By Suhani Adilabadkar
HDFC Life reported stable June quarterly numbers, relatively better than its listed peer group, SBI Life and ICICI Pru. The stock gained 1% after Q1 FY21 result announcement and is up 76% from its 52-week low struck on 23rd March 2020. HDFC Life Insurance is a joint venture between HDFC Ltd and Standard Life Aberdeen, a global investment company. Established in 2000, HDFC Life is a leading life insurance solutions provider in India, offering pension, savings, protection, health, annuity and investment solutions to customers. The Company has product portfolio of 37 individual and 11 group products and six rider benefits, catering to customers in varied echelons of societal pyramid. HDFC Life’s diversified distribution network comprises of 421 branches, along with additional touchpoints through partnerships with more than 230 banks, NBFCs, SFBs, and MFIs.
Quick Takes
- Renewal premium (individual + group) jumped 24% YoY reported at Rs. 32 bn in Q1 FY21 compared to Rs. 26 bn same period previous year.
- PAT jumped 6% YoY in June quarter FY21 reported at Rs. 451 crore against Rs. 425 crore corresponding June quarter previous year.
- ICICI Pru and SBI Life have high ULIP contribution of more than 40% in its total APE, compared to just 27% for HDFC Life. HDFC Life's product mix is not skewed in favour of ULIPs, which swing as per equity market vagaries hampering APE and new business premium for insurers.
- Retail protection business growth of 50% and stable underwriting profits of Rs. 3.5 bn same as in Q1 FY20.
June Quarter FY21 saw stability in numbers
HDFC Life reported stable numbers with strong renewal premiums, stable AUM growth, high solvency ratio, while APE (annualized premium equivalent) declined 30% in Q1 FY21. The renewal premium (individual + group) jumped 24% YoY, reporting at Rs. 32 bn in Q1 FY21 compared to Rs. 26 bn same period previous year. AUM growth was 8% at Rs. 1400 bn in June quarter FY21 against Rs. 1296 bn corresponding quarter previous year.
The solvency ratio stood at 190% in Q1 FY21 compared to 184% as on Mar 31, 2020. Even though business growth was low, strong opex control led to PAT rising 6% YoY in June quarter FY21 at Rs. 451 crore against Rs. 425 crore corresponding June quarter previous year.
Speaking on the Covid scenario, Ms.Vibha Padalkar, MD & CEO, HDFC Life Ltd said “As the economy is coming to terms with the effects of the pandemic, we are increasingly witnessing encouraging on-ground trends. Business has started to pick up on a month-on-month basis and we are seeing higher traction, especially in the individual protection business. As the situation begins to normalise, we expect life insurance to emerge as an important avenue for both protection as well as long term savings, and consequently help attract a higher quantum of inflows from Indian households”.
HDFC Life sees low penetration as an opportunity
India’s penetration in life insurance is low at just 4% compared to its developed peers. With the opening of the insurance sector and creation of IRDA in 1999, after almost two decades, private sector has gained considerable ground from 60-year-old, Life Insurance Corporation of India. From a monopoly, the Indian insurance sector is now a playing field of 24 insurers with the private sector holding about 30% market share. And in the private insurance arena, the top ten insurance companies account for about 88% market share.
During FY20, the life insurance industry grew 21% YoY and garnered Rs 2,589 bn of new business premium against Rs. 2,147 bn in the previous financial year. LIC recorded a growth of 8% in individual business and 39% in the group business. Private insurers on the other hand, grew by 5% in individual business while group business saw a growth of 19%. And the top three private insurers are ICICI Prudential Life, SBI Life and market leader HDFC Life. The company is in the good books of the analyst community for its consistent performance, strong fundamentals, brand value, and digital capabilities. Coming to the present Covid hit world, last 10 days of March quarter were completely lost as lockdown came into effect from 23rd March 2020.
Yet, with the help of its high digital initiatives, things kept moving amidst lockdown constraints as the company met 3000 maturity claims, 300 death and health claims, 21,000 annuity payments and processed 95,000 loans transactions in first 15 days of lockdown period. Currently, the company is witnessing high enquiries with respect to protection (term plan) business at small ticket sizes. As per the management, customers not willing to engage at all earlier are coming back though at lower ticket sizes. March quarter records significant performance for insurers and thus last 15 days of Q4 FY20 jammed by lockdown impacted 8-10% of annual numbers for HDFC Life and for the industry as a whole roughly 6-7% and revenue loss of 300-400 cr.
Will the outperformance continue?
June quarter was relatively better for HDFC Life, which as the market leader is relatively well positioned in the present scenario. Of course there are parameters such as the least APE decline of 30% in Q1 FY21 amongst top 3 as ICICI Pru declined 44% and SBI Life reported 32% YoY fall, market share expansion of 100 bps YoY from 17.5% in Q1 FY20 to 18.5% in June FY21, a healthy NBM (new business margin) of 24.3%, double digit renewal premium growth of 24% YoY, retail protection business growth of 50% and stable underwriting profits of Rs. 3.5 bn same as in Q1 FY20.
In fact, in terms of June performance, Ms Padalkar said, “We de-grew 19% YoY in Q1 FY21 on a high base of 63% growth same period last year, better than rest of the private industry which de-grew 23% on a base of 24% growth same quarter last year”. Of course, de-growth is lower and HDFC Life looks more resilient than its peer group but the key differentiating factor is a balanced product mix. The company's product mix is not skewed in favour of ULIPs, which swing as per equity market vagaries hampering APE and new business premium for insurers.
Competitors ICICI Pru and SBI Life exhibited high ULIP contribution of more than 40% in it’s total APE compared to just 27% for HDFC Life in June quarter FY20. The rest of the APE pie for HDFC Life is fairly balanced between participating 30%, non-participating savings 28% and non-participating protection and annuity contributing 11% and 6% respectively in June quarter FY20. The management remains cautiously optimistic and expects demand to pick up in the second half of the year