ICICI Prudential Life Insurance - Investor Presentation and Earnings Call Transcript
Investor presentation of the Company on the performance update for FY2020 and Earnings Call Transcript of Q4FY20 and Full Year.
N. S. Kannan:
Good afternoon and welcome to the results call of ICICI Prudential Life Insurance Company for the financial year 2020. Today, I have several of my senior colleagues with me on the call: Puneet Nanda our Deputy Managing Director, Satyan Jambunathan our Chief Financial Officer, Amit Palta, our Chief Distribution Officer, Judhajit Das, our Chief of HR, Deepak Kinger, our Chief Risk and Compliance Officer, Manish Kumar, our Chief Investments Officer, and Asha Murali, our Appointed Actuary.
It would probably be an understatement if I begin by saying that the last quarter of the financial year has been an eventful quarter. Just to highlight the key events during the quarter:
First, the COVID-19 situation started developing in some parts of the world around early January and no one quite saw it turning out to be what it has become today.
Second, early February saw some Indian Union Budget tax proposals which had an impact on the life insurance industry.
Third, there was also a lot of discussion on mortality pricing and the fact that re-insurers were increasing their pricing for the industry as a whole.
And finally, starting mid-March, we have had a near shut down in most parts of India to contain the spread of the COVID-19 infection. Even as we speak today, the country continues its battle to contain the spread. With the proactive steps taken by the Government and with the cooperation of the citizens, we are sure that as a nation we will emerge out of the crisis stronger. In the meantime our thoughts are with the families who are grappling with health issues, lost lives and livelihood issues. In this context, you would be aware that ICICI Group has committed ? 1 billion to support the nation in its fight against the COVID-19 outbreak.
Of this, ` 800 million is being contributed to the ‘PM Cares Fund’ and ` 200 million to state governments and local authorities in their efforts to battle the pandemic. As part of our CSR commitment, we have decided to contribute a part of this amount. Further, our employees have also voluntarily decided to contribute a part of our salaries to ‘PM Cares Fund’ and other initiatives for COVID impact mitigation.
So, before I get to the performance of the Company and the results, I would like to spend some time talking through how these events have impacted us and how we are seeking to learn from these experiences to emerge stronger. The Budget As a very quick recap, the Budget contained two elements that had implications for the life insurance industry. The first was the proposal to create an alternative tax regime which would have almost no exemptions and deductions but would have a lower tax rate. Given that Life Insurance premiums are one of the many instruments that currently qualify for deduction from income, there has been a concern in the minds of some, if this will structurally impact the demand for life insurance products.
We had articulated at that time that given our relatively more affluent base of customers and our focus on protection as a key business opportunity, we don’t expect that our business would be meaningfully impacted. We had also expressed our view that the industry as a whole over the past few years has moved significantly away from a predominantly tax exemption driven sales approach. The second was the removal of the Dividend Distribution Tax and making dividends taxable in the hands of the recipient. We had articulated that this would have an impact on VNB as well as EV as our effective tax rate would change. We had also said that we would give effect to this in our full year results. As we explain the results, we will elaborate on this further.
Mortality pricing
During the quarter, we saw re-insurers seeking a change to their rates. We had articulated that as the target market for the protection business is being expanded, overall underlying mortality would need to be reflected in the pricing. Such a change in the pricing would in fact make the opportunity larger by expanding the target market and hence be an enabler to the sustained growth of the product category. We have already filed our revised product with the Regulator. The revised pricing FULLY absorbs the changes in reinsurance rates while maintaining our margins at the same level.
We continue to believe that this change to pricing is not likely to have a material impact on demand, given the extent of the pricing change and since the need for protection continues to exist with significant underpenetration. COVID-19 Clearly the most significant event during the quarter was the progression of COVID-19 infection in India. Please refer to slides numbered 3 to 5. During the past few weeks, we have engaged very closely with the Regulators and policy makers to ensure that our response sufficiently addresses the requirements of our customers, employees and the nation at large.
While at a systemic level this has a number of implications ranging from health and well-being of the citizens to industry-specific impacts and to a larger impact on the economy as a whole, I will now spend some time on the implications for the life insurance industry and how we are dealing with it. For the life insurance industry, the potential impact can be bucketed in three broad areas, Market related, Demographic and policyholder related and Business and business conduct related.
Market related
The last few weeks have seen equity prices falling sharply. We have also seen interest rates fall, as policy measures have been triggered to deal with the economic impact of the disruption. What is also emerging is stress in some sectors that could have an impact on credit risk. Insurers have exposure to equity in both unit linked and participating businesses. Interest rate movement impacts the liabilities and guarantees embedded in the business and credit risk can impact investments in corporates.
Further, such sharp movements in markets coupled with any mismatches in ALM that companies may have, could impact the solvency of the businesses. Our approach to market risk has always been one of not taking on a risk that we cannot manage. This is manifested in the composition of our Balance Sheet. Of our total liabilities, unit linked business constitutes 68% and participating business constitutes 13%. These product categories largely pass on the market performance to customers. Non par guaranteed return products comprise only 0.4% of our total liabilities and these are invested with minimal ALM mismatches.
We have been constantly monitoring our liquidity and ALM positions, and we have no issues to report. So, from a liability perspective: our liability profile has withstood and is capable of withstanding the severe disruption we have seen in markets, liquidity and asset prices. On credit risk, we have traditionally been cautious in our assessment of investment opportunities. Consequently, 94% of our total fixed income portfolio is invested in either government bonds or AAA rated bonds. Only 1.0% of our fixed income portfolio is invested in bonds rated below AA.
We have also at our past results highlighted that we have no exposure to any of the defaults that have happened over the recent past and that continues into this quarter as well. So, from the assets perspective, we continue to be very proud of the fact that we have had zero NPAs in about 20 years of our existence, across cycles.
This resilience of our Balance Sheet has meant that even after the recent market shocks of more than 23% drop in BSE100 over the month of March and 24 basis point drop in 10 year government bond rates over March, our solvency ratio stands at 194.1% as at March 31, well above the regulatory requirement of 150%. In the current situation, as would be expected from a financial services sector player, we have already carried out further stress testing of our Balance Sheet over the current year, subjecting the portfolio to further shocks to both equity prices and bond yields.
Our conclusion is that even with this combination of further stresses from an already stressed environment, our solvency is expected to stay above the minimum level of 150% required by regulation. It would be worth highlighting here that we are permitted to raise Tier 2 capital of upto ` 12.00 billion under the regulations, which is completely unutilised as of now, and which could be raised if needed, to further improve our solvency position. So, from a solvency perspective, we continue to remain very strong, which is a great situation to be in, especially in this environment.
As we move forward, our clear approach continues to be to maintain the resilience of our Balance Sheet by offering suitable products and deploying appropriate risk management practices. Demographic and policyholder behaviour related The spread of COVID-19 and resultant deaths is still rising. We have been closely watching the developments and their impact on insured lives mortality. Given the low level of insurance penetration, we have observed from the past natural catastrophes that even in situations of extensive loss of life, claims from our customer base were very negligible. Even in the current situation, out of the 723 reported deaths until yesterday, we had two claims from our portfolio.
Further, at March 31, 2020, we are holding additional reserves towards potential COVID-19 claims. We also carried out a stress test where we assumed a shock to mortality arising from COVID-19. Even under this scenario our solvency stayed above the regulatory minimum of 150%. The other possible impact on policyholder behaviour is the drop in persistency arising from the sharp market discontinuity, both in the past few weeks and going into the future. We have in the past always articulated that we believe that the core factor that drives persistency is the sales process. Of course as time passes, markets, fund performance, service standards and more generally, customer experience, can impact persistency at the margin. We have seen our persistency being stable even during the last quarter.
Over the past few weeks we have observed surrenders drop sharply with the fall in markets. This is positive for our VNB and EV. We will talk about these elements in greater detail later. Overall, on demographic factors, we believe that we are well positioned to deal with the outcomes emerging from COVID-19. Business and business conduct related Organisations generally plan for business continuity on the assumption that some parts of the country will be inaccessible. What the COVID-19 situation has tested is our preparedness to deal with a full country “outage”.
Clearly, this will also bring out the relative technology strengths of various organisations within the industry. As a company, in mid-march, we moved into a 100% work from home for the entire organisation except where required to provide essential service.
This effectively tested our capabilities under three dimensions.
1. Customer service Over the years, we have built a digital platform that empowers customers to carry out almost any transaction from the convenience of their home. This had enabled us to move about 87% of customer transactions to selfservice over the years.
At the commencement of the restrictions, we once again started a series of communications to our customers to reiterate this. We also reiterated that all claims, including due to COVID-19, would be processed while ensuring a round the clock access to our call centre and faster settlement.
During the lockdown situation, we observed a distinct increase in digital interactions with our customers. For example, between the period March 22 and March 31 as compared to rest of the March month, daily average of interactions with our chat bot has increased by 42%, interactions through WhatsApp has increased by 61% and mobile App logins have increased by 94%.
These lessons will come in handy as we work on enhancing the level of self service to much higher levels.
2. Support functions including financial reporting functions All support functions moved 100% to work from home. Our technology platforms are fully enabled for secure remote access which has enabled teams to function uninterrupted. This is best evidenced by the fact that we have finalised our results within timelines that we would normally do during other years.
3. Sales processes We believe that we have built a truly world class technology platform to support our distributors and sales management teams to be able to carry out all functions from prospecting to on-boarding to servicing from any device of their choice. This positions us very well to continue sourcing business even as the COVID-19 situation stabilises.
While the technology platform exists, there has been a general comfort for distributors to do the last mile connectivity with the customer as a “physical face to face”. Changing this behaviour and converting the last mile contact to a “virtual face to face” has been our key focus over the past few weeks. We are already seeing more and more distributors embracing this approach. This transition will however happen over a period of time and during that period, if lockdown situation continues, new business could be impacted.
We see this as a tremendous opportunity to redefine how sales processes operate and use these learnings to improve our efficiencies. The steps we have taken over the past two years to diversify the product mix into both, traditional products for appropriate segments and protection business, are standing us in good stead, especially when it comes to VNB development. We will talk in some detail on how we are approaching this quarter, both from a business opportunity and cost architecture later in the presentation.
I will now move on to other developments during the quarter. Regulatory development On the regulatory front there are two key developments. The first one is on the sandbox framework. The IRDAI has approved seven proposals of life insurance companies. We are happy that five of the seven approved proposals were ours. These proposals span across products and service propositions. This reinforces our desire to continue to innovate in providing solutions to our customers without compromising on our Balance Sheet strength. The second key development is with respect to the KYC process. As per the recent notification from the Department of Revenue dated April 23, 2020, we are one of the insurance companies to be allowed by the Central Government to conduct online authentication of Aadhaar.
This will be a powerful enabler in our digital fulfilment process.
Technology initiative
The Company believes in leveraging technology to deliver enhanced customer experience, scalability and cost efficiencies. A part of our technology journey is to identify key areas where artificial intelligence can make an impact. During the quarter, we have invested in a speech recognition and conversational humanoid AI tool, which can not only converse with customers in multiple languages but can also reach out to over 50 thousand+ customers in an hour.
Given the positive feedback we have received from customers and the scalability of the solution, we intend to enable more aspects of our service with humanoid capabilities.
ESG initiatives
Over the years, we have been building our organisation with a strong focus on governance and ethical behaviour. We have also focussed strongly on giving back to Society. We have been putting in place various measures to preserve the environment.
We have now brought all of these together as a document which captures our initiatives across the Environmental, Social and Governance (ESG) space. We will also be talking about this later in the presentation. I would also like to inform you that the Board has amended the Dividend Distribution Policy to bring down the maximum limit of dividend ratio to 30% of PAT as compared to 40% of PAT earlier. The revision is in line with our stated objective of conserving capital, primarily to support the strong growth in the protection business. Given the uncertain environment, IRDAI circular advising companies to be prudent to preserve capital and the fact that we had already declared interim dividend, the Board has decided not to recommend any final dividend to the shareholders.
I will now move on to our performance for the year and then conclude with our approach for fiscal 2021 before I hand over to Satyan for a more detailed discussion on the results.
As I have mentioned in our previous calls, our 4P strategic elements i.e. Premium growth, Protection business growth, Persistency improvement and Productivity improvement continue to guide us towards our objective of growing the absolute Value of New Business while ensuring that our customer is at the core of everything we do. With our customer centric approach, we have had a robust performance across service parameters as presented in slide 8. Our Claim settlement ratio stands at 98%.
Very importantly the average time taken for settlement of claim was just ~1.6 days in fiscal 2020, a further improvement from 2.3 days for FY2019. The Claims for Sure initiative which I spoke about in our previous results call has helped in reducing the average time taken. Our Grievance ratio as well has improved to 48 per 10,000 policies sold during the year. During the fiscal 2019 result call, we had articulated our aspiration to double our fiscal 2019 Value of New Business (VNB) by fiscal 2023.
This implies a minimum compounded growth rate of 19% p.a. In this context, as you can see in slide 9, our VNB grew by 21% to ` 16.05 billion in fiscal 2020 as compared to ` 13.28 billion for fiscal 2019. This growth has been predominantly achieved through the growth in the protection and nonlinked savings business.
Our VNB margin for fiscal 2020 was 21.7% as compared to 17.0% for fiscal 2019. This VNB and VNB margin incorporates the full impact of change in effective tax rate due to recent change in the budget on taxability of dividend income. Most importantly, for FY2020, 74% of the VNB came from protection and non-linked savings business, which are the two fastest growing business segments for us. We believe that this also strongly reflects the diversification that we have achieved over the years. The reduced reliance on unit linked business with 26% of VNB also reasonably insulates our VNB growth objective from any potential volatility in the new business of unit linked segment. I will now talk a bit more on the drivers of our VNB growth, viz. the 4Ps through slide 10 to 13.
Overall, during the year, New Business received premium grew 20.4% over FY2019. On the first two Ps of Premium growth and the Protection growth, during the year, we saw the non-linked savings APE grow by 62% and the protection APE grow by 55%. This has resulted in the share of non-linked products increasing from 19% in fiscal 2019 to 32% in fiscal 2020, providing us with further diversification in the product mix. Unit linked business was challenged during the year with the segment declining by 23%. As I had described earlier, non-linked savings and protection segments are the more profitable segments. The strong growth in these segments meant that while overall APE declined 5.4% over FY2019, VNB grew by 21%.
As I had mentioned, our new business received premium grew by 20.4% year on year to ` 123.48 billion. Protection and Annuity business continued to drive this growth. For FY2020, over one third of the New Business premium came from protection and annuity products, reinforcing our credentials as a meaningful protection and annuity provider in the market. On the third P of persistency presented in slide 12, we have seen our persistency being stable since December 2019.
This has indeed been a period of discontinuity in the market and we get confidence from the fact that persistency experience continues to be within the assumptions inherent in the margins and VNB. I would like to mention that our persistency ratios continued to be one of the best in the industry.
On the fourth P of productivity improvement presented in slide 13, we continue to make progress. While we continued our investments across technology as well as in building distribution channels such as Agency, Direct and Partnerships, with close monitoring of our cost elements we were able to bring down the savings cost ratios further.
The cost to TWRP ratio for the savings business has improved to 10.4% as against 11.5% for fiscal 2019. As the cost ratio for protection segment is higher, with significant growth in protection business, overall cost ratio was 15.9% for fiscal 2020 as compared to 15.0% for fiscal 2019. I would like to mention here also that our cost ratios continued to be one of the best in the industry.
Way forward
Before I conclude, I would like to briefly cover our approach to business during this quarter through slide 14 & 15. While at this time lockdown situation still remain, the expectation is a gradual easing over the quarter. We would however expect some time before normalcy resumes.
Distribution
I had described earlier the challenges that distributors are facing in terms of their inability to have a face to face meeting with customers. We are therefore setting our first priority as helping distributors to transition to “virtual” face to face interactions.
We are doing this through a combination of training and hand holding. Our objective in this regard is to get more of our sales employees “digitally active”. Given our strong technology platforms and capabilities that we have spoken about at various times, including our technology day presentation, we believe that we are very well positioned to achieve this. Secondly, during this interim period, we are redefining our channel objectives. For the agency channel, we are defining non-linked savings products and protection products as the priority, as these are also relatively easier to explain and sell. For ICICI Bank, we expect to focus on protection sales through their website and mobile application.
Across partnerships, we are giving greater focus to those partners that have more evolved digital capabilities while we work with other partners to improve their digital capabilities. The focus of our direct channels will be digital campaigns and direct lead assignment to our field staff.
As we talk about our various distribution initiatives for the quarter, I would also like to briefly cover our broader distribution approach for the year. Agency is a channel where we will continue working on our objective of widening the distribution through growing agent count, deepening distribution through enhancing our relationships with key agents and diversifying product mix. Our focus on Partnership distribution continues to be to build new partnerships and deep mine existing relationships. We also continue to focus on new categories of partnerships such as e-commerce entities.
Our direct business will continue to be focused on growing our online capabilities and use cross sell as a key lever to deepen engagement with our customers. ICICI Bank has been a significant distributor for us, contributing about 46% of the total Company APE in FY2020 and 37% of the total Company APE in Q4-FY2020. Over the last few quarters, the Bank has reviewed its life insurance distribution and made some changes to its distribution approach to focus on the under penetrated protection segment and the increased requirement of annuities related to NPS. To facilitate their efforts in this direction, we have enabled various technology and process solutions to enhance buying convenience and distributor productivity.
ICICI Bank has also added this protection offering to its ICICI Stack, which is their comprehensive digital customer proposition. The results of this focus can be seen in the strong growth in APE in these two segments. For FY2020, protection APE grew by 137% and annuities grew by 70%. This also serves the Company objective of VNB growth.
As we move into FY2021, we would expect the above actions to reflect in the premium growth, the product mix and the VNB for the channel. We would continue to diversify and invest in further strengthening our nonICICI bank distribution channels. Customers On the Customer side, the efforts to further migrate customers to selfservice modes will continue. Expense management The key imperative for us will be to manage costs dynamically even as we go through this period.
The focus areas for us would be to improve manpower efficiency through a greater digital adoption and work on making our costs more variable. Through the year, we expect to manage this process well. In summary, on APE for the quarter, even with significant restrictions, we would expect that the protection segment would do well. For the nonlinked savings segment, our aim will be to achieve some growth year on year. Unit linked business could continue to remain challenged. As a consequence, VNB for Q1-FY2021 could be challenged. Even as we had events that have impacted profitability such as the tax change and have events that could impact growth such as the lockdown situation, we continue to hold on to our objective of doubling FY2019 VNB over 3 to 4 years.
Before I hand over to Satyan to go through the results in greater detail, I would be failing in my duty if I do not acknowledge the contributions of various stakeholders during this period. Apart from the financial strength I talked about, the key source of our strength is our employees and I thank my colleagues for rallying together and staying focused on serving customers in these difficult times. I would also like to acknowledge our shareholders for the patience shown as well as all other stakeholders for their continued support.
Satyan Jambunathan: Thank you Kannan. Good afternoon.
Our primary focus continues to be to grow the absolute value of new business i.e. VNB through the 4P strategy of Premium growth, Protection business growth, Persistency improvement and Productivity improvement. The first element Premium growth: As you would have seen, our new business composition over the years was dominated by unit linked products. Over the last two years, we have been systematically working on diversifying our product mix through a combination of distribution build up and product propositions.
Through this diversification journey, the strength of our product range with propositions to suit different risk characteristics of customers has been a very important enabler. We have a complete range of product offerings ranging from unit linked products without any guarantees to fully guaranteed return products on the savings side and a range of retail and group life and critical illness products for meeting protection needs.
As you can see on slide 19, during FY2020, the non-linked savings business has registered a strong growth of 62% year on year with the mix improving from 10% in fiscal 2019 to 17% in fiscal 2020. What is also worth noting is the strong growth seen in this segment across all channels. Protection continues to be a significant need of our society. With our continued focus on this need, our protection business continued to register a strong growth.
The protection mix improved from 9.3% in fiscal 2019 to more than 15% in fiscal 2020. We see this as a significant opportunity going forward as well and are focussing on process simplification as a key enabler of opportunity. We continue to smoothen the process for all our distributors and have particularly focussed on this for ICICI Bank’s customers. With this, the share of non-linked products has increased from 19% in fiscal 2019 to 32% in fiscal 2020.
Moving on to slide 21 on distribution, we have continued to broaden our distribution through investments across channels with a strong focus on agency and partnership distribution. For the agency channel, the approach has been to ring fence the highly productive agents and adding new agents to tap specific customer segments, pursuing our strategy of broadening the customer base. For fiscal 2020 we added over 23 thousand agents to the distribution force.
More than half of our agency business for fiscal 2020 was contributed by non-linked savings and protection products. Within the bancassurance channel, the focus on growing protection and annuities has continued into fiscal 2020. The results of this focus can be seen in the strong growth in these two segments within channel. For fiscal 2020, protection APE grew by 137% and annuities grew by 70%. With this, the protection and annuity mix for the bancassurance channel has increased from 4% in fiscal 2019 to 10% in fiscal 2020. For the direct channel which comprise sales through our own website and employees on our payroll, the strategy has been of upsell to the existing customers with the help of analytics. The channel had a diversified product mix with more than one third of the business contributed by protection and non-linked savings for fiscal 2020.
In partnership distribution, the focus on protection and non-linked saving segments resulted in almost 80% of the business being contributed by non-linked savings and protection products. We continue to build on our existing partnerships while seeking to add new ones. We have also tied up with various non-traditional distributors such as web aggregators, payment banks, small finance banks and insurance marketing firms. We believe that we have a well-diversified distribution mix with distribution channels other than ICICI bank contributing more than 54% of our FY2020 APE.
We have seen strong growth in non-linked products across all channels with an overall growth of 60% year on year. Retail business continued to anchor our new business, contributing more than 90% of the APE. The second element of Protection growth: We continued to have strong growth in the protection business. With an APE of ` 11.16 billion for fiscal 2020, the protection business grew about 55% resulting in the protection mix growing to more than 15% of APE as compared to 9.3% for fiscal 2019. Within the protection business, retail products tend to be more profitable on account of their longer tenure and greater granularity.
As you can see on slide 25, within our protection business, the mix of retail has further increased to ~70% with an APE of ` 7.68 billion. With an APE of ` 2.35 billion, credit life segment continued to register a strong growth rate of 50% year on year. For the past few years we have worked on building partnerships in this space. With this, credit life business through third party segment contributed to 16% of our protection APE in fiscal 2020.
While credit life business through third party has grown significantly in the past few years, it does not dominate the protection mix. The third element of Persistency: As can be seen on slide 27, during fiscal 2020, we have seen mixed trends on persistency across product segments. Protection persistency improved and non-linked savings persistency was flat. There was some decline in the linked persistency during the year. Within that however, it has been resilient during the last quarter with the ratios remaining stable across the cohorts even though the equity markets continued to be volatile with a sharp fall in equity prices.
For fiscal 2020, our 13th month and 49th month persistency excluding single premium was stable at 83.2% and 64.6% respectively. From a profitability perspective, early period persistency and surrender experience is better than the assumptions factored in the VNB and EV calculation.
The fourth element of Productivity: We continued to make significant progress on improving cost ratios of the savings business. One of the challenges associated with the decline of the unit linked business has been on managing costs to be commensurate with the level of business.
Over the year, we focussed on tighter planning and deployment of manpower to ensure that our savings cost ratios reflected the new business outcomes. The cost to TWRP ratio for the savings business has improved to 10.4% as against 11.5% for fiscal 2019. Given the robust growth in the protection business, our overall cost to TWRP ratio was at 15.9% for fiscal 2020.
Slide 30 gives you some details on how we managed to improve efficiency on the savings business. Overall the cost ratio for savings improved from 11.5% in fiscal 2019 to 10.4% in fiscal 2020. We were able to achieve this through keeping the operating expense growth in line with APE growth.
More specifically, we also managed these expenses such that we could continue to invest in areas of competitive advantage such as IT and digitization. While cost elements like manpower costs declined, it lagged the APE decline. We managed the overall cost by flexing variable sales related costs so as to keep overall cost growth in line with top-line growth. Kannan earlier mentioned that key imperative for us will be to manage costs dynamically.
As we go forward into the coming year, we are seeking to improve manpower efficiency by realigning spans, using training and coaching to achieve greater degree of digital adoption and thus higher productivity. We are also working at making our cost more variable such that we are better able to deal with any uncertainties in the business environment.
The outcome of our focus on these 4Ps, as you may see on slide 31, has resulted in our Value of New Business of ` 16.05 billion for fiscal 2020, a growth of 21% year on year. VNB margin improved from 17.0% in fiscal 2019 to 21.7% in fiscal 2020. Business mix, comprising higher protection and non-linked savings mix, led to an increase in margin by 4.7%. Increase in the effective tax rate consequent to the recent change in the taxability of dividend income, led to 1.1% reduction in our VNB margin. We had 1% increase in VNB margin with higher efficiencies, mainly on the maintenance expenses.
Excluding the ETR impact, our VNB margin would have been 22.8% and the VNB would have grown at 27%. Refer slide 32, our Embedded Value increased to ` 230.30 billion at March 2020. Embedded Value of Operating Profit (EVOP) for the year was ` 32.88 billion.
VNB continues to be a significant share of EVOP. Operating variances namely persistency, mortality/morbidity and expense variance continued to be positive for the year, with a total operating variance of ` 1.83 billion. Our Return on Embedded Value (ROEV) was 15.2% for fiscal 2020. VNB contribution to RoEV was higher at 7.4% as compared to 7.1% in fiscal 2019. The operating variances contributed 0.8% to ROEV in fiscal 2020.
The operating assumption change, on account of increase in effective tax rate, had a negative impact of 2.5% for the year. Excluding this effective tax rate impact, ROEV for fiscal 2020 would have been 17.7%. On the market side, a sharp fall in equity prices resulted in a negative impact of 6.8% through investment variance and economic assumption change. As markets improve over time, this negative would be expected to be reversed.
Slide 33 presents EV development for five years. I would like to specifically highlight the positive variances seen across the operating parameters; which gives us a confidence on our assumptions built into VNB and EV computation. Our VNB and EV has been reviewed independently by Milliman Advisors LLP and their opinion is available in the results pack submitted to the exchanges.
On slide 34, sensitivity details have been provided. Broadly the sensitivities are lower than last year given the diversified new business mix. Within financial metrics, our profit after tax (PAT) for fiscal 2020 was ` 10.69 billion and Solvency ratio continues to be strong at 194.1%.
Before I conclude the performance for the year, I would like to highlight our approach and initiatives around sustainability. The past two years have seen a significant transformation of our business model and more specifically on our articulation of strategy as well as our aspiration of value creation for our shareholders. As our business model is intertwined with our sustainability objectives, we have now holistically documented our objectives and approach on ESG i.e. Environmental, Social and Governance. Our ESG framework is based on our Company’s vision to build an enduring institution that serves the protection and long term saving needs of customers with sensitivity.
Our Executive Committee comprising the senior leaders of the Company oversees the integration of ESG within the organizational framework and undertakes initiatives to balance the growth and profitability objectives whilst serving the welfare of society and the preserving the planet and thereby ensuring sustainability. Our detailed report highlighting the initiatives undertaken on each aspect of the ESG framework is available on our website.
First on the Environmental aspect. Being a financial services company our focus on the environment is primarily driven by what we consume and how we recycle. We continue to adopt environment-friendly practices around various aspects, such as energy consumption, water conservation and waste management, through a lens which is to replace, reduce, reuse and recycle.
Some of these initiatives shown in the slides are around energy consumption, water conservation, e-waste management and reduction of paper consumption through end to end digital solutions within each aspect of our business.
On the social aspect, we are fortunate that our business is fundamentally of a social nature, as our aim is to serve the long term financial and protection needs of the society. Our success is ascribed to all our stakeholders, which includes our customers, employees, shareholders, business partners, regulators and the community at large. Our vision is supported by our commitment to five core values, Customer first being primary. Each of our business activities revolves around the primacy of the customer.
Our commitment to employees is based on the three pillars of our employee value proposition namely, Fairness and Meritocracy, providing a Supportive environment and Learning and Growth. Our Company is a gender neutral, equal opportunity employer. Women employees comprise about 26% of the total workforce. The Company has both leadership depth and breadth, with 85% of the senior management team having served the Company for more than 10 years and with 94% of the senior management having done at least 3 job rotations during their tenure with us.
Our Corporate Social Responsibility (CSR) policy is our commitment to provide resources and support activities focused on enhancing economic and social development. Some of our key focus areas for inclusive growth include Skill development and sustainable livelihood, Health and education. We also play a key role in channelizing the household savings to provide long term capital needed for infrastructure and housing, as also investing significantly in Government bonds. As of March 31, 2020, we had invested ~51% of our assets under management in industries related to infrastructure/ housing sector and Government bonds. Through our business, we also offer micro-insurance products catering to the rural and social sector, insuring more than 3.9 million lives as of March 2020.
On the third aspect which is Governance: We are building upon our organization’s foundation over these nineteen years by continually enhancing the structures, processes and controls in place that support and promote accountability, transparency and ethical behaviour. We recognize ethics and governance to be of paramount importance. Through the policies, processes and practices, we have built a strong governance framework.
We strongly believe that success and sustainable growth of any organization depends on good governance. The Company’s corporate governance philosophy is based on an effective independent Board and the separation of the Board’s supervisory role from the executive management.
The Board has 50% Independent Directors. The Chairman of our Board is an Independent Director. We have a board approved policy on board diversity and criteria for appointment of Directors. The Board Committees comprise a majority of independent/non-executive Directors and are chaired by independent Directors.
We have a Board approved Policy on Compensation & Benefits for all employees and non-independent directors, which also includes an employee stock option scheme. As part of our compliance and risk framework, we have in place Compliance Policy, anti-money laundering policy, Board Risk Policy, Information & Cyber Security Policy amongst others. We have Business Continuity Management (BCM) framework which even as we speak today in the lockdown environment, has ensured resilience and continuity of key products and services and the health and safety of our employees.
We recognise our responsibility as insurance companies to protect the interests of the policyholders, which demands that we have in place good governance practices for sound long term investment in addition to the robust risk management framework. We have laid out the operational framework through the Investment Policy and Stewardship Code. I would like to conclude the governance section by mentioning that our Company featured for the second consecutive year among the top three of the 50 companies that got listed between 2015 and 2017, based on its scores on corporate governance.
With this, I conclude our ESG approach and initiatives. As it was our first external disclosure on ESG aspects, we thought it to be appropriate to discuss the same in greater detail with you. 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.
N. S. Kannan:
Good afternoon and welcome to the results call of ICICI Prudential Life Insurance Company for the financial year 2020. Today, I have several of my senior colleagues with me on the call: Puneet Nanda our Deputy Managing Director, Satyan Jambunathan our Chief Financial Officer, Amit Palta, our Chief Distribution Officer, Judhajit Das, our Chief of HR, Deepak Kinger, our Chief Risk and Compliance Officer, Manish Kumar, our Chief Investments Officer, and Asha Murali, our Appointed Actuary.
It would probably be an understatement if I begin by saying that the last quarter of the financial year has been an eventful quarter. Just to highlight the key events during the quarter:
First, the COVID-19 situation started developing in some parts of the world around early January and no one quite saw it turning out to be what it has become today.
Second, early February saw some Indian Union Budget tax proposals which had an impact on the life insurance industry.
Third, there was also a lot of discussion on mortality pricing and the fact that re-insurers were increasing their pricing for the industry as a whole.
And finally, starting mid-March, we have had a near shut down in most parts of India to contain the spread of the COVID-19 infection. Even as we speak today, the country continues its battle to contain the spread. With the proactive steps taken by the Government and with the cooperation of the citizens, we are sure that as a nation we will emerge out of the crisis stronger. In the meantime our thoughts are with the families who are grappling with health issues, lost lives and livelihood issues. In this context, you would be aware that ICICI Group has committed ? 1 billion to support the nation in its fight against the COVID-19 outbreak.
Of this, ` 800 million is being contributed to the ‘PM Cares Fund’ and ` 200 million to state governments and local authorities in their efforts to battle the pandemic. As part of our CSR commitment, we have decided to contribute a part of this amount. Further, our employees have also voluntarily decided to contribute a part of our salaries to ‘PM Cares Fund’ and other initiatives for COVID impact mitigation.
So, before I get to the performance of the Company and the results, I would like to spend some time talking through how these events have impacted us and how we are seeking to learn from these experiences to emerge stronger. The Budget As a very quick recap, the Budget contained two elements that had implications for the life insurance industry. The first was the proposal to create an alternative tax regime which would have almost no exemptions and deductions but would have a lower tax rate. Given that Life Insurance premiums are one of the many instruments that currently qualify for deduction from income, there has been a concern in the minds of some, if this will structurally impact the demand for life insurance products.
We had articulated at that time that given our relatively more affluent base of customers and our focus on protection as a key business opportunity, we don’t expect that our business would be meaningfully impacted. We had also expressed our view that the industry as a whole over the past few years has moved significantly away from a predominantly tax exemption driven sales approach. The second was the removal of the Dividend Distribution Tax and making dividends taxable in the hands of the recipient. We had articulated that this would have an impact on VNB as well as EV as our effective tax rate would change. We had also said that we would give effect to this in our full year results. As we explain the results, we will elaborate on this further.
Mortality pricing
During the quarter, we saw re-insurers seeking a change to their rates. We had articulated that as the target market for the protection business is being expanded, overall underlying mortality would need to be reflected in the pricing. Such a change in the pricing would in fact make the opportunity larger by expanding the target market and hence be an enabler to the sustained growth of the product category. We have already filed our revised product with the Regulator. The revised pricing FULLY absorbs the changes in reinsurance rates while maintaining our margins at the same level.
We continue to believe that this change to pricing is not likely to have a material impact on demand, given the extent of the pricing change and since the need for protection continues to exist with significant underpenetration. COVID-19 Clearly the most significant event during the quarter was the progression of COVID-19 infection in India. Please refer to slides numbered 3 to 5. During the past few weeks, we have engaged very closely with the Regulators and policy makers to ensure that our response sufficiently addresses the requirements of our customers, employees and the nation at large.
While at a systemic level this has a number of implications ranging from health and well-being of the citizens to industry-specific impacts and to a larger impact on the economy as a whole, I will now spend some time on the implications for the life insurance industry and how we are dealing with it. For the life insurance industry, the potential impact can be bucketed in three broad areas, Market related, Demographic and policyholder related and Business and business conduct related.
Market related
The last few weeks have seen equity prices falling sharply. We have also seen interest rates fall, as policy measures have been triggered to deal with the economic impact of the disruption. What is also emerging is stress in some sectors that could have an impact on credit risk. Insurers have exposure to equity in both unit linked and participating businesses. Interest rate movement impacts the liabilities and guarantees embedded in the business and credit risk can impact investments in corporates.
Further, such sharp movements in markets coupled with any mismatches in ALM that companies may have, could impact the solvency of the businesses. Our approach to market risk has always been one of not taking on a risk that we cannot manage. This is manifested in the composition of our Balance Sheet. Of our total liabilities, unit linked business constitutes 68% and participating business constitutes 13%. These product categories largely pass on the market performance to customers. Non par guaranteed return products comprise only 0.4% of our total liabilities and these are invested with minimal ALM mismatches.
We have been constantly monitoring our liquidity and ALM positions, and we have no issues to report. So, from a liability perspective: our liability profile has withstood and is capable of withstanding the severe disruption we have seen in markets, liquidity and asset prices. On credit risk, we have traditionally been cautious in our assessment of investment opportunities. Consequently, 94% of our total fixed income portfolio is invested in either government bonds or AAA rated bonds. Only 1.0% of our fixed income portfolio is invested in bonds rated below AA.
We have also at our past results highlighted that we have no exposure to any of the defaults that have happened over the recent past and that continues into this quarter as well. So, from the assets perspective, we continue to be very proud of the fact that we have had zero NPAs in about 20 years of our existence, across cycles.
This resilience of our Balance Sheet has meant that even after the recent market shocks of more than 23% drop in BSE100 over the month of March and 24 basis point drop in 10 year government bond rates over March, our solvency ratio stands at 194.1% as at March 31, well above the regulatory requirement of 150%. In the current situation, as would be expected from a financial services sector player, we have already carried out further stress testing of our Balance Sheet over the current year, subjecting the portfolio to further shocks to both equity prices and bond yields.
Our conclusion is that even with this combination of further stresses from an already stressed environment, our solvency is expected to stay above the minimum level of 150% required by regulation. It would be worth highlighting here that we are permitted to raise Tier 2 capital of upto ` 12.00 billion under the regulations, which is completely unutilised as of now, and which could be raised if needed, to further improve our solvency position. So, from a solvency perspective, we continue to remain very strong, which is a great situation to be in, especially in this environment.
As we move forward, our clear approach continues to be to maintain the resilience of our Balance Sheet by offering suitable products and deploying appropriate risk management practices. Demographic and policyholder behaviour related The spread of COVID-19 and resultant deaths is still rising. We have been closely watching the developments and their impact on insured lives mortality. Given the low level of insurance penetration, we have observed from the past natural catastrophes that even in situations of extensive loss of life, claims from our customer base were very negligible. Even in the current situation, out of the 723 reported deaths until yesterday, we had two claims from our portfolio.
Further, at March 31, 2020, we are holding additional reserves towards potential COVID-19 claims. We also carried out a stress test where we assumed a shock to mortality arising from COVID-19. Even under this scenario our solvency stayed above the regulatory minimum of 150%. The other possible impact on policyholder behaviour is the drop in persistency arising from the sharp market discontinuity, both in the past few weeks and going into the future. We have in the past always articulated that we believe that the core factor that drives persistency is the sales process. Of course as time passes, markets, fund performance, service standards and more generally, customer experience, can impact persistency at the margin. We have seen our persistency being stable even during the last quarter.
Over the past few weeks we have observed surrenders drop sharply with the fall in markets. This is positive for our VNB and EV. We will talk about these elements in greater detail later. Overall, on demographic factors, we believe that we are well positioned to deal with the outcomes emerging from COVID-19. Business and business conduct related Organisations generally plan for business continuity on the assumption that some parts of the country will be inaccessible. What the COVID-19 situation has tested is our preparedness to deal with a full country “outage”.
Clearly, this will also bring out the relative technology strengths of various organisations within the industry. As a company, in mid-march, we moved into a 100% work from home for the entire organisation except where required to provide essential service.
This effectively tested our capabilities under three dimensions.
1. Customer service Over the years, we have built a digital platform that empowers customers to carry out almost any transaction from the convenience of their home. This had enabled us to move about 87% of customer transactions to selfservice over the years.
At the commencement of the restrictions, we once again started a series of communications to our customers to reiterate this. We also reiterated that all claims, including due to COVID-19, would be processed while ensuring a round the clock access to our call centre and faster settlement.
During the lockdown situation, we observed a distinct increase in digital interactions with our customers. For example, between the period March 22 and March 31 as compared to rest of the March month, daily average of interactions with our chat bot has increased by 42%, interactions through WhatsApp has increased by 61% and mobile App logins have increased by 94%.
These lessons will come in handy as we work on enhancing the level of self service to much higher levels.
2. Support functions including financial reporting functions All support functions moved 100% to work from home. Our technology platforms are fully enabled for secure remote access which has enabled teams to function uninterrupted. This is best evidenced by the fact that we have finalised our results within timelines that we would normally do during other years.
3. Sales processes We believe that we have built a truly world class technology platform to support our distributors and sales management teams to be able to carry out all functions from prospecting to on-boarding to servicing from any device of their choice. This positions us very well to continue sourcing business even as the COVID-19 situation stabilises.
While the technology platform exists, there has been a general comfort for distributors to do the last mile connectivity with the customer as a “physical face to face”. Changing this behaviour and converting the last mile contact to a “virtual face to face” has been our key focus over the past few weeks. We are already seeing more and more distributors embracing this approach. This transition will however happen over a period of time and during that period, if lockdown situation continues, new business could be impacted.
We see this as a tremendous opportunity to redefine how sales processes operate and use these learnings to improve our efficiencies. The steps we have taken over the past two years to diversify the product mix into both, traditional products for appropriate segments and protection business, are standing us in good stead, especially when it comes to VNB development. We will talk in some detail on how we are approaching this quarter, both from a business opportunity and cost architecture later in the presentation.
I will now move on to other developments during the quarter. Regulatory development On the regulatory front there are two key developments. The first one is on the sandbox framework. The IRDAI has approved seven proposals of life insurance companies. We are happy that five of the seven approved proposals were ours. These proposals span across products and service propositions. This reinforces our desire to continue to innovate in providing solutions to our customers without compromising on our Balance Sheet strength. The second key development is with respect to the KYC process. As per the recent notification from the Department of Revenue dated April 23, 2020, we are one of the insurance companies to be allowed by the Central Government to conduct online authentication of Aadhaar.
This will be a powerful enabler in our digital fulfilment process.
Technology initiative
The Company believes in leveraging technology to deliver enhanced customer experience, scalability and cost efficiencies. A part of our technology journey is to identify key areas where artificial intelligence can make an impact. During the quarter, we have invested in a speech recognition and conversational humanoid AI tool, which can not only converse with customers in multiple languages but can also reach out to over 50 thousand+ customers in an hour.
Given the positive feedback we have received from customers and the scalability of the solution, we intend to enable more aspects of our service with humanoid capabilities.
ESG initiatives
Over the years, we have been building our organisation with a strong focus on governance and ethical behaviour. We have also focussed strongly on giving back to Society. We have been putting in place various measures to preserve the environment.
We have now brought all of these together as a document which captures our initiatives across the Environmental, Social and Governance (ESG) space. We will also be talking about this later in the presentation. I would also like to inform you that the Board has amended the Dividend Distribution Policy to bring down the maximum limit of dividend ratio to 30% of PAT as compared to 40% of PAT earlier. The revision is in line with our stated objective of conserving capital, primarily to support the strong growth in the protection business. Given the uncertain environment, IRDAI circular advising companies to be prudent to preserve capital and the fact that we had already declared interim dividend, the Board has decided not to recommend any final dividend to the shareholders.
I will now move on to our performance for the year and then conclude with our approach for fiscal 2021 before I hand over to Satyan for a more detailed discussion on the results.
As I have mentioned in our previous calls, our 4P strategic elements i.e. Premium growth, Protection business growth, Persistency improvement and Productivity improvement continue to guide us towards our objective of growing the absolute Value of New Business while ensuring that our customer is at the core of everything we do. With our customer centric approach, we have had a robust performance across service parameters as presented in slide 8. Our Claim settlement ratio stands at 98%.
Very importantly the average time taken for settlement of claim was just ~1.6 days in fiscal 2020, a further improvement from 2.3 days for FY2019. The Claims for Sure initiative which I spoke about in our previous results call has helped in reducing the average time taken. Our Grievance ratio as well has improved to 48 per 10,000 policies sold during the year. During the fiscal 2019 result call, we had articulated our aspiration to double our fiscal 2019 Value of New Business (VNB) by fiscal 2023.
This implies a minimum compounded growth rate of 19% p.a. In this context, as you can see in slide 9, our VNB grew by 21% to ` 16.05 billion in fiscal 2020 as compared to ` 13.28 billion for fiscal 2019. This growth has been predominantly achieved through the growth in the protection and nonlinked savings business.
Our VNB margin for fiscal 2020 was 21.7% as compared to 17.0% for fiscal 2019. This VNB and VNB margin incorporates the full impact of change in effective tax rate due to recent change in the budget on taxability of dividend income. Most importantly, for FY2020, 74% of the VNB came from protection and non-linked savings business, which are the two fastest growing business segments for us. We believe that this also strongly reflects the diversification that we have achieved over the years. The reduced reliance on unit linked business with 26% of VNB also reasonably insulates our VNB growth objective from any potential volatility in the new business of unit linked segment. I will now talk a bit more on the drivers of our VNB growth, viz. the 4Ps through slide 10 to 13.
Overall, during the year, New Business received premium grew 20.4% over FY2019. On the first two Ps of Premium growth and the Protection growth, during the year, we saw the non-linked savings APE grow by 62% and the protection APE grow by 55%. This has resulted in the share of non-linked products increasing from 19% in fiscal 2019 to 32% in fiscal 2020, providing us with further diversification in the product mix. Unit linked business was challenged during the year with the segment declining by 23%. As I had described earlier, non-linked savings and protection segments are the more profitable segments. The strong growth in these segments meant that while overall APE declined 5.4% over FY2019, VNB grew by 21%.
As I had mentioned, our new business received premium grew by 20.4% year on year to ` 123.48 billion. Protection and Annuity business continued to drive this growth. For FY2020, over one third of the New Business premium came from protection and annuity products, reinforcing our credentials as a meaningful protection and annuity provider in the market. On the third P of persistency presented in slide 12, we have seen our persistency being stable since December 2019.
This has indeed been a period of discontinuity in the market and we get confidence from the fact that persistency experience continues to be within the assumptions inherent in the margins and VNB. I would like to mention that our persistency ratios continued to be one of the best in the industry.
On the fourth P of productivity improvement presented in slide 13, we continue to make progress. While we continued our investments across technology as well as in building distribution channels such as Agency, Direct and Partnerships, with close monitoring of our cost elements we were able to bring down the savings cost ratios further.
The cost to TWRP ratio for the savings business has improved to 10.4% as against 11.5% for fiscal 2019. As the cost ratio for protection segment is higher, with significant growth in protection business, overall cost ratio was 15.9% for fiscal 2020 as compared to 15.0% for fiscal 2019. I would like to mention here also that our cost ratios continued to be one of the best in the industry.
Way forward
Before I conclude, I would like to briefly cover our approach to business during this quarter through slide 14 & 15. While at this time lockdown situation still remain, the expectation is a gradual easing over the quarter. We would however expect some time before normalcy resumes.
Distribution
I had described earlier the challenges that distributors are facing in terms of their inability to have a face to face meeting with customers. We are therefore setting our first priority as helping distributors to transition to “virtual” face to face interactions.
We are doing this through a combination of training and hand holding. Our objective in this regard is to get more of our sales employees “digitally active”. Given our strong technology platforms and capabilities that we have spoken about at various times, including our technology day presentation, we believe that we are very well positioned to achieve this. Secondly, during this interim period, we are redefining our channel objectives. For the agency channel, we are defining non-linked savings products and protection products as the priority, as these are also relatively easier to explain and sell. For ICICI Bank, we expect to focus on protection sales through their website and mobile application.
Across partnerships, we are giving greater focus to those partners that have more evolved digital capabilities while we work with other partners to improve their digital capabilities. The focus of our direct channels will be digital campaigns and direct lead assignment to our field staff.
As we talk about our various distribution initiatives for the quarter, I would also like to briefly cover our broader distribution approach for the year. Agency is a channel where we will continue working on our objective of widening the distribution through growing agent count, deepening distribution through enhancing our relationships with key agents and diversifying product mix. Our focus on Partnership distribution continues to be to build new partnerships and deep mine existing relationships. We also continue to focus on new categories of partnerships such as e-commerce entities.
Our direct business will continue to be focused on growing our online capabilities and use cross sell as a key lever to deepen engagement with our customers. ICICI Bank has been a significant distributor for us, contributing about 46% of the total Company APE in FY2020 and 37% of the total Company APE in Q4-FY2020. Over the last few quarters, the Bank has reviewed its life insurance distribution and made some changes to its distribution approach to focus on the under penetrated protection segment and the increased requirement of annuities related to NPS. To facilitate their efforts in this direction, we have enabled various technology and process solutions to enhance buying convenience and distributor productivity.
ICICI Bank has also added this protection offering to its ICICI Stack, which is their comprehensive digital customer proposition. The results of this focus can be seen in the strong growth in APE in these two segments. For FY2020, protection APE grew by 137% and annuities grew by 70%. This also serves the Company objective of VNB growth.
As we move into FY2021, we would expect the above actions to reflect in the premium growth, the product mix and the VNB for the channel. We would continue to diversify and invest in further strengthening our nonICICI bank distribution channels. Customers On the Customer side, the efforts to further migrate customers to selfservice modes will continue. Expense management The key imperative for us will be to manage costs dynamically even as we go through this period.
The focus areas for us would be to improve manpower efficiency through a greater digital adoption and work on making our costs more variable. Through the year, we expect to manage this process well. In summary, on APE for the quarter, even with significant restrictions, we would expect that the protection segment would do well. For the nonlinked savings segment, our aim will be to achieve some growth year on year. Unit linked business could continue to remain challenged. As a consequence, VNB for Q1-FY2021 could be challenged. Even as we had events that have impacted profitability such as the tax change and have events that could impact growth such as the lockdown situation, we continue to hold on to our objective of doubling FY2019 VNB over 3 to 4 years.
Before I hand over to Satyan to go through the results in greater detail, I would be failing in my duty if I do not acknowledge the contributions of various stakeholders during this period. Apart from the financial strength I talked about, the key source of our strength is our employees and I thank my colleagues for rallying together and staying focused on serving customers in these difficult times. I would also like to acknowledge our shareholders for the patience shown as well as all other stakeholders for their continued support.
Satyan Jambunathan: Thank you Kannan. Good afternoon.
Our primary focus continues to be to grow the absolute value of new business i.e. VNB through the 4P strategy of Premium growth, Protection business growth, Persistency improvement and Productivity improvement. The first element Premium growth: As you would have seen, our new business composition over the years was dominated by unit linked products. Over the last two years, we have been systematically working on diversifying our product mix through a combination of distribution build up and product propositions.
Through this diversification journey, the strength of our product range with propositions to suit different risk characteristics of customers has been a very important enabler. We have a complete range of product offerings ranging from unit linked products without any guarantees to fully guaranteed return products on the savings side and a range of retail and group life and critical illness products for meeting protection needs.
As you can see on slide 19, during FY2020, the non-linked savings business has registered a strong growth of 62% year on year with the mix improving from 10% in fiscal 2019 to 17% in fiscal 2020. What is also worth noting is the strong growth seen in this segment across all channels. Protection continues to be a significant need of our society. With our continued focus on this need, our protection business continued to register a strong growth.
The protection mix improved from 9.3% in fiscal 2019 to more than 15% in fiscal 2020. We see this as a significant opportunity going forward as well and are focussing on process simplification as a key enabler of opportunity. We continue to smoothen the process for all our distributors and have particularly focussed on this for ICICI Bank’s customers. With this, the share of non-linked products has increased from 19% in fiscal 2019 to 32% in fiscal 2020.
Moving on to slide 21 on distribution, we have continued to broaden our distribution through investments across channels with a strong focus on agency and partnership distribution. For the agency channel, the approach has been to ring fence the highly productive agents and adding new agents to tap specific customer segments, pursuing our strategy of broadening the customer base. For fiscal 2020 we added over 23 thousand agents to the distribution force.
More than half of our agency business for fiscal 2020 was contributed by non-linked savings and protection products. Within the bancassurance channel, the focus on growing protection and annuities has continued into fiscal 2020. The results of this focus can be seen in the strong growth in these two segments within channel. For fiscal 2020, protection APE grew by 137% and annuities grew by 70%. With this, the protection and annuity mix for the bancassurance channel has increased from 4% in fiscal 2019 to 10% in fiscal 2020. For the direct channel which comprise sales through our own website and employees on our payroll, the strategy has been of upsell to the existing customers with the help of analytics. The channel had a diversified product mix with more than one third of the business contributed by protection and non-linked savings for fiscal 2020.
In partnership distribution, the focus on protection and non-linked saving segments resulted in almost 80% of the business being contributed by non-linked savings and protection products. We continue to build on our existing partnerships while seeking to add new ones. We have also tied up with various non-traditional distributors such as web aggregators, payment banks, small finance banks and insurance marketing firms. We believe that we have a well-diversified distribution mix with distribution channels other than ICICI bank contributing more than 54% of our FY2020 APE.
We have seen strong growth in non-linked products across all channels with an overall growth of 60% year on year. Retail business continued to anchor our new business, contributing more than 90% of the APE. The second element of Protection growth: We continued to have strong growth in the protection business. With an APE of ` 11.16 billion for fiscal 2020, the protection business grew about 55% resulting in the protection mix growing to more than 15% of APE as compared to 9.3% for fiscal 2019. Within the protection business, retail products tend to be more profitable on account of their longer tenure and greater granularity.
As you can see on slide 25, within our protection business, the mix of retail has further increased to ~70% with an APE of ` 7.68 billion. With an APE of ` 2.35 billion, credit life segment continued to register a strong growth rate of 50% year on year. For the past few years we have worked on building partnerships in this space. With this, credit life business through third party segment contributed to 16% of our protection APE in fiscal 2020.
While credit life business through third party has grown significantly in the past few years, it does not dominate the protection mix. The third element of Persistency: As can be seen on slide 27, during fiscal 2020, we have seen mixed trends on persistency across product segments. Protection persistency improved and non-linked savings persistency was flat. There was some decline in the linked persistency during the year. Within that however, it has been resilient during the last quarter with the ratios remaining stable across the cohorts even though the equity markets continued to be volatile with a sharp fall in equity prices.
For fiscal 2020, our 13th month and 49th month persistency excluding single premium was stable at 83.2% and 64.6% respectively. From a profitability perspective, early period persistency and surrender experience is better than the assumptions factored in the VNB and EV calculation.
The fourth element of Productivity: We continued to make significant progress on improving cost ratios of the savings business. One of the challenges associated with the decline of the unit linked business has been on managing costs to be commensurate with the level of business.
Over the year, we focussed on tighter planning and deployment of manpower to ensure that our savings cost ratios reflected the new business outcomes. The cost to TWRP ratio for the savings business has improved to 10.4% as against 11.5% for fiscal 2019. Given the robust growth in the protection business, our overall cost to TWRP ratio was at 15.9% for fiscal 2020.
Slide 30 gives you some details on how we managed to improve efficiency on the savings business. Overall the cost ratio for savings improved from 11.5% in fiscal 2019 to 10.4% in fiscal 2020. We were able to achieve this through keeping the operating expense growth in line with APE growth.
More specifically, we also managed these expenses such that we could continue to invest in areas of competitive advantage such as IT and digitization. While cost elements like manpower costs declined, it lagged the APE decline. We managed the overall cost by flexing variable sales related costs so as to keep overall cost growth in line with top-line growth. Kannan earlier mentioned that key imperative for us will be to manage costs dynamically.
As we go forward into the coming year, we are seeking to improve manpower efficiency by realigning spans, using training and coaching to achieve greater degree of digital adoption and thus higher productivity. We are also working at making our cost more variable such that we are better able to deal with any uncertainties in the business environment.
The outcome of our focus on these 4Ps, as you may see on slide 31, has resulted in our Value of New Business of ` 16.05 billion for fiscal 2020, a growth of 21% year on year. VNB margin improved from 17.0% in fiscal 2019 to 21.7% in fiscal 2020. Business mix, comprising higher protection and non-linked savings mix, led to an increase in margin by 4.7%. Increase in the effective tax rate consequent to the recent change in the taxability of dividend income, led to 1.1% reduction in our VNB margin. We had 1% increase in VNB margin with higher efficiencies, mainly on the maintenance expenses.
Excluding the ETR impact, our VNB margin would have been 22.8% and the VNB would have grown at 27%. Refer slide 32, our Embedded Value increased to ` 230.30 billion at March 2020. Embedded Value of Operating Profit (EVOP) for the year was ` 32.88 billion.
VNB continues to be a significant share of EVOP. Operating variances namely persistency, mortality/morbidity and expense variance continued to be positive for the year, with a total operating variance of ` 1.83 billion. Our Return on Embedded Value (ROEV) was 15.2% for fiscal 2020. VNB contribution to RoEV was higher at 7.4% as compared to 7.1% in fiscal 2019. The operating variances contributed 0.8% to ROEV in fiscal 2020.
The operating assumption change, on account of increase in effective tax rate, had a negative impact of 2.5% for the year. Excluding this effective tax rate impact, ROEV for fiscal 2020 would have been 17.7%. On the market side, a sharp fall in equity prices resulted in a negative impact of 6.8% through investment variance and economic assumption change. As markets improve over time, this negative would be expected to be reversed.
Slide 33 presents EV development for five years. I would like to specifically highlight the positive variances seen across the operating parameters; which gives us a confidence on our assumptions built into VNB and EV computation. Our VNB and EV has been reviewed independently by Milliman Advisors LLP and their opinion is available in the results pack submitted to the exchanges.
On slide 34, sensitivity details have been provided. Broadly the sensitivities are lower than last year given the diversified new business mix. Within financial metrics, our profit after tax (PAT) for fiscal 2020 was ` 10.69 billion and Solvency ratio continues to be strong at 194.1%.
Before I conclude the performance for the year, I would like to highlight our approach and initiatives around sustainability. The past two years have seen a significant transformation of our business model and more specifically on our articulation of strategy as well as our aspiration of value creation for our shareholders. As our business model is intertwined with our sustainability objectives, we have now holistically documented our objectives and approach on ESG i.e. Environmental, Social and Governance. Our ESG framework is based on our Company’s vision to build an enduring institution that serves the protection and long term saving needs of customers with sensitivity.
Our Executive Committee comprising the senior leaders of the Company oversees the integration of ESG within the organizational framework and undertakes initiatives to balance the growth and profitability objectives whilst serving the welfare of society and the preserving the planet and thereby ensuring sustainability. Our detailed report highlighting the initiatives undertaken on each aspect of the ESG framework is available on our website.
First on the Environmental aspect. Being a financial services company our focus on the environment is primarily driven by what we consume and how we recycle. We continue to adopt environment-friendly practices around various aspects, such as energy consumption, water conservation and waste management, through a lens which is to replace, reduce, reuse and recycle.
Some of these initiatives shown in the slides are around energy consumption, water conservation, e-waste management and reduction of paper consumption through end to end digital solutions within each aspect of our business.
On the social aspect, we are fortunate that our business is fundamentally of a social nature, as our aim is to serve the long term financial and protection needs of the society. Our success is ascribed to all our stakeholders, which includes our customers, employees, shareholders, business partners, regulators and the community at large. Our vision is supported by our commitment to five core values, Customer first being primary. Each of our business activities revolves around the primacy of the customer.
Our commitment to employees is based on the three pillars of our employee value proposition namely, Fairness and Meritocracy, providing a Supportive environment and Learning and Growth. Our Company is a gender neutral, equal opportunity employer. Women employees comprise about 26% of the total workforce. The Company has both leadership depth and breadth, with 85% of the senior management team having served the Company for more than 10 years and with 94% of the senior management having done at least 3 job rotations during their tenure with us.
Our Corporate Social Responsibility (CSR) policy is our commitment to provide resources and support activities focused on enhancing economic and social development. Some of our key focus areas for inclusive growth include Skill development and sustainable livelihood, Health and education. We also play a key role in channelizing the household savings to provide long term capital needed for infrastructure and housing, as also investing significantly in Government bonds. As of March 31, 2020, we had invested ~51% of our assets under management in industries related to infrastructure/ housing sector and Government bonds. Through our business, we also offer micro-insurance products catering to the rural and social sector, insuring more than 3.9 million lives as of March 2020.
On the third aspect which is Governance: We are building upon our organization’s foundation over these nineteen years by continually enhancing the structures, processes and controls in place that support and promote accountability, transparency and ethical behaviour. We recognize ethics and governance to be of paramount importance. Through the policies, processes and practices, we have built a strong governance framework.
We strongly believe that success and sustainable growth of any organization depends on good governance. The Company’s corporate governance philosophy is based on an effective independent Board and the separation of the Board’s supervisory role from the executive management.
The Board has 50% Independent Directors. The Chairman of our Board is an Independent Director. We have a board approved policy on board diversity and criteria for appointment of Directors. The Board Committees comprise a majority of independent/non-executive Directors and are chaired by independent Directors.
We have a Board approved Policy on Compensation & Benefits for all employees and non-independent directors, which also includes an employee stock option scheme. As part of our compliance and risk framework, we have in place Compliance Policy, anti-money laundering policy, Board Risk Policy, Information & Cyber Security Policy amongst others. We have Business Continuity Management (BCM) framework which even as we speak today in the lockdown environment, has ensured resilience and continuity of key products and services and the health and safety of our employees.
We recognise our responsibility as insurance companies to protect the interests of the policyholders, which demands that we have in place good governance practices for sound long term investment in addition to the robust risk management framework. We have laid out the operational framework through the Investment Policy and Stewardship Code. I would like to conclude the governance section by mentioning that our Company featured for the second consecutive year among the top three of the 50 companies that got listed between 2015 and 2017, based on its scores on corporate governance.
With this, I conclude our ESG approach and initiatives. As it was our first external disclosure on ESG aspects, we thought it to be appropriate to discuss the same in greater detail with you. 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.
