HDFC Life Insurance Q3 Results: Profit Rises 15%, Misses Estimates

HDFC Life Insurance Co.’s third-quarter profit rose as premiums increased but missed analysts' estimates.

Commenting on the decline in the quarterly persistency, Niraj Shah, chief financial officer at HDFC Life Insurance, told BQ Prime that the company is expanding its business penetration in tier 2 and tier 3 cities.

The acquisition of Exide Life Insurance Co., the tie-up with India Post Payments Bank and the latest corporate agency partnership with AU Small Finance Bank Ltd. are steps in that direction, he said.

Accordingly, persistency ratios for tier 1, tier 2 and tier 3 cities differ and thereby, the company will continue to chase business growth while sacrificing a bit on persistency, Shah said.

Getting back to the pre-merger 90% persistency ratio may not be a priority on the company's agenda, he said.

Nine-Monthly Highlights (YoY)

• Value of new business—the present value of the future profits associated with new business written during the period—grew 22% to Rs 2,163 crore.

• VNB margins remained unchanged at 26.5%.

• Embedded value grew 28% to Rs 37,702 crore post-merger.

• After-tax profit rose 23% to Rs 1,006 crore on a restated basis and 18% on an actual basis without the merger impact in the base year.

• Post-merger, the product mix consisted of 39% non-participating savings, 6% annuity, 4% protection, 29% participating products, and 21% unit-linked plans on an annualised premium equivalent basis.

• Operating expenses stood at 14.7% against 12.2% a year ago.

• Assets under management were at Rs 2.3 lakh crore, a rise of 20% post-merger.

• Persistency ratios for the 13th month remained unchanged at 87%, while the 61st month’s persistency ratio fell 100 basis points to 52%.

The Insurance Regulatory and Development Authority of India approved the acquisition of a 100% stake in Exide Life Insurance Co. on Oct. 13. Thus, the financial results for the nine-month period ended Dec. 31, 2022, include the impact of the acquisition and are not comparable to the base period.

"We grew by 17% in terms of the individual weighted premium received, which is ahead of industry growth. On a year-to-date basis, we grew by 13%, leading to a market share of 15.8% among private insurers.... Overall protection APE grew by over 20% in the first nine months of fiscal 2023, and we expect individual protection to continue picking up in the coming quarters," said Vibha Padalkar, managing director and chief executive officer, in the exchange filing.

"The company continues its calibrated approach towards protection as it continues to penetrate in tier 2 and tier 3, while expecting the overall protection industry including both credit life and protection to grow in the 15-20% range," Shah told BQ Prime.

He said they are targeting absolute growth even as the share of protection in the product mix has fallen by 200 basis points.

The company witnessed elevated levels on operating expenses including employee costs, business development and advertising expenses.

According to Shah, considering the merger and investments being made in manpower, technology and increased competition, they may continue to remain elevated in Q4 as well. "However, for FY23, they may be lower than the 9-month levels of 14.7%."

The company's agency channel continued to grow faster, clocking more than twice the company-level growth in individual APE in the first nine months of fiscal 2023, Padalkar said in the filing. The share of the channel has increased from 14% to almost 18% in the merged entity.

"We are happy to share that the post-merger integration and synergy realisation from the combined business is progressing as per plan. This has been demonstrated by the achievement of margin neutrality during this period."

She also announced that their subsidiary, HDFC International, had been granted the Certificate of Registration to set up a branch in GIFT City by the relevant regulator. "The branch will commence business and operations upon receiving other statutory licences and approvals."