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HDFC Life is banking on revival in consumer sentiment, growth in protection policies and synergies from the absorption of Exide Life Insurance to drive growth in FY23.
Value of new business (VNB) for HDFC Life grew 25 per cent in Q1 FY23, leading to VNB margins expanding to 26.8 per cent from 26.2 per cent.
“Our aspiration is for VNB growth upwards of 20 per cent. We will keep a close eye on the macro situation, but, as of now, things seem to be on track for us to maintain the momentum seen in Q1,” HDFC Life Chief Financial Officer Niraj Shah said in an interview with BusinessLine.
After announcing its acquisition in September 2021, Exide Life Insurance became a whole-owned subsidiary of HDFC Life in January 2022.
“We have received the NCLT order in the last few weeks and now the next stages will follow. We are hopeful that by the end of this calendar year, Exide Life will become a part of HDFC Life,” Shah said during the interview.
Edited excerpts:
Which segments do you expect drive growth in FY23?
Attaching insurance through loans has been a meaningful way of giving protection products, and we have been underwriting cover of about ₹4-5 crore annually. Customers are also increasingly recognising the need for group protection. We see a strong loan disbursements of 80-90 per cent for our partners and that’s the reason credit life products are growing by over 90 per cent.
On the individual policy side, there has been some weakness, but we expect that to normalise by H2 FY23. We may see more growth in protection versus savings products, but our efficiency in converting policies is improving. Annuity is also a meaningful business for us, and we continue to expand our market share.
Do you see any more stress emerging from Covid-related claims?
Total net claims this quarter were ₹884 crore, of which Covid-related claims were ₹31-odd crore. While both individual and group claims have normalised, we would like to give it some more time. So, of the ₹55 crore provisions as of March 2022, we are going to carry ₹25 crore as reserves into the rest of the year.
How have consolidated margins been impacted from the absorption of Exide Life?
Our aspiration is to protect overall margins and not let them dip. Because of scale issues, Exide Life’s post-overrun margins have been on the lower side, but the company is about 7-8 per cent of our overall business. So, in terms of scale, the margin impact is not expected to be material. But, our priority is to expand standalone margins for both companies.
How has the product and distribution mix changed with the inclusion of Exide Life?
Exide Life has a strong mix of traditional products, fairly balanced between 60 per cent participating and 25-30 per cent non-participating products. Some shift towards non-participating products will happen, and we also expect protection to start ramping up over the next few quarters.
The biggest opportunity is in terms of increasing revenue. Exide Life has a strong agency franchise in South India, especially tier-II and tier-III markets. We want to enhance that with our product offerings, scale, and ability to invest in technology; and bring growth—which have been in single digits for the last few years—closer to HDFC Life.
Exide Life also has a few strong, high-quality broking relationships and bank partnerships, which we would like to maintain. We are also in talks with IRDAI to allow us to make investments in technology companies, which will open up a lot more opportunities.
What are your plans to strengthen solvency position that was hit by the Exide Life Insurance acquisition?
The solvency has improved to 176-178 per cent in June from 170 per cent in March. We want to take solvency up. The usual levels have been in the 190-range; so, we would like to take it beyond that over the rest of the year.
We recently raised ₹350 crore via non-convertible debentures (NCDs) to meet cash financing requirements of the acquisition. We need to raise some more debt, and also continue to keep our option open for an equity fund raise.
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