HDFCLIFENSEMay 4, 2022

HDFC Life Insurance Company Limited

13,612words
155turns
19analyst exchanges
0executives
Key numbers — 40 extracted
16%
hts of our FY2022 results and will be happy to take questions post that. We clocked a growth of 16% in individual WRP in FY22 with a market share of 14.8% and 9.3% in the private and overall sector
14.8%
questions post that. We clocked a growth of 16% in individual WRP in FY22 with a market share of 14.8% and 9.3% in the private and overall sector respectively. Despite very trying times during the 2 y
9.3%
post that. We clocked a growth of 16% in individual WRP in FY22 with a market share of 14.8% and 9.3% in the private and overall sector respectively. Despite very trying times during the 2 year pan
17%
all sector respectively. Despite very trying times during the 2 year pandemic, our 2 year CAGR of 17% was almost 2 times industry growth of 9%. Demand remained robust across most channels and segment
9%
ng times during the 2 year pandemic, our 2 year CAGR of 17% was almost 2 times industry growth of 9%. Demand remained robust across most channels and segments and hence we continue to be optimistic
33%
ss update We continued to maintain a balanced and profitable product mix, with non-par savings at 33%, participating products at 30%, ULIPs at 26%, individual protection at 6% and annuity at 5%, ba
30%
ain a balanced and profitable product mix, with non-par savings at 33%, participating products at 30%, ULIPs at 26%, individual protection at 6% and annuity at 5%, based on individual APE. Almost a f
26%
and profitable product mix, with non-par savings at 33%, participating products at 30%, ULIPs at 26%, individual protection at 6% and annuity at 5%, based on individual APE. Almost a fifth of our no
6%
ith non-par savings at 33%, participating products at 30%, ULIPs at 26%, individual protection at 6% and annuity at 5%, based on individual APE. Almost a fifth of our non-par savings business in rec
5%
s at 33%, participating products at 30%, ULIPs at 26%, individual protection at 6% and annuity at 5%, based on individual APE. Almost a fifth of our non-par savings business in received premium te
24%
her proportion of non-par savings in our business. Overall protection grew by 24% in terms of APE and 47% in terms of new business premium. This was largely led by a 55% growth in
47%
par savings in our business. Overall protection grew by 24% in terms of APE and 47% in terms of new business premium. This was largely led by a 55% growth in credit life new busines
Guidance — 20 items
Vibha Padalkar
opening
“I will take you through the key highlights of our FY2022 results and will be happy to take questions post that.”
Vibha Padalkar
opening
“Despite very trying times during the 2 year pandemic, our 2 year CAGR of 17% was almost 2 times industry growth of 9%.”
Vibha Padalkar
opening
“With a combination of data analytics, insights into customer profiles and calibrated risk retention, we expect to be able to grow individual protection in FY23.”
Vibha Padalkar
opening
“Our VNB has grown at a 24% CAGR over the past 5 years and has almost tripled in the last 5 years.”
Next on channel performance
opening
“All channels continued to perform well, with bancassurance growing by 13% this year and 21% based on 2 year CAGR.”
Next on channel performance
opening
“Proprietary distribution, which includes our agency, direct and online channels, grew by 18% this year and 11% based on 2 year CAGR, based on individual APE.”
Now an update on our subsidiaries
opening
“We are confident about continued margin expansion on standalone basis at HDFC Life and Exide Life and aspire to be margin neutral on consolidated basis in FY23.”
Viba Padalkar
qa
“Of course, it will be done respectfully, in terms of how the customer is looking to be serviced, but there is still a lot that can be done within that arena, so that is on the first question.”
Viba Padalkar
qa
“It is good that there will be lot more disclosures.”
Viba Padalkar
qa
“We were just coming out one wave of pandemic and so on, but if I were to look at on a CAGR basis, if you are looking at the growth of 17% two year CAGR, I do not think that is a bad growth against the pandemic.”
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Risks & concerns — 15 flagged
With a combination of data analytics, insights into customer profiles and calibrated risk retention, we expect to be able to grow individual protection in FY23.
— Vibha Padalkar
Profit after Tax (PAT) for FY22 was Rs 1,208 crore, a decline of 11% vs FY21 due to higher mortality reserve created during the year.
— Vibha Padalkar
Excluding impact of this cash payout, solvency ratio would have been 189%.
— Vibha Padalkar
I just want to put that concern to perspective, because optically, it looks like growth in Q4 for the sector has waned somewhat.
— Viba Padalkar
So that is something which consumes a fair bit of capital as well, and over a period of time, as you are aware that we are expecting to move to a risk-based capital approach, and that will release significant capital for the industry.
— Niraj Shah
And the way to kind of look at it would be in terms of what does this really mean either in terms of profitability or in terms of risk or in terms of capital requirements - that is how we look at managing product mix going forward.
— Niraj Shah
The risk management on that is reasonably straightforward as you could expect, and from a hedging perspective also it works fairly well, it helps us actually hedge the business that we have written at the longer end as well.
— Niraj Shah
Because, if you recollect RBI allowed the structure of FRAs towards the end of 2019 after getting a lot of comfort around the structure and what it really means, both in terms of risk as well as in terms of what it means for the counterparties, which is basically the banks and after that the approval was given for this structure.
— Niraj Shah
So, nothing really of any concern as far as the ability to hedge or in terms of instruments that may be available and options that may be available going forward.
— Niraj Shah
From HDFC Life point of view, while following and continuing to follow a risk calibrated approach, we are hoping to grow double digits on individual protection, and this is without necessarily retaining a lot more on our books and so on.
— Vibha Padalkar
We have also repriced quite a few relationships in lights of pandemic that is an ongoing exercise and part and parcel of how we are covering mortality risk.
— Vibha Padalkar
Now with the use of technology, if we can try and see personas of what is behind this person in terms of both financial risk as well as medical risk that again could help us address some of that drop off that we are seeing currently.
— Vibha Padalkar
The simple question what I have is that I just wanted to understand how much FMP contributes to the total individual APE in total non-par is 33% and just wanted to understand if the incremental focus is on this particular product from risk management point of view, how much this 33% in contribution of non-par can potentially go to say 40%, 45% kind of number, any number you have in your mind which could be the margin driver going ahead.
— Sanket Godha
Till that is out of the way, I think there will be some level of concern in their minds.
— Vibha Padalkar
Basically, impact of equity market return on EV.
— Mayank Gulgulia
Q&A — 19 exchanges
Q
Hi Vibha, congratulations on your good four years performance. Just three quick questions. One is on the 80 basis point change in operating assumptions impacting margins, what exactly is that?
Niraj Shah
Suresh, this is basically the mortality assumptions at the beginning of the period given what we see in the portfolio, so that is something that was put through at the beginning of the period itself and that is getting reflected both in the embedded value walk as well as in our VNB walk in the investor deck. Sorry the mortality assumptions you are saying right? Correct. Now this is a recurring feature because I do not know? This can again recur next year? Are you confident that this is done and dusted or do you feel like this can evolve? Suresh, the good thing is that it is done upfront and it
Q
Hi, good evening madam and hope all well at your end. Madam first question is on the growth part. Like if we see the last couple of months and when the bases started getting high and even the base might remain high say for the next couple of months, so the growth for the industry as a whole has moderated and even in a rising interest rate environment and first half macro situation how do you see the narratives changing around some of our saving products or how do people react to like historically when we have approached them for these products like how do you see the growth panning out for the
Viba Padalkar
I just want to put that concern to perspective, because optically, it looks like growth in Q4 for the sector has waned somewhat. But if you look at the base effect for us, we, for example, grew 40% in Q4 of last year. We were just coming out one wave of pandemic and so on, but if I were to look at on a CAGR basis, if you are looking at the growth of 17% two year CAGR, I do not think that is a bad growth against the pandemic. Yes, industry growth was 9%, but it is not very bad. Also, if you were to look at standalone Q4, the two year CAGR was 23% for us. For the total industry it was 19%. So ev
Q
Vibha madam, fantastic results so far, growth is there, my point is, what is the profit from unrealized investment gains as on March 31, 2022?
Vibha Padalkar
This is nothing but the mark to market of our equity and there is also debt component in that, but simply mark to market. So as on March 31, 2022, whatever is the market rates that is what the underlying assets under management that will be a mark to market and in the unit link book for example, there will be a mirror entry. So, if from 100 you go up to say 120, you will have a similar movement in reserves and it will be neutral on profitability in terms of PAT. Okay, can you tell in merged entity of HDFC and HDFC Bank, how much equity HDFC Bank may hold in HDFC Life? Whatever is currently, 47
Q
Good evening, Vibha, thanks for taking my questions. Firstly, can you walk us through capital requirements for the business going forward. I mean savings are already at a fairly balanced mix with protection expected to go up like you mentioned and higher retention, how should we view the solvency requirement for next year and at what levels would you be comfortable with the solvency?
Vibha Padalkar
I will just start off on this question Deepika, and I will hand over to Niraj and Srini. We started off with our solvency of 190% as of 31st of March^, there was a cash payout to Exide Life and that impacted 13%, the Rs.726 Crores, we ended at 176% as of 31st of March. Now we will be raising sub-debt, we typically have said that we will hover around 180% in terms of solvency, so I just wanted to set the context and over to Niraj or Srini, you want to add. Deepika, I think each of these business segments have their own considerations in terms of capital, and as the existing business continues t
Q
This is Suresh here. Just to add, it is not really that we are trying to push one particular product, like we have mentioned in many other earlier forums. The product mix that we have been looking at is in terms of (i) what is good for the customer, which value proposition we want to take across; (ii) the capability of each of our channels to be able to sell that particular product, across onto whichever segment we were looking at and (iii) the internal drive to make sure that every channel is profitable, as well as make sure that we have a balanced product mix. So, we really cannot look at it
Vibha Padalkar
Couple of things here; one is growth itself, because as we continue to do well on growth like we have done, our costs are not going to increase in the same proportion, so that becomes an additive point in terms of margin. Second is on non-par itself. In the past, we have said that about one third will be around non-par. Now we are getting more nuanced, it is also there in our presentation wherein the new non-par product, the Sanchay FMP has a shorter tenure and so we are seeing that in a different light than some of the other longer tenure non-par and so there is no constraint in how much we a
Q
Thank you for the opportunity. I wanted to understand about the guaranteed longer-term products, there were some news articles about regulator not being comfortable with some of these products. I think there is an element of bond forwards in them, so what would be your view and basis that what would be the mix for our hedging and how much would FRAs be contributing to the overall guaranteed hedging pool?
Niraj Shah
First of all, we did look at that article and we have in fact interacted with all the counterparties that we are working with. We believe that it is really unfounded in terms of what the facts really are. Because, if you recollect RBI allowed the structure of FRAs towards the end of 2019 after getting a lot of comfort around the structure and what it really means, both in terms of risk as well as in terms of what it means for the counterparties, which is basically the banks and after that the approval was given for this structure. We do not believe, there has been any change in that regard. In
Q
Thank you for giving me the opportunity. I just had a question on economic variance, I just wanted to understand in the last call you mentioned that unwind above or below 8.5%, we will be showing it through investment variance. Is that one of the reasons, that the economic variance is so low just negative Rs.50 Crores despite rise in yields?
Niraj Shah
Hitesh, couple of things right, the equity movements have cancelled out the slope change on account of the interest rate. And also yes, we cannot completely take credit for taking unwind rate at very close to where we are at the end of the year. But there is a fair bit of thought that goes into what is likely to happen which goes in through the unwind rate that is determined at the beginning of the year. It so happens that the economic variance is basically almost zero because the two movements are actually cancelled out each other, so both of these things are I guess in a way playing a role,
Q
Just one question from my side, what really explains margin expansion if you look at the business from a fourth quarter basis which is either on a quarter-on-quarter, or a year-on-year basis?
Niraj Shah
If you look at Q-on-Q, really apart from the assumption change on mortality which we did discuss large part of, it is largely coming through in terms of the product mix shift. We have written more annuities in this period and the CP business continues to do reasonably well, we managed to reprice a large part of the business over the last 12 to 18 months and that is something that has helped us as well and as such even in terms of the group business composition, business is lower this year compared to same time last year. So, it is a combination of these two or three facts. On the non-par side
Q
Thanks for the opportunity; have two questions. First one was on margins. I understand the guidance of maintaining margin on merged basis, just wanted to understand from a medium term perspective, can the margins move closer to 30% and the context is if you look at the last four years, we have seen a large part of the margin increase being driven by a product mix change and this has come despite sort of negative assumption changes which Suresh also alluded earlier. So, just how much more headroom is available to sort of take the margins higher closer to 30% in the next three to four years.
Vibha Padalkar
It should be possible. All things being equal on regulations, it should be possible and that is what we will be working towards. It will kind of stabilize around that, and this is, of course, with the caveat that we do not drop market share. Assuming that we hold our number three position amongst all the listed companies, including LIC, so without dropping that. Without dropping market share, but we still are gunning for getting close to 30% and thereafter if there are no further regulatory relaxations or enablers, then having a compounding story of about 20% year- on-year, or close to that in
Q
Hi! Good evening. Couple of questions. First, if you can just help us understand the supply side and demand side reality on the retail protection. How do you see sort of growth and margin in this business; that is first. Second, was again going on the free surplus part, if I recall your required capital level what you set in your EV is around 180%. So just if you help me at 176%, how is a sort of the free surplus coming in, these are my two questions.
Vibha Padalkar
So, Avinash on your first point, just to understand you are saying margins on health is it. No, I was saying that considering the supply side and demand side changes that has happened over the year, how do you see retail protection shaping out in FY2023 both from the growth and margin perspective. Right understand. We have been flat so far, because of like you mentioned, pandemic and reinsurer and pricing and all that. We are fairly optimistic of being able to grow double digit and as against the last year, industry also did not grow, we also were flattish. From HDFC Life point of view, while
Q
Hi! Thank you for taking my question. Just laboring on the retail protection, I think in opening remarks Vibha you mentioned about video checks and stuff, you are connecting to the customer mobile. If you could elaborate how that can, and I am just tying it to your original comment that while applications come through, we are still not able to process. That number I recollect from quarters that was like 60%, so just help us understand how debottlenecking some of your own processes could help to improve growth specifically related to retail protection.
Vibha Padalkar
Some of the things here. One is that out of every 100 applications, we have mentioned in the past we are converting about 61. We are taking reasonably realistic targets. So say, instead of 61, even if I convert it to 70 or 75, that will get me to that answer. So, that is what we are looking at, is that we are trying to solve for the entire process. We have launched MediEasy. This you will find on slide #21 of our investor ppt. What it does is that it walks our frontline salesperson step-by- step because what we did find is that the rules keep changing because of pandemic, because of reinsurer,
Q
Thank you for the opportunity. The simple question what I have is that I just wanted to understand how much FMP contributes to the total individual APE in total non-par is 33% and just wanted to understand if the incremental focus is on this particular product from risk management point of view, how much this 33% in contribution of non-par can potentially go to say 40%, 45% kind of number, any number you have in your mind which could be the margin driver going ahead.
Vibha Padalkar
Can I take the first question first and then you can move on to the second question. Sure. On the first one what we are saying is that long-tenured policies that we sell will have an overall cap, which we have had, but on shorter tenure we have no cap. Basically, you mean to say that if there is a decent demand for single premium FMP plan then you can even take the total non-par mix even beyond 40%, 50% kind of a number. Hypothetically yes. The margin of single premium FMP will be better than the company average. It will definitely be better than some of the other segments like par and UL obvi
Q
Hi! Thanks for the opportunity. I just had few quick questions pertaining to Exide Life, just quick ones. If you can just give me some number on what could be the VNB margin post-OR if I had joined late so probably, I might have missed that if you mentioned, and secondly if you can give some color on the cost savings that we are doing, so if any number around rationalizing of branches or other numbers that you can share where we are able to save cost and then I have one follow-up question after this.
Suresh Badami
On the margins that you are talking about, we are on the low single digit post overrun. We do believe that we will be able to scale this up in the natural course of business once it merges with us and over a certain 36-to-48-month period, we should be able to and maybe even lesser than that we should be able to bring it close to our kind of margins. So, that should not really be a problem. On the other piece in terms of how the integration and how we are trying to get value capturing synergies, let me tell you that look there are some 23 work streams working on every aspect of the business bet
Q
Thanks for the opportunity. Two questions, first on the pure protection are we sensing any change in the stance from the reinsurers as of now, are they becoming more open to doing business the way they were doing pre-COVID or still they remain as strict as what we have seen last year.
Vibha Padalkar
It is I think a little bit too early. My personal sense is down the line I do not know what time frame. I think depending on wave 4 and so on. Till that is out of the way, I think there will be some level of concern in their minds. I do not see that happening immediately now, but over a period of time, yes, the high alert situation that we have been in, that should ease off a little bit but it is still someway away. What was the conversion rate before COVID the 60% conversion rate that we have today, what was that before COVID? We used to convert maybe around out of 100 at least 75. Lastly on
Q
I have a question related to sensitivity analysis. Basically, impact of equity market return on EV. Equity market downward moment of 10% would have 1.4% negative impact on EV. This 10% is overall return on equity portfolio or this 10% is over and above like we might have assumed some return from equity, so it is over and above that.
Niraj Shah
It is a difference between what is expected and what is actually, so for example, if you take any of the sensitivities you have a base which is the expectation. In persistency, mortality or equity, you will have a base, anything over and above that is what is captured in the sensitivity. So, if you are expecting to return is say 10% and 10% delta from that means 11% or a 9% return and the impact of that is what is captured in the sensitivities. This 10% of return expected, so not 10% plus or minus 10%. This is 10% of 10%. Just to clarify, the equity sensitivity implies that the equity values f
Q
Thanks for the opportunity. Just quickly on the agency workforce with Exide Life getting integrated can you give some sense in terms of what are our targets in terms of total agency strength that we want to maintain. What kind of increase we are looking at and also just a sense in terms of what is the proportion of active agents and what kind of retention rates are being witnessed since the integration.
Suresh Badami
Sorry, I could not catch your second question, I will ask you to repeat, but on your first question in terms of the agency business and what kind of growth we are looking at Exide Life, very clearly, they have had a fairly strong growth. This has been a little different earlier, we had a fairly decent growth in line and slightly higher than the industry. We do believe that given the brand that they will now benefit of HDFC Life along with the product as well as our ability to invest in branches, infrastructure and many other resources, which will be available, we should be able to get a much h
Q
Last one from my side. Just wanted to understand our FRA exposure, which was Rs.137 billion at the end of FY2021 what is the current exposure we have at the end of FY2022 and given the current solvency calculation regime, if yield curve becomes flatter compared to what it was, then most of the derivative contracts might go out of money, notional loss. So likely impact on it on the solvency, if it plays out.
Niraj Shah
The FRA exposure is close to about 18,000-19,000. I think it will be there in the annual report in any case. But to your second point, in terms of the impact of the flattening curve there are two things here. One is as of now the whole flattening thing is something which is a little maybe overplayed, I think if you look at the way the interest rates have moved, they have not moved only at the shorter end they have moved of longer end as well. The curve continues to be fairly steep even today. Having said that if there is further flattening that happens, what will happen to start with is that t
Q
Thank you for the opportunity. Just a quick clarification on Exide Life. You made a comment that due to their solvency, they probably had some growth constraint. In the ppt, I see that their solvency is 217%, which is higher than ours. So why would that be a reason for any growth challenges in Exide?
Suresh Badami
Yes, I think look the constraints on their end have been more in terms of the expense of management which goes away once they come in with us. Once they merge with us in terms of their ability to be able to invest further in agency on growth that is where they have been struggling. So, I think that is one part which we will be able to solve with this merger and their agency business will be able to grow and not on solvency. For our solvency, our current preferred route of tier two raising debt which help improvement by 6%, do we anticipate that to be the primary source rather than any equity r
Q
Thank you Faizan. We would like to thank all of you for participating in our results call. Further details can be found in our investor presentation on both our website as well as that of the exchanges. Thank you and have a good day.
Management
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Speaking time
Vibha Padalkar
24
Niraj Shah
23
Moderator
20
Sanket Godha
9
Viba Padalkar
8
Suresh Ganapathy
5
Suresh Badami
5
Jayant Kharote
5
Avinash Singh
5
Mayank Gulgulia
5
Opening remarks
Vibha Padalkar
Thank you, Faizan. Good afternoon everyone. Thank you for joining us for the discussion on our results for year ended March 31, 2022. Our results including the investor presentation, press release and regulatory disclosures are already available on our website as well as that of the Stock Exchanges. I have with me Suresh Badami, Executive Director; Niraj Shah, CFO; Srinivasan Parthasarathy, Chief Actuary; Eshwari Murugan, our Appointed Actuary and Kunal Jain, from Investor Relations. As you know, we listed our company in FY2018 and we thought it would be good for us to share our performance over the past four years. We are proud to share that we have atleast doubled our new business premium, renewal premium, protection APE, assets under the management, value of new business and embedded value. Further details can be found on slide #5 of our investor presentation. I will take you through the key highlights of our FY2022 results and will be happy to take questions post that. We clocked a
Next on channel performance
All channels continued to perform well, with bancassurance growing by 13% this year and 21% based on 2 year CAGR. Proprietary distribution, which includes our agency, direct and online channels, grew by 18% this year and 11% based on 2 year CAGR, based on individual APE. Over the last 5 years our share of proprietary distribution increased to 33% from 23%. Our agency channel grew by 26%. The channel added more than 40,000 agents in FY22, which is the second highest amongst private players. Our Agency Life initiative, aimed at capability development continues to see healthy participation. Moreover, we are focused on building a women Financial Consultant model which we believe would give us higher activation, retention and productivity. Moving on to product, innovation and sustainability: We continued with our efforts to stay relevant to customers’ needs, offer new propositions and provide a seamless and pleasant customer experience. During the year we launched non-par savings plan Sanch
Now an update on our subsidiaries
Our pension subsidiary, HDFC Pension, ended FY22 with an AUM of Rs 28,414 crore, an uptick of 73% vs previous year. Additionally as per National Pension Scheme fund performance report published in March 2022, we continued to rank #1 in terms of fund performance across categories. As on 31st March 2022, HDFC Pension had a market share of 37%, retaining its #1 position as private Pension Fund Manager (PFM) in terms of NPS AUM. NPS continues to contribute significantly to our annuity business. Our wholly owned subsidiary, HDFC International Life and Re generated Gross Written Premiums (GWP) of USD 15.64 million, registering 18% y-o-y growth. Our subsidiary, Exide Life recorded a healthy growth of 22% based on individual WRP in FY22, well-above the overall industry growth of 16%. Its Embedded value as on March 31, 2022, was Rs 2,910 cr. The merger process has been initiated with NCLT and is expected to be completed in the second half of this financial year. We continue to make progress in
To conclude
Our objective remains to bring more individuals under the financial safety net by offering multiple innovative solutions, increasing customer connect and continuing to expand our offline and online distribution. The detailed disclosure on our results is available in our investor presentation. Wishing everyone success as we embark on a new financial year. We are happy to take questions now.
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