Since its listing about a year back, the stock of HDFC Standard Life rallied over 30 per cent on the back of resilient earnings, healthy growth in premiums, strong profitability and leading market share.

Why buy
  • Healthy growth in premiums
  • Dominant insurance player
  • Superior return on equity

After registering a compounded annual growth rate (CAGR) of 32 per cent between FY16 and FY18, HDFC Life’s new business premium grew 43 per cent in the first half of FY19.

Ranking first among private insurers, HDFC Life commands a market share of 21 per cent in terms of new business premium.

The insurer continues to deliver healthy profitability too. Between FY16 and FY18, HDFC Life’s profit after tax grew 16 per cent CAGR; the company’s return on equity has been in the 26-28 per cent range over the past three years.


The company’s strong business fundamentals have been driving valuations.

At the current price, HDFC Life trades at about 4.7 times its embedded value as on September 2018.

ICICI Pru Life and SBI Life trade at lower 2.4 and 2.8 times their September 2018 embedded values, respectively. The premium valuations are, however, justified, given HDFC Life’s strong earnings profile.

For investors with a long-term investment horizon of four to five years, HDFC Life’s strong leadership position, sound fundamentals and well-balanced product and distribution mix are key positives.

Investors can buy the stock in dips and accumulate for the long run.|

Sound business

At an overall industry level, growth opportunity for life insurance players remains robust, given the large under-penetration and favourable demographics.

Life insurance, gaining ground as a preferred savings avenue, also augurs well for insurers such as HDFC Life, which are backed by sound business models and quality top management.


After emerging from the regulatory tangles of the past, life insurers have been re-structuring their product portfolios and growing steadily over the past two to three years.

While regulatory tweaks may impact insurers’ businesses in the future too, a diverse product portfolio and well-entrenched distribution mix can help mitigate risks.

HDFC Life has remained among the top three, within private players, in terms of new business premium over the past several years.

In FY18 and the latest September 2018 quarter, the company ranks first among private players.

Constant product innovation and focus on profitable growth have kept the company’s earnings in good stead over the years.

A diverse product portfolio has helped it deliver healthy growth in premiums. Life insurance policies are broadly categorised into traditional and ULIP policies.

Within traditional policies, life insurers sell participating (bonuses declared at the discretion of the insurer) and non-participating policies (bonuses clearly defined; pegged to an index).

Diversification is important for insurers from a regulatory perspective. HDFC Life’s share of individual APE (annualised premium equivalent — the sum of annualised first-year regular premiums and 10 per cent weighted single premiums and single premium top-ups) stood at 59 per cent from ULIPs, 23 per cent from par policies and the balance from non-par.

HDFC Life also has a diversified distribution network, comprising bancassurance, individual agents, direct, brokers, and others.

Bancassurance, however, remains the insurer’s key distribution channel, generating 67 per cent of individual APE as of September 2018.

For insurance players, persistency — which measures the number of policies (or amount of premium) retained with an insurer across different time periods — is a critical factor.

Persistency has been healthy for HDFC Life. The 61st month persistency ratio based on original premium (sixth year after the policy issue) for HDFC Life has improved from 39 per cent in FY15 to 50 per cent (as of September 2018). The insurer’s 13th month persistency is also a robust 87 per cent.

As of September 2018, HDFC Life’s assets under management stood at ₹1,13,200 crore, a growth of 14 per cent over last year. Cost-efficiencies, a well-balanced mix and leadership position have helped the insurer command superior return on equity.

The insurer’s solvency ratio — excess of assets over liabilities — was 193 per cent in the first half of FY19, above the minimum regulatory requirement of 150 per cent.