Release Date: July 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HDFC Life Insurance Company Limited (NSE:HDFCLIFE, Financial) achieved a robust year-on-year growth of 31% based on individual APE, translating to a two-year CAGR of 21%.
- The company registered an increase of 22% in the number of policies and a ticket size expansion of 7%.
- Retail protection experienced significant growth of 28% based on individual APE and a robust 36% on a two-year CAGR basis.
- The bancassurance channel experienced over 40% growth in individual APE, with counter share in HDFC Bank reaching 66% by the end of the quarter.
- The assets under management of HDFC Pension Fund Management grew by 67% year-on-year, surpassing INR88,000 crore.
Negative Points
- New business margins decreased to 25% compared to 26.2% last year, primarily due to product mix and continued investments in infrastructure, manpower, and technology.
- The credit protect segment remained flat due to slower disbursement in certain lines of business and increased competitive intensity across select partners.
- The solvency ratio stands at 186%, and the company plans to raise sub-debt up to INR2000 crore, indicating a need for additional capital to fuel growth.
- Persistency for the 61st month improved to 56%, but this still indicates a significant drop-off in policy renewals over the long term.
- The annuity business faced intense competition and aggressive pricing by some peers, leading to a calibrated growth strategy focusing on enhancing product offerings while maintaining pricing discipline.
Q & A Highlights
Q: Can you clarify the sensitivity of VNB margin to changes in corporate tax rates?
A: Niraj Shah, CFO: The sensitivity assumes the current tax rate of 12.5% plus surcharge changes to 25%, with both policyholders and shareholders' surplus taxed at the higher rate. This does not factor in any exemptions that may be available in the future.
Q: What is the competitive intensity in the credit life segment, and how does it impact margins?
A: Suresh Badami, Deputy Managing Director: We work with over 200 partners across various lines of business. While there is competitive intensity, especially in simpler lines, we focus on maintaining stable margins and value penetration. We are prepared to step away from unviable segments or partnerships.
Q: How will the new surrender value regulations impact the industry and HDFC Life's strategy?
A: Vibha Padalkar, CEO: We do not anticipate aggressive selling before the transition. Our assumptions already factor in negligible surrenders, so the impact on margins will be minimal. We will have bespoke conversations with key partners to navigate the changes.
Q: What is the outlook for VNB growth and margins given the current competitive environment?
A: Vibha Padalkar, CEO: We aim to double our VNB in four years, implying a 19% CAGR. This will be driven by faster-than-industry growth in new business APE and VNB, along with strategic initiatives like increasing the term mix in HDFC Bank and expanding our agency network.
Q: How will the new IRDA regulations effective from October 1 impact product offerings and approvals?
A: Niraj Shah, CFO: Existing products need to be self-certified for compliance, so there will be no lead time for IRDA approval. New products will follow the usual approval process, but the regulator's bandwidth for approvals has improved, reducing lead times.
Q: What is the impact of the new surrender value regulations on customer behavior and company margins?
A: Eshwari Murugan, Appointed Actuary: The impact on margins will be minimal as our assumptions already factor in negligible surrenders. The new regulations will not significantly change customer behavior or our economic value.
Q: How is the growth in non-par savings business, and what is the outlook?
A: Vibha Padalkar, CEO: We are seeing good traction across all segments and geographies. New product launches and a focus on customer needs are driving growth. We expect this momentum to continue.
Q: What is the rationale behind raising sub-debt, and how will it impact solvency and VNB margins?
A: Niraj Shah, CFO: The sub-debt raise will help maintain a comfortable solvency ratio above 180% and support long-term growth. The negative carry on sub-debt is minimal and will not significantly impact VNB margins.
Q: How is the agency channel performing, and what are the future growth prospects?
A: Suresh Badami, Deputy Managing Director: The agency channel is growing steadily, with significant investments in Tier 2 and 3 markets. We are expanding our network and adding new agents, which should drive future growth.
Q: What is the impact of the new surrender value regulations on the annuity business?
A: Vibha Padalkar, CEO: The new regulations will impact deferred annuities, leading to some calibration in pricing. However, we remain focused on long-term growth and maintaining a competitive edge in this segment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
