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.

The private insurer's after-tax profit rose 15% year-on-year to Rs 316 crore in the quarter ended December, according to an exchange filing. That compares to the Rs 342-crore consensus estimate of analysts tracked by Bloomberg.

Sequentially, however, earnings fell 4%.

The company earned a net premium of Rs 14,402 crore, a surge of 19% over the previous year.

Of the gross premium earned, renewal premium grew the most by 30% while contributing around 50%, while the rest was new business premium.

HDFC Life Q3 FY23 Highlights (YoY)

• Revenue rose by 38% to Rs 19,718 crore, against an estimated Rs 14,182 crore.

• The 13^th month persistency ratio—or customer retention—fell marginally by 40 basis points to 84.1%, and for the 61^st month, it fell by 200 basis points to 49.1% from 51.1%.

• Solvency ratio—that measures the extent to which assets cover commitments for future liabilities—rose to 209% from 190% on the back of equity infusion in the second quarter. It's above the minimum requirement of 150%.

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."