Corner Room Conversations: growth momentum in New Business Premium to continue over next quarters; not at expense of end users, HDFC Life CFO Niraj Shah says

Corner Room Conversations: Notwithstanding current geopolitical and macro-economic challenges in India and globally, HDFC Life Insurance Company Limited posted a better than estimated April-June quarter results. The company posted a 23 per cent Year-on-Year (YoY) jump in its total premium on a standalone basis with New Business Premium (individual + group) jumping 27 per cent. In conversation with Zee Business Web, Niraj Shah, Chief Financial Officer (CFO) talks about the Q1 FY23 earnings, opportunities and challenges for this life insurance company.

Shah said that the June quarter was overall good for HDFC Life considering a challenging environment both in terms of geo-political situation and macros in India, and globally.

Shah said that the quality of business also improved during the quarter gone by, with lower customer complaints and higher settlement ratio, standing at 99.6 per cent.

The value of new business (VNB) went up by 25 per cent YoY in the quarter ended 30 June, he said commenting further on the quality of business during the Q1 quarter. 

On Opportunities

The entire insurance market is underserved which present strong longterm opportunities to the company, Shah said adding that India was still not close to developed markets with large affluent population. Individual protection is still going to take some time to get accepted in the country, he said.

“We will do it the right way. We will manage our risk and ensure that the people get the right experience and at appropriate pricing,” the CFO said.

In its traditional product offerings, there is a strong combination of safety and good returns on a tax adjusted basis, Shah said.

People are concerned about the volatility in the markets and are thinking hard on where they are putting their hard-earned money.

 HDFC Life provides a range of individual and group insurance solutions such as protection, pension, savings, investment, annuity and health.

Shah also underlined the opportunities from the regulatory perspective. He said that the regulator (Insurance Regulatory and Development Authority of India) has been giving a lot of room to insurers, allowing innovation for deeper penetration of insurance products.

Outlook:

The realisation on the importance of insurance products is growing in the aftermath of the Coronavirus pandemic, the CFO said. There is more awareness now among people on what they are buying and they are more discerning, he added.

Shah said that he was hopeful that the momentum in growth and new business premium will sustain over the next quarters. He also dismissed suggestions that the premium on protection products would go up for the end user even as we stare high interest rate regime, going forward.

He said that the premiums have gone up twice in 18 months and it is unlikely that they would go up again at least in the foreseeable future.   

On likely rate hikes

HDFC Life has a “balanced product mix” with share of participating savings, non-participating savings, ULIPs, protection and annuity accounting, he said.

The savings business will benefit from Reserve Bank of India’s (RBI) rate hikes, Shah said.

People are also looking at current volatility in stock markets and if investors find markets choppy they look at conservative instruments, Shah said.

The customers are looking at returns vis-a-vis bank deposits or any other products in the markets. In a rising rate environment, the customers have the confidence that if their money is invested for a long period of time, it will give high rate, he further said.

Headwinds:

Shah said that the inflation continues to be the biggest spoilsport and that may dent disposable and discretionary incomes of people, there by impacting the insurance business for the sector and his own company. His assessment was that people were confident about their jobs and income prospects, currently, but it was difficult to predict if that would sustain and for how long.

Protection products may get impacted as a result of rate hikes and that is what is happening, Shah lamented.

“At corporate level, earnings to growth and revenue growth could take a hit. We are not operating in vaccum and we will have to look at all of these factors,” Shah said.

In its credit protect business, the company posted a 96 per cent growth, exhibiting no signs of slowdown and disbursements seeing an uptick across its 300 partners. But fears around slowdown are not unfounded, he cautioned.

Q1FY23 Highlights:

1) Annualised Premium Equivalent (APE) up 22 per cent YoY

2) Value of New Business (VNB) up 25 per cent YoY

3) Net Profit up 21 per cent YoY to Rs 365 cr

4) 31 per cent growth in Protection APE; 96 per cent growth in group credit protect business

5) New business margins increased to 26.8 per cent

The results were announced on Tuesday.

HDFC Life shares were trading at Rs 527 on the NSE and were down nearly 1.7 per cent from the Tuesday closing price.

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