Life Insurance Corporation of India (NSE: LICI) Q2 2025 Earnings Call dated Nov. 08, 2024
Corporate Participants:
Siddhartha Mohanty — Chief Executive Officer and Managing Director
Sanjay Bajaj — Head of Investor Relations
Analysts:
Avinash Singh — Analyst
Uday Pai — Analyst
Supratim Datta — Analyst
Aditi Joshi — Analyst
Gaurav Jain — Analyst
Prayesh Jain — Analyst
Dipanjan Ghosh — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the LIC’s H1 FY25 Earnings Conference Call. As a reminder, all participant lines will be in the 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. We have the Senior Management of LIC led by Mr. Siddhartha Mohanty, CEO and MD on this call.
I now hand the conference over to Mr. Siddhartha Mohanty, CEO and MD, LIC. Thank you, and over to you, sir.
Siddhartha Mohanty — Chief Executive Officer and Managing Director
Thank you. Good evening, everyone. I am Siddhartha Mohanty, Chief Executive Officer and Managing Director, LIC. I’d like to welcome all of you to the half yearly results call of the financial year 2024-’25. Our results declared today have been uploaded along with press release and the investor presentation on our website, as well as the websites of both the exchanges, BSE and NSE.
Along with me on this call, I have Co-Managing Directors, Mr. M Jagannath, Mr. Tablesh Pandey, Mr. Sat Pal Bhanoo, and Mr. R Doraiswamy. Senior officials of the corporation present on this call are Mr. Dinesh Pant, Appointed Actuary and Executive Director; and Mr. KR Ashok, Executive Director from the Actuarial Team; Mr. Sunil Agrawal, CFO from the Finance Team; Mr. Ratnakar Patnaik, Executive Director, Investment Front Office and CIO; and Mr. KS Giridhar, Executive Director, Investment Back Office from the Investment Team; Mr. R. Sudhakar, Executive Director, Marketing and CMO; Mr. Hemant Buch, Executive Director, B∾ Ms. Manju Bagga, Executive Director, Pension and Group Schemes; Ms. Rachna Khare, Executive Director, CRM Policy Servicing; Shri CV Ramana, Additional Executive Director, CRM Policy Serving; Ms. Vandana Sinha, Executive Director, CRM Claims Annuities; and Mr. Sanjay Bajaj, Head, Investor Relations.
Before I get into details of our performance for H1 FY25, that is for six months ended September 30, 2024, I’d like to thank all of you for joining this call during late evening on a Friday. In today’s call, we are aware that you will have many questions for us as a management pertaining to the new product regulations.
Let me now mention the key business operational and financial highlights for the half year ended September 30, 2024. Premium income for the six months ended September 30, 2024, we have reported a total premium income of INR2,33,671 crore as compared to total premium income of INR2,05,760 crore for the six months ending September 30, 2023, registering a growth of 13.56% on year-on-year basis. The individual new business premium income for six months ended September 30, 2024 was INR29,538 crore, and for the corresponding six months of last year, it was INR25,184 crore, thereby registering a growth of 17.29% on year-on-year basis. Renewal premium income in individual business for six months ended September 30, 2024 was INR1,15,158 crore as compared to INR1,09,599 crore for six months ended September 30, 2023. Therefore, for the six months ended September 30, 2024, our total individual premium income, including renewal, was INR1,44,696 crore as compared to INR1,34,783 crore for six months ended September 30, 2023, registering a growth of 7.35% on year-on-year basis.
The group business total premium income for six months ended September 30, 2024 was INR88,975 crore comprising new business premium of INR86,056 crore. In comparison, for six months ended September 30, 2023 last year, the group business total premium income was INR70,977 crore and comprised new business premium of INR67,505 crore. Therefore, for this six months ending September 30, 2024, the total group premium has increased by 25.36% as compared to similar period of previous year.
Market share. Our market share by first year premium income for six months ending September 30, 2024 is 61.07% as per IRDAI data as compared to 58.50% for the similar period ended September 30, 2023. Once again, we have reinforced our dominant position in the Indian life insurance market and continue to be the leader in both individual as well as group business segments. Now, if we bifurcate this overall market share of 61.07% into segment wise share of individual and group business, we would have a market share of 39.79% in individual business and 74.77% in the group business for the six months ending September 30, 2024. On a comparable basis for the six months ending September 30, 2023, the respective market share for individual and group business were 40.35% and 70.26%, respectively. At this stage, I would like to mention that for full year ended March 31, 2024, our overall market share was 58.87%. I would like to remind you of our Analyst Call post FY24 results, wherein we had mentioned about our regaining the market share in FY 2024-’25. As you can see, we are on right track for achieving this share.
Breakup of business on APE basis. Total annualized premium equivalent, APE, for six months ended September 30, 2024 is INR28,025 crore, which is comprised of individual APE of INR18,163 crore and group APE of INR9,862 crore. Therefore, on APE basis, the individual business accounts for 64.81% and group business accounts for 35.19%. Further of the individual APE, the par business accounts for INR13,385 crore and non-par amounts to INR4,778 crore. Therefore, our non-par share of individual APE is 26.31% and par is 73.69% for six months ended September 30, 2024. As you may recall for the six-month period ending September 30, 2023, our non-par share of total individual business based on APE stood at 10.76%. Since then, our non-par APE share has surged from INR1,575 crore to INR4,778 crore, increasing from 10.76% to 26.31%. This marks a significant year-on-year growth of 203.37% in non-par APE. Therefore, it is now evident that another pillar of our strategy, which is changing product mix towards non-par is bearing fruits and has gathered significant momentum of its own.
Profit after tax. The PAT for the six months ended September 30, 2024 was INR18,082 crore as compared to INR17,469 crore for six months ended September 30, 2023, registering a growth of 3.51% on year-on-year basis. VNB and VNB margins. Net VNB is INR4,551 crore for the six months ended September 30, 2024 as compared to INR3,304 crore for the six months ended September 30, 2023, registering a growth of 37.74% on year-on-year basis. Further, the net VNB margin is 16.2% for the six months ended September 30, 2024 as compared to 14.6% for the six months ended September 30, 2023, showing improvement by 160 basis points on a year-on-year basis.
Solvency Ratio. The solvency ratio as on September 30, 2024 improved to 1.98 as against 1.90 on September 30, 2023. Indian embedded value, IEV. The IEV is as on September 30, 2024 has been determined as INR8,21,716 crore as compared to INR6,62,605 crore as on September 30, 2023. Therefore, IEV has registered an increase of 24.01% on year-on-year basis. Assets under management. The AUM as on September 30, 2024 was INR55,39,516 crore as compared to INR47,43,389 crore as on September 30, 2023. Therefore, our AUM has registered a growth of 16.78% on year-on-year basis.
Product mix and new product launches. During the first six months period of FY25, we have launched four new non-par products on August 6, 2024, namely LIC’s Yuva Term, LIC’s Digi Term, LIC’s Yuva Credit Life and LIC’s Digi Credit Life. As you may be aware, starting from October 1, 2024, we have launched products in compliance with the IRDAI (Insurance Products) Regulations, 2024 and the IRDAI Master Circular on life insurance products, which are available on our website. Further, we have made a total of 32 products, including Pradhan Mantri Jeevan Joyati Bima Yojana available for new business, including 19 individual products, seven group products, five individual riders and one group rider. On October 7, 2024, we launched LIC’s Single Premium Group Micro Term Insurance Plan, and on October 14, 2024, we launched two new individual non-par products namely LIC’s Nivesh Plus and LIC’s Bima Jyoti. As of today, we offer a total of 35 products, including Pradhan Mantri Jeevan Joyati Bima Yojana, which include 21 individual products, eight group products, five individual riders and one group rider.
Number of policies sold. During the six months ended September 30, 2024, we sold 91,70,420 new policies as compared to 80,60,725 new policies in six months ended September 30, 2023, registering a growth of 13.77% over the corresponding period of last year. Agency workforce. As on September 30, 2024, the total number of agents was 14,39,658 as compared to 13,45,891 as on September 30, 2023. The market share by number of agents as on September 30, 2024 stands at 47.56% as against 49.35% for September 30, 2023. On number of policies sold basis, the agency force sold 89,21,078 policies during the six months ended September 30, 2024 as compared to 77,68,037 policies during the corresponding period of last year, registering an increase of 14.84%. Further, approximately 97% of our policies in the six months ended September 30, 2024 were sold by our agency force. Even on premium basis, a little over 95% of new business premium came from our agency channel in the first six months of current financial year.
Contribution by Banca and alternate channel. The Banca channel collected new business premium income of INR854.23 crore for the six months ended September 30, 2024, and for the corresponding six months of last year, it was INR648.24 crore, thereby registering a growth of 31.78% on year-on-year basis. Further, the alternate channel collected new business premium of INR353.31 crore for the six months ended September 30, 2024 as compared to INR275.64 crore for six months ended September 30, 2023, registering a growth of 28.18% on year-on-year basis. Therefore, for the six months ended September 30, 2024, total new business premium collected by Banca and alternate channel was INR1,207.54 crore, which was INR923.88 crore for the six months ended September 30, 2023, registering a growth of 30.7% on a year-on-year basis. With this, the share of Banca and alternate channel by new business premium has increased to 4.09% for the six months ended September 30, 2024 as compared to 3.67% for similar period last year.
Further, the B&AC channel sold 2,45,124 policies for the six months ended September 30, 2024 as against 2,89,753 policies for six months ended September 30, 2023, registering a decline of 15.4% on year-on-year basis. If you look at the contribution of purely Banca channel, it contributes 71% of new business premium to Banca and alternate channel.
Our overall expense ratio. For the six months ended September 30, 2024, the overall expense ratio was 12.74% as compared to 15.14% for the first six months of last year. You will observe that there is a decrease of 240 basis points on year-on-year basis. Persistency. On premium basis, the persistency for 13th, 25th, 37th, 49th and 61st month up to six months ended September 30, 2024 stands at 77.62%, 72.24%, 67.24%, 66.33% and 61.46%, respectively, as compared to 78.49%, 71.98%, 70.16%, 64.57% and 62.53%, respectively, up to the six months ended September 30, 2023. On number of policies basis, the persistency for 13th, 25th, 37th, 49th and 61st month up to the six months ended September the 30, 2024 stands at 67.23%, 59.73%, 54.06%, 53.84% and 48.92%, respectively, as compared to 66.80%, 58.79%, 57.61%, 51.73% and 50.35%, respectively, up to the six months ended September 30, 2023. Therefore, while we make efforts to improve persistency across cohorts during the first six months of this financial year, we have seen improvement in persistency on premium basis for the 25th and 49th month, and on policy basis, improvement is seen for the 13th, 25th and 49th month.
Operational efficiency and digital progress. In our digital initiative through the agent-assisted Ananda app, we have completed 7,23,281 policies through this app during the six months ended September 30, 2024 as compared to 5,33,393 policies for the period ending September 30, 2023, thereby registering a growth of 35.6% on year-on-year basis. There is a growth of 32.36% in number of active agents in Ananda app for six months ended September 30, 2024.
Claims. On the individual claims front, during six months ended September 30, 2024, we have processed 89,70,019 number of claims, which includes 85,55,689 maturity and survival benefit claims. On an amount basis, during first six months ended September 30, 2024, the total maturity claim were INR94,531 crore and the total death claims were INR11,645 crores. On a comparable basis for first six months of last year ended September 30, 2023, the maturity claims were INR78,984 crore and the death claims were INR10,826 crore. Therefore, the death claims are higher by 7.57% and the maturity claims are higher by 19.68% on a year-on-year basis.
Awards and accolades. The list of awards won during H1 FY25 is presented on slide 63 of the results presentation, which indicates that our customer centric efforts have been recognized by various industry platforms. LIC is now the strongest insurance brand globally according to Brand Finance Insurance 100 2024 report.
Before I close my opening remarks, I would like to list down significant achievements during the quarter. There has been a significant increase in our H1 FY25 market share to 61.07% from 58.87% for full year ended March 31, 2024. Also, for past six months of FY24, we had a market share of 58.50%. Our overall APE growth is 23.86% on a year-on-year basis. This represents strong underlying secular growth in both individual and group business. Our non-par share of individual APE business has further grown to 26.31% for H1 FY25 as compared to 10.76% of the same period for previous year. VNB has also increased by 37.74% on a year-on-year basis for the past six months of FY25. VNB margins have shown as positive by us with 160 basis points increase to 16.2% for H1 FY25. IEV has increased by 24.01% on a year-on-year basis for past six months of FY25. AUM has increased by INR7,96,127 crore in H1 FY25, registering a growth of 16.78% on a year-on-year basis. While maintaining growth in all parameters, we have kept a focus on costs. And as you can see, the overall expense ratio is down by 240 basis points to 12.74% in H1 FY25. Our agency growing in numbers and now stands at 14.4 lakh as at the end of H1 FY25, increasing by approximately 7% year-on-year.
Now, I would like to end by stating that we are focused on adapting and evolving in line with market demands and regulatory expectations, while staying true to our core values of Yogakshemam Vahamyaham, which means your welfare is my responsibility. The results of this half year demonstrate both our resilience and our commitment to sustainable growth built on foundations of decades of trust, customer centricity and lifecycle product design.
I now request the moderator of this call to open the floor for the question-and-answer session. Thank you.
Questions and Answers:
Operator
Thank you very — thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Avinash from Emkay Global. Please go ahead. Avinash, your line is unmuted. Please proceed with your question.
Avinash Singh
Yeah, hi. Good evening. Thanks for the opportunity. Two questions. The first one is on the margin movement sequentially, particularly for the par product. So, the first quarter margin was close to 7%-odd and now the first half margin is close to 10%-odd. That suggests that, I mean, if we were to do that — the math, the Q2 margin for par has suddenly gone to a different level, like 14%-odd. Now in the same period, I mean, there has not been much of a changes in the economic variable, including interest rate. What had changed, I mean, that is kind of leading to such volatility in the par product margin, where margin is supposed to be more stable. So, if you can just help, because, I mean, if I see the non-par, if I see the group, margins are where they are typically more or less stable. So, if you can just help us understand this par margin?
And the second question now would be more related to what is happening on the regulatory front, this new surrender regulation and all. And if you — if we see the persistency, the persistency for you is still on the lower side. And now with this kind of a higher surrender value, you will have to adjust. Now, if you were to protect your margins, you will have to sort of cut the payout to the agents, that will be again a challenging task. And more than that, how is your par product going to remain attractive? Because there are kind of a double whammy on the bonus, your ability to pay bonus. One is this the new surrender regulation. And in the past, anyway, the fund bifurcation would have some impact. In this backdrop, the par product attractiveness comes under question. So, these are my two questions. Thank you.
Siddhartha Mohanty
On the par margin, though, it is — you have compared the quarter-to-quarter movement. Actually what happens is we have sort of a business cycle among the various quarters. So, the — directly comparing the quarter-to-quarter movement may not give a clear picture. However, since you have asked, let me throw some light on how — why the par movement — par margins have moved up during this quarter. What exactly has happened is this quarter has been a bumper business noticed for our — for the corporation. And we have seen notice that the — within the par business, there has been a very good movement towards certain products, which give us a good margin. So, that is specifically — that is a specific reason why the par margin has moved up during this quarter.
Avinash Singh
Yeah, yeah. And the second question that is around — yeah.
Siddhartha Mohanty
Yeah, yeah. As far as the second part of your question, which was on surrender factor, you would appreciate that when this regulation has come, prior to this, we had some 64 products. In a calibrated approach, we have launched only 32 products in the first tranche and now some more products being launched in October, selling new products. While doing this, we have looked into various aspects. Many of the products have undergone revision in premium rates to factor for the high benefits, probabilities of those high benefits. Design changes have also been done. So, considering all the strength and economic parameters being same — expected to be same, then the margins would not get a hit on the count of those products. In fact, some of the high yielding, high margin products [Indecipherable] rates have been retained, even the benefit for the intermediaries have also been retained. So, we have realigned our product offering to ensure that there is no adverse effect on the margins because of that thing. But beyond that, we are working in a manner because we understand — see, the approach for us cannot be only margin-driven, it has to be ultimately overall profit-driven, VNB being enhanced as well as embedded value being taken in too. So, all those needful steps have been taken to align to ensure that our journey remains on the line on which we have planned.
Avinash Singh
Okay. Thank you.
Siddhartha Mohanty
Thank you.
Operator
Thank you. The next question comes from Uday Pai from Investec. Please go ahead.
Uday Pai
Hello. Thank you for the opportunity. I just had two questions. Firstly, since your non-par share has increased materially, can you share some light on your hedging strategy? And your peers have seen some margin impact due to yield curve movement. So, how are you hedged on that? Some light on that. And secondly, your number of policy for the month of October that was released today by LI Council has reduced significantly. So, is that the new product filing delays or something like that? Can you give some color on that as well? Thank you.
Siddhartha Mohanty
See, as far as non-par hedging, strategy is there. We have all the policies and processes and systems in place. And very soon, we’ll be into the context for this hedging purposes also. Yes, the interest rate movement is something to be essentially looked into whenever the hedging strategy is being worked out. And the interest rate in pricing will have to be dependent upon the available investment opportunity, hedging opportunity. So, that will take care of second quarter [Indecipherable] Yeah.
As far as October NOP is concerned, we will have — see, we are conscious that some of the parameters of the important issues for us has been like ensuring persistency. So, we have rejected some of the products. Last year, also, that we had done. Some of the products, which were selling in good number. But where the persistency was a challenge, we had withdrawn them. In the new product offerings also, we have revisited the minimum sum assureds levels, which were there, where we found challenges in terms of persistency. We are aware that in the initial phases as our intermediaries get used to the higher ticket size or appropriate ticket size, which is not only from persistency point of view, but from the point of view of the ultimate customer delivery at the point of maturity or at the time of any eventuality which happens. So, initially, we were aware and — we were aware that in this month, there could be an impact. But we are confident that going forward, like the strategy we adopted for non-par, this will become the norm and we’ll pick up on this.
Uday Pai
Sure, sir. That’s it from my side. Thank You.
Siddhartha Mohanty
Thank you.
Operator
Thank you. Next question comes from Supratim Datta from Ambit. Please go ahead.
Supratim Datta
Thanks a lot. My first question is on the hedging strategy. Now, you indicated that the processes and systems are in place, but when could we see that the mechanisms, you entering that par market, if you could give us some timeline that would be helpful? And two, the other thing that I wanted to understand on this part is now — once you have that par mechanism in place, how would that increase your competitiveness with some of the private peers when it comes to yields on the non-par side, if you could give some color on that? Could you move — give higher interest rates or you remain at the current IRR level? If you could give some color on that that would be helpful. Now, again, trying to understand this — the second question is on the September, there was a big jump in growth in September that we saw. Was that a result of some pull forward in demand because from 1st October, the surrender value was changing — surrender value regulation was changing? So, if you could give us some color on that.
And lastly when I look at your VNB movement, you addressed it in a previous participant’s question on this regard. But just wanted to understand in a bit more detail. So, when I look at the VNB walk, your operating assumptions have turned slightly positive compared to being negative in the first quarter, while your economic assumptions have been — have — had a larger negative impact. So, just wanted to understand that. Is the operating assumption improvement only due to operating leverage because the growth was very strong or is there something else also at play? Yeah. Thank you.
Siddhartha Mohanty
Yeah. I’ll take that VNB movement question first. As regards the VNB movement, you must have observed that the business mix is the leading contributor to a good improvement in the VNB margins. And the level of improvement is to the extent of 4.3% due to improvement in the business mix. The non-par businesses has grown, a considerable proportion has improved in the half year, that is it has moved from — in the individual business, it has moved from 7.6% to 18.2%. And overall, it has — the proportion has moved from 4.9% to 11.8%. Actually, this increased because our — if you look at our — the proportion of non-par business, within the non-par business, we were — we are strong in the savings product. And therefore, this has increased the — helped us to increase the margin by 4.3%. The negative movement due to economic assumption is due to the fall in RFR across all tenors and that has contributed to the negative movement of 2.9%. And there is a small positive of 0.2%, which is we — normally what we do is based on the experience analysis, we try to have an outlook on the — expected outlook on the future experience and we realign the assumptions. And we have observed that the term plans mortality is showing an improvement, and that has been factored in it.
Supratim Datta
Got it.
Siddhartha Mohanty
As far as the hedging issue that you mentioned about, see, typically, hedging would not help improve or make the product competitive, it only allows you to have better certainty when you are pricing the products. The competitiveness of product will depend upon eventual — available opportunities in the investment market. And in order to ensure they are in line with the property margins, that is the reason that that will be continuously reviewed in line with the — in fact, there are limitations of the capacity in the hedging market. That is one issue that will have to be seen when we get into it. But as of now, our volume of business in non-par, though we have shown tremendous growth, is not that alarming that hedging becomes very imminent or unavoidable situation for us. But as we have — already have all policies and systems in place and as we have now picked up significantly on the non-par side, we are ready for getting into these arrangements, so that greater certainty is there about pricing of these products.
Operator
Mr. Datta, you have any further questions?
Supratim Datta
Yeah. On the September, what really drove that jump in? Was it a pull forward in demand or was it some other driver? If you could give some color on that?
Siddhartha Mohanty
Yeah. As far as September business is there, it has not been a very conscious strategy on our part that September should become big because we really have come out that — we were ready with the products that had to come about. Naturally, intermediaries or markets seek an opportunity in which they feel enthusiastic. Possibly people wanted to cover up for the October month when the season for festivals are there. And that gave them opportunity. And some of the — even for general public also, which is very fascinated by existing products, they would like to take those products. So, that helped us garner a good momentum among intermediates. We always try to work every month actually very sincerely that every month should be like September, but every month cannot become like September or March. And it was good that we could get a good business in the month of September. And now with the new products being available with their own benefits to the customers and the design features, we expect after some slowness possibly in October, which is expected because once you have a very good month, the following months tend to become slightly relaxed. And we also expected our agents and our marketing team to understand the new products, their new [Indecipherable]. We are sure that once it has circulated down the line, the coming months will be good from the business point of view.
Supratim Datta
Got it. And just one follow up question, sir. I wanted to understand, how has the commission structure for agents changed from 1st October versus pre-1st October, if you could give us some color on that factor as well? Thank you. That’s my last question.
Siddhartha Mohanty
See, as we mentioned earlier also, the purpose of all the redesigns has been that when the new regulations have come, we have to ensure that the policyholders’ benefits are in line with the expectation of the regulation. On the same side, actually, we also have to ensure that the profitability expectations from the investor point of view does not suffer. Third balancing important point is that distributors’ attractiveness for the product, so the distributor should also not suffer. But what we thought was that largely because the concern of the regulator was that insurance companies should not benefit out of less business, so that is possibly the driving purpose for higher exit values. So, it was necessary for us as a response that we ensured that in the first place, the quality of the CS is such that it is driven towards long-term survival of the policies because that’s a win-win proposition for insurance companies, the intermediaries and for the public trust. So, what we have tried to do is we have no intention to reduce the benefits of our intermediary because we have seen from the presentation from CINB [Phonetic] also that 95%, 96% of business is sold by them. What we are trying to develop and create a culture in which the reward should be linked to the level of the persistency and, therefore, very minimal changes have been done. But let me clarify that in many of the products, we have not even touched the commission rates. In fact, in some of the policies, big ticket size policies, we have rather incentivized for better behavior. In fact, some of the products, we have increased the commission rates at the later stages. So, the idea is that the intermediaries should not lose out on it that, but our behavior and our sales are driven in a manner, so that long-term perspective is kept in mind. So, that’s all — in fact some of the popular products, we have not even changed premium rates also. So, wherever — because — the last point has been that the profitability should not get compromised, the quality of the business should not get sacrificed in this process and the purchase and business should be rewarded for it.
Supratim Datta
Got it. Thank you.
Siddhartha Mohanty
Thank you.
Operator
Thank you. The next question comes from Aditi Joshi from JP Morgan. Please go ahead.
Aditi Joshi
Yeah. Thank you for the opportunity, and good evening. A couple of questions. So, firstly on the VNB margin walk that we have provided. As — if we compare the VNB walk in the first quarter, there was a negative impact from the higher product benefits. But in the first half one, it wasn’t there at all. So, can you please help me understand how shall we read it? And secondly, if you look at the share of urban business versus the rural, we have seen it has improved. So, can you just help us understand, like, what strategy you’re using — you’re adopting as in focusing more on the urban and will it be continuing going forward? And just last very quick question on the duration average policy term of the non-par savings. I can see in the presentation, it’s somewhere around 72 years. So, just wanted to understand, like, what is the typical premium payment term of these very long-term policies? And just — but — if also you can share some trend on the hedging costs for these products, do you see any higher hedging costs in this particular segment? That’s all.
Siddhartha Mohanty
Yeah. On the VNB movement, actually, what has happened is, earlier, we were showing it business mix and the benefit has two components and we now align it with the market where both these components are merged. And the walk which we have shown as business mix incorporates this item also.
Aditi Joshi
Yeah. And I had a couple of questions more, so if you are able to address that as well?
Siddhartha Mohanty
Sanjay, you want to —
Sanjay Bajaj
See, what is happening, as you talked about the strategies regarding urban and rural. That way, our strategy — because a large part of our business, almost a few years ago, almost 50 to — 50%, 60% of our business is coming from rural places also. Now, it is not — strategy is not that we should get business from urban places only. We are equally focused in urban and rural places. All our policies are available, irrespective of the geographies which are there. But different places do have different preferences. And it is quite natural that in the urban centers, the average ticket size is higher than as compared to the rural. But we have many pockets of rural, where the average ticket size is even very high. So, it’s not that — right.
And second was about the duration, possibly that is getting reflected because some of the very large sales are happening on the side of annuities. Recently, we have reduced the minimum entry age for annuity. Earlier, it used to be 35, 30. Now, we have even allowed from age at entry from 18 years there. Also in our very popular product in non-par segment with — they are whole life policies. So, there also the age of entry is now revised to even 18 years. So, the average — because whole life is considered something around 80 years to 100 years. That is how we price for it. In fact, the maturity value is taken up to 100 years. So, from that perspective, the longer duration can be seen in the savings side of it.
Aditi Joshi
And just one follow up. What is the typical premium payment term of these two policies that you have mentioned?
Sanjay Bajaj
The premium payment terms for — typically for the annuity products come under two options. Immediate annuity means it is bound to be single premium. And the default annuity option, which earlier was up to 12 years premium paying, now under the revised product filings, we have up to five years being offered. For the other product, the premium payment terms can be 15 to 20 years. So, the premium payment — there are limited premium products. Right? These are not regular premium products.
Aditi Joshi
Okay, sure. And just one last follow up. On the trends in the hedging costs that you have seen, is there any increase that you have seen in this year as compared to the last year? Yeah. That’s —
Siddhartha Mohanty
Hedging cost.
Sanjay Bajaj
As of now, actually, we have not entered into any contract into hedging cost, so that has not triggered for us at this point of time. So, that cost may possibly be incurred in case of changing interest rate scenarios going upwards. But that’s not the situation. As of now, we still have to — so there is no hedging cost for us at this point of time.
Aditi Joshi
Sure. Got it. Thank you so much.
Sanjay Bajaj
Thank you.
Operator
Thank you. The next question comes from Gaurav Jain from ICICI Prudential Mutual Fund. Please go ahead.
Gaurav Jain
Hi. Thank you for the opportunity. First of all congratulations to the team for such encouraging set of results. Few questions from my side. First is on par margins, a follow up. So, should we expect this 10.1% VNB margin for par to continue or was there something exceptional this quarter and going forward we should expect a little lower number? Second on product mix, so we are seeing very encouraging shift towards non-par in the individual APE, it is now at upwards of 26%. So, what is the sustainable number towards product mix that we think we should achieve for FY25 and, say, going forward? Third is on distribution mix, sir. We are seeing encouraging shift here also in favor of Banca and alternate channels are now closer to 5% of individual NBP. So, if you can highlight what are the steps that we have taken, have we added new things or — towards digital channel, et cetera? And fourth is, sir, update on the investment in SAHI that we were planning to do. Yeah, that is all. Thank you.
Siddhartha Mohanty
Regarding the par margin, if you look at the margin for first half yearly FY24, par margin, compared to half yearly FY ’25, it is flat. It was 10.3 at ’24 and now it is 10.1. So, [Indecipherable] is not something which is completely out of place. So —
Gaurav Jain
— should be sustainable.
Siddhartha Mohanty
Yeah.
Gaurav Jain
Okay. On product mix, sir, non-par?
Sanjay Bajaj
See, on the product mix on non-par, the impact on the margin is [Indecipherable]
Siddhartha Mohanty
You want to know the impact of margin due to product mix?
Gaurav Jain
No, sir. That is given. My question is, what should be the sustainable product mix that we should think? Should we expect this non-par as a percentage of individual APE to continue or was there something exceptional this quarter?
Siddhartha Mohanty
Yes. See, there, our strategy is very clearly that we want to have a modest growth in — as far as the par growth is concerned. And in non-par, we consider that the pace of growth should continue and shall continue in this manner only. So, participating business has been slightly dipped some — single-digit negative has been there. Our endeavor is that even this should continue as a journey, it should not be negative. So, we are working towards a direction and participating should grow. But we continue to — we expect the non-participating business growth to continue on this line or [Technical Issues]
Gaurav Jain
Okay. Great, sir. Third question was on distribution mix, sir. We have seen Banca and alternate channel share increasing, so what steps have we taken? And —
Sanjay Bajaj
Yeah. Good evening. See, the approach has been to expand the partnership bandwidth and [Indecipherable] that the overall relationship side that we have in Banca and alternate portfolio. And that has helped in the sense in that we could add some significant [Indecipherable] partnership on the bank side. And to be precise, we’ve added two major banks within first six months, one being IDFC FIRST and second being FINRA [Phonetic] which has started delivering in terms of volume. And at the same time, we have also started leveraging in the form of engaging more with the alternate side that is through insurer marketing firms as well as broker side. And that also has given very encouraging kind of a response in terms of overall numbers. So, this focus will continue with more engagement in terms of expanding the bandwidth both on Banca as well as the alternate side. And we are hopeful of continuing with the same growth momentum and improving our share within the overall performance of the corporation going forward.
Gaurav Jain
Great, sir. Last question on update on investment in SAHI, sir.
Siddhartha Mohanty
Investment. What is the question?
Sanjay Bajaj
Come again, please.
Gaurav Jain
Standalone health insurance, sir.
Siddhartha Mohanty
See, as far as standalone insurance is concerned, our MD has already discussed and elaborated upon that. That’s a very interesting and exciting sector for us to look at. We are looking for all the opportunities there. And it’s a work in progress with great enthusiasm and focus into it. So, it’s a work in progress. We are going in that direction. It’s a growth opportunity area. So, we consider that it’s a good alley for life insurance.
Gaurav Jain
Great, sir. Thank you so much, and all the best.
Siddhartha Mohanty
Thank you.
Sanjay Bajaj
Thank you.
Operator
Thank you. The next question comes from Prayesh Jain from Motilal Oswal. Please go ahead.
Prayesh Jain
Hi. Hi, everyone. Sir, just firstly on the commission structures. There has been a lot of talk in the media about the agents showing their dissent over — all the commission structures, particularly on the current commissions going down and secondly also there are some claw back — claw backs as well. So, is there the — is the comfort given to the agents or where are we in that and how do we see this going ahead, in that sense?
Siddhartha Mohanty
See, commission has been realigned. It is not reduced to whatever was given during the entire duration of the policy, agent still gets that. So, some restructuring has been done. So, there is no reduction for, say, which is perception now.
Prayesh Jain
Okay. And are there any claw back clauses for the agent?
Siddhartha Mohanty
That is enabling provision, we are not going to implement it. It depends upon our experiences because the new product have been filed from 1st October, we are selling product search for the new regulation. So, depending upon our experience and my belief is that there will be no need to implement the claw back provision. That will not be required in LIC.
Prayesh Jain
So, in the current product, there is no — in the current structure, there is no claw back? It is an enabling provision that you have taken, wherein with your experience in future, if need be, you will implement a claw back by intimating the agents?
Siddhartha Mohanty
Now, we have not implemented a claw back.
Prayesh Jain
Okay. Got that. Got that. And sir, the second question is, again, on urban versus rural, and rural has been your homestay for — relative to the other players in the market. The private players are now looking to get into tier 2, tier 3, expanding their brand presences, hiring far more agents at a much more rapid pace. You indicated that the market share and number of agents has been reducing for us. So, in that sense, do you see that you need to alter your product rates or commission structures in a way to maintain your position in the rural areas or how do we see this kind of panning out?
Siddhartha Mohanty
See, as far as benefits to the distributor has to be considered, we have to be cognizant of the fact that the new [Indecipherable] regulations do allow insurance companies, including us, to decide the pay structure for the distributing channel in reference to the different parameters as per the approved policy. Commission is one of the basic benefits which flow to the distribution channel. There are many other things like rewards, the membership benefits, different club memberships, depending on their performance level. All those criterias are there. So, we are open to have a — the benefit structures, not necessarily — a commission is decided in a manner because it becomes fixed and guaranteed as a part of the pricing of the product. But depending on our experience as it emerges, we can introduce rewards and benefits for the intermediaries to encourage the movement and the business to be driven in the areas, which is beneficial for having a wider spread, being value for the customers. Like if we have to segment — go for the slower segments or for the policy points or model points where the profitability is high. So, that option remains open and we do exercise that option often. So, let’s not take that commission is the only thing which is paid to the intermediaries. Depending upon the requirements of the institution as well as for the quality of the business, different benefits. In fact, LIC offers its agents long-term benefits like gratuity, sort of pension, group insurance schemes and many other club member benefits, including — many other benefits are available to them, which is linked to their performance on the parameters, which organization sets for the performance levels.
Prayesh Jain
Got that. And thirdly, sir, on the SAHI, on the health insurance. Unless — sir, is it clear that unless the composite license comes through, you cannot acquire stake in any SAHI, right? The composite license has to come through for you to take stake in a standalone health insurance company, right?
Siddhartha Mohanty
It has nothing to do with the composite license.
Prayesh Jain
Okay.
Siddhartha Mohanty
We want to buy some stake in standalone health insurance company. So, that can be without the composite license.
Prayesh Jain
Okay. So, would there be some restriction on acquiring a certain amount of stake?
Siddhartha Mohanty
There is no such restriction. As of now, there is no such restriction. But our investment regulation, it has it’s restriction. So, within that, we have to operate.
Prayesh Jain
Okay, okay, okay, okay. Got that. Got that, sir. And — yeah, that would be it. Thank you so much, sir.
Siddhartha Mohanty
Thanks.
Operator
Thank you. The next question comes from Dipanjan Ghosh from Citi. Please go ahead.
Dipanjan Ghosh
Sir, just a few questions from my side. Firstly, when I look at your persistency ratios, be it for 2Q or 1H, across a few buckets, we are seeing deterioration. So, just wanted to — and especially in the early buckets, 13-month, for example, in 2Q is meaningfully down. So, just wanted to understand, is it more of a function of mix change towards a little bit of higher ULIP or if you can give some color on the product level persistency, how you are seeing that evolving, let’s say, over the past few quarters? Second question is more on the embedded value. I know that you don’t give the breakup for the first half, but if you can at least give some color on whether the operating variance would be positive on a Y-o-Y basis or up? And also if — correct me if I’m wrong, but has the unwinding rates gone down a little bit? And if so, is there a change in the real world excess return that you’re assuming?
The third question is on the investment mix in the non-par. Given that the mark-to-market movements have been quite sharp, what would be the investment mix in your non-par book currently? And the last question is going back to the surrender chart circular. See, the way I see it is this current circular on the backdrop of your persistency ratios basically mean that there is a certain amount of drag that should come in, everything else remaining constant. Now, there are only few places which this drag can be absorbed either in your own margins or as lower as higher premiums for the customer or maybe at the distributor level. Now, your commentary seems to be that almost all these things will remain unchanged or — in some cases, actually the distributor might be well off also for certain high ticket policies. So, just wanted to get an understanding of which of these three aspects or where is the pain really going to get absorbed? I mean, if you can give some broad qualitative color on that?
Sanjay Bajaj
Yeah. I’ll take the question on IEV operating variance. Actually, the RoEV of — annualized RoEV is similar to what we have reported for half year ’24, which is at — close to around 11.8%. The unwinding for half year ’25, it’s slightly a notch above we — what we have reported for half year ’24 and it is around 9.5%.
Siddhartha Mohanty
See, as far as non-par investments is concerned, I guess, you are asking in context of the policyholder fund, not policy margins. So, around 9% to 10% of the value is in equity. You would expect that the non-participating fund, actually, there’s a greater asset liability matching requirement. And the discretionary benefits not being there, the larger component of investment is in the fixed securities. So, in line with that principle, around 9% to 10% roughly would be the amount, which would be invested in the equity portion, the balance is in the fixed securities.
As far as persistency is concerned, I would say half of the statement is correct because you mentioned about 13-month persistency. As was clarified in the initial speech, 13th and 25th persistency from the policy point — policy context is positive as compared to the comparable period. In fact, the 25th month persistency, 49th is also positive from the premium point of view. Yes, we agree that in fact a lot of steps has been taken by us in terms — in the previous years in terms of corrections at the point, for example, micro [Indecipherable] low persistencies. But possibly that impact did not flow fully because the volumes were not that high. You would have noticed that in new product, which we have launched in the month of October also, we again reviewed minimum ticket size in mostly those products, where we were experiencing lower persistency in the lower ticket size, so that we have tried to rationalize, so that our journey to better persistency continues.
Similarly, we have tried to, as I was explaining earlier, also incentivize the behavior, for example, putting in extra rewards for policies with high ticket size or based on the longer duration to which they can — they run. So, that this persistency continued. In fact, some of the products which were earlier available and which we have yet not launched because we still have the window for modifying the products, we have held them back only for the reason because we did not have great persistency experience there. So, those also, we will relook, so that the modified version of them comes in a manner, so that it further helps the persistency. In fact, besides that also, and operational level also, the mode of payments and all those things also, we have relooked in many things, many — low ticket size policies, for example, 1 lakh [Phonetic] policies, which we consider are important for wider spread of insurance and reaching nook and corner of the society in line of the Vision 2047. But we have tried to address those low ticket sales policies still being offered, but in the mode in which the persistency experience is good. So, these are all steps we are continuously working out, so that we continue to have better persistency experience.
And the point that the 13-month persistency in count of policies and 25th month persistency in count of premium also has shown improvement is evidence that the steps taken in the direction have yielded the results.
Dipanjan Ghosh
Just the last question was on the surrender part. I mean, where is it getting absorbed exactly? I mean, there has been a change in the surrender norms. Right? So, everything else remaining constant, there would be a certain negative cash flow — cash outflow drag, right, over a longer time horizon, assuming everything else remains constant. Now, you obviously tweaked the product designs. You mentioned that you have not materially changed the commission structure. In fact, in some cases, commission structures might have actually improved also. You also mentioned earlier in the call that margins should broadly remain where they are. So — and in some cases, you have maybe taken a little bit of premium hike. So, I just wanted to understand, in which of the areas — I mean, there are three stakeholders, right, the corporation, the customer and the distributor. Right? So, who is really going to bear the pain of this negative drag exactly?
Siddhartha Mohanty
We would want that nobody should bear the pain of this and it should be a win-win proposition because the spirit of the regulation, which is that customers should get value, has to be ensured. So, what I was suggesting earlier also that what we are trying to do is we have looked into the possible cost, in fact, on the benefits of this and, therefore, necessarily repriced our products, where we felt this could be an issue. Similarly, while we are saying that we have not reduced overall commissions as [Indecipherable] explained earlier, we have redesigned them and in fact — so that what was being paid in the first year is now being paid, say, in the third and fourth year. So that when the policy goes along, the commission gets paid. So, it is not denied, but it is linked to the continuity of the policy. Because as you rightly mentioned, there is going to be impact, financial impact. So, to that extent, it limits and restricts the financial impact to that extent.
Similarly, we have, in fact, made certain changes in our products, so that the benefits, it’s not that if one year premium is paid or not paid, then the benefits go away. We are giving proportionate benefit of the policy in the ratio to the premium they are paid. And — so that the customer sees a value that even if you are not able to, for example, if you take a high ticket size policy, you are not able to run it beyond certain number of years, you do not lose out, you continue to get proportionate benefits. And — so that you get whatever things you’ve decided — planned for you at the maturity or in any other eventuality in proportion to the premiums paid. So, the aim is that we redesign features in a manner, so that the [Indecipherable] itself should go down, policy should continue for longer to the benefit of the customer as well as for the distributors. Because it’s not only about the first year commission, let’s not say — because if the — any distributor is — or for any seller is just looking into the first year as a source for commission or income only, I think there is a basic defect in that entire business planning. It has to be seen across the long-term of the policy. And we believe that with this, even the quality of the business that will come will be improved.
So — and another thing is that while their first year expenses will go — may go up because of the higher [Indecipherable] value, it does not necessarily mean that customer will choose to surrender their policies because still they will lose out a significant portion of the premium. So, there can be a situation, and we expect a situation in which possibly the customer will see now more confidence and more liquidity being available in the product and maybe more sales can happen. So, we all have to see how actually the situation comes about. As of now, we have repriced the product, revised the product and the features in them, so that all these parameters are balanced out. And we’ll continue to review our products as and when situations demand, we will review them further also. And we will continue to address, it’s not about confining to the existing product. We have filed more products also. And we believe that beyond the returns only, we want to focus on the health — production side of it. We have shown tremendous growth in ULIP product, where there is hardly any impact of these changes and — plus we will continue to — and we have really filed and we’ll continue to work for the product, where the concentration is not only in terms of returns, but it is also about the various features which are the product, which suit to their lifestyle requirements. So, we have to operate in the regulatory environment in which the expectation is there. And we will try to work out for a win-win formula from there.
Dipanjan Ghosh
Got it. Sir, just one follow up on the first answer, which is on the operating variance, I did not really understand. Did you mean that it’s positive during the first price, I mean [Phonetic]?
Siddhartha Mohanty
See, operating — I’m talking about RoEV that is return on embedded value due to operations. And that was — we have — it will stay flat at the same year — same as last year. Last year, it was 11.8% for the corresponding period. And currently, it is staying at the same number.
Dipanjan Ghosh
Got it. Okay. Thank you. And all the best.
Siddhartha Mohanty
Thank you.
Sanjay Bajaj
Thank you.
Operator
Thank you. Ladies and gentlemen, as we are beyond our conference time, we’ll conclude this conference. So, I’ll hand the conference over to Mr. Mohanty for closing comments.
Siddhartha Mohanty
So, thank you, friends. As we conclude our discussion for the first half of FY25, I want to express my sincere gratitude to every one of you for your continued trust, partnership and engagement with LIC. Your insights and questions today reflect the depth of understanding of LIC’s business. And I hope we have addressed them in a way that reinforces your confidence in our strategy and direction. Thank you once again for your valuable time, trust and support. We look forward to engaging with you further in the upcoming quarters and delivering on the commitments we have shared today. Wishing you all the very best. Thank you.
Operator
[Operator Closing Remarks]