is a room available still in the years to come.

For ICICI, just one point I wanted to make. Actually, if you were to look at annuity business, ICICI still grew close to around 25% over last year. And this is one of those prioritized products that ICICI has chosen as part of their strategic intent. And also on savings, actually, there was no degrowth. They have actually done quite reasonably okay, in line with the expectations on saving business. It is the protection, which was largely because of the challenges that overall ecosystem went through, where ICICI could not capitalize on their intent on doing well on protection. But however, we have the design in place. We are working closely with bank to see how we can create exclusive term-by-invite offers to their prioritized customer segments. And once the ecosystem normalizes, we are quite confident that we’ll have our design implemented and bring protection back on course for ICICI. Thank you so much.

Operator

Thank you. Our next question is from the line of Avinash Singh from Emkay Global. Please go ahead

Avinash Singh — Emkay Global — Analyst

Yeah. Hi. Good evening. A couple of questions. First one on changes in operating assumptions impacting VNB margins by almost 2%. But broadly, at a portfolio level it’s kind of — you ascribe that largely to mortality assumption changes, almost like a 10% increase in mortality. So I mean what are the cohorts of by product wise and if at all any sort of feedback that led to this sort of a trueing up of mortality assumptions? So that is one.

And second, on your distribution, the direct-to-consumer focus, how does it circumvent kind of any channel conflict, particularly on the regulator or agency side? And in terms of when it comes to pricing of product, generally, the difference in pricing across channels is not in play or in practice largely. So what is there for customer who sort of get attracted or look away from, say, a bank or an agent? These are my two questions. Thanks.

N. S. Kannan — Managing Director and Chief Executive Officer

Avinash, I’ll address the first question and hand over to Amit to talk about the direct-to-customer. Assumption change, just to clarify, I had said the two factors that are affecting it are: one, the costs that we have incurred in this year and I spoke about a conscious outlay of costs on the discretionary expenses, predominantly on the marketing, advertising-related areas. This is something which is reflected in the margin. The other one is specific targeted improvement or strengthening of mortality assumptions on certain groups in credit life. It is not widespread. There has been no need to strengthen mortality assumptions in generic terms, but it has been with very specific partnerships we’ve had to do it. And like I also said, on a going-forward basis for those partners, we’ve also revised their pricing to reflect the underlying mortality.

Amit Palta — Chief Distribution Officer

Yeah. On direct-to-consumer business, actually, it comprises the following businesses: one is online business that we do through our own website and our own mobile application, what we call it as buy-online. We run campaigns and we get customers to come and visit our websites and applications from where we generate leads and then close it end-to-end on an online platform. Second, direct business is what we do through our partners’ properties, which is websites as well as applications like ICICI Bank website, ICICI Bank application, some of our bank partners’ applications is where we look at an opportunity to reach out to customers directly. And third is what we do to our existing clients as an upsell process where we have our direct proprietary sales force, which after having identified the customers intelligently through a BIA model, through analytics model, we identify next best product that can be chosen as the most appropriate one for the customer with a changing life stage.

So all these businesses put together are part of our direct business and we see an opportunity in synergizing both those physical model as well as our online model to improve our efficiencies in managing dropouts of both the channels in an efficient manner. So that is what is our direct-to-customer business.

N. S. Kannan — Managing Director and Chief Executive Officer

Just one thing I would add here, Avinash, on the direct model is, at the end of the day, the consumer is making a choice of how he wants to buy. And if we are going to, as a manufacturer, put artificial constraints and say that I will only distribute through one channel or the other, then you end up only losing opportunity. So what we cannot forget and what we have to keep foremost is the choice that the customer is making of how they want to buy and where they want to buy from.

Operator

Thank you. Our next question is from the line of Nidhesh Jain from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for the opportunity sir. Sir, firstly, can you elaborate on the margin expansion that we have seen in non-linked savings? There has currently been almost doubling of margins on a YoY basis in that business.

Satyan Jambunathan — Chief Financial Officer

Yes, Nidhesh. This is pretty much driven by product mix, par and non-par, within that segment. And within the business that we were doing, Kannan also spoke about it earlier, about a conscious effort to lengthen policy terms and therefore, improve margins. So this is just product mix. There is nothing else underlying.

Nidhesh Jain — Investec — Analyst

Okay, sure. And secondly, the 200 basis point impact because of cost and mortality that we have seen, the expenses is actual expenses, right? We have not changed the expense assumptions in EV because of that.

Satyan Jambunathan — Chief Financial Officer

Absolutely actual expenses. Nidhesh, if I were to give an example again, and you will see this from the disclosures, the margin for the unit-linked segment, the numbers are there. The margins in the unit-linked segment are 9% this year. Last year, it was a little over 11.5%. A year before that it was 8%. Last year, we had also spoken about it that there was a very conscious curtailing of expenses, discretionary expenses, given lack of affordability in the environment. And therefore, to that extent, one wouldn’t expect the same expense pattern to repeat itself. The way we looked at it really was to say that in FY ’20, the unit-linked business had a margin of 8%. That has adjusted over the pandemic curtailed expenditure into FY ’22, moved up to a 9%. So from a margin point of view, I still see that as positive. But on a year-on-year basis, when I compare it with 11.5% of last year, it does seem like a decline. And that’s really the point I was making about expenses and impact of expenses even in answer to the earlier question. So these numbers are there in the slide. You can work them out. That’s really where the implication of expenses is coming in, in the margin for this year.

Nidhesh Jain — Investec — Analyst

Yeah. I was trying to understand that whether this expense — the impact of expense that we have seen in margins in FY ’22, can it reverse in FY ’23 if you see lower expense growth? And is it the structural expenses that we have reached it or do you expect these things to reverse in future?

Satyan Jambunathan — Chief Financial Officer

Reverse in the sense, it will continue to improve. Expense ratio should continue to improve, Nidhesh. So I’m only choosing to look at ’22 as a continuation of ’20 as opposed to ’22 being a continuation of ’21. To my mind, ’22 as a continuation of ’20 is a more appropriate pattern because ’21 was an aberration in terms of how we managed our expenses. That’s the only point I’m trying to make.

Nidhesh Jain — Investec — Analyst

Sure. And lastly, in P&L there is a line item diminution of — I think provision for the diminution of investment — value of investment. What is that?

Satyan Jambunathan — Chief Financial Officer

This is mark-to-market on equity. There were a couple of securities during the year, which in terms of market price went to below the quantitative impairment trigger. It’s purely mark-to-market on two equity stocks during the year. Nothing else.

Nidhesh Jain — Investec — Analyst

Understood. That is it from side. Thank you.

Satyan Jambunathan — Chief Financial Officer

Thanks Nidhesh.

Operator

Thank you. Next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Shyam Srinivasan — Goldman Sachs — Analyst

Thank you and good evening. Thank you for taking my question. Just the first one on this 25% of APE coming from new launch products. If I do basic math, I think ROP is 1%. Let’s remove that. If I do the new products in annuity, the totals are maxed to 3%. So looks like GIFT short and long is 20% plus, right? So can you just walk us through some of the ingredients of success? Is it just the market was receptive? Also which channels are the ones that are doing it? If I look at slide 61, it seems to suggest non-ICICI Bank banca as well. So if you can help us understand the value proposition for non-linked savings.

Satyan Jambunathan — Chief Financial Officer

So Shyam, you are right on the ball with respect to identifying the drivers on new products on what has contributed to the growth. The only other element that Amit also spoke about, which contributed to the growth was the new funds on the unit-linked that we launched. So when he spoke about the new business contribution, it also included some of the new fund composition. But, yes, largely the GIFT and GIFT Long-Term have been the most substantial contributors from a new product point of view. We have not separately disclosed the par and non-par mix. We have only disclosed the overall non-linked mix, but your identification of the key drivers of growth from a new product launch is bang on.

Shyam Srinivasan — Goldman Sachs — Analyst

Okay. And last follow-up here. Kannan, just on what is the sanctity or the number at which ULIP will remain. It’s come down below 50%, like you said in the opening remarks. Can this go further lower? Because if that’s the journey we are making, then the VNB margins can continue, right? Would that be one of the levers?

N. S. Kannan — Managing Director and Chief Executive Officer

So again, the only point, Shyam, we have been saying, I guess, quite a few times so far is we don’t really manage the margin. And really, it doesn’t matter if unit-linked mix goes up, it doesn’t matter if unit-linked mix goes down. What is imperative is that the unit-linked product opportunity and the customer opportunity is different from the non-linked opportunity. If we try to shift unit-linked to non-linked and vice versa, it will only impact the business outcomes. Our approach is going to be to grow unit-linked, and our approach is going to be to grow non-linked. Therefore, to that extent, the only reason we want diversification is that we don’t want to be too significantly impacted by one category through environmental changes. And therefore, getting to 40% to 50% of one product category, it’s a good place to be in compared to 80% being from one product category. Other than that, we really have no objective in mind with respect to what the product mix should be with the exception of protection and annuity. In savings products, we are perfectly happy to end up with any product mix that is chosen by customers.

Satyan Jambunathan — Chief Financial Officer

So Shyam, Kannan, I can add to that to say that we have not really directed the business teams to limit ULIP to a certain level. We have not done it at all. And second, when I said that there could be a margin expansion going forward as well, it is not contingent upon reducing the percentage of ULIP to get a pickup on the margins. So those two things I can confirm to you. I would rather push the teams to focus on efficiency and all productivity-related metrics on unit-linked to sequentially increase the unit-linked margins. That would be our approach rather than cutting any line of business. So we don’t want to go back to the situation of saying that I don’t like to distribute a particular line of product. We don’t want to get into that anymore. We want to leave that options available to the customer and we want to meet the consumer demand based on their preferences. That has been the approach of the company. So that will continue.

Operator

Thank you. Our next question is from the line of Sanketh Godha from Spark Capital. Please go ahead.

Sanketh Godha — Spark Capital — Analyst

Thank you for the opportunity. VNB margins of non-linked is closer to 33%. I just wanted to understand how much this is sustainable. I just wanted to understand that it was a supply side benefit of a favorable par market, which led to such strong margins in the non-unit linked business. Are these numbers sustainable going ahead if the yield curve shape changes, whether the margins can come off in this particular growth? That’s the first question what I had.

And the second question was the economic variance number was almost negative INR4.4 billion. If you can break it down into how much not it’s because of fixed income prices, I think equity income contributed positively. And how much it was because of the data and how much it was probably because of the FRAs going out of the money when they had entered into derivative contracts?

And finally, whether FRA MTMs get reflected in solvency or not. That’s the question. Because if that contributed, then whether it is part of the solvency calculation or not?

Satyan Jambunathan — Chief Financial Officer

So, like I described, Sanketh, the economic variance is predominantly led by mark-to-market negative on fixed income securities in the shareholder funds because of interest rates going up. FRA mark-to-market will be negative with rising interest rates, that is the construct of the product. Solvency fully reflects the changes. The way the solvency norms are, is that if the fair value change goes to below zero, then it becomes a reduction from solvency ratio. Anything which goes to P&L anyway directly reflects into solvency. So the FRAs are appropriately reflected in the solvency.

And answer to your question on the non-linked savings, what can be the margin going forward, quite honestly, it will depend on the mix. If the linked, non-linked mix continues at the current level, this is what it will be. If the non-par, par mix changes, then the margin may very well change. Again, I’ll go back to what I said before that these are periods of time where some products may be more favored than others. With rising interest rates, where interest rates are now in absolute terms, we are still seeing non-par as being a very meaningful product of interest to customers. But to answer your question, if the mix of par and non-par changes, the composite margin on non-linked savings will reflect the interest rate mix between the two.

Sanketh Godha — Spark Capital — Analyst

Of the non-ICICI Bank, just wanted to understand that whether we have reached almost closer to like 30% market share because most of the banks that we have opted, either we are second or third player. So sir, at least we have already reached at 30% or we have a still headroom there to drive the growth in non-ICICI Bank channel?

Amit Palta — Chief Distribution Officer

Hi. So if you’re talking about our share of business in some of these bancassurance partners, like I mentioned to you earlier, our driving principle, our entire philosophy with our partners and the engagement that we did even prior to getting into a partnership was about working along with them to see how they can increase their overall tie up. So what we see as an outcome as a share of the shop is just a result of what we do in terms of creating space and getting our partners to grow and get their fee income to build significantly.

So from that perspective, I can say the outcome on share of shop has been quite significant. Within one year, you can see it’s close to one-third in some of our partners, and some are still in the process of business. And we do believe there is a room available for us to see a different outcome by the time of the end of this year as well. And one of our partnerships, in fact, we are almost three-fourth of the overall business done by our partner. So this is something which, again, we see as an outcome and feel happy or whatever, but we’ll be happier to see our partners growing and growing the overall fee income by increasing the overall price.

N. S. Kannan — Managing Director and Chief Executive Officer

Sanketh, this is Kannan here. Just to add to what Amit said, one partner if I have to — without naming the partner if I have to illustrate, we have seen a two partner shop with our share going to something like 30% or so without the volumes from the other partner going down in that shop. So that sort of illustrates our approach what Amit mentioned. We go and tell them that we are not here to fight with other partner to sort of share the existing pie. We will grow the pie because of which the additional what comes to you will essentially be because of us. That is our proposition. And thanks to the technology, thanks to the expertise we have, having worked in banca partners for a very long time, we have an ability to get this whole activity and everything going in a matter of weeks. And in a matter of months or probably a quarter, we’ve been able to get to 30% to 40% kind of percent level. So I think that approach will continue. And again, the white spaces part I mentioned comes in handy to figure out where all there are gaps and which product can be used and what kind of customer mapping can be done. That has been our approach. So I think this approach will continue and I believe that the non-ICICI bank partnerships can grow based on this approach going forward as well.

Operator

Thank you. The next question is from the line of Anand Bhavnani from White Oak Capital. Please go ahead.

Anand Bhavnani — White Oak Capital — Analyst

Thank you for the opportunity. Two questions. One, with respect to our interest rate sensitivity, it is 350 bps. So when we talk about hitting the VNB gross margin, are we accounting for the fact that there might be 50 bps or 75 bps rise in interest rates in this financial year? And accordingly, the VNB growth has to be a bit higher than what the 22% figure. So I just wanted to clarify that.

N. S. Kannan — Managing Director and Chief Executive Officer

Just to clarify, Anand, the sensitivity that has shown there is a percentage of the base number. So when we are saying 3.5% sensitivity, it is 3.5% of the absolute VNB. It is not a margin delta. That’s the first point I wanted to clarify. Second, from a prospective point of view, if interest rates change, I will also reprice my offering to the customer. And therefore, from a VNB point of view, as long as I maintain the spread between what I can earn and what I’m paying the customer, my margin will be protected. I will gain or lose margin if my spread changes. Otherwise, purely interest rate changes should not affect my VNB. It will only affect if I’m neutral and not doing anything at all, passive and not doing anything at all from the current status quo.

Anand Bhavnani — White Oak Capital — Analyst

Noted. Secondly, from retention perspective in the protection business, you mentioned that in due course we should be back to 50-50. Do you have a timeline in which you expect this to happen?

Satyan Jambunathan — Chief Financial Officer

No, we don’t have a timeline at this point of time. This is really contingent upon how the reinsurers’ pricing also evolves over the next few quarters. Right now, we are very comfortable from a capital position. So we can afford to keep more risks on our balance sheet. But over a period of time, because I get maximum capital credit out of reinsuring 50%, I will gravitate to that. It’s a function of reinsurance prices, which I do believe will fall in line with our experience over a period of time. Today, my experience on mortality is lower than the price that the reinsurer is quoting me. So it really does not make sense for me to reinsure more.

Operator

Thank you. Our next question is from the line of Hitesh Gulati from Haitong. Please go ahead.

Hitesh Gulati — Haitong — Analyst

Yeah. Sir, thank you for taking my question. On the EV walk, can you split the INR91 crore negative assumption change and also the plus INR64 crore other business?

Satyan Jambunathan — Chief Financial Officer

Hitesh, the INR91 crores, like I described before, again, mainly comes from strengthening of mortality assumptions for certain credit life groups. That’s the biggest contributor to it. We have not given a more detailed breakup than that. The INR64 crores is a lot of other smaller things. This number typically fluctuates. It’s usually a small positive or a negative. I don’t think there is any structural implication out of the other variances of INR64 crores. Some of it comes from dividend rate that we declared in effective tax rate. Some of it could be much smaller across the base between parameters, so I wouldn’t put too much on the INR64 crores. INR91 crore, predominantly, like I said, comes from strengthening of mortality assumptions on particular credit life business segments.

Hitesh Gulati — Haitong — Analyst

Sure. Just continuing from the last question, the percentage gained VNB, the non-par proportion has increased. Why has the sign changed from positive to negative? So I believe if rates have gone up, right, we are guaranteed a particular way and we’re going to earn more on that. So can you just clarify on that?

Satyan Jambunathan — Chief Financial Officer

Sure. If I’m looking at it from a guaranteed return point of view, I’d go back to an earlier question. When I enter into an FRA, if the interest rate goes up, the FRA will have a negative mark-to-market. So to that extent, there will be an implication arising out of it. But fundamentally, the purpose of the FRA is actually hedged against interest rate down. It is not to try to gain from interest rate up. Because we are any way locked into the spread, if we hold on the FRA and settle it to maturity, we have locked into the yield by that period of time. So the mark-to-market gains that you might see on an FRA are typically transitory. And by the end of the contract tenure, it will go away. So to that extent, it really doesn’t matter. What will matter is a negative mark-to-market on FRA, because that could very well mean if I’m not fully matched, then I end up with a real lot at the end of the contract term because of interest rate going down. So to the extent that I’m fully matched and a gain with the drop in reference rates, I would actually suggest that’s a good place to be in.

Hitesh Gulati — Haitong — Analyst

Sir, just conceptually, if we were doing no FRAs, so if interest rates go up, non-par guaranteed margins should improve, right?

Satyan Jambunathan — Chief Financial Officer

No, Hitesh. Like I said, non-par margins will depend upon the spread at the time of sale between what I’m locking into and what I’m paying. Mark-to-market on interest rate up, if I stay with my FRA to maturity will actually disappear by the end of the contract. It is a transitory impact. It is not a lasting and permanent impact.

Hitesh Gulati — Haitong — Analyst

Okay. And sir, is this a positive impact in the 2%, 3% VNB margin that we are seeing right now?

N. S. Kannan — Managing Director and Chief Executive Officer

No, it’s not 2%, 3% VNB margin, Hitesh. It is 2%, 3% or absolute VNB.

Hitesh Gulati — Haitong — Analyst

Yeah. I mean 33% VNB margin that you’re seeing is there a positive impact in that because of —

N. S. Kannan — Managing Director and Chief Executive Officer

No. Because of FRA, like if there is no positive impact. FRA is very simply — Hitesh, look at it this way. The day I’m selling it, I know what is the rate at which I can invest my first premium today. I also know what is the rate I can lock into for the future five or 10 premiums that are expected to be received through the FRA. Together, I get a composite yield that I expect to lock into. That yield is my starting point of what I learned. What I promise to the customer in terms of the guaranteed rate is derived from what yield I can earn. So FRA by itself has no or mark-to-market on FRA has no meaning in my pricing. The only thing that matters in my pricing is what rate I am able to lock into.

Hitesh Gulati — Haitong — Analyst

Sure sir. Thank you. That is it from my side.

Operator

Thank you. The next question is from the line of Akshay Jogani from Exponential [Phonetic]. Please go ahead.

Akshay Jogani — Exponential — Analyst

Thank you for the opportunity. I had a question on just fundamentally the volume growth of the business. So you need to go back and refer like a few years, what we are seeing across private insurers is that volumes are not growing but payments are growing. But on the other hand, you keep saying that India is very shy when it comes to insurance. So can you help us understand why isn’t the bank selling to more people, why is the number of policies and why is a lot of growth coming from the upper quality premium growth?

Amit Palta — Chief Distribution Officer

Yeah. Akshay, Amit this side. Let me just comment on number of policies. And the way we look at it is that on the channels front, if you were to look at all the channels within ICICI, and specifically, if we were to look at savings side of business, we actually see a growth of close to around 18% to 20% on savings line of business in channels other than ICICI. We know that impact on protection is known to all and that had a significant impact on the overall number of policies coming down. So one is, as you know, that in ICICI, there is a conscious attempt to look at prioritizing vanity and production lines of business. We have both number of policies as well as at the channel level, we saw the growth. And also on protection line of business across all channels, we saw an impact on the number of policies. But in isolation, if you were to look at only savings business in non-ICICI channel, it has grown at a good healthy rate at 18% to 20% over last year.

Akshay Jogani — Exponential — Analyst

Sure. Thanks. That is it from my side.

Operator

Thank you. Our next question is from the line of Sanketh Godha from Spark Capital. Please go ahead.

Sanketh Godha — Spark Capital — Analyst

Thanks for the opportunity again. Satyan, just wanted to know what is our — data crunching question. What is your absolute FRA exposure at the end of FY ’22, which was INR8.1 billion at the end of FY ’21?

Satyan Jambunathan — Chief Financial Officer

It will get disclosed as part of the annual report, we have not yet done that Sanketh. So when we make it public as part of the annual report, you will see that. It should take some time before we get that done.

Sanketh Godha — Spark Capital — Analyst

Got it. Okay. And last point, if I look at the breakdown of unwind solely for this year, the unwind over and above reference rate seems to be substantially higher, which is very lower. So can you explain why it has behaved in that way because largely we attribute to the fact that the opening interest rate was much, much lower and that’s why it is directed to this year?

Satyan Jambunathan — Chief Financial Officer

So Sanketh, risk-free rate in the unwind typically very closely reflects the government bond yield curve. The real world unwind on top of that reflects the underlying asset mix of the portfolio. So to the extent that the underlying asset mix of the portfolio can change year-on-year, that number could well be different across years. I don’t have the exact numbers on the asset mix underlying. So maybe at a later point, Dhiren or team can connect with you and share that with you. But that’s really the driver. The underlying asset mix is what drives the real world unwind beyond the risk free.

Sanketh Godha — Spark Capital — Analyst

Got it. Final one. The A&W this year is less than the reported net worth. So this is largely because of the debt facility what you are seeing in the proper shareholders account and that is getting reflected in the A&W but what will be reported net worth, right?

Satyan Jambunathan — Chief Financial Officer

That is correct, Sanketh.

Sanketh Godha — Spark Capital — Analyst

Okay. Perfect then. Thanks. That is it from side.

Satyan Jambunathan — Chief Financial Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, that would be our last question for today. I would now like to hand the conference over to the management for their closing comments. Thank you, and over to you.

N. S. Kannan — Managing Director and Chief Executive Officer

Thank you, Aman. So once again, I thank all of you for joining the call and patiently listening to all of us. And I do hope that most of the questions have been answered, both in terms of our response to your questions as well as in our opening comments, which we made it exhaustive at this time. However, if there are any unanswered questions, our team and I will be happy to take your questions offline. Thank you, and have a great weekend. Bye.

Operator

[Operator Closing Remarks]