HDFC Life Insurance Q2 Results: Profit Rises 15%, Net Premium Up 13%

HDFC Life Insurance Co.'s profit rose in the second quarter of fiscal 2024.

The private insurer's net profit increased 15% year-on-year to Rs 378 crore in the quarter ended September, according to an exchange filing on Friday. Sequentially, the earnings fell 9%.

The company's net premium rose 13% to Rs 14,797 crore.

• Revenue remained almost unchanged at Rs 23,018 crore.

• Value of new business—the present value of the future profit associated with new business written during the period—grew 4% to Rs 801 crore.

• VNB margin was at 26.31% as against 27.02%.

Other Highlights (Based on H1 FY24)

• Embedded value rose 19% to Rs 42,908 crore.

• The return on EV was 16.4% as against 16.9%.

• Total expense ratio stood at 19.7% as compared with 19.3% a year earlier.

• Assets under management were at Rs 2.64 lakh crore, a rise of 18%.

• The 13^th month persistency ratio—or customer retention—fell by 100 basis points to 86%; while for the 61^st month, it improved to 53% from 51%.

• Solvency ratio—which measures the extent to which assets cover commitments for future liabilities—fell to 194% from 210%. It was 203%, as of March 31. However, this is still above the minimum requirement of 150%.

• The company's overall product mix comprises 28% unit-linked insurance plans, 28% non-par savings, 8% annuities, 6% protection, and 30% participating policies. The share of ULIP rose 7%, annuities by 2% and protection by 2%, while that of par fell 1% and non-par savings declined 9%.

Despite the recent budget changes that were perceived to be unfavourable for the sector, the life insurance industry has demonstrated remarkable resilience, Vibha Padalkar, chief executive officer of HDFC Life, said in the filing.

"We saw an uptick of 10% in the number of individual policies sold, beating industry growth. This healthy volume growth is in line with our stated objective of broadening our customer base."

Growth in protection was robust at 28% on a new business premium basis, and retail protection registered year-on-year growth of 46% in H1 FY24 for the company, she said.

It introduced two new products in the protection category in the first half of the year.

“Annuity and protection put together contributed to about 55% of new business premium in H1 FY24.”

Management comments

The company's value of new business growth in the first half of the year came in at 10%, aided by volume growth or policy sales growth, which was 10%, chief financial officer Niraj Shah told BQ Prime. While the high-ticket non-par policies saw a dip due to the Budget announcement, which came into force on April 1, their smaller policies with a premium outgo lesser than Rs 5 lakh "saw two times the growth of the overall volume growth".

He has guided for mid-double-digit growth in the annualised premium equivalent and VNB for the year. For this, he said, "Growth in H2 has to be higher than growth in H1," and the company is expecting such a pick-up.

VNB margins are lower as compared to last year, post-acquisition of Exide Life, but the company maintains that it is on track to achieve margin neutrality by year-end.

With regards to soft growth in VNB in Q2, he said that they will continue to make investments in proprietary distribution channels, which are agencies that involve fixed investments and expenses, to target higher growth.

Also, post-merger of HDFC Bank and HDFC Ltd., the insurer has witnessed an expansion in its counter share to 60% in Q2, he said.

HDFC Life has witnessed a strong performance in Tier 2 and Tier 3, with the growth coming in at 17%.

When talking about the competitive intensity in the market post-change in commission and expenses of management rules, Shah said that there is a difference in the way large listed and unlisted players operate in the market in terms of growth, profitability and risk management.

The company is witnessing a lot of competitive intensity, with some players pricing products 30–40% lower and offering returns that may not be sustainable.

He, however, said that their increased expenses were only towards building distribution capacity and not to match competitive intensity.

Shares of HDFC Life were trading almost at par at Rs 625 apiece on the BSE after the results were announced, compared with an almost unchanged benchmark Sensex as of 2:31 p.m.